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Consideration is a concept of
English English usually refers to: * English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, early medieval England, which has eventually become the World language, leading lan ...
common law In law, common law (also known as judicial precedent or judge-made law, or case law Case law is the collection of past legal decisions written by courts and similar tribunal A tribunal, generally, is any person or institution with authority ...
and is a necessity for
simple contract In contract law A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO Ph ...
s but not for special contracts (contracts by
deed In common law In law, common law (also known as judicial precedent or judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions. ''Black's Law Dictiona ...

deed
). The concept has been adopted by other common law jurisdictions. The court in ''
Currie v Misa ''Currie v Misa'' (1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554, is an English contract law case, which in the Exchequer Chamber contains a famous statement by Lush J giving the definition of consideration in English law. Lush J said, Facts A ...
'' declared consideration to be a “Right, Interest, Profit, Benefit, or Forbearance, Detriment, Loss, Responsibility”. Thus, consideration is a promise of something of value given by a promissor in exchange for something of value given by a promisee; and typically the thing of value is goods, money, or an act. Forbearance to act, such as an adult promising to refrain from smoking, is enforceable only if one is thereby surrendering a legal right. Consideration may be thought of as the concept of value offered and accepted by people or organisations entering into
contract A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview ...

contract
s. Anything of value promised by one party to the other when making a contract can be treated as "consideration": for example, 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 colour than white, and B will pay A $500 per year to keep this deal up, there is also a consideration. Although A did not promise to affirmatively do anything, A did promise ''not'' to do something that he was allowed to do, and so A did pass consideration. A's consideration to B is the ''forbearance'' in painting his own house in a colour 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. However, if B still gives the title to the car to A, then B cannot take the car back, since, while it may not be a valid contract, it ''is'' a valid
gift A gift or a present is an item given to someone without the expectation of payment or anything in return. An item is not a gift if that item is already owned by the one to whom it is given. Although gift-giving might involve an expectation o ...
. In
common law In law, common law (also known as judicial precedent or judge-made law, or case law Case law is the collection of past legal decisions written by courts and similar tribunal A tribunal, generally, is any person or institution with authority ...
it is a prerequisite that both parties offer consideration before a contract can be thought of as binding. The doctrine of consideration is irrelevant in many jurisdictions, although contemporary commercial litigant relations have held the relationship between a promise and a deed is a reflection of the nature of contractual considerations. If there is no element of consideration found, there is thus no contract formed. However, even if a court decides there is no contract, there might be a possible recovery under the doctrines of ''
quantum meruit ''Quantum meruit'' is a Latin phrase meaning "what one has earned". In the context of contract law, it means something along the lines of "reasonable value of services". In the United States, the elements of ''quantum meruit'' are determined by s ...
'' (sometimes referred to as a
quasi-contract A quasi-contract (or implied-in-law contract or constructive contract) is a fictional Fiction generally is a narrative A narrative, story or tale is any account of a series of related events or experiences, whether nonfictional ( memoir, biogr ...
) or
promissory estoppel A promise is a commitment by someone to do or not do something. As a noun A noun (from Latin ''nōmen'', literally ''name'') is a word that functions as the name of a specific object or set of objects, such as living creatures, places, actions, ...
.


Legal rules regarding consideration

There are a number of common issues as to whether consideration exists in a contract: # Part payment is not good consideration. # Consideration must move from the promisee but need not flow to the promisor. # Consideration must be sufficient but need not be adequate. # Consideration cannot be illusory. # Consideration must not be past. Past consideration is not good consideration. # Moral consideration is not sufficient (except for contracts by deed, where "love and affection" is often cited as the nnecessaryconsideration). # Performance of existing duties is not good consideration.


