It is necessary that the consideration in a contract must be in monetary forms.Explain.

Definition of contract

According to contract act 1872 “contract in an agreement enforceable by law”. According to Salmond “A contract is an agreement creating and defining obligations between two parties”

A contract is an agreement entered into voluntarily by two parties or more with the intention of creating a legal obligation, which may have elements in writing, though contracts can be made orally. The remedy for breach of contract can be “damages” or compensation of money. In equity, the remedy can be specific performance of the contract or an injunction. Both of these remedies award the party at loss the “benefit of the bargain” or expectation damages, which are greater than mere reliance damages, as in promissory estoppel. The parties may be natural persons or juristic persons. A contract is a legally enforceable promise or undertaking that something will or will not occur. The word promise can be used as a legal synonym for contract.^[1], although care is required as a promise may not have the full standing of a contract, as when it is an agreement without consideration.

Contract law varies greatly from one jurisdiction to another, including differences in common law compared to civil law, the impact of received law, particularly from England in common law countries, and of law codified in regional legislation. Regarding Australian Contract Law for example, there are 40 relevant acts which impact on the interpretation of contract at the Commonwealth (Federal / national) level, and an additional 26 acts at the level of the state of NSW. In addition there are 6 international instruments or conventions which are applicable for international dealings, such as the United Nations Convention on Contracts for the International Sale of Goods (Vienna Sales Convention).

For an example, when Mr. X promises to sell his house for tk. 10000 to Mr. Y.an obligation is created on the part of Mr. X to sell the house and also on the part of Mr. Y to buy the house at tk.10000 or settled price. This short of agreement is enforceable by law and it is called contract.[1]

Definition of Consideration

• Consideration is an essential element in a contract. Subject to certain exceptions, an agreement is not enforceable unless each party to the agreement gets something: This “something” is called  consideration: It is used in the sense of quid -pro quo i.e. something in return.

• In the English case, Currie v. Misa, consideration was defined as, “some right, interest’ profit or benefit accruing to one party, or some ^–forbearance, detriment, loss “or responsibility given; suffered or undertaken by the other.”

• Section 2(d) of the Contract Act defines consideration ‘as follows : “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 to abstain from, doing, something,  such act or abstinence or promise is called a consideration for the promise.”

Examples

(i) P agrees to sell a house to Q for Rs. 80,000. For P s promise, the V consideration is Rs: 80;000. For Q’s promise, ‘the’ consideration, is the house:

(ii) H engages Q as a clerk in his office for Rs 1000 a month. The monthly wage is the consideration received by Q ; the services of constitute the ‘Consideration received by H.

(iii) X promises not tofile a suit against if Y pays him Rs. 100 by a fixed date. The -forbearance of  X is the consideration for Y’s Payment.[2]

ESSENTIAL ELEMENTS OF A VALID CONTRACT

All agreements are not contracts. Only that agreements which is enforceable at law is a contract. An agreement which is enforceable at law cannot be contract. Thus, the term agreement is more wider in scope than contract. All Contracts are agreements  but all agreements are not contracts.

An agreement, to be enforceable by law, must posses the essential elements of a valid contract as contained in section 10 of the Indian Contract Act. According to Section 10, “All agreements are contract if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void.” As the details of these essentials form the subject-matter of our subsequent chapters, it is proposed to dismiss them in brief here.

The following are the essential elements of a valid contract :

1. Offer and Acceptance.  In order to create a valid contract, there must be a ‘lawful offer’ by one party and ‘lawful acceptance’ of the same by the other party.

2. Intention to Create Legal Relationship.  In case, there is no such intention on the part of parties, there is no contract. Agreements of social or domestic nature do not contemplate legal relations.
Case :- Balfour vs. Balfour(1919)

3.Lawful Consideration. Consideration has been defined in various ways. According to Blackstone,”Consideration is recompense given by the party contracting to another.” In other words of Pollock, “Consideration is the price for which the promise of the another is brought.”
consideration is known as quid pro-quo or something in return.

