What Is Consideration in a Contract?

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What Is Consideration in a Contract?

In a contract, the parties must exchange something of value with one another. They must bargain for this exchange in order for the contract to be value. "Something of value" can either be goods or services. For instance, one party may offer a $30 gift certificate in exchange for the other’s promise to paint a wall on their house. Note that the parties must bargain for the exchange; this means that they must agree upon the terms before the service or goods are exchanged.

Lastly, consideration can also include a promise to perform services, or a promise to provide a certain property item. It can also include a promise not to do something.

Why Is Consideration Important in a Contract?

Without contract consideration, the contract is generally not considered to be valid. It is the exchange of consideration that makes the transaction a contract and not a gift. If one party merely gives an item or services to the other, the courts would view this as a gift.

Note that the consideration provided must be deemed "adequate" in order for the contract to be considered legal. For instance, if one party is providing services that are worth $2,000, the other party must provide consideration that is equal or about equal to $2,000. Consideration for past services or actions will not be considered; consideration for promises that are fake or can never be performed ("illusory promises") are not valid either in terms of contract formation.

What If I Have a Dispute Over Consideration?

Consideration can sometimes be a main source of contract disputes. For instance, one party may argue that the consideration provided in not enough compared to their contribution in a contract. If the consideration provided is not considered to be "adequate", it doesn’t make the contract automatically valid. But depending on the facts of the case, and the judge’s discretion, the contract may be considered unenforceable in a court of law. This is especially true for consideration that is fake, has no legal value or is considered "nominal" (i.e. too low in value to be classified as consideration).

Do I Need a Lawyer for Help with Consideration in a Contract?

Contract issues often involve very complex legal and theoretical principles. You may need to hire a contract lawyer if you need help with any type of contract dispute. Your attorney can help you review a document, edit terms, or file a claim in court. A qualified lawyer near you will be able to explain how the laws in your jurisdiction might affect your claim. Contract disputes are often remedied through a lawsuit in which the court reviews the agreement in order to come up with a suitable remedy, such as a damages award.

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Last Modified: 01-20-2014 12:51 PM PST

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