Contracts law 101 begins with offer, acceptance, and consideration. Most people have some level of understanding when it comes to the first two - offer and acceptance. Not only do most people have experiences with offer and acceptance, the language adds to the familiarity. Consideration, on the other hand, is as an unfamiliar word as it is a legal concept.

Consideration is often used with its Latin equivalent, “Quid Pro Quo” which translates as something for something. In contracts jargon that means that each party must gain something from engaging in the contract. The language does not specify that the trade-off be of equal value (or of equal worth - if you’re into those types of distinctions). In fact, value in a contract is rarely an issue because of the simple fact that placing value on almost anything is difficult if not impossible (another reason is that values are more a topic for Remedies than contracts law). Add in hind-sight and most courts tend to keep out of value evaluations in contracts disputes, although there does need to be some value (for the sake of equity and fairness, but that bar is fairly low).

Consideration can be an exchange of promises to do (or not do) something, an exchange of money for goods, and consideration can even be the exchange of goods for goods. The possibilities are almost without bounds. Consideration, like any other part of contracts law, cannot involve illegal activity. Illegal activity automatically voids a contract (note the distinction that the contract will be void versus the contract being voidable which illegal contracts would not be). Very rarely a court will not void the entire contract, only the portions of the contract that relates to any illegal activity.

When it comes to contract issues coming up in court, consideration is by far the most common. For that reason, and many others, adding a consideration clause in your contract is highly recommended because a consideration clause not only helps to clarify what the consideration of the contract is, but a consideration clause can help the parties understand what their gaining from the contract.

If the consideration clause is missing from a contract, the court will likely look to the remainder of the contract to determine what was the consideration of the contract. Just because there is not a consideration clause in the contract does not necessarily mean there is no consideration in the contract.

Leaving out a consideration’s clause can be costly. A court may determine the consideration to be less than what you may have intended or find the contract to be invalid for lack of consideration.

Slipping in a single line can sometimes be enough to clarify what is the consideration of the contract. Use clear and simple language. If you can understand what each party gains from the contract, chances are that a court will also understand the consideration. Also, consideration does not have to be one thing. Consideration can be a number of things or promises and can be uneven between the parties (so long as each party gets something out of the contract).

Using the word “consideration” in the consideration clause is recommended. It is common legal jargon that is easily understood by lawyers and used often by contract attorneys.



This blog entry was written by Sanket Mistry.

Sanket Mistry, J.D., M.I.A.      Sanket Mistry is the founder and CEO of Peerless Legal and blogs regularly. He has written numerous books including, "25 Estate Planning Forms," "8 Living Trust Forms," "Simple Will Creator," "Give Through a Will & Living Trust," and "Guidance On Creating Your Own Will & Power of Attorney," and the bestselling books in the Legal Self-Help Guide series, "Will, Trust, & Power of Attorney Creator and Estate Records Organizer" and "Estate Planning in Plain-English." He earned his JD from the Walter F. George School of Law at Mercer University and is a member of the New York State Bar. He has worked, and volunteered, at a number of nonprofits, government agencies, and for-profit corporations. He also holds a BA in philosophy from Emory University and a MIA from Columbia University. He is an avid traveler and tennis player.