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CHAPTER 13: CONSIDERATION
I. Introduction
. It is often said that for there to be a binding contract, there must be not only "the offer and
acceptance", but also something known as consideration.
A. At the outset, you should be aware that consideration is not required for all contracts. We will look at
several situations where consideration is not necessary.
II. Consideration Defined
. Consideration is defined as the value given in return for a promise. In order for a
particular contract to be "supported by consideration," the following conditions must be met:
A. Something of a legal value must be given in exchange for the promise
. This means that the promisee
must either do or promised to do something that he is not legally obligated to do, or he must
refrain from doing or promises to refrain from doing something that he has a legal right to do.
B. There must be a "Bargain for Exchange."
A performance or promise is bargained for if it is sought by
the promisor in exchange for his promise and is given by the promisee for that promise.
1. Purpose of the Bargain
. The principal purpose of the bargain requirement is to prevent the
enforcement of promises that are in reality promises to make gifts.
III. Legal Sufficiency of Consideration
. Legal sufficiency is critical to the creation of a contract. To be legally
sufficient, consideration must be either detrimental to the promisee or legally beneficial to the promisor.
A. Hamer v. Sidway
.
1. Facts
. Story promises his nephew $5,000 if he will refrain from smoking, drinking and gambling
until he reaches the age of 21. Nephew agreed and fully performed. Story died without paying
nephew.
Holding
. The court held that the uncle's promise was "bargain for," and therefore supported by
consideration. The court noted that while the uncle may have derived no economic benefit from
his nephew's actions, he was clearly attempting to obtain something he regarded as desirable (his
nephew's health and morality).
1. In addition
, the court said that even though nephew didn't suffer any economic
harm and probably benefitted from his action, his inaction was a kind of
"detriment" because he gave up his right to do them.
IV. Adequacy of Consideration
.
A. Introduction
. There are some situations in which the parties exchange things that do not have the same
value. This may be due to (1) party giving a gift, (2) to the fact that one party is more ignorant than the
other or (3) to the fact that the parties are mistaken.
1. In such situations, as long as the promisee suffers some detriment, no matter how small, the
court will not question the amount of consideration given.
2. In extreme cases, courts will review the Consideration
. Under some situations, the court may
review the consideration. The adequacy of consideration will be reviewed if there is evidence of
fraud, duress, undue influence, or some other incapacity (e.g. insane or the under age person).
B. Equity Courts have Different Rules
. Courts of equity (i.e. specific performance or injunctions, etc.), as
opposed to courts of law (i.e. monetary) have traditionally been much more willing to examine the