For ten Dollars ($10.00) and other good and valuable consideration…

Clients for whom I am drafting or reviewing contracts frequently ask about the phrase: “NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows.”

Most people know that even the most innocent looking terms in a contract can come back to bite them if they don’t fully understand the legal implications of such terms before signing, and this is why sensible parties have an experienced business attorney review every contract, whether it is a business contract or personal contract, and whether it is for goods or for services.

The good news is that the “NOW, THEREFORE, for and in consideration” clause is not one of these landmines.  To understand why it is there, you have to know a little legal theory and a little legal history.  To be valid and binding, a contract generally requires three things: offer by one party, acceptance of the offer by another party, and something the law calls “consideration,” essentially something given in exchange for the promise and which seals the deal.  Sometimes, there are reasons that even a contract that has these elements may not be enforced, but that is a different discussion.

“Consideration” can be either “good” or “valuable” (hence the language “other good and valuable considerationto cover all bases). A “good” consideration is founded on natural duty and affection or on a strong moral obligation. A “valuable” consideration is usually founded on money or something convertible into money… except marriage, which, interestingly, is a “valuable” consideration rather than a “good” consideration, legally speaking.  Again, a topic for another day!

Coming back to “value,” if you promise to do something that you don’t have to do and don’t receive anything in exchange, the promise is like a gratuitous promise to make a gift, and it is not (under most circumstances) binding.  For example, if I say I promise to come and see you today, and then I don’t do so, you can’t sue me for breach of contract.  However, if you say to me, “here is ten dollars in consideration of your promise to come and see me today,” and I accept, you have essentially paid me something of value for my promise, and if I break my promise, you have a right to recover your damages from me (which may be $10, or may be a lot more if you were reasonably relying on me to come and see you for some important reason and you were damaged as a result of my not showing up).

There has, historically, been some debate is to whether the exchange of promises alone can be enforced.  In Georgia, the law will often enforce promises that have induced people to act or refrain from acting in reliance on that promise if that action, inaction, or reliance was reasonable.  Because this is obviously a highly subjective determination, the safest way to make your contract enforceable is to throw in a little “real” value as consideration; hence, “in consideration of ten dollars and other valuable consideration….”  This is considered the “form” of the exchange of valuable consideration, and is supposed to make you realize that you are entering into a binding contract, not just a gratuitous promise, so you should be careful that you understand and agree to the terms.   Incidentally, it could be ten dollars, it could be one dollar… one famous judge has said that it can be something as small as a “peppercorn”… which is why this is often called “peppercorn consideration.”

The bottom line: Always ask a contact attorney or business attorney to draft or review your contracts.  Even apparently simple elements of a contract can be important in understanding the promises you are making or knowing that you can enforce the promises others make to you.

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