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“No Consideration, no contract” legal consideration is the crucial element, which makes the involved parties deliver on their promises -explain
1.1 Introduction
To know the title meaning or understand the title ‘No consideration no contract:’ first we have to know the definitions and rules regarding the contract and consideration. First we know about contract and element of contract. For an agreement or contract to be upheld in a court of law, a legal consideration must be promised by the promisor. In a unilateral contract, a single party called a promisor makes a promise of a legal consideration in order for the other party, called the promisee, to act or to refrain from acting something that he or she was not obligated to do so until the agreement. In a bilateral contract, both parties make promises of legal considerations. Accordingly, the courts differentiate between a bilateral contract<href=”#_ftn1″ name=”_ftnref1″ title=””>[1] and a unilateral contract by ascertaining if 1 party provided a consideration or if both parties did.
In the case of bilateral contracts, the moment that the parties involved in a contract formally agree upon delivering their respective promises, this is considered as consideration and binds both parties to the promises he or she has agreed to fulfill.
Legal consideration can be in the form of monetary compensation or a type of good or service to be rendered by the promisee in exchange for the promise delivered by the promisor.<href=”#_ftn2″ name=”_ftnref2″ title=””>[2]
2.1 Contract
According contract act 1872 contract is an agreement enforceable by law. According to Sir William Anson “A contract is an agreement enforceable at law made between two or more persons, by which right are acquire by on the part of the other or others. 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 trifling, indeterminate, impossible or illegal.
2.2 Element of contract:
Proposal and acceptance: A proposal and its acceptance is the universally acknowledged process for the ranking of an agreement. One party make proposal and another parties insure acceptance.<href=”#_ftn3″ name=”_ftnref3″ title=””>[3] When one person signifies to another his willingness to another to do or to abstain from doing anything, with a view to obtaining the assent of the other person to such act or assistance, he or she is said to make a proposal.
Ø Legal relationship: There two or more parties have the intention to create a legal relationship. An agreement for watching a move is not an imitation to create a legal relationship.
Ø Lawful<href=”#_ftn4″ name=”_ftnref4″ title=””>[4]consideration: Become a valid contract there must have some consideration. On party give something by taking something and agree to do something. Subject to certain expectation
an agreement is not enforceable unless each party to the agreement gets something. This something is called consideration. This is used in the sense of quid quo i.e. something in return.
Example-P agrees to sell a house to Q for $8000.For P s promise, the consideration is house. Q’s the money.
· Lawful subject: The object for which contract have been made its must be legal not against public police. Example- A contract for crime is not valid contract.
· Capacity to contract: The parties involve an agreement must be legally capable to inter into an agreement, otherwise can not enforceable by court of law. Want of capacity arise from minority<href=”#_ftn5″ name=”_ftnref5″ title=””>[5], lunacy, idiocy, and similar other facts.
· Free consent: In order to be enforceable an agreement must be based on the free consent of all parties. Agreement persuaded by coercion<href=”#_ftn6″ name=”_ftnref6″ title=””>[6], 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: The agreement must be capable of being performed. Any that is impossible to performed, cannot be enforceable by law. Example- promised to sell land in sun or moon, itsimpossible 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<href=”#_ftn7″ name=”_ftnref7″ title=””>[7] of immovable property, article of association of company etc.is minatory to written and registration.
3.1 Consideration
Section 25 of the Indian Contract Act opens with the deceleration that `an agreement made without consideration is void…” In England also ‘promises without consideration is not enforced, because they are gratuitous” It is undoubtedly true that every man is the law of nature bound to fulfill his engagements. It is equally true that the law of the country supplies no means, nor affords any remedy, to compel the performance of an agreement made without consideration.
3.2 Types of consideration
1) Past Consideration: When consideration was given before the date of the promise.<href=”#_ftn8″ name=”_ftnref8″ title=””>[8]Example-X dose some work for Z. After few dates Z gives some money to X. Past consideration is no effect to consideration at all. It is where the defendant’s promise is subsequent to the plaintiff’s act and independent of it. For example, where P saves D from drowning; Dash expression pf gratitude, later promise to pay Pa sum of money as a reward. Here P cannot sue D on his promise since P’s consideration is past in time, D’s promise being subsequent and independent of A’s act.
