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• Consideration Clause

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Consideration clause defined.

Consideration clauses are used to define the total amount due for coverage. They are the terms and conditions that determine how payment is made in exchange for mutual consideration. Some consideration clauses include penalty clauses if one party fails to meet their requirements.

Here’s an article about consideration clauses.

Consideration Clause Explained

Consideration clauses are generally used in real estate and insurance contracts. Essentially, they set the terms around how one party pays another party for something valuable, like a house or insurance policy.

They could also be used when selling shares to a buyer under a share purchase agreement. In this case, consideration clauses prove that mutual consideration existed.

This page also discusses consideration clauses.

Purpose of Consideration Clause

The purpose of consideration clauses is to mitigate the potential for a dispute regarding:

• Payment amount
• Payment due dates
• Consideration exchanged
• Limitations
• Penalty amounts

You should make your consideration clauses as specific as possible to reduce the chance for potential conflict in the future.

Consideration Clause Examples

Examples of consideration clauses include:

• Example 1. Receiving real estate property in exchange for payments
• Example 2. Paying an insurance premium for benefits
• Example 3. Working as an employee for a salary
• Example 4. Renting construction equipment for a weekly fee
• Example 5. Purchasing IT services on an annual contract

Consideration clauses are perfect for contracts dealing with more significant transactions above $500. They can help you protect your rights and set the tone for the relationship from the outset.

Consideration Clause Samples

Sample 1 – purchase and sale agreement.

NOW, THEREFORE,  it is agreed that in consideration of the Title Company issuing its title insurance policy to Buyer effective as of the date closing occurs without making exception therein to matters which may arise between the last effective date of the title insurance commitment issued by the Title Company in connection with Buyer’s title insurance (the “ Effective Date ”) and the date the documents creating the interest being insured have been filed for record and which matters may constitute an encumbrance on or affect said title, Seller agrees to promptly defend, remove, bond or otherwise dispose of any encumbrance, lien or objectionable matter to title caused by the acts of Seller, its agents or representatives which may arise or to be filed, as the case may be, against the Real Property during the period of time between the Effective Date and the date of recording of all closing instruments, and to hold harmless, and indemnify the Title Company against all expenses, costs, and reasonable attorneys’ fees, which may arise out of Seller’s failure to so remove, bond or otherwise dispose of any said liens, encumbrances or objectionable matters caused by the acts of Seller, its agents or representatives;  provided ,  however , the Title Company shall use good faith and diligent efforts to cause all documents to be recorded as soon as possible but, in any event, no later than three (3) business days after the date hereof and Seller shall have no obligations or liability hereunder with respect to any objections to title which may arise or be filed after such three (3) business day period nor shall SellerHere’s a web page with a consideration clause sample.

Reference :

Security Exchange Commission - Edgar Database,  EX-10.52 7 d447090dex1052.htm PURCHASE AND SALE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1469822/000119312513041312/d447090dex1052.htm >.

Sample 2 – Real Estate Sale Agreement

NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

• Assignor hereby assigns unto Assignee, all of the right, title and interest of Assignor in and to the Leases;

TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns from and after the date hereof, subject to the terms, covenants and conditions of the Leases.

• Assignee assumes the performance of all of the obligations of Assignor under the Leases to be performed from and after the date hereof. Assignee agrees to indemnify, protect, defend and hold Assignor harmless from and against any and all claims, demands, liabilities, losses, costs, damages or expenses including, without limitation, reasonable attorneys' fees and costs (collectively, "Claims") arising out of or resulting from any breach or default by Assignee in its obligations under the terms of the Leases from and after the date hereof, including, without limitation, any breach or default by Assignee or failure by Assignee to comply with any applicable law from and after the date hereof with respect to the security deposits under the Leases that are being transferred to Assignee on the date hereof.
• Assignor hereby agrees to indemnify, protect, defend and hold Assignee

harmless from and against any and all Claims arising out of or resulting from any breach JAX\1376204_2 -43­

or default by Assignor in its obligations under the terms of the Leases prior to the date hereof including, without limitation, any breach or default under the Leases or failure by Assignor to comply with any applicable laws prior to the date hereof with respect to the security deposits under the Leases.

This Assignment shall be binding on and inure to the benefit of the parties hereto, their heirs, executors, administrators, successors in interest and assigns.

This Assignment may be executed in separate counterparts, which, together, shall constitute one and the same fully executed Assignment.

Sample 3 – Real Estate Purchase and Sale Agreement

In consideration of the mutual covenants contained herein and other good and valuable consideration , the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

• Contracts . Assignor hereby transfers and assigns to Assignee any and all right, title and interest which Assignor may have in the contracts, if any, listed in  Exhibit B attached hereto and made a part hereof (collectively, the “ Contracts ”). By executing this Assignment, Assignee hereby accepts and agrees to perform all of the terms, covenants and conditions of the Contracts on the part of Assignor therein required to be performed, from and after the date hereof, but not prior thereto. Assignor agrees to indemnify, defend and hold Assignee harmless with respect to all liabilities and obligations of Assignor under the Contracts arising or accruing prior to the date hereof. Assignee hereby assumes all liabilities and obligations of Assignor under the Contracts arising or accruing from and after the date hereof and agrees to indemnify, defend and hold Assignor harmless with respect thereto.
• Successors and Assigns . This Assignment shall inure to the benefit of, and be binding upon, the successors, executors, administrators, legal representatives and assigns of the parties hereto.
• Governing Law . This Agreement shall be construed under and enforced in accordance with the laws of the State of Texas.
• No Representations . This assignment is made without any representation or warranty, express or implied, except for those representations and warranties, if any, expressly set forth in that Real Estate Purchase and Sale Agreement between Assignor and  [[_____________________________]] dated as of  [[_____________, 201__]]  (the “ Agreement ”), all of which are subject to the limitations set forth in the Agreement.

Security Exchange Commission - Edgar Database,  EX-10.1 2 exh101realestatepurchasean.htm EXHIBIT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1062822/000106282214000046/exh101realestatepurchasean.htm >.

Common Contracts with Consideration Clauses

Common contracts with consideration clauses include the following:

• Insurance policies
• Real estate agreements
• Sales agreements
• Service agreements
• Barter agreements

Consideration Clause FAQs

Consideration clauses are deceptively simple. Check out the consideration clause FAQs below to learn more:

What is a consideration clause in real estate?

Consideration clauses in real estate are used when purchasing a property. More flexible sellers may allow the use of a peppercorn consideration clause or deferred consideration clause that allows low or no down payments.

What is a consideration payment?

Consideration payments are those that are exchanged for something of value. They can be cash, jewelry, real estate, stock shares, and more.

It’s critical to draft your consideration clauses carefully. Legal mistakes can result in a breach of contract claim and paying liquidated damages for an unfavorable ruling.

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Consideration Clause: An Authentic 360° View of Legal Trade-offs

• July 15, 2023
• Commercial Clauses

Hi! Welcome to the Consideration Compass!

Your guide to understanding consideration clauses in contracts

So, here’s the deal:

In this guide, I’ll simplify the complex concept of a consideration clause to help you understand it better.

Its importance and how it varies in different types of contracts

Plus the risks and consequences of poorly written clauses so you can avoid problems.

And we’ll also look into the problems, exceptions, benefits, limitations, and legal consequences of contracts without proper consideration.

By the end of this guide, you’ll know how to draft it, identify potential issues for negotiation, and execute legally sound and beneficial contracts.

Got it? Good. Let’s start!

Table of Contents

What is consideration in a contract.

Consideration in contract law is the exchange of something valuable between the parties in a contract. It is usually offering money, a service, an object, a promise, or even choosing not to do something that one has the right to do.

It’s basically asking, “What do I get out of this contract?” If there’s anything valuable and legal, that’s the consideration.

A contract without consideration is ineffective, just like a car without an engine. It sure seems everything is okay from outside, but it’s not going to take you anywhere.

The Importance of Consideration in Contracts

A contract is a deal that two or more parties voluntarily make for the benefit of each other, and for it to be legally binding, it needs the following key contract elements:

• Acceptance of it;
• Consideration for it;
• Capacity and intention to enter into a contract;
• Legality of the subject matter; and
• Certainty, like some clear and definite terms and conditions.

If the contract is missing the important element – consideration, also known as a “bargain,” which involves an exchange of value – like would you pay for a coffee you won’t get?

Absolutely not!

So, in legal terms, a contract without an exchange (consideration) is unenforceable; hence, it’s important.

Do You Need the Word “Consideration” in the Contract?

Using the word “consideration” exactly is not necessary, but it helps because it clarifies the promises made by each party and reduces ambiguity.

Consideration can also be implied based on the parties’ actions and the overall context of the contract. So yes, a contract can still be enforceable as long as all other key elements are present.

Understanding the Consideration Clause

Define consideration clause.

Consideration is the most important commercial clause in the contract. It clearly states what each party is offering, receiving, or promising, and based on that, the obligations, rights, and expectations of each party involved are drawn out.

Example : In a lease agreement, the consideration clause states that the tenant agrees to pay $1,000 of rent each month in exchange for the landlord providing a 1 BHK apartment at Coconut Grove in Miami.

It may involve products, services, or anything else of value that the parties agree upon.

The consideration clause outlines the main points of the contract. It’s the core of the contract, defining the who, what, when, where, and how parts of the agreement.

Purpose of Consideration Clause

• Payment Amount : It’s the agreed sum of money one party pays to the other, and it should be fair and reasonable for the contract to be legally enforceable.
• Payment Due Dates : This specifies when the payments are due, in terms of instalments or another agreed-upon schedule.
• Consideration Exchanged : If there’s no money involved, then this clause defines what is being exchanged.
• Limitations : This defines the limits or any restrictions with reference to the consideration. It may cover non-competition, confidentiality, non-circumvention, or other conditions.
• Penalty Amounts : These define the penalties or other consequences for each party who does not fulfill their agreed-upon obligations.

Nature of the Obligation under the Consideration Clause

• Subject : This is about the specific details of what is being exchanged. It can be goods, services, a promise, or an act of forbearance (more on this later).
• Commitment : It’s the commitment that each party agrees to do or not do. It may involve a service, a payment, or a promise to engage in or not engage in certain activities.
• Fulfillment : This explains how the obligation will be met or delivered.
• Time Limit : This specifies the deadline for fulfilling the obligation, like a date, an event, or a period of time.
• Place of Performance : This refers to where the contract obligations will be carried out.

Legal Requirements and Types of Consideration

A valid consideration needs to be:.

• Real : It should have actual value, not just be a token or symbolic gesture.
• Lawful : It must be legal. A contract to sell stolen goods is not enforceable because theft (the stolen goods) is unlawful.
• Mutually Agreed Upon : Both parties must agree to the consideration. If there is confusion or disagreement, the contract may be considered invalid.
• Sufficient : Apart from being valuable, if it’s not equal to what’s being provided in return, Insufficient consideration could raise concerns about the contract’s fairness and validity.
• Not in the Past : It should be focused on future actions or obligations rather than events that have already occurred.

