When you’re working in the world of business, it’s likely that you’ll hear the word ‘consideration’ mentioned frequently, especially when you’re dealing with contracts. This is because a consideration is an important part of almost any trade contract. But what are trade considerations and when would you need to use these in a contract?
In this article, we’ll explain everything you need to know about considerations in trade, from exactly what a consideration is, to how you can use considerations in your business.
What Is A Consideration In Trade?
A trade consideration is an agreement between two parties to trade something of value. The contract must offer something of value to both parties that are entering into the transaction, to ensure that it is fair to both parties. After all, most people wouldn’t be willing to knowingly sign a contract that they won’t benefit from!
The most common example of a consideration is when one party is granted shares in a business in exchange for providing unpaid services to that business.
What Is The Purpose Of A Consideration?
A consideration helps ensure that the contract is fair to both parties. It encourages each party to uphold their side of the bargain, as they would face significant financial loss if they didn’t do so. Most importantly, it means that one party cannot be unfairly disadvantaged or coerced into accepting a deal.
An agreement without a consideration is called a gift promise. This is because promises made in this way are not contracts – they can’t be enforced by law and it’s entirely possible for the person making the promise to change their mind at any time. In contrast, a contract with a consideration means that the agreement is binding and enforceable in court.
How Is A Consideration Different From A Contract?
So, what is the difference between a consideration and a contract?
The truth is, a consideration actually makes up part of a contract. In fact, a consideration is the part of the contract that helps to ensure that it is fair to both parties.
In some cases, an exchange of consideration can take place before there’s ever a full-blown written contract between two parties. For example, consider the simple scenario where one contractor helps another with gardening work in return for free lawnmowing services from them next month. There may not even need to be an explicit verbal agreement here – both parties will already know what’s expected of them.
However, the situation becomes more complicated once it comes to something like a business agreement. This is because companies can’t make promises in this way – they must rely on contracts to be enforced by law.
How Can I Make Sure My Consideration Is Fair?
If you’re worried that the consideration included in one of your contracts isn’t fair, there are three questions you can ask yourself:
1) Would both parties have agreed to the contract if the consideration wasn’t part of it?
2) Do both parties understand exactly what they are receiving in return for their consideration?
3) Is the value of what is being given identical on both sides of the contract, meaning no party will receive more than the other?
If you can answer ‘yes’ to all three questions, then your consideration should be fair. If not, you may need to include an additional clause in your agreement or alter some of its terms.
How Can I Use Considerations In A Contract?
When writing any kind of contract, it’s important that you make sure it includes a proper consideration. This serves as proof that each party has entered into this contract voluntarily – which they would otherwise have had every right not to do if there wasn’t something in for them!
A consideration can be anything that both parties agree upon, including things like money or property. It’s likely to be more common for businesses to include non-monetary considerations in their contracts, such as the provision of services by one party (e.g. ‘ I will spend three hours marketing your business this month ‘).
What Are Some Common Consideration Mistakes To Avoid?
Don’t confuse a gift promise with a legally enforceable contract – they are completely different!
Give careful consideration to what you’re gaining from entering into an agreement, and its value relative to what you’re giving up. If there is only little or no difference between the two sides, then it may not be considered fair by law. For example, if someone wants to enter into a tenancy agreement but doesn’t want to give any money for the rent, then this may not be seen as fair by law.
Remember that you can change your mind about something you’ve promised at any time before the other party carries out their part of the bargain; however, once they’ve done so, they can usually enforce it in court if they really need to (e.g. if they paid someone else to do it or created some new equipment).
Make sure that both parties have enough information about what is being offered and are aware of its true value – this is why written agreements are typically better than verbal ones!
When Would You Need To Use A Consideration?
You should use a trade consideration in almost any transaction – after all, you wouldn’t want to enter into an unfair contract! There are very few contracts that don’t require considerations – but there are some exceptions where no consideration is needed. The main example is when people give things away for free (e.g., at weddings).
The next question you might ask is how you decide on the consideration to use, and there are two main reasons for this:
1) An agreement can only be enforced if both sides receive something of fair value. If you have nothing to gain from entering into an agreement then it may not be considered valid by law.
2) There should always be a reason why people enter into agreements. For example, one friend might give another friend a gift because they’re feeling generous – but if the other party only ever gives presents in return, there can’t really be said to have been any kind of true agreement between them! As such, the deciding factor is usually what each side gains from being part of the deal – however small or insignificant it may seem at first.
What Are The Disadvantages Of Not Using A Consideration?
