Contract a 'Fizzer' Unless for Value

A contract is not valid and therefore not enforceable unless it meets certain conditions. One of those is that there must be an exchange of something of value.

In addition to the parties agreeing to the terms of the contract, it will not be valid unless both parties exchange something of value. Something of value can be cash, property or a promise. For example, it can be a promise to do something in the future, or a promise to perform something, or pay a certain amount.

The reason why something of value has to be exchanged is that there needs to be a condition that differentiates a real contract from a simple statement or a promise. A simple statement or promise is obviously not enforceable by law.

For example, if someone offers to do something for you, the arrangement would not count as a contract because you didn’t give or promise anything of value. If the friend did not follow through with the gift or payment then you would not be able to enforce the promise.

However, if your friend offered to work for you in exchange for you helping them with something, a contract exists. The exchange of value requirement is important and happens in most business transactions. There is always an exchange of promise in the deal, which will satisfy the exchange for value rule.

For example, if you leave a message stating you will pay another $200 if the other party gives you another 50 items and if the other party follows through and produces the 50 items, a binding contract is in place and you are bound to pay the extra $200.

© 2005 StartRunGrow

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