The Requirements of a Valid and Enforceable Contract, Part 2—Consideration

What Is Consideration? What Qualifies as “Sufficient” Consideration

When determining the validity of a contract, a court first looks to see that the parties had some type of agreement— that there was, as discussed in Part 1, a valid offer and an acceptance of that offer. The next step is to ascertain whether the agreement was supported by consideration. What does that mean? When might there not be sufficient consideration?

What Is Consideration?

The term “consideration” has a very specific meaning in the context of legal contracts. At its most fundamental level, consideration means that a party to an agreement made some type of change in their position. In the context of contracts, you can think of consideration as the promise (or promises) made by each party. For example, one party may promise to pay a certain amount of money to the other party. That other party, in return, may promise to manufacture or deliver goods, or to provide certain services. In such a situation, each party has changed their position and, therefore, has given some consideration. The promise may be to engage in some activity that the person wasn’t legally compelled to, but it may also be a commitment not to do something they had a legal right to do.

For a contract to be valid, there must be consideration flowing from both parties. A gift is not enforceable as a binding contract.

Is Any Amount of Consideration Sufficient?

Courts are typically unwilling to protect a person who makes a bad deal. Furthermore, there’s no requirement under the law that the consideration passing between the parties must be equal. As a consequence, it’s rare that a court will determine that the consideration given by one party or the other was inadequate. If, however, the disparity between what is given and what is received suggests evidence of fraud, misrepresentation, duress, or undue influence, the court may question the validity of the contract.

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