Home Contract Consideration Clause (Legal Definition: All You Need To Know)

Consideration Clause (Legal Definition: All You Need To Know)

What is a Consideration Clause?

How do you legally define it?

What are the essential elements you should know!

Keep reading as we have gathered exactly the information that you need!

Let’s dig into our contract law basics!

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Consideration Clause 

A consideration clause is a contractual provision typically outlining that the parties have promised to give something of value or render service in exchange for something of value or service to them.

The most common form of consideration is the exchange of goods or services for a fee, money, or some form of monetary compensation.

This legal provision is found in many different types of contracts such as insurance contracts, real estate agreements, or others where the terms of a party’s remuneration or compensation are outlined.

For instance, in a real estate transaction, a party will legally agree to deliver title to a property in exchange for the purchase price.

In an employment contract, an employee will agree to render services in exchange for a salary.

Definition

How do you define a consideration clause?

A consideration clause dictates that something of value is being exchanged for a bargain.

In essence, the parties entering into a contract have a “benefit” or “consideration” representing something valuable to them and in return they are prepared to give up something for the benefit of the other party.

Contract Law

From a legal perspective, for a contract to be valid and legally binding, one of the foundational elements that must be found is ‘consideration’.

It’s not mandatory for the consideration to be formulated in using the exact same term but what’s important is that the parties to a contract have a “benefit” when legally obligating themselves for something.

The consideration clause is an attempt to clearly verbalize or express that the consideration aspect is present in the contract and anyone reviewing the contract can see what it is.

In some cases, the consideration in the contract can be deferred.

“Deferred” consideration is when a payment or compensation is spread out over time.

For example, in the context of a company acquisition, the buyer may not pay the full purchase price on acquisition but rather spread the purchase price over time.

Typically, in the context of an M&A, the payments will be based on the achievement of certain performance milestones or achievements.

Insurance

It’s quite common to see a consideration clause in insurance contracts.

Essentially, the consideration clause in an insurance policy provides for information relating to how much the insurance policy may cost and when the premiums are due (like a payment schedule).

The “consideration” clause will also outline any other type of compensation that is contractually agreed upon by the parties.

Example

What are some examples of a consideration clause?

Consideration clauses come in many forms and types.

Consideration Clause In Employment Contract

Consideration.  Provided you have timely executed this Agreement (which includes a general release and waiver of claims and other promises herein), do not revoke it, and otherwise comply with its terms, the Employer will provide you with the following severance benefits (…)
Author

Consideration Clause In Insurance Contract 

In consideration of the payment of an agreed premium and subject to the Declarations pursuant to all the terms, conditions, exclusions and limitations of this bond, the Company agrees to (…)
Author

Takeaways 

So what is the legal definition of Consideration Clause?

What is the meaning of a consideration provision?

Let’s look at a summary of our findings.

Contract Consideration Clause:

  • Every contract must have a consideration for it to be legally valid and binding
  • Consideration clauses are contractual provisions spelling out the consideration in express terms or indicating that the parties recognize that there has been a valid consideration when entering into the contract
  • In real estate and insurance agreements, the consideration clause generally refers to the terms of the payment 
Breach of contract 
Consideration contract law
Contingent consideration 
Deferred consideration 
Elements of a contract
Illusory promise 
Invalid consideration 
Offeree 
Offeror 
Past consideration 
Penalty clause
Share purchase agreement
Without consideration
Author
What are the elements of a contract
What is a clause in contract
What is a penalty clause 
What are liquidated damages
Author

Editorial Staff
Hello Nation! I'm a lawyer by trade and an entrepreneur by spirit. I specialize in law, business, marketing, and technology (and love it!). I'm an expert SEO and content marketer where I deeply enjoy writing content in highly competitive fields. On this blog, I share my experiences, knowledge, and provide you with golden nuggets of useful information. Enjoy!

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