Consideration in Contract Law — Examples & FAQs Included.

Understanding consideration in contract law is essential if you want to ensure that a contract exists and will be treated as a legally enforceable agreement. Whether you’re entering into a business deal, signing a lease, or resolving a dispute, the consideration exchanged between two or more parties is what transforms a simple promise into a binding agreement.

Join our Cary and Wake Forest business law attorneys as we explore the meaning of consideration, the types of consideration in contract law, and practical contract law examples to help you understand how the concept applies in everyday situations.

What Is Consideration In Contract Law?

Consideration in contract law represents something of value exchanged between parties. It is the answer to the question: “What does each party give or receive as part of this agreement?” This something of value may include money, property, a legal obligation, the promise to perform a task, or the promise to refrain from exercising a legal right.

Requirements of a Valid Consideration In Contract Law

For an agreement to be supported by valid consideration, the law generally requires it to meet three principles. These help determine whether the exchange will support a binding contract or an unenforceable promise.

Something of Legal Value

The benefit exchanged must carry legal value—even if it's modest. A contract may still be valid despite what courts sometimes call a bad bargain, meaning the exchange may feel unfair but remains enforceable. Even one dollar can qualify as long as it reflects willingness to exchange.

A Bargained-For Exchange

Each contracting party must give something in return for what the other party offers. This mutual exchange is the foundation of the bargained for exchange principle and helps ensure the agreement is not merely a gift.

Consideration Must Be New

A promise based solely on past consideration—something already performed before the agreement—does not typically support an enforceable contract, although exceptions may apply.

Types of Consideration in Contract Law

There are several types of consideration recognized under common law, each of which may play a role in determining whether the agreement is enforceable.

Executory Consideration

This occurs when one party agrees to provide a benefit in the future. Most commercial litigation agreements involve executory consideration, because the promise or performance will occur later.

Past Consideration

Past consideration is something that has already been completed before a contract was formed. Under the general rule, it usually does not constitute valid consideration unless a narrow exception applies (such as a prior request that implied a later promise to pay).

Present or Executed Consideration

Present or executed consideration occurs when performance happens at the time the contract is made, such as immediate payment for goods received.

Additional Types

• Adequate consideration: Fair or proportionate value (not required, but often considered)
• Sufficient consideration: Legally recognizable value, even if minimal.
• Nominal consideration: Small amounts used to formalize agreements.
• Valuable consideration: Benefit with actual measurable worth.
• Moral consideration: Obligations based on ethics, not usually enforceable.
• Legal consideration: Consideration consistent with the law and public policy.

3 Consideration in Contract Law Examples

Below are three practical consideration examples showing how contract consideration works and how different forms of consideration may constitute consideration under contract principles.

Each example includes something exchanged, a benefit received, and a legal detriment accepted by both sides.

Example #1: Settlement of a Legal Dispute

Entering a settlement agreement is a classic consideration in contract law example, especially when one party agrees not to file a lawsuit in exchange for payment.

Example #2: Real Estate Sale and Transfer

When selling property, both parties exchange clear forms of consideration: the buyer’s promise to pay and the seller’s transfer of ownership.

Example #3: Employment Agreements and Restrictive Activities

Employment agreements often use contract consideration to require certain behaviors in exchange for salary.

Why Consideration Matters for a Valid Contract

A contract without consideration is not enforceable because there is no legal obligation compelling either side to perform.

Consideration helps ensure:

• There is a genuine exchange
• Each side becomes legally obligated to uphold their promise
• The agreement is not interpreted as a gift or moral obligation
• Courts can determine if the contract was breached

Without these protections, an agreement is generally void under contract law.

Additional Consideration Concepts

To fully understand contract law, here are some related doctrines and rules courts often analyze.

Promissory Estoppel

Courts may enforce a promise lacking consideration if:

• The party promises something,
• The other party reasonably relies on it, and
• Injustice would result without enforcement.

Although promissory estoppel is often discussed alongside consideration, it is technically an exception—not a true form of consideration.

Consideration and Debt

Cases involving part payment of a debt often fail because partial payment rarely constitutes valid consideration for having a debt discharged, unless new consideration or other benefit is exchanged.

Consideration In Contract Law FAQs

What is a consideration in a contract?

Consideration refers to something of legal value exchanged between parties—money, property, a service, or the promise to refrain from exercising a legal right.

What are the three types of consideration?

The three primary types of consideration in contract law include executory, past consideration, and present (executed) consideration.

What are the three requirements of consideration?

Consideration must involve:

1. Legal value
2. A bargained-for exchange
3. New consideration, not merely obligations from a previous contract

Does past consideration count as valid consideration?

Usually no. Under the general rule, past consideration cannot constitute valid consideration because the contracting party is not receiving something newly bargained for.

What is the simple meaning of consideration?

At its simplest, consideration means each party gets something and gives something in return.

Does a contract need consideration?

Yes. Without consideration, the agreement cannot form an enforceable contract unless promissory estoppel applies.

Schedule a Consultation with a Contract Law Attorney Today

From business transactions to settlement agreements, contract drafting requires careful attention to legal obligation, consideration, and clarity. If you need help ensuring your agreement forms a valid contract, the Cary and Wake Forest attorneys at The Doyle Law Offices can assist with drafting, reviewing, negotiating, or enforcing your contract.

We serve clients in Cary, Wake Forest, and surrounding areas. To schedule a consultation about consideration in a contract or any other contract matter, please call us at  (984) 235-1067 or fill out the contact form below to get started.