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“An agreement without consideration will be perfectly valid and binding in certain scenario”-Critically analyze & illustrate
To be a contract a promise should be written or made by two parties or more which can be enforced by the law. In every contract there should be a consideration (or exchange) between the parties who made the contract.
From the above as we are familiar with the view is that to be a contract there must be a consideration. If there is no consideration for any party it cannot be a good contract which can be enforced by law. Any contract supports to the both parties who are making it for their own benefits. If it does not fulfill their desire or the social view or it seems to be a dominant contract. In this case law will not permit it to happen.
We enter into contracts day after day. Taking a seat in a bus amounts to entering into a contract. When you put a coin in the slot of a weighing machine, we have entered into a contract. In such cases, we do not even realize that we are making a contract. In the case of people engaged in trade, commerce and industry, they carry on business by entering into contracts. The law relating to contracts is to be found in the Indian Contract Act, 1872. The law of contracts differs from other branches of law in a very important respect.
So that promisee could be benefited from the promisor.
Definition of contract:
A contract is considered as an agreement between two or more persons (individuals, businesses, organizations, or government agencies) to do a particular thing instead of something which got value. To be a contract, an agreement should be enforceable by law. There has to be an agreement in a contract and the agreement must be enforceable by law. At first we have got to get what an “agreement” is. Every promise and every set of promises, forming the consideration for each other comprise an agreement. There are plants of agreements cannot be enforced through the courts of law. In a contract law consideration becomes concerned with the bargain of the contract. A contract is based on an exchange of promises. In a contract each party must be both a promisor and a promisee.1
According to Sir William Anson said that, “A contract is-an agreement enforceable at law made between two or more persons, by whom rights are acquired by one or more to acts or forbearances on the part of the other or others”.2
‘A’ who owns 2 cars x and y wishes to sell car ‘x’ for Rs. 30,000. ‘B’, an acquaintance of ‘A’ does not know that ‘A’ owns car ‘x’ also. He thinks that ‘A’ owns only car ‘y’ and is offering to sell the same for the stated price. He gives his acceptance to buy the same. There is no contract because the contracting parties have not agreed on the same thing at the same time, ‘A’ offering to sell his car ‘x’ and ‘B’ agreeing to buy car ‘y’. There is no consensus-ad-idem.
02 Sen Arun Kumar and Mitra Jitendra Kumar, Commercial law (including company law) 24th edition, The World Press Private Limited Kolkata, Para-5, page no.12
Essential Elements of a Contract: 3
An agreement will become enforceable by law if it fulfils certain conditions. These conditions might be called the Essential Elements of a Contract, are explained below.
1) Offer and Acceptance:4
There must be a lawful offer (which obeyed by law) by one party and a lawful acceptance by the other party or parties. The offer and acceptance must conform to the rules laid down in the Indian Contract Act regarding offer and acceptance as the objective “lawful” denotes.
A says to B, “Will you buy my Car for TK. 2 lac”. This is an offer. If B says, “Yes”, the offer is accepted and a contract is formed.
2) Intention to create Legal Relationship:5
There must be an intention that the agreement will result in or include legal relations. It cannot be an agreement to dine at a friend’ house indicated to create legal relations and not a contract. An agreement to buy and sell goods or an agreement to marry, are agreements intended to create legal relationship and are therefore contract.
3) Lawful Consideration:06
Subject to certain expectations, an agreement is legally enforceable only while each of the parties to it provides something to do something for nothing an agreement can usually not be enforced by law.
4) Capacity of Parties:07
To enter into an agreement, both the parties must be legally competent; on the contrary it will not be enforced by a court of law eve. If any of the parties faces minority, lunacy, idiocy, drunkenness, and similar other factors then the agreement is not enforceable by law indeed.
03 Sen Arun Kumar and Mitra Jitendra Kumar, Commercial law (including company law) 24th edition, The World Press Private Limited Kolkata, page no.13
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5) Free Consent:8
In a bid to be enforceable, an agreement must be based on the free consent of all the parties. There is absence of genuine consent, if the agreement is induced by coercion, undue influence, mistake, misrepresentation, and fraud. A person guilty of coercion, undue influence etc. cannot enforce the agreement.
A agrees to sell his Fiat Car 1983 model for TK. 2,00,000. B agrees to buy the same. There is a valid contract since A and B has consented to the same subject matter.
6) Legality of the Object:9
The object for which the agreement has been conducted into must not be illegal, immoral or opposed to public policy which is already forbidden by society or the country.
