In my first two blogs, I covered the 1st and 2nd elements of the five elements needed to constitute a binding contract, whether oral or written.
As I noted there are 5 basic elements needed in order to constitute a binding contract. These elements are: (1) offer; (2) acceptance; (3) consideration; (4) mutuality of obligation meaning both parties must be bound to perform their obligations; (5) competency and capacity to enter into a contract.
Today, I will deal with the 3rd element, “Consideration”. “Consideration” is, in my opinion, one of the most “complicated” elements to a contract. It is defined in “BLACK’S LAW DICTIONARY” as:
“Something (such as an act, a forbearance, or a return promise) bargaining for and received by a promisor from a promisee; that which motivates a person to do something, esp. to engage in a legal act. Consideration, or a substitute such as promissory estoppel, is necessary for an agreement to be enforceable.”
Stated in “layman terms” “Consideration” is something of value given by both parties to a contract that induces them to enter into the agreement to exchange mutual performance.
So far, “Consideration” when dealing with making a binding contract, seems rather “straightforward” right?
Wrong!
Through the centuries of “Common-Law”, the “law books” are full of court decisions trying to determine whether “proper consideration” was given in order to form a binding contract. A first-year law student is required to take a mandatory Contracts course. Usually in the very first semester, and many of the students “even after graduation” does not really understand the concept of what constitutes proper “Consideration” for a binding contract.
“Consideration” must have a value that can be objectively determined. A promise, for example to make a gift or a promise of love or affection is not enforceable because of the subjective nature of the promise.
Through the ages, courts have distinguished between unilateral and bilateral contracts in determining whether one or both of the parties to the contract provided “proper consideration” and the next problem the court had to determine is at what point they provided proper consideration.
Bilateral contracts bind both parties at the instant the parties exchange “Consideration”, “promises”. Assuming each of the promised “consideration” is deemed sufficient consideration in itself.
A unilateral contract only binds the promisor and does not bind the promisee unless, the promisee show some form of acceptance by performing the obligations specified in the promisor’s offer. In unilateral contracts, until the promisee performed, he or she has provided no “Consideration” under the law.
In modern times, the distinction between “bilateral contracts” and “unilateral contracts” have become very “blurred “. The courts will usually find that a “unilateral contract” becomes a “bilateral contract” the moment the promisee begins to perform.
An example of this would be if someone (promisor) offers to cut your grass for $35 in exchange for your promise that you will provide the lawnmower. This is a “unilateral contract” because only one party is promising to do something and until landowner (promisee) provides the lawnmower there is no binding and enforceable contract because of lack of proper “Consideration”. But once the landowner (Promisee) gives the use of the lawnmower to the party promising to cut the grass, we now have a “unilateral contract” being turned into a “bilateral contract” and now it is enforceable by the landowner (promisee) against the individual that promised to cut the grass for $35 (promisor) since the lawnmower was in fact provided.
As you can see, this 3rd element, “Consideration” is many times difficult to understand as to what really constitutes proper consideration.
At a later date, I will be discussing the 4th element, “Mutuality of Obligation”.
Should you have any questions concerning the first three elements needed to create a binding contract, don’t hesitate to give me a call.
