Consideration is a promise, performance, or forbearance bargained by a promisor in exchange for their promise. Consideration is the main element of a contract. Without consideration by both parties, a contract cannot be enforceable. For instance, if a person used the money to purchase an apple, the apple is the merchant’s consideration, and the money is the person’s consideration.
Types:
- Consideration could be a promise, performance, forbearance, or property with legal value, but the economic benefit is not required.
- A gift or gratuitous promise cannot be a consideration for they have no bargaining. The past performance also cannot be a consideration as there is no exchange.
Substitute for consideration:
- A contract without consideration could be enforceable if it has a substitute. Substitutes are promissory estoppel or detrimental reliance under Restatement (Second) of Contracts, or good faith modification under UCC.
- Promissory estoppel/detrimental reliance: A contract without consideration is enforceable if the nonperformance of the promisor will cause injustice. Elements of promissory estoppel are (i) the promise has reasonable, foreseeable, and detrimental reliance on the promisor, and (ii) the enforcement of the promise is necessary to avoid injustice.
- Good faith modification: A modified contract is a kind of new agreement, which changes parties’ obligations and then requires new consideration. But contract modification made in good faith under UCC is enforceable even without consideration.
[Last updated in July of 2022 by the Wex Definitions Team]