Legal Definitions - invented consideration

Invented consideration refers to a situation where parties to an agreement include a token or nominal item of value, often a very small sum of money or a symbolic gesture, primarily to create the appearance of a legally binding contract. This is typically done when one party is making a promise that would otherwise be considered a gift (a gratuitous promise), which is generally not enforceable in court without genuine consideration.

While courts usually require some form of consideration for a contract to be valid, they may scrutinize or disregard "invented consideration" if it's clear that it was not genuinely intended as part of a true bargain or exchange, but rather an attempt to formalize a promise that lacks real mutual exchange.

• Example 1: The Symbolic Family Sale

  A grandmother wants to give her antique rocking chair, which is worth several hundred dollars, to her granddaughter. To make the transfer "official" and avoid any future disputes over it being merely a gift, they draft a simple agreement stating that the granddaughter will pay the grandmother $1 for the chair. The granddaughter hands over a dollar bill, and the grandmother accepts it.

  This illustrates invented consideration because the $1 is a purely nominal amount. Neither the grandmother nor the granddaughter genuinely believes that $1 is a fair or intended exchange for an antique rocking chair. The dollar is included solely to create the legal form of a contract of sale, even though the true intent is a gift.

• Example 2: The "Binding" Promise to Help

  A wealthy philanthropist promises a local community center that they will donate $50,000 for a new youth program. To ensure the promise is legally enforceable, the community center's lawyer suggests drafting an agreement where the philanthropist promises the $50,000 in exchange for the community center providing them with a framed certificate of appreciation. The certificate itself has no monetary value beyond the cost of printing.

  This demonstrates invented consideration because the framed certificate is not genuinely what the philanthropist is bargaining for in exchange for $50,000. The true intent is a charitable donation. The certificate serves as a token, an "invented" form of consideration, to try and transform a gratuitous promise into a legally binding contract.

• Example 3: The Debt Forgiveness Token

  A friend owes another friend $1,000. The lender decides to forgive the debt but wants a formal document to prevent any future claims. They draft an agreement stating that in exchange for the $1,000 debt being fully discharged, the borrower agrees to give the lender a single, used paperclip.

  This is an instance of invented consideration because the paperclip holds no genuine value for the lender as an exchange for forgiving a $1,000 debt. Its inclusion is a transparent attempt to create the legal appearance of a contract where the primary intent is to release the borrower from their financial obligation, which would otherwise be a gratuitous act of forgiveness and potentially unenforceable without real consideration.