Source: Robin Roth, Senior Contracts Editor, Conferon, Inc.
E-Specs: February 24, 2003

There are several legal "rules" that are essential to the formation of a contract and one of the most interesting - and confusing - is consideration. On the face of it, "consideration" seems like an inappropriate name since it is not at all self-explanatory, like "offer" and "acceptance." However, the legal definition does make sense. It is, simply, "the inducement to a contract," according to commonplace Webster’s dictionary.

Consideration is the glue that binds a contract together, and it must be present at the time the contract is entered into. In a hotel contract, it is generally an exchange of promises. The hotel promises to provide a room block and meeting space at a certain price in exchange for the group’s promise to use and pay for the rooms and space. Recently one of our folks ran into a situation where the hotel representative stated that the contract would not be binding unless consideration in the form of deposit was provided upon contract signature. This is probably a misunderstanding of contract law, since in this case a deposit is not a requirement for a contract to be formed, but the facility may request a deposit in order to satisfy its business needs.

Lack of consideration can be a pitfall when you have a one-sided offer. A hotel contract proposal is not a contract until the group responds and provides consideration by promising to use and pay for the space and rooms. Another angle is that in the eyes of the law, consideration does not necessarily have to be fair. It may not matter if the price was too high. The law tends to look instead at "sufficiency," which means that each side must give up or receive enough so that a detriment and a benefit take place, respectively.

Being aware of how consideration plays a role in the formation of a valid contract will help you understand one of the legal elements that must always be present.

(Note: This information is not intended to be "legal advice." A qualified attorney should be consulted to review all contract issues.)