One Often Misunderstood But Necessary Element of a Contract: Consideration

As a small business owner, you’ve most likely read or heard the term “consideration” when reviewing and executing contracts. What exactly is consideration? And why does it matter to understand the idea of consideration in the context of a contract? Well, in order for your contracts to be enforceable, there must be consideration.

The Legal Definition
A lawyer will tell you that consideration is a bargained-for exchange of something of legal value. And “something of legal value” can vary from a promise to do (or not do) something, or creating, modifying or destroying a legal relationship. For a contract to be enforceable, there must be valid consideration.

In short, in order for a contract to be enforceable, each party must give up something of legal value in exchange for the other party giving up something of legal value. That “something” can be money (even Bitcoin), services, a promise to not do something that the person has a legal right to do, etc. If there’s no consideration, there’s no valid contract.Handshake

Valid Consideration
Typically courts will not determine the adequacy of consideration; however, courts will often strike down the validity of a contract based on nominal consideration, illusory promises, and pre-existing legal duties. A recent inVigor Law Group blog post explored the issues associated with these three consideration pitfalls.

Photo: Aidan Jones | Flickr

If you’d like to learn more about how to draft enforceable contracts, please feel free to contact me.

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