Types of Consideration with Examples

Executory : This occurs when a party makes a promise to perform an act in the future.

Example: If you order custom furniture, you pay some in advance and promise to pay the balance later at the time of delivery.

Executed : This refers to a situation where consideration is made after the act has already been completed.

Example: You promise to give a reward to someone who finds your lost dog; it’s a way of showing your appreciation.

Past : This refers to a situation where an action was completed before a promise was made. Past consideration is generally not considered valid in many jurisdictions.

Example: If you promise to pay someone for a favor they did for you last year, that’s considered past consideration.

Present : This is when the promise and consideration are exchanged simultaneously.

Example: If you pay cash for a coffee, your payment is the immediate consideration for the coffee.

Future : This is when a promise is made to provide consideration at a later date.

Example: If you sign a lease contract for an apartment next month, your promise to pay rent is considered a future consideration.

Sufficiency and Bargaining in Consideration

• Sufficiency refers to whether the value exchanged between parties is adequate, whereas bargaining refers to the negotiation and agreement on the terms of the exchange.
• Sufficiency should be considered, but it doesn’t have to exactly match the value of the promise or item in return, and bargaining is the process of reaching an agreement on the terms.

For a contract to be valid, both parties need to agree on the terms and value of what they are exchanging.

Distinguishing Gifts from Contracts

A gift is when someone willingly gives something to another person without expecting anything in return. The person who gives the gift is called the “donor,” and the person who receives it is called the “donee.” If the donor doesn’t receive anything valuable in return, then the gift is not considered a contract.

Examples and Samples

Consideration clause examples with context, purchasing a property.

“In consideration of the sum of $250,000 to be paid by the Buyer, the Seller agrees to transfer all rights, title, and interest in the property as described in the “Schedule”, to the Buyer.”

Buying an Insurance

“In consideration of the payment of the premium and subject to the stipulations herein, the insurer agrees to cover the insured against losses detailed in the policy.”

Working as an Employee

“In consideration of the Employee’s performance of the duties described in this Agreement, the Company shall pay the Employee a salary of $60,000 per year, payable monthly.”

Renting Construction Equipment

“In consideration of a weekly fee of $500, the Lessor agrees to provide the Lessee with use of the specified construction equipment.”

Purchasing IT Services

“In consideration of an annual fee of $12,000, the Service Provider agrees to provide IT services as detailed in this agreement.”

Consideration Clause Samples

Consideration clauses can vary in wording depending on the type and structure of the contract. Here are some basic examples:

“For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:”

“In consideration of the mutual promises contained herein and for other good and valuable consideration, the parties agree:”

“This agreement is made in consideration of the premises and the mutual covenants contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged.”

Consideration Clause in the Purchase and Sale Agreement

Purchase and Sale Agreement (Click Here for Full Size Image)

Source : U.S. SEC – Form of Bill of Sale

Consideration Clause in Assignment and Transfer of Lease

Assignment and Transfer of Lease (Click Here for Full Size Image)

Source : U.S. SEC – Contract of Sale

Problems and Exceptions

Insufficient consideration.

Insufficiency can cause problems in a contract, although it may not necessarily make the contract void. If someone sells a $1 million property for only $1, it could raise concerns about fraud or undue influence.

Promissory Estoppel

This happens when someone makes a promise knowing that it will cause the other person to take action but still chooses to back out. A court can enforce such a promise to prevent injustice even if there was no consideration.

Example : Amelia is a promising artist, and Jasper, her affluent friend, has always admired her work and believes in her potential. One day, Jasper promises Amelia $10,000 to help her host an art exhibition, but Amelia doesn’t offer anything in return, so the promise is gratuitous and there’s no formal contract. Amelia trusts Jasper and takes action by renting an expensive gallery space, purchasing art supplies, and hiring a marketing company to promote her event. She takes these actions because she believes and expects to receive the promised financial support from Jasper. And just before the event, Jasper backed out of his promised money. Now, if this matter is taken to court, the judge might use the doctrine of promissory estoppel, which means that although there was no formal contract between them, the judge can still enforce Jasper’s promise because Amelia relied on it and suffered due to it.

Forbearance as Consideration

Refraining from doing something can also count as a valid consideration. If someone agrees not to sue another person in exchange for a payment, the promise not to sue can be considered a form of consideration.

What If the Consideration Seems Disproportionate?

Courts usually don’t assess the sufficiency of consideration unless it is extremely inadequate and suggests fraud, duress, or undue influence.

Liquidated Damages and Penalty Clauses

• Liquidated damages are similar to insurance. They involve estimating the potential trouble or losses that could occur if things don’t go as planned and including that estimation in the contract.
• Penalty clauses are quite different. The party who suffered harm as a result of the contract breach receives a sum that is significantly greater than their initial loss. It’s like making the contract breaker pay a high price to discourage them from doing it again, but for penalties to be enforceable, they need to be proven with proper justification.

Role of Restrictive Covenants in Consideration Clauses

Employment contracts often include restrictive covenants, such as non-compete clauses.

Business contracts such as Joint Ventures, Distribution Arrangements, and Brokerage Agreements use the Non-Circumvention clause to prevent one party from using unique resources provided by another party to gain an unfair advantage without involving them.

Illusory Promises

Promises that don’t actually require the party making the promise to do anything are not valid considerations.

Unforeseen Difficulties

The Unforeseen Difficulties Doctrine (exception) allows a contract to be modified if unexpected problems make it too difficult to fulfill.

Releases and Covenants Not to Sue

Legal agreements that include a provision where one party agrees not to sue another can be considered valid consideration, as they help resolve disputes without going to court.

Issues with the Consideration Clause

Unfair arrangements.

These can happen when one party has more bargaining power, resulting in one-sided terms that cause unjust enrichment, and when one party benefits at the expense of another. Courts may refuse to enforce a contract if they consider it ‘unconscionable’.

Other Approaches

Some jurisdictions use alternatives like ‘good faith’ or ’cause’ to address limitations and potential unfairness. These concepts shift the focus of contracts from the exchange aspect to the behavior and intentions of the parties involved.

The Concept of the Contract of Adhesion

A contract of adhesion, also known as a ‘take-it-or-leave-it’ contract. It’s the one where one party sets the terms and the other party has limited or no negotiation power. While such contracts are still valid, courts carefully review them and may not enforce terms that are extremely unfair or not clearly disclosed.

Tips to Draft a Consideration Clause

When writing a consideration clause, it’s important to be clear. The clause should specify the rights, goods, services, or payments that each party is exchanging. Be as detailed as possible. Both parties need to understand their responsibilities and expectations.

Each detail can be drafted into sub-clauses for ease of understanding and readability.

3 Key Essential Elements

• Identification : Who are the parties to the agreement?
• Value : What is being exchanged in terms of value?
• Mutuality of obligation : What is it that both parties involved have a responsibility to either do or not do?

Using Contract Management Software

They can be helpful for drafting consideration clauses. These tools have templates that meet legal requirements, reducing the chance of errors.

They also help parties collaborate and negotiate terms more easily.

Some examples are ContractWorks, Concord, and Agiloft. They are helpful but not meant to replace professional legal advice.

In this guide, we explored how a consideration clause works, focusing on its purpose, the obligation it represents, and its key components.

We also discussed its legal requirements and different types with some relevant examples and samples to understand how they work, as well as potential issues and exceptions.

And lastly, we learned about drafting a good consideration clause.

I hope this Consideration Compass has helped you find your way.

Over to You

Now, I would love to hear about your experiences drafting or interpreting these clauses.

or if you want to ask me anything?

Either way, voice your opinion in the comments right now!

I’m excited to have meaningful conversations with you!

Cheers to creating strong contracts!

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Is “One Dollar” Sufficient Consideration For An Assignment?

In order for a contract to be valid and enforceable, it must meet certain legal criteria. One such criterion is “consideration”. Consideration requires that each party receive a benefit or advantage for fulfilling its obligations under the contract. Generally, except in cases where the consideration is unconscionable, such as when a party abuses a superior bargaining position, the Courts will not enquire into the adequacy of the consideration. This old and trite concept was recently tested by MemoryLink Corp (MemoryLink) in  MemoryLink Corp v Motorola Solutions Inc , No. 08 C 3301, 2013 WL 4401676 (ND Ill Aug 15, 2013).

MemoryLink was a corporation formed by one of the inventors of a handheld camera recording technology that was developed jointly with Motorola Solutions Inc (Motorola). At some point, all of the inventors had signed an assignment agreement that transferred all their rights in the technology to MemoryLink and Motorola. Thus, MemoryLink and Motorola became joint owners. The assignment began with the statement:

“[f]or and  in consideration of the sum of One Dollar  to us in hand paid, and other good and valuable consideration, the receipt of which is hereby acknowledged . . . .” [Emphasis added]

MemoryLink later sued Motorola for patent infringement relating to the technology, arguing that the assignment was void for lack of consideration. In rejecting the arguments relating to the inadequacy of the consideration and holding the assignment to be valid, the United States District Court for the Northern District of Illinois granted summary judgment in favour of Motorola on August 15, 2013. This decision was  affirmed  by the United States Court of Appeals on December 5, 2014.

For more information see:  http://tinyurl.com/np4h6m5 .

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Assignment Consideration Can Be Representation, Support and Opportunity - Memorylink Corp. v. Motorola Solutions, Inc.

Addressing whether a patent was properly assigned and whether claims of inventorship fraud were properly barred by the statute of limitations, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s summary judgment finding that the patent infringement claims were properly dismissed based on a proper assignment and that the claims of fraud were properly barred because the plaintiff waited too long to challenge inventorship.  Memorylink Corp. v. Motorola Solutions, Inc ., Case No. 14-1186 (Fed. Cir., Dec. 5, 2014) (Lourie, J.).

Two inventors of the asserted patent, who later would form Memorylink, approached Motorola to jointly develop handheld cameras that could wirelessly transmit videos. After successfully developing the technology, the two inventors sent a letter to Motorola agreeing any patents would be jointly owned by Motorola and Memorylink. Motorola, handling the patent prosecution, included two Motorola employees as co-inventors.  All four inventors signed an assignment agreement transferring rights to Motorola and Memorylink for one dollar and “other good and valuable consideration.”  Ten years later, Memorylink filed a suit against Motorola alleging patent infringement and fraud related to inventorship.  The Court affirmed that Motorola could not infringe a patent that it had ownership in and that the statute of limitations barred any claims of fraud.  Memorylink appealed.

