There can be no contract in absence of any consideration.Explain

INTRODUCTION

 

Consideration is one of the essential elements of a valid contract.

No Consideration = No Contract

A consideration of some sort or other is so necessary to the forming of the contract, that is

Random partum

This mean agreement to do or pay something on one side without any consideration is not supported by law. “Something which is given and taken.”

 Section 2 (d) of the Contact Act1872:

Definition: “When at the desire of the promissory, the promise or any other person has done or abstained from doing or does or abstains from doing or promise to do or abstain from doing. Something such act or abstinence or promise is called a consideration for the Promise.”

 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 not necessary in contracts of record.)

Meaning of ‘valuable consideration’

It has been defined as ‘the price for which a promise is bought’(Sir Frederick Pollock)Consideration itself means ‘some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other’: per Lush J ., Currie v . Misa (1875).

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.

Consideration Define:

Consideration may be defined as a benefit falling due to a promisor or a detriment

Incurred by the promises. It is the most essential element of the contract. As a general rule, agreement without consideration is void. The promise for a promise in return is consideration. Definition of Consideration has been defined in many ways.

 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 either trifling, indeterminate, impossible or illegal.

 Hence by watching both definitions you can understand that contract required benefit for both parties. if there is no consideration for one party it means that party is not getting any benefit so. If there is no benefit for both party it means why they will make contract. And if benefit is only for one party then that is no contract because it is not full feeling contract first essential of exchange of promises, goods, services or something worth full for both parties

Define consideration in English law 

Initially, consideration was an essential procedural element, but it was poorly defined by English law stated it could involved almost anything that showed some movement of  benefit and detriment. It is unavoidable that there was no real attempt at clear definition before the nineteenth century and why it remains a problematic area even now.

The classic definition has expressed something which is given and taken.”

 Section 2 (d) of the Contact Act1872:

Definition:“When at the desire of the promissory, the promise or any other person has done or abstained from doing or does or abstains from doing or promise to do or abstain from doing. Something such act or abstinence or promise is called a consideration for the Promise.”

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 not necessary in contracts of record.)

Meaning of ‘valuable consideration’

It has been defined as ‘the price for which a promise is bought’(Sir Frederick Pollock)Consideration itself means ‘some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other.

 “NO CONSIDERATION NO CONTRACT-EXCEPTIONS “

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:
1. Natural love and affection

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.

2. Compensation for services rendered 

 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 promisee.
3. Time-barred debt
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

 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.

5. Agency

 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

    A contract of guarantee is made without consideration.
7. Remission
No consideration is required for an agreement to receive less then what is du. This is called    remission in the law.

    Re: “No consideration, No contract” Explain with exception.  

 Section 25 declares that `an agreement made without consideration is void’. It means that consideration is a must in all cases. Exceptions to the rule are:

  • Øwritten and registered agreement out of natural love and affection between the parties;
  • Ø promise to compensate a person who has voluntarily done something for the promisor;
  • Øpromise to pay time-barred debt;•completed gift;
  • Ø creation of agency

 Anil Trapasiya
Re: “No consideration, No contract” Explain with exception.

Exceptions to the rule that “No consideration – No contract”

Section 25 declares that `an agreement made without consideration is void’. It means that consideration is a must in all cases. Exceptions to the rule are:

  • written and registered agreement out of natural love and affection between the parties;
  • promise to compensate a person who has voluntarily done something for the promisor;
  • promise to pay time-barred debt;
  • Completed gift;
  •  creation of agency

  Sabastian Tharakan George Lion
Re: “No consideration, No contract” Explain with exception. “Consideration”

  “‘Consideration is the price for which the promise of another is bought'”   “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 “an agreement with out consideration is void.”Reement

 Essential of Valid Consideration.

There are four various essential of valid consideration.

1. Consideration should move at the desire of the promisor

2. Consideration May move from the promisee or any other person.

3. Consideration may be past, present, and future.

4. Consideration may be something of value

 1. Consideration should move at the desire of the promisor :-

In order to constitute legal consideration, the act or abstinence forming the consideration for the promise must be doneat the desire or request of the promisor. Thus acts done or services rendered voluntarily at the desire of any third party will not amount to the valid consideration. Thus acts done or services rendered voluntarily at the desire of any third party will not amount to the valid consideration.

Durga Prasad v/s Baldeo

  • D had built, at his own expense, a market at the request of the collector of the District. The shopkeeper in market promise to pay commission on the sale of goods to D.
  • The D can not sue the shop –keepers as the promise to pay contract is not consider as contract.
  • Because D (the promisee) had constructed the market not at the desire of the shopkeepers (The promisor) but at the desire of the collector to please him.

