View With Charts And Images
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– Evaluate in light of cconsideration
Introduction:
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<href=”#_ftn1″ name=”_ftnref1″ title=””>[1]:
· 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
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.Contracts come on different shapes and size. Some involves of large sum of money and other trivial sum. Some are long duration and some are short duration.. Doctrines such as consideration, illegality, frustration, and duress cannot be ascribed to the will of the parties, nor can statutes such as the unfair contract terms Act1977<href=”#_ftn2″ name=”_ftnref2″ title=””>[2].
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 Signifies 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”.
Contract Define:
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].
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 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. 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
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<href=”#_ftn4″ name=”_ftnref4″ title=””>[4].
Consideration for a particular promise exists where some right, interest, profit or benefit accrues (or will accrue) to the promisor as a direct result of some forbearance, detriment, loss or responsibility that has been given, suffered or undertaken by the promisee. Theconsideration must be executory or executed, but not past. Consideration is executoryConsideration can be anything of value (such as an item or service), which eachparty to a legally-binding contract must agree to exchange if the contract is to be valid. If only one party offers consideration, the agreement is not legally a binding contract. In its traditional form, consideration is expressed as the requirement that in order for parties to be able to enforce a promise, they must have given something for it (quid pro quo): something must be given or promised in exchange or return for the promise.
Examples
1. Amin agrees to sell his house to Banu for Rs. 50,000. Here Banu’s promise to pay the sum of Rs. 50,000 is consideration for Amin’s promise to sell the house; and Amin’s promise to sell the house is the consideration for Banu’s promise to pay Rs. 50,000.
2. Amin promises to pay Banu Rs. 5,000 at the end of 6 months, if Chaku, who owes that sum to Banu, fails to pay it. Banu promises to grant time to Chaku, accordingly. Here the promise of each party is the consideration for the promise of the other party.
3. Amin promises, for a certain sum paid to him by Banu to make good to Banu the value of his ship if it is wrecked on a certain voyage. Here Amin’s promise is the consideration for Banu’s payment and Banu’s payment is the consideration for Amin’s promise.
4. Amin promises to maintain Banu’s child and Banu promises to pay Amin Rs. 5,000 yearly for the purpose. Here the promise of each party is the consideration for the promise of the other party.
Six Key Elements of a Valid Contract
1. Offer.
An offer can be oral or written as long as it is not required to be written by law. It is the definite expression or an overt action which begins the contract. It is simply what is offered to another for the return of that person’s promise to act. It cannot be ambiguous or unclear. It must be spelled out in terms that are specific and certain, such as the identity and nature of the object which is being offered and under what conditions and/ or terms it is offered.
2. Acceptance.
As a general proposition of law, the acceptance of the offer made by one party by the other party is what creates the contract. This acceptance, as a general rule, cannot be withdrawn, nor can it vary the terms of the offer, or alter it, or modify it. To do so makes the acceptance a counter-offer. Though this proposition may vary from state to state, the general rule is that there are no conditional acceptances by law. In fact, by making a conditional acceptance, the offeree is rejecting the offer. However the offeror, at his choosing, by act or word which shows acceptance of the counter-offer, can be bound by the conditions tendered by the offeree<href=”#_ftn5″ name=”_ftnref5″ title=””>[5].
3. Consideration.
Consideration for a contract may be money or may be another right, interest, or benefit, or it may be a detriment, loss or responsibility given up to someone else. Consideration is an absolutely necessary element of a contract. As a word of caution, it should be noted that consideration has to be expressly agreed upon by both parties to the contract or it must be expressly implied by the terms of the contract. The consideration must be explicit and sufficient to support the promise to do or not to do, whatever is applicable. However, it need not be of any particular monetary value<href=”#_ftn6″ name=”_ftnref6″ title=””>[6].
4. Capacity of the Parties to Contract.
The general presumption of the law is that all people have a capacity to contract. A person who is trying to avoid a contract would have to plead his or her lack of capacity to contract against the party who is trying to enforce the contract. For example, he would have to prove that he was a minor, adjudged incompetent or drunk or drugged, and so forth. Often this is the most difficult burdens of proof to overcome due to the presumption of one’s ability to contract.
