Consideration

Definition

Consideration is a fundamental principle in contract law that refers to something of value that is exchanged between parties when entering into a legally binding agreement. It is what distinguishes a contract from a gift, as both parties must provide something valuable, whether it be a service, money, or an item. Without consideration, a contract cannot be enforced in court, making it an essential element of transactional agreements.

5 Must Know Facts For Your Next Test

1. Consideration can take many forms, including cash, services, goods, or even a promise to refrain from doing something.
2. Past consideration, or something that was given before the contract was made, is generally not valid as consideration for a new contract.
3. In some cases, nominal consideration (a small token amount) may be sufficient to support a contract if it demonstrates the parties' intent to enter into an agreement.
4. For consideration to be valid, it must be legal and not against public policy, meaning it cannot involve illegal activities or terms.
5. Consideration must be sufficient but need not be adequate; as long as it has some value in the eyes of the law, it can qualify as consideration.

Review Questions

• How does consideration differentiate contracts from gifts in legal terms?
  • Consideration is essential in distinguishing contracts from gifts because contracts require an exchange of value between parties, while gifts do not. In a contract, each party must provide something of value to the other as part of their agreement. In contrast, a gift involves one party giving something without expecting anything in return, which means it lacks the mutual exchange necessary for enforceability under contract law.
• Discuss the significance of mutuality in relation to consideration and how it impacts contract enforceability.
  • Mutuality plays a significant role in ensuring that both parties in a contract are bound by their respective obligations. When consideration is present, each party must fulfill their part of the agreement for the contract to be enforceable. If one party fails to provide consideration or is not bound by their promise, the contract may lack mutuality, rendering it unenforceable. This principle ensures fairness and balance in contractual relationships.
• Evaluate the implications of past consideration on the validity of contracts and provide examples.
  • Past consideration can significantly impact the validity of contracts because it is generally not recognized as valid consideration under contract law. For example, if Party A promises to pay Party B $100 for a service that Party B has already provided before any agreement was made, this would be considered past consideration and would not support a binding contract. The implications are crucial; without valid consideration at the time of contracting, Party A may not be legally obligated to pay Party B, which highlights the necessity for both parties to engage in an exchange of value moving forward.

Related terms

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

Breach of Contract: The failure to perform any term of a contract without a legitimate legal excuse.

Mutuality: A principle stating that the obligations of the parties in a contract must be binding on both sides to be enforceable.