On appeal, Memorylink argued the assignment was invalid because the agreement did not have proper consideration.  Applying Illinois contract law, the Federal Circuit found that Memorylink’s assignment was proper because consideration was explicitly stated on the face of the agreement. The Court agreed that Memorylink received consideration in the two Motorola inventors assigning their rights jointly to Memorylink and Motorola. Further, Memorylink had received substantial consideration in the form of patent prosecution representation, technical and engineering support, and business opportunities.

Memorylink further argued that the consideration was invalid because the Motorola employees were not proper co-inventors and therefore could not assign ownership. The Federal Circuit found that even if the two employees were erroneously included as co-inventors, this did not create an issue of material fact concerning the validity of the consideration. The Court made the analogy to the assignment of patent rights before a patent application is filed or during prosecution of a patent. In either case, there is no guarantee that a valid patent will issue, yet in either case, this assignment is valid consideration. Therefore, because Memorylink’s assignment was valid, the Court affirmed the grant summary judgment of non-infringement because Motorola could not infringe a patent that it jointly owns.

Concerning the claims of fraud, the Federal Circuit affirmed that Memorylink knew of the underlying facts to assert its claims of fraud more than five year prior to bringing its suit. Illinois bars fraud based claims five years after the fraud was known or should have been known. Memorylink argued that the clock should not have started until after it had completed its external investigation into the inventorship issue and concluded that fraud had occurred. Prior to this date, Memorylink argued it had no reason to question inventorship based on its reliance on Motorola’s attorney. The Court found that regardless of any faulty legal advice, Memorylink knew all facts related to whether the two Motorola employees contributed to the conception of invention. The Court subsequently affirmed the dismissal of all the fraud claims as untimely.

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• Corporations
• Definitions

For Good And Valuable Consideration (Meaning And Contract Drafting)

What does for good and valuable consideration mean?

How is this important when drafting contracts?

What legal aspects should you know?

In this article, we will break down the legal definition of the phrase For Good And Valuable Consideration so you know all there is to know about it!

Keep reading as we have gathered exactly the information that you need!

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Table of Contents

For Good And Valuable Consideration

In many contracts, the phrase “for good and valuable consideration” appears as the final statement of its recitals.

Here are a few examples:

NOW THEREFORE, for good and valuable consideration , as security for the due and timely payment and performance of the obligations herein, the Borrower pledges and grants to Lender as follows: Author

For good and valuable consideration , the receipt of which is hereby acknowledged, the parties agree to amend the Agreement as follows: Author

NOW, THEREFORE, for good and valuable consideration , the receipt and sufficiency of which is hereby acknowledged, Seller and Buyer hereby agree as follows: Author

You may also see phrases referring to other good and valuable consideration , such as:

NOW, THEREFORE, upon the mutual agreements and covenants set forth herein and for other good and valuable consideration , the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Author

What does the phrase mean?

What is the definition of “valuable consideration” in regards to contract validity? 

For a contract to be valid, there must be a consideration.

The consideration represents one of the pillars in contract law required for a contract to be considered as formed and legally binding.

A contract is legally formed when there is:

• Offer 
• Consideration
• Legal capacity 
• Legality 

Keep reading as we’ll look into it further…

Good consideration 

What is good consideration?

The first aspect of the phrase to consider is a “good” consideration.

To say that the consideration is “good” is to say that the legal instrument, contract, deed, agreement or transaction provides sufficient consideration to the parties.

In essence, the parties are acknowledging and recognizing that there is consideration and that the consideration is good.

For example, good consideration in real estate is when a buyer and seller agree to the terms and conditions for the purchase of a home.

This is a “good” consideration as it is something legally permissible and it is good between the parties.

Later, we’ll discuss what does it truly means to say in a contract that there is consideration when in fact there isn’t one…

Valuable consideration 

What does for valuable consideration mean?

Why say “good” and “valuable” consideration?

In contracts, when you see a phrase drafted as “for valuable consideration”, the author of the contract or drafting party is referring to the actual exchange of “goods” or “value”.

Typically, valuable consideration will refer to the exchange of a sum of money for something else of value.

For example, in the sale of a real estate property, the valuable consideration is the actual sum of money paid by the buyer to the seller.

The valuable consideration necessary to make a contract valid must be a benefit or something of value effectively exchanged by the parties.

Legal interpretation 

What is the legal value of stating in a contract that consideration was good or valuable?

The most important thing to note is that consideration is something that either is present or not.

A contract stating that there is good and valuable consideration does not legally create consideration or render it as valid.

If the parties enter into what appears to be a contract but there was no consideration, the contract cannot legally be formed or binding.

As a result, the parties’ statement is worthless to the extent there is no consideration as there is no binding contract.

As the good saying goes, “no consideration, no contract”!

What if there is some form of consideration to the parties, how will the courts interpret the phrase for good and valuable consideration phrase if the parties end up in a legal dispute on the consideration or value of the contract?

In that case, you have to be ready that litigation lawyers and trial lawyers attempt to use every word stated in a contract to defend their legal position.

In the best-case scenario, the litigants may not find any real value in pleading the phrase in court.

However, in other cases, it can create interpretation issues that may be favorable for one party and detrimental for another.

As it appears in the case Haden v. Sims , 150 So. 210, 168 Miss. 64 (Miss. 1933), the parties had stated in their deed that payment will be “one dollar and other considerations”.

The court ruled that it was not one dollar owed but $1,000.

In this case, the court admitted parol evidence to prove what “other considerations” meant.

Based on that evidence, the court came to the conclusion that what was owed was not one dollar but $1,000.

In essence, based on the standard rule of interpretation, the court must give meaning to all provisions of the contract.

The moral of the story is that if your contract is reciting the consideration in full, then you should not include any language such as “and other good and valuable consideration” to avoid interpretation challenges.

Takeaways 

So what is the legal meaning of good and valuable consideration?

Let’s look at a summary of our findings.

For Good And Valuable Consideration:

If you enjoyed this article on the Good and Valuable Consideration , we recommend you look into the following legal terms and concepts. Enjoy!

Related legal terms 

Consideration contract law Consideration clause  Contract consideration  Mutual covenants Define consideration  Unilateral contract  Illusory contract Illusory promise  Promissory estoppel  Recitals Author

• Contract Drafting

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Contract Assignments

(This may not be the same place you live)

  What is a Contract Assignment?

In a contract assignment, one of the two parties to a contract may transfer their right to the other’s performance to a third party. This is known as “contract assignment.” Generally, all rights under a contract may be assigned. A provision in the contract that states the contract may not be assigned usually refers to the delegation of the assignor’s (person who assigns) duties under that contract, not their rights under the contract. 

In modern law, the phrase “assignment of contract” usually means assignment of both rights and duties under a contract.

Who are the Various Parties Involved in a Contract Assignment?

How is a contract assignment created, when is a contract assignment prohibited, which parties are liable to each other in a contract assignment, are there issues with multiple assignments, should i hire a lawyer for contract assignments.

In a contract, there are two parties to the agreement, X and Y. The parties may agree to let X assign X’s rights to a third party . Once the third party enters the picture, each party has a special name. For instance, suppose X, a seller of bookmarks, contracts with Y, a purchaser of bookmarks. Y desires to have Y’s right to X’s performance (the sale of bookmarks on a monthly basis) to another person. 

This third person, Z, is called the assignee. X is called the obligor , and Y is called the assignor , since Y has assigned its right to X’s performance . X, the obligor, is obligated to continue to perform its duties under the agreement.

There are no “magic words” needed to create an assignment. The law simply requires that the would-be assignor have an intent to immediately and completely transfer their rights in the agreement. In addition, writing is typically not required to create an assignment. As long as X and Y both adequately understand what right is being assigned, an assignment is created. 

Words that indicate a transfer is to take place suffice, such as “I intend to transfer my rights under this agreement,” or, “I intend to give my rights to Z,” or “I intend to confer an assignment on Z.” In addition,consideration,which is a bargained-for exchange required for a contract to be valid, is not required for assignment.

In certain instances, an assignment of contract rights can be prohibited. If the contract contains a clause prohibiting assignment of “the contract,” without specifying more, the law construes this language as barring only delegation of the assignor’s duties, not their rights. If the assignment language states “assignment of contractual rights are prohibited,” the obligor may sue for damages if the assignor attempts to assign the agreement. If the contract language states that attempts to assign “will be void,” the parties can bar assignment.of rights.

Under modern contract law, the phrase “I assign the contract” is usually interpreted to mean that one is assigning rights and duties. What is an assignment of duties? An assignment of duties occurs where Y, called the obligor or delegator, promises to perform for X, the obligee. Y then delegates their duty to perform to Z, the delegate. Under the law, most duties can be delegated. 

There are exceptions to this rule. Delegation can be prohibited when:

• The duties to be performed involve personal judgment and special skill (e.g., a portrait, creation of a custom-made dress). 
• “Personal judgment” is the exercise of some kind of superior judgment when it comes to determining how, when, or where to do something. Examples of individuals who exercise personal judgment include talent scouts and financial advisors.  Special skill is the unique ability to create a good or perform a service. A delegator can be prohibited from delegating duties when it is that specific delegator’s services are sought. For example, if the services of a specific famous chef are sought, and the original agreement was entered into on the understanding that the chef was hired for their specific talent, the delegator may not delegate the services;
• The assignment fundamentally changes risks or responsibilities under the agreement;
• The assignment is over future rights associated with a future contract that does not currently exist;
• Delegation would increase the obligation of the obligee. For example, if a shoe manufacturer contracts to deliver soles to a store in the same town as the shoe factory, the other party cannot assign the delivery to a different store in another state. Doing so would impose a greater obligation on the obligee than was originally contemplated;
• The obligee had placed special trust in the delegator. For example, assume that you have hired a patent attorney, based on that attorney’s significant skill and expertise, to obtain a valuable patent. You have placed special trust in this person, hiring them instead of other patent attorneys, because of their unique expertise. In such a situation, the attorney may not delegate his duties to another attorney (delegate), since the attorney was hired because of one person’s special capabilities;
• The delegation is of a promise to repay a debt; or
• The contract itself restricts or prohibits delegation. If the contract states, “any attempt to delegate duties under this contract is void,” a delegation will not be permitted.

In a contract involving assignment of rights, the assignee may sue the obligor. This is because the assignee, once the assignee has been assigned rights, is entitled to performance under the contract. If the obligor had a defense that existed in the original contract between obligor and assignor, the obligor may assert that defense against the assignee. Examples of such defenses include the original contract was not valid because of lack of consideration, or because there was never a valid offer or acceptance).

An assignee may also sue an assignor. Generally, if an assignment is made for consideration,it is irrevocable. Assignments not made for consideration, but under which an obligor has already performed, are also irrevocable. If an assignor attempts to revoke an irrevocable assignment,the assignee may sue for “wrongful revocation.” 

