key term - Consideration

Definition

Consideration is a fundamental principle in contract law that refers to something of value exchanged between parties when forming a contract. It represents the price paid for a promise or the reason why a party enters into an agreement. Consideration is essential for a contract to be enforceable, as it distinguishes a contractual obligation from a mere gift, ensuring that each party has a stake in the agreement.

5 Must Know Facts For Your Next Test

1. Consideration must be present for a contract to be legally binding; without it, the agreement may not be enforceable in court.
2. Consideration can take many forms, including money, services, goods, or even a promise not to act in a certain way.
3. The value of consideration does not need to be equal between parties, but it must be sufficient and legally recognizable.
4. Past consideration, or something given or promised before the agreement was made, generally cannot serve as valid consideration for a new contract.
5. Consideration must be present at the time of contract formation, and it cannot be contingent on future events or obligations.

Review Questions

• What role does consideration play in distinguishing contracts from gifts, and why is this distinction important?
  • Consideration is crucial in differentiating contracts from gifts because it ensures that both parties are contributing something of value to the agreement. In contracts, the exchange of consideration indicates mutual assent and binds parties to their promises. Without consideration, an agreement may lack enforceability and could be viewed as a mere gift with no legal implications, highlighting the necessity of consideration in establishing contractual obligations.
• How does the concept of past consideration affect the enforceability of contracts?
  • Past consideration affects enforceability because it is generally not recognized as valid consideration for new agreements. For consideration to support a contract, it must be given contemporaneously with the promise or at least after the promise is made. If one party attempts to use something provided in the past as consideration for a current contract, that promise may not be enforceable, leaving the parties without legal recourse if one fails to fulfill their obligations.
• Analyze how considerations influence the development of bilateral and unilateral contracts and their respective enforceability.
  • Considerations significantly influence both bilateral and unilateral contracts by establishing what each party stands to gain or lose. In bilateral contracts, mutual promises create reciprocal obligations that require both parties to perform, making consideration essential for enforceability. In unilateral contracts, consideration takes the form of an act performed by one party in response to the promise made by another; if the act occurs, the promisor is bound. Understanding how consideration operates within these two types of contracts highlights its vital role in shaping their enforceability and legal recognition.

Related terms

Bilateral Contract: A type of contract where both parties make mutual promises to each other, creating reciprocal obligations.

Unilateral Contract: A contract where one party makes a promise in exchange for an act by the other party, with the promise being contingent on that act.

Promissory Estoppel: A legal principle that enforces a promise made without consideration when one party relies on that promise to their detriment.