Consideration is the lifeblood of contracts. It's the exchange of value that makes an agreement legally binding. Without it, most promises are just empty words. But with consideration, both parties have skin in the game.

Understanding consideration helps you spot valid contracts. It's not just about money changing hands. Promises, actions, or even refraining from doing something can count. The key is that both sides give up something of value to get what they want.

Definition and Role of Consideration

Define consideration and explain its role in contract formation

• Consideration is an essential element of a valid contract
  • Refers to the bargained-for exchange of value between parties where each party must promise, perform, or refrain from doing something in exchange for the other party's promise, performance, or forbearance
  • Examples of consideration include payment of money, delivery of goods, or provision of services
• Consideration demonstrates the parties' intent to be legally bound by the contract and shows that the agreement is not merely a gift or gratuitous promise
• Absence of consideration may render a contract unenforceable
  • Except in cases of formal contracts executed under seal or where the doctrine of promissory estoppel applies, which enforces promises even without consideration in certain circumstances to prevent injustice

Essential Elements and Validity of Consideration

Identify the three essential elements of consideration: bargained-for exchange, legal value, and mutual inducement

• Bargained-for exchange requires that each party's promise or performance must be sought by the other party and the exchange must be reciprocal and agreed upon by both parties
  • Example: A agrees to sell their car to B for $5,000. A's promise to transfer ownership of the car is exchanged for B's promise to pay the agreed-upon price
• Legal value means the consideration must have some legal value, even if minimal, and can be a promise, performance, or forbearance of a legal right
  • Courts generally do not assess the adequacy of consideration or whether it's a fair deal, as long as some legal value is present
  • Example: A promises to pay B $1 in exchange for B's promise to mow A's lawn. Although the value of the consideration may seem disproportionate, it still has legal value
• Mutual inducement requires that each party's promise or performance must induce the other party to enter the contract, meaning the exchange of promises or performances must be the reason for each party's participation in the contract
  • Example: A offers to tutor B in math if B agrees to teach A how to play the guitar. Each party's promise induces the other to enter into the agreement

Distinguish between valid consideration and invalid forms of consideration, such as past consideration and preexisting duties

• Valid consideration meets the requirements of bargained-for exchange, legal value, and mutual inducement and can be a promise, performance, or forbearance of a legal right
  • Example: A promises to paint B's house in exchange for B's promise to pay A $1,000 upon completion of the work
• Invalid forms of consideration do not meet these requirements and include:
  • Past consideration, which is something already done before the promise is made and cannot serve as consideration because it was not bargained for
    • Example: A voluntarily helps B move to a new apartment. Later, B promises to pay A $100 for the help. B's promise is not enforceable because A's assistance was provided before the promise was made and was not bargained for
  • Preexisting duties, which is a promise to do something one is already legally obligated to do and is generally not considered valid consideration
    • Example: A owes B $500. A promises to pay B the $500 if B agrees to give A an additional week to pay. B's agreement to extend the payment deadline is not valid consideration because A is already legally obligated to pay the $500
    • Exceptions may apply, such as the performance of a preexisting duty to a third party or if additional duties are undertaken beyond the original obligation

Analyze fact patterns to determine whether the requirement of consideration has been met in a given contract

1. Identify the promises, performances, or forbearances exchanged by the parties

2. Determine if the elements of consideration are present:

   • Bargained-for exchange: Were the promises or performances sought by and reciprocal between the parties?
   • Legal value: Does each promise or performance have some legal value?
   • Mutual inducement: Did each party's promise or performance induce the other to enter the contract?

3. Assess whether any invalid forms of consideration are present, such as past consideration or preexisting duties

4. Conclude whether the requirement of consideration has been met based on the analysis of the fact pattern

   • Example: A promises to give B a ride to the airport in exchange for B's promise to watch A's dog for the weekend. The promises are bargained for, have legal value, and mutually induce each other, so the requirement of consideration is met