Consideration or a valid substitute is required to have a contract. Legal scholars agree that generally, a contract doesn't need to include anything other than a statement that "the parties agree." For example, the laws in Maria's state prohibit firing an employee for refusing to sign a noncompete agreement. Let's look at some of these scenarios. The court in Currie v Misa declared consideration to be a “Right, Interest, Profit, Benefit, or Forbearance, Detriment, Loss, Responsibility”. The concept of consideration has been adopted by other common law jurisdictions, including the US. The technical requirement is either a detriment incurred by the person making the promise or a benefit received by the other person. Inducement is an objective test, whereas magnitude of consideration is a subjective test. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. On the other hand, if you make a down payment on a house in reliance on his promise, and your uncle knows about it, a court may enforce his original promise. Quid pro quo meaning “something in return” is a Latin phrase associated with consideration. By signing up for this email, you are agreeing to news, offers, and information from Encyclopaedia Britannica. Consideration, in contract law, an inducement given to enter into a contract that is sufficient to render the promise enforceable in the courts. It involves trading a performance for a performance. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. an existing contract; – Consideration need not benefit promisor; it can consist simply of some detriment to promisee or some benefit to third party: • “A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or or "What are you receiving for being a party to this contract?" When someone promises to give you something in return for something you've already done -- "I'm going to pay you $500 because you quit smoking last year" -- a court will not enforce the promise to make the payment because the performance (quitting smoking) wasn't bargained for. One of the parties was already legally obligated to perform. The exchange of consideration creates a benefit and a burden for each party entering into a contract. Consideration under contract law is defined as a bargained for exchange of value between parties of a contract. The consideration which is the benefit of the contract for one party (say, receiving money) is the burden of the other (say, paying money). In some situations, courts will step in and declare that a contract is unenforceable because it lacks consideration. Let us know if you have suggestions to improve this article (requires login). In some states, the information on this website may be considered a lawyer referral service. In order for any contract to be enforceable, courts generally require three things: mutual assent (agreement to the contract terms), a valid offer and acceptance, and consideration. A promise by a party to do something he or she is not legally required to do. Corrections? A Consideration is where anything of value is promised to another person when making a trade, and continuing to make a contract. The exception is for contracts that only one party signs, such as assignments, option agreements, or promissory notes. The concept has been adopted by other common law jurisdictions. If a court does judge the consideration to be unfair, the contract will probably fall apart not because of a lack of consideration, but because the consideration is so disproportionate that it indicates that one party acted unfairly or concealed information that might have made the deal a fair one. Executory consideration: This type of consideration is formed when there has been an exchange of promises between parties otherwise known as a bilateral contract. Reciprocity of consideration is fundamental to contract law. Unless this type of bad faith exists, however, courts generally don't want to get into judging the relative value of particular promises or items. Past. A better approach would have been to provide Maria with some benefit or compensation if she signed the agreement, rather than threatening to fire her if she didn't. A promise to refrain from doing something a party is allowed to do by law. In legal terms, consideration in the contract law refers to a promise of something valuable by someone for som… As described above, consideration does not need to be adequate, but it must be bargained for by both parties and legally sufficient. Thus, the person seeking to enforce the promise must have paid, or bound himself to pay, money, parted with goods, spent time in labour, … For more tips on putting your agreement in writing, check out Nolo's article Contracts 101: Make a Legally Valid Contract. If you're looking for a practical A to Z guide to everything you need to know about contracts, get Nolo's new book Contracts: The Essential Business Desk Reference, by attorney Rich Stim. Omissions? What Is "Consideration" in Contract Law? In these contracts, a recital that the consideration is sufficient should be included, because it's not self-evident that a bargained-for exchange has taken place.