An agreement is legally enforceable only when each of the parties to it gives something and gets something. The consideration may be an act or forbearance or a promise to do or not to do something. Only those considerations are valid which are “lawful”. Discuss
1. Introduction
Consideration is an essential element for the formation of a contract. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a bilateral contract an agreement by which both parties exchange mutual promises—each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other’s performance, the performance is consideration for the promise, while the promise is consideration for the performance. Consideration must have a value that can be objectively determined.
2. Description:
2.1[1]About Contract: Section 2(h) of the Indian Contract Act provides that, “An Agreement enforceable by law is a contract”. Therefore in a contract there must be (1) an agreement and (2) the agreement must be enforceable by law.
An agreement comes into existence whenever one or more persons promise to one or others, to do or not to do something, “Every promise and every set of promises, forming the consideration for each other, is an agreement. Some agreements cannot be enforced thought he courts of law, e.g., an agreement to play cards or go to a cinema.
An agreement, which can be enforced through the courts of law, is called contract.
3.1About Consideration:
Consideration as defined is the interest, profit, and benefit accruing to one party involved as a payment for the consideration.
In common law it is a prerequisite that both parties offer some consideration before a contract can be thought of as binding
3.2The Traditional Definition Of Consideration:
The definition given by Sir Frederick Pollock, approved by Lord Dunedin in Dunlop v Selfridge Ltd [1915] AC 847, is as follows: “An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”
Currie v Misa (1875) LR 10 Ex 153 “A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given suffered or undertaken by the other.”
The mere fact of agreement alone does not make a contract. Both parties to the contract must provide consideration if they wish to sue on the contract. This means that each side must promise to give or do something for the other. (Note: if a contract is made by deed, then consideration is not needed.)
For example, if one party, A (the promisor) promises to mow the lawn of another, B (the promisee), A’s promise will only be enforceable by B as a contract if B has provided consideration. The consideration from B might normally take the form of a payment of money but could consist of some other service to which A might agree. Further, the promise of a money payment or service in the future is just as sufficient a consideration as payment itself or the actual rendering of the service. Thus the promisee has to give something in return for the promise of the promisor in order to convert a bare promise made in his favour into a binding contract.
3.3 Monetary value of consideration
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 disparities issue is presence of consideration, not adequacy of the consideration. The values between considerations passed by each party to a contract need not be comparable.
For instance, 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. Courts in the United States generally leave parties to their own contracts, and do not intervene
However, courts in the United States may take issue with nominal consideration, or consideration with virtually no value. The old English rule of consideration questioned whether a party gave the value of a peppercorn to the other party. As a result, contracts in the United States have sometimes have had one party pass nominal amounts of consideration, typically citing $1. Some courts have since thought this was a sham. Since contract disputes are typically resolved in state court, some state courts have found that merely providing $1 to another is not a sufficiently legal duty, and therefore no legal consideration passes in these kinds of deals, and consequently, no contract is formed. Thus, licensing contracts that do not involve any money at all will often cite as consideration, “for the sum of $1 and other good and valuable consideration”.
3.4Consideration and formation of a contract
Consideration as defined is the interest, profit, and benefit accruing to one party involved as a payment for the consideration.
- Consideration move at the desire of the promisor: In order to constitute consideration the act or abstinence forming the consideration for the promise must be done at the desire or request of the promise. Thus an act does or services rendered voluntarily, or at the desire of the third partly, will not amount to valid consideration so as to support a contract. The logic for this may be found in the worry and expense to which every one might be subjected, if he were obliged to pay for services which he did not request.
- Consideration move from promise or any other person: Consideration need not move from the promise alone but may proceed from third person. Thus as long as there is a consideration for a promise, it is immaterial who has furnished it. It may move from the promise or from any other person. This means that even a stranger to the consideration can construct a contract, provided he is a party to the contract. This is sometimes called as doctrine of constructive consideration.
- Consideration may be past, present or future: The words, has done or abstained from doing or does or has abstained from doing or promises to do or to abstained from doing or promises to do or to abstain from doing. Consideration may consist of either something done or not done in the past or done or not done in the present, or promised to be done or not done in the future.
- Consideration need to be adequate: It means that consideration is that it must be something to which the law attaches a value. The consideration need not to be adequate to the promise for the validity of an agreement. The law only consists on the presence of consideration and not on the adequacy of it. It leaves the people free to make their own bargains.
If A signs a contract to buy a car from B for $5,000, A’s consideration is the $5,000, and B’s consideration is the car.
Additionally, if A signs a contract with B such that A will paint B’s house for $500, A’s consideration is the service of painting B’s house, and B’s consideration is $500 paid to A.
Further, if A signs a contract with B such that A will not repaint his own house in any other color than white, and B will pay A $500 per year to keep this deal up, there is also consideration. Although A did not promise to affirmatively do anything, A did promise not to do something that he was allowed to do, and so A did pass consideration. A’s consideration to B is the forbearance in painting his own house in a color other than white, and B’s consideration to A is $500 per year.
