Consideration In Contracts Definition
In order for a contract to be legally binding, it must contain consideration. Consideration is defined as something of value that each party to the contract agrees to exchange. For example, if one party agrees to sell goods to another party, the buyer is giving up money (the consideration) and the seller is giving up the goods (also the consideration).
Consideration must be given by both parties in order for the contract to be valid. If only one party gives consideration, then there is no contract. Additionally, consideration must be given at the time of entering into the contract; it cannot be given retroactively.
There are two types of consideration: Executory and Executed. Executory is when both parties have not yet fulfilled their obligations under the contract. For example, if someone buys a house on credit, the down payment would be considered executed consideration, while the monthly payments would be considered executory. Executed is when both parties have fulfilled their obligations under the contract. Going back to the house example, once the buyer has made all of their monthly payments, then the purchase price would be considered executed consideration.
Consideration must be present in every contract in order for it to be legally binding. Without it, there is no enforceable agreement between parties.
