Consideration Is an Essential Element in Contract
A consideration is a legal term used to describe the exchange of something of value for something else or for a service.3 min read
A consideration is an essential element in contract formation. A consideration is a legal term used to describe the exchange of something of value for something else or for a service. A consideration does not have to be money. The other important factor regarding considerations is that you do not have to meet someone else's standard of value. This means if an agreement has been made between neighbors to exchange a child's bicycle for an antique plate collection, the agreement holds regardless of the value appearing unequal.
In contract law, consideration explains the benefit of what is each party is receiving. To be legally binding, all parties in the contract must receive something from the consideration. A basic example of consideration is when, in exchange for payment, you receive an item of clothing.
What Is Consideration?
The legal definition of consideration is based on the concept of "bargained-for-exchange," where the parties of the contract agree to the exchange of something of value. In a valid contract, the consideration is the portion that explains the legal value that will be exchanged. The term "value" does not mean only money can be exchanged. Consideration can be any of the following:
- Physical objects.
- Promised actions.
- A promise to not partake in future actions.
The value of the consideration can be a right, interest, or benefit going from one party to another party. Conversely, it can be some kind of forbearance, loss, detriment or responsibility that the other party gives, suffers, or undertakes. The value of the consideration only needs to be of adequate value, meaning the parties can make their own bargains. The consideration cannot be based on past actions.
If a pre-existing agreement between the parties exists, this cannot be used as the consideration legally. When the consideration is agreed to by both parties, the contract is considered binding. Most contracts include a statement at the beginning of the contract, like "for good and valuable consideration" or similar. Frequently this statement is incorrectly seen as fulfilling the requirements of contractual consideration. This is true in most states.