consideration

Contract LawLegal glossary term

Legal Definition

In a legal context, consideration is the essential element of a contract, representing the promises or obligations exchanged between the parties. It signifies what each party agrees to give or do in exchange for the other party's promise to perform a specific action. For a contract to be valid, there must be a mutual agreement where one party provides something (a promise) and the other party provides something else (a performance).

Plain-English Translation

It means that when two people agree on a deal, one person promises to do something for another person's promise. It’s the 'something you give' or 'something you promise to do' in exchange for what the other person promised to do.

Context in Contracts

It matters because it establishes the mutual exchange necessary for a legally binding contract. Without valid consideration, the promise might be one-sided (e.g., a gift), rendering the contract unenforceable under common law principles. It determines whether the promises made by the parties are legally binding.

Visual model

Understand consideration fast

ELI10 illustration for consideration
01

A promise to pay a specific price for goods sold.

02

A promise of services in exchange for payment.

Document context

How consideration shows up in legal documents

What is it?

Consideration is the benefit or value exchanged between the parties in a contract. In common law, this often includes promises to perform an action or to refrain from doing an action, which forms the basis of the contractual obligation. It is the essential element that makes a legal agreement enforceable.

Why does it matter?

It matters because it establishes the mutual exchange necessary for a legally binding contract. Without valid consideration, the promise might be one-sided (e.g., a gift), rendering the contract unenforceable under common law principles. It determines whether the promises made by the parties are legally binding.

When does it matter?

Consideration is crucial when drafting or analyzing any legal agreement where obligations are established. It appears in the initial negotiation phase to define the reciprocal duties of the parties involved, particularly in contracts involving services, property transfers, or specific performance claims.

Where is it usually seen?

It is usually seen in contract clauses detailing the agreed-upon exchange, often appearing alongside terms defining the scope of the obligation and the resulting legal rights conferred upon the contracting parties.

Who is affected?

The parties to a contract are affected; they must provide consideration for the agreement to be valid. The legal concept dictates who is obligated to perform and what benefit they receive in return.

How does it work?

In practice, consideration works by assessing whether the promises made by one party (the benefit received) are legally sufficient to bind the other party to fulfill their obligations. Courts examine whether the promised action or benefit was bargained for and mutually agreed upon.

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