5. Intent of the Parties to Contract.
It is a basic requirement to the formation of any contract, be it oral or written, that there has to be a mutual assent or a “meeting of the minds” of the parties on all proposed terms and essential elements of the contract. It has been held by the courts that there can be no contract unless all the parties involved intended to enter into one. This intent is determined by the outward actions or actual words of the parties and not just their secret intentions or desires.. Both parties must have intended to enter into the contract and one can not have been misled by the other. That is why fraud or certain mistakes can make a contract voidable<href=”#_ftn7″ name=”_ftnref7″ title=””>[7].
6. Object of the Contract.
A contract is not enforceable if its object is considered to be illegal or against public policy. In many jurisdictions contracts predicated upon lotteries, dog races, horse races, or other forms of gambling would be considered illegal contracts. Yet in some states these types of contracts are valid. Federal and some state laws make contracts in restraint of trade, price-fixing and monopolies illegal. Therefore, a contract which violates those statutes would be illegal and unenforceable. This is true for drugs and prostitution or any other activity if considered criminal<href=”#_ftn8″ name=”_ftnref8″ title=””>[8].
Rules of a valid contract:
1) Offer and Acceptance:
A lawful offer by one party and a lawful acceptance by the other party or parties, an offer may be express or may be implied from the circumstances. An offer may be made to a definite person. In an offer there must have legal relationship. The terms of the offer must be certain, definite, unambiguous and not vague. A mere statement of intention is not an offer. Offer must be communicated.
2) Intention to create Legal Relationship:
An agreement to dine at a friend’ house is not an agreement intended to create legal relations and is not a contract. an agreement to buy and sell goods or an agreement to marry, are agreements intended to create legal relationship and are therefore contract<href=”#_ftn9″ name=”_ftnref9″ title=””>[9].
3) Lawful Consideration:
An agreement is legally enforceable only when each of the parties [gives something and gets something in return-is called consideration]. An agreement to do something for nothing is usually not enforceable by law. The consideration may be an act (doing something or not) or a promise to do or not to do. Consideration may be past, present or future. But only valid considerations are “lawful consideration<href=”#_ftn10″ name=”_ftnref10″ title=””>[10]”
4) Capacity of Parties:
Legally capable of entering into an agreement otherwise not enforceable by a court of law, the agreement is not enforceable by law, If any of the parties suffers from minority, lunacy, idiocy, drunkenness, and similar other factors.
5) Free Consent:
An agreement must be based on the free consent of the parties, absence of genuine consent if the agreement is induced by coercion, undue influence, mistake, misrepresentation, and fraud.
6) Legality of the Object:
The object must be legal and moral and supported by the law.
7) Certainty:
The terms of the agreement must be clear. and it not vague.
8) Possibility of Performance:
The agreement must be capable of being performed. A promise to do an impossible thing cannot be enforced.
9) Void agreements
There are five categories of agreements which are expressly declared to be void. They are:
i) Agreement in restraint to marriage; ii) of trade; iii) of proceedings. iv) Agreements having uncertain meaning. v) Wagering agreement<href=”#_ftn11″ name=”_ftnref11″ title=””>[11].
10) Writing, Registration and Legal Formalities:
An oral, contract is valid, except in those cases where writing and/or registration is required by some statute. The terms of an oral contract are sometimes difficult to prove. Writing is required in cases of lease, gift, sale and mortgage of immovable property, negotiable instruments; memorandum and articles of association of a company etc<href=”#_ftn12″ name=”_ftnref12″ title=””>[12].
Following are the exceptions to no consideration no contract:-
The general rule of law is that an agreement without consideration is void. “A bargain without consideration is a contradiction in terms and cannot exist.” But there are a few exceptional cases where a contract, even though without consideration, is enforceable. They are as follows:
1.) Agreements made on account of natural love and affection provided these conditions are fulfilled<href=”#_ftn13″ name=”_ftnref13″ title=””>[13];
i) Agreement should be in writing
Example: An elder brother, on account of natural love and affection, promised to pay the debts of his younger brother. The agreement was put to writing and was registered. Held, the agreement was valid
ii) Must be registered under law
Example: A Hindu husband by a registered document, after referring to quarrels and disagreements between himself and his wife, promised to pay his wife a sum of money for her maintenance and separate residence, it was held that the promise was unenforceable.
iii) Must be on account of natural love and affection
Example: Abir finds Boldi’s purse and gives it to him. Boldi promises to give Abir Rs. 50. This is a valid contract.
iv) The contracting parties must be standing in near and legal relations to each other.
