Have You Thought About Consideration?

Contract is the legal means of enrichment with cause. Through contract, individuals may increase their world of rights and duties. Contract is the way in which economic activities originated and survived in the world.

Consideration is something of value that a contracting party promises to the other party. In general, consideration comes in two flavors: a benefit that you promise to give the other party and a detriment that you agree to take on. A promise to pay the purchase price for a product would be an example of the former; a promise not to sue someone would be an example of the latter. The consideration is an act, forbearance, return promise, or creation, modification, or destruction of a legal relationship that is bargained for and given in exchange for the promise. Indian Law dictates that an agreement without consideration is void. This means, a purely gratuitous promise has no legal force.

When two parties enter into a contract, there are a lot of contingencies based on the communication between the two parties. Before the contract is formed, it may so happen that one of the parties change their minds. Either they decide to walk away from negotiations or demand a higher price, or maybe just decide to work with someone else. But once the contract has been formed, the parties need to abide by what they promised each other.

The law is riddled with exceptions, and consideration usually isn’t at issue in the typical business-to-business transaction. But consideration is important in a sufficient number of contexts. This post has been written to introduce the concept behind consideration and does not; in any way discuss the myriad of issues that the legal doctrine poses at various levels.

Contracts are promises that courts will enforce, but courts won’t get involved for just any promise. Courts require that the parties intend to be bound by their promises at the time of their contracting. And they require contracts to be a two-way street. That’s where consideration comes in. Each party has to bring something to the table.

In most contracts, consideration is a two-way street and the relationship must be analyzed from the point of view of each party. Each is required to provide consideration — a concept often called mutuality — or the contract fails for lack of consideration, and a party who wants to enforce the deal in court will be out of luck.

Although each party has to provide consideration, courts usually won’t delve into whether the deal is fair, so there can be a great disparity in the value of each party’s consideration.

You can see that each party is bringing something of value to the table, so there’s no question whether the contract is supported by consideration. Visualizing a transaction like this and making sure that there’s something of value going in each direction is a simple way to make sure that the contract is supported by consideration.

It is undoubtedly true that every man is by the law of nature bound to fulfill his engagements. It is equally true that the law of our country supplies no means nor affords any remedy, to compel the performance of an agreement made without sufficient consideration. Hence, it can be said that in contract, the concept of consideration has been incorporated because only consideration can provide a positive legal base for the realm of contracts.