2) Present Consideration: when consideration goes along with the promise, this is called present consideration. Example-R purchases a watch from shop and pays the price immediately. The consideration moving from R is a present consideration.
3) Future Consideration: Future consideration is one when consideration moves at the future date.<href=”#_ftn9″ name=”_ftnref9″ title=””>[9] Example- A and B make a contract that exchange is make on future date.
3.3 Rules regarding Consideration:
· Consideration should be according to the desire of the promisor. Example, A lost his dog and he was worry, B find A’s dog and ask A pay him money $100.Adidnot request B for help. As B cannot claim money from A.
· Promise or any other person can give consideration. Example, A give two house to B, because B paying $100 to C every month until C in the age of 22 years old. Here contract is between B and C.
· Consideration must have some value<href=”#_ftn10″ name=”_ftnref10″ title=””>[10]in the eye of law
· Consideration need not be adequate<href=”#_ftn11″ name=”_ftnref11″ title=””>[11].
· Consideration must be legal not immoral<href=”#_ftn12″ name=”_ftnref12″ title=””>[12]
· Commiseration may be past, present and future
Agreement
· Void Agreement: An agreement not fulfils the all element of contract is called void. Void agreement is not enforceable by law. Example-An agreement without consideration, subject is illegal etc. Sometimes changing government policies become an agreement void.
· Voidable Agreement: An avoidable agreement is that where it not enforceable<href=”#_ftn13″ name=”_ftnref13″ title=””>[13]by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable agreement. Example-X and Z have a contract. X breach the term of a contract, for this reason contract is void but if Z wants to continue the contract, he can continue.
· Unenforceable Agreement: The contract which can not enforceable by the court of law<href=”#_ftn14″ name=”_ftnref14″ title=””>[14]because it not fulfils govt. Or other technical element which is essential to make a contract. Example-Agreement made without registration or non-payment of necessary stamps duty. <href=”#_ftn15″ name=”_ftnref15″ title=””>[15]
· Illegal Agreement: Agreement made against the in force in Bangladesh. Like an agreement for drags, fancied, teabag etc business.
· Valid Agreement: An agreement which fulfils all elements of contract and also fulfils all govt. Technical instrument is called valid contract parties to a valid contract violating <href=”#_ftn16″ name=”_ftnref16″ title=””>[16]obligation become subject to legal action.
4.1 ‘No consideration no contract” this title we make understandable by using a case/situation. That case is as flowing:
Mr. kamal promised to Mr.Rahim that he sent him Dubai within two months. Mr. Rahim accepted Mr. Kamal offer and they made an agreement for the purpose of make a contract. But there was no mention for any consideration like money, service or property etc. After two month Mr. Rahim suit against Mr. Kamal because he do not sent him to Dubai but court made judgment on fever of Mr. Kamal, show reason that it was not a contract because there was no consideration. If we analyze the above case in front of the contract act, also find that whether the contract of Mr. Kamal and Mr.Karimfulfil the every element for make a valid contract or not. Let us analyzing the fact and element of this case:
In this case Mr. Kamal give offer to Mr. Rahim accepted the offer. They have the intuition to made a legal relationship, they chose a low full objects that is sent Dubai, the contract term the certainty that is within two month, two parties have capacity<href=”#_ftn17″ name=”_ftnref17″ title=””>[17] of contract, the contract is possible to perform, also they make a written document, but an essential element consideration is not mention or not fulfill for these reason the contract was void because not fulfill all element of contract is void contract.
However, if there an agreement truly lacks consideration, the agreement is not a valid contract, and can therefore not be enforced.
For example, if you promise to give your house to your friend, for free, with no strings attached, and put the agreement in writing, accomplishing by every possible formality, you can change your mind any time. Your friend cannot sue you for breach of contract, because no contract existed in the first place, as it was unsupported by consideration (your friend did not give or promise you anything in return for your house). However, once you actually transfer the ownership<href=”#_ftn18″ name=”_ftnref18″ title=””>[18]of your house, you cannot back out (as with any gift, it becomes the property of the recipient once the transfer is complete), but you could do so any time before the gift occurs.<href=”#_ftn19″ name=”_ftnref19″ title=””>[19]
Williams’s v Roffey (1990)
Roffey had a contract to refurbish a block of flats and had sub-contracted the carpentry work to Williams. After the work had begun, it became apparent that Williams had underestimated the cost of the work and was in financial difficulties. Roffey, concerned that the work would not be completed on time and that as a result they would fall foul of a penalty clause in their main contract with the owner, agreed to pay Williams an extra payment per flat. Williams completed the work on more flats but did not receive full payment. He stopped work and brought an action for damages. In the Court of Appeal, Roffey argued that Williams was only doing what he was contractually bound to do and so had not provided consideration.
