Legal Memorandum: Meaning of "Consideration" in NY

Issue: What is ‘consideration,’ under New York law?

Area of Law: Business Organizations & Contracts
Keywords: Valid consideration; Contract
Jurisdiction: New York
Cited Cases: 726 F. Supp. 1411; 57 N.Y.2d 458; 246 N.Y. 369; 746 F. Supp. 316; 52 N.Y.2d 291; 229 A.D.2d 821
Cited Statutes: Restatement (Second) of Contracts § 71; Restatement (Second) of Contracts § 17(1)
Date: 08/01/2001

At common law a promise or contractual obligation must be supported by valid "consideration" to be binding or enforceable.  See Weiner v. McGraw-Hill, Inc., 57 N.Y.2d 458, 464 (1982) (consideration is "a fundamental requisite" of a binding contract); Wood Realty Trust v. N. Storonske Cooperage, Co., 229 A.D.2d 821, 822 (3d Dep’t 1996) ("Consideration is, of course, an essential element of a contract . . . ."); Hyatt Corp. v. Women’s Int’l Bowling Congress, 80 F. Supp. 2d 88, 96 9 (W.D.N.Y. 1999) ("Consideration is a fundamental requisite to the existence of a valid contract."); Restatement (Second) of Contracts § 17(1) (1981) (formation of an enforceable contract "requires" a consideration).

Under New York law valid consideration may consist of either a detriment to the promisor or a benefit to the promisee.  Holt v. Feigenbaum, 52 N.Y.2d 291, 299 (1981).  In fact, the benefit need not necessarily run to the promisor but may be given to a third party as well.  See Restatement (Second) of Contracts § 71 ("The performance or return promise may be given to the promisor or to some other person.").

But regardless of whether the consideration is a detriment or benefit, what is essential in every case is that the consideration—whatever it is and to whomever it runs—must be "bargained for" by the promisor.  See Holt, 52 N.Y.2d at 299; Roth v. Isomed, Inc., 746 F. Supp. 316, 319 (S.D.N.Y. 1990); Banque Arabe et Internationalel […]

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