What does No Contract Mean
No consideration, no Contract: A legally binding contract needs consideration as it is a vital element. So, a valid contract does not exist without consideration. We know that by promise, one party gives or sacrifices something, and the other party takes something. This type of give and take or sacrifice is called consideration by law. If someone promises without any consideration, that is called a gift. On the other hand, give premise of exchange of any consideration is called a contract. So it is seen that to become a valid agreement, we need to consider its materiality and the level of voidable.
An agreement made without consideration is void unless it is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account if natural love and affection between the parties standing in near relation to each other. Agreement must be in writing and registered. If you have an oral arrangement or an unregistered agreement, although it is in writing, it will not be valid even though it proceeds from natural love and affection, and even if the parties to it are near relations to each other. It must be both in writing and registered.
This essay is divided into two separate parts. First, I want to discuss about consideration and void agreement quite elaborately, and after that, I will go through the topic ‘insufficiency of consideration is immaterial, but an agreement without consideration is void’. My objective in discussing in this way is that the whole topic is related to consideration and void agreement. By understanding consideration and void agreement, we to understand the concept of ‘insufficiency of consideration is immaterial, but an agreement without consideration is void’.
No CONSIDERATION Mean:
Definition- The term consideration may be defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each party gives something and gets something. Something is given or obtained is the price for the promise and is called consideration. Only those considerations are valid which are lawful. Subject to certain exceptions, an agreement without consideration is void. In the Contract Act, consideration has been defined as “when at the desire of the promisor, or any other person, has done or abstained from doing something, such act or abstinence or promise is called a consideration for the Promise. For instance, Jaber agrees to sell his bus for Tk. 10,00,000 to Farid. For Jaber’s Promise, the consideration is Tk 10, 00,000 for Farid’s promise, the consideration is the bus only.
Essentials of a valid consideration
- Consideration must move at the desire of the promisor.
- Consideration may move from the promisor or any other person.
- Consideration may be past, present, or future.
- Consideration must be of some value.
Examples
1. Momin agrees to sell his land to Islam for Tk. 70,000. Here, Islam’s promise to pay the sum of Tk. 70,000 is the consideration for Momin’s promise to sell the land; and Momin’s promise to sell the land is the consideration for Islam’s promise to pay Tk. 70,000.
2. Krim promises to pay Rahim Tk. 10,000 at the end of 7 months, if Fahad, who owes that sum to Rahim, fails to pay it. Rahim promises to grant time to Fahad, accordingly. Here, the promise of each party is the consideration for the promise of the other party.
3. (a) A past consideration is one when the consideration was given before the date of the promise. (b) When consideration goes along with the promise, this is called present consideration. This is also called executed consideration. Example-Rahim purchases a watch from a shop and pays the price immediately. The consideration, therefore, moving from Rahim is a present or executed consideration. (c) Future consideration is one when consideration moves at a future date. This is also called executory consideration. Example- A provided money to B in the month of June. But B delivered goods in July, the consideration A is a future or executory consideration.
4. Generally, courts do not inquire whether the deal between two parties was monetarily fair, merely that each party passed some legal obligation or duty to the other party. The dispositive issue is the presence of consideration, not the adequacy of the consideration. The values between considerations passed by each party to a contract need not be comparable.
For example, if A offers B $200 to buy B’s mansion, luxury sports car, and private jet, there is still consideration on both sides. A’s consideration is $200, and B’s consideration is the mansion, car, and jet.
VOID AGREEMENT:
a) Literally:
Void means having no legal value, and agreement means an arrangement, promise, or contract made with somebody. So a void agreement means an agreement that has no legal value.
b) Traditionally:
“An agreement not enforceable by law is said to be void”.
A void agreement has no legal effect. An agreement that does not consist of the necessary elements of a contract is void. A void contract bestows no rights on any person and does not create any obligation.
Example:
An agreement made by a minor, an agreement without consideration, certain agreements against public policy etc.
c) Agreement which becomes void:
An agreement, which was legal and enforceable when it was created, may afterwards become void due to impossibility of performance, change of law, or other reason. When it becomes void, the agreement loses its legal effect.
Expressly Declared Void Agreement
Certain agreements are expressly declared to be void.
They are as follows:
(1) Agreement by a minor or a person of unsound mind.
