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In ordinary sense, consideration means the exchange of price – Illustrate & explains.
Introduction:
Consideration is one of the essential elements of contract. The general principle is that no consideration no contract. But there are certain exceptions to this general principle where there may be contracts even without consideration.
According to Section 25, of the Contract 187 “An agreement without Consideration is void”
Consideration in English Law is one of the three main building blocks of a contract. Consideration can be anything of value (such as an item or service), which each party 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. A contract must be “met with” or “supported by” consideration to be enforceable; also, only a person who has provided consideration can enforce a contract. In other words, if an arrangement consists of a promise which is not supported by consideration, then the arrangement is not a legally enforceable contract. Mutual promises constitute consideration for each other. (“I promise you to do X, in consideration for which promise you promise me to do Y”).
Meaning of Consideration:
In ordinary sense, consideration means the exchange of price. It has different legal meaning which does not restrict it only within the area of monetary compensation rather this term has been given wider legal connotation. The concept ‘consideration’ has been defined in section 2(d) of the Contract Act 1872. It says:
When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, of promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.<href=”#_ftn1″ name=”_ftnref1″ title=””>[1]
Analyzing above-mention definition of ‘consideration’ we get the following ingredients of consideration:
i. It is an act or abstinence. That means it may be positive negative.
ii. It is done at the desire of the promisor. So it is done at the desire of third person that will not be consideration. Conversely, if anything is done at the desire of the promisor, than that will be good consideration.
iii. It may be of three forms, i.e. has been done, or is being done or is promised to be done at some future time.
According to Pollock,
“Consideration is the price for which the promise of the other is bought and the promise thus given for value is enforceable.”<href=”#_ftn2″ name=”_ftnref2″ title=””>[2]
Another simple Definition is by Justice Patterson,
“Consideration means something which of some value in the eyes of the law…..it may be some benefit to the plaintiff of some detriment to the defendant.” <href=”#_ftn3″ name=”_ftnref3″ title=””>[3]
But most commonly accepted definition is that which was attempted by Lush J in Currie v Misa:
A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.
Similarly, the Calcutta High Court has observed in a case that “consideration is the price of the promise, a return or quid pro quo, something of value received by the promisee as inducement of the promise.”<href=”#_ftn4″ name=”_ftnref4″ title=””>[4]
Types of Consideration:
Consideration may be of three types as it appears clearly from the language used to define the term ‘consideration’ – has done or abstain from doing, or a promises to do or to abstain from doing . So get following considerations<href=”#_ftn5″ name=”_ftnref5″ title=””>[5]:
1. Executory Consideration;
2. Executed Consideration;
3. Past Consideration;
1. Executory Consideration:
Executory Consideration consists of a promise to do or to abstain from doing something at future time. In such case liability become outstanding on both the sides and in fact most of the business contract takes place in this way. Suppose A agree to sell a car and B agree to buy it at a certain price, here the consideration is Executory.
2. Executed Consideration:
If one of the parties there by performs his part and the liability on another’s part remains outstanding, the performance of the earlier person is an executed consideration. In other words, if any party of the contract performs his part and the other party keeps it for future then the part which is performed already will be called executed consideration.
3. Past Consideration:
By using the term ‘has done or abstain from doing’ in section 2(d), the law clearly recognized that past consideration as a good consideration, though it is not generally recognized as consideration in English law. Thus a promise to pay money at a future date for goods to be delivered at a future date is a valid contract.
Thus, in Sinda v. Abraham<href=”#_ftn6″ name=”_ftnref6″ title=””>[6], the plaintiff rendered services to the defendant at his desire during his minority continued those services at his request after his majority and this was considered as good consideration for a subsequent express promise by the defendant to pay an annuity to the plaintiff.
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:
a. It is forbidden by law; or
b. Is of such nature that, if permitted, it would defect the provision of any law; or
c. Is fraudulent; or
d. Involve of implies injury to the person or property of another; or
e. The court regards it is immoral and opposed to public policy.
In each of this case, the consideration and object of an agreement is said to be unlawful.
What is good consideration?
The rules or the necessary factors for consideration can be summed up as follows:
- There must be desire of the promisor
- It must be real
- Reasonable
- Not illegal
- Present, past and future;
- From the promise or any person.
