when is a $1 sufficient consideration and when is it nominal

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when is a $1 sufficient consideration and when is it nominal

Postby dudnaito » Sun Dec 19, 2010 6:53 am

1) In the case of In Re Greene, D lived a life of adultery, and gave her lots and lots of money/rent/100K life insurance policy if she'd shut her trap about the adultery business. In return, she gave him a buck. Ruling: Nominal consideration.

2 )In the case of Thomas v. Thomas, widow of deceased was given a house for consideration of 1 pound and steady maintenance of house. Deceased's estate (brother) asks her to get out. Ruling: Sufficient consideration

3) In option and guaranty contracts, the party giving the nominal or token consideration is bargaining for something of a speculatory nature or value. In one case, a consideration of a quarter for a 4-month option to purchase land for 100K was held to be sufficient consideration.

Is this just a case where as long as there was no sham or underhanded contact, a court will usually award sufficient consideration even when it is nominal consideration? So... like in the case of In Re Greene, the courts just didn't like the fact that this Jezebel was about to get stuff she didn't deserve? Whereas in the case of Thomas v. Thomas, the widow needed to be protected against her dead husband's brothers?

And what's the dealio with the 3rd example?

Thanks in advance.

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Re: when is a $1 sufficient consideration and when is it nominal

Postby Sogui » Sun Dec 19, 2010 7:30 am

1) We were taught this was simply an example of courts using discretion + consideration to throw out contracts they considered in bad policy to enforce or just in bad taste. There probably was real consideration here but the court just sees a bargain in bad taste papered over with legal pretensions, it's all about the way you frame your case, etc... still $1 isn't real consideration for anything of considerable value and the court probably just didn't want allow extortion for the woman's other form of consideration

2) Didn't have this case but I'll take a shot:

i. The exchange is "we give you the house" and "you maintain the house and pay a small rent"
ii. The wife also had to give up 100 pounds to claim a right to the house
iii. It's also in the will... Seriously what's the question in this case?
iv. There has been partial performance by both parties, partial performance is an easy way around consideration
v. 1 pound a month could have been a lot back then

There's another case like this one that I already, Seavey v. Drake. You should consider if the P's behavior aligns with the alleged bargain or whether it could be explained independently.. paying the rent might only be consistent with an agreement to lease or rent the house, but repairing the house indicates that she was interested in long-term value (i.e. ownership).

3) This is easy, look at the restatement 2d of contracts. Option contracts allow "nominal" or even "sham" consideration, the comments I recall even allow the "promise" of $1 to suffice even if you lie and never actually hand over the money.

It's because options already involve consideration in the form of implied promises like in Drennen v. Star Paving. Option writer gives a considerable forbearance when he gives an option contract, he basically must stand ready to carry it out at any time over the duration. The option buyer needs to "offer" something as well.

The catch with options is that the "option" might not even be worth ANY money. Sure your case has a 4-month $100k land deal, but if the value of that land on the market is never above $90k then the option is pretty much worthless. So in order to "memorialize" the deal the courts just want to see SOME kind of exchange if the option doesn't have much inherent value.

The catch is that some option ARE really valuable and the courts won't enforce sham consideration if an option was worth $1,000 at the time of a trade and you gave $1. The deal must still be "fair" if you are offering nominal consideration.

Here's the restatement section from my outline:

i. § 87 Option Contract (this type of contract does allow sham consideration, but only if proposed terms are fair)
(1)  An offer is binding as an option contract if it:
(a)  is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
(b)  is made irrevocable by statute.
(2)  An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

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Re: when is a $1 sufficient consideration and when is it nominal

Postby dudnaito » Sun Dec 19, 2010 7:48 am

awesome, thanks

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