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Barring a few exceptions, a contract without consideration or object is termed a ‘gamble’ or ‘a game of chance’, and is void – illustrate & explain.
Introduction
The consideration creates a legal obligation in a contract. Because the consideration is not a part of contract without it the contract cannot perform. 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 when an agreement without consideration is a valid contract<href=”#_ftn1″ name=”_ftnref1″ title=””>[1].
According to section 10, “All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and not here by expressly declared to be void”
According to section 2(a) of Indian contract act, 1872, defines offer as “when one person
Signified to another from doing anything with a view to obtaining the assent of that other to, such act (or) abstinence, he has said to make a proposal”<href=”#_ftn2″ name=”_ftnref2″ title=””>[2].
Contract Define:
A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law. It is where an unqualified
Offer meets a qualified acceptance and the parties reach Consensus in Idem. The parties must have the necessary capacity to contract and the contract must not be trifling, indeterminate, impossible or illegal.
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. So the contact is the exchange of the promises between two or more parties<href=”#_ftn3″ name=”_ftnref3″ title=””>[3].
According to Salmond a contract is
n “an agreement creating and defining obligations between the parties”
According to Sir William Anson,
n “A contract is-an agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others.“
Consideration Define
In everyday language, a consideration is ‘something for something’. If a person does, or promises to do something he expects (and is promised) something in return—which is the quid pro que or compensation—without which the promise is not valid. This ‘something’ is called consideration. In other words ‘consideration is the price that is paid for buying somebody’s promise’. When one person makes a promise to another he does so to receive or gain something which the other person has or which can be made available by him to the person making the promise. A consideration can be a profit or loss, a benefit or damage, or an obligation, but a contract without consideration is not enforceable by law. If A promises to give a gift worth Rs. 10,000 to B. and expects nothing in return, it is not a contract. If A later changes his mind, B cannot sue him for breach of promise<href=”#_ftn4″ name=”_ftnref4″ title=””>[4].
According to Blackstone “Consideration is the recompense given by the party contracting to the other” Pollock defines it “as the price for which the promise of the other is bought, and promise thus given for value is enforceable”.
According to Section 2(d) of the Indian Contract Act -When at the desire of the promisor ; the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something. Such act or abstinence or promise is called o consideration for the promise<href=”#_ftn5″ name=”_ftnref5″ title=””>[5].
Elements of consideration
As per its definition in Section 2(c1) a consideration has the following essential elements<href=”#_ftn6″ name=”_ftnref6″ title=””>[6]:
(1) Consideration must be the result of the promisor’s desire:
Any action, or abstinence from action, must be at the desire or request of the promisor. If such action or abstinence thereof, is at the instance of a third party, or is done without the consent or desire of the promisor, then it is not a consideration. In other words, if a person does not need a thing or service which is provided to him, he does not become liable to pay for it if it is provided without his express demand. Hence, a promises desire or instruction is a prerequisite for consideration, if A sells his car which is valued at Rs. 100,000. to B for Rs. 50.000, it does not make the transaction illegal because the contract involves a consideration that has been defined and is at the desire of the promisor.
(2) Consideration may move from the promisee or any other person:
It is not necessary that the consideration is from the promisee; it may come from any other person In this connection, the law recognizes the Doctrine of Constructive Consideration which stipulates that even if the consideration is not from the promisee, the prortsee must be a party to the consideration. In the case of Chinayya vs. Ramayya, a father left his entire property to his daughter under the condition that she will pay a certain amount of money annually to her uncle (i.e. father’s younger brother). The daughter promised to pay the agreed amount annually, but stopped doing it after a time on the plea that no consideration moved from her uncle to herself. but the plea was rejected by the court. It was held that an indirect consideration had moved from her uncle. The law stipulates that ‘a stranger to consideration can sue but a stranger to a contract cannot’.
(3) Consideration may be a promise to do or abstain from doing something:
It can be for a negative or a positive act. In a positive act, the promisee does something at the express wish of the promisor whereas, in a negative act, the promisee abstains from or postpones doing something at the wish of the promisor For example, a makes a contract to sell his house for Rs. 10 lakh to B. In this case, Rs. 10 lakh is a positive consideration for A, on the other hand. if A has given a loan of Rs. 10 lakh to B to be paid back by a certain date, and is thinking of filing a suit because he has not received repayment, and is approached by B with a request not to file the suit and accept Rs. 1 lakh as interest for one year, after which he will repay the loan, it will be a negative act which is a consideration for A for not filing the suit.
(4) Consideration may be past, present or future:
The Indian Contract Act recognizes past, present and future considerations whereas the English law does not recognize a past consideration. These are briefly discussed in what follows.
Past Consideration:
A consideration by a parry for a present promise was given in the past i.e. before the date of the promise. It is said to be a past consideration. It implies consideration for having done. or having abstained from doing, something in the past. For example A renders a SinVICO to B that the latter wants. After a week, B promises to pay Rs. 1.000 to A for the service. It is a past consideration and A is entitled to the promised amount The English law neither does nor recognize a past consideration.