History and comparative law

Systems based on Roman law (including Germany and Scotland) do not require consideration, and some commentators consider it unnecessary and have suggested that the doctrine of consideration should be abandoned, and
estoppel Estoppel is a judicial device in common law legal systems whereby a court A court is any person or institution, often as a government institution, with the authority to Adjudication, adjudicate legal disputes between Party (law), parties and ...
used to replace it as a basis for contracts. However,
legislation Legislation is the process or product of enrolled bill, enrolling, enactment of a bill, enacting, or promulgation, promulgating law by a legislature, parliament, or analogous Government, governing body. Before an item of legislation becomes law ...
, rather than judicial development, has been touted as the only way to remove this entrenched common law doctrine. Lord Justice Denning famously stated that "The doctrine of consideration is too firmly fixed to be overthrown by a side-wind". The reason that both exist in common law jurisdictions is thought by leading scholars to be the result of the combining by 19th-century judges of two distinct threads: first the consideration requirement was at the heart of the action of
assumpsit Assumpsit ("he has undertaken", from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through ...
, which had grown up in medieval times and remained the normal action for breach of a simple contract in England and Wales until 1884 when the old forms of action were abolished; secondly, the notion of agreement between two or more parties as being the essential legal and moral foundation of contract in all legal systems, was promoted by the 18th-century French writer Pothier in his ''Traite des Obligations'', much read (especially after translation into English in 1805) by English judges and jurists. The latter chimed well with the fashionable will theories of the time, especially
John Stuart Mill John Stuart Mill (20 May 1806 – 7 May 1873), also cited as J. S. Mill, was an English philosopher, Political economy, political economist, Member of Parliament (United Kingdom), Member of Parliament (MP) and civil servant. One of the most i ...
's influential ideas on free will, and got grafted on to the traditional common law requirement for consideration to ground an action in assumpsit.
Civil law Civil law may refer to: * Civil law (common law) Civil law is a major branch of the law.Glanville Williams. ''Learning the Law''. Eleventh Edition. Stevens. 1982. p. 2. In common law legal systems such as England and Wales and the law of the United ...
systems take the approach that an exchange of promises, or a concurrence of wills alone, rather than an exchange in valuable rights is the correct basis. So if A promises to give B a book and B accepts the offer without giving anything in return, B would have a legal right to the book and A could not change her mind about giving it to B as a gift. However, in common law systems the concept of ''
culpa in contrahendo ''Culpa in contrahendo'' is a Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power ...
'', a form of
estoppel Estoppel is a judicial device in common law legal systems whereby a court A court is any person or institution, often as a government institution, with the authority to Adjudication, adjudicate legal disputes between Party (law), parties and ...
, is increasingly used to create obligations during pre-contractual
negotiation Negotiation is a dialogue Dialogue (sometimes spelled dialog in American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of the English l ...
s.. Estoppel is an equitable doctrine that provides for the creation of legal obligations if a party has given another an assurance and the other has relied on the assurance to his detriment.


Monetary value of consideration

Generally, 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 dispositive issue is the presence of consideration, not the adequacy of the consideration. 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. The old English rule of consideration questioned whether a party gave the ''value of a
peppercorn Black pepper (''Piper nigrum'') is a flowering A flower, sometimes known as a bloom or blossom, is the reproductive Reproduction (or procreation or breeding) is the biological process by which new individual organisms – "offs ...
'' 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. Thus, licensing contracts that do not involve any money at all often cite as consideration, "for the sum of $1 and other good and valuable consideration." However, some courts in the United States may take issue with nominal consideration, or consideration with virtually no value. Some courts have since thought this was a sham. Since contract disputes are typically resolved in state court, some state courts have found that merely providing $1 to another is not a sufficiently legal duty, and therefore no legal consideration passes in these kinds of deals, and consequently, no contract is formed. However, this is a minority position.


Pre-existing legal duties

A party that ''already'' has a legal duty to provide money, an object, a service, or a forbearance, does not provide consideration when promising merely to uphold that duty. That legal duty can arise from law, or obligation under a previous contract. The prime example of this sub-issue is where an uncle gives his thirteen-year-old nephew (a resident of the state of New York) the following offer: "if you do not smoke cigarettes or drink alcohol until your 18th birthday, then I will pay you $5,000". On the nephew's 18th birthday, he tells the uncle to pay up, and the uncle does not pay. In the subsequent lawsuit, the uncle wins, because the nephew, by U.S. criminal law, already had a duty to refrain from smoking cigarettes while under 18 and from drinking alcohol while under age 21. The same applies if the consideration is a performance for which the parties had previously contracted. For example, A agrees to paint B's house for $500, but halfway through the job A tells B that he will not finish unless B increases the payment to $750. If B agrees, and A then finishes the job, B still only needs to pay A the $500 originally agreed to, because A was already contractually obligated to paint the house for that amount. An exception to this rule holds for settlements, such as an
accord and satisfaction Accord may refer to: Agreements Peace agreements *Arab-Israeli conflict: ** Camp David Accords The Camp David Accords were a pair of political agreements signed by President of Egypt, Egyptian President Anwar Sadat and Prime Minister of Israe ...
. If a creditor has a credit against a debtor for $10,000, and offers to settle it for $5,000, it is still binding, if accepted, even though the debtor had a legal duty to repay the entire $10,000. Pre-existing duties relating to
at-will employment In U.S. labor law, at-will employment is an employer's ability to dismiss an employee for any reason (that is, without having to establish "just cause Just cause is a common standard in United States labor law United States labor law sets the ...
depend largely on state law. Generally,
at-will employment In U.S. labor law, at-will employment is an employer's ability to dismiss an employee for any reason (that is, without having to establish "just cause Just cause is a common standard in United States labor law United States labor law sets the ...
allows the employer to terminate the employee for good or even no reason (as long as the reason, if any, is not explicitly ''illegal''), and allows the employee to resign for any reason. There are no duties of continued employment in the future. Therefore, when an employee demands a raise, there is no issue with consideration because the employee has no legal duty to continue working. Similarly, when an employer demands a pay-cut, there is also no contractual issue with consideration, because the employer has no legal duty to continue employing the worker. However, certain states require additional consideration other than the prospect of continued employment, to enforce terms demanded later by the employer, in particular, non-competition clauses.


