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A contract is based on an exchange of promises –Illustrate & explain
The consideration creates a legal obligation in a contract. Because the consideration is a part of contract without it the contract cannot perform. 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. Thus, it is clear that the formation of consideration for a promise or promises is a key ground on which a promise becomes an agreement. 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 some exceptions when an agreement without consideration is a valid contract.<href=”#_ftn1″ name=”_ftnref1″ title=””>
Contracts come on different shapes and size. Some involves of large sum of money and other trivial sum. Some are long duration and some are short duration.<href=”#_ftn2″ name=”_ftnref2″ title=””> The content of contract varies of enormously and may include contracts of sale, hire purchase, employment and marriage.<href=”#_ftn3″ name=”_ftnref3″ title=””> The law of contact is perceived as a set of power conferring rules which enable individuals to enter into an agreement of their own choice on their own terms. It is not possible to attribute many of the doctrines of contact law to the will of parties. Doctrines such as consideration, illegality, frustration, and duress cannot be ascribed to the will of the parties, nor can statutes such as the unfair, contract terms Act1977.<href=”#_ftn4″ name=”_ftnref4″ title=””>
In contract law consideration is concerned with the bargain of the contract. A contract is based on an exchange of promises. Each party to a contract must be both a promisor and a promisee. They must each receive a benefit and each suffers a detriment. This benefit or detriment is referred to as consideration.<href=”#_ftn5″ name=”_ftnref5″ title=””> The consideration seems as a “badge of enforceability” in a contact. A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.<href=”#_ftn6″ name=”_ftnref6″ title=””> Consideration must be something of value in the eyes of the law – (Thomas v Thomas) (1842) 2 QB 851.<href=”#_ftn7″ name=”_ftnref7″ title=””>
1.1 Contract Define:
The Indian Act says that “an agreement enforceable by law is a contract” so it show that there must be an agreement and it must enforceable by law. So it proves that the contract of law deal with the agreement which is enforceable by the law. The law of contact is very essential for the law because most of the law starts from an agreement. So the contact is the exchange of the promises between two or more parties. Generally an agreement is said to be arrived at when an offer or proposal made by one person is accepted by another, with the intention of creating mutual obligations between them.
1.2 Consideration Define:
Consideration may be defined as a benefit falling due to a promisor or a detriment Incurred by the promises. Consideration is a value that exchange between parties. Consideration is the cause of the promise. It is the most essential element of the contract. As a general rule, agreement without consideration is void. The promise for a promise in return is consideration. Definition of Consideration has been defined in many ways. According to Pollock “Consideration is the price for which the promise of other is bought and the promise thus given or value is enforceable.” So it shows that the consideration is very essential for the contact without the consideration the contract must be void.
1.3 Rules of a valid contract:
ü Offer and Acceptance.
ü Intention to create Legal Relationship.
ü Lawful Consideration.
ü Capacity of Parties.
ü Free Consent.
ü Legality of the Object.
ü Possibility of Performance.
ü Void agreements.
ü Writing, Registration and Legal Formalities.
2.0 Importance of consideration for a contract:
The consideration is a very important element of a contract. Consideration define as a “The price for which a promise is bought” (Sir Frederick Pollock).<href=”#_ftn8″ name=”_ftnref8″ title=””> Without consideration the contract must be void without some exception. Consideration creates the legal obligation are the lawful enforcement between the parties so the consideration must be consider in contractual element. The rule of the contract shows that the consideration is the fundamental rules of a contract.
Without the consideration a contractual agreement cannot grow up and cannot grant by the law of a country. So it shows how the consideration is essential for a contract. Consideration means some values that create and exchange between the parties to make a lawful consideration.
The adequacy of the consideration is not a matter if there was a free consent of victim parties. But is there have no any consideration, the contract must be void and unlawful. The contractual consideration need not the monetary object it may other object or promise to perform some other action. Consideration is one of the essential elements of a contract together with consent of the parties and object of the contract. If consideration is absent, there is no contract just like the absence of any of the other two elements.<href=”#_ftn9″ name=”_ftnref9″ title=””>
3.0 Relationship between Contract and Consideration:
The contract is an important element of a contract as per the Indian contract Act 1872 section 2 (h) says that the “an agreement enforceable by law is a contract”. It become a contract when it enforceable by the law of the country so the, contract = Agreement+ Enforceability by law. A contract make enforceable when the consideration make the legal obligation with the contract. The enforceable law means the basically factor of recognition that court gives to the obligations arising from contractual relationship. A contract cannot enforce by court unless it is supported by a valuable consideration. The consideration creates a legal relationship between parties so it is necessary there must be a consideration in contract.<href=”#_ftn10″ name=”_ftnref10″ title=””>
So it prove that the consideration create the legal relationship between contractual parties and make it enforceable by the law. So the relationship between contract and consideration is rational contractual relationship are invalid without consideration.
