What is Consideration?

In simple terms, consideration is something of value exchanged between parties in a contract. It’s the “price” each party pays for the other party’s promise. Without consideration, an agreement is generally not legally binding – it’s just a promise, not a contract. Think of it like this: you wouldn’t agree to mow your neighbor’s lawn for free if they haven’t promised you anything in return, right? That “something in return” is consideration.

The Two Sides of Consideration

Consideration involves two sides: a promise given and something of value received in return. For instance, if you agree to sell your car for $5,000, your consideration is the car, and the buyer’s consideration is the $5,000. Both parties are giving something up and receiving something in return. This mutual exchange is crucial to forming a valid contract.

What Counts as Consideration?

Consideration doesn’t have to be money. It can be anything of value to the parties involved. This could include goods, services, a promise to do something, or a promise to refrain from doing something. For example, promising to paint your neighbor’s fence in exchange for their promise to babysit your kids is a valid exchange of consideration. Even a very small act, if genuinely bargained for, can constitute consideration. Think of a nominal sum like $1 exchanged for a valuable item; the law recognizes this as a legitimate transaction.

Examples of Consideration in Action

Let’s look at a few real-world examples: You hire a contractor to renovate your bathroom. Your consideration is the payment you promise, and the contractor’s consideration is their promise to complete the renovation to your specifications. Or perhaps you enter a lease agreement. Your consideration is the monthly rent, and the landlord’s consideration is the right to occupy the property. These examples show how consideration is essential for creating a legally binding contract in various situations.

What Doesn’t Count as Consideration?

While many things qualify as consideration, some things don’t. For example, a promise to make a gift is generally not enforceable because there’s no consideration from the recipient. If you promise to give your friend $100, they haven’t given you anything in return, so it’s not a contract. Similarly, “past consideration” doesn’t count. This means you can’t use something you did in the past as consideration for a new agreement. If you helped a friend move last month and now they promise to pay you, that past act doesn’t qualify as valid consideration for the present promise.

The Importance of Mutuality

It’s vital to note that consideration must be mutual. Both parties must give something up to receive something in return. If only one party provides consideration, the agreement may not be legally binding. For example, if one person promises to sell a house for $200,000, but the other person makes no promise to buy it, there’s no mutual consideration, and the agreement wouldn’t hold up in court. The agreement lacks the necessary exchange of value required for a contract.

Adequacy of Consideration