What Is a Quid Pro Quo?

Quid pro quo, a 14th-century Latin term for "something for something," describes when two parties engage in a mutual agreement to exchange goods or services. In a quid pro quo agreement, one transfer is contingent upon a reciprocal transfer. In business and legal contexts, quid pro quo conveys that a good or service has been exchanged for something of equal value.

Understanding Quid Pro Quo

The key to a quid pro quo business agreement is a consideration, which may take the form of a good, service, money, or financial instrument. Such considerations equate to a contract in which something is provided and something of equal value is returned in exchange. Without such considerations, a court may find a contract to be invalid or nonbinding.

Also, if the agreement appears one-sided, courts may deem the contract void. Any individual, business, or other entity should know what is expected of both parties to enter into a contract.

A bartering arrangement between two parties is an example of a quid pro quo business agreement. In other contexts, a quid pro quo may entail more of a questionably ethical "favor for a favor" arrangement rather than a balanced exchange of equally valued goods or services.

Examples of Quid Pro Quo

Quid pro quo arrangements can have negative connotations in certain contexts. For example, in a quid pro quo agreement between an investment bank's research arm and a public company, the bank might amend their rating of the company's shares in exchange for underwriting business. In response to these potential conflicts of interest, US financial regulators have investigated and issued rules to ensure that firms put customers' interests before their own in issuing stock ratings.

Another example of a quid pro quo agreement in business is a soft dollar agreement. In a soft dollar agreement, one firm (Firm A) uses another firm's (Firm B) research. In exchange, Firm B executes all of Firm A's trades. This exchange of services is used as payment in lieu of a traditional, hard dollar payment. Research has shown that transactions executed under soft dollar arrangements cost more than execution-only arrangements.

Still, soft dollar arrangements such as these are legal in the US and other places, though discouraged in some jurisdictions.

Key Takeaways

  • Quid pro quo, Latin for something for something, describes an agreement between two or more parties in which there is an exchange of goods or services.
  • Courts may render a contract void if it appears unfair or one-sided.
  • In politics, quid pro quo agreements are acceptable as long as they do not imply bribery or any other misappropriation.

Special Considerations: Quid Pro Quo in Politics

Quid pro quo arrangements may also exist in the political realm. In exchange for donations, a politician may be obliged to provide a future consideration regarding policymaking or decision-making.

Such a quid pro quo does not imply a bribe, however, merely the understanding that the politician will consider the donor's wishes when creating policy or voting on legislation. Much controversy surrounds quid pro quo in politics—so much so that, in the last 40 years, many cases have appeared before the Supreme Court to define what constitutes an illegal agreement.

In the US, the Federal Election Campaign Act limits the number of contributions made to a campaign by donors.