Don’t Sign That Business Contract without Establishing Consideration

Without a reason to enter into a contract, there’s no basis for you to sign on the dotted line. No need to put your business at risk. No need to jeopardize its income stream and overall finances. What you have to ask yourself about a particular written agreement is consideration. What this applies to is a very basic principle of contractual law that every business owner, and their legal team, must think about before finalizing a given business agreement. How crucial is consideration? Can’t have a valid and legally enforceable agreement without it.

Explaining Consideration for your Business Contract

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At its simplest, consideration is the benefit your business (and the other party to the agreement) stands to receive from signing the contract. Legally speaking, every party to the agreement has to receive some form of consideration for the contract to have a valid basis. A retail transaction is the most common form of consideration – you give a vendor money, and in return you get bolts of cloth. Each party benefits from the arrangement.

Concrete Proof is Usually Mandatory

Including a rambling preamble to a contract stating that consideration exists in the agreement is not proof of consideration. Without evidence in the document that clearly states the benefits each named party receives, and that the parties agreement to said arrangement, the document may not stand up if challenged in a court of law.

A Gift is not a Form of Consideration

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The promise of a gift is not a form of consideration for determining contractual validity. Your mother promising to give your business $12,000, with no strings attached, is not a legal contract, but a gift you receive. No legal mechanism exists for you to force your mom to give you the cash. However, if you make a business decision based on your mother’s promise of payment, and she knows about your actions, a business contract lawyer may be able to make such a promise enforceable in court.

Past Considerations Won’t Hold Up

Promising to provide compensation for a past business service performed is not consideration for contractual purposes. A court of law won’t generally enforce such an arrangement because both parties did not have knowledge of the consideration while engaging in activities. For example, a vendor promising to pay your company $1,000 because you helped at his charity event 12 months after the fact is not a contractual agreement. You didn’t know attending the event would net your business $1,000, so you can’t demand it as consideration for your attendance.

Additionally, a previous legal obligation to perform the duties in a contract can make the entire document unenforceable. For example, police officers can’t claim rewards for information leading to the arrest of suspected criminals because catching bad guys is part of their job description.

There are hundreds of variables that can come into play with contractual consideration that can make an agreement unenforceable. If you have questions, and want detailed information about your company’s next business contract, contact our law firm today.