that the law will not enforce gratuitous promises. If I promise to fix the clutch on your motorcycle and I never get around to it, there is no basis at law to enforce the original promise against me, because I made it gratuitously, meaning, there was no exchange of value between us or consideration given for the promise. If it were otherwise, the courts would be tied up in endless demands to enforce the empty assurances that crowd our days.
What does the law look at in determining whether there has been an exchange of value? Two concepts are relevant: sufficiency of consideration and adequacy of consideration.
2.3a Sufficiency of consideration
The law requires that consideration must be sufficient, which means that the things of value exchanged between the persons who are contracting must be real or tangible.
In our example, the exchange of money for a car involves two real and tangible items of value. In our exchange of opinions, the value is not tangible and not real. To put it another way, the value may be real in an abstract sense but not in a way that anyone can measure, at least not without resorting to further abstractions.
Note that the law only requires sufficient consideration, not the best or even good consideration. In other words, the law just wants to ensure that the things exchanged meet the threshold of having some real value, regardless of how small. If you want to sell a box of old postage stamps for a dime, that is consideration enough in the eyes of the law and sufficient consideration to form a contract. It need not be a car that is being sold. Nor is there a monetary threshold to be met in the amount paid in order to be considered sufficient consideration.
Note also that consideration does not have to involve money. If, instead of $10,000, your friend gave his vintage guitar to you in exchange for your car, that would also constitute value exchanged and, hence, sufficient consideration. Alternatively, if instead of $10,000 or a vintage guitar, the offeree agreed to fix your plumbing in exchange for your car (e.g., offer valuable services), that too would constitute sufficient consideration.
Finally, note that it can also be considered sufficient consideration if, in exchange for a benefit, the person receiving the benefit merely suffers some sort of detriment, rather than give a benefit in return. In our example, it may be sufficient consideration if your friend, in exchange for receiving the benefit of your car, suffers the detriment of no longer playing his guitar late into the evening.
2.3b Adequacy of consideration
A second concept that frequently arises when discussing consideration is that of adequacy of consideration. It may surprise you to learn that courts generally will not take into account whether the exchange of value was a fair one. In legal terms, courts will not question adequacy of consideration.
Returning to our example, if your car has an actual book value of several hundred thousand dollars (e.g., a rare antique) and you offer it for sale for only $10,000, a court will not say that there was no consideration given just because the offeree “underpaid” for the car. Ultimately, it is left to the persons involved to exercise their judgment and make their own determinations about the value of what is being exchanged. There are two reasons why courts take this approach.
First, courts do not wish to regulate market forces. If courts start taking it upon themselves to determine fair pricing or other values, it would interfere with the free market in such a way that it would leave every exchange of goods or services open to judicial review. You couldn’t sell an ice cream cone without the potential of someone going to court to challenge the price he or she paid.
Second, courts do not presume to replace their business judgment with yours. If you believe that a Jackson Pollock painting — one with subject matter made up of colourful splashes and swirls — is worth several million dollars, then no court will stand in the way of your desire to pay that price for it.
That being said, there is the caveat that while courts do not look into adequacy of consideration, it may on occasion exercise its broad powers to overturn transactions on other basis if it believes that an exchange of value is grossly disproportionate. The classic example is that of an embittered spouse who may wish to unload valuable, jointly owned goods (e.g., a family sports car) just to get back at the other spouse. In those circumstances, a court may find some other reason to invalidate the contract even though its real, unspoken reason for doing so will likely be related to a lack of adequacy of consideration.
3. Exceptions
You now know the three components of a contract: offer, acceptance, and consideration. Each contract begins with an offeror presenting something to an offeree that the offeree can either reject or accept. If the offeree accepts it and there is an exchange of value between the offeree and offeror, then all of the requirements of a contract have been met and a contract will, in the eyes of the law, have been formed.
However, there are exceptions to every rule and it won’t surprise you to learn that there are circumstances where the law will not consider a contract to exist despite the presence of offer, acceptance, and consideration.
3.1 Agreements contrary to law
The first exception is an agreement that is contrary to law. A classic example is the contract for murder, popularized in cinematic crime dramas. It is against the law to murder. Therefore any contract to have someone murdered is void ab initio, meaning it is treated as invalid from the outset in the eyes of the law regardless of the fact that offer, acceptance, and consideration may be present. This goes for any contract concerning any matter that is against the law (e.g., a contract to illegally transport persons across borders, contracts to purchase illegal narcotics, and so on).
3.2 Lack of capacity
A second exception is a contract made with minors, the infirm, or those who otherwise lack the capacity to form a contract.
We will look at the concept of capacity to contract in detail in Chapter 2, section 2. For now, you need only know that a contract will be considered void ab initio if one of the persons contracting was a minor or lacked the mental ability to exercise sound judgment.
3.3 Lack of mutuality
Despite the presence of offer, acceptance, and consideration, a contract may not be said to exist at law where mutuality is lacking. Mutuality means that there has to be a “meeting of the minds” by the persons involved in a transaction. Where mutuality is lacking, a contract will be deemed by a court to be void ab initio.
To return to our example: You offer to sell your car for $10,000 and the offeree accepts and pays you. However, instead of giving the offeree the car, you thank him for the monetary support of your “performance art” piece. The offeree looks at you as if you are from another planet. You explain that you weren’t really selling your car; instead, you were simply putting on a show for him and that his $10,000 donation was the equivalent of dropping money in a hat.
The situation is absurd, of course, but it illustrates what is meant by a lack of mutuality. Clearly, there was no meeting of the minds about what was really going on regarding the supposed sale of your car. In those circumstances, a court will find that no contract existed, despite the existence of offer, acceptance, and consideration.
4. Summary
What
