Consideration is a concept of legal value in contract law. It is a promised action, or omission of action, that the promisee did not already have a pre-existing duty to abide by. It can take the form of money, physical objects, services, or a forbearance of action. Both parties to a contract must pass consideration to the other party for there to be a valid contract.
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Consideration is a concept of legal value in contract law. It is a promised action, or omission of action, that the promisee did not already have a pre-existing duty to abide by. It can take the form of money, physical objects, services, or a forbearance of action. Both parties to a contract must pass consideration to the other party for there to be a valid contract.
However, even if a court decides there is no contract, there might be a possible recovery under Quantum meruit (sometimes referred to as a Quasi-contract) or promissory estoppel.
Basic examples of consideration
If A signs a contract to buy a car from B for $5,000, A's consideration is the $5,000, and B's consideration is the car.
Additionally, if A signs a contract with B such that A will paint B's house for $500, A's consideration is the service of painting B's house, and B's consideration is $500 paid to A.
Further, if A signs a contract with B such that A will not repaint his own house in any other color than white, and B will pay A $500 per year to keep this deal up, there is also consideration. Remember, A did not promise to affirmatively do anything, but because A promised not to do something that he was allowed to do, A did pass consideration. A's consideration to B is the forbearance in painting his own house in a color other than white, and B's consideration to A is $500 per year.
Conversely, if A signs a contract to buy a car from B for $0, B's consideration is still the car, but A is giving no consideration, and so there is no valid contract.
There are a number of common sub-issues as to whether consideration exists in a contract.
Value of consideration
Generally, US courts do not inquire whether the deal between two parties was monetarily fair -- merely that each party passed some legal obligation or duty to the other party.
The values between consideration passed by each party to a contract need not be comparable. For instance, if A offers B $200 to buy B's mansion, luxury sports car, and private jet, there is still consideration on both sides. A's consideration is $200, and B's consideration is the mansion, car, and jet. Courts in the United States generally leave parties to their own contracts, and do not intervene when parties knowingly make bad deals.
Nominal consideration
Although courts in the United States tend not to look at the value of consideration, there is one exception.
The old English rule of consideration questioned whether a party gave the value of a peppercorn to the other party. As a result, contracts in the United States have sometimes have had one party pass nominal amounts of consideration, typically citing $1. Some courts have since thought this was a sham. Since contract disputes are typically resolved in state court, some state courts have found that providing $1 to another is not a sufficiently legal duty, and therefore no legal consideration passes in these kinds of deals, and subsequently, no contract is formed.
