Consideration is the exchange of value that often supports an enforceable contract. In plain language, each side is giving or promising something the law recognizes as part of the bargain.
Why It Matters
Consideration matters because contract law usually distinguishes between a legally binding bargain and a promise that may be morally important but not enforceable. Readers often assume that any sincere promise can be sued on. In many contract settings, the law wants to see an exchange rather than a one-sided gift promise.
Understanding consideration also helps explain why amendments, waivers, settlements, and post-dispute promises can raise enforceability questions if nothing new is exchanged.
Where It Appears
The concept appears in contract formation, contract modification, settlements, confidentiality agreements, employment agreements, and business deals. Courts often discuss it when deciding whether a promise had enough bargain-based support to be treated as contractual.
Practical Example
A former employee promises not to disclose a company’s confidential information, and the company promises severance pay in return. The confidentiality promise and the payment are the exchange that can operate as consideration.
How It Differs From Nearby Terms
- An offer proposes a deal; consideration concerns the exchange inside that deal.
- Acceptance shows assent to the bargain, while consideration explains what each side gives or promises.
- A contract is the enforceable agreement as a whole, not just the value exchanged.
- Consideration is different from motive. A party’s reason for acting is not the same as the legal exchange.
Related Terms
Knowledge Check
- Is consideration usually about whether something of value was exchanged as part of the bargain? Yes. The doctrine often asks what each side gave or promised in return.
- Why is consideration important when revising a contract? Because changes to an agreement may raise enforceability questions if no new exchange supports the revision.