Consideration

Definition

Consideration refers to something of value that is exchanged between parties in a contract. It is a fundamental element that differentiates a legally binding agreement from a gift. Without consideration, a contract may be deemed unenforceable, as it signifies that both parties are entering into the agreement with an expectation of mutual benefit and obligation.

5 Must Know Facts For Your Next Test

1. Consideration can take many forms, including money, services, goods, or even a promise to refrain from doing something.
2. Both parties must provide consideration; if only one party gives something of value, the agreement may not be legally enforceable.
3. Past consideration, or something given or promised before the contract is formed, is generally not valid as consideration for a new contract.
4. Consideration must be legal and not against public policy; illegal acts cannot serve as valid consideration in a contract.
5. In some situations, such as contracts under seal, consideration may not be required for the contract to be enforceable.

Review Questions

• How does consideration function within the framework of a legally binding contract?
  • Consideration is essential for forming a legally binding contract as it represents the value exchanged between parties. It demonstrates that both sides have agreed to undertake certain obligations and have received something in return. Without consideration, an agreement may lack enforceability since there is no indication of mutual benefit or intent to be bound by the terms.
• Discuss the implications of lacking valid consideration in a contractual agreement and its potential outcomes.
  • When a contractual agreement lacks valid consideration, it may result in the contract being deemed unenforceable by law. This means that if one party fails to fulfill their obligations, the other party may not have any legal recourse to seek remedies. Additionally, this lack of consideration could lead to disputes regarding whether an agreement was ever intended to be binding, potentially complicating any legal proceedings.
• Evaluate how the concept of consideration interacts with other essential elements of contract formation and impacts enforceability.
  • The concept of consideration interacts closely with elements such as mutual assent and legality in contract formation. For a contract to be enforceable, there must be mutual assent between parties—signified by an offer and acceptance—as well as legality in terms of the subject matter. Consideration serves as the vehicle through which these elements are solidified, ensuring that both parties are equally committed to fulfilling their obligations. If any element is missing, including valid consideration, the enforceability of the contract is significantly compromised.

Related terms

Breach of Contract: A breach of contract occurs when one party fails to fulfill their obligations as stipulated in the contract, which can lead to legal consequences.

Mutual Assent: Mutual assent is the agreement between parties to enter into a contract, typically signified by an offer and acceptance.

Legality: Legality refers to the requirement that a contract's terms must comply with the law to be enforceable.