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. However, if B still gives the to car to A, then B cannot take the car back, since, while it may not be a valid contract, it is a valid gift.[2][3]
3.5The importance of consideration in contract.
In contract law, consideration refers to any bargained-for exchange. Basically, for a contract to be valid there must be an exchange of goods and/or services. Because the vast majority of contracts are for sales of some type, consideration usually takes the form of an exchange of money for goods or services. For consideration to be valid (thus making the contract valid, if all the other requirements for the validity of a contract are met), the things exchanged must be of some legal value. However, a court will generally not inquire into whether or not a particular form of consideration is sufficient. So, if you decide to sell your house for $50, and after the deal is done, realize you’ve made a horrible mistake, you can’t go to court and argue that the sale is invalid, because there was no consideration. The fact that $50 is an absurdly low price for any house is irrelevant, as long as you agreed to the sale freely.
However, if there an agreement truly lacks consideration, the agreement is not a valid contract, and can therefore not be enforced. For example, if you promise to give your house to a friend, for free, with no strings attached, and put the agreement in writing, accompanied by every possible formality, you can change your mind at any time. Your friend cannot sue you for breach of contract, because no contract existed in the first place, as it was unsupported by consideration (your friend did not give or promise you anything in return for your house). However, once you actually transfer ownership of your house, you can’t back out (as with any gift, it becomes the property of the recipient once the transfer is complete), but you could do so any time before the gift occurs. The requirement for consideration is why you will sometimes hear of very expensive items being sold for very small amounts of money, such as a house or car being sold for $1. These transactions are essentially gifts, but the token consideration is there to ensure that the agreement is legally binding, in case the donor tries to back out. By making the agreement legally binding, the donor shows good faith.
Consideration is considered to be an essential element of a valid contract largely for historical reasons. Because contract law was created to protect the rights and interests of parties to commercial transactions (essentially, its purpose is to ensure that people keep their promises). Commercial transactions always involve some exchange, so it just became an underlying assumption that all contracts would involve an exchange.
Also, when an agreement which is completely unsupported by consideration is breached, the victim of the breach hasn’t really lost anything, since they didn’t give anything up in the first place, so it is not very important for such an agreement to be enforced by a court.
Consideration:
each party to the contract must receive something of value.
This is best illustrated by an example: suppose I promise to give you my watch, but you don’t give me anything in return. If I break my promise and keep my watch, you can’t then go to court and make me give it to you. The contract isn’t legally binding: you didn’t give me any consideration for my promise.
So put simply, consideration is the price paid for the other’s promise.
There are four legal maxims that apply to consideration:
- Consideration must move from the promisor;
- Consideration need not move to the promisee;
- Past consideration is not good consideration;
- The consideration given must be sufficient, but it need not be adequate.
The detail isn’t necessary here, but there is a separate note on them if you’re interested.
Consideration
1) Payment or money. 2) a vital element in the law of contracts, consideration is a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration. Not doing an act (forbearance) can be consideration, such as “I will pay you $1,000 not to build a road next to my fence.” Sometimes consideration is “nominal,” meaning it is stated for form only, such as “$10 as consideration for conveyance of title,” which is used to hide the true amount being paid. Contracts may become unenforceable or rescindable (undone by rescission) for “failure of consideration” when the intended consideration is found to worth less than expected, is damaged or destroyed, or performance is not made properly (as when the mechanic does not make the car run properly). Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts. Examples: prostitution, gambling where outlawed, hiring someone to break a skater’s knee or inducing someone to breach an agreement (talk someone into backing out of a promise.)
3.6[4]Types of consideration:
Following are three types of consideration:
(a) Past consideration
When an act has already been done and subsequently a promise is made to pay remuneration for that act, the consideration for the promise is past .
(b) Present consideration
If the consideration is given at the same time when the contract is made it is called present consideration.
(c) Future consideration
if the consideration is given if a later date after making the contract it will be called future consideration.
3.7RULES GOVERNING CONSIDERATION
1. CONSIDERATION MUST NOT BE PAST
If one party voluntarily performs an act, and the other party then makes a promise, the consideration for the promise is said to be in the past. The rule is that past consideration is no consideration, so it is not valid and cannot be used to sue on a contract. For example, A gives B a lift home in his car. On arrival B promises to give A £5 towards the petrol. A cannot enforce this promise as his consideration, giving B a lift, is past.
2. CONSIDERATION MUST BE SUFFICIENT BUT NEED NOT BE ADEQUATE
Providing consideration has some value, the courts will not investigate its adequacy. Where consideration is recognized by the law as having some value, it is described as “real” or “sufficient” consideration. The courts will not investigate contracts to see if the parties have got equal value.