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

The second essential of valid consideration, as mentioned in the definition is that consideration need not move from the promissee alone but may proceed from the third person. Thus, as long as there is consideration for a promise it is immaterial who has furnished it.

  • Thus, a stranger can also sue on a contract provided he is a party to contract.
  • This is called “Doctrine of Constructive Consideration.”

Chinnayya VS Ramayya

  • ‘A’ an old lady by a deed gift made over certain property to her daughter R.
  • With a direction that ‘R’ will pay an annuity to’ A’ brother ‘C’ as done by ‘A’.
  • On the same day ‘R’ wrote a letter to ‘C’ to inform that she is agree to pay annuity.
  • Afterward she declined to fulfill the contract.
  • In this case as the maternal uncle was the third party but still as a right to maintain suites he was aware about the contract.
  • In case of just gift deed from “A” it can not sue the ‘R’ as he was not the party to ‘R”.
  • Exception to the Stranger to a contract can not sue:-
  • Where an express or implied trust is created.
  • Family settlement

 His own right to enforce his rights under the trust though he was not a party to the contract between the settler and the trustee.

Amir Ullah vs Central Govt

An addressee of an insured article is entitled to sue the Post office in case of loss, as on receipt of such article, the post office becomes in law a constructive trustee for the addressee.

 

  • Family settlement:-Where a provision is made in a partition or family arrangement for maintenance or another things allows the third person of the family to sue,

Veeramma vs Appayya:-

A daughter along with her husband entered into the contract with her father to look after the mother and property of father will be conveyed to him. Later on she refused to look after mother. Here the mother being stranger to contract but as she knew about the contract can sue her daughter.

  • When the defendant constitutes himself, as the agent of the third-party:-Thus if A receives some money from B to be paid over to C and he admits of this receipt to C, than C can recover this amount from A who shall be regarded as the agent of C.
  • In case of Agency:-Where a contract is entered into by an agent the principle can sue on it.

3. Consideration may be Past, Present, and Future:-

 

The consideration for the contract can be of past, future or present depending upon execution of the contract.

 Past Consideration:-

When the consideration was given before the date of the promise it is said to be past consideration, but it must be at the request of the promisor. E.g:- A render some service to B today and after a month B promises to compensate him for the services rendered to him it will be a past consideration.

Present Consideration:-

When the consideration was given simultaneously with the promise it is said to be present consideration.

E.g:- A promise to give time to a debtor is good consideration. The best example of present consideration is cash sale.

Future Consideration:-

When the consideration from one party to another is to move at some future date, it is called future consideration. e.g.- A promises to deliver ten bags of rice to B after a fortnight and B promises to make the payment one week after the delivery. In this case the consideration is future.

4. Consideration must be ‘something of Value’:-

 The law only insists upon the presence of free consent consideration and do not bother about its adequacy or inadequacy. It leaves upon people to decide the consideration but it emphasis that theconsideration must be real.

  • Consideration must be real:-

Though the consideration need not be adequate, it must be of some value in the eye of law, i.e. it must be real and competent. Where consideration is

Physically impossible:-A promise to do something which is physically impossiblee.g, to make a dead man alive.

  • Legally impossible:-A promise to do something which is illegal e.g, to beat someone as consideration.

Uncertain Consideration:-A promise to do something too vague and uncertain e.g., a promise to pay amt which will be appropriate is not correct as it do not have a specific amount.

Contract

 This Act came into force on 1stSeptember , 1872 and is called the contract act 1872.The legislative intent behind its legislation is to ensure that contractual obligations must be performed .it provides terms and conditions for the validity of the contracts but leaves the form and the conditions of contract to be mutually settled by the contracting parties. Meaning according to the

Black’s law dictionary

(6thedition) “An agreement between to or more persons which creates an obligation to do or not to do a particular thing.”

According to Contract Act 1872 Section 2(h)

“An agreement enforceable by law is contract.”

Contract =agreement + enforceability What is enforceability? It is the basically factor of recognition that court gives to the obligations arising from contractual relationship

 Essentials of a contract

OFFER Section 2(a)

 “When one person signifies to another his willingness to door to abstain from doing anything, with a view to obtain the assent of that their to such act or abstinence, he is said to make a proposal.”

  • You can modify your offer, but not after acceptance(Lefkowitz )
  • Items on shelf = Invitation to treat; Register = Offer; Cashier accepts (Dawood )
  • Offer is item on shelf & acceptance is implied by taking it to cashier!!! (Sanchez-Lopez

Acceptances According to section 2(b) of the contract Act 1872“when the person to whom the proposal is made signifies His assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.”

