Ace the Intro to Paralegal Studies 2026 – Unleash Your Legal Eagle Powers!

The presence of consideration is the key element that most clearly differentiates a contract from a gift. In legal terms, consideration refers to something of value that is exchanged between parties in a contract. It can take the form of money, services, or an agreement to refrain from an action, which creates a binding obligation for both parties involved.

In a contract, the exchange of consideration is what facilitates the agreement and ensures that each party is held to their promises. Without consideration, there is no enforceable contract, as a contract must involve a mutual exchange that is beneficial to both parties.

On the other hand, gifts do not involve consideration. A gift is an unconditional transfer of property or funds from one person to another without expecting anything in return. The absence of consideration is what legally classifies a transaction as a gift rather than a contract.

While mutual agreement is important for both contracts and gifts, and minimal legal requirements exist for both, it is the presence of consideration that is the defining factor setting a contract apart from a gift. Notarization is not a universal requirement for contracts and varies by jurisdiction and type of contract, further supporting that consideration is the most relevant differentiator.