Discuss on Consideration and Lawful object of contract

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Discuss- Consideration and Lawful object of contract

Introduction: In Basic Term a contract is an agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit<href=”#_ftn1″ name=”_ftnref1″ title=””>[1]. That returns for a valuable benefit known as consideration. Since the law of contracts is at the heart of most business dealings. Consideration is essential for the validity of a contract. A promise without consideration is a gratuitous undertaking and cannot create a legal obligation.<href=”#_ftn2″ name=”_ftnref2″ title=””>[2] Under Roman law an agreement without consideration was called a nudum pactum and was unenforceable. Under English law simple contracts must be supported by consideration but especially contracts require no consideration. Under Indian law the presence of consideration is, as a rule, essential to the validity of contracts<href=”#_ftn3″ name=”_ftnref3″ title=””>[3]. This report will describe what factors should we consider making a lawful consideration. This report will focus on without consideration there is unable to make a valid contract. It also describes some exception of consideration<href=”#_ftn4″ name=”_ftnref4″ title=””>[4].

Analysis the Definition of Contract and consideration

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”<href=”#_ftn5″ name=”_ftnref5″ title=””>[5]

An agreement enforceable by law is a contract. Therefore in a contract there must be (1) the agreement and (2) the agreement must be enforceable by law. Some agreement cannot be enforced through the court of law<href=”#_ftn6″ name=”_ftnref6″ title=””>[6].

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.

Consideration is an essential element in a contract. A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other<href=”#_ftn7″ name=”_ftnref7″ title=””>[7].it is used in sense of quid pro quo<href=”#_ftn8″ name=”_ftnref8″ title=””>[8].

Consideration means something which is of some value in the eye of the law, moving from the plaintiff; it may be some detriment to the plaintiff or some benefit to the defendant, but at all events it must be moving from the plaintiff.<href=”#_ftn9″ name=”_ftnref9″ title=””>[9]

An act or forbearance of the one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.<href=”#_ftn10″ name=”_ftnref10″ title=””>[10]

For an example, P agrees to sell a house to Q for tk. 25000, For P’s consideration, the promise to sell the house. Q’s consideration is money.

Restatement of contract 2D

1) To constitute consideration, a performance or a return promise must be bargained for.

2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.

3) The performance may consist of

(a) An act other than a promise, or

(b) A forbearance, or

(c) The creation, modification or destruction of a legal relation.<href=”#_ftn11″ name=”_ftnref11″ title=””>[11]

What element should we consider to make a law enforceable contract?

There are some elements of contract. Thus are given in the following below<href=”#_ftn12″ name=”_ftnref12″ title=””>[12]:

  • Proposal and acceptance: When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.
  • Legal relationship: There two or more parties have the intention to create a legal relationship.
  • Lawful consideration: On party give something by taking something and agree to do something. I.e. something in return. For an example, P agrees to sell a house to Q for tk. 25000. For P’s consideration, the promise to sell the house. Q’s consideration is money.
  • Lawful<href=”#_ftn13″ name=”_ftnref13″ title=””>[13] subject: The object for which contract have been made its must be legal not against public police<href=”#_ftn14″ name=”_ftnref14″ title=””>[14]. Example- A contract for crime is not valid contract.
  • Capacity to contract: Want of capacity arise from minority<href=”#_ftn15″ name=”_ftnref15″ title=””>[15], lunacy, idiocy, and similar other facts.
  • Free consent: Two or more persons are said to consent when they agree upon the same thing in the same sense. Agreement persuaded by coercion, undue influence, mistake, misrepresentation and fraud etc. Doses not become enforceable by law.
  • Certainty: The agreement must be certain, not vague. It is must possible to ascertain, otherwise the meaning agreement cannot be enforce.
  • Possibility of performance: Any subject that is impossible to performed, cannot be enforceable by law. Example, promised to sell land in sun or moon, it’s impossible to perform.
  • Written and registration: An oral contract is a good contract, except in those cases where writing and registration is required by some status. In Bangladesh writing is required in cases of lease, gift, sale and mortgage of immovable property, article of association of company etc.is minatory to written and registration.

What factors/rules should we consider making a lawful consideration?

The following rules may be laid down regarding consideration<href=”#_ftn16″ name=”_ftnref16″ title=””>[16]

  1. Desire (or request) of the promisor is essential<href=”#_ftn17″ name=”_ftnref17″ title=””>[17] :

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<href=”#_ftn18″ name=”_ftnref18″ title=””>[18] and does not come within the definition of consideration.<href=”#_ftn19″ name=”_ftnref19″ title=””>[19]

Examples

The Collector of a district asked D to spend some money on the improvement ofa market and he did so. D cannot demand payment from the shopkeepers using the market for having improved the market.

