Consideration

Definition

Consideration refers to something of value that is exchanged between parties in a contract, which is essential for the formation of a legally binding agreement. It can take various forms, such as money, services, or goods, and acts as a motivator for each party to fulfill their obligations under the contract. Without consideration, a contract may be deemed unenforceable, as it signifies that both parties are willing to engage in the transaction.

5 Must Know Facts For Your Next Test

1. Consideration must be present for a contract to be valid; if one party does not provide consideration, the contract can be voided.
2. Consideration does not need to be equal in value but must be something of legal value to the parties involved.
3. Past consideration, or something that has already been given or performed before the agreement is made, cannot constitute valid consideration.
4. Consideration can be either a promise to do something or a promise not to do something, such as refraining from legal actions.
5. Courts generally do not evaluate the adequacy of consideration, meaning they won't assess whether the value exchanged is fair or sufficient.

Review Questions

• How does consideration function as a fundamental element in forming contracts, and what happens if it's missing?
  • Consideration functions as a crucial element in forming contracts because it ensures that both parties are engaged in a mutual exchange of value. If consideration is missing, the contract may not be enforceable, as it indicates that one party is not committing anything of value. This lack of commitment undermines the foundation of trust and obligation necessary for contractual agreements.
• Discuss the implications of past consideration on the enforceability of contracts.
  • Past consideration refers to actions or benefits received before the current agreement is made and cannot be used as valid consideration in forming a new contract. This means that if one party tries to rely on something previously given as part of a new contractual obligation, it will not hold up legally. Thus, for a contract to be enforceable, consideration must consist of new exchanges that both parties agree upon at the time of the agreement.
• Evaluate how consideration impacts negotiations and dispute resolution within contractual agreements.
  • Consideration significantly impacts negotiations and dispute resolution because it establishes what each party stands to gain from the agreement. Understanding what constitutes valid consideration helps parties navigate their expectations and obligations during negotiations. In dispute resolution, demonstrating the presence or absence of consideration can serve as a key factor in determining whether an agreement is enforceable or if breaches have occurred, thereby influencing the outcome of any legal disputes.

Related terms

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

Breach of Contract: The failure of one party to fulfill their obligations as stipulated in a contract.

Mutuality: The principle that requires both parties in a contract to provide consideration, ensuring a reciprocal exchange.