Legal Definitions - nominal consideration

In contract law, consideration refers to something of value that is exchanged between parties to an agreement. It's what each party gives up or promises to give up in order to make the agreement legally binding. When we talk about nominal consideration, we are referring to a very small, token amount of value exchanged, often just enough to satisfy the legal requirement for a contract to be enforceable.

This amount is typically insignificant when compared to the actual value of what is being exchanged or the true purpose of the agreement. Its primary function is to create a legally binding contract, even if it doesn't represent a fair market exchange.

Here are some examples to illustrate this concept:

• Family Property Transfer: Imagine a grandparent wishes to transfer ownership of a valuable family heirloom, such as a vintage car, to a grandchild. Instead of simply gifting it, they might draft a sales agreement where the grandchild "purchases" the car for $1.

  In this scenario, the $1 is nominal consideration. It's a trivial amount compared to the car's actual market value, but it serves the legal purpose of transforming the transfer from a simple gift into a legally binding sale. This can sometimes have implications for taxes or future disputes, as a sale is treated differently from a gift under the law.

• Option to Purchase Real Estate: A potential buyer is very interested in a piece of land but needs 90 days to conduct extensive environmental surveys and secure financing. To ensure the landowner doesn't sell to anyone else during this period, the buyer pays the landowner $10 for an "option contract" that keeps the offer open for 90 days.

  Here, the $10 is nominal consideration. While it's a real payment, it's a minuscule amount compared to the potential multi-million dollar value of the land or the significant benefit the buyer gains by having an exclusive right to purchase for three months. Its purpose is to make the option agreement itself a legally enforceable contract.

• Agreement to Amend a Contract: A small business has a long-term supply contract with a manufacturer. Due to unexpected global events, both parties agree that a minor adjustment to the delivery schedule is necessary. To make this amendment legally binding, they sign a new agreement stating that each party provides "consideration" of $5 to the other for the modification.

  The $5 payments are nominal consideration. The true value of the amendment lies in the mutual agreement to adjust the schedule, which benefits both parties by adapting to new circumstances. The small monetary exchange is primarily a legal formality to ensure the contract modification is enforceable and not merely an informal understanding.