Consideration Problems in Business Contracts

There are three basic elements to a contract: the offer, acceptance of the offer, and consideration. It’s that third part, consideration, that can sometimes lead to problems when it comes to the enforceability of contracts.

What is Consideration?

Consideration just means that in every contract, the parties must either get, or give up or lose something. Parties don’t have to gain or lose right now; the consideration can be for something that hasn’t happened yet (for example, you agree you will do work for someone next week, or an agreement that you will make payment next month).

Loss of a right you otherwise would have, can be consideration. For example, an agreement not to sue someone, or an agreement to refrain from using your land or property, can also be consideration.

That seems pretty easy, and most basic contracts have consideration built into them to the extent that you don’t have to worry about it. But there are times when consideration can become a problem.

Sufficiency and Fairness

You do need consideration–but a court will look at whether someone gained something and someone lost something–not whether the deal was “fair.” In other words, the sufficiency of the consideration doesn’t matter. So long as there is some consideration. That’s why you’ll often see nominal consideration, like a single dollar, as consideration for an agreement.

Past Consideration

One thing that ends up being a problem is the idea that past consideration is not consideration. In other words, you can’t take something you’ve already done or agreed to do, and make it consideration in and for a new, later executed contract.

Imagine, for example, you agree to pay someone $100 to work on your computer. They do the job, but you now want them to do more work, so you execute a new contract, but you just say that the new work was already paid for in the initial $100 payment. That old $100 payment, however, is past consideration and can’t be consideration for this new job.

Pre-existing Duty

The same concept applies to pre-existing duty; if someone already has a duty or obligation to do something, that cannot be consideration for an agreement. Imagine that there is a reward offered to solve a notorious crime. The person who solves it is a police officer. That officer could not collect the reward; his or her duty already existed–solving crimes is part of his or her job. Whereas you or I would have had to take time and effort to solve the crime, potentially for nothing, doing things we don’t have to do, that officer was already paid to investigate the crime, and was obligated to do so.

Consideration with Employment Agreements

Consideration can cause problems in employment agreements.

Imagine you agree to hire an employee for $60,000 a year, and the employee agrees to do his or her job. Later, you want that employee to sign an agreement–say, for example, a confidentiality agreement.

The consideration written in the confidentiality agreement is employment. But employment has already begun; you already had an obligation to employ that employee (assuming he does the job), and the employee is already receiving consideration via the salary. There needs to be new consideration.

Let us help you make your employment agreements enforceable and legal. Call our West Palm Beach commercial litigation attorneys at Pike & Lustig for help.

Sources:

saalck.pressbooks.pub/tortscontractsandlegalwriting/chapter/chapter-7-consideration/

calt.iastate.edu/article/contract-consideration-and-subsequent-modifications