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Contracts

Consideration in a Contract

April 12, 2024

What is Consideration in a Contract?

Consideration is a term used to legally describe the advantages and profits each party can have after signing a contract. It can weather the exchanges of goods, money, or services you receive from the contract. Considerations are what you agreed to obtain from the signing of the agreement. 

Considerations are almost always present in a contract and are crucial when deciding the terms and conditions available for the joining parties. Yet, depending on the country, a contract must include certain elements to be legally binding. For example, in the US, we need an offer, acceptance awareness, consideration, capacity, and, of course, legality. 

How does it work?

For a contract to be legally binding, we need to respect the mutuality of obligation of a contract, so all the parties involved need to be aware and meet the obligations they agreed upon. Even more so, considerations are the promise each party makes and needs to commit to. So, each member needs to exchange a value of some sort with one another. Such as:

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  • Services – for example, fixing your sink or painting your fence 
  • Promises to do or accomplish something – to buy or sell a house, to create a building, or to take care of something
  • Promises to not do or leave unbothered – to ignore, not build, or not interact with a specific competitor. 
  •  Any kind of property. 

However, for considerations to stay valid, we need both parties to respect the terms and deliver the required obligations on time. If one of the parties involved doesn’t provide the agreed performance, service, or payment, the other party isn’t obliged to do it either. 

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Considerations can also be executory or can be executed if needed. So, ensure you keep your end of the bargain and deliver the terms you agreed on in the contract. Let’s think of a situation in which you have paid a photographer in advance for the photos you need for your wedding, and they don’t show up – a disaster that can be avoided with a contract and can also be executed or have repercussions.

When can a consideration not be valid in a contract?

Consideration needs to have value in the eyes of the law to be valid. So let’s see which items don’t meet the target to be considered a consideration:

  • A future gift that is promised. 
  • A promise that seems illusory. 
  • Anything that hasn’t been agreed by all parties involved

Subject

What is Consideration in a Contract?How does it work?When can a consideration not be valid in a contract?
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