Subject to the above essential factors, a good consideration can be any of the following:
- Physical good
- Services
- Forbearance
- Arbitration
- settlement
Fundamental Principle of Consideration:
1. Promissory Estoppels:
The definition of consideration in Section 2 (d)<href=”#_ftn7″ name=”_ftnref7″ title=””>[7], clearly emphasizes that an act or abstinence which is to be a consideration for the promise must be done or promised to be done in accordance with the desire of the promisor. In other words; an act<href=”#_ftn8″ name=”_ftnref8″ title=””>[8] shall not be good consideration for a promise unless it is done at the desire of the promisor.
In Durga Prasad v Baldeo,<href=”#_ftn9″ name=”_ftnref9″ title=””>[9]
The plaintiff on the order of the Collector of town, built at his own expense, certain shop in a Bazaar. The shops came to be occupied by the defendants who, in consideration of the plaintiff having expended money in the construction, promised to pay him a commission on articles should through their agency in the bazaar. The plaintiff’s action to recover the commission was rejected.
The only ground for the making of the promise in the expense incurred by the plaintiff in establishing in Gang (market) but it is clear that anything done is that way was not ‘at the desire’ of the defendants so as to constitute consideration. The act was the result not of the promise but of the Collector’s order.
In English law where, Ricketts and Combe, the court is unable to find the existence of consideration, can the promise be enforced despite the absence of consideration? In orthodox answer is that such promise will not be enforced. But limited effect may be given to the promise under the doctrine estoppel. The essential ingredients of estoppels were defined by Lord Bikenhead in Maclaine v. Gatty<href=”#_ftn10″ name=”_ftnref10″ title=””>[10], in the following terms,
‘Where A has by his words or conduct justified B in believing that a certain state of facts exist, and B has acted upon such belief to his prejudice, A is no permitted to affirm against b that a different state of facts existed at the same time.’
There are three exceptions to the rule in Pinnel’s case. They are composite agreement, payment of debt by third party and promissory estoppel. The rule in Pinnel’s case (1602) 5 CoRep117a is that part payment of debt is not good consideration to forgo the balance. Thus the creditor may sue for the remaining debt unless there is fresh consideration.
The modern concept of promissory estoppel was developed in the cases of Central London Property trust Ltd V. High Tree House Ltd. (1974)1 KB 130 and Total Metal Manufacturing Ltd V. Tungsten Electric Co Ltd. (1955) 1 WLR 761.
Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 (or the High Trees case) is an English contract law decision in the High Court. It reaffirmed the doctrine of promissory estoppel in contract law in England and Wales. Denning J held estoppel to be,
a promise was made which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made and which was in fact so acted on.
2. Privity of Contract and of Consideration:
The second notable feature of the definition of consideration in section 2(d)<href=”#_ftn11″ name=”_ftnref11″ title=””>[11] is that the act which is to constitute a consideration may be done by “the promisee or any other person”. It means, therefore that as long as there is consideration for a promised, it is immaterial who has furnished it. It may move from the promisee, or if the promisor has no objection, from any other person. This principle has its genesis in the English common Law, having been adopted by the Court of King’s Bench as early as 1677 in Dutton v Poole:<href=”#_ftn12″ name=”_ftnref12″ title=””>[12]
A person had a daughter to marry and in order to provide her a marriage portion he intended to sell a wood of which he was possessed at the time. His son (the defendant) promised that if “the father would forbear to sell at his request he would pay the daughter 1000 found”.
The father accordingly forbore but the defendant did not pay. The daughter and her husband sued the defendant.
It is clear that the defendant gave his promised to his father and it was the father alone who by abstaining from selling the wood had furnished consideration for the promise. The plaintiff was neither privy to the contract “not interested in the consideration”. But it is equally clear that the whole object of the agreement was to provide a portion to the plaintiff. It would have been highly inequitable to allow the son to keep the wood and yet to deprived his sister of her portion. He was accordingly held liable. The court said:
If a man should say ‘Give ma horse’ I will give your son 10 found, the son may bring the action because the gift was upon the consideration of a profit to the so, and father is obliged by natural affection to provide for his children………there was such apparent consideration of affection from the father to his children from whom nature obliges him to provide, that the consideration and promise to the father may well extend to the children.