Example:Akkas owes Boni Rs. 5,000 but the debt is barred by the Limitation Act. Akkas signs a written promise to pay Boni Rs. 1,000 on account of the debt. This is a valid contract.
2.) Promise to compensate past voluntary service. The past voluntary service is assumed to be past consideration<href=”#_ftn14″ name=”_ftnref14″ title=””>[14].
3.) Promise to pay a time barred debt is valid if:-
i) If the debtor promises in written.
ii) If the original debt is legal
4.) Contracts of agency the principle shall be liable for the acts of the agent even though no consideration proceeds from the agent
5.) Gifts already made
6.) Promises to contribute to charity
7.) Remission (it means lesser performance in place of whole performance)
8.) Contracts of gratuitous bailment,If no consideration is involved in bailment it is said gratuitous bailment’s, it is valid and enforceable.
9.) Doctrine of ‘Privities of Contract’ No other person except the contracting parties has the right to enforce the contract.
10.) Acknowledgement If a person acknowledges to another as his agent then he can be held liable by the party.
11.) Assignment of a contract, it means transfer of rights and obligations arising under a contract in favor of a third person.
12.) Contracts made for minor’s marriage such contracts created by the guardians treat minor as a beneficiary to the contract.
An agreement without consideration:
1) Nature love and affection:
An agreement without consideration is valid only if the following requirements are complied with:
(i) The agreement is made by a written document.
(ii) The document is to be registered.
(iii) The agreement is made on account of natural love and affection. Ex: A for natural love and affection, promises to give his son B, $.1, 000. A puts his promise to B in writing and registered it. This is a contract<href=”#_ftn15″ name=”_ftnref15″ title=””>[15].
(iv)The parties to the agreement stand in a near relation to each other.
2) Compensation for past voluntary services:
A promise made without consideration is valid if, it is a person who has already voluntarily done something for the promisor, is enforceable, even though without consideration. In simple words, a promise to pay for a past voluntary service is binding<href=”#_ftn16″ name=”_ftnref16″ title=””>[16].
Example: D finds B’s purse and gives it to him. B promises to give D $. 50. This is a contract. D supports B’s infant son. B promises to pay D’s expenses in so doing. This is a contract.
3) Promise to pay Time-Bared debt:
An agreement pay a time-bared debt which enforceable, if the following conditions are satisfied.
- The debt is a time bared debt
- The debtor promises to pay the time barred debt
- The promise is made in writing
- The promise is signed by the debtor
Example: D woes B $ 1000 but the debt is barred by the Limitation Act. D signs a written promise to pay B $.500 on account of the debt. This is a contract.
4) Completed gifts:
The rule “No consideration – No contract” does not apply to completed gifts. According to section 1 to 25 states “nothing is section 25 shall affect the validity, as between the donor and done, of any gift actually made<href=”#_ftn17″ name=”_ftnref17″ title=””>[17]”
Example: If a person gives certain properties to another according to the provisions of the Transfer of Property Act (i.e., by a written and registered document) 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. According to section 185, no consideration is necessary to create an agency
6) Charitable subscription:
Where the promise on the strength of promise makes commitments (i.e., changes his position to his liability/detriment)
Example: Kallu (vs) Gullu
Facts: ‘Gullu’ had agreed to subscribe Rs.100/- towards the construction of a town hall at Howrah. The secretary, ‘Kallu’, on the faith of the promise, called for plans and entrusted the work to contractors and undertook the liability to pay them.
