What does "consideration" refer to in a contract?

In the context of contract law, "consideration" refers to the exchange of something of value between the parties involved in a contract. This is a fundamental element that must be present for a contract to be legally binding. Consideration serves as the incentive for each party to enter into the agreement; for example, one party may provide a service or product, while the other party provides payment or another form of value in return. This mutual exchange creates a reciprocal obligation, thereby reinforcing the parties' commitment to the agreement.

Without consideration, a contract may be deemed unenforceable because it lacks the necessary elements that differentiate a binding contract from a mere promise or gift. Thus, the presence of consideration confirms that both parties have a stake in the agreement, ensuring that it is rooted in a value-based exchange.