Consideration Contracts Definition
When two parties agree to enter into a contract, they must each provide consideration, or something of value, to the other party. Consideration is what motivates each party to enter into the contract and can take many forms, such as money, goods, services, or a promise to do something. In order for a contract to be binding, both parties must receive consideration.
There are two types of consideration: executory and past. Executory consideration is when both parties exchange something of value at the same time and in the same transaction. For example, when you purchase a car, the car dealership may give you a trade-in allowance for your old car and you give them cash for the balance of the purchase price. The trade-in allowance and the cash are both executory consideration. Another example of executory consideration is when you purchase a house and agree to make monthly mortgage payments over a period of time. The mortgage company provides you with the money to buy the house while you agree to make monthly payments until the loan is paid off.
Past consideration is when one party has already provided something of value before entering into a contract with another party. An example of this would be if someone did repairs on your car and then later you decided to sign an agreement promising to pay them for their work. The repair work would be considered past consideration since it was provided before entering into the contract.