4.0 Monetary and Non- Monetary form of consideration:
Consideration is often spoken of as a benefit to the promisor or a detriment to the promisee. Some will make the point that a mere promise from one party is neither a detriment to that party, nor is it a benefit to the other<href=”#_ftn18″ name=”_ftnref18″ title=””>[18]. A consideration must be:
- Consideration must be the result of the promisor’s desire
- Consideration may move from the promisee or any other person
- Consideration may be a promise to do or abstain from doing something
- Consideration may be past, present or future
- Consideration must be legal, real and certain
- Consideration need not be adequate
· Consideration must be real and not illusionary
CONCLUSION:
An agreement without consideration is void.” Explain this rule and state exceptions if any. Unless Indian Contract Act 1872 in section 2(e) says that every promise and every set of promises that form a consideration for each other is an agreement<href=”#_ftn19″ name=”_ftnref19″ title=””>[19]. Therefore, we can see that the existence of consideration for a promise or promises is required for a promise to become an agreement. Thus, 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 where an agreement without consideration is a valid contract: Section 25: An agreement without consideration is void unless, it is in writing and registered and the promise has been made due to natural love and affection between the parties standing in near relation to each other. it is a promise to compensate, wholly or in part, a person who has voluntarily done something for the promisor or something that the promisor was legally bound to do. It is a promise to pay for a time barred debt.
Exceptions to the Rule “No Consideration No Contract”, The general rule of law is that an agreement without consideration is void. But there are a few exceptional cases where a contract, even though without consideration, is enforceable<href=”#_ftn20″ name=”_ftnref20″ title=””>[20].
We know that consideration involves a concept of give and take. There are rules about what makes up an exchange and what might be exchanged in order to become a good consideration. We will look at these rules after we have examined the requirements of offer and acceptance. The relationship between the rules of offer and acceptance on the one hand and the rules of consideration on the other hand is that the exchange which constitutes an acceptance of an offer – in effect an exchange of promises is brought about by acceptance – is at the same time the necessary exchange which constitutes the consideration. All this will become clearer when we examine the doctrine of consideration in detail.
References
· See: Indian Contract act sec-25; contract terms Act1977. same thing in precise terms and also gave some exception
· 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)
· Paterson, J., Robertson, A. & Heffey, P. (2005). “Principles of Contract Law.” 2nd Edition. Melbourne: Thomson Law Book Co.
· See: (Thomas v Thomas) (1842) 2 QB 851. A valuable consideration, in the sense of the law, may consist either in some right
· MULLA, The Indian Contract Act, Eleventh Edition.
· Mohammad Haider Ali, Md Ashraful Islam, Md Zahurul Haque, A Textbook on Law of Cintract, National Law Book Company.
· Retrieve From: http://miteshk.webs.com/BUSINESS-LAW.pdf. Accessed on 01-07-12; 09.00 pm to 01.00 am. The Indian Act says that “an agreement enforceable by law is a contract.
· Retrieve From: <href=”#ixzz1dIv2eh3m”>http://www.citeman.com/4120-no-considerations-and-no-contracts.html#ixzz1dIv2eh3m, Accessed on 01-07-12; 09.00 pm to 011.00 am
· Retrieve From: http://www.citeman.com/4120-no-considerations-and-no-contracts.html, Accessed on 03-07-12; 09.00 pm to 01.00 am
· Retrieved from: http:// www.Answer.com. Accessed on 10-06-12; 10.00 pm to 12.30 am. Consideration is a technical term used in the sense of quid-pro-quo
· http://www.allinterview.com/showanswers/76627.html
· <href=”#ixzz1dIv2eh3m”>http://www.citeman.com/4120-no-considerations-and-no-contracts.html#ixzz1dIv2eh3m
· Retrieved from: http:// www.Answer.com. Accessed on 10-06-12; 10.00 pm to 12.30 am. Consideration is a technical term used in the sense of quid-pro-quo.
· Retrieved from: http://www.downloadpdffree.com/indian-business-law-books-free-download.pdf/10 . Accessed on 22-06-12; 07.00 pm to 08.00 pm. will be valid and enforceable according to section 25 and 185 are as follows: According to section 2(d) of the Indian contract Act, 1872,
· Retrieved from: http://law.wustl.edu/sba/firstyearoutlines/contracts/Haley/Haley-Contracts-Gale-Fall04.pdf. Accessed on 22-06-12; 07.00 pm to 08.00 pm. Non-monetary consideration includes acts or promises made in order for the dutiable property to be transferred;
· Retrieved from: http://www.miteshk.webs.com. Accessed on 14-06-12; 10.00 pm to 11.30 pm. Conversely, if A signs a contract to buy a car from B for $0, B’s consideration is still the car ; Consideration is often spoken of as a benefit to the promisor;
<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: 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). Rules of a valid contract
<href=”#_ftnref4″ name=”_ftn4″ title=””>[4] Retrieve From: http://miteshk.webs.com/BUSINESS-LAW.pdf. Accessed on 01-07-12; 09.00 pm to 01.00 am. The Indian Act says that “an agreement enforceable by law is a contract.
