In the legal system, the term consideration in contract law refers to something of value given to someone in return for goods, services, or some other promise. A valid contract must include consideration for every party involved. In simple terms, consideration is the basic reason a party enters into a legal contract. To explore this concept, consider the following consideration definition.
Origin
1350-1400 Middle English < Latin consīderātiōn
Consideration is the benefit that each party receives, or expects to receive, when entering into a contract. Consideration is often monetary, but it can be a promise to perform a specific act, or a promise to refrain from doing something. In order for a contract or agreement to be legally binding, every party to the contract must receive some type of consideration. In other words, a contract is a two-way street, so each party must receive something of value from the other party or parties. Illegal or immoral acts are not legally considered to serve as consideration.
Example 1
John backed into Allen’s car, damaging it. John is liable to pay for the damages, but does not have the money right now. While Allen could sue John for the damages to his car, he enters into an agreement with John to give him 90 days to pay the full amount of $1,500, plus an additional $250 for the inconvenience. The agreement states that Allen will not file a lawsuit before the 90 days is up, but is free to do so after that time. This agreement, or “contract,” provides consideration for both parties:
Example 2
Brittney agrees to sell her car to Bill for $1,000. Bill’s payment serves as consideration for Brittney’s promise to sell the car to him. Brittney’s consideration is her promise to sell him the car.
Example 3
A landlord and a prospective tenant meet to discuss the rental of a condo. At the meeting, they go over the terms of the lease, and agree to enter into the lease, which is signed by both the landlord and the tenant. In this type of contract, the landlord agrees to provide tenant with housing, and the tenant promises to pay rent in return.
In addition to the elements of consideration, a contract must contain certain other elements to be enforceable. While these requirements vary by state, generally these requirements include:
Naomi’s mother promises to buy her a car when she graduates in two years, if she keeps her grades up, making an official-looking document, which she signed. After graduation, Naomi is disappointed that her mother has decided not to buy the car, as Naomi got into trouble with drugs and delinquent behavior over the past couple of years.
Naomi files a civil lawsuit, claiming that she had a contract with her mother, and that her mother must buy her a car. However, because there was no mutual benefit, no consideration given by both parties, the court is likely to determine that the document was simply a promise of a future gift, which is not an enforceable contract.
ChocoTime candy company enters into a contract with Cocoa Merchants in which ChocoTime will purchase all of the cocoa it needs for its candy from Cocoa Merchants, and Cocoa Merchants will sell as much cocoa as it wants to ChocoTime. Because this contract binds ChocoTime to purchasing all of the cocoa it needs only from Cocoa Merchants, ChocoTime is not bound to do anything. In fact, Cocoa Merchants could choose not to sell any cocoa to ChocoTime if it desired. This is one type of illusory promise, and it therefore makes this contract invalid and unenforceable.