If you don’t use a consideration, your agreement may not be seen as valid by law – particularly if there is no good reason why two people are entering into an agreement. This means the other party won’t have to uphold their side of the deal. There are also severe penalties for breaking contracts with small businesses in particular, which can seriously affect your future business opportunities.
What Are The Different Types Of Consideration?
There are two main types of consideration: executed and executory . An executed consideration has either already happened or been completed at the time that the contract was made – this would include doing something, giving something away or agreeing not to something (e.g., ‘ I will not speak to Jane again ‘). An executory consideration is one which hasn’t been completed or carried out yet.
What Does Executed Consideration Mean?
Executed consideration means that at the time of entering into a contract, it has already been done – for example, the other party paid the agreed price , something was delivered or a service was completed. This type of consideration can be difficult to identify in some situations because it might have happened in installments rather than in a single lump sum (e.g., someone spent six hours marketing your business over the course of a month). As such, you should always take care when drawing up contracts and consider what could happen if part of an agreement isn’t fulfilled by either party.
What Does An Executory Consideration Mean?
An executory consideration is one which hasn’t yet happened. It will only become relevant when the contract is agreed (e.g., ‘ I will paint your house within three months of signing this agreement ‘). You should keep track of these types of promises – if the other party doesn’t uphold their end of the deal, they may be in breach of contract! Failure to carry out an executory consideration means that the contract becomes invalid (e.g., if you agree to buy someone’s car for $1500 but they don’t actually sell it to you).
When Is A Promise Not Considered To Be A Binding Contract?
You can start work on a house based on a promise of payment, but you cannot start work if the contract is still only an intention. If neither party involved in the contract has done anything to make it binding, then it may not be enforceable by law – even if they have agreed between themselves what should happen. For example, a couple might agree that one will buy their partner a car – but until one of them actually makes a payment or takes some other action towards buying the car, there isn’t really any agreement at all! This can cause problems if one person wants to go back on their promise after having given something away for free (e.g., ‘ I said I’d give you this watch as soon as you paid me back half of what you owe me ‘).
What Are The Three Requirements Of Consideration?
There are three basic elements which you need in order to prove that a contract has been made. Firstly, there needs to be an offer by one party (e.g., ‘ I will sell you this watch for $100 ‘). You also need an acceptance – for this, the other party (e.g., ‘ OK, I’ll buy it! ‘) may state in words or make through action that they agree to enter into the contract. The final requirement is something to act as a legal detriment . This can either be giving up your right to something (e.g., someone gives up their right to sell on some land), returning property bought with money (e.g., returning goods bought a hire purchase agreement if you default) or doing something you had previously agreed to do (e.g., painting someone’s house).
Is It Possible To Create A Binding Contract Without Consideration?
Yes, of course it is! If the contract is an exchange of promises which involve both parties carrying out different actions (or sometimes not carrying out any action at all), then the three requirements of consideration will be satisfied and a binding contract can be made without there being any money or goods changing hands. However, these types of contracts are only valid if they don’t involve either party taking on substantial risk . For example, if the terms aren’t fully explained and you agree to sell your car for $100 because you’ve been told that your neighbor might buy it – this would not be a legally enforceable contract.
Do I Have To Be In Possession Of Something In Order For There To Be Consideration?
You don’t necessarily need to be in possession of something in order for there to be consideration; all that matters is whether what was exchanged had some value – so, even if you are being given goods or services for free, they may still be something which is of value. For example, if someone promises to do the childcare for another person out of love and affection rather than an expectation of payment – then there still might be consideration.
Example Of Consideration
Let’s take a look at an example of a consideration within a contract.
Someone has a computer that you want to buy. In exchange for the computer, you offer to pay £300. The consideration is the money that the other party is receiving, and their benefit is having sold an old item. Your benefit in this situation would be the new computer.
What If It Is Impossible To Carry Out The Consideration?
The first thing you should do is to consult a lawyer. They will be able to tell whether or not your circumstances are problematic, and if so, what you need to do in order to resolve it.
You might have a difficult time enforcing a contract if one party isn’t carrying out their obligation as explained. In some cases though, what could be considered as impossibility can also fall under ‘impracticability’. For example, something that’s impracticable might involve working long hours for low pay or trying hard to carry out an obligation but being unable because of either personal issues or because of a lack of money. In these cases, the party refusing to carry out their obligation may still be obliged to do so if they can – it’s just going to involve some extra effort on their part.
In Summary
Trade considerations are an important part of any contract, determining the terms of the trade. Whether you’re dealing with international trade markets or simply trading with a friend, it’s important to think carefully about the considerations of the contract.