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In 1982, a British Businessman named Ken Bates bought a controlling stake in Chelsea football club for a sum of just one pound sterling, which would be less than four U.S. dollars if the transaction were taking place today. Bates would eventually sell Chelsea to the Russian billionaire Roman Abramovich for 140 million pounds, even when the team was in a state of financial crisis having over 80 million pounds of debt. Bates’s sale of Chelsea received a lot of media attention at the time, but his initial purchase of Chelsea raises an important question- why did the previous owner of Chelsea sell the club for a sum of just one pound instead of giving it away? The reason might have been that both parties felt that the price of one pound would have satisfied a requirement for the formation of a contract known as consideration.
Consideration is a benefit that is exchanged for, or a reliance that is made on, another party’s promise. Consideration is what makes a transaction different from a gift, and a necessary component for courts to enforce a promise. In most common law jurisdictions a court will only enforce a contract if there is either an exchange, or if reliance is made on a promise.
One of the most controversial issues in contract law is the issue of nominal consideration, sometimes called “peppercorn consideration” due to a tradition of some landowners renting their property, usually to a highly prestigious institution such as a university, for a price of merely one peppercorn per year. Nominal consideration is an attempt to have all parties in a contract be protected by the standard rights of contract law but with one or more parties receiving such a small sum that it seems no different from not receiving anything at all.
Attitudes about nominal consideration have changed significantly throughout the years. In the past people argued that courts had no right to police the value of a transaction because of the inherent subjectivity of valuation, however in more modern times many have viewed nominal consideration as inherently suspicious and an attempt of parties to have their cake and eat it too when it comes to maintaining all of the legal rights that come with a contract but without having to actually engage in a meaningful transaction. Attitudes about nominal consideration can be very different depending on the jurisdiction.
If you intend to take part in a transaction where the one party is paying a very small sum for an item with a very high market value, you may want to consult with an experienced contracts lawyer people rely on. For more information, please contact an experienced law firm, such as Mughal Law Firm.