M1: Consideration
Essential Elements and Definition of Consideration
Role in Contract Formation:
Offer and acceptance constitute the first two essential components of a valid contract.
Consideration is the final element required to make a deal legally enforceable.
For any contract or deal to be enforceable, both parties must provide some form of consideration.
Definition of Consideration:
Consideration is defined simply as something of value.
Recognized Forms of Consideration:
Consideration can take many forms, including:
Money.
Property.
Services.
A promise to do something in the future.
A promise to refrain from doing something in the future (forbearance).
Example of Forbearance: In a confidentiality agreement, one party pays money while the other party promises to refrain from disclosing confidential information.
Mutuality, Bargaining, and Legal Sufficiency
Requirement of Mutual Consideration:
A contract requires mutual consideration from both parties, which distinguishes a contract from a gift.
Gift versus Contract Scenario:
Gift: Offering a sister a free place to crash for the summer, which she accepts, is not a contract because she gives nothing in return.
Contract: Agreeing that the sister will dog sit all summer while staying at the place provides legal consideration, resulting in an enforceable contract.
Requirement of Bargain:
Consideration must be bargained for between the contracting parties.
Unrelated Promises Scenario: Promising a sister a ride to the airport, followed a week later by her independent promise to buy dinner, involves no bargain. These are two unrelated promises and do not comprise a contract.
Adequacy and Value of Consideration:
General Requirement: Anything of substance will suffice as consideration.
Judicial Review: Courts will not rescue a party simply because they made a bad deal. It is extremely difficult to challenge a contract on the grounds that the consideration is inadequate.
Objective versus Subjective Value:
Consideration does not need to have objective economic value.
Consideration can consist of something that has purely subjective value to the person receiving the promise.
Family Land and Father's Garden Example: Agreeing to transfer a plot of family land to a neighbor in exchange for the neighbor's promise to maintain the garden planted by the transferor's father. Maintaining the garden has no economic value, but because it is sentimentally valued by the transferor, it serves as sufficient consideration to form a binding contract.
Exceptions and Invalid Forms of Consideration
Preexisting Obligations:
A promise to perform a preexisting obligation does not count as adequate consideration for a new deal.
To accept an offer modifying an existing obligation and make it binding, additional consideration must be provided.
Rent Forgiveness Example: If a tenant is behind on rent and the landlord agrees to accept two-thirds of the rent and forgive the rest, the tenant must provide additional consideration to make the agreement binding. Paying rent already owed does not count as consideration for the new deal.
Past Consideration:
Something already given or performed in the past is usually not valid consideration for a new contract.
Performing an act in the past lacks the element of a bargain at the time the act occurred.
Favor and Gratitude Dinner Example: Performing a favor for a friend, after which the friend promises to buy dinner out of gratitude, does not create an enforceable contract. The completed favor is not consideration for the dinner because there was no bargain when the favor was originally done.
Vague or Indefinite (Illusory) Promises:
A promise may be too vague or indefinite to qualify as valid consideration.
Illusory Promise: A statement or promise that lacks definite commitment and is not binding.
Monetary Promise Example: A promise to think about giving is an illusory promise and does not constitute legal consideration.
Summary of Fundamental Rules:
Consideration must be mutual.
Consideration must be bargained for.
Consideration can be almost anything of value.
Consideration cannot be:
A preexisting obligation.
A past act.
An illusory promise.