Consideration

 

By Albert F. Kelley

 

Often in contracts you will see the word “consideration.” This does not mean you have to be nice to the other party. Consideration has a special meaning in contract law. Consideration is what each side gives and receives as the price for the contract.

There must be an obligation on both sides of a contract. Each side to the contract must give up something. Often the consideration is minor. You will frequently see a contract state: “For $10 paid.” That is the consideration. It means that one side paid the other $10 in order to get them to enter into the contract. The other side’s consideration is the service or merchandise they surrender. In other words, if we agree that for $10 I will clean your carpet, your consideration is the paying of $10 and my consideration is the service of cleaning the carpet.

Consideration does not have to be money, a service or an item. It can be another promise, either to do something, or not to do something. For example, a contract which states, “I will pay you $10,000 if you do not smoke or drink in the next month,” could be a valid contract, so long as the party is old enough to smoke or drink. If they are not yet old enough, the contract is invalid because they have no right to smoke or drink and therefore are not giving anything up. Likewise, if the consideration is a promise to do an act you are already obligated to do, there is no consideration. This is why police officers cannot collect rewards for criminals they capture. They are already obligated to capture criminals and, therefore, there is no special consideration for their act.

Prior actions cannot serve as consideration. As an example, John offers to pay Bob $10,000 because Bob helped John put out a fire in his building. This is not a contract. Since the act already occurred, there is no obligation on Bob’s part to do anything. John has merely offered Bob a gift which is not binding and not enforceable.

A contract without consideration is nothing more than a non-binding promise. If the consideration is another promise and that promise is not kept, the contract is not valid. The consideration must be sufficient. It may not be out of line with the value of a promise, but usually, any consideration of value will usually be allowed.

There are some exceptions to the consideration rules. First is the adequacy of consideration. The court will generally only look at the adequacy of consideration if there is a question of undue influence or fraud. Therefore, even if consideration is grossly unequal (such as $100 for a 1999 Rolls Royce), the Court will not throw out the contract for want of consideration. Also, there are some contracts that don’t require consideration. These include pledges to charities, certain contracts under the Uniform Commercial Code, and in some places, sealed agreements. These can be enforced even though there has been no consideration paid.

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is so the author of “Basics of Business Law” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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