2. The consideration must be real:

  • The consideration must have some value in the eye of law.
  • It must not be sham or illusory.
  • A contribution to charity is without consideration. Therefore, it is not real consideration.

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:Acontract to pay money to a witness who has received a subpoena to appear at a trial.

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.

5. Consideration need not be adequate:

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 adequate consideration is? 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.<href=”#_ftn20″ name=”_ftnref20″ title=””>[20]

Example:

S files a suit against B for tk. 5,000. Subsequently he agrees to withdraw the suit on payment of tk. 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<href=”#_ftn21″ name=”_ftnref21″ title=””>[21]

7. The consideration may be present, past, or future<href=”#_ftn22″ name=”_ftnref22″ title=””>[22]

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

Above all element or factors are mandatory for fulfilling a consideration. If consideration available in any contract with other element of contract fulfillment then we can make an agreement as well as contract

Consideration in the absence of an exchange

(Case Study)

It is not difficult to find authorities where the Courts struggle to find consideration. It has been suggested that in some cases, the courts will invent consideration in order to do justice in the case before them.<href=”#_ftn23″ name=”_ftnref23″ title=””>[23] Whatever motives the courts have in these cases, they are difficult to justify in terms of the view that consideration is an indicator of an exchange. A complete analysis of all such cases is not possible in this essay, but some examples should suffice to illustrate the point.

In Shadwell v Shadwell<href=”#_ftn24″ name=”_ftnref24″ title=””>[24], the plaintiff received a letter from his uncle that stated:

My dear Lancey,

I am glad to hear of your intended marriage to Ellen Nicholl; and, as I promised to assist you at starting, I am happy to tell you that I will pay to you 150l. Yearly during my life and until your annual income derived from your profession of a Chancery barrister, shall amount to 600 guineas; of which your own admission will be the only evidence that I shall receive or require.

Your ever affectionate uncle,

Charles Shadwell

The plaintiff did marry Ellen Nicholl. The plaintiff practiced as a Chancery barrister, but he alleged that his annual income never reached 600 guineas. Over the years the uncle did pay some of the annual payments of 150l, but not all. When the uncle died, the plaintiff sued his estate, claiming the outstanding balance.

The executors of the estate sought to defeat the claim by demurrer, alleging, inter alia, that there was on the pleadings no consideration moving from the plaintiff in return for the uncle’s promise to pay the annual sum of 150l. The plaintiff responded submitting that the act of proceeding with the marriage to Ellen Nicholl was consideration moving from the plaintiff. In a dissenting opinion Byles J rejected that submission on the grounds that on a proper reading of the uncle’s letter, there was no request by him for the plaintiff to proceed with the intended marriage.72<href=”#_ftn25″ name=”_ftnref25″ title=””>[25] Erle CJ for the majority adopted a different approach, finding that the plaintiff suffered a loss at

the request of his uncle in that he:

“…may have made a most material change in his position …… and may have incurred pecuniary liabilities, resulting in embarrassments, which were in every sense a loss if the income which had been promised should be withheld; and, if the promise was made in order to induce the parties to marry, the promise so made would be in legal effect a request to marry.<href=”#_ftn26″ name=”_ftnref26″ title=””>[26]

There was nothing in the pleadings that alleged that the plaintiff had made any material change in his position or that he had incurred any pecuniary liabilities in reliance on the promise made by his uncle. Nevertheless, Erle C J found that the possibility of a change of position or pecuniary liability was sufficient consideration from the plaintiff for the uncle’s promise.

There was no exchange on these facts. The uncle did not seek a promise from the plaintiff that he would marry Ellen Nicholl. The uncle’s letter was clearly written after the plaintiff had made his intention to marry Ellen Nicholl known. There was nothing in the letter expressly or impliedly that could be construed as a promise by the plaintiff to marry Ellen Nicholl.

The courts other alternative was to find consideration in the possibility that the plaintiff might in the future have relied on the uncle’s promise. But the same could be said for every promise ever made. In reality he plaintiff did not take on any obligations. There was no reciprocal exchange.

The uncle’s promise was gratuitous.

It is interesting to note that the uncle’s promise was evidenced in writing which confirms the existence of the promise and that it was made after due deliberation. The written document is not consideration, but it is an alternative form of evidence that performs the same function as consideration as a formality.

