What Is Consideration in Business Law?

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  • 0:02 Definition
  • 0:48 Bilateral & Unilateral…
  • 1:48 Courts & Consideration
  • 2:25 Lesson Summary
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Lesson Transcript
Instructor: Jessica Schubert

Jessica is a practicing attorney and has taught law and has a J.D. and LL.M.

This lesson will teach you about what constitutes consideration in business law. Specifically, you will review consideration in contracts and how consideration is treated by the courts. Soon, you will have a thorough understanding of consideration.

Definition

Whenever you go into a store and make a purchase, you exchange money in order to receive a product. The exchange of money and the receipt of the item is mutual consideration for the transaction.

In every single agreement, there must be consideration in order for the agreement to be legally binding; it is a critical part of contract formation. Consideration constitutes the benefit that you receive from making the contract. In other words, each person in a contract must promise to do something. Conversely, each person may promise not to do something. In addition, consideration results in a benefit to each party. The failure to have consideration in an agreement can render the agreement unenforceable.

Bilateral and Unilateral Contracts

Contracts can be bilateral contracts. Bilateral contracts involve agreements where two parties make mutual promises to one another for consideration purposes. For instance, A promises B $10.00 and in exchange, B promises to mow A's lawn.

On the other hand, contracts can be unilateral contracts. A unilateral contract is one where just one party makes a promise in exchange for the other party's performance. For example, A will pay B $500.00 if B finds A's lost cat. A does not have to do anything unless B finds the lost cat.

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