What is Consideration?

Understanding the Concept of Consideration

Consideration is a legal term used in contract law that refers to an exchanged value given by parties when entering into an agreement. It is used to determine the enforceability of a contract. Consideration must be both given and received, and is considered valid if it has an actual legal value. Generally speaking, consideration must be given freely and voluntarily, and must be of a certain value or be adequate, depending on the circumstances.

Role of Consideration in Contract Law

Consideration is regarded as an essential element of any valid contract. In order for a contract to be legally binding, all parties must provide consideration, usually in the form of goods, services, money or any promise to do something. Consideration is necessary for the purpose of forming a binding contract, sustaining a valid cause for enforcing a contractual arrangement.

Examples of Consideration in Business Agreements

Consideration is a critical element of business agreements, and it is necessary for both parties to agree to something of value in exchange for the agreement. Some examples of consideration in business agreements are:

• Money – Paying or receiving money is the most common form of consideration.
• Services – Rendering or receiving services for free or for a certain fee.
• Promises – Promising to do something in exchange for something else.
• Action or Refraining from Action – Doing an act or refraining from doing something that the other party has requested.