Present Consideration:
A consideration to do or abstain from doing something given simultaneously with the promise is a present consideration. A cash sale, for example, is a present consideration.
Future Consideration:
When the consideration from one party to the other is to pass subsequent to the act of doing or abstaining from doing something, it is called a future consideration, For example. if A promises to sell 100 quintals of rice from the coming cop at Rs. 800 per quintal to B. and B promises to make the payment for the same within a week of its receipt, it is a case of future consideration<href=”#_ftn7″ name=”_ftnref7″ title=””>[7].
(5) Consideration must be legal, real and certain: A contract wherein the consideration is illegal, unreal or uncertain is void; the parties to such contract cannot take the recourse of law to enforce their rights. For example if A promises to pay Rs. 10,000 to B to beat up C against whom he has a grudge. it would be an illegal consideration for B to accept because if he does beat up C and A refuses to pay the amount, he cannot take the recourse of law to get it. If X promises to give an amount of money to V. and Y promises to pray for X’s long life, it would be a consideration which is not real for X. Similarly. if A promises to sell his car to B for whatever B wants to pay for it. it would be an uncertain consideration for B, and the contract would be void.
(6) Consideration need not be adequate:
As said earlier, consideration is ‘something in return’. The ‘something in return need not necessarily be equal to ‘something given’. The law provides that a contract should be supported by a consideration. So long there is a consideration. the law is not concerned about its being adequate, as per Section 25, but a contract must have a consideration. An agreement does not become void because of the consideration not being adequate. If A decides to sell his car valued at Rs. 100.000 for Rs. 10.000 to B. it is his ‘free consent’ and the agreement will be deemed to be a contract<href=”#_ftn8″ name=”_ftnref8″ title=””>[8].
Agreement without Consideration—Exceptions
For contract to be legally valid it must have a consideration and an object, otherwise the contract is a wager or a gamble and is void from the legal viewpoint. Consideration is a term which means ‘something in return’ or quid pro quo if there is no compensation in return for a promise. There is no legal obligation in the contract. For example, A promises to present a watch to B on his birthday. If A does not does that B Cannot sue because there is no consideration for A for his promise made to B. But if A makes an offer to sell his watch to B for
Fundamental Principle of Consideration
Rs. 200 and B accept the offer. Rs. 200 is the consideration for A and watch is the consideration for B.
According to Section 2(c) of the Indian Contract Act, if at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or undertakes to do or abstain from doing, something. Then such ‘doing or ‘abstaining from doing becomes the consideration for the promise<href=”#_ftn9″ name=”_ftnref9″ title=””>[9].
A contract is valid only when it is based on a consideration. If there is no legal obligation in a contract which can be enforced by law, mere promise and its acceptance does not constitute a contract. For a lawful obligation between the parties to a contract to exist, consideration becomes an essential element of a contract. If there is no consideration, there is no contract, as Satmond and Winfield have said. “A promise without consideration is a gift, but o promise made for o consideration is a bargain.” It is a legal fact<href=”#_ftn10″ name=”_ftnref10″ title=””>[10].
Exceptions to the Rule
It has been mentioned earlier that a contract is void if there is no consideration for the parties. But Section 25 of the Act follows some exceptions to this vital law of a contract. A contract can be valid even without consideration in the following situations:
(I) when the promise is made out of natural love and affection:
According to Section 25, “An agreement mode without consideration is void unless it is expressed in writing, and registered under the low for the time being in force for the registration of documents and is made on account of natural love and affection between parties standing in a near relation to each other.” It follows, therefore, that the following four elements are essential for such agreement:
(a) The agreement must be written.
(b) The agreement must be registered .under the prevailing law.
(c) The parties to the agreement must be intimately related. And
(d) There must be love and affection between the parties.
For example: A promises to give Rs. 2.00.000 to his son B because of his love and affection for the later A makes the promise in writing and registers the same. The promise, in this case, is a valid contract because of the very near relationship between the two. An important point to be noted is that Section 25 not only stipulates a close relationship between the parties, it also specifies that such relationship must be of love and affection<href=”#_ftn11″ name=”_ftnref11″ title=””>[11].
(2) When the promise is made to compensate for voluntary service:
According to Section 25(2) a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or has perfotmed an act for which the promisor was legally bound is a valid contract even without consideration. But it is essential in this case that the act must have been voluntary, and done for the promisor who was in existence when the act was done, and mu-St not have been done without expecting any consideration. There can be two instances of such a situation: (a) when there is a promise to partially or completely indemnify a person who has voluntanly done something for the promisor.
For example, if A finds B’s purse and gives it to him, and B promises to pay Rs. 100 to A. it is a valid contract because B has voluntarily done something for A even though there was no consideration. (b) When there is a promise to partially or completely indemnify a person who has voluntarily done something for which the promisor was legally bound. For example, if A voluntarily supports as infant son, and B promises to compensate A for the expense Incurred in doing so, it would be a valid contract by law<href=”#_ftn12″ name=”_ftnref12″ title=””>[12].
