A primer on consideration and the law of contracts

In order for a contract to be legally enforceable, there must be some sort of legitimate consideration. What is “consideration”? Consideration is a bargained-for change in legal position between the parties. Basically, two elements must be present for a valid contract to exist. First, there must be a bargained-for exchange between the parties. And second, that which is bargained for must have legal value (it must be a detriment to the person to whom the promise is made, and should constitute a benefit to the person who makes the promise). Substitute doctrines may permit the enforcement of an agreement without consideration, but those are outside of the scope of this primer. An example of the elements of consideration may help with the concept:

Robert promises to sell his car to Jeffrey for $5,000 in exchange for Jeffrey’s promise to pay $5,000. Both elements of consideration (a detriment and a benefit) are found here. Robert’s promise was bargained for, and it induced a detriment to Jeffrey. Jeffrey’s detriment induced Robert to make the promise. Also, both parties suffered detriments. The detriment to Robert was the transfer of ownership of the car, and the detriment to Jeffrey was the payment of $5,000 to Robert.

Unless the promise induces a detriment and the detriment induces the promise, there is no “bargained-for exchange”.

Additionally, if either of the parties intended to make a gift, he or she was not bargaining for consideration. Also, “past consideration” is generally not sufficient consideration. For instance, if something was already given or performed before the promise was made, it will not satisfy the “bargain” requirement. Here is an example of past consideration:

Jennifer was about to be struck by a speeding car. Eva pushed her out of the car’s path, just in time to save her from being struck. However, Eva was herself struck by the car and was seriously injured. Jennifer later promised Eva that she would pay her $1,000 per month for life. There is no consideration because Eva did not bargain for Jennifer’s promise.

It should be noted here that there is substantial disagreement with this general rule, and therefore many exceptions exist to past consideration issues. However, it is important to be aware that past consideration can influence the legal sufficiency of a contract.

These are just a few things to consider when determining the validity of a contract. If you are contemplating entering into a contract, or if you would like to have an existing contract reviewed, you should contact a licensed attorney to determine the best course of action, or to preserve your legal rights.

*Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.