4.0 Consideration for a Contract:
A contract without consideration is a gratuitous undertaking and cannot create a legal obligation. Under Roman law an agreement without consideration called a “nudum pactum” and was unenforceable. Under English law simple contracts must be supported by consideration but especially contract required no consideration. Under Indian law the presence of consideration is as a rule essential to the validity of contracts. Consideration is a necessary element of a binding contract. Each party to the agreement must benefit from the agreement. Therefore, each party must give and get something.<href=”#_ftn11″ name=”_ftnref11″ title=””> Consideration need not be immediate. It can be for something done in the past, present or future. In a contract, each party puts the other party under some obligation or extracts some promise from him or her. The exchange given for the obligation or promise is called consideration. It can be in cash or in kind. Consideration must be lawful. That means the consideration given by one party to another should not be illegal, fraudulent, or opposed to public policy.<href=”#_ftn12″ name=”_ftnref12″ title=””>
The rules of the contract show how the consideration is essential for a valid contract. Without any consideration the contract must be void. Consideration is a technical term used in the sense of quid-pro-quo (something in return). When a party to an agreement promises to do something, he must get something in return. This “something” is defined as consideration.<href=”#_ftn13″ name=”_ftnref13″ title=””>
According to section 2(d) of the Indian contract Act, 1872, defines consideration as “when at the desire of the promisor, the promise (or) any other person has done (or) abstained from doing, (or) does (or) abstains from doing, (or) promises to do (or) to abstain from doing, something, such act (or) abstinence (or) promise is called a consideration for the promise”<href=”#_ftn14″ name=”_ftnref14″ title=””>. A promise without consideration is a gift; one made for a consideration is a bargain- salmond & wind field, law of contact.<href=”#_ftn15″ name=”_ftnref15″ title=””>
As per Indian Act it says that every promise and every set of promises that form a consideration for each other is an agreement. Thus, it is clear that the formation of consideration for a promise or promises is a key ground on which a promise becomes an agreement. There cannot be an agreement if there is no consideration.<href=”#_ftn16″ name=”_ftnref16″ title=””>
The all of the discussion prove that the contract is void without the consideration because the consideration is the legal enforceable element of a contact without that the contracts are un-enforceable by the law. The consideration creates a legal obligation between parties so a contract without consideration is void “No Consideration No Contract” without some exception cases.
5.0 When a contract lack consideration:
The general rule is that an agreement made without consideration is void. In the following cases, the agreement though made without consideration, will be valid and enforceable according to section 25and 185<href=”#_ftn17″ name=”_ftnref17″ title=””> are as follows:-
5.1 Contract made with nature love 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.
5.2 The exchange is for “past consideration:
A promise made without consideration is valid if, it is a person who has already done 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.
5.3 Promise to pay Time-Bared debt:
An agreement to pay a time-bared debt is enforceable if the following conditions are satisfied. The debt is a time bared debt, the debtor promises to pay the time barred debt, the promise is made in writing, the promise is signed by the debtor.
5.4 The promise amounts to a gift, not a contract:
The rule “No consideration – No contract” does not apply to completed gifts. A gift (which is not an agreement) does not require consideration in order to be valid ?As between the donor and the done any lift actually made will be valid and binding even though without consideration [Explanation 1, to Section 25]. In order to attract this exception there need not be natural love and affection or nearness of relationship between the donor and done. The gift must however and be complete.
6.0 Monetary and Non- Monetary form of consideration:
Consideration is often spoken of as a benefit to the promisor or a detriment to the promisee. Some will make the point that a mere promise from one party is neither a detriment to that party, nor is it a benefit to the other. A consideration must be:
ü Desire of the promisor
ü Consideration may be an act or abstinence
ü Consideration may be past, present or future
ü Consideration need not be adequate
ü Consideration must be real and not illusionary
ü Consideration must be legal and moral.
