What does "consideration" refer to in contract law?

Consideration in contract law refers to something of value that is exchanged between the parties involved in the contract. This exchange creates a binding agreement, where each party provides something that has value, be it goods, services, money, or a promise to perform a certain action in the future. For a contract to be enforceable, there must be this mutual consideration, ensuring that each party has a stake in the agreement.

This concept is fundamental because it distinguishes legally enforceable contracts from mere promises or social agreements. Consideration does not need to be monetary; it can also involve non-monetary forms of value, such as services rendered or the forbearance of a legal right. In essence, consideration represents the incentive or gain that motivates individuals to enter into a contractual relationship.

Understanding consideration allows one to grasp the essential elements that validate a contract and demonstrates why an exchange of value is crucial to contractual obligations.