Why Is Consideration Needed in a Contract?

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Why Is Consideration Needed in a Contract?

When forming a contract, consideration is needed in order to make the agreement a formal, valid contract. This is one of the three main requirements besides mutual assent and a valid offer and acceptance. Consideration basically refers to the exchange of items or services of value. For instance, for a contract for a sale of goods such as apples, the party receiving the apples needs to exchange something of value for the apples. This usually comes in the form of monetary payment. The consideration can also be other products or even services. The point is that the parties must exchange something of value.

Consideration is needed so that both parties incur some sort of burden or obligation in the agreement. Without consideration, the exchange would likely be classified as a gift. Gifts are treated differently than contract agreements, legally speaking.

How Is Consideration Measured?

In most cases, courts require there to be "adequate consideration." This means that the consideration must closely approximate the value of the goods or services provided. The values are generally measured by the market value of the goods or services at the time of contract formation.

Note that the contract consideration does not have to be an exactly equal match in terms of pricing. Courts will usually measure the adequacy of consideration according to what is reasonable in terms of the average consumer or citizen.

For instance, suppose that one party promises to provide a television that is worth $200. If the other party agrees to pay them $180, courts might consider this adequate consideration. However, if they only agreed on a payment of $30, this might not be considered adequate consideration. Of course, each case will be different and will be subject to independent analysis.

What If Consideration Is Not Offered in a Contract?

If there is no consideration offered in a contract, courts will likely call the contract unenforceable in a court of law. This generally means that one neither party can sue the other if there is a dispute over contract terms. This is because a contract generally is not valid from the beginning if there is no consideration exchanged. Thus, it’s important for both parties to be aware of consideration in a contract, especially at the beginning during contract drafting.

In other cases, if there has been an exchange of services, the courts may alternatively treat the exchange as if it were a gift.

Do I Need a Lawyer for Help with Contract Issues?

Contract consideration is a very important aspect of a contract agreement. Without consideration, the courts generally can’t enforce the contract terms as written. You may wish to hire a lawyer if you need help with any contract issues. Your attorney can assist at various stages of the contracting process, from drafting, up until editing and enforcement. Also, your lawyer can represent you in court if you need assistance during a lawsuit.

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Last Modified: 01-20-2014 12:39 PM PST

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