Certified Professional in Health Care Risk Management (CPHRM) Practice Exam 2025 - Free CPHRM Practice Questions and Study Guide

The term used in contract law for something of value exchanged in a contract is "consideration." Consideration is a fundamental component of a valid contract, serving as the incentive that motivates parties to enter into a contractual agreement. It can take various forms, including money, services, goods, or a commitment to refrain from doing something.

Consideration must be something that both parties find valuable and is necessary for a contract to be enforceable. It distinguishes contracts from mere promises, as the exchange of consideration indicates that both parties have agreed to provide something of value.

In contrast, terms like "collateral," "compensation," and "covenant" refer to different concepts in legal and financial contexts. Collateral involves an asset pledged as security for a loan, compensation pertains to payment or recompense for services or damages, and a covenant refers to a formal agreement or promise in a contract, often involving specific actions or prohibitions by one or more parties. These terms do not capture the essence of the reciprocal value exchange that defines consideration in contract law.