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 considerations passed by each party to a contract need not be comparable<href=”#_ftn27″ name=”_ftnref27″ title=””>[27].

No contract no consideration with some example

In contract law, consideration refers as the prices paid by one party for the promise of the other.<href=”#_ftn28″ name=”_ftnref28″ title=””>[28]

Generally, for a contract to be valid there must be an exchange of goods and/or services.<href=”#_ftn29″ name=”_ftnref29″ title=””>[29]

For consideration to be valid<href=”#_ftn30″ name=”_ftnref30″ title=””>[30], 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<href=”#_ftn31″ name=”_ftnref31″ title=””>[31], 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). However, once i actually transfer ownership of my car, i can’t back out<href=”#_ftn32″ name=”_ftnref32″ title=””>[32], but i could do so any time before the gift occurs.

The requirement for consideration is why i will sometimes hear of very expensive items being sold for very small amounts of money, Such as a house or car being sold for tk.1000. These transactions are essentially gifts, but the token consideration is there to ensure that the agreement is legally binding<href=”#_ftn33″ name=”_ftnref33″ title=””>[33], in case the donor tries to back out.

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.

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.<href=”#_ftn34″ name=”_ftnref34″ title=””>[34]

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.<href=”#_ftn35″ name=”_ftnref35″ title=””>[35]

  • 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<href=”#_ftn36″ name=”_ftnref36″ title=””>[36].

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<href=”#_ftn37″ name=”_ftnref37″ title=””>[37]

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<href=”#_ftn38″ name=”_ftnref38″ title=””>[38]

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<href=”#_ftn39″ name=”_ftnref39″ title=””>[39]

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)

Conclusion

After analyzing the definitions and some example of contract and consideration we see that without any consideration there is no possible to make a contract expect some exception. In English law there in no past consideration but in our country Bangladesh past consideration<href=”#_ftn40″ name=”_ftnref40″ title=””>[40] is legal.

If we follow the rules of consideration to make promise before then there is no chance the contract to void. Only those considerations are valid which are lawful. Subject to certain exception an agreement without consideration is void. To be a valid contract we have to ensure the legal consideration. So, we can say that no consideration, no contract.

References

Book “Commercial Law”By M. Ahammed

Book “Principles of Contract”(13th edn) By Pollock,

Book “Law of contract and specific relief” By Avtar Singh.8th Edition.

Book “Chitty on Contracts” (29th edition, Sweet & Maxwell, 2004)

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

www.lawyersnjurists.com/resource/course…/chapter-3-consideration Retrieved July 13, 2012

www.lawyersnjurists.com/resource/articles-and-assignment Retrieved July 13, 2012

www.lawyersnjurists.com/course-materials/business-law/ Retrieved July 13, 2012

www.preservearticles.com Retrieved July 13, 2012

Constitution of Peoples Republic of Bangladesh. (1972). Retrieved July 14, 2012

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

en.wikipedia.org/wiki/See


<href=”#_ftnref1″ name=”_ftn1″ title=””>[1] Valuable benefit is expecting or getting something from others such as money, services or goods.

<href=”#_ftnref2″ name=”_ftn2″ title=””>[2]www.lawyersnjurists.com/resource/course…/chapter-3-consideration

<href=”#_ftnref3″ name=”_ftn3″ title=””>[3] Business law by Susan Brings & V. Balachandran.p-38

<href=”#_ftnref4″ name=”_ftn4″ title=””>[4] Exception of consideration is in case Absence of consideration there will be contract.

<href=”#_ftnref5″ name=”_ftn5″ title=””>[5] The contract Act 1872.

<href=”#_ftnref6″ name=”_ftn6″ title=””>[6] E.g. an agreement to play cards or go to cinema.

<href=”#_ftnref7″ name=”_ftn7″ title=””>[7]Currie v Misa (1875) LR 10 Exch 153, 162

<href=”#_ftnref8″ name=”_ftn8″ title=””>[8] i.e. something in return

<href=”#_ftnref9″ name=”_ftn9″ title=””>[9]Thomas v Thomas (1842) 2 QB 851, per Patteson J

<href=”#_ftnref10″ name=”_ftn10″ title=””>[10]Pollock, Principles of Contract (13th edn),p 133, approved by Lord Dunedin in Dunlop v Selfridge (1915) (see p 1134)

<href=”#_ftnref11″ name=”_ftn11″ title=””>[11] The Restatement of contract is one of nine Restatements produced by the American Law Institute. In the USA, contracts are governed by state law, so that there is not one law but fifty laws.