4. Capacity of parties. The parties to an agreement must be competent t contract. If either of the parties does not have the capacity to contract, the contract is not valid.
According the following persons are incompetent to contract.
(a) Miners,                 (b) Persons of unsound mind, and
(c) persons disqualified by law to which they are subject.

5. Free Consent. ‘Consent’ means the parties must have agreed upon the same thing in the same sense.
According to Section 14, Consent is said to be free when it is not caused by-

(1) Coercion, or                   (2) Undue influence, or          (3) Fraud, or
(4) Mis-representation, or         (5) Mistake.
An agreement should be made by the free consent of the parties.

6. Lawful Object. The object of an agreement must be valid. Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house, the object of the contract is to run a gambling house.

7. Certainty of Meaning. According to Section 29,”Agreement the meaning of which is not Certain or capable of being made certain are void.”

8. Possibility of Performance. If the act is impossible in itself, physically or legally, if cannot be enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable.

9. Not Declared to be void or Illegal. The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. Agreements mentioned in Section 24 to 30 of the Act have been expressly declared to be void for example agreements in restraint of trade, marriage, legal proceedings etc.

10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those cases where writing, registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.

All the elements mentioned above must be in order to make a valid contract. If any one of them is absent the agreement does not become a contract.[3]

Types of Consideration

consideration may be classified into three t*s, as follows :

1.past consideration :

• When the consideration of one party was given–before the date of the promise, it is said to be past. Suppose that X ^–does` tine work for Yin *the month<sup>–</sup> of January (without<sub>.</sub> expecting any payment). In February <sub>..</sub>Ypromisesto pay Mm some money.-:The consideration of X is pt”‘ consideration.
• Under English law past consideration is no consideration and a contract based on past consideration is void.
• But under Indian law a past consideration is good -consideration because the definition of consideration in Section 2 (d) includes the words ` “has done or abstained from doing”.

2.present consideration :

• Consideration which moves si­multaneously with the promise is called Present Consideration or Executed Consideration.
• B buys an article from a shop and pays the price immediately. The consideration moving from B is present or executed consideration.

3.future consideration :

• When the consideration is to move at a future date, it is called Future Consideration or Executor Consideration.
• In a contract the consideration may be executor on both sides. A promise may support a promise. Thus a promise to pay money at a future date for goods to be delivered at a future date is a valid contract.[4]

Rules (or the Essential Factors) of Consideration

 The following rules may be laid down’ regarding consideration

1.desire (or request) of the promisor is essential :

The act done or lass suffered by the promisee must have been done or suffered at the desire of the promisor. An act done without any request is a voluntary act and does not come within the definition of consideration.

Examples

(i)P sees Q’s house on fire and helps in extinguishing it. Q did not ask for 6i: help. P cannot demand payment for’ his service

(ii) The Collector of a district asked D to spend some money on the improvement of a market and he did so. D cannot demand payment from the shopkeepers using the market for having improved the market. Durga Prasad v. Baldeo.

(iii) X promised to pay. Y some money by a letter. Y ‘showed the , letter to Z who thereupon consented to the marriage of her daughter with Y. Z cannot force X to pay the money to Y because them is no connection between the marriage and the promise to pay. Dashwood v. Jermyn.

2. The consideration must be real :

• The consideration must have some value in the eye of taw.
• It must not be sham or illusory.
• The impossible’ acts and illusory or non-existing goods cannot support a contract. Therefore, real consideration comes from good consideration. (See p. 39)
• A contribution to charity is without consideration. Therefore,     it is not real consideration.

Examples :

(i) illusory consideration : G promises for no consideration, to give H Rs 1,000. This is a void agreement. No consideration, no contract.

(ii) Impossible act : X promises to supply Y one total of gold brought from the sun. The consideration is sham and illusory and there is no contract.