An agreement whose consideration or object is unlawful
(3) Agreement made under a bilateral mistake of fact material to the agreement
(4) Agreement of which the consideration or object is unlawful in part and the illegal part cannot be separated from the legal part
(5) Agreement made. Without consideration
(6) Agreement in restraint of marriage
(7) Agreement in restraint of trade
(8) Agreement in restraint of legal proceedings
(9) Agreements the meaning of which is uncertain
(10) Agreements by way of wager
(11) Agreements contingent on impossible events
(12) Agreements to do impossible acts
Furthermore, since agreement, by definition as per section 2(e), is a promise/s in exchange for a promise/s, each promise forms consideration for the other. It will therefore be unfair to think of an agreement without consideration. Therefore, we may sum up the importance of consideration simply: Except in certain cases, a contract without consideration cannot be thought of and if made, it is devoid of any legal obligation. Read more about VAT tax
Validity of an agreement without consideration:
The generalization is that an agreement without consideration is void, but in the following cases, the agreement, though made without consideration, will be valid and enforceable according to sections 25 and 185 are as follows:-
a) Nature, lov,e and affection: An agreement made without consideration is valid if it is made out of love, nature and affection such agreements are enforceable if
- The agreement is made in writing and registered
- The agreement must be made between the parties standing in near relations to each other and
- There must be nature, love, and affection between the parties
Example: Voatka (vs) Rogata
Facts: By a registered agreement, ‘Voatka’, on account of nature, love, and affection for his brother, ‘Rogata’, promises to discharge debt to ‘Voatka’. If ‘Voatka’ does not discharge the debt, then the agreement will be void.
Judgment: ‘Rogata’ may discharge it and then sue ‘Voatka’ to recover the amount. Therefore, it is a valid agreement.
b) Compensation for past voluntary services: A promise made without consideration is valid if it is a person who has already voluntarily done something for the promisor, is enforceable, even though without consideration. In simple words, a promise to pay for a past voluntary service is binding.
c) Promise to pay Time-Barred debt: An agreement to pay a time-barred debt is enforceable if the following conditions are satisfied.
- The debt is time-barred
- The debtor promises to pay the time-barred debt
- The promise is made in writing
- The promise is signed by the debtor
d) Completed gifts: The rule “No consideration – No contract” does not apply to completed gifts. According to sections 1 to 25 states “nothing in section 25 shall affect the validity, as between the donor and donee, of any gift actually made”
e) Agency: According to section 185, no consideration is necessary to create an agency.
f) Charitable subscription: Where the promise is made on the strength of the promise, making commitments (i.e., changes his position to his liability/detriment)
Example: Kallu (vs) Gullu
Facts: ‘Gullu’ had agreed to subscribe Rs 100/- towards the construction of a town hall at Howrah. The secretary, ‘Kallu’, on the faith of the promise, called for plans and entrusted the work to contractors and undertook the liability to pay them.
Judgment: The amount could be recovered, as the promise resulted in a sufficient detriment to the secretary. However, it is enforceable only to the extent of the liability incurred by the secretary. In this case, the promise, even though it was gratuitous, became enforceable because on the faith of the promise the secretary had incurred a detriment.
Exceptions to the Rule: No Consideration No Contract
The general rule of law is that an agreement without consideration is void. “A bargain without consideration is a contradiction in terms and cannot exist.” But there are a few exceptional cases where a contract, even though without consideration, is enforceable. They are as follows:
1. An agreement made without consideration is valid if—
(a) It is expressed in writing
Examples of (a)
1. An elder brother, on account of natural love and affection, promised to pay the debts of his younger brother. The agreement was put in writing and registered. Held, the agreement was valid.
(b) It is registered (under the law for the time being in force for registration of documents)
Examples of (b)
1. A Hindu husband, by a registered document, after referring to quarrels and disagreements between himself and his wife, promised to pay his wife a sum of money for her maintenance and separate residence; it was held that the promise was unenforceable.
2. A promise made without consideration is valid if it is a promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor or something which the promisor was legally compelled to do.
