Consideration (contract law)
In contract law, "consideration" refers to the value or benefit that parties agree to exchange as part of their contractual agreement. It serves as a fundamental element that transforms a promise into a legally enforceable contract, motivating the parties to engage in the transaction. Typically, one party, the promisor, agrees to provide a specific item or service, while the other party, the promisee, compensates the promisor with a defined consideration, such as money or a reciprocal promise. This exchange can encompass various forms, including tangible goods, services, or even forbearance, where a party agrees not to perform a specific action.
However, if the consideration is deemed inadequate, lost, or compromised before the contract can be executed, this situation is referred to as "failure of consideration," which may invalidate the contract. The complexities surrounding consideration can differ significantly between common and civil law jurisdictions, highlighting the importance of legal guidance when entering into contracts. Understanding the concept of consideration is crucial for anyone looking to engage in legally binding agreements, ensuring that all parties are aware of their rights and obligations.
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Consideration (contract law)
In contract law, a consideration is a service or item of value that the signatory parties agree to exchange when the terms and conditions of the contract are met. Considerations are the primary reason contracts exist, as they provide the involved parties with the initial impetus and incentive to enter into a legally binding agreement.
Contracts involve pledges of performance between promisors and promisees. The promisor is the party who agrees to provide something tangible and definable, such as a particular item or service, and the promisee is the party who agrees to compensate the promisor for providing that item or service. That compensation is identified and defined in the contract and becomes the consideration once the contract is endorsed by all involved parties.
Such pledges of performance can take many forms, but in the majority of cases, they involve a promisor's assurance to do something or not to do something. For example, a promisor may agree to build a shed in the promisee's backyard; conversely, a promisor may agree not to sell a plot of vacant land that they own to a particular real estate developer. When the contract is built around one party agreeing not to do something in exchange for a consideration, the act not to be performed under the terms of the contract is called forbearance.
In the first example, the promisee may pledge to pay the promisor the sum of $100 in exchange for building the shed; that $100, thus, becomes the consideration in the contract. In the second example, the promisor may agree not to sell the plot of vacant land to a particular real estate developer in exchange for the promisee's pledge to buy it for double its current market value. In this case, the payment of double the land's current market value serves as the consideration.
By definition, the consideration identified in the contract must be of value to the parties entering into the agreement. In cases where the nature or value of the consideration may be subject to change, the parties entering into the contract will usually define a valid substitute to be exchanged in lieu of the original consideration.
Failure of Consideration
In certain cases, the consideration may be of lesser value than the parties initially anticipated when they entered into the contract; similarly, the consideration may be lost, damaged, destroyed, or otherwise compromised before it can be exchanged. These situations are known as failure of consideration, and they are grounds for rendering the contract null and void. Failure of consideration can also take place if the promisor fails to perform as the promisee expected.
Determining compensation for the parties involved in the contract can become complicated in such cases, and frequently becomes the basis for subsequent litigation. In some jurisdictions, consideration in common law is treated differently than consideration in civil law. Given these complexities, parties entering into any sort of contract are generally advised to seek legal counsel before formalizing or finalizing any such agreement.
Bibliography
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"Consideration." Legal Information Institute, Cornell University Law School, www.law.cornell.edu/wex/consideration. Accessed 10 Dec. 2024.
"Contracts 101: What Is Consideration?" Rocket Lawyer, www.rocketlawyer.com/business-and-contracts/business-operations/product-or-service-sales/legal-guide/what-is-consideration. Accessed 10 Dec. 2024.
"Introduction to Contracts and Consideration." Law Shelf, National Paralegal College, www.lawshelf.com/courseware/entry/introduction-to-contracts-and-consideration. Accessed 10 Dec. 2024.
Stim, Richard. "Consideration: Every Contract Needs It." NOLO, 5 Mar. 2023, www.nolo.com/legal-encyclopedia/consideration-every-contract-needs-33361.html. Accessed 10 Dec. 2024.