In circumstances involving delegation of duties,an obligee must accept performance from the delegate of all duties that may be delegated. The delegator remains liable on the agreement. Therefore, the obligee may sue the delegator for nonperformance by the delegate. The obligee may sue the delegate for nonperformance, but can only require the delegate to perform if there has been an assumption by the delegate. An assumption by the delegate is a promise that the delegate will perform the delegated duty, which promise is supported by consideration. 

Assignments that are not supported by consideration are revocable. If an initial assignment is revocable, a subsequent assignment can revoke it. If a first assignment is irrevocable, because consideration was present,the first assignment will usually prevail over a subsequent assignment. This means the person who can claim the assignment was first made to them will prevail over someone who claims a subsequent assignment. 

If, however, the second person paid value for the assignment, and entered into the assignment without knowing of the first assignment, the “subsequent”assignee is entitled to proceeds the first judgment against the obligor (the original party who still must perform), in the event such a judgment is issued,

If you have an issue with assignment of rights or duties under a contract, you should contact a contract lawyer  for advice. An experienced business lawyer near you can review the facts of your case, advise you of your rights, and represent you in court proceedings.

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• assignments basic law

Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

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“Good and Valuable Consideration”

16 November 2015 16 November 2015 | Ken Adams

The phrase good and valuable consideration is a standard feature of recitals of consideration in business contracts. You know the drill:

NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other good and valuable consideration , the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows:

So I decided to revisit, after a long absence, the meaning of good and valuable consideration . Well, I had to dig deep. You won’t find discussion of it in the obvious U.S. contracts treatises or anywhere else in the literature on contracts.

The first place I found it was in Google Books, which offered me an 1834 edition of the English treatise  Chitty on Contracts (with a more long-winded title). Here’s what it says:

We may premise, that considerations, as they relate to deeds , are in general divided into good and valuable considerations. “A good consideration,” says Blackstone ( o ), in speaking of a consideration for a deed or grant, “is such as that of blood, or of natural love and affection, when a man grants an estate to a near relation; being founded on motives of generosity, prudence, and natural duty. A valuable consideration is such as money, marriage ( p ), or the like, which the law esteems an equivalent given for the grant; and is therefore founded in motives of justice.” The former will not in general hold against creditors, if calculated to defraud them; the latter cannot in general be impeached ( q ). The distinction between a good and valuable consideration is this, — that a good consideration makes the instrument (a deed of conveyance, &c,) good as between the parties; but a valuable consideration makes the conveyance good against a subsequent purchaser ( r ). We must, however, observe, that the term good consideration, as thus applied to deeds, does not hold in relation to simple contracts, to support which relationship, natural love and affection will not be a sufficient consideration ( g ).

In the United States the distinction between good consideration and valuable consideration is evidently still relevant for some real-estate deeds, because it’s enshrined in, for example, Georgia statutes (more specifically, Ga. Code Ann. § 13-3-41). But the only reason I care about it is that I still see good and valuable consideration  constantly in contracts, and it makes no sense.

Using the phrase  good and valuable consideration is doubly stupid. First, consideration is what it is, and saying that it possesses a certain quality won’t do you any good unless it actually does. This from Farnsworth on Contracts 157 (3d ed. 2004):

[I]t is not within the drafter’s power to transform something that cannot be consideration into consideration by reciting that it is given “in consideration.”

And second, what was true in 1834 still holds true: the distinction between good consideration and valuable consideration is irrelevant for purposes of regular contracts, in other words contracts other than deeds and other formal contracts. (I leave it to others to determine whether it’s still relevant for those.) If buy 100 widgets from Jones in exchange for my undying affection, that transaction will be void for lack of consideration.

That good and valuable consideration is still a fixture in business contracts is a damning indictment of traditional contract drafting.

So here’s a little test. If you ask someone to draft a contract and what they prepare uses the phrase good and valuable consideration , ask them what it means. Here one good answer:

It means nothing, but in drafting the contract I used the best available precedent and assumed that you didn’t want me to start a big redrafting project.

Here’s another decent answer, although it’s a little less reassuring:

I don’t know what it means, but I do know that it doesn’t matter. Doing deals is about expediency, and I’m focusing on what needs doing to get the deal done.

If instead they look blankly at you, at least they’re being honest.

Conceivably they might start telling you about how using the phrase good and valuable consideration is required as a matter of consideration doctrine. That’s when you should get worried.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of  A Manual of Style for Contract Drafting , and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

16 thoughts on ““Good and Valuable Consideration””

It’s very interesting to see an old expression of the concepts.

The distinction no longer exists in English law – no consideration of any kind is required for a contract executed as a deed. So the retention of the phrase in contracts is even less explicable than it already was.

Also, a number of courts have allowed introduction of parol evidence (anathema to contracts lawyers) to explain what was the “other good and valuable consideration” in a contract or other written instrument.

Good point. For perspective, here’s something I found about a case in which a New York court declined to follow that approach: http://www.newyorkcommercialdivroundup.com/2013/03/articles/recent-articles/court-of-appeals-finds-the-phrase-other-good-and-valuable-consideration-in-a-contract-to-be-a-clear-and-unambiguous-statement/ .

A law student brought this argument to my attention. It has been used successfully in the past: Florida Moss Products Co. v. Leesburg, 112 So. 572 (Fla. 1927); Herrin v. Abbe, 46 So. 183 (Fla. 1908); Hieatzman v. Braecklein, 102 A. 917 (MD. Ct. App. 1917); “Contractual consideration as regards parol evidence rule”, 100 A.L.R. 17 (originally published 1936).

I had no idea of the separate meanings for “good” and “valuable.” Thanks! As I rarely say, “Eschew obfuscation!”

First I am not a lawyer :-) just a business guy.

Preamble: So I have an agreement where I’m recording the fact that there is a fee waiver requested by second party and granted by first party, under certain conditions of performance because the second party is a start up company and cannot afford the full fee of a program, however feel that they can do well if the first party allows them to participate and prove themselves. I chose to put good and valuable considerations in the contract after reading your article, with the following interpretation:

The “good” part, if it’s roots are in love or affection, then definitely my allowing this waiver for party no. 2 is rooted in that I love to help start ups.

The ‘valuable’ part, is in that I’m giving them real value,

Now the question: Am I being stupid? :-)

Okay so the phrase should just be avoided?

I suggest you read my 2015 article: https://www.adamsdrafting.com/wp-content/uploads/2015/12/Reconsidering-the-Recital-of-Consideration.pdf

I like to see champions of clear and meaningful writing. I’d also point everyone at http://www.plainlanguage.gov (talks about eliminating “shall”, etc.)

Thank you for this! Somehow in my quest to simplfy, I’d not run across this codification!

A contract without consideration is not enforceable. Price is an essential element of a contract. I only use this language when the contract isn’t supported by monetary consideration, because it denotes the foregoing facts. And, if you had asked me, I would not have given a blank stare, but told you this.

I suggest you take a look at: Schron v. Troutman Saunders LLP, 2013 NY Slip Op 00952 (N.Y. Feb 24, 2013). The NY Court found that inclusion of the consideration recital precluded the parties from relying on extrinsic evidence to challenge the receipt/sufficiency of the consideration, and therefore the language served to validate consideration on its own.

Sorry, but that makes no sense, and you misunderstand that case. Because you elected to comment anonymously, we’ll leave it at that.

Thanks for clarifying. I always assumed this meant something intangible that was being acknowledged as being beneficial to the contract (although why the law would care I had no idea).

I love this! Thank you Ken. I see this constantly in my settlement agreements and consequently I am constantly SMH.

Thanks for this information. So basically if a quit claim deed says good consideration and the line for a dollar amount is left blank.. Could be questionable.. Was it a gift or not. And if the grantee was the one that purchased the quit claim deed and filled it out. And was the one who recorded the quit claim deed. And with an island notary page. And the grantor was sick in the hospital at the time of this transaction. I am thinking a shady deal. Thank you.

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The Consideration Doctrine

1. consideration doctrine.

Begin by reading the following Restatement (Second) provisions concerning consideration doctrine:

Restatement (Second) of Contracts

§ 17. requirement of a bargain.

(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.

(2) Whether or not there is a bargain, a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94.

§ 71. Requirement of Exchange; Types of Exchange

(1) To constitute consideration, a performance or a return promise must be bargained for.

(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.

(3) The performance may consist of

(a) an act other than a promise, or

(b) a forbearance, or

(c) the creation, modification, or destruction of a legal relation.

(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

The Restatement defines consideration in terms of exchange, and with the exceptions noted in § 17(2), requires that a promise be supported by consideration in order to be legally enforceable. Professor Stanley Henderson has offered the following explanation for this doctrinal requirement.

The essential function of consideration is to determine the types of promises which should not be enforced. The promise which does not purport to exact an exchange is singled out by consideration doctrine as the one least worthy of enforcement, because it may well have been given without the care which an exchange relationship encourages and because it is least likely to serve a useful economic function.

Stanley D. Henderson, Promissory Estoppel and the Traditional Contact Doctrine , 78 Yale L.J. 343, 346 (1969). Although we will focus on the Restatement (Second)’s formulation of the consideration doctrine, you should also be aware that many older decisions instead analyze consideration as a benefit to the promisor or a detriment to the promisee. In our discussion of Hamer v. Sidway , we will try to reconcile these two distinct ways of talking about consideration.

1.1 Principal Case – Hamer v. Sidway

The court in Hamer v. Sidway decided to enforce a rich uncle’s generous promise to reward his nephew for abstaining from certain vices. As you read, consider precisely what facts made the uncle’s promise enforceable.

Hamer v. Sidway

Court of Appeals of New York

124 N.Y. 538, 27 N.E. 256 (1891)

[1] APPEAL from order of the General Term of the Supreme Court in the fourth judicial department, made July 1, 1890, which reversed a judgment in favor of plaintiff entered upon a decision of the court on trial at Special Term and granted a new trial.

[2] This action was brought upon an alleged contract.

[3] The plaintiff presented a claim to the executor of William E. Story, Sr., for $5,000 and interest from the 6th day of February, 1875. She acquired it through several mesne assignments from William E. Story, 2d. The claim being rejected by the executor, this action was brought. It appears that William E. Story, Sr., was the uncle of William E. Story, 2d; that at the celebration of the golden wedding [anniversary] of Samuel Story and wife, father and mother of William E. Story, Sr., on the 20th day of March, 1869, in the presence of the family and invited guests he promised his nephew that if he would refrain from drinking, using tobacco, swearing and playing cards or billiards for money until he became twenty-one years of age he would pay him a sum of $5,000. The nephew assented thereto and fully performed the conditions inducing the promise. When the nephew arrived at the age of twenty-one years and on the 31st day of January, 1875, he wrote to his uncle informing him that he had performed his part of the agreement and had thereby become entitled to the sum of $5,000. The uncle received the letter and a few days later and on the sixth of February, he wrote and mailed to his nephew the following letter:

BUFFALO, Feb. 6, 1875.