(3) When the promise is made to pay a time-barred debt:
According to Section 25(3). a promise by a debtor to pay a time barred debt is enforceable provided it is made in writing and is signed by the debtor or his agent generally or specially authorized on his behalf. For example, A owes Rs. 1.00.000 to B. but the debt is time barred under the Law of Limitation. Even so if A gives a written promise to B to pay Rs. 50,000, it Is deemed a valid contract<href=”#_ftn13″ name=”_ftnref13″ title=””>[13].
(4) When the contract is of agency:
According to Section 185 of the Indian Contract Act, no consideration is necessary in a contract of agency. A person who works as an agent for another is not legally entitled to a consideration unless there is an agreement to such effect between the concerned parties<href=”#_ftn14″ name=”_ftnref14″ title=””>[14].
(5) When the contract Is for gratuitous, bailment:
A bailment arises when one person (the bailor) transfers his possession to another person (the bailee) on the condition that the bailee will restore such possession to the bailor after the purpose for which the transfer was made is accomplished. No consideration is necessary when such bailment is gratuitous, like when A lends his furniture to 13 on the occasion of the marriage of the latter’s daughter.
(6) When the promise is for a gift or donation:
Such a promise does not entail a consideration. Therefore, a promisor of a gift or donation is not liable to keep his promise and cannot be enforced to do so. For example A makes a verbal promise to donate Rs. 1,000 towards the construction of a room in a mosque. And later refuses to give the amount. Here. A is not lawfully bound to do it but if the promisee. On the strength of the promise makes a commitment that can result in a loss to the promisee if the promisor does not fulfill his promise, the promisee can lawfully claim such damage<href=”#_ftn15″ name=”_ftnref15″ title=””>[15].
Conclusion
Another important element of a valid contract is lawful consideration or object. Barring a few exceptions, a contract without consideration or object is termed a ‘gamble’ or ‘a game of chance’, and is void. ‘Consideration and ‘object’ represent the same thing from the point of view of the parties to the contract. A contract is an agreement between two parties, and what is an object for one party is the consideration for the other<href=”#_ftn16″ name=”_ftnref16″ title=””>[16].
References
Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7.
Balachandran V, Thothadri S, (2009) Business Law, (2nd ed.), New Delhi, Tata McGraw-Hill, chapter 3, available at <href=”#v=onepage&q&f=false”>http://books.google.com.bd/books?id=1_4OmkJYtMYC&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false,
Accessed on 05.07.12.
Adamson Jhon E, (2010) Business Law, (2nd ed.), Canada, Nelson Education Ltd, chapter 3, available at <href=”#v=onepage&q&f=false”>http://books.google.com.bd/books?id=36WQ1L5esUcC&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false
Accessed on 09.07.1
“No consideration,No contract” Explain with exception, available at
http://www.allinterview.com/showanswers/76627.html
Accessed on 013.07.12
<href=”#_ftnref1″ name=”_ftn1″ title=””>[1] See: Indian Contract act sec-25; contract terms Act1977. same thing in precise terms and also gave some exception.
<href=”#_ftnref2″ name=”_ftn2″ title=””>[2] See: 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)
<href=”#_ftnref3″ name=”_ftn3″ title=””>[3] See: Indian Contract act sec-25; contract terms Act1977. same thing in precise terms and also gave some exception.
<href=”#_ftnref4″ name=”_ftn4″ title=””>[4] See:Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7 pg(62)
<href=”#_ftnref5″ name=”_ftn5″ title=””>[5] See: Indian Contract act sec-25; contract terms Act1977. same thing in precise terms and also gave some exception.
<href=”#_ftnref6″ name=”_ftn6″ title=””>[6] See:Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7 pg(63,64)
<href=”#_ftnref7″ name=”_ftn7″ title=””>[7] See:Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7 pg(63,64)
<href=”#_ftnref8″ name=”_ftn8″ title=””>[8] See:Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7 pg(63,64)
<href=”#_ftnref9″ name=”_ftn9″ title=””>[9] See:Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7 pg(64,65)
<href=”#_ftnref10″ name=”_ftn10″ title=””>[10] See:Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7 pg(64,65)
<href=”#_ftnref11″ name=”_ftn11″ title=””>[11] See:Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7 pg(65-67)
<href=”#_ftnref12″ name=”_ftn12″ title=””>[12] See:Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7 pg(65-67)
<href=”#_ftnref13″ name=”_ftn13″ title=””>[13] See:Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7 pg(65-67)
<href=”#_ftnref14″ name=”_ftn14″ title=””>[14] See: 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)
<href=”#_ftnref15″ name=”_ftn15″ title=””>[15] See: 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)
<href=”#_ftnref16″ name=”_ftn16″ title=””>[16] See:Sharma Dr.Ashok (2010-2011) Business Law, (Last ed.), India: V.K. Enterprises, chapter 7 pg(62)