It was held that where a party to an existing contract later agrees to pay an extra “bonus” in order to ensure that the other party performs his obligations under the contract, then that agreement is binding if the party agreeing to pay the bonus has thereby obtained some new practical advantage or avoided a disadvantage. In the present case there were benefits to Roffey including (a) making sure Williams continued his work, (b) avoiding payment under a damages clause of the main contract if Williams was late, and (c) avoiding the expense and trouble of getting someone else. Therefore, Williams was entitled to payment.<href=”#_ftn20″ name=”_ftnref20″ title=””>[20]
5.0 There are exceptional cases where a contract is enforceable even though there is no consideration. They are as follows:
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 T exceptions <href=”#_ftn21″ name=”_ftnref21″ title=””>[21]have been given in Sec. 25 of the Indian Contract Act. In these cases, agreements are enforceable even if these have been made without consideration.
5.1 promises made out of material love and affection. [Sec. 25]:
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.
Example:
An agreed to pay Rs. 5000 to his younger brother out of natural love, this promise is in writing and registered. If A refuses to pay Rs. 5,000 to his younger brother, the latter can enforce the promise in the Court and A cannot refuse payment on the ground of absence of consideration. It should be noted that all the four conditions must be satisfied only then it will be valid without consideration, otherwise not.
5.2 A promise made to compensate for voluntary services [Sec. 25]:
A promise to compensate, wholly or in part, a person who has voluntarily <href=”#_ftn22″ name=”_ftnref22″ title=””>[22]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 Rs. 50 to A. Later on, B cannot refuse payment on the ground that there was no consideration.
5.3 Written promise to pay a time-barred debt [Sec. 25(3)]:
A promise made in writing to pay a debt barred<href=”#_ftn23″ name=”_ftnref23″ title=””>[23] by the Law of Limitation is enforceable even without consideration.
Example:
A owes B Rs. 1,000 but the debt is barred by the Limitation Act, a signs written promises to pay B the sum of Rs. 1,000. This is a valid contract.
5.4 Gift, etc. actually made:
Explanation I to Section. 25 provide that any gift actually made is valid.
Example:
A gave a watch as a gift to B on his birthday. Later on, A cannot demand his watch (gift) back on the ground that there was no consideration (as A did not get anything in return for the watch).
5) Contracts of agency
The principle shall be liable for the acts of the agent even though no consideration proceeds from the age
6.0 Conclusions
Consideration has been variously defined. Consideration is the recompense given by the party contracting to other.<href=”#_ftn24″ name=”_ftnref24″ title=””>[24] It is a price of the promise. In the word of Pollock, “consideration is the price for which the promise of the other is bought, and the promise thus given value is enforceable”. 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 (essentially, its purpose is to ensure that people keep their promises). Commercial transactions always involve some exchange, so it just became an underlying assumption that all contracts would involve an exchange.
Also, when an agreement which is completely unsupported by consideration is breached, the victim of the breach hasn’t really lost anything, since they didn’t give anything up in the first place, so it is not very important for such an agreement to be enforced by a court.
However, if there is a breach of a promise supported by consideration, the victim of the breach has suffered a loss, especially if they have already performed their end of the agreement, and are now getting nothing in return.<href=”#_ftn25″ name=”_ftnref25″ title=””>[25]
Bibliography
Book “Commercial Law”By M. Ahammed
Book “Law of contract and specific relief”by Avtar Singh.8th Edition.
www.lawyersnjurists.com/course-materials/business-law/ Retrieved July 13, 2012
Legal dictionary.(n.d.). Retrieved July 14, 2012, from dictionary.law.com/
en.wikipedia.org/wiki/See
http://bdlaws.minlaw.gov.bd/print_sections_all.php?id=26
http://brainz.org/what-legal-consideration/
http://legal-dictionary.thefreedictionary.com/Legal+consideration
http://mercantilelaws.blogspot.com/2012/05/no-consideration-no-contract.html
http://www.4lawschool.com/contracts101/consideration.htm
<href=”#_ftnref1″ name=”_ftn1″ title=””>[1] When parties involve in the agreement all are agree to take obligation, see Ahamed.