3. CONSIDERATION MUST MOVE FROM THE PROMISEE
The person who wishes to enforce the contract must show that they provided consideration; it is not enough to show that someone else provided consideration. The promisee must show that consideration “moved from” (ie, was provided by) him. The consideration does not have to move to the promisor. If there are three parties involved, problems may arise. See:
- Price v Easton (1833) 4 B & Ad 433
4. FOREBEARANCE TO SUE
If one person has a valid claim against another (in contract or tort) but promises to forbear from enforcing it, that will constitute valid consideration if made in return for a promise by the other to settle the claim. See:
- Alliance Bank v Broom (1864) 2 Dr & Sm 289.
5. EXISTING PUBLIC DUTY
If someone is under a public duty to do a particular task, then agreeing to do that task is not sufficient consideration for a contract. See:
- Collins v Godefroy (1831) 1 B & Ad 950.
If someone exceeds their public duty, then this may be valid consideration. See:
- Glassbrooke Bros v Glamorgan County Council [1925] AC 270.
If someone promises to do something they are already bound to do under a contract, that is not valid consideration. Contrast:
- Stilk v Myrick (1809) 2 Camp 317.
- Hartley v Ponsonby (1857) 7 E & B 872.
The principle set out in Stilk v Myrick was amended by the following case. Now, if the performance of an existing contractual duty confers a practical benefit on the other party this can constitute valid consideration.
http://www.lawteacher.net/contract-law/lecture-notes/consideration-lecture.php
3.8Causes of unlawful consideration
According to sec 23. The consideration or object of an agreement is unlawful in the following cases.
(I) Prohibited by law:
If the object of a agreement is prohibited by law agreement will be void.
(II) Element of fraud:
If there is element of fraud in the object of agreement, the consideration will be unlawful.
(III) Immoral:
If case of immoral, the consideration will be unlawful.
(Iv) Against public policy:
If the object of consideration of an agreement as opposed to public policy, the consideration will be unlawful.
(v) Injury to other person or property:
If the object or consideration of agreement is to cause an injury to the person or property of another is illegal and void.
3.9What is consideration and why must a contract include consideration for it to be legal and binding?
No. Executory contracts are binding once one party does what the contract requires or does something in reliance on the contract that is binding on that party. Example: A agrees to buy 1000 widgets…
I would say, that in a Community Property Sate( such as Az.), that both ,husband& wife WOLUD have to sign any contract , to lease or purchase, for that contract to be valid.
UCC allows what of existing contracts without considerations
Offer, acceptance, and consideration.
1. A stranger to the contract is an entity not party to a contract. It can also specifically refer to an entity seeking to deprive one of the parties the benefit of the contract, such as in the
4. Findings:
We have already seen how originally consideration was closely related to the law – it provided a motive for contracting and a motive for why the arrangement should be enforced. With the shift away from motive to the notion of a quid pro quo, consideration assumed an appearance more recognizable to the law of today. Nevertheless it would be a mistake to imagine that the consideration of the common law was a replacement for the intention which was the basis of promissory liability in the law.
5 Conclusions:
As consideration is a process of give and take thus contract is also a process to make something like a deal about something. so it can be said easily without consideration a contract may happen but that is not a good contract.
At last it can be said that to make a good contract a good consideration is necessary.
6 .References
[1] http://www.publishyourarticles.org/eng/articles/what-is-the-law-of-contract-and-explain-its-object-scope-and-essential-elements.html
[1] http://www.vuhelp.net/contract-act-1872/17017-define-consideration-when-consideration-object-agreement-unlawful.html
[1] http://www.vuhelp.net/contract-act-1872/17017-define-consideration-when-consideration-object-agreement-unlawful.html
[1] http://www.scribd.com/doc/24184953/Importance-of-Consideration
http://tutor2u.net/law/notes/contract-elements.html
[1] http://legal-dictionary.thefreedictionary.com/consideration
Answers.com > Wiki Answers > Categories > Law & Legal Issues > Business Law
more: <href=”#ixzz1nYTyI72F”>http://wiki.answers.com/Q/What_is_consideration_and_why_must_a_contract_include_consideration_for_it_to_be_legal_and_binding#ixzz1nYTyI72F
http://www.publishyourarticles.org/eng/articles/what-is-the-law-of-contract-and-explain-its-object-scope-and-essential-elements.html
[1] http://www.lawteacher.net/contract-law/lecture-notes/consideration-lecture.php
[1] http://en.wikipedia.org/wiki/Consideration
[1] http://www.lawteacher.net/contract-law/lecture-notes/consideration-lecture.php
[1] http://en.wikipedia.org/wiki/Consideration
[1] The materials on this site are the copyright of Networked Knowledge. Copyright Notice
The Networked Knowledge web site is hosted and maintained by Howstat Computing Services as a community service. Enquiries to webmaster@howstat.com
[1] http://www.publishyourarticles.org/eng/articles/what-is-the-law-of-contract-and-explain-its-object-scope-and-essential-elements.html
http://legal-dictionary.thefreedictionary.com/consideration
[4] http://www.vuhelp.net/contract-act-1872/17017-define-consideration-when-consideration-object-agreement-unlawful.html
[5][5]