A promise is enforceable if it is supported by consideration, that is, where consideration has moved from the promisee. For example, in the case of Tweddle v Atkinson,<href=”#_ftn13″ name=”_ftnref13″ title=””>[13] John Twiddle promised William Guy that he would pay a sum of money to the child of William Guy, and likewise William Guy promised John Tweddle that he would pay a sum of money to the child of John Tweddle, upon the marriage of the two children to each other.
However, William Guy failed to pay the son of John Tweddle, who then sued his executors for the amount promised. It was held that the son could not enforce the promise made to his father, as he himself had not actually given consideration for it – it was his father who had done so instead. The son didn’t receive any consideration, so he cannot enforce the promise. This particular rule of consideration forms the basis of the doctrine of privities of a contract, that is, only a party to a contract is permitted to sue upon that contract’s terms, (Note that the doctrine of privities has been some what altered by the Contract (Rights of Third Parties) Act 1999.). Therefore consideration from the promisee was indulgent of the claim. Although consideration must move from the promisee, it does not necessarily have to move to the promisor.
The promisee may provide consideration to a third party, if this is agreed at the time the parties contracted (see Bolton v Madden)<href=”#_ftn14″ name=”_ftnref14″ title=””>[14].
3. Consideration must be Sufficient Need not to be Adequate:
The word ‘something’ used in the definition of ‘consideration’ in section of the Contract Act 1872 implies an important principle regarding consideration that it may be anything. It is immaterial whether that is sufficient or not. The definition says:
When at the desire of the promisor, the promisee or any other person has done or abstain for doing, or does or abstain from doing, or promises to do or to abstain for doing something, such act or abstinence or promise is called a consideration for the promisee.
Here something means anything which has any value in the eye of the law. It implies that considerations need not to be adequate, because it is not mentioning in the law that consideration must be sufficient rather ‘something” which requires the existence of consideration in any form. In other word it is require by law that consideration must exist in reality whether that is sufficient or adequate compensation in exchange of the promisee or grossly against the promise made. Hence there is a popular conclusion that consideration must be real, it is need not to be adequate.
In English law, for consideration to be good consideration, it must be of some value, even if it is minimal value. There is no requirement that the consideration be commensurate in economic terms to the original promise. Nominal consideration will suffice as good consideration for a contract; Courts will not measure the adequacy of the consideration as it is up to the parties to decide the subjective worth of each promise. There have a famous English case about consideration, is that Chappell & Co Ltd v. Nestle Co Ltd<href=”#_ftn15″ name=”_ftnref15″ title=””>[15],
Chappell & Co. owned the copyright to ‘Rockin’ shoes’ (by The King Brothers). Nestle was giving away records of it to people who sent in three wrappers from 6d chocolate bars, as well as 1s 6d. The Copyright Act 1956 s 8 said a 6.25% royalty needed to be paid on the ‘ordinary retail selling price’ to the owners of copyrights. Nestle said 1s 6d was the ordinary retail selling price, but Chappell & Co argued that it should be more and sought an injunction for breach of CA 1956 In this way the question arose as to whether the wrappers were consideration for the records. Upjohn granted an injunction. The Court of Appeal reversed the decision and Chappell & Co appealed.
The majority of the House of Lords (Lord Reid, Lord Tucker and Lord Somervell) held that the wrappers were part of the consideration, and so Nestle was in breach of the Copyright Act 1956, by failing to pay royalties reflecting the extra cost of the wrappers.
Lord Somervell said the following,My Lords, section 8 of the Copyright Act 1956, provides for a royalty of an amount, subject to a minimum, equal to 6¼ per cent, of the ordinary retail selling price of the record. This necessarily implies, in my opinion, that a sale to be within the section must not only be retail, but one in which there is no other consideration for the transfer of property in the record but the money price. Parliament would never have based the royalty on a percentage of a money price if the section was to cover cases in which part, possibly the main part, of the consideration was to be other than money. This is in no sense a remarkable conclusion, as in most sales money is the sole consideration. It was not argued that the transaction was not a sale.
