Consideration

Most texts dealing with contracts first discuss the offer, then the acceptance, then deal with the question of consideration. However, consideration is the thing that often distinguishes a contract from other forms of transfer, such as gifts. Therefore, we are going to deal with the question of consideration first, and then jump into offer and acceptance.

Consideration is the thing the contract is about - the property or service being exchanged. It need not be monetary, though money is often involved in a contract. Consideration is often defined as “bargained for exchange in which there must be a benefit accruing to the promisor or a detriment to the promisee.”^[1]

There have been many, many, cases dealing with the question of when consideration is “valid” or “enough.” Generally, however, almost any consideration will be sufficient. At least one Indiana case has extensively discussed this concept – for example:

It is well settled that it is not proper for courts to inquire into the adequacy of consideration. Moreover, consideration need not be of benefit to the party making the promise. Although the Auburn companies are correct in noting that a mortgage must be supported by consideration to be enforceable, any consideration which will sustain a promise to pay will suffice, and it is not necessary that the obligee actually give anything of value to the obligor. Sufficient consideration will be found if it is shown that the mortgagee suffered any damage, inconvenience, detriment or loss, or that he extended any forbearance in reliance upon the mortgage. Consideration exists if it is shown that any right, profit, benefit accrued to the mortgagor, or that responsibility was suffered or undertaken by another.^[2]

So, in other words, selling a car for a penny, or selling it to the person who waxes it first, or for a mustard seed – will all form the basis of a contract. Even a promise for a promise will create a contract. As another Indiana case noted:

It is the general rule that, where there is no fraud, and a party gets all the consideration he contracts for, the contract will be upheld. And mutual promises, whereby there is mutuality of engagement, are not without a sufficient consideration.^[3]

Or again:

Anything is a valuable consideration for a contract which is of advantage to the one or of disadvantage to the other. Where parties agree to a consideration of indeterminate value, the courts will not substitute their judgment for that of the parties, but will uphold the contract.^[4]

At times, however, consideration will fail or will be insufficient or not binding to form a contract. For instance, consideration will not exist when the person purporting to have the consideration either does not own it, or does not have the power to transfer it.^[5] If a the consideration is illegal, against public policy, or otherwise unenforceable, this will be considered invalid consideration.^[6] Moreover, “past consideration,” that is, consideration that already occurred as part of some other transaction or contract will not support a new contract. For instance:

It appearing from the facts alleged that the advancement of the money in controversy was completed at the time appellee received it in 1890, therefore his execution of the note in 1892, as shown, would not serve to change the advancement into a debt, in the absence of a new agreement between appellee and his mother, supported by some new consideration.^[7]

Similarly, “preexisting duties” will not support a new contract. So, for instance, is a reward is offered for information about a criminal, a police officer will not be able to collect the reward, as the officer has a duty to obtained information about, and apprehend, the criminal.^[8] As we go through offer and acceptance, more instances of “things that looks like contracts but good luck enforcing them because they’re not contracts” will become apparent. For now, however, this concludes our discussion of consideration.

[1] Wavetek Indiana, Inc. v. K.H. Gatewood Steel Co., Inc., 458 N.E.2d 265, 269 (Ind. App. 3d Dist. 1984).

[2] Auburn Cordage, Inc. v. Revocable Trust Agreement of Treadwell, 848 N.E.2d 738, 748 (Ind. App. 2006).

[3] Brown v. Marion Com. Club, 97 N.E. 958, 960 (Ind. App. 1912)

[4] Gregory v. Arms, 96 N.E. 196, 202 (Ind. App. 1st Div. 1911)

[5] “It is fundamental that a party must have it in his power to do the thing he undertakes to do to make his promise sufficient as a consideration.” Gregory v. Arms at 202.

[6] “An express promise…can give no original right of action, if the obligation on which it is founded never could have been enforced at law, though not barred by any legal maxim or statute provision.” Wiggins v. Keizer, 6 Ind. 252, 257 (1855).

[7] Baum v. Palmer, 76 N.E. 108, 110 (Ind. 1905)

[8] “Accordingly, it is a general principle of law, that a promise to one to pay him, if he will do what he is already bound to do by law or by contract, is without consideration, and cannot be enforced.” Ritenour v. Mathews, 42 Ind. 7, 14 (1873)