(c) It is made on account of natural love and affection
Examples of (c)
1. Abir finds Boldi’s purse and gives it to him. Boldi promises to give Abir Rs. 50. This is a valid contract.
2. Abir supports Boldi’s infant son. Boldi promises to pay Abir’s expenses in so doing. This is a valid contract.
Example of (d)
Akkas owes Boni Rs. 5,000, but the debt is barred by the Limitation Act. Akkas signs a written promise to pay Boni Rs. 1,000 on account of the debt. This is a valid contract.
Notice that the above section [Section 25(3)] applies only when the promisor was liable himself for the time-barred debt; the sub-section does not apply to the case of a promise to pay a time-barred debt owing by a third party. Further, sub-section (3) of Section 25 would not apply unless the promise is to pay an ascertained sum. A promise to pay what is due after taking accounts is not a promise within the meaning of Section 25(3).
4. Consideration is not necessary to effect a bailment
5. No consideration is required to create an agency (Section 185). Notice, however, that if no consideration has passed to the agent, he is only a gratuitous agent and is not bound to do the work entrusted to him, although if he begins the work, he must do it to the satisfaction of his principal.
6. The rule ‘no consideration no contract’ does not apply to completed gifts
Consideration: Was there a value exchange between the parties?
An act or a forbearance of one party or a promise thereof is the price for which the promise of the other is brought, and the promise is given for value and is enforceable.
Some act or forbearance involving legal detriment to the promisee, or a promise of such an act or forbearance furnished by the promisee as the agreed price of the promise.
Consideration is simply of value and may take the form of:
- An act for a promise, a promise for an act
- A promise for a promise
- A promise to forbear
The court held that although the purchase of the wool would appear to be good consideration, this was not the case because the company needed to purchase the wool, and the government was only providing a subsidy.
Formal Contract
A formal contract is wholly in writing, usually in the form of a deed, and does not require consideration.
A promise (or term) of a contract made by deed is called a covenant. A deed can be unilateral (that is, made by only one party) and this is often called a deed poll. A deed made by two or more parties is called an indenture. Some types of contracts must be in writing and must be made by deed to be effective.
Simple Contract
A simple contract may be oral or in writing (or a combination of both). Simple contracts are made between two or more parties and require consideration.
Types of Consideration
Executory Consideration
Contract in the process of being performed (Bilateral)
Executed Consideration
A contract is formed when the act is executed (Unilateral)
The 12 Rules For Consideration In Law Cases
1. Simple contracts must have consideration
The defendant was the administrator of an estate and made a promise to pay a debt owed by the deceased to the plaintiff.
The court held that, as there was no consideration given by the plaintiff (Rann) for the promise made, then the contract was void.
2. Consideration must be sufficient
Objectively, if consideration of some value exists, the court is not concerned with its adequacy.
The court held that the promise by a widow to pay annual rent (one pound) was sufficient consideration for a contract with the executors to transfer a life estate in the property to her.
3. Consideration must be lawful
The consideration must not be illegal or unlawful and must not involve a breach of civil law or public policy.
Parkinson gave the charity 3000 pounds in return for the promise that he would receive a knighthood.
He sued after the knighthood did not eventuate, and the court refused to make the order because the consideration was a promise to do something to promote public corruption and as this was against public policy, it was illegal.
4. Consideration must not be illusory
The plaintiff entered into a contract with the Australian Government to establish a timber company in Papua New Guinea to produce plywood for import to Australia.
A clause stated that the Government will subsidies (at a rate determined only by the defendant) the cost of import customs. This was stopped after a few years.
The court held (3:2 majority) that the clause was not binding on the defendant because a promise of the government subsidy is meaningless in the absence of some amount or some basis of calculation.
5. Consideration must be definite
The consideration must be so certain that a court can place a legal value on it, no matter how inadequate it may be.
6. Past consideration is no consideration
Consideration can be present or future, but not past. After the sale, the defendant promised that the horse was in good health and not vicious; however, this was untru,e and the plaintiff sued for breach.
7. Consideration must move from the promise
Apart from the promisor, the only party who can enforce the contract is the other party who has provided the consideration for the promise
This rule does not require that the promisor must receive the benefit of the consideration provided by the promisee. Consideration need not move to the promisor, but can be provided to a third party.
