Consideration

Another of the elements needed to make an agreement binding is consideration.  Even though there has been an offer and an acceptance, an agreement may not be enforceable if there is no consideration. Consideration is what the promisor demands and receives as the price for the promise. The promisor is the person making the promise, and the promisee is the person to whom the promise is made.  Consideration consists of something that the promisor is not otherwise entitled to.  It is not necessary to use the word consideration in a contract.

Consideration is the price paid for the promise.  When thinking of consideration, think in terms of legal value as opposed to economic value.  While economic value (e.g., money) is the most common form of consideration, consideration does not have to involve money. In order for a contract to be enforceable, each party to the contract must change his or her legal position in some way.

If an agreement lacks consideration, it is generally not a binding and enforceable contract.  There are a few exceptions to this rule.  A person sued for breaking a promise generally will not be held liable when no consideration was received for the promise.

Smith signs an agreement with his employer, Acme, stating that he will not compete with Acme should he leave the employ of Acme.  This promise by Smith is not binding unless it is supported by consideration.  If Acme tells Smith that he will be fired unless he signs this agreement, that is adequate considera­­tion; or, if at the time Acme is considering hiring Smith, Acme states that it will not hire Smith unless he agrees to enter a covenant not to compete, this covenant would then be binding.  The consideration would be the hiring of Smith.

A promise to do something that is illegal is not considera­tion.  Neither is a promise not to do something that is already prohibited by law.  These types of promises will not form a valid contract.

Ordinarily, Courts do not consider the adequacy of the consideration given for a promise.  Smith agreed to provide janitorial service to Acme for six months at $400.00 per month.  After three months, Smith decided that $400.00 was not enough money, and he sought to get out of his contract, stating that the consideration for the services was inadequate.  Is there a binding contract?  The contract is binding since, again, the law is not normally concerned with the value or quantity of consideration that the promisor demands and receives for the promise.  The employment contract was binding even if the compensation to be paid was in fact low.


Inside Consideration