Consideration

Definition

Consideration is a legal concept in contract law that refers to something of value exchanged between parties as part of a contract. It is essential for the formation of a valid contract, ensuring that both sides have provided something, whether it’s money, services, or goods. Without consideration, a contract may be deemed unenforceable, emphasizing the mutual obligation of the parties involved.

5 Must Know Facts For Your Next Test

1. Consideration must be sufficient but need not be adequate; this means it must have some value but doesn’t have to be equal in value between the parties.
2. Past consideration is generally not valid; a promise based on something that has already been done cannot constitute consideration for a new contract.
3. Consideration can take many forms, including cash payments, services rendered, or the promise to refrain from doing something.
4. In some jurisdictions, certain contracts may require a written agreement along with consideration to be enforceable.
5. For contracts involving minors or those deemed mentally incompetent, consideration may be treated differently, affecting the enforceability of agreements.

Review Questions

• How does consideration function within a contract, and why is it essential for enforceability?
  • Consideration serves as the foundation of a contract by ensuring that each party provides something of value in exchange for what they receive. This mutual exchange is crucial because it demonstrates that both parties are committed to the agreement, making it enforceable in a legal context. Without consideration, a contract may be seen as a mere promise without binding obligation, which undermines its validity.
• Discuss the implications of past consideration on the validity of contracts and provide an example.
  • Past consideration refers to a benefit that has already been conferred before a contract is made and is generally not considered valid in establishing new contractual obligations. For example, if someone helps you move and you later promise to pay them for their help, this promise would likely not be enforceable because the act of helping was completed before the promise was made. This illustrates how past actions cannot serve as consideration for future promises in most legal contexts.
• Evaluate how the concept of consideration impacts business negotiations and contract drafting in e-commerce.
  • In e-commerce, understanding consideration is vital as it influences how businesses draft contracts and negotiate terms. Businesses must ensure that all agreements clearly specify what each party is providing, establishing mutual obligations that enhance enforceability. For instance, if an online retailer offers discounts in exchange for customer feedback, both parties have clear considerations: the retailer gains insights while customers receive value through savings. This clear delineation of consideration helps avoid disputes and ensures compliance with contract law.

Related terms

Contract: A legally binding agreement between two or more parties that outlines specific obligations and rights.

Breach of Contract: The failure of one party to fulfill their obligations under a contract, which can lead to legal consequences.

Offer: A proposal made by one party to another indicating a willingness to enter into a contract under specified terms.