Consideration is one of the most important elements of a valid contract.Explain and illustrate

Introduction

An agreement enforceable by law is a contract. It signifies that in a contract there must be an agreement and it must be enforceable by Law. According to Salmond ‘A contract is an agreement creating and defining obligation between the parties is a contract.

All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object.[1]Some contract essential elements are Offer and acceptance, Intention to create legal relation, Lawful consideration, Lawful object, Capacity to contract, Free consent, Certainty, Possibility of performance, Written and Registered. So that Consideration is one of the most important elements of a valid contract.

Consideration may be defined as the price by one party for the promise of the other. An agreement is legally enforceable only when each of the parties is to give something and get something. This something given or obtained is the price for the promise and is called consideration. Only those considerations are valid which are lawful. Example- Mr. X agrees to sell his car to Mr. Y for 50,000 tk. Here for Mr. X promise to sell the car, the consideration is  50,000 tk. and for Mr. Y  promise to buy the car, the consideration is the car which he shall receive on performance of this contract. This is a valid consideration. Another example Mr. X said that if you will be murdered Mr. Z then I give you 50000 tk. It is not valid contract. This agreement consideration term is present but it not lawful  so it is a void contract.

So that which consideration element is important that’s enforceable by law and this consideration is integral part of the contract.

Meaning of valuable consideration

Consideration has been defined as the price for which a promise is bought.[2] Consideration itself means ‘some right, interest, profit or benefit accruing to one party or some tolerance, detriment, loss of responsibility given, suffered or undertaken by the other. [3]

Consideration therefore means the element of exchange in a bargain, and in order to satisfy the requirements of English law it must be valuable consideration, i.e. something  which is capable of being valued in terms of  money or money’s worth, however slight. It may take the form of money, goods, services, a promise to marry, a promise to forbear from suing the promise, etc.

Importance of consideration

The courts will not enforce a simple contract unless it is supported by valuable consideration, which is therefore an essential element in most contracts.

Consideration is considered to be an important 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.

However, 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.[4]

Essentials of a valid consideration

Analyzing above definition of ‘consideration’ i get the following essentials of valid consideration are as under:

1. Consideration must move at the desire of the promisor.
2. Consideration may move from the promise or any other person.
3. Consideration may be past, present or future.
4. Consideration must be of some value, consideration must real need not be adequate.

1. Consideration must move at the desire of the promisor.

In order to constitute legal consideration the act or abstinence forming the consideration for the promisor. So it is done at the desire of third person that will not be said consideration. In the same way the acts done or services rendered willingly will not amount to valid consideration.

2. Consideration may move from the promise or any other person.

The valid consideration is that consideration needs not to move from the promise alone but may proceeds from a third person. This means that even stronger to the consideration can sue on a contract.

3. Consideration may be past, present or future:

• Past:

When the act has been done before means its show its past consideration. Clearly said that When one party was given before the date of the promise, it is said to be past consideration.  Example- Teacher (One party) given teaching (service) but University payment after 30 days (future), it is a Past consideration.

• Present: 

Which consideration takes at the same time with the promise is called “Present Consideration” or Executed  Consideration”. The act constituting the consulting is wholly or

completely performed.[5] Example – Mr. X purchased Books and at the same time payment. It’s a Present Consideration.

• Future :

When the consideration on both sides is to move at a future date . It is called “Future Consideration” or executory Consideration. It consists of promises and each promise is a consideration for the other.[6] Example – Mr. X and Mr. B do the contract that Mr. X send Goods after 30 days and at the same time Mr. B pay 300000 tk. It’s a future contract.

4. Consideration must be of some value, consideration must be real need not be adequate :

Consideration must be of some value. It is not necessary that consideration should be adequate to the promise for the validity of an agreement. The law only insists on the presence of consideration and not on the adequacy of it . An agreement to which the consent of promise has been freely given is a valid contract need with standing of the consideration .Courts never inquire a promise is equivalent to promise obtained. The adequacy of the consideration is for the parties to consider at the time of making the agreement.

Consideration Must Be Real:

• Physical Impossible
• Legally
• Uncertain Consideration
• Illusory Consideration

Good Consideration

Good Consideration following some Rules of Consideration, Now discuss this rules of consideration.

1. Desire of the promisor is essential.

Promisor request must be needed, without promisor request is not good consideration. The act done or loss suffered by the promisee must have been done or suffered at the desire of the promisor.

2. The consideration must be real.

Consideration must be real, impossible term or subject do not valid consideration. Such as Mr. X promises to supply Mr. Y gold brought from the moon. This contract is not real so it’s a void contract.

3. Performance of a duty owed to a third party.

While the performance of an existing duty owed to a promisor is not a good consideration, the performance of a contractual duty owed to a third party is a good consideration. [7]

4. Consideration need to be adequate.

Adequate means equal in value to the consideration received in return. There is no remedy at law for someone who simply makes a poor bargain. It is presumed that each party is capable of serving his own interests, and the courts will not seek to weigh up the comparative value of the promises or acts exchanged.[8]

5. Consideration must be sufficient.

For a valid contract to be created, consideration must be legally sufficient. To be legally sufficient, consideration for a promise must be either legally detrimental to the promisee (the one receiving the promise) or legally beneficial to the promisor (the one making the promise). Consideration is sufficient if it has some identifiable value. The law only requires an element of bargain, not necessarily that it should be a good bargain.[9]

6. Consideration may move from the promisee or from any other person.

The valid consideration is that consideration needs not to move from the promise alone but may proceeds from a third person. This means that even stronger to the consideration can sue on a contract.