The question, then, is whether the three wrappers were part of the consideration or, as Jenkins LJ held, a condition of making the purchase, like a ticket entitling a member to buy at a co-operative store. I think they are part of the consideration. They are so described in the offer. “They,” the wrappers, “will help you to get smash hit recordings.”
They are so described in the record itself – “all you have to do to get such new record is to send three wrappers from Nestlé’s 6d. Milk chocolate bars, together with postal order for 1s. 6d.” This is not conclusive but, however described; they are, in my view, in law part of the consideration. It is said that when received the wrappers are of no value to Nestlé’s. This I would have thought irrelevant. A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn. As the whole object of selling the record, if it was a sale, was to increase the sales of chocolate, it seems to me wrong-not to treat the stipulated evidence of such sales as part of the consideration. For these reasons I would allow the appeal.
Conclusion
After of above mention discussion we can says 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 (at least to the parties), 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. Not doing an act (forbearance) can be consideration, such as “I will pay you $1,000 not to build a road next to my fence.” Sometimes consideration is “nominal,” meaning it is stated for form only, such as “$10 as consideration for conveyance of title,” which is used to hide the true amount being paid. Contracts may become unenforceable or rescindable (undone by rescission) 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 (as when the mechanic does not make the car run properly). Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts
Bibliography
Books:
1. Avtar Sing, Law of Contract and Specific Relief, 9th Edn. (Published by Eastern Book Company, 2007-2008)
2. Muhammad Ekramul Haque, Law of Contract, Published By: Law Lyceum ( Dhanmndi, Dhaka-1205) 2004
3. Ewan McKendrick, Contract Law, Fifth Edition, Palgrave Macmillan.
Web Source:
http://en.wikipedia.org/wiki/Consideration_in_English_law.
<href=”#_ftnref1″ name=”_ftn1″ title=””>[1] Section 2(d), The Contract Act 1872.
<href=”#_ftnref2″ name=”_ftn2″ title=””>[2] Sir Frederic k Pollock in Pollock of Contracts, 13th Edn, p. 133.
<href=”#_ftnref3″ name=”_ftn3″ title=””>
[3] Thomas v Thomas, (1842) 2 QB 851, 859. C.f. Avtar Sing, Law of Contract and Specific Relief, 9th Edn. (Published by Eastern Book Company, 2007-2008) p. 84.
<href=”#_ftnref4″ name=”_ftn4″ title=””>
[4] Fazaluddin v Panchanam Das, AIR 1957Cal92. C.f. Avtar Sing, Law of Contract and Specific Relief, 9th Edn. (Published by Eastern Book Company, 2007-2008) p. 85.
<href=”#_ftnref5″ name=”_ftn5″ title=””>[5] Muhammad Ekramul Haque, Law of Contract, Published By: Law Lyceum ( Dhanmndi, Dhaka-1205) 2004, p.117.
<href=”#_ftnref6″ name=”_ftn6″ title=””>[6] (1859) 20 Bom. 755; c.f. (1918) 20 B0m. L.R.441.
<href=”#_ftnref7″ name=”_ftn7″ title=””>[7] The Contract Act 1872
<href=”#_ftnref8″ name=”_ftn8″ title=””>[8] The word ‘act’ for the purpose of definition, includes ‘abstinence’ also. Bank Baroda v. Kayenkay Agencies, (2003)1 BC 59 (Delhi DB)
<href=”#_ftnref9″ name=”_ftn9″ title=””>[9] (1880) 3 All 22
<href=”#_ftnref10″ name=”_ftn10″ title=””>[10] [1921] 1 AC 37, 386.
<href=”#_ftnref11″ name=”_ftn11″ title=””>[11] The Contract Act 1872
<href=”#_ftnref12″ name=”_ftn12″ title=””>[12] Court of Kings Bench. (1677) 2 Levinz 210: 83 ER 523.
<href=”#_ftnref13″ name=”_ftn13″ title=””>[13] (1861) 1 B&S 393; 121 ER 762
<href=”#_ftnref14″ name=”_ftn14″ title=””>[14] http://en.wikipedia.org/wiki/Consideration_in_English_law.
<href=”#_ftnref15″ name=”_ftn15″ title=””>[15] [1960] AC 87