Legal Definitions - consideration

In contract law, consideration refers to the essential element of a "bargained-for exchange" between parties. It is what each party gives up or promises to give up in exchange for the other party's promise or action. For a contract to be legally enforceable, both parties must provide consideration. This exchange ensures that the agreement is not merely a gift or a one-sided promise, but a mutually binding commitment.

Consideration can take many forms, including:

• A promise to do something.
• An action or performance of a task.
• Forbearance, which means refraining from doing something one has a legal right to do.

It's important to note that consideration does not require an equal economic benefit for both parties, but it must have some legal value. A gift or a promise made for past actions typically does not qualify as consideration because there is no present exchange or bargaining.

There are also specific situations where a contract might be enforceable even without traditional consideration:

• Promissory Estoppel (or Detrimental Reliance): This occurs when one party makes a clear promise, and the other party reasonably and foreseeably relies on that promise to their detriment. If enforcing the promise is the only way to prevent injustice, a court may make the promise binding even without formal consideration.
• Good Faith Modification (under the Uniform Commercial Code - UCC): For contracts involving the sale of goods, a modification to an existing agreement can be enforceable without new consideration, provided the modification is made in good faith.

Examples of Consideration:

• Service Contract:

  Imagine a homeowner hires a landscaping company to redesign their backyard. The homeowner promises to pay $5,000 upon completion, and the landscaping company promises to perform the design and installation work.

  How it illustrates consideration: The homeowner's consideration is the promise of payment, and the landscaping company's consideration is the promise to perform the services. Each party is giving something of legal value (money and labor/expertise) in exchange for the other's contribution, forming a legally binding contract.

• Forbearance Agreement:

  A small business owner discovers that a competitor has been using a very similar logo, potentially infringing on their trademark. Instead of immediately filing a lawsuit, the business owner agrees not to sue (forbearance) if the competitor immediately ceases using the logo and pays a one-time licensing fee for past use.

  How it illustrates consideration: The business owner's consideration is their forbearance – refraining from exercising their legal right to sue. The competitor's consideration is their action of ceasing logo use and the payment of the licensing fee. This mutual exchange, where one party gives up a legal right, forms valid consideration.

• Promissory Estoppel (Substitute for Consideration):

  A recent college graduate receives a job offer from a company in a different state. Based on this offer, the graduate quits their current part-time job, breaks their apartment lease, and incurs moving expenses. Before their start date, the company unexpectedly withdraws the job offer.

  How it illustrates consideration: While there might not have been a fully executed employment contract with traditional consideration at the time the offer was withdrawn, the graduate reasonably and detrimentally relied on the company's promise. They suffered financial losses and gave up their previous employment based on that promise. A court might apply promissory estoppel to hold the company accountable for the graduate's losses, even without formal consideration, to prevent injustice.