<href=”#_ftnref12″ name=”_ftn12″ title=””>[12] Book M. Ahammed p-7-9 element of contract.

<href=”#_ftnref13″ name=”_ftn13″ title=””>[13] Which is not against the law of Bangladesh.

<href=”#_ftnref14″ name=”_ftn14″ title=””>[14] The public police are a constituted body of persons empowered by the state to enforce the law.(see Wikipedia)

<href=”#_ftnref15″ name=”_ftn15″ title=””>[15] age below 18.

<href=”#_ftnref16″ name=”_ftn16″ title=””>[16]www.lawyersnjurists.com/resource/…law/…/chapter-3-consideration

<href=”#_ftnref17″ name=”_ftn17″ title=””>[17] No one should do or not do an act according to his own wishes or others wishes.

<href=”#_ftnref18″ name=”_ftn18″ title=””>[18] Freely and willingly engaging for consideration.

<href=”#_ftnref19″ name=”_ftn19″ title=””>[19] The contract act 1872

<href=”#_ftnref20″ name=”_ftn20″ title=””>[20] www.lawyersnjurists.com/resource/articles-and-assignment/an-agreement-is-regarded-as-a-contract-when-it-is-enforceable-by-law-explain-and-illustrate-3/

<href=”#_ftnref21″ name=”_ftn21″ title=””>[21] If the object or consideration of an agreement is illegal, it cannot be enforceable by law.

<href=”#_ftnref22″ name=”_ftn22″ title=””>[22] Three types of consideration. past, present, future promise is treated as consideration.

<href=”#_ftnref23″ name=”_ftn23″ title=””>[23] G. Treitel “Consideration” in H.G. Beale General Editor Chitty on Contracts(29th edition, Sweet &

Maxwell, 2004) at 221

<href=”#_ftnref24″ name=”_ftn24″ title=””>[24]Shadwell v Shadwell(1860) 9 CB (N.S.) 159

<href=”#_ftnref25″ name=”_ftn25″ title=””>[25]Shadwell v Shadwell (1860) 9 CB (N.S.) 159 at 175

<href=”#_ftnref26″ name=”_ftn26″ title=””>[26]Shadwell v Shadwell (1860) 9 CB (N.S.) 159 at 174

<href=”#_ftnref27″ name=”_ftn27″ title=””>[27]en.wikipedia.org/wiki/Consideration

<href=”#_ftnref28″ name=”_ftn28″ title=””>[28] Consideration refers as the bargained-for exchange.

<href=”#_ftnref29″ name=”_ftn29″ title=””>[29] Wiki.answers.com

<href=”#_ftnref30″ name=”_ftn30″ title=””>[30] Thus making the contract valid, if all the other requirements for the validity of a contract are met.

<href=”#_ftnref31″ name=”_ftn31″ title=””>[31] Breach, violated any element a rules regarding contract and agreement.

<href=”#_ftnref32″ name=”_ftn32″ title=””>[32] As with any gift, it becomes the property of the recipient once the transfer is complete.

<href=”#_ftnref33″ name=”_ftn33″ title=””>[33] By making the agreement legally binding, the donor shows good faith.

<href=”#_ftnref34″ name=”_ftn34″ title=””>[34]wiki.answers.com/Q/What_is_consideration_and_why_must_a_contract_include_consideration_for_it_to_be_legal_and_binding

<href=”#_ftnref35″ name=”_ftn35″ title=””>[35] www.preservearticles.com/2012012621491/exceptions-to-consideration-no-consideration-and-no-contract.html

<href=”#_ftnref36″ name=”_ftn36″ title=””>[36] www.preservearticles.com/2012012621491/exceptions-to-consideration-no-consideration-and-no-contract.html

<href=”#_ftnref37″ name=”_ftn37″ title=””>[37] www.preservearticles.com/2012012621491/exceptions-to-consideration-no-consideration-and-no-contract.html

<href=”#_ftnref38″ name=”_ftn38″ title=””>[38] www.preservearticles.com/2012012621491/exceptions-to-consideration-no-consideration-and-no-contract.html

<href=”#_ftnref39″ name=”_ftn39″ title=””>[39] www.preservearticles.com/2012012621491/exceptions-to-consideration-no-consideration-and-no-contract.html

<href=”#_ftnref40″ name=”_ftn40″ title=””>[40] Promise or consideration was occurs in past.