Consideration

Definition

Consideration refers to something of value that is exchanged between parties in a contract, forming the basis of a legally binding agreement. It can be money, services, goods, or a promise to act or refrain from acting. The essence of consideration is that it represents the incentive or motivation for each party to enter into the contract, ensuring mutual benefit and legality.

5 Must Know Facts For Your Next Test

1. Consideration must be present in every enforceable contract, making it a fundamental element alongside offer and acceptance.
2. It can be classified as either 'executed' (when the exchange has already taken place) or 'executory' (when the exchange is set to occur in the future).
3. The adequacy of consideration is not typically scrutinized by courts, as long as something of legal value is exchanged, even if it seems unequal.
4. Past consideration, or something that has already been performed before the contract was made, generally does not count as valid consideration.
5. Consideration can take various forms, including monetary payment, promises to perform services, or even forbearance from exercising a legal right.

Review Questions

• How does consideration function as a key component in forming a legally binding contract?
  • Consideration functions as an essential element in creating a legally binding contract by ensuring that both parties have something of value at stake. This mutual exchange serves as an incentive for each party to fulfill their obligations under the agreement. Without consideration, there can be no enforceable contract because there would be no guarantee that both sides are committed to the deal.
• Discuss the implications of past consideration on the validity of a contract's enforceability.
  • Past consideration can significantly impact the validity of a contract because it is generally not recognized as valid consideration in legal terms. This means that if one party claims they provided something of value before the contract was formed, it cannot serve as the basis for enforcing the contract. Courts require consideration to be contemporaneous with the agreement to ensure both parties are entering into the contract with fresh commitments.
• Evaluate how the concepts of mutuality and capacity interact with consideration to affect contractual agreements.
  • Mutuality and capacity play crucial roles in shaping the effects of consideration within contractual agreements. Mutuality ensures that both parties must offer consideration to create an enforceable contract, promoting fairness and reciprocity. Capacity relates to whether parties are legally able to enter into contracts; without proper capacity, even if consideration exists, the agreement may be deemed invalid. Together, these concepts ensure that contracts are equitable and legally sound, protecting all parties involved.

Related terms

Mutuality: The concept that both parties in a contract must provide consideration and benefit from the agreement for it to be enforceable.

Legality: The principle that a contract's purpose and terms must be legal and not against public policy for it to be valid.

Capacity:

The legal ability of parties to enter into a contract, which is affected by factors such as age and mental competence.