A promise to drop a prosecution which he has instituted against B for robbery and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful.
The agreement must not be vague. It has to be possible to assure main fact of the agreement as for the agreement is formed. On the contrary, it cannot be enforced.
8) Possibility of Performance:11
To be an agreement, it must be as competent as it can be performed. If a promise is to do any task which is quite impossible thing cannot be enforced.
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11 Sen Arun Kumar and Mitra Jitendra Kumar, Commercial law (including company law) 24th edition, The World Press Private Limited Kolkata, chapter 1, page no.14
9) Void Agreements:12
It is an agreement which is declared by any one of the parties or both that it would not be fulfilled and cannot be enforced by the law considered as void agreement. Under Indian Contract Act there are five categories of agreements which are expressly declared to be void. They are Agreement in restraint to marriage, of trade, of proceedings, Agreements having uncertain meaning and Wagering agreement.
10) Writing, Registration and Legal Formalities:13
Any in couple of situation, an oral contract is valid except in those cases where writing and/or registration is required by some statute as must. There are few problems in terms of an oral contract are to prove of its existence. Writing is required in cases of lease, gift, sale and mortgage of immovable property, negotiable instruments; memorandum and articles of association of a company etc. Sometimes there are difficulties faced by the parties how to make this contract. That is why important agreements should be made in writing although in cases where writing is not compulsory matter.
12 Sen Arun Kumar and Mitra Jitendra Kumar, Commercial law (including company law) 24th edition, The World Press Private Limited Kolkata, chapter 1, page no.14
Definition of consideration: 14
Consideration for a particular promise consists of some right, interest, profit or benefit to the promisor as a result of some forbearance, detriment, loss or responsibility that has been undertaken by the promise. The consideration must be executed, but not past. Consideration can be anything of value, which each party into a legally-binding contract has to agree to exchange if the contract is valid. It does not mean a binding contract If only one party offers consideration. In its traditional form, consideration is expressed as the requirement that in order for parties to be able to enforce a promise, they must have given something for it: Something must be given or promised in exchange or return for the promise.
Currie v. Misa- Consideration was defined as “some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility give, suffered or undertaken by the other”.15
Saju promises not to file a suit against Noyon if Noyon pays him TK. 2 lac by a fixed date. The forbearance of Saju is the consideration for Noyon’s Payment.
15 Sen Arun Kumar and Mitra Jitendra Kumar, Commercial law (including company law) 24th edition, The World Press Private Limited Kolkata, chapter 4, 2nd Para, page no.3
Types of Consideration
There are three types of Considerations available in Business Law:
Past consideration: 15
Before the fixed date as was fixed, if any one party agree with the consideration then it would be called past consideration, because the consideration happens before the date.
Present or executed consideration: 16
If any consideration is obeyed by any one party in the present time or the happenings time it is known as present consideration or executed consideration, because it does not deal to the past and the future consideration.
Future or Executory consideration: 17
When a promise is finalized for a particular date of the future to pay money for the goods are delivered. As here the consideration of the both party about the future date it is called future or executory consideration.
Rules of Consideration
As well as the determining whether consideration is valid on the grounds of being executed or executory, the court will also seek to ensure that:
1) Consideration must move at the desire of the promisor:18
If any task or act is done by a promisee in the interest of promisor but it was not asked by the promisor to promisee. Meanwhile, the few loses can be carried by the promisee at desire of the promisor. So it is not under the consideration.
2) Consideration must be real:19
An act or promise which is going to be finalized should have a value to the law ornin the society and it should not be sham or illusory. An impossible thing or the goods which exist in the real world cannot be a contract to be a good consideration. It has to be real or possible thing that happen.
3) Public Duty:20
If a promise which is made to be promisee by promisor who is already under the responsibility of the promisor or bound to do the thing cannot be in the contract. So it will not support any consideration. For the act of the promisor has done is the thing as his duty.so promisor will not get any supporter benefit for his duty.
4) Promise to a stranger to perform an existing contract:21
When a promise is made to a stranger by promisor for a existing thing to go through can be enforced to promisor. When stranger or promisee is going through the existing contract as made.
5) Consideration need not be adequate:22
When a promise is made between promisor and promisee for a purpose in where promisor will support a consideration to promisee with the inadequate to the law. Which is freely given will not be enforced by the law.