Consideration is the concept of legal value in connection with contracts. It is anything of value promised to another when making a contract. It can take the form of money, physical objects, services, promised actions, abstinence from a future action, and much more. In common law it is a prerequisite that both parties offer some consideration before a contract can be thought of as binding.<href=”#_ftn18″ name=”_ftnref18″ title=””>
Conversely, if A signs a contract to buy a car from B for $0, B’s consideration is still the car, but A is giving no consideration, and so there is no valid contract. But in a valid gift this contract must be legal and valid. In the sense of gift the one party have some consideration but another party have no any consideration so there have no monetary consideration in between two parties.
If one uncle had instead told his 17 year old nephew the following offer: “if you do not smoke cigarettes and do not engage females before your 18th birthday, then I will give you a new car on your 18th birthday, in here the promise of not smoking was not valuable consideration and it not form in monetary terms but both party have some consideration.
Consideration is commonly understood to mean the price paid for a dutiable transaction. At its most simple, this is correct and in the majority of cases the consideration is the purchase price paid to the vendor by the purchaser. Consideration refers to all monetary and non-monetary consideration. <href=”#_ftn19″ name=”_ftnref19″ title=””>
Monetary consideration includes all payments required to be paid in order for the dutiable property to be transferred. It is not necessarily to purchase product with price. Payments to persons other than the vendor or transferee can also be classed as consideration if they are required to be paid in order for the property to be transferred. Monetary consideration will generally include:
ü Cash payments
ü Payment by cheque
ü Telegraphic and bank-to-bank transfer of funds
ü Inter-company loan account charges.
Non-monetary consideration includes acts or promises made in order for the dutiable property to be transferred; however for duty purposes, they must be capable of being valued in monetary terms.<href=”#_ftn20″ name=”_ftnref20″ title=””> A non-monetary consideration includes providing services, transferring tangible and intangible property or any similar dealings. The dealing may be barter, swap, bonus or discount, or any type of similar agreement.
Where there is no charge or adjustment allocating income or expenditure between the parties for provision of services, transfer of property, or other transactions listed on Schedule 25A. The head office to the permanent establishment, or the permanent establishment to the head office or another related international party. This is regarded as being for nil consideration.<href=”#_ftn21″ name=”_ftnref21″ title=””>
The discussion show that the consideration may be in monetary or non monitory form it consider in the contractual agreement how the party exchange there benefit between them in monetary or non monetary form.
In all discussion it is clear that the consideration is very essential for a valid contact. It creates a legal relationship between two parties and made a contract enforceable by law. The Indian contract act, English law and roman law which are the bases of the world law that define the consideration is essential part of a valid contract, without consideration the contract must be void. The consideration may be a monetary or non- monetary form, it is not necessary that the consideration must be in monetary form and it cannot breach the rules of the contract.
So it prove that “No consideration No contract” and it need not be in monetary form.
1. M. Ewan; Contract Law; Palgrave Macmillan 175 fifth avenue, new work 10010; Sixth Edition; pg(1, 3, 28, 85).
2. Business law; CIMA; BPP Publishing Limited, freepost, London W128BR; Third Edition; Pg (3, 7, 11, 55, 56, 57, 69, 71, 78).
3. Sen A. K. Mitra J.K.; Commercial and Industrial law; The World Press Private ltd, Calcutta, 2001; Twenty- First Edition pg(8, 26, 35, 60). Twenty Fourth Edition pg(41.45)
4. Retrieved from: http://www.ato.gov.au/taxprofessionals/content.aspx?menuid=0&doc=/content/00247473.htm&page=43. . Accessed on 01-07-12; 09.00 pm to 01.00 am.
5. Retrieved from: http://www.sro.vic.gov.au. Accessed on 25-06-12; 09.00 am to 03.00 pm.
6. Retrieved from: http://www.lawyersnjurists.com/resource/articles-and-assignment/insuffiency-consideration-immaterial-agreement-consideration-void-%E2%80%93-illustrate-explain/ Accessed on 14-06-12; 10.00 pm to 11.30 pm.
7. Retrieved from: http://www.hanumant.com/AgreementWithoutConsideration.html Accessed on 10-06-12; 10.00 pm to 12.30 am.
8. Retrieved from: http://www.lawyersnjurists.com/resource/articles-and-assignment/insuffiency-consideration-immaterial-agreement-consideration-void-%E2%80%93-illustrate-explain/ Accessed on 22-06-12; 07.00 pm to 08.00 pm.
9. Retrieved from: http://www.scribd.com/doc/24184953/Importance-of-Consideration Accessed on 22-06-12; 07.00 pm to 08.00 pm.