8. Consideration can be a forbearance to sue
Chance of success is irrelevant:
Schubert bought a car from the defendant. The plaintiff later found that the car had faulty paintwork and initially demanded a new car; however, the defendant offered to repaint the car. The parties also agreed for a representative of a paint company to supervise the work and report on it. The paintwork was unsatisfactory, and Schubert sued.
9. A promise to perform an existing obligation is not good consideration
A promise to perform an existing contractual obligation is not good consideration.
Stilt signed on as a crew member on a ship. During the voyage, two crewmembers deserted, and the defendant promised to divide the wages that would have been paid to the deserters among the remaining crew.
The defendant failed to honour his promise, and the plaintiff sued
The court held that there was no consideration for the promise to pay the extra wages. Under the original agreement, the plaintiff and the other crew members contractually promised to do all they could under all emergencies of the voyage.”
10. A public obligation is not good consideration
A duty imposed by the State will not amount to consideration unless it involves an excess of legal duty.
Him for his attendance. Collins attended court but did not have to give evidence. The defendant refused to pay the promised amount.
The court held that he did not have to pay because any person who receives a subpoena is
Under a legal duty to give evidence.
11. An obligation to a third party can be good consideration
A promise to perform an existing obligation is sufficient consideration where the promise is made to a different person.
Plaintiff informed his uncle of his engagement, and his uncle promised to make certain payments to the plaintiff once the marriage took place. The uncle made some payments, but not all of the agreed-upon payments. When the uncle died, the nephew sued the estate to recover the outstanding payments.
The defendant argued that there was no consideration for the promise because the plaintiff had previously promised to marry his now wife.
The court held that a contract to do something which the promisor is under an existing obligation to a third party (i.e., His fiance) was good consideration. The uncle benefited from the marriage.
Part payment of a debt is not good consideration
The general rule is that payment of a lesser sum will not discharge the duty to pay the higher sum. Part payment of a debt is not sufficient consideration for a promise to forgo the balance.
Flakes owed the plaintiff 2090 pounds. The plaintiff subsequently agreed to allow the defendant to pay off the debt by an immediate payment of 500 pounds and the balance by installments, and in return, she agreed not to proceed with debt recovery proceedings. The defendant made all the payments as agreed.
The plaintiff later demanded an additional 360 pounds as interest, and the defendant refused to pay.
The court held that the interest was payable because the defendant already had the pre-existing obligation to pay the debt, and that the mere payment of instalments was not sufficient consideration.
CONCLUSION:
An agreement without consideration is void.” Explain this rule and state exceptions, if any. Unless the Indian Contract Act 1872, in section 2(e), says that every promise and every set of promises that form a consideration for each other is an agreement. Therefore, we can see that the existence of consideration for a promise or promises is required for a promise to become an agreement. Thus, there cannot be an agreement if there is no consideration. Section 25 of the act says the same thing in precise terms and also gives three exceptions where an agreement without consideration is a valid contract:
Section 25: An agreement without consideration is void unless it is in writing and registered, and the promise has been made due to natural love and affection between the parties standing in near relation to each other. It is a promise to compensate, wholly or in part, a person who has voluntarily done something for the promisor or something that the promisor was legally bound to do. It is a promise to pay for a time-barred debt.
The general rule of law is that an agreement without consideration is void. But there are a few exceptional cases where a contract, even though without consideration, is enforceable.
We know that consideration involves a concept of give and take. There are rules about what makes up an exchange and what might be exchanged to become a good consideration. We will look at these rules after we have examined the requirements of offer and acceptance. No consideration, no Contract: A legally binding contract needs consideration as it is a vital element. So, a valid contract does not exist without consideration. All this will become clearer when we examine the doctrine of consideration in detail.
BIBLIOGRAPHY:
1Mitra Kumar Sen, “Commercial Law including Company Law and Industrial Law”, New Edition, World Press.
2Ahmed M, 2003, business Law and Labour & Industrial Law, Bangladesh Law book company.
3 Halson, R. (2001). “Contract Law.” 1st Edition. Great Britain: Longman, Pearson Education.
4 Bockrath, J.T. (2000). “Contracts and the Legal Environment.” 6th Edition. UK: McGraw-Hill
5 Huntley, A.K., Jackie, J., Cathcart, C. (2003). “Contract: Cases and Materials.” 2nd Edition. Great Britain: Thomson, W. Green.