Consideration

Definition

Consideration refers to something of value that is exchanged between parties in a contract, which is essential for the agreement to be enforceable. It acts as the incentive for each party to enter into the contract, ensuring that there is mutual benefit and a promise made by each side. Without consideration, a contract may be deemed invalid, as it demonstrates that both parties have agreed to give and receive something tangible or intangible.

5 Must Know Facts For Your Next Test

1. Consideration can take various forms, including money, services, goods, or even a promise not to act.
2. For consideration to be valid, it must be legally sufficient and not past consideration; that is, it must be something that occurs after the contract has been formed.
3. The concept of consideration helps establish the seriousness of a contract by showing that both parties are committed to their promises.
4. Illusory promises are agreements where one party does not actually commit to anything, which means there is no valid consideration and therefore no enforceable contract.
5. Mutuality of obligation requires both parties to have an obligation; if one party has no binding commitment, the contract may lack enforceability due to insufficient consideration.

Review Questions

• How does consideration differentiate between enforceable contracts and those that lack mutual obligation?
  • Consideration is crucial for distinguishing enforceable contracts from those lacking mutual obligation. An enforceable contract requires both parties to provide something of value, demonstrating their commitment to the agreement. If one party's promise is illusory or if there’s no exchange of value, then the contract may be deemed void for lack of consideration. This ensures that both parties are bound to their respective promises and are legally protected.
• Discuss how the adequacy of consideration affects the enforceability of contracts and the role courts play in this assessment.
  • The adequacy of consideration can impact the enforceability of contracts by raising questions about whether the value exchanged is fair or sufficient. However, courts typically do not intervene in assessing the adequacy unless there are issues such as fraud or unconscionability. This means that as long as there is some legal consideration exchanged, courts will usually uphold the contract regardless of whether one party received a significantly greater benefit than the other. This principle reinforces the freedom of contract by allowing parties to negotiate their own terms without excessive judicial interference.
• Evaluate how consideration interacts with other elements of a valid contract and its implications on specific performance remedies.
  • Consideration interacts with other elements like offer, acceptance, and capacity by reinforcing the mutual agreement necessary for a valid contract. In cases where one party seeks specific performance as a remedy, the presence of valid consideration becomes crucial; without it, a court may find that no enforceable agreement exists and thus deny specific performance. This highlights that all essential elements, including consideration, must be satisfied for either party to compel performance under a contract. The absence of consideration limits remedies available and underscores the importance of mutual obligations in contractual agreements.

Related terms

Bargained Exchange: A bargained exchange involves both parties agreeing to give something up in order to gain something else, forming the basis of consideration.

Adequacy of Consideration: Adequacy of consideration refers to whether the value exchanged between parties is equivalent or reasonable, which courts generally do not assess unless fraud or unfairness is involved.

Promissory Estoppel:

Promissory estoppel is a legal principle that allows a party to recover on a promise made without consideration if they relied on that promise to their detriment.