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What is consideration in a contract law?


Anjana Roy

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To understand the term consideration in contract law, first of all, the two terms should be made clear:


A contract, in the simplest form, is a term used for agreement between two or more parties. It comes into existence when a party makes an offer to another party and that the other party accepts it. It has legal dimensions. For a contract to be valid, eight elements should be fulfilled:

  1. Offer: It is an initiation made by one party to the other to have a deal. It is the first and foremost stage of a contract. When an offer is communicated to the other party, then the other party has the right to accept, reject or amend the offer.

  2. Acceptance: It is the next stage wherein the party to whom the offer has been made gives his acceptance. The offer can be accepted in writing, in person or by phone. The accepting party should make a clear declaration that the offering party is bound by the terms and conditions of the buyer.

  3. Consideration: Consideration is something that has a value and that is exchanged between the parties. No contract can be valid without consideration, and no consideration can be made without a contract. Both go hand in hand.

  4. Competence: By the term competence, we mean the capacity of the party to enter into a contract. The subject matter of the contract should be legal and should abide by the rules and regulations.

  5. Mutual consent: There should be an agreement between the parties. Neither of the parties should enter into a contract under any force or negative influence.

  6. Legality: The subject matter of the contract should be legal. Any illegal or immoral act will not constitute a contract.

  7. Writing: Though it is not mandatory for a contract to be in writing but to be on the safer side and to make a claim in case of any fraud, the contract should be in writing.

Contract Law

A law which deals with the rights and duties of a contract is contract law.

Why there is the importance of consideration in contract law?

No contract can be made without consideration. Consideration should be agreed upon between the parties so that both parties are benefited from it. For instance, you go to a shop and purchase something without giving anything to the shopkeeper. Then in such a case, the contract will not come into existence. But if you purchase the same thing by giving some consideration (maybe in monetary terms) to the shopkeeper, then there will be a contract between you and the shopkeeper.

Thus, consideration is important in a contract so that neither of the parties goes in loss and all the parties are benefited from the contract.

Read more: What to do when a contractor doesn't finish the job?

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