W. E. STORY, Jr.:

DEAR NEPHEW–Your letter of the 31st ult. came to hand all right, saying that you had lived up to the promise made to me several years ago. I have no doubt but you have, for which you shall have five thousand dollars as I promised you. I had the money in the bank the day you was 21 years old that I intend for you, and you shall have the money certain. Now, Willie I do not intend to interfere with this money in any way till I think you are capable of taking care of it and the sooner that time comes the better it will please me. I would hate very much to have you start out in some adventure that you thought all right and lose this money in one year. The first five thousand dollars that I got together cost me a heap of hard work. You would hardly believe me when I tell you that to obtain this I shoved a jackplane many a day, butchered three or four years, then came to this city, and after three months’ perseverence I obtained a situation in a grocery store. I opened this store early, closed late, slept in the fourth story of the building in a room 30 by 40 feet and not a human being in the building but myself. All this I done to live as cheap as I could to save something. I don’t want you to take up with this kind of fare. I was here in the cholera season ’49 and ’52 and the deaths averaged 80 to 125 daily and plenty of small-pox. I wanted to go home, but Mr. Fisk, the gentleman I was working for, told me if I left then, after it got healthy he probably would not want me. I stayed. All the money I have saved I know just how I got it. It did not come to me in any mysterious way, and the reason I speak of this is that money got in this way stops longer with a fellow that gets it with hard knocks than it does when he finds it. Willie, you are 21 and you have many a thing to learn yet. This money you have earned much easier than I did besides acquiring good habits at the same time and you are quite welcome to the money; hope you will make good use of it. I was ten long years getting this together after I was your age. Now, hoping this will be satisfactory, I stop. One thing more. Twenty-one years ago I bought you 15 sheep. These sheep were put out to double every four years. I kept track of them the first eight years; I have not heard much about them since. Your father and grandfather promised me that they would look after them till you were of age. Have they done so? I hope they have. By this time you have between five and six hundred sheep, worth a nice little income this spring. Willie, I have said much more than I expected to; hope you can make out what I have written. To-day is the seventeenth day that I have not been out of my room, and have had the doctor as many days. Am a little better to-day; think I will get out next week. You need not mention to father, as he always worries about small matters.

Truly Yours,

W. E. STORY.

P. S.–You can consider this money on interest.

[4] The nephew received the letter and thereafter consented that the money should remain with his uncle in accordance with the terms and conditions of the letters. The uncle died on the 29th day of January, 1887, without having paid over to his nephew any portion of the said $5,000 and interest.

[5] The question which provoked the most discussion by counsel on this appeal, and which lies at the foundation of plaintiff’s asserted right of recovery, is whether by virtue of a contract defendant’s testator William E. Story became indebted to his nephew William E. Story, 2d, on his twenty-first birthday in the sum of five thousand dollars. The trial court found as a fact that “on the 20th day of March, 1869, …William E. Story agreed to and with William E. Story, 2d, that if he would refrain from drinking liquor, using tobacco, swearing, and playing cards or billiards for money until he should become 21 years of age then he, the said William E. Story, would at that time pay him, the said William E. Story, 2d, the sum of $5,000 for such refraining, to which the said William E. Story, 2d, agreed,” and that he “in all things fully performed his part of said agreement.”

[6] The defendant contends that the contract was without consideration to support it, and, therefore, invalid. He asserts that the promisee by refraining from the use of liquor and tobacco was not harmed but benefited; that that which he did was best for him to do independently of his uncle’s promise, and insists that it follows that unless the promisor was benefited, the contract was without consideration. A contention, which if well founded, would seem to leave open for controversy in many cases whether that which the promisee did or omitted to do was, in fact, of such benefit to him as to leave no consideration to support the enforcement of the promisor’s agreement. Such a rule could not be tolerated, and is without foundation in the law. The Exchequer Chamber, in 1875, defined consideration as follows: “A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.” Courts “will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to anyone. It is enough that something is promised, done, forborne or suffered by the party to whom the promise is made as consideration for the promise made to him.” (Anson’s Prin. of Con. 63.)

[7] “In general a waiver of any legal right at the request of another party is a sufficient consideration for a promise.” (Parsons on Contracts, 444.)

[8] “Any damage, or suspension, or forbearance of a right will be sufficient to sustain a promise.” (Kent, vol. 2, 465, 12th ed.)

[9] Pollock, in his work on contracts, page 166, after citing the definition given by the Exchequer Chamber already quoted, says: “The second branch of this judicial description is really the most important one. Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first.”

[10] Now, applying this rule to the facts before us, the promisee used tobacco, occasionally drank liquor, and he had a legal right to do so. That right he abandoned for a period of years upon the strength of the promise of the testator that for such forbearance he would give him $5,000. We need not speculate on the effort which may have been required to give up the use of those stimulants. It is sufficient that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle’s agreement, and now having fully performed the conditions imposed, it is of no moment whether such performance actually proved a benefit to the promisor, and the court will not inquire into it, but were it a proper subject of inquiry, we see nothing in this record that would permit a determination that the uncle was not benefited in a legal sense. Few cases have been found which may be said to be precisely in point, but such as have been support the position we have taken.

[11] In Shadwell v. Shadwell (9 C. B. [N. S.] 159), an uncle wrote to his nephew as follows:

MY DEAR LANCEY

I am so glad to hear of your intended marriage with Ellen Nicholl, and as I promised to assist you at starting, I am happy to tell you that I will pay to you 150 pounds yearly during my life and until your annual income derived from your profession of a chancery barrister shall amount to 600 guineas, of which your own admission will be the only evidence that I shall require.

Your affectionate uncle,

CHARLES SHADWELL.

It was held that the promise was binding and made upon good consideration.

[12] In Lakota v. Newton, an unreported case in the Superior Court of Worcester, Mass., the complaint averred defendant’s promise that “if you (meaning plaintiff) will leave off drinking for a year I will give you $100,” plaintiff’s assent thereto, performance of the condition by him, and demanded judgment therefor. Defendant demurred on the ground, among others, that the plaintiff’s declaration did not allege a valid and sufficient consideration for the agreement of the defendant. The demurrer was overruled.

[13] In Talbott v. Stemmons, 12 S. W. Rep. 297, (a Kentucky case not yet reported), the step-grandmother of the plaintiff made with him the following agreement: “I do promise and bind myself to give my grandson, Albert R. Talbott, $500 at my death, if he will never take another chew of tobacco or smoke another cigar during my life from this date up to my death, and if he breaks this pledge he is to refund double the amount to his mother.” The executor of Mrs. Stemmons demurred to the complaint on the ground that the agreement was not based on a sufficient consideration. The demurrer was sustained and an appeal taken therefrom to the Court of Appeals, where the decision of the court below was reversed. In the opinion of the court it is said that “the right to use and enjoy the use of tobacco was a right that belonged to the plaintiff and not forbidden by law. The abandonment of its use may have saved him money or contributed to his health, nevertheless, the surrender of that right caused the promise, and having the right to contract with reference to the subject-matter, the abandonment of the use was a sufficient consideration to uphold the promise.” Abstinence from the use of intoxicating liquors was held to furnish a good consideration for a promissory note in Lindell v. Rokes (60 Mo. 249).…

[14] The order appealed from should be reversed and the judgment of the Special Term affirmed, with costs payable out of the estate.

1.1.1 The Benefit-Detriment Test

We have seen that the Restatement (Second) § 71 frames consideration in terms of bargain and exchange. Here is how one court reconciled this modern formulation with the traditional discussion of benefits and detriments.

The words “benefit” and “detriment” in contract cases involving consideration have technical meanings. “Detriment” as used in determining the sufficiency of consideration to support a contract means “’legal detriment’ as distinguished from detriment in fact. It means giving up something which immediately prior thereto the promisee was privileged to retain, or doing or refraining from doing something which he was then privileged not to do, or not to refrain from doing.” (Hamilton Bancshares, Inc. v. Leroy (1985), 131 Ill. App. 3d 907, 913, quoting 1 Willison, Contracts § 102A, at 380-382 (3d ed. 1957).) For example, a promise to give up smoking is also a legal detriment and sufficient consideration to support a contract.

Davies v. Martel Laboratory Services, Inc. , 189 Ill. App. 3d 694, 545 N.E.2d 475, 477 (1989).

1.1.2 Consideration and Motive

It may be tempting to focus on a party’s motive for acting in determining whether an act can or cannot serve as consideration. The following excerpt from Oliver Wendell Holmes, The Common Law 293-94 (1887) describes a more subtle role for motive.

It is said that consideration must not be confounded with motive. It is true that it must not be confounded with what may be the prevailing or chief motive in actual fact. A man may promise to paint a picture for five hundred dollars, while his chief motive may be a desire for fame. A consideration may be given and accepted, in fact, solely for the purpose of making a promise binding. But, nevertheless, it is the essence of consideration, that, by the terms of the agreement, it is given and accepted as the motive or inducement of the promise. Conversely, the promise must be made and accepted as the conventional motive or inducement for furnishing the consideration. The root of the whole matter is the relation of reciprocal conventional inducement, each for the other between consideration and promise.

1.1.3 Discussion of Hamer v. Sidway

Why does Uncle William’s executor resist paying Willie the $5,000 plus interest? What is the estate’s argument against enforcement of this promise?

Notice that the court discussed consideration in terms of benefits and detriments. Under this traditional understanding of the doctrine, why does the plaintiff prevail?

Now consider the modern definition of consideration in Restatement (Second) §71. How would the plaintiff argue for enforcement under this version of the doctrine?

1.2 Principal Case – St. Peter v. Pioneer Theatre

In the following case, as in Hamer , the court chooses to enforce a promise. Try to decide whether the court’s rationale for enforcement in St. Peter v. Pioneer Theatre differs from the reasoning in Hamer . Also notice that the court’s opinion exemplifies the sort of tedious legal writing that you should strive not to emulate in your own writing.

St. Peter v. Pioneer Theatre Corp.

Supreme Court of Iowa

227 Iowa 1391, 291 N.W. 164 (1940)

Miller, Justice.

[1] This controversy involves a drawing at a theatre under an arrangement designated as “bank night”, not identical with, but substantially similar to the arrangement involved in the controversy heretofore presented to this court by the case of State v. Hundling, 220 Iowa 1369, 264 N.W. 608, 103 A.L.R. 861. In that case, we held that the arrangement was not a lottery in violation of the provisions of Section 13218 of the Code, 1931, and that the proprietor of the theatre was not subject to criminal prosecution. In this case, we are confronted with the question whether the arrangement is such that one, to whom the prize is awarded, has a cause of action to enforce the payment thereof.

