Also known as: adequacy of consideration · sufficient consideration
Written by attorneys · grounded in primary & secondary sources — see below
An exchange of value bargained for between parties that supplies a legally recognizable benefit or detriment. Courts ordinarily do not inquire into the fairness or economic equivalence of the exchange once sufficiency is established, except in specialized contexts such as board determinations for corporate share issuances.
Apex Dynamics board meets and evaluates a philanthropist's promise to mentor executives and introduce donors before issuing common shares. The directors conclude the networking benefit supplies adequate consideration and record their determination. The shares are treated as validly issued, fully paid, and nonassessable even though the value is intangible.
The federal government deeds surplus hospital property to Valley Forge Christian College in exchange for the college's commitment to operate a public health program. Americans United objects that the college's planned religious use supplies no public benefit. The Court holds that the bargained-for exchange supplies adequate consideration supporting the transfer.
Select any source to read its text and confirm it supports the definition.
Andrew Avery promises his nephew Austin Abbott $5,000 if Abbott refrains from drinking, smoking, and gambling until age twenty-one. Abbott performs the forbearance as requested. The court holds that the legal detriment Abbott suffered supplies adequate consideration supporting enforcement of the promise.
New York City designates Grand Central Terminal a landmark, restricting Penn Central's development rights in exchange for transferable development rights on other parcels. Penn Central claims the restriction constitutes a taking. The Court analyzes whether the regulation and the rights conferred together supply adequate consideration for the economic impact.
Swift receives a bill of exchange from Tyson as payment on an existing debt. Tyson later seeks to defend on the ground that the original transaction lacked value. The Court holds that a bona fide holder who takes the instrument for valuable consideration may enforce it free of personal defenses between the original parties.
First Western Bank sues DeBaun on a promissory note given in exchange for corporate stock. DeBaun contends the stock was worthless and therefore supplied no adequate consideration. The court examines whether the note was supported by a bargained-for exchange that the bank could reasonably treat as adequate at the time of issuance.
Adequacy refers to fairness and reasonableness of the exchange under the circumstances. Sufficiency asks only whether the consideration supplies a legal detriment or benefit that the law will recognize. Courts generally do not inquire into adequacy once sufficiency is shown, except in specialized contexts such as corporate share issuances where a board determination controls.
Supporting sources
Under the Model Business Corporation Act, a board's good-faith determination that consideration is adequate is conclusive on whether shares are validly issued, fully paid, and nonassessable. The statute permits any tangible or intangible property or benefit, including future services and promissory notes, once the board has made the required finding.
Supporting sources
Yes. Refraining from conduct one has a legal right to pursue supplies a legal detriment when the forbearance is bargained for and induced by the promise. The classic illustration is an uncle's promise of payment in exchange for a nephew's abstinence from drinking, smoking, and gambling until majority.
Supporting sources
…the acceptance was made in New York, New York law should govern and that New York decisions deny that a pre-existing debt is a sufficient consideration. We examine those New York decisions. Early New York cases, including Warren v. Lynch and the opinion of Chancellor Kent in Bay v. Coddington, treated a pre-existing debt as a sufficient…