Bundled terms

Contracts where a legally valueless term is bundled with a term that does have legal value are still generally enforceable. Consider the uncle's situation above. If the same uncle had instead told his 13-year-old nephew the following offer: "if you do not smoke cigarettes, do not drink alcohol, swear or play cards for money (gamble) before your 21st birthday, then I will pay you $5,000". On the nephew's 21st birthday, he asks the uncle to pay up, and this time, in the subsequent lawsuit, the nephew may win. Although the promise of not drinking alcohol and gambling while under the age of 21 was not valuable consideration (it was already legally prohibited), most states allow smoking by age 18 and swearing is not illegal at any age. Even though smoking is legally restricted until age 18, it is legal for those above 18, and thus the promise to forbear from it entirely has legal value. However, the uncle would still be relieved from the liability if his nephew drank alcohol, even though ''that'' consideration is valueless, because it was paired with something of legal value; therefore, adherence to the entire, collective agreement is necessary.


Past consideration

Generally, past consideration is not a valid consideration and has no legal value. Past consideration is consideration that has already flowed from the promisee to the promisor. That is, the promisee's act or forbearance predates the promisor's promise. Past consideration therefore cannot be used as a basis when claiming damages.see . An exception to this rule is where there is a duty owed to a third party. An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. For this to hold, three conditions must be satisfied (Pao On v Lau Yiu Long
980 Year 980 ( CMLXXX) was a leap year starting on Thursday A leap year starting on Thursday is any year with 366 days (i.e. it includes 29 February) that begins on Thursday Thursday is the day of the week between Wednesday Wednesday is the ...
: # The act must have been done at the promisor’s request # The parties must have understood the act was to be remunerated either by a payment or the conferment of some other benefit # Payment/conferment of the benefit must have been legally enforceable had it been promised in advance


Option contracts and conditional consideration

Generally, conditional consideration is valid consideration. Suppose A is a movie script writer and B runs a movie production company. A says to B, "buy my script." B says "How about this – I will pay you $5,000 so that you do not let anyone else produce your movie until one year from now. If I do produce your movie in that year, then I will give you another $50,000, and no one else can produce it. If I do not produce your movie in that year, then you're free to go." If the two subsequently get into a dispute, the issue of whether a contract exists is answered. B had an option contract—he could decide to produce the script, or not. B's consideration passed was the $5,000 down, and the possibility of $50,000. A's consideration passed was the exclusive rights to the movie script for at least one year.


In settlements

Suppose B commits a
tort A tort, in common law In law, common law (also known as judicial precedent or judge-made law, or ) is the body of law created by judges and similar quasi-judicial by virtue of being stated in written opinions. ' is the most-used legal dict ...

tort
against A, causing $5,000 in
compensatory damages At common law In law, common law (also known as judicial precedent or judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions. ''Black's Law Dictionary ...
and $3,000 in
punitive damages Punitive damages, or exemplary damages, are damages At common law In law, common law (also known as judicial precedent or judge-made law, or ) is the body of law created by judges and similar quasi-judicial by virtue of being stated in writt ...
. Since there is no guarantee that A would win against B if it went to court, A may agree to drop the case if B pays the $5,000 compensatory damages. This is sufficient consideration, since B's consideration is a guaranteed recovery, and A's consideration is that B only has to pay $5,000, instead of $8,000.


Treatments by different legal systems

*
Consideration under English law Consideration is an English English usually refers to: * English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, early medieval England, which has eventually become t ...
*
Consideration under American law Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a prom ...
* Consideration is not required for a contract under Scots contract law


References

{{Authority control Contract law Legal doctrines and principles