In this article we will answer the question “what is ‘consideration’ in a contract?” When discussing contracts and contract law, the term “consideration” is often mentioned. In relation to a contract, consideration refers to what each party will receive as a result of the contract, also known as “bargained-for exchange.”
For example, consideration could include one party receiving a product or service as consideration for payment for that product or service. Simply, consideration is the benefit each party gets or is expecting to get as a result of the contractual agreement.
Consideration does not have to include money. It has to be something of value deemed appropriate by both parties. Anything of value promised by one party in exchange for something else is referred to as consideration.
Typically, consideration is a result of either two things; the first is a party’s promise to do something it’s not legally obligated to do. The second is a promise to not do something a party has the right to do. An example of this is often a promise not to file a lawsuit against the other party.
A contract must include consideration for it to be valid. If litigation ensues and a court finds the contract lacks consideration, the court can rule that the contract is unenforceable. The court can base its findings on these for criteria:
Common language in some contracts may include the phrase “for good and valuable consideration, the sufficiency of which is acknowledged…”, however, just because it uses the term “consideration” doesn’t necessarily mean the contract contains consideration. For a contract to be enforceable and valid, it must indicate that value is being offered by one party and accepted by another in a way that’s beneficial to both.