Easy Steps to Consideration

Consideration is a highly tested topic and a strong analysis here can earn you a lot of points. Here’s the big picture.

Big Picture

In contracts we’re concerned with whether the promises of a contract are enforceable. A contract is based on promises made between parties. But not all promises are enforceable. Along with Offer and Acceptance, Consideration is one of the elements needed to form a valid or enforceable contract. One of the ways that promises between parties are actually enforceable is when there is valid consideration.

Benefit – Detriment Theory

So how do you determine whether there is valid consideration? Well, there are two theories that outline how to determine consideration. One is the Benefit/Detriment Theory. The other is the Bargained Theory.

Under the benefit/detriment theory, there are three key terms you need in your mental basket; legal detriment, legal benefit and exchange.

Here’s an example. Let’s say that Super Cool (Promisor) offers to pay Big Steve (Promisee) $500 for Big Steve’s watch next week. Well, at the point of their agreement Super Cool’s promise to pay $500 is enforceable because it is supported by valid consideration under the benefit/detriment theory. Here’s why! Big Steve suffers the legal detriment of promising to give up possession of his watch next week. Super Cool receives the legal benefit of possessing the watch promised to him in exchange for his payment of $500. So there you have it, there is valid consideration because there is a legal detriment legal benefit in exchange for a promise.

Bargain Theory

The first and second restatement rejected the benefit detriment theory in favor of the bargain theory. Under the bargain theory it does not matter whether either party suffers a detriment or reaps a benefit. What does matter is that the promisor bargained for the promise or the performance that he gets from the promisee. (Pause)Good question, the term “bargained for” is what happens when one promise is exchanged for another promise or when a promise is exchange for performance.

Here’s an example, Super Cool offer’s to buy Big Steve’s watch. Big Steve, promises to give Super Cool his watch in exchange for Super Cool’s promise to pay him $500. The reason this example illustrates valid consideration under the bargain theory is because both parties made promises to one another in exchange for something of value. The exchange of the watch for money. No legal detriment and no legal benefit needed under this theory.

Although the Restatement’s bargain theory is the most accepted view of consideration, the benefit detriment theory is used by courts and professors as well. In fact, sometimes they will combine the two tests and explain that consideration is valid when there has been a benefit and/or a detriment that was bargained for.

So that’s consideration and how to analyze whether it formed a valid contract. Now that you’ve got the big picture, read your cases, listen in lecture and get practice analyzing consideration with practice problems.