Consideration

Definition

Consideration refers to something of value exchanged between parties in a contract, making the agreement binding and enforceable. It can be money, services, or a promise to do something or refrain from doing something. Without consideration, a contract may not be legally enforceable, as it is a critical element that indicates the parties' intention to enter into a mutual obligation.

5 Must Know Facts For Your Next Test

1. Consideration must be present for most contracts to be enforceable; it ensures that there is a mutual exchange of value.
2. Consideration can take various forms, including tangible goods, services, or even forbearance (agreeing not to do something).
3. In some cases, past consideration (something given or done before the contract) is not valid consideration for a new agreement.
4. If one party provides something of value and the other does not, the contract may be deemed unenforceable due to lack of consideration.
5. Certain agreements, like those made under seal or in some jurisdictions involving charitable donations, may not require consideration to be enforceable.

Review Questions

• How does the concept of consideration ensure fairness in contractual agreements?
  • Consideration ensures fairness in contractual agreements by requiring that both parties provide something of value. This mutual exchange creates an obligation for each party and reflects their intention to be bound by the contract. Without consideration, one party could impose terms on the other without any reciprocal commitment, leading to an imbalance and potential exploitation. Therefore, consideration acts as a safeguard that promotes equitable relationships between contracting parties.
• What role does consideration play in the context of implied contracts and promissory estoppel?
  • In implied contracts, consideration is still essential but can be inferred from the parties' actions rather than expressed terms. Promissory estoppel allows enforcement of a promise even without traditional consideration when one party reasonably relies on the promise to their detriment. This means that while explicit consideration is crucial for formal contracts, the principle of consideration can still apply indirectly through reliance in cases involving promissory estoppel, protecting parties from unfair outcomes.
• Evaluate how non-compete and non-solicitation agreements utilize the concept of consideration and its implications for enforceability.
  • Non-compete and non-solicitation agreements often require consideration to be enforceable; this could be employment itself or additional benefits like training or compensation. If an employee is asked to sign such an agreement without new consideration, it may not hold up in court because it doesn't meet the requirements of mutual exchange. Therefore, understanding how consideration functions in these contexts is crucial for both employers drafting agreements and employees evaluating their rights and obligations. The implications are significant as they determine the legality and enforceability of these restrictive covenants.

Related terms

Mutuality: A principle that implies both parties in a contract must offer and receive consideration for the agreement to be valid.

Promissory Estoppel: A legal doctrine that enforces a promise even in the absence of consideration when one party has relied on the promise to their detriment.

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