(iii) No consideration : V owed 1208 to E who told V that if the money was not paid by 7th July he would file a bankruptcy petition against V Thereupon V promised to pay the money before 12 o’clock on 8th July and E agreed not to file the petition before that time. Held, there was no consideration for E’s promise. ‘Vanburgen v. St. Edmunds Properties Ltd

Example (iii) above illustrates the rule that a promise to do what one is already bound to do (whether under the law or under an existing contract) confers no additional benefit and is of no value. The consideration is unreal. A promise to pay an existing debt punctually if the creditor gives a discount is without consideration and the discount cannot be enforced.

3. public duty :

• “Where the promise is already under an existing public duty, an express promise to perform, or perfor­mance of, that duty will not amount to consideration.
• There will be no detriment to the promisee or benefit to the promisor over and above their existing rights and liabilities

Example : A contract to pay money to a witness who has received a subpoena to appear at a trial. Collins v. Godefroy

4. Promise to a stranger :

• But a promise made to a stranger to perform an existing contract, is enforceable because the promisor undertakes a new obligation upon himself -which can be enforced by the stranger.
• X wrote to ‘his nephew B, promising to pay him an annuity of £150 in consideration of his marrying C B was already engaged to marry C Held, the fulfillment of B’s contract with C was consideration to support X’s promise to pay the annuity. Shadwell v. Shadwell.;

5. Consideration need not be adequate :

• Section 25 (expla­nation 2) provides that, “An agreement to which the consent of the party is freely given is not void merely because the consideration is inadequate ; but the inadequacy of the consid­eration may be taken into account by ‘the court in determining the question whether the consent of the promisor was freely given.”
• The reason behind this rule is that it is impossible for the court to decide what is adequate consideration. The parties to the contract must decide the quantum of consideration and, if consent was freely given, the court will enforce the agreement.
• If the consideration is inadequate, the Court may hold that consent of the promisor was not freely given and the agreement may become void.
• “Consideration” means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor `to the transferee. Similarly, when the word `Consideration’ is qualified by the word `adequate’, it makes consideration stronger so as to make it sufficient and valuable having regard to the facts, circumstances and necessities of the case. Sonia Bhatia v. State of U. P. and others.

Examples :

(i) P agrees to self a horse worth Rs 1000 for Rs. 10. P’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

(ii) D, promises to B to sell land in Calcutta at Rs. 10 per cottah. The agreement is valid provided the consent of D was freely given.

(iii) S files a suit against B for Rs. 5,000. Subsequently he agrees to withdraw the suit on payment of Rs. 3,000. The agreement is a contract. The withdrawal of a suit is valuable consideration so as to support the promise to pay money.

6. The consideration must not be illegal, immoral, or opposed to public policy :

• if either the consideration of the object of the agreement is illegal, the agreement cannot be enforced.
• The same principle applies if the consideration is immoral or opposed to public policy. [See, Section 23 and ch. S for examples of such agreements.

7. The consideration may be present, past, or future :

This follows from the definition of consideration given in the Act.

8. Consideration may move from the promisee or from any other person :

• A person granted some properties to his wife C directing her at the same time to pay an annual allowance to his brother R C also entered into an agreement with R promising to pay the allowance to R.
• This agreement can, be enforced by R even though no part of the consideration received by C moved from R Chinnaya v. Ramaya.
• A stranger to the consideration can sue to enforce the contract, though a stranger to the contract cannot. In England, a stranger to the consideration .cannot sue on the contract.[5]

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 dispositive issue is presence of consideration, not adequacy of the consideration. The values between consideration 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. 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. 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”.

However, some courts in the United States may take issue with nominal consideration, or consideration with virtually no value. 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. However, this is a minority position.

Examples of No contract No consideration

In contract law, consideration refers as the prices paid by one party for the promise of the other.[6]

Generally, for a contract to be valid there must be an exchange of goods and/or services.[7]

For consideration to be valid[8], the exchanged must be of some legal value. However, a court will generally not inquire to search information to consideration is sufficient.

