Consideration Contract Definition

In a business contract, consideration is something of value that each party to the contract agrees to exchange for something else of value. Each party must receive something, and each party must be better off after the contract than they were before. In order for a contract to be valid, both parties must agree to the terms of the contract and each party must receive consideration.

Consideration can be anything of value, including but not limited to: money, goods, services, or a promise to do or not do something. For example, if Company A promises to pay Company B $1,000 in exchange for B’s promise to provide A with 100 widgets, then each company has given consideration to the other. If either company fails to hold up their end of the bargain, they may be sued for breach of contract.

To be valid, consideration must be given by both parties before or at the time the contract is signed. If one party provides consideration after the fact, it’s called “past consideration” and is generally not enforceable. For example, if Company A signs a contract with Company B on January 1st promising to pay B $1,000 on February 1st in exchange for B’s promise to provide A with 100 widgets on March 1st—but A doesn’t actually pay B until April 1st—the courts may not enforce the contract because B provided consideration (the widgets) before A provided its consideration (the