We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Legal Consideration?

Mary McMahon
By
Updated May 16, 2024
Our promise to you
MyLawQuestions is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At MyLawQuestions, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Legal consideration is something of value which is structured into a legal contract. For a contract to be valid, both parties to the contract usually need to have "consideration." If one party has consideration and the other does not, the contract may not be upheld if it is challenged in court. In other words, both parties to a contract need to agree to do something, however large or small it may be, for them to enter into a legal agreement.

In a classic example of legal consideration, two people could enter into a real estate sales contract. The first person's consideration would be the house, which this person would be giving up to the other person in accordance with the contract. The second person's consideration would be the payment for the house, which might be in the form of money, traded services, or other goods. Both parties have legal consideration and the contract will be considered good if it is challenged in court.

Goods, services, and monies can all be forms of consideration. So can actions or inactions. For example, when an employee is asked to sign a noncompete agreement, the employee's consideration is the agreement to comply with this clause in the employment contract, while the employer's consideration is to agree to hire the employee. Questions of fairness are generally not involved in legal consideration; if someone wants to exchange a stack of wood for a luxury car, for example, this is considered entirely legal as long as both parties agree to the arrangement without coercion.

One test of legal consideration is whether or not both parties have exchanged at least nominal consideration, sometimes referred to as a “peppercorn.” Historically, for example, people sometimes referred to closing contracts with a one dollar payment. This is no longer held up as legal consideration because it does not meet the peppercorn test. If such contracts are challenged in court, it may be argued that they do not meet the standard of nominal consideration. For this reason, clauses are sometimes worded to make it clear that although the consideration on the part of one party is small, the contract is still valid.

One might wonder why a case in which the legal consideration was so small might arise, but there are in fact cases in which people wish to transfer property, goods, or services in exchange for a very small consideration. People involved in such transactions want to make sure that they are recognized as valid.

MyLawQuestions is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a MyLawQuestions researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By starrynight — On Jul 04, 2011

@indemnifyme - I've never thought of insurance in terms of a contract before but it makes sense!

People might be interested to know about the other things besides consideration that make up a contract. They are: legal purpose, offer and acceptance, and competent parties. Most of this is exactly as it sounds. The contract must be legal, so a contract that involves a criminal act is automatically invalid. One party must offer the contract and the other must accept it. Also, the people entering into the contract must be legally competent which basically means of legal age, not insane, and not under the influence of drugs.

By indemnifyme — On Jul 03, 2011

This is a great article. Contracts are much more present in our lives than most people realize so I think everyone should know a little something about contracts.

I work in the insurance industry and I deal with contracts every day! Any insurance policy that is issued by an insurance company to an insured is considered a contract. In the case of an insurance policy the consideration is always the same. From the insured the consideration is the premium, or the money they pay for their policy. From the insurance company the services they provide per the policy is the consideration.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
MyLawQuestions, in your inbox

Our latest articles, guides, and more, delivered daily.

MyLawQuestions, in your inbox

Our latest articles, guides, and more, delivered daily.