Contract Basics

Consideration in Contracts

Consideration is the value bargained for and exchanged in a contract, and it is required for a contract to be valid. Insufficient consideration does not necessarily make an agreement void, but it can make a contract unenforceable.

Consideration is the value that two or more parties exchange in a contract. In most cases, a contract cannot be valid without it. Adequate consideration is equal in value or price for the exchanged goods and services. Consideration can also be agreeing not to do something that could otherwise be done. For example, the contract could include an agreement not to bring a legal action.

If Sarah and Scott agree to a contract in which Scott performs yard work for Sarah for $500, the $500 is the consideration.

A contract that lacks consideration is not enforceable by the promisee. However, if a contract has inadequate consideration, it can still become binding on the promisor after the promisee performs.

A principle under the law is that "past consideration is no consideration." For example, Daniela fixes Eric's computer. Eric says, "Thank you! I'll give you $75 for that." Daniela and Eric probably do not have a contract in this situation because Eric is offering consideration for something that has already happened. Eric and Daniela did not agree on terms before Daniela began the work. Eric might have a moral obligation to pay what he promised, but most courts would not find a legal obligation for him to pay.