Contracts and Sales Multistate Bar Practice Exam

What constitutes consideration in a contract?

1. A promise made without any benefit

2. A gift given without expectation of return

3. A bargained-for exchange with legal value

4. An informal agreement between friends

The correct answer is: A bargained-for exchange with legal value

Consideration in a contract refers to something of legal value that is exchanged between parties involved in the agreement. It is essential for a contract to be enforceable and typically involves a bargained-for exchange where each party provides something of value that the other party wants. This could take the form of money, services, goods, or a promise to act or refrain from acting in a certain way. When both parties agree to the exchange, it creates a mutual obligation that forms the foundation of the contract. The concept of consideration ensures that there is a reason for each party to fulfill their promise, distinguishing a contract from a mere gift or informal arrangement. In this context, a gift lacks any expectation of return and does not involve both parties agreeing on a transaction, making it insufficient as consideration. Similarly, a promise unaccompanied by any benefit or an informal agreement without legal implications does not satisfy the requirements for consideration in contract law. Thus, the notion of a bargained-for exchange with legal value captures the essence of consideration, affirming that both parties are entering into a legally binding agreement with mutual benefits.