[2] Plaintiff’s petition alleges that the Pioneer Theatre Corporation operates a theatre at Jefferson, Iowa, known as the Iowa Theatre, and that the defendant Parkinson was at all times material herein manager of such theatre. The bank night drawing by defendants was conducted on Wednesday evening, at about 9 p.m. On December 21, 1938, the prize or purse was advertised by defendants in the amount of $275. At about 9 p.m., plaintiff and her husband were outside the theatre when an agent of the defendants announced that plaintiff’s name had been called. Plaintiff immediately went into the theatre and made demand upon the manager, who refused to pay her the prize or purse, although plaintiff made demand therefor within the three minutes allowed by defendants. Plaintiff demanded judgment for the $275 and costs.

[3] In count II of the plaintiff’s petition, plaintiff alleged that her husband’s name was drawn, he presented himself within three minutes, demanded the $275 and payment was refused, if he was not within the allotted time it was due to acts of defendants, her husband assigned his claim to plaintiff and plaintiff demanded judgment as such assignee.

[4] Defendants’ answer admitted that the Pioneer Theatre Corporation is operating the Iowa Theatre at Jefferson, Iowa, and that the defendant Parkinson is and has been for more than five years manager of said Iowa Theatre for the corporate defendant. The answer denied all other allegations of both counts of the petition.

[5] The only witnesses to testify at the trial were the plaintiff and her husband. Their testimony is not in conflict. Accordingly, no disputed question of fact is presented, only questions of law.

[6] They testified that each had signed the bank night register, plaintiff’s number was 6396, her husband’s number 212. The husband signed the register at the express invitation and request of Parkinson. Plaintiff signed the register later at the theatre in the presence of an usher. Plaintiff attended every bank night, often accompanied by her husband. Sometimes they attended as patrons of the theatre. Other times they stood on the sidewalk outside. On the occasions when they remained on the sidewalk outside the theatre, one Alice Kafer habitually announced the name that had been drawn inside the theatre. The only other person seen by them to make such announcement was Parkinson.

[7] On the evening of December 21, 1938, plaintiff and her husband were on the sidewalk in front of the theatre. They observed a sign reading “Bank Night $275”. About 9 o’clock Alice Kafer came out and said to plaintiff, “Hurry up Mrs. St. Peter, your name is called.” Plaintiff entered the theatre and called to Parkinson. He came back and said, “I am sorry, but it was your husband’s name that was called, where is your husband?” She said, “He is right behind me,” turned around and motioned to him and said, “It’s your name that was called.” As he started toward them, the lights went out and in the darkness they lost track of Parkinson. They sent an usher to look for him. When Parkinson came out and approached them he said to plaintiff’s husband, “You are too late, just one second too late.” Mr. St. Peter said, “You have a pretty good watch.” Parkinson replied, “One second is just as good as a week.” Mr. St. Peter said, “Why don’t you call the name outside like you do inside?” Parkinson replied, “I have a lady hired to call the name out.” When asked who she was, he said, “It’s none of your business.” When told that Mr. St. Peter intended to see a lawyer, Parkinson stated, “That is what we want you to do; the law is backing us up on our side.” Plaintiff and her husband then left the theatre. Plaintiff’s husband testified that he assigned his claim to the plaintiff before the action was commenced.

[8] At the close of plaintiff’s evidence, which consisted solely of her testimony, that of her husband, and defendants’ bank night register, defendants made a motion for a directed verdict on seven grounds, to wit: (1) there was no adequate or legal consideration for the claimed promise to give the alleged purse, (2) there was no evidence that Alice Kafer was employed by or in any manner authorized by defendants to announce the winner of the drawing, and defendants were not bound by her statements, (3) the most that could be claimed for plaintiff’s alleged cause of action was a mere executory agreement to make a gift upon the happening of certain events without legal or adequate consideration, and no recovery could be had, (4) if a verdict were returned for plaintiff under the evidence offered, it would be the duty of the court to set the same aside, (5) there was no evidence that either plaintiff or her husband claimed the purse within the time limit fixed by defendants, (6) there was no relevant, competent or material proof that the name of either plaintiff or her husband was drawn, (7) if there is any legal or sufficient consideration for the promise sought to be enforced, then such consideration would constitute the transaction a lottery and, therefore, an illegal transaction upon which no recovery could be had.

[9] The court sustained the motion generally. A verdict for the defendants was returned accordingly and judgment was entered dismissing the action at plaintiff’s costs. Plaintiff appeals, assigning as error the sustaining of the motion and the entry of judgment pursuant thereto.

[10] Since the motion was sustained generally, it is incumbent upon appellant, before she would be entitled to a reversal at our hands, to establish that the motion was not good upon any ground thereof. People’s Trust & Savings Bank v. Smith, 212 Iowa 124, 126, 236 N.W. 30, 31; Slippy Eng. Corp. v. City of Grinnell, 226 Iowa 1293, 286 N.W. 508, 513. Realizing such burden, and undertaking to discharge the same, appellant has made seven assignments of error, each attacking a similarly numbered paragraph of the motion for directed verdict.

[11] Appellant’s assignments of error Nos. 1, 3 and 7, attacking paragraphs 1, 3 and 7 of the motion for directed verdict, are definitely related to each other, and will be considered together. In such consideration, we are faced at the outset with our decision in the case of State v. Hundling, 220 Iowa 1369, 264 N.W. 608, 103 A.L.R. 861, heretofore referred to, wherein we held that an arrangement such as is involved herein does not constitute a lottery, and that the proprietor of the theatre is not subject to criminal prosecution on account thereof. In defining a lottery, we state at page 1370 of 220 Iowa, at page 609 of 264 N.W., 103 A.L.R. 861, as follows: “The giving away of property or prizes is not unlawful, nor is the gift made unlawful by the fact that the recipient is determined by lot. Our statute provides that the recipient of a public office may be determined by lot in certain cases where there is a tie vote. Section 883, Code 1931. To constitute a lottery there must be a further element, and that is the payment of a valuable consideration for the chance to receive the prize. Thus, it is quite generally recognized that there are three elements necessary to constitute a lottery: First, a prize to be given; second, upon a contingency to be determined by chance; and, third, to a person who has paid some valuable consideration or hazarded something of value for the chance.”

[12] In applying such definition to the facts presented in that case, we state at page 1371 of 220 Iowa, at page 609 of 264 N.W., 103 A.L.R. 861, as follows:

The term “lottery,” as popularly and generally used, refers to a gambling scheme in which chances are sold or disposed of for value and the sums thus paid are hazarded in the hope of winning a much larger sum. That is the predominant characteristic of lotteries which has become known to history and is the source of the evil which attends a lottery, in that it arouses the gambling spirit and leads people to hazard their substance on a mere chance. It is undoubtedly the evil against which our statute is directed. The provisions of the statute making it a crime to have possession of lottery tickets with intent to sell or dispose of them indicates not only what is regarded as characteristic of a lottery, but it indicates the particular incident of a lottery which is regarded as an evil. To have a lottery, therefore, he who has the chance to win the prize must pay, or agree to pay, something of value for that chance.

In the particular scheme under consideration here, there is no question but [that] two elements of a lottery are present, first, a prize, and, second, a determination of the recipient by lot. Difficulty arises in the third element, namely, the payment of some valuable consideration for the chance by the holder thereof. The holder of the chance to win the prize in the case at bar was required to do two things in order to be eligible to receive the prize, first, to sign his name in the book, and, second, be in such proximity to the theater as that he could claim the prize within two and one-half minutes after his name was announced. He was not required to purchase a ticket of admission to the theater either as a condition to signing the registration book or claiming the prize when his name was drawn. In other words, paying admission to the theater added nothing to the chance. Where then is the payment by the holder of the chance of a valuable consideration for the chance, which is necessary in order to make the scheme a lottery?

[13] In holding that there was not such a valuable consideration as would constitute the arrangement a lottery, we state at page 1372 of 220 Iowa, at page 610 of 264 N.W., 103 A.L.R. 861, as follows: “It is urged on behalf of the state that the defendant theater manager gained some benefit, or hoped to gain some benefit, from the scheme in the way of increased attendance at his theater, and that this would afford the consideration required. If it be conceded that the attendance at the theater on the particular night that the prize was to be given away was stimulated by reason of the scheme, it is difficult to see how that would make the scheme a lottery. The question is not whether the donor of the prize makes a profit in some remote and indirect way, but, rather, whether those who have a chance at the prize pay anything of value for that chance. Every scheme of advertising, including the giving away of premiums and prizes, naturally has for its object, not purely a philanthropic purpose, but increased business….Profit accruing remotely and indirectly to the person who gives the prize is not a substitute for the requirement that he who has the chance to win the prize must pay a valuable consideration therefor, in order to make the scheme a lottery.”

[14] Appellees rely upon the language above quoted to support their contention that the arrangement involved in both cases constitutes merely an offer to make a gift, which is not supported by a valuable consideration and is, therefore, unenforceable.

[15] In 12 American Jurisprudence, pages 564 and 565, in Section 72, it is stated, “It is well settled, however, that ordinarily consideration is an essential element of a simple contract, and want or lack of consideration is an excuse for nonperformance of a promise.” It is also stated, “The policy of the courts in requiring a consideration for the maintenance of an action of assumpsit appears to be to prevent the enforcement of gratuitous promises.” Such principles have been recognized by this court. In the case of Farlow v. Farlow, 154 Iowa 647, 135 N.W. 1, we held that a promise to make a gift is without consideration and not enforceable. See also, Lanfier v. Lanfier, Iowa, 288 N.W. 104.

[16] Appellees contend that the foregoing principles, considered with our statements in State v. Hundling, supra , show that this action is based upon a promise that cannot be enforced. In the Hundling case, we state, “The giving away of property or prizes is not unlawful,” and, “profit accruing remotely and indirectly to the person who gives the prize is not a substitute for the requirement that he who has a chance to win the prize must pay a valuable consideration therefor.” Appellees contend that these pronouncements commit us to the proposition that the arrangement involved herein constituted nothing more than a promise to make a gift which is not supported by a legal consideration, and, accordingly, is not enforceable. We are unable to agree with the contentions of appellees.

[17] At the outset, it is important to bear in mind that the plaintiff herein seeks to recover on a unilateral contract. A bilateral contract is one in which two promises are made; the promise of each party to the contract is consideration for the promise of the other party. In a unilateral contract, only one party makes a promise. If that promise is made contingent upon the other party doing some act, which he is not under legal obligation to do, or forbearing an action which he has a legal right to take, then such affirmative act or forbearance constitutes the consideration for and acceptance of the promise.