 Example

Mr. A offers Mr. X to purchase a Car and tell all the terms and conditions afterward Mr. X signifies his Assent to purchase a car it is called acceptances

According to Indian Contract Act,

 Consideration is ‘When, at the desire of the promisor, the promisee or, any other person, had 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”
This could be put simply as …Consideration is nothing but the price paid by one party for the promise of the other. It can be in the nature of a positive act or the forbearance of a certain act. It can be past, present or future.
Thus, consideration forms an essential part of an agreement without which the agreement is void. This is because, in the absence of consideration, there is no legal obligation formed between the parties and, therefore, in such a scenario, they are not bound by the terms of the Sebastian

Contract classified according to validity or enforceability.

1. Valid Contract. An agreement enforceable at law is a valid contract. an agreement becomes a contract when all the essentials of a valid contract as laid down in section 10 are fulfilled. A offer to sell his house for 5 lakh to B. B agrees to buy it for the price. it is a valid contract. A contract to enter into a contract is however, not a valid contract.

2.Void Contract. An agreement which was legally enforceable when entered into but which has become void due to supervening impossibility of performance for example a contract between a citizen of Pakistan and India is a valid contract during peace but if war brakes out between two countries, the agreement will become void contract.

3. Void Agreements. According to section 2 (g), “An agreement which is not enforceable by law but either of the parties is void.”
No legal rights or obligations can arise out of a void agreement. It is void ab initio i.e. from its very inception, for example an agreement without consideration or with a minor.

4. Voidable Contract. According to Section 2 (i), “An Agreement which is enforceable by law at the option of one or more parties but not at the option of the other or others is a voidable contract.” Note that the word used here is ‘contract’ and not just ‘agreement’. Thus is the result of absence of free consent in the contract. This is so because the rights and duties are created and the was not free but was obtained by coercion, undue influence, fraud, misrepresentation. The other parties who include the consent take advantage of his own fraud because “He who comes into Equity (i.e. before law) must come with clean hands.”
Thus a voidable contract is valid and enforceable until it is repudiated by the party entitled to avoid it.

5. Unenforceable Contracts. It is contract which is otherwise valid, but cannot be enforced because of some technical defects like absence of a written form or absence of a proper stamp. Such contracts cannot be proved in court.

6. Illegal Agreements. A contract which is either prohibited by law or otherwise against the policy of law is an illegal agreement. It is voidable initio. Thus, a contract to commit dacoits is an illegal contract and cannot be enforced at law. An illegal contract should be distinguished from a void contract. All illegal agreements are void but all void agreements or contracts are not necessarily illegal. Every void agreements is not illegal unless its object or consideration is (a) immoral (b) opposed to public policy etc. A void contract does not affect a collateral contract.

Conclusion

Consideration, in some way, must be acknowledged, and the legal term for this is ‘sufficient’, therefore the consideration must be sufficient and is usually of monetary value. Another legal term used here is ‘adequate’, this means fair price. However, the consideration does not need to be adequate, but needs to be sufficient to form a contract.

Consideration must be sufficient but it need not be adequate, adequacy and sufficiency of consideration is a very confusing statement for a layman because in general terms we would expect adequacy and sufficiency to be the same thing. However, in the circumstance of consideration the two words have very different meaning, ‘adequacy’ being used in its usual everyday sense and ‘sufficiency’ having a very clear-cut legal meaning.

The importance of consideration is as a valuable signal that the parties intend to be bound by their agreement, rather than an end in itself. Where the parties who have already made such intention clear by entering legal relations have acted upon an agreement to a variation, in the absence of policy reasons to the contrary, they should be bound by their agreement.

Contract laws may enforce a contract that lacks mutual consideration in the event that a clear and concrete promise has been made, the person to whom the promise was made as depended on the promise coming true in a substantial, definite, and justifiable manner, and the failure to enforce the promise would be unjust.

 References

1. English Law

(I) Books and Articles

  • Business law: CIMA
  • Handbook Of Commercial law: A.K. Sen
  • Contract law: Mc Kendrick E
  • LAW AND BUSINESS(4TH EDITION) by LAWRENCE S. CLARK,ROBERT J. AALBERTS and PETER D. KINDER
  •  LAW FOR BUSINESS by A. JAMES BARNES, TERRY M. DWORKIN and ERIC L. RICHARDS Net Resources

Other Sources

Www. student law.comWww.altavista.comwww.lawweb.html

http://www.lawyersnjurists.com

http://www.allinterview.com ›

http://www.australiancontractlaw.com/law/formation-consideration.html

http://www.slideshare.net/…/an-agreement-without-consideration

http://www.scribd.com/doc/…/14/NO-CONSIDERATION-NO-CONTRACT

http://www.lectlaw.com/def/c098.htm[1]


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