<href=”#_ftnref2″ name=”_ftn2″ title=””>[2]http://brainz.org/what-legal-consideration http://mercantilelaws.blogspot.com/2012/05/no-consideration-no-contract.html
<href=”#_ftnref3″ name=”_ftn3″ title=””>[3] Ahamed, Section 2(b) of the contract Act defines Acceptance as follows-“When the person to whom the proposal is made signifies his assent to the proposal is said to be acceptance
<href=”#_ftnref4″ name=”_ftn4″ title=””>[4]Lawful means activities which are not restricted and forbidden under the low in Bangladesh.
<href=”#_ftnref5″ name=”_ftn5″ title=””>[5] See Ahmed,Under the Majority Act 1875 of our country a minor has been define as “ one who has not completed his or her 18th year of age”.
<href=”#_ftnref6″ name=”_ftn6″ title=””>[6] See Ahmed, coercion is definesection 15 of the Act as follows: coercion is committing or threatening to commit any act forbidden by the Bangladesh penal code or unlawful detaining or threatening to the prejudice of any person whatever with the intention of causing any person to either into an agreement.
<href=”#_ftnref7″ name=”_ftn7″ title=””>[7] Mortgage is one types of debt by which one party gives their asset or documents of assets to another and collects money or another asset. To read moor please see, Ahmed’s Commercial Law.
<href=”#_ftnref8″ name=”_ftn8″ title=””>[8] Promise is an agreement for doing some thing in fever of any one.
<href=”#_ftnref9″ name=”_ftn9″ title=””>[9] Move at the future datemeans activities performed in future date .example-opening a letter of credit for future transaction.
<href=”#_ftnref10″ name=”_ftn10″ title=””>[10] Value….it may be some benefit to the plaintiff or some e detriment to the deferent. May consist either in some right, interest, profit or benefit according to one party.
<href=”#_ftnref11″ name=”_ftn11″ title=””>[11]Adequate means a necessarily, reasonable.
<href=”#_ftnref12″ name=”_ftn12″ title=””>[12]Immoral means activities are which activities prohibited in particular country.
<href=”#_ftnref13″ name=”_ftn13″ title=””>[13] Enforceableestablished by law
<href=”#_ftnref14″ name=”_ftn14″ title=””>[14]Court of law judgment authorities.
<href=”#_ftnref15″ name=”_ftn15″ title=””>[15] Stamp duty it’s the money consideration for making registration
<href=”#_ftnref16″ name=”_ftn16″ title=””>[16]Violating means breach of law.
<href=”#_ftnref17″ name=”_ftn17″ title=””>[17]The parties involve an agreement must be legally capable to inter into an agreement, otherwise can not enforceable by court of law. Want of capacity arise from minority[17] , lunacy, idiocy, and similar other facts.
<href=”#_ftnref18″ name=”_ftn18″ title=””>[18] Ownership owner obligation against money,propertyetc.
<href=”#_ftnref19″ name=”_ftn19″ title=””>[19] Gift occurs if a person gives certain properties to another according to the provisions of the Transfer of Property Act he cannot subsequently demand the property back on the ground that there was no consideration.
<href=”#_ftnref20″ name=”_ftn20″ title=””>[20] Read more , http://www.lawteacher.net/contract-law/cases/consideration-cases.php
<href=”#_ftnref21″ name=”_ftn21″ title=””>[21]Desire from something.
<href=”#_ftnref22″ name=”_ftn22″ title=””>[22]Do something for society,person, or organization without expecting any return from there.
<href=”#_ftnref23″ name=”_ftn23″ title=””>[23]Promise to pay a time barred debt is valid if:-i) If the debtor promises in written.ii) If the original debt is legal.
<href=”#_ftnref24″ name=”_ftn24″ title=””>[24] Commentaries
<href=”#_ftnref25″ name=”_ftn25″ title=””>[25]wiki.answers.com/Q/What_is_consideration_and_why_must_a_contract_include_consideration_for_it_to_be_legal_and_binding