[18] In discussing the difference between bilateral contracts and unilateral contracts, this court, in the case of Port Huron Mach. Co. v. Wohlers, 207 Iowa 826, 829, 221 N.W. 843, 844, states as follows:

The law recognizes, as a matter of classification, two kinds of contracts—unilateral and bilateral. In the case at bar a typical example of unilateral contract is found, since it is universally agreed that a “unilateral contract” is one in which no promisor receives a promise as consideration, whereas, in a “bilateral contract” there are mutual promises between the two parties to the contract. This matter of definition has recently received careful consideration by the American Law Institute and may be found in the Restatement of the Law of Contracts. Proposed Final Draft No. 1 (April 18, 1928) p. 17, § 12.

In the instant case the offer of the defendant must be viewed as a promise. It is promissory in terms. The rule is well stated by Prof. Williston: A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee, and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcement of the promise. See Williston on Contracts, vol. 1, § 139. Clearly the instant offer signed by the defendant was of this character. Appellant, however, contends that there was no acceptance of the offer. Words are not the only medium of expression of mutual assent. An offer may invite an acceptance to be made by merely an affirmative answer or by performing a specific act. True, if an act other than a promise is requested, no contract exists until what is requested is performed or tendered in whole or in part. We are here dealing with a unilateral contract, and the act requested and performed as consideration for the contract indicates acceptance as well as furnishes the consideration.

[19] The case of Scott v. People’s Monthly Co., 209 Iowa 503, 508, 228 N.W. 263, 265, 67 A.L.R. 413, involved an action for a $1,000 prize offered in a “Word-building Contest”. We there state:

In 34 Cyc. 1731, we find the following apt language:

“An offer of or promise to pay a reward is a proposal merely or a conditional promise, on the part of the offeror, and not a consummated contract. It may be said to be in effect the offer of a promise for an act, and the offer becomes a binding contract when the act is done or the service rendered in accordance with the terms of the offer.”

It is the doing of the act in accordance with the terms and conditions of the offer which completes the contract. 34 Cyc. 1738. In other words, to make a binding and enforceable contract, the act must be done in accordance with the terms and conditions of the offer. 34 Cyc. 1742. See, also, 13 Corpus Juris 275; 13 C.J. 379; 13 C.J. 281-283; 13 C.J. 289; Baker v. Johnson County, 37 Iowa 186; Breen v. Mayne, 141 Iowa 399, 118 N.W. 441.

[20] The principles applicable to the question of the adequacy of the consideration are clearly and concisely stated by Chief Justice Wright in the early case of Blake v. Blake, 7 Iowa 46, 51, as follows: “The essence and requisite of every consideration is, that it should create some benefit to the party promising, or some trouble, prejudice, or inconvenience to the party to whom the promise is made. Whenever, therefore, any injury to the one party, or any benefit to the other, springs from a consideration, it is sufficient to support a contract. Each party to a contract may, ordinarily, exercise his own discretion, as to the adequacy of the consideration; and if the agreement be made bona fide, it matters not how insignificant the benefit may apparently be to the promissor, or how slight the inconvenience or damage appear to be to the promisee, provided it be susceptible of legal estimation. Story on Contracts, section 431. Of course, however, if the inadequacy is so gross as to create a presumption of fraud, the contract founded thereon would not be enforced. But, even then, it is the fraud which is thereby indicated, and not the inadequacy of consideration, which invalidates the contract.”

[21] The principles announced in the above quotation have been recognized and applied by us in our later decisions. State ex rel. v. American Bonding & Casualty Co., 213 Iowa 200, 206, 238 N.W. 726; Edwards v. Foley, 187 Iowa 5, 9, 173 N.W. 914; Harlan v. Harlan, 102 Iowa 701, 704, 72 N.W. 286.

[22] Applying the principles above reviewed, it is readily apparent that, in this action on a unilateral contract, it was necessary for the plaintiff to show that a promise had been made which might be accepted by the doing of an act, which act would constitute consideration for the promise and performance of the contract. There is no basis for any claim of fraud herein. Plaintiff had nothing to do with inducing the defendants’ promise. That promise was voluntarily and deliberately made. Defendants exercised their own discretion in determining the adequacy of the consideration for their promise. If the plaintiff did the acts called for by that promise, defendants cannot complain of the adequacy of the consideration.

[23] Of course, it is fundamental that the act which is asserted as the consideration for acceptance and performance of a unilateral contract must be an act which the party sought to be bound bargained for, and the acts must have been induced by the promise made. Appellees contend that the facts are wholly insufficient to meet such requirements, contending as follows: “Although the action of Appellant in writing her name or standing in front of the theater might under some circumstances be such an act as would furnish a consideration for a promise, yet under the facts in the case at bar,…no reasonable person could say that the requested acts were actually bargained for in a legal sense so as to give rise to an enforceable promise.”

[24] We are unable to concur in the contentions of counsel above quoted. We think that the requested acts were bargained for. We see nothing unreasonable in such holding. If there is anything unreasonable in this phase of the case, it would appear to be the contentions of counsel.

[25] This brings us to the proposition raised by paragraph 7 of the motion for directed verdict, wherein it is asserted that, if there was a legal consideration for the promise sought to be enforced, then such consideration would constitute the transaction a lottery. To sustain such contention would require us to overrule State v. Hundling, supra , and to overrule such contention requires a differentiating of that case from this case. We think that the two questions are different and may be logically distinguished.

[26] In the Hundling case, we point out that the source of the evil which attends a lottery is that it arouses the gambling spirit and leads people to hazard their substance on a mere chance. Accordingly, it is vitally necessary to constitute a lottery that one who has the chance to win the prize must pay something of value for that chance. The value of the consideration, from a monetary standpoint, is the essence of the crime. However, in a civil action to enforce the promise to pay a prize, the monetary value of the consideration is in no wise controlling. It is only necessary that the act done be that which the promisor specified. The sufficiency of the consideration lies wholly within the discretion of the one who offers to pay the prize. “It matters not how insignificant the benefit may apparently be to the promisor, or how slight the inconvenience or damage appear to be to the promisee, provided it be susceptible of legal estimation.” Blake v. Blake, supra . Accordingly, it is entirely possible that the act, specified by the promisor as being sufficient in his discretion to constitute consideration for and acceptance of his promise, might have no monetary value and yet constitute a legal consideration for the promise. Under such circumstances, the arrangement is not a lottery. The promoter of the scheme cannot be prosecuted criminally. But, if the act specified is done, the unilateral contract is supported by a consideration, and, having been performed by the party doing the act, can be enforced against the party making the promise. We hold that such is the situation here. There is no merit in grounds 1, 3 and 7 of the motion for directed verdict.

[27] Appellant’s second assignment of error challenges paragraph 2 of the motion for directed verdict, which asserted that the evidence was insufficient to establish that Alice Kafer was employed by or authorized by defendants to announce the winner of the drawing, and that defendants were not bound by her statements. The answer admitted that Parkinson was manager of the theatre. As manager of the theatre, he asserted that he had a lady hired to call out the name outside the theatre. This assertion upon his part is binding upon the defendants. The evidence shows that the only person who called out the name other than Parkinson was Alice Kafer, and that she habitually announced the name that had been drawn on prior occasions. The evidence was sufficient to establish her agency and to make her announcement binding on defendants.

[28] Appellants’ fifth assignment of error challenges paragraph 5 of the motion for directed verdict, which asserts that there was no evidence that either plaintiff or her husband claimed the purse within the time limit fixed by defendants. The evidence shows that, when the plaintiff claimed the prize, Parkinson said, “I am sorry, but it was your husband’s name that was called, where is your husband?” When her husband came, he said to him, “You are too late, just one second too late.” Obviously, under Parkinson’s statement, plaintiff claimed the prize in time. If her husband was the one entitled to it, the delay on his part was due to the defendants’ act in permitting their agent, Alice Kafer, to announce the wrong name outside the theatre. Under such circumstances, defendants are estopped to claim the advantage of the one second delay. The basis for such estoppel was pleaded in the petition. It must be enforced against defendants.

[29] Appellant’s sixth assignment of error challenges paragraph 6 of the motion for directed verdict, which asserted that no relevant, competent, or material proof tended to establish that the name of either the plaintiff or her husband was drawn. Plaintiff’s name was announced by one agent, her husband’s name by another agent, both of whom were in a position to bind the defendants. There is no merit in this ground of the motion.

[30] Appellant’s fourth assignment of error attacks paragraph 4 of the motion for directed verdict, which is a blanket statement that under the evidence it would be the duty of the court to set aside a verdict for the plaintiff. The disposition of the other propositions herein demonstrates that there is no merit in this ground of the motion.

[31] All of appellant’s assignments of error are well grounded. No ground of the motion for directed verdict was sufficient to warrant a sustaining of the motion. The court’s ruling was erroneous.

The judgment entered pursuant thereto must be and it is reversed.

1.2.1 The Legality of “Bank Nights” in Iowa

In State v. Hundling , discussed above in St. Peter , the Iowa Supreme Court held that participants in a Bank Night contest had not given valuable consideration within the meaning of the state’s criminal statute prohibiting lotteries. Several decades later, the same court reversed itself and ruled that Bank Nights violated Iowa lottery laws. For a detailed history of the Bank Night litigation, see Annotation, 103 A.L.R. 866; 109 A.L.R. 709; 113 A.L.R. 1121.

1.2.2 Discussion of St. Peter v. Pioneer Theatre

Is the alleged contract in this case bilateral or unilateral? What do you suppose that those terms mean?

How would you apply the bargain theory of consideration to the facts of St.Peter v. Pioneer Theatre ?

Consider whether there is anything fishy about Pioneer Theatre’s arguments. Do you see any problem with arguing that the promotional scheme is not an illegal lottery while also maintaining that the Bank Night prize is merely an unenforceable promise to give a gift?

1.2.3 Problem on Consideration

Consider the following variation on Hamer v. Sidway . Suppose that New York state law made it illegal for Willie to drink, smoke or gamble before the age of 21. Uncle William offers, and Willie accepts, $5,000 to abstain from these vices until age 21.

Would this promise be enforceable under the language of the Hamer decision?

What about under the principles of Restatement (Second) § 71?

Can you think of any reason(s) that a court might be reluctant to enforce in these circumstances?

Suppose now that the agreement concerns armed robbery and homicide instead. New York state law makes it illegal to commit armed robbery or homicide. Uncle William offers, and Willie accepts, $5,000 to abstain from armed robbery and homicide until age 21.

How would you expect a court to analyze this promise?

Contracts Doctrine, Theory and Practice by CALI is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License , except where otherwise noted.

Consideration in Contracts: Everything You Need to Know

Consideration in contracts refers to the benefit each party receives in exchange for what it gives up in the contract. It is a vital element in a contract. 3 min read updated on February 01, 2023

Updated November 17, 2020:

Consideration in Contracts

Consideration in contracts refers to the benefit each party receives in exchange for what it gives up in the contract. It is a vital element that must be present in a contract in order to make it legally binding on the parties. A contract, whether oral or in writing, becomes invalid if there is no consideration involved.

