Business Law and Contracts: What is Consideration?

Consideration is needed when drafting deeds transferring property. A deed is basically a contract, and to make the contract valid, an exchange of something of value needs to occur. This exchange of something of value is called “consideration.” So what does “something of value” mean? Usually, an amount of monetary value is used as consideration such as $5.00, $10.00, or the actual fair market value of the property being transferred in the deed.

There are two ways to think about consideration; a win/lose approach and a bargaining approach. The win/lose approach is often called the benefit-detriment theory. This theory requires consideration that must either be of benefit to the grantor or to the detriment of the grantee, therefore a win/lose deal. The bargaining approach is exactly what it sounds like, a contract being the product of an exchange or bargain.

How Do Courts Decide What Makes a Contract, Such as a Deed, Valid?

Section 416.3, Contract Formation – Essential Factual Elements, of the Florida Supreme Court Jury Instructions tells us a little bit about how the court decides whether a contract is valid. A deed is a type of contract between two parties. According to the Florida Supreme Court, three things are required for a valid contract. The first one is that the contract terms must be clear enough that the parties can understand what each is required to do. The second one is that the parties agreed to give each other something of value, which is also called consideration. Now, this consideration may be a promise to do something or not to do something. This relates to the benefit-detriment theory we discussed earlier in this post. Lastly, the contract terms must allow a reasonable person to conclude that there was an agreement from the words and conduct of each party.

Love and Affection as Consideration

Recently, I looked at a deed and the term “love and affection” was used as consideration. This peaked my interest because our firm uses a monetary value for all of the deeds we draft. My interest in this sparked some research, and I found that discusses the effect that love and affection has on the transfer of property. The case is Chase Federal Sav. And Loan Ass’n v. Schreiber, 479 So. 2d 90 (Fla. 1985). The main problem with using love and affection as consideration happens when it is used as consideration between two people who are not related by blood or marriage. Past consideration is not valid in Florida, and if the two people are not related by blood or marriage, it can be difficult to determine love and affection as present or future consideration. If there was once love and affection, it has no effect on the deed because past love and affection will not matter in Florida.

Another interesting case discussing love and affection is Fischer v. Union Trust Co., 101 N.W. 852 (Mich. 1904). In this case, a father promised his daughter that he would pay off mortgages on land he gifted to her. According to the court, the consideration used in the promise was legally insufficient because it was only supported by his love and affection for her. However, if he had actually began paying off the mortgages, it would be sufficient consideration to enforce the promise. A mere promise supported by love and affection is usually not enough for a court to rule it as sufficient consideration. Another way to view it is by applying the win/lose approach to the case. The father, by paying the mortgages, would have shown a detriment to him, he is the loss in this situation. The daughter, by not paying the mortgages, would have shown a benefit to her, she is the win in this situation. The two combined have a benefit-detriment deal or consideration.

What If I Am Unsure of Which Type of Consideration I Should Use In a Deed?

Love and affection should not be used as consideration in a deed. As we have observed in the cases we discussed, love and affection can cause disputes and problems to arise between parties. When in doubt, call an attorney and have them advise you of what should be used as consideration for a deed. An attorney can give you a solution based on your specific situation. Please contact us to schedule a free consultation today.

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