If I decide to sell my house for tk. 2000, and after the sell, realize I have made a mistake, then I can’t go to court and argue that the sale is invalid because of no consideration. The fact that tk.2000 is an absolutely low price for any house is irrelevant, as long as i agreed to the sale freely.
However, if there an agreement without consideration, the agreement is not a valid contract and can therefore not be enforced by law.

For example, if i promise to give my car to a friend for free, with no exchange and put the agreement in writing, accompanied by every possible formality, i can change my mind at any time. My friend cannot sue me for breach of contract[9], because no contract existed in the first place, as it was unsupported by consideration (my friend did not give or promise me anything in return for my car).

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. 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.

Here, if there is a breach of a promise supported by consideration, the victim of the breach has suffered a loss, especially if they have already performed their end of the agreement, and are now getting nothing in return.

   Exception of consideration

The general rule of law is “no consideration, no contract”, i.e., in the absence of consideration there will be no contract. However, the law recognizes the following exceptions to the rule of consideration. The exceptions have been given in Sec. 25 of the Contract Act.[10]

• A promise made out of material love and affection

An agreement expressed in writing and registered under the law 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, is enforceable without consideration[11].

Example-1:

Mamun agreed to pay tk. 5000 to his younger brother korim out of natural love. This promise is in writing and registered. If mamun refuses to pay tk. 5,000 to his younger brother, the latter can enforce the promise in the Court and mamun cannot refuse payment on the ground of absence of consideration.

It should be noted that nearness of relation does not necessarily mean that the agreement has been made out of natural love.

• A promise made to compensate for voluntary services

A promise to compensate, wholly or in part, a person who has voluntarily done something for the promisor, or something which the promisor was legally compellable to do, is enforceable without consideration.

This rule, in fact, recognizes past consideration which was given without request or desire of the promisor.

Example:

A found B’s purse and gave it to him. B promised to pay a reward of tk.50 to A. Later on, B cannot refuse payment on the ground that there was no consideration.

• Written promise to pay a time-barred debt

A promise made in writing to pay a debt barred by the Law of Limitation is enforceable even without consideration.

Example:

A owes B tk. 1,000 but the debt is barred by the Limitation Act. A signs a written promises to pay B the sum of tk. 1,000. This is a valid contract.

• Gift, etc. actually made

Explanation I to Section. 25 provide that any gift actually made is valid.

Example:

Kiron gave a watch as a gift to Badol on his birthday. Later on, kiron cannot demand his watch (gift) back on the ground that there was no consideration (as Kiron did not get anything in return for the watch).[12]

 Conclusion

 It is left to the parties to determine whether or not the consideration is adequate; only the parties can judge whether or not it is a good bargain. The law only requires that there be sufficient consideration; something of value must be given. The consideration cannot be something given or promised in the past. To be valid, the consideration must be a new promise or some fresh benefit exchanged for the offer. This is subject to the courts refusing to enforce an alleged contract where the consideration is as inadequate as to raise suspicions of fraud or to make the contract unconscionable.

References

            Book “Commercial Law”

            Book “Principles of Contract” (11th edn) By Pollock,

Book “Law of contract and specific relief” By Avtar Singh.7^th Edition.

JH Baker, ‘Origins of the Doctrine of Consideration 1535-1585’ in JH Baker, The Legal Profession and the Common Law: Historical Essays (London 1986)

 English contract law case Shadwell v Shadwell (1860) 9 CB (N.S.) 159

 www.lawyersnjurists.com/resource/course…/chapter-3-consideration

www.lawyersnjurists.com/resource/articles-and-assignment

www.lawyersnjurists.com/course-materials/business-law/

www.preservearticles.com

Merriam-webster.com

Legal dictionary. (n.d.). Retrieved July 14, 2012, from dictionary.law.com/

en.wikipedia.org/wiki/See