A contract without consideration is void because it is not legally enforceable. "Consideration" means that each party must provide something of value to the other party as designated by the contract terms.

Legal Validity of a Contract

Several elements must be present for a contract to be legally valid:

  • One party has made an offer that has been accepted by the other party.
  • An item of value will be exchanged for something else of value, such as goods, services, or cash.
  • The contract refers to legal subject matter.
  • Both parties have agreed freely to the contract, are mentally able to fulfill its terms, and are older than the age of consent.

Certain types of contracts are only valid in writing, such as real estate transactions or contracts that last longer than 12 months. These laws vary by state. Although oral contracts are legal, they can be very difficult to prove in court, so it's usually best to get any contractual agreement in writing.

Legal Elements of an Agreement

Courts have developed guidelines to determine whether an agreement actually exists to help clarify disputes in which this is unclear. First, an offer and acceptance must exist, whether spoken or in writing. In most cases, the party who receives the offer takes time to consider it and often makes a counteroffer. Sometimes, the party who made the initial offer may amend or withdraw it. All these scenarios may lead to confusion and a possible dispute.

Some offers have an expiration date, but those do not remain open for a reasonable period of time. What constitutes a reasonable amount of time is open to interpretation. If a party wants to take longer to consider your offer for longer than you consider reasonable, you can ask them to pay for the option to do so since you won't be able to make the offer to anyone else during that time.

When accepting an offer, do so as soon as possible since it can be revoked at any time until you accept. Once you accept, the agreement is legally binding and cannot be changed or revoked.

What Is Consideration?

Contract law defines "consideration" as the answer to the question, "How do you benefit from entering this contract?" Both parties to a contract must receive consideration for the agreement to be legally binding. For example, if you purchase a jacket at your favorite store, the garment is the consideration you receive, while your payment is the consideration received by the store.

Consideration usually consists of a promise to do something you aren't required to do by law or a promise not to do something that you have the legal right to do.

Gifts vs. Contracts

The reason that contracts require an item of value to be exchanged is to distinguish a legal agreement from a generous gift or a promise from one party to another, neither of which is legally enforceable. For example, if your friend mows your lawn without asking for anything in return, this does not count as a contract because you have not promised consideration. If your friend promises to mow your lawn but doesn't do it, you can't sue for damages.

Promises Versus Action

Most business contracts fulfill the requirement for consideration with exchanged promises. Actually doing promised work counts as consideration as well.

Contracts Without Consideration

Sometimes a contract is declared void by the court because it lacks consideration. This typically occurs when:

  • The offered consideration is something the party in question is already legally obligated to do
  • The consideration offered is a gift with nothing expected in return
  • When the consideration offered is in the past, such as payment offered for a favor done last year
  • The promise provided is illusory, meaning it cannot be fulfilled

Disproportionate Consideration

Even though a deal may seem unfair in hindsight, the court will not usually opine about whether the value of consideration is proportionate. The exception is when the discrepancy is so great that it constitutes bad faith. In this case, the court may find that the contract is void because the party that offered consideration of much lower value acted unfairly.

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