In a prior blog post, we discussed how offer and acceptance is a key component of almost all legally enforceable New York contracts. In this blog post, we will discuss another key component: consideration.
Consideration is defined as a benefit one party to a contract is to get from another party in exchange for performing under the contract. For example, say a party agrees to provide consulting services to another party in exchange for $1,000. Under this contract, the first party has a duty to provide the services, and the money received is the consideration. The second party has a duty to pay $1,000, and the services are the consideration.
Usually, for a business contract to be valid, each party must get consideration from the other. If one party does not provide consideration to the other, the contract may be considered legally unenforceable. So if one party promises to provide consulting services to the other when the first party isn’t busy, but otherwise gets no benefit from the other party, the first party may not face any consequences from a court if they break their promise and do not provide the services. This isn’t always true, however, and a business law attorney could provide guidance to the second party about ways to try to hold the first party accountable for their promise.
Otherwise, in a business context, there almost always is consideration, so contracts are seldom held to be unenforceable for lack of consideration. Still, it is good to be aware of the concept because it is an important part of contract law and parties will want to be sure their contracts have the consideration they need to be legally enforceable.