Consideration is one of the essential conditions of a contract. It refers to something of value
given by one party to another as part of a contractual agreement. In other words, consideration is the exchange of something of value between the parties to the contract, and it is a necessary element for a contract to be legally binding.
Consideration can take many forms, but it typically involves one party providing goods, services, or money to another party in exchange for something else of value. For example, if you agree to sell your car to someone for $10,000, the consideration would be the car that you are selling and the $10,000 that the buyer is paying you.
In order for consideration to be valid, it must be:
- Something of value: consideration can be any benefit to one party or any detriment to the other party. However, it must have some value or be something that a reasonable person would consider valuable.
- Given in exchange for something: consideration must be given in exchange for the other party’s promise or performance.
- Real: consideration cannot be illusory or impossible to perform.
- Fresh (the Rule in Pinnel’s case): consideration cannot be a promise to perform some existing obligation that is already required by law or contract, for instance part payment of a debt (except if the part payment is accompanied by other benefits, such as earlier payment for example).
- Given at the same time or after the contract is formed: past consideration, which is something that was given before the contract was formed, is generally not considered valid.
- Legal: consideration must not be for an illegal act or against public policy.
If consideration is lacking or invalid, then the contract may be unenforceable.