Quid Pro Quo

A Quid Pro Quo in finance is a phrase that conveys an act of exchange. It means an exchange of an act, a good or a service where the transfer of one is entirely dependent upon the transfer of the other. In other words, the term denotes a tendency to return favors.

It attempts to establish equilibrium for an act done (past or present). It tries to find a balance by exchanging something of similar value in trade. The trade is often executed so that the vested parties achieve an equal footing by receiving fair consideration in return for a deed.

• Quid Pro Quo is a term in Latin that means "favor for favor." It denotes actions that are offered to someone as repayment for their actions.
• As defined by common law, the expression refers to an item or service exchanged for something valued.
• The act of repayment or reciprocation is done as compensation for its value equally to both parties.
• It applies to many life contexts, whether legal, business, politics, networking, economics, or finance. The essence, however, remains the same throughout.

Quid Pro Quo is a Latin phrase that translates to "favor for a favor" or "this for that." In finance, the phrase usually denotes an act done in substitution for an act done previously. It has been a system practiced since the early days. For example, the barter system worked based on quid pro quo. Something of value was given away for something of similar value or in demand. In the modern day, recent examples include promotion in social media applications by famous people called influencers. They receive cash or services in return for something they promote, which may be a product or service.

According to common law, the phrase denotes a good or service that was traded in exchange for something valuable, especially in cases of contracts (which encompass both business and legal aspects). The contract mentions considerations involved in the transaction. In crimes and investigations, it could mean trading simple but valuable pieces of information. The information passed over by interested parties may have repercussions. However, not all are beneficial, such as insider information exchange in case stock trading is illegal.

Furthermore, the concept is dominant in business networks. Business networking establishes and fosters informal connections to increase one's chances of landing a job or finding new business prospects. These relationships thrive on mutual value addition. Another facet in which it can be seen is societal goodwill, where donors receive substantial benefits in exchange for grants or donations they provided for the institution. For example, if an actor donates for a cause, the institution publicizes it, and the actor becomes more popular. (The act of donation may or may not be with the intention of charity).

Let us consider these Quid Pro Quo examples to understand the concept better:

Example #1 

Ben is a start-up owner and attends business conventions to develop his business world knowledge. At one of those conventions, he met Susan, a well-established entrepreneur in need of funds to develop and promote a product. He used every opportunity to pitch his business idea, and Susan seemed to like it. She found the idea worthy of investment and saw its growth potential.

However, she wasn't sure about the benefits she would get out of it. Ben, therefore, offered some shares of stocks in addition to profits. This is a well-thought-out business transaction. Moreover, it is an act of Quid Pro Quo as the investment amount is reciprocated with a profit share and a share of stocks.

Example #2

The college admission scandal unleashed in the U.S. was masked under the pretense of donations and business expenses. Getting into top colleges can be a hard feat to achieve. Nevertheless, some people sought entry into them by fixing test scores, faking athletic skills, and providing donations. These include transfers of funds from private organizations and companies for what appears to be their own personal, ill-gotten gains, as well as stock donations staged to appear as charitable contributions.

They are, however, incorrect because private foundations are subject to stringent tax law regulations that place special restrictions on transactions. Accordingly, committing such an act of unlawful deeds in return for a fraudulent deed is unlawful. Therefore, Quid Pro Quo is illegal here.

This article has been a guide to Quid Pro Quo and its meaning. Here, we explain various aspects of quid pro quo along with examples. You can learn more from the following articles -

• Liquidator
• Liquidated Damages
• Proration