6) The consideration must not be illegal, immoral or opposed to public policy:23
To be an agreement or contract it must not be illegal, immoral or completely opposed to the society and law. An agreement or contract will not be enforced by the law, if the consideration of the agreement is illegal to the eyes of the law or the society and which cannot be obeyed in the society.
7) Consideration may be past, present or future:24
Consideration might happen in the three form of past, present and future. It would depend on the act of the happening whether it happened or is happening or is going to happen.
8) Consideration may move from the promisee or any other person:25
Here a promise made by promisor to promisee to provide a benefit to third person in the absence of promisee. If promisors deny giving the benefit to the third person or stranger then it could be enforced by the third person in the help of law.
“No consideration No contract”
To be a valid contract, consideration is most essential thing. “A promise without consideration is a gift; one made for a consideration is a bargain-Salmond and Windfield, law of contracts.26
A promise without consideration cannot create a legal obligation. In Roman law it is called a Nudum Pactum of an agreement without consideration and it could be enforce. In English law there must be a consideration to support simple contracts but in the real view contracts do not require any consideration. Under Indian law a rule,essential to the valid contract compromise the presence of consideration.27
Case: Mr. Kodom ali is a retailor at the new market situated in Dhaka who sell electronic parts. He had to make a plan to purchase goods from the whole seller. But the whole sells rate of the product in Bangladesh was more compared to international market. So he determines to import the products from China because of cheap price. That is why he had to contract with a whole sellerr Mr. Chung Fung who lives in China. After negotiating about the price of products Mr. Kodom Ali told, Mr. Chung Fung to deliver “two hundred Calculators and four hundred Watches” which price is Tk. 800000 and before the delivery Mr. Kodom Ali paid half of the total and made a contract to pay the left portion after the delivery. After the contract Mr. Chung Fung sent “two hundred Watches and four hundred Calculators”.After getting the product Mr. Kodom Ali got shocked with the product as he got because it was the different products for he asked to the Chung Fung to provide. So, Mr. Chung Fung asked Mr. Kodom Ali to pay the money as he is supposed to. But Mr. Kodom Ali declined to pay any money at all since Mr. Chung Fung sent wrong products as was not ordered by Mr. Kodom Ali. Mr. Chung Fung confessed his mistake and said to send it again. But Mr. Kodom Ali was not willing to continue the business with Chung Fung. That is why Mr. Kodom Ali could not except it and asked Mr. Chung Fung to return his money as he paid before the delivery. Mr. Kodom Ali did not agree for any consideration and file a case against Mr. Chung Fung.
26 Sen Arun Kumar and Mitra Jitendra Kumar, Commercial law (including company law) 24th edition, The World Press Private Limited Kolkata, chapter 4, 1st Para, page no.41
27 Sen Arun Kumar and Mitra Jitendra Kumar, Commercial law (including company law) 24th edition, The World Press Private Limited Kolkata, chapter 4, 2nd Para, page no.41
Mr. Kodom Ali did not agree for a consideration to Mr. Chung Fung for his mistake and file a case to enforce him to give back his money. So, this is not being a contract anymore because as we know that without consideration a contract cannot be fulfill.
Consideration being one of the essential elements of a valid contract the general rule is that “an agreement made without consideration is void. But there are a few exceptions to the rule, where an agreement without consideration will be perfectly valid and binding. These exceptions are as follows:
1. Agreement made on account of natural love and affection:28
Sometime a contract without any consideration can happen which is valid and enforceable by the law as well, if the contract is written by the parties who are in the relation to each other such as loved one or blood related.
2. Agreement to voluntary service:29
There can be a valid contract without any consideration. If a person has done something voluntarily in the fever of a promisor for which promisor is supposed to do something from him but promisor did not ask him for it or pledge to give something to the promisee.
3. Agreement to pay a time-barred debt:30
When a debtor made a promise in written document to pay back to creditor in certain time period of his due then it is barred by the law of limitation can be enforced by the law.
4. Completed gift:31
Ifas agift anyone gives something to others to make them happy or for the charity as a donor does for the done there is no need of consideration except it the contract is valid.
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Last but not least, from the above we can get the idea about a contract which has to have a consideration but without the consideration it is not possible to be a contract. In every contract there are two parties, both should have consideration to each other. So that, the contract can eventually happens successfully. If one party without consideration enforced other party by the law it would be proved as void contract. There is a word that “All contracts are agreement but all agreements are not be a contract.
Ø Sen Arun Kumar and Mitra Jitendra Kumar, Commercial law (including company law) 24th edition, The World Press Private Limited Kolkata.
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