Contract:

“Every agreement and promise enforceable at law is contract”

“(so why no consideration no contract)”according to contract act every promise or every set of promise forming the consideration for each other is an agreement. So, there can’t be an agreement without consideration and there can’t be a contract without agreement.

Section “10” of the contract act say’s that all agreement are contract if they are made with the free consent of the parties competent to contract for a lawful consideration and with lawful objects. Therefore (sec: 25)”an agreement without consideration is void.”

NO CONSIDERATION NO CONTRACT

Every agreement to be enforceable at law must be supported by valid consideration. An agreement made without consideration is void and is unenforceable except in certain cases. Section 25 specifies the cases where an agreement though made without consideration will be valid. These are as follow: [10]
1. Natural love and affection [Sec. 25(1)]:-

An agreement though made without consideration will be valid if it is in writing and registered and is made on account of natural love and affection between parties standing in a near relation to each other. An agreement without consideration will be valid provided-

(a) it is expressed in writing;
(b) it  is registered under the law for the time being in force;
(c) it is made on account of natural love and affection;
(d) it is between parties standing in a near relation to each other.

All these essentials must be present to enforce an agreement made without consideration.[11]

 

 

2. Compensation for services rendered [Sec. 25(2)]:-

An agreement made without consideration will be valid if it is a promise to compensate wholly or in a part a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do.

To apply this rule, the following essentials must exist:

(a) The act must have been done voluntarily
(b) for the promisor or it must be something which was the legal obligation of the promiser;
(c) the promisor must be in existence at the time when the act was done;
(d) the promisor must agree now to compensate the promisee11
3. Time-barred debt [Sec. 25(3)]:-

A promise to pay a time-barred debt is also enforceable. But the promise must be in writing and be signed by the promisor or his agent authorized in that behalf. The promise may be to pay the whole or part of the debt. An oral promise to pay a time-barred debt is unenforceable

4. Completed gifts [Exp. 1 to Sec. 25]:-

Explanation 1 to section 25 provides that the rule ‘No consideration, No contract’ shall not affect validity of any gifts actually made between the donor and the donee. Thus if a person gives certain properties to another according to the provision of the Transfer of Property Act, he cannot subsequently demand the property back on the ground that there was no consideration. 12
5. Agency (Sec. 185):

There is one more exception to the rule. IT is given in section 185 which says that no consideration is needed to create an agency.

6. Guarantee (Sec 127):- A contract of guarantee is made without consideration.

 

7. Remission (Sec 63):-

No consideration is required for an agreement to receive less then what is du. This is called remission in the law.

 

Consideration and Lawful object:

According to Section (23), The consideration and object must be law and a consideration and object deem to be lawful unless:

• Is of such nature that, if permitted, it would defect the provision of any law; or Is fraudulent; or
• Involve of implies injury to the person or property of another; or
• The court regards it is immoral and opposed to public policy.

 

Contracts that lack consideration.

Sometimes, one of the parties or both parties to a contract may think that they have exchanged consideration when in fact they have not. Here i look at some situations in which the parties promises or actions do not qualify as contractual consideration.

• Preexisting Duty

 Under most circumstances, a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration, because no legal detriment is incurred.

• Unforeseen Difficulties

 

The rule regarding preexisting duty is meant to prevent extortion and the so-called holdup game.

• Rescission And New Contract

The law recognizes that two parties can mutually agree to rescind their contract, at least to the extent that it is executory (still to be carried out). Rescission (6) is defined as the unmaking of a contract so as to return the parties to the positions they occupied before the contract was made. When rescission and the making of a new contract take place at the same time, the courts frequently are given a choice of applying the preexisting duty rule or allowing rescission and letting the new contract stand.

Conclusion

To Learned above discussion I can say that, 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 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. Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts.

Contracts may become unenforceable or rescindable for failure of consideration when the intended consideration is found to be worth less than expected, is damaged or destroyed, or performance is not made properly. Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts.

To also learned that without lawful consideration is not meaningful for any valid contract. Contract considered many essential elements and lawful consideration is integral part or element of a valid contract. Which Lawful consideration follows some rule then we called good consideration. But Some exceptions to the rule – No consideration, No contract. In English law a contract under seal is enforceable without consideration.

Bibliography

 

•   Books:

 

1. Avtar Sing, Law of Contract and Specific Relief, 9^th
2. A.K.Sen, Handbook of Commercial Law.
3. 3.      Muhammad Ekramul Haque, Law of Contract, Published By: Law Lyceum ( Dhanmndi, Dhaka-1205) 2004
4. P W Redmond Revised by R G Lawson, introduction to B.law, page no.20 to 59.

• Web Source:

http://ckbooks.com/management/business-and-labour-laws/consideration-essentials-of-contract/ (15^th June 2012, 4.00pm)

http://en.wikipedia.org/wiki/Consideration_in_English_law. (12^th July, 2012, 5.30pm)

www. student law.com (29 February,2012, 6.00pm)