10. Retrieved from: http://answers.yahoo.com/question/index?qid=20070310060338AATMmWJ Accessed on 14-06-12; 10.00 pm to 11.30 pm.
<href=”#_ftnref1″ name=”_ftn1″ title=””> See: Indian contract act 1872 in section 2 (e) says http://www.hanumant.com/AgreementWithoutConsideration.html
<href=”#_ftnref2″ name=”_ftn2″ title=””> See: Contract comes on some different ; pg-1 http://www.palgrave.com/PDFs/9780230216716.pdf
<href=”#_ftnref3″ name=”_ftn3″ title=””> See : The content of contract varies of;pg-1 http://www.palgrave.com/PDFs/9780230216716.pdf
<href=”#_ftnref4″ name=”_ftn4″ title=””> See: The law of contact is perceived as a set of power pg- (2,3)http://www.palgrave.com/PDFs/9780230216716.pdf
<href=”#_ftnref5″ name=”_ftn5″ title=””> See: In contract Law Consideration; http://www.e-lawresources.co.uk/Consideration.php
<href=”#_ftnref6″ name=”_ftn6″ title=””> See: Consideration seems that; http://en.oboulo.com/the-legal-system-of-common-law-in-anglo-saxon-72589.html
<href=”#_ftnref7″ name=”_ftn7″ title=””> See: (Thomas v Thomas) (1842) 2 QB 851; http://netk.net.au/Contract/Thomas.asp
<href=”#_ftnref8″ name=”_ftn8″ title=””> See: The consideration is a very important element of a contract; http://www.scribd.com/doc/24184953/Importance-of-Consideration
<href=”#_ftnref9″ name=”_ftn9″ title=””> See: The adequacy of the consideration is not a matter if there was a free consent of victim parties; http://answers.yahoo.com/question/index?qid=20070310060338AATMmWJ
<href=”#_ftnref10″ name=”_ftn10″ title=””> See: The contract is an important element; http://www.scribd.com/doc/24184953/Importance-of-Consideration
<href=”#_ftnref11″ name=”_ftn11″ title=””> See: Under Roman law an agreement ; Sen A. K. Mitra J.K.; Commercial and Industrial law; pg 41.
<href=”#_ftnref12″ name=”_ftn12″ title=””> See: consideration need not be imediate; http://bizlaw0.tripod.com/id4.html
<href=”#_ftnref13″ name=”_ftn13″ title=””>See: The rules of the contract show; http://www.lawyersnjurists.com/resource/articles-and-assignment/insuffiency-consideration-immaterial-agreement-consideration-void-%E2%80%93-illustrate-explain/
<href=”#_ftnref14″ name=”_ftn14″ title=””> See: b) definition; http://www.lawyersnjurists.com/resource/articles-and-assignment/insuffiency-consideration-immaterial-agreement-consideration-void-%E2%80%93-illustrate-explain/
<href=”#_ftnref15″ name=”_ftn15″ title=””> See: salmond & windfield, law of contact.
<href=”#_ftnref16″ name=”_ftn16″ title=””> See : http://www.hanumant.com/AgreementWithoutConsideration.html
<href=”#_ftnref17″ name=”_ftn17″ title=””> See: http://www.lawyersnjurists.com/resource/articles-and-assignment/insuffiency-consideration-immaterial-agreement-consideration-void-%E2%80%93-illustrate-explain/
<href=”#_ftnref18″ name=”_ftn18″ title=””>See: http://en.wikipedia.org/wiki/Consideration
<href=”#_ftnref19″ name=”_ftn19″ title=””> See: http://www.sro.vic.gov.au/sro/SROnav.nsf/childdocs/-3A87315B22BC23FFCA2575A100441F59-CD1B48B2849A0120CA2575C1008058E7-42452633654D5A7FCA2575A100441FD4-6189CD0BC4F5531BCA2576D9007D4555?open
<href=”#_ftnref20″ name=”_ftn20″ title=””>See: http://www.sro.vic.gov.au/sro/SROnav.nsf/childdocs/-3A87315B22BC23FFCA2575A100441F59-D1B48B2849A0120CA2575C1008058E7-42452633654D5A7FCA2575A100441FD4-6189CD0BC4F5531BCA2576D9007D4555?open
<href=”#_ftnref21″ name=”_ftn21″ title=””> See: Where there is no charge or adjustment allocating income or expenditure between the parties ; retrieve from. http://www.ato.gov.au/taxprofessionals/content.aspx?menuid=0&doc=/content/00247473.htm&page=43.