Essential Elements of Consideration

In order to form a valid contract, consideration must meet the following conditions:

• It must be something worth bargaining for.
• It must benefit all the parties to the contract.
• It must be something of value.

Types of Consideration

There are two types of consideration:

• Consideration in a bilateral contract involves exchanging a promise for a promise.
• Consideration in a unilateral contract involves one party making a promise and the other party doing something in return.

Consideration Need Not Be Monetary

Consideration can be in the form of money, property, promise, services, or something else. It can be something as simple as a promise to do or not to do something. For example, if you enter into a contract with your neighbor wherein he agrees not to sue you for the damage you caused to his property, and in return, you agree to pay him a sum of $800, then the amount of $800 is the consideration your neighbor gets, whereas his promise to not sue you is the consideration you get from the contract.

Disproportionate Consideration

Consideration can be as big or small as the parties mutually agree to exchange between themselves. For example, when you go to buy a dress, it's between you and the seller to agree upon the price. When a valid consideration is present, courts rarely interfere to decide whether the deal is unfair or disproportionate. However, if a party is tricked into an unfair deal by hiding some important information or otherwise acting in bad faith, then it can affect the legal validity of the contract.

Is It Mandatory to Mention the Word 'Consideration'?

Most contracts contain a line or two to the effect that a valid and sufficient consideration forms the basis of the contract. However, just mentioning something in the contract does not prove the existence of valid consideration. Likewise, a consideration does not become invalid if it doesn't find a mention in the contract. No

What Happens When a Contract Lacks Consideration?

If there is no consideration present in a contract, the contract becomes invalid, and the courts may refuse to enforce the contract. Sometimes, a contract may lack consideration though it may seem at the surface that the parties are exchanging something of value.

Following are some of the scenarios where there is no valid consideration involved:

• When a party promises to perform something he or she was already legally bound to perform. For example, when a policeman promises to catch the thief.
• When the consideration is more of a gift and does not require bargaining or mutual agreement between the parties. For example, when a mother creates a legal document promising to buy her son a car if he graduates with good marks.
• When a party promises to give something in exchange for some "past consideration" by the other party.
• When the promise to do something is illusory. For example, when a mango juice company enters into a contract with a farmer, saying that the company will buy all its mango requirements from the farmer, and the farmer can sell to the company as many mangoes as he wants, then the consideration given by the farmer is illusory since he is not legally bound by the contract to sell the mangoes to the company.

Failure to Provide Consideration

If a party fails to provide the promised consideration, the other party can cancel the contract. The defaulting party can also be sued for damages or specific performance .

The following instances are tantamount to failure of consideration :

• When the provided consideration is worth less than promised.
• When the provided consideration is damaged or destroyed.
• When the performance is not carried out as promised or expected; for example, when a mechanic does not repair a car properly.

It is worth noting that a promise to do something illegal or immoral does not serve as a valid consideration.

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• Consideration Notes: Everything You Need To Know
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35 U.S. Code § 261 - Ownership; assignment

Subject to the provisions of this title, patents shall have the attributes of personal property. The Patent and Trademark Office shall maintain a register of interests in patents and applications for patents and shall record any document related thereto upon request, and may require a fee therefor.

Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.

A certificate of acknowledgment under the hand and official seal of a person authorized to administer oaths within the United States, or, in a foreign country, of a diplomatic or consular officer of the United States or an officer authorized to administer oaths whose authority is proved by a certificate of a diplomatic or consular officer of the United States, or apostille of an official designated by a foreign country which, by treaty or convention, accords like effect to apostilles of designated officials in the United States, shall be prima facie evidence of the execution of an assignment, grant or conveyance of a patent or application for patent.

An interest that constitutes an assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.

Based on Title 35, U.S.C., 1946 ed., § 47 (R.S. 4898, amended (1) Mar. 3, 1897, ch. 391, § 5, 29 Stat. 93 [ 29 Stat. 693 ], (2) Feb. 18, 1922, ch. 58, § 6, 42 Stat. 391 , (3) Aug. 18, 1941, ch. 370, 55 Stat. 634 ).

The first paragraph is new but is declaratory only. The second paragraph is the same as in the corresponding section of existing statute. The third paragraph is from the existing statute, a specific reference to another statute is omitted. The fourth paragraph is the same as the existing statute but language has been changed.

2012— Pub. L. 112–211 inserted “The Patent and Trademark Office shall maintain a register of interests in patents and applications for patents and shall record any document related thereto upon request, and may require a fee therefor.” at end of first par. and substituted “An interest that constitutes an assignment” for “An assignment” in fourth par.

1982— Pub. L. 97–247 inserted “, or apostille of an official designated by a foreign country which, by treaty or convention, accords like effect to apostilles of designated officials in the United States”.

1975— Pub. L. 93–596 substituted “Patent and Trademark Office” for “Patent Office”.

Amendment by Pub. L. 112–211 effective on the date that is 1 year after Dec. 18, 2012 , applicable to patents issued before, on, or after that effective date and patent applications pending on or filed after that effective date, and not effective with respect to patents in litigation commenced before that effective date, see section 203 of Pub. L. 112–211 , set out as an Effective Date note under section 27 of this title .

Amendment by Pub. L. 97–247 effective Aug. 27, 1982 , see section 17(a) of Pub. L. 97–247 , set out as a note under section 41 of this title .

Amendment by Pub. L. 93–596 effective Jan. 2, 1975 , see section 4 of Pub. L. 93–596 , set out as a note under section 1111 of Title 15 , Commerce and Trade.

Home » Law Notes » Consideration: Meaning, Definition and Essential Elements- Contract Act

Consideration: Meaning, Definition and Essential Elements- Contract Act

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Consideration: Meaning, Definition and Essential Elements- Contract Act 1872

Consideration: Meaning, Definition and Essential Elements

Meaning of Consideration

Consideration means “something return” or “something which is given and taken.” It refers to something of value given to someone in return for goods, services or some other promise. It is the price paid for contract. Section 25 of the Indian Contract Act, 1872 says that “an agreement made without consideration is void.” So, Consideration is necessary for the formation of contract i.e., a valid contract must include consideration for every party involved [1].

Definition of Consideration

• Blackstone: According to Blackstone “Consideration is the recompense given by the party contracting to the other” [2]
• Pollock: In the words of Pollock, “Consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable” [3]
• Justice Patterson: “Consideration means something which is of some value in the eyes of the law. It may be some benefit to the plaintiff or some detriment to the defendant” [4]

In Fazalaldin Mnadal v. Panchanan Das[5], the Calcutta High Court held that “Consideration is the price of the promise, a return or quid pro quo , something of value received by the promise as inducement of the promise.”

According to Section 2(d) of the Indian Contract Act, 1872 consideration is defined as follows:

Essentials of Valid Consideration

• At the desire of the promisor:

In order to constitute valid consideration it must be move at the desire of the promisor. An act done at the desire of the third party does not constitute a valid consideration. In Durga Prasad v. Baldeo[7], on the order of the town collector, a person built certain shops in bazaar at his own expense. The shops came to be occupied by the defendants who, in consideration of the plaintiff having expended money in the construction, promised to pay him a commission on articles sold through their agency in the bazaar. The plaintiff’s action to recover the commission was rejected. “The only ground for making of the promise is the expense incurred by the plaintiff in establishing the market but it is clear that anything done in  the way was not at the desire of the defendants so as to constitute consideration.” The act was the result not of the promise but of the collector’s order.

• Promisee or any other person:

The second most important feature according to the consideration definition given in the Section 2(d) is that it may pass on to Promisor from Promisee or any other third person. In the case of Dutton v. Poole[8], a person had a daughter to marry and his son promised him that, in return he would pay 1000 pounds to his sister if his father not selling a wood. The father accordingly forbore but the son(defendant) did not pay. It was held that due to tie of blood between them the sister could sue, on the ground that the consideration and promise to the father may well have extended to her.

In Chinnaya v. Ramayya[9], a promise by a daughter to her mother’sister to pay maintenance in consideration of the mother(an old lady) making a gift of certain landed property to her, was sought to be enforced by the sister of the mother. The decision was in favour as this was a perfectly valid consideration.

VOID AGREEMENT UNDER SECTION 24 to 30 OF INDIAN CONTRACT ACT, 1872

• Consideration may be past, present, future:

In consideration definition the words, “has done or abstained from doing; or does or abstains from doing; or promises to do or to abstain from doing; indicates that the consideration may be either something done or not done in the past, or done or not done in the present or promised to be done or not done in the future. So, consideration may be past, present and future act.

• Past- When present promise consideration is given before the date of the promise then, it is called past consideration. A past act done at request will be good consideration for a subsequent promise [10].
• Present- When consideration moves simultaneously with the promise the, it is known as ‘present’ or ‘executed’ consideration. Example- Tina buys an article from a shop and immediately pays for the same. In this the consideration moving from Tina is ‘present’ or ‘executed’ consideration.
• Future- When consideration for a promise moves after the contract is formed, it is called as ‘future’ or ‘executory’ consideration. Example- A has promised to sell and B has promised to pay. Until the goods are actually delivered to B under the contract, the consideration is executor [11].
• Consideration must be lawful:

A consideration which is against the law or public policy is not valid i.e., it will become void and unenforceable. Therefore, it is necessary that consideration should be lawful one. A husband offered reward to anyone who would rescue his wife dead or alive from a burning building and a fireman was allowed to receive it as he accomplished the rescue of her dead body and it was like a great peril to his health and life, the court held that as a fireman of the city he was not legally bound to risk his life in that rescue [12].

• Consideration must be real:

Consideration must not be illusionary, it should be factual one i.e., it must be real and possible. It must have some value in the eyes of the law. It need not be adequate to the promise for the validity of an agreement.

Consideration legally binds a contract and it also protect both the parties from lawsuits and misunderstanding. It is not necessary that consideration nature should always be tangible, even an intangible consideration is equally valid consideration. Contract considered many essential elements and lawful consideration is integral part or element of valid contract.

• [1] https://legaldictionary.net/consideration/
• [2] COMMENTARIES
• [3] Sir Frederick Pollock, POLLOCK ON CONTRACTS (13th Edn) 133
• [4] In Thomas v. Thomas, (1842) 2 QB 851, 859
• [5] AIR 1957 Cal 92
• [6] Avtar Singh, Contract & Specific Relief, Page- 104, 12th Edition, EBC Publishing (P) Ltd.
• [7] ILR (1883) 3 All 221, OLDFIELD J at p. 228
• [8] Court of King’s Bench, (1991) 2 WLR 540
• [9] ILR (1876-82) 4 Mad 137
• [10] Lampleigh v. Brathwait Hob 106: 80 ER 255
• [11] Avtar Singh, Contract & Specific Relief, Page- 128, 12th Edition, EBC Publishing (P) Ltd.
• [12] Costigan, CASES ON CONTRACT (3rd Edn) 309

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