Know Your Business: Contract Consideration
Understanding contracts is absolutely vital: particularly when operating as a small business. Small businesses live and die by the hand of every one of their contracts, and it is essential to ensure that you properly protect yourself and your rights when they are formed. This way, when it comes time to enforce a contract, you will know you are on solid ground.
This article aims to provide a general primer on a couple of the basic tenets of contract formation: what a contract IS, and the element of consideration in a contract. There are many complexities in contract law, this is simply meant to introduce readers to some important things to keep in mind. For formal legal advice and guidance in your own scenario, and more detailed expertise, contact an experienced small business attorney at the Forsythe Law Firm.
What is a Contract?
In its most essential form, a contract is simply an agreement between two or more parties involving the exchange of goods or services. There must be something that both sides of the agreement want, and those things are exchanged in order to gain the “consideration” sought by the parties.
Consideration
“Consideration” can be quite an intangible concept. Essentially, it is something valued and desired by a party. It doesn’t matter how large or small – so long as there is SOME kind of consideration for a contract, the requirement is met.
Consideration Sample Scenarios
For example, a photographer and a bride might enter into a contract. The contract can look very different and still be considered binding. Consider the following simple scenarios:
- Bride and photographer enter contract for photographer to photograph the bride’s wedding party in exchange for $1,000.
Just considering these facts, the contract is likely valid and binding. Two parties came to an agreement – a service & product to be provided in exchange for $1,000 (the consideration.) - Bride (niece) and photographer (uncle) enter into a contract for the uncle/photographer to photograph the niece/bride’s wedding party. In exchange, the niece will recommend the photographer to all of her bridesmaids. Here, too, the contract is likely binding. The consideration is the bartered publicity/reputation boost of the photographer.
- Bride (niece) and photographer (uncle) agree that the uncle will photograph the bridal party. The uncle says he will photograph the event free of charge as a gift to the newlyweds. The uncle later changes his tune and says that he actually wants to be compensated.
This scenario is more complex. The original agreement had the bride receiving services – but it does not appear that the uncle received consideration in return. It looks, on the surface, more like a gift that the uncle said he would give to the bride, and then he took that gift back/did not deliver. While this is problematic in its own way, it might be difficult to bring suit under a strict breach of contract format. You cannot enforce the offer to give a gift the same way you can enforce a contract. To form a contract, both sides have to have bartered for something. Here, it looks like the consideration is missing. You probably aren’t looking at a contract issue, it is a gift issue.
In this scenario, the bride could have saved herself some trouble and worked into the agreement with her uncle even the smallest of considerations. Like in the second scenario, where the uncle provided the service in exchange for publicity/recommendations. That’s consideration at work.
Contact the Forsythe Law Firm
It is impossible to overstate how important it is for small businesses to know their rights, and to ensure they get contract issues right from the get-go. For experienced advice in relation to any small business issues you might encounter, contact an experienced Atlanta small business attorney at the Forsythe Law Firm.
Sources:
georgia.org/small-business
georgiasbdc.org/
