Consideration
Something of value exchanged between contracting parties - a fundamental requirement for any contract to be legally enforceable in the US.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Consideration?
Consideration is one of the three essential elements of a valid contract, alongside offer and acceptance. It refers to something of legal value that each party gives and receives in the exchange. Each party must both give something (a "detriment") and receive something (a "benefit"). A promise to give a gift, with nothing expected in return, is not a contract because it lacks consideration from the recipient.
Consideration does not have to be equal in value or fair - courts will not generally second-guess whether the deal was commercially reasonable. A $1 payment can be valid consideration for a million-dollar asset transfer (though courts scrutinize nominal consideration in some circumstances). What matters is that something of legal value changed hands on both sides.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Bargained-For Exchange
Consideration must be bargained for - sought by the promisor in exchange for their promise. A spontaneous gift made outside any negotiation does not qualify as consideration, even if it has value.Legal Detriment
A party provides consideration by doing something they were not already legally obligated to do, paying money, transferring property, providing services, or refraining from doing something they had the legal right to do (called forbearance).Pre-Existing Duty Rule
A promise to do something you are already legally required to do is not valid consideration. If you promise to pay a contractor more to complete work they are already contractually obligated to perform, that promise may not be enforceable without something new given in return.Past Consideration
An action already taken before the contract is formed cannot be consideration for a new promise. If someone saves your car from rolling into traffic and you later promise to pay them $500, that promise is generally unenforceable because the action already occurred.Illusory Promise
A promise that gives the promisor complete discretion to perform or not (e.g., "I will buy your goods if I feel like it") is illusory and not valid consideration. Courts look for genuine mutual commitment.Real-World Example
Your company asks a key employee to sign a non-compete agreement two years into their employment. You present it as a new HR policy requirement but offer nothing in return - no raise, no additional time off, no new benefits.
In most US states, this agreement is unenforceable for lack of consideration. The employee is simply being asked to give up a right (the ability to compete) in exchange for nothing new. They already have their job. To make the non-compete enforceable, you need to give them something new at the time of signing - a promotion, a bonus, additional equity, or other tangible benefit.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Consideration Recital (Standard Contract Opening)Watch Out For
Existing employee agreements need fresh consideration
NDAs, non-competes, and IP assignment agreements presented to existing employees without new compensation may be unenforceable. Always pair these with a raise, bonus, promotion, or other new benefit at the time of signing.Contract modifications require new consideration
Under the pre-existing duty rule, agreeing to do what you were already required to do is not valid consideration for a modification. Under the UCC (for goods contracts), modifications only require good faith - no new consideration needed. Under common law, they do."Good and valuable consideration" recitals are not magic words
While standard in contracts, a recital stating consideration exists does not create it. Courts will look past boilerplate language if no real consideration was actually exchanged.Adequacy vs. sufficiency
Courts generally do not ask whether consideration was "adequate" (fairly valued). But they do ask whether it was "sufficient" - meaning it was a real legal detriment, not sham consideration designed to make a gift look like a contract.Don't let consideration deadlines catch you off guard
Key dates tied to considerations - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Document consideration explicitly
Do not rely on boilerplate recitals. In agreements with existing employees or long-term partners, specify the exact new benefit being provided - e.g., "in consideration of the $5,000 signing bonus paid to Employee on the date hereof."Time new agreements with new benefits
When rolling out new restrictive covenants (non-competes, NDAs), time them to coincide with annual reviews, promotions, or raises so the new consideration is clear and documented.Use promissory estoppel when consideration is missing
If you relied to your detriment on a promise that lacked consideration, the doctrine of promissory estoppel may still allow you to enforce it. Courts apply this where enforcement is necessary to prevent injustice.For contract modifications, provide something new
When modifying a contract (extending deadlines, adjusting price, changing scope), give the other party something new - even a small concession - to ensure the modification is supported by fresh consideration under common law.Frequently Asked Questions
Does consideration have to be money?
No. Consideration can be any act, forbearance, or promise that has legal value. It can be services, goods, property, a promise to do something, or a promise to refrain from doing something you had the legal right to do. What matters is that something of legal value is exchanged - not that it involves money.
What is promissory estoppel and when does it substitute for consideration?
Promissory estoppel allows a court to enforce a promise that lacks consideration when: (1) the promisor made a clear promise; (2) the promisee reasonably relied on that promise; (3) the promisee suffered a real detriment as a result of that reliance; and (4) enforcement is necessary to prevent injustice. It is a safety net, not a substitute for proper drafting.
Is a $1 payment valid consideration?
Generally yes under US law. Courts do not typically examine whether consideration was fair in value ("adequacy"). However, nominal consideration of $1 can signal a gift transaction in disguise, and courts in some states apply closer scrutiny when consideration is grossly inadequate, particularly in transactions involving family members or confidential relationships.