Join our Law Notes WhatsApp Group and stay updated with Legal and Judicial Updates

Consideration

From Lawnotes.in
Jump to:navigation, search

Consideration as in Contract Law

In simple words, Consideration means 'something in return'.

Consideration is one of the essential element for an agreement to become a Contract. It is a requisite for all contracts other than those made by deed.

  • It is the price for which the promise of the other is bought.

Application

Consideration is a fundamental prerequisite in English contract law and all countries that use the English contract law will use the concepts of consideration. Norwegian/Scandinavian contract law does not make consideration essential for a contract to be valid.

Definition

Consideration is something that moves from the promisee to the promisor, at the implied or express request of the latter, in return for his promise. The item that moves can be a right, interest, profit, loss, responsibility given or suffered, forbearance or a benefit which is of some value in the eyes of law.

  • Curreie v Misa (1875): Consideration is "some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other"
  • Dunlop Pneumatic Type Co Ltd v Selfridge & Co Ltd (1915): Consideration is "An act or forbearance of 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.”
  • Consideration is to be distinguished from motive or reason to contract.

Essentials of a valid Consideration

  1. Consideration must move at the desire of the Promisor
  2. Consideration may move from the Promisee or any other person
  3. Consideration may be past, present or future
  4. Consideration must be of value

Consideration must move from promisee/claimant

  • Tweddle v. Atkinson (1861)

Consideration may be past, present or future

In regard to time, considerations may be past, present or future. Those which are present or future will support a contract not void for other reasons.

  • Roscorla v Thomas (1842); Eastwood v Kenyon (1840); R. v Clark (1927)

Types of considerations

  • Concurrent Consideration
  • Continuing Consideration
  • Equitable or Moral Considerations
  • Executed or Executory Considerations
  • Express or Implied Considerations
  • Fair and Valuable Consideration
  • Good / Meritorious Consideration
  • Gratuitous Consideration
  • Illegal Consideration
  • Implied Considerations
  • Impossible Consideration
  • Inadequate Consideration
  • Legal Consideration
  • Nominal Consideration
  • Past Consideration
  • Pecuniary Consideration
  • Sufficient Consideration

Executory consideration

This consists of a promise made in return for a promise – where both promises are still to be performed – such as a contract between a buyer and seller for the future delivery of a car on credit.

This type of consideration is common in bilateral contracts.

Executed consideration

This occurs when one of the two parties has done all that they are required to do, leaving any outstanding liability on the other party.

This type of consideration is common in unilateral contracts.

Past consideration

What happens if the promise (the alleged consideration) is given after the act has been completed? In English law this is treated as “ past consideration” and the general rule is that past consideration is no consideration at all.

  • Roscorla v Thomas [1842]: “in consideration that the claimant at the request of the defendant had bought of the defendant a certain horse . . . for a certain price, the defendant promised the claimant that the said horse was sound and free from vice”
  • Re McArdle [1951] , a number of children were entitled by virtue of their father’s will to a house once their mother had died. During the mother’s lifetime one of the children and his wife lived with her in the house. During this period the wife made various improvements and alterations to the house. On the mother’s death the other children signed a document stating that the executors should pay her £488, the cost of the improvements. The executors, in fact, failed to pay and the wife sued. It was held that the carrying out of the improvements was past in relation to the promise to pay her the £488, so her action failed.

Legal Consideration

Consideration cannot be something or some act which is illegal, immoral or contrary to public morals. Wyatt v. Kreglinger and Fernau (1993)

Consideration as per Indian Contract Act, 1872

According to section 2(d) of Indian Contract Act, 1872, consideration means
"When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence is called a consideration for the promisee."

Related Cases / Recent Cases / Case Law

  • Durga Prasad vs. Baldeo (1880)
  • Chinnayya vs. Ramayya (1882)
  • Collins vs. Godefry (1831)
  • Treitel (1976) 50 ALJ 439: Consideration is a doctrine designed to establish which promises should be legally enforceable.
  • Curie vs Misa (1875) LR 10 Ex. 153 at p. 162: '.. A valuable consideration, in the sense of the law, may consist in some right, interest, profit, or benefit accruing to the other party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other...'
  • Llewellyn (1941) 41 Col. L. Rev. 777, 778,863; Simpson (1975) 9 LQR 247: Consideration reflects a variety of policies and serves a number of functions.
  • Pillans vs Van Mierop (1765) 3 Burr. 1663: Consideration is sometimes seen a requirement which ensures that a promisor has deliberately decided to contract and prevents parties accidentally binding themselves on impulse.

Exceptions to Consideration

