Consideration

Definition

Consideration refers to something of value that is exchanged between parties in a contract, which is necessary for a contract to be legally binding. It can be in the form of money, services, goods, or a promise to do or not do something. Without consideration, a contract may not be enforceable, as it serves as the motivation for both parties to enter into the agreement.

5 Must Know Facts For Your Next Test

1. Consideration must be something of value; it does not have to be monetary but must hold legal value recognized by the courts.
2. Both parties must provide consideration for a contract to be valid; if only one party benefits without giving anything in return, the contract may not hold up in court.
3. Past consideration, or something given before the contract was made, is generally not valid as consideration for a new contract.
4. Consideration can be a promise to perform an act, refrain from doing something, or providing a tangible item.
5. In some cases, a court may enforce a promise without consideration through doctrines like promissory estoppel if one party relied on the promise and suffered a loss.

Review Questions

• How does consideration function as an essential element of a contract and why is it important?
  • Consideration is crucial because it represents what each party stands to gain or lose from entering into the contract. It ensures that both sides are committing to the agreement and serves as evidence that the parties intended to create a legally binding relationship. Without consideration, there is no incentive for either party to fulfill their obligations, making the contract unenforceable in most cases.
• Discuss how mutuality relates to consideration in the context of contract law.
  • Mutuality in contract law means that both parties must provide consideration and have obligations under the agreement. This ensures that each party has something at stake and is committed to the terms of the contract. If one side does not provide consideration, it creates an imbalance where only one party benefits, undermining the enforceability of the contract. Mutuality reinforces fairness and equality in contractual relationships.
• Evaluate how the concept of past consideration affects current contractual agreements and its implications in legal disputes.
  • Past consideration is when something has already been given or performed before a new promise is made, and it generally cannot be used as valid consideration for enforcing that promise. This can lead to legal disputes when one party believes they are entitled to something based on previous actions. Courts typically require fresh consideration for new contracts to ensure that all parties are currently engaged and committed, promoting fairness and clarity in contractual obligations.

Related terms

Contract: A legally binding agreement between two or more parties that creates mutual obligations enforceable by law.

Mutuality: The principle that both parties in a contract must agree to the terms and obligations, ensuring that consideration flows in both directions.

Promissory Estoppel: A legal principle that enforces a promise even in the absence of consideration if one party relies on the promise to their detriment.