<href=”#_ftnref5″ name=”_ftn5″ title=””>[5] <href=”#ixzz1dIv2eh3m”>http://www.citeman.com/4120-no-considerations-and-no-contracts.html#ixzz1dIv2eh3m
<href=”#_ftnref6″ name=”_ftn6″ title=””>[6] Paterson, J., Robertson, A. & Heffey, P. (2005). “Principles of Contract Law.” 2nd Edition. Melbourne: Thomson Law Book Co.
<href=”#_ftnref7″ name=”_ftn7″ title=””>[7] See: (Thomas v Thomas) (1842) 2 QB 851. A valuable consideration, in the sense of the law, may consist either in some right
<href=”#_ftnref8″ name=”_ftn8″ title=””>[8]http://www.citeman.com/4120-no-considerations-and-no-contracts.html
<href=”#_ftnref9″ name=”_ftn9″ title=””>[9] Retrieved from: http:// www.Answer.com. Accessed on 10-06-12; 10.00 pm to 12.30 am. Consideration is a technical term used in the sense of quid-pro-quo (something in return)
<href=”#_ftnref10″ name=”_ftn10″ title=””>[10] Retrieved from: http://www.sallyramage.net/uk_law_books.pdf . Accessed on 25-06-12; 09.00 am to 03.00 pm. Under English law simple contracts must be supported by consideration but especially contract required no consideration
<href=”#_ftnref11″ name=”_ftn11″ title=””>[11] MULLA, The Indian Contract Act, Eleventh Edition.
<href=”#_ftnref12″ name=”_ftn12″ title=””>[12] Mohammad Haider Ali, Md Ashraful Islam, Md Zahurul Haque, A Textbook on Law of Cintract, National Law Book Company.
<href=”#_ftnref13″ name=”_ftn13″ title=””>[13]http://www.allinterview.com/showanswers/76627.html
<href=”#_ftnref14″ name=”_ftn14″ title=””>[14] <href=”#ixzz1dIv2eh3m”>http://www.citeman.com/4120-no-considerations-and-no-contracts.html#ixzz1dIv2eh3m
<href=”#_ftnref15″ name=”_ftn15″ title=””>[15] Retrieved from: http:// www.Answer.com. Accessed on 10-06-12; 10.00 pm to 12.30 am. Consideration is a technical term used in the sense of quid-pro-quo (something in return)
<href=”#_ftnref16″ name=”_ftn16″ title=””>[16] Retrieved from: http://www.sallyramage.net/uk_law_books.pdf . Accessed on 25-06-12; 09.00 am to 03.00 pm. Under English law simple contracts must be supported by consideration but especially contract required no consideration
<href=”#_ftnref17″ name=”_ftn17″ title=””>[17] Retrieved from: http://www.downloadpdffree.com/indian-business-law-books-free-download.pdf/10 . Accessed on 22-06-12; 07.00 pm to 08.00 pm. will be valid and enforceable according to section 25 and 185 are as follows: According to section 2(d) of the Indian contract Act, 1872, defines consideration as “when at the desire of the promisor
<href=”#_ftnref18″ name=”_ftn18″ title=””>[18] Retrieved from: http://law.wustl.edu/sba/firstyearoutlines/contracts/Haley/Haley-Contracts-Gale-Fall04.pdf. Accessed on 22-06-12; 07.00 pm to 08.00 pm. Non-monetary consideration includes acts or promises made in order for the dutiable property to be transferred;
<href=”#_ftnref19″ name=”_ftn19″ title=””>[19] Retrieved from: http://www.miteshk.webs.com. Accessed on 14-06-12; 10.00 pm to 11.30 pm. Conversely, if A signs a contract to buy a car from B for $0, B’s consideration is still the car ; Consideration is often spoken of as a benefit to the promisor; It can take the form of money, physical objects, services, promised actions, abstinence from a future action, and much more
<href=”#_ftnref20″ name=”_ftn20″ title=””>[20] Mohammad Haider Ali, Md Ashraful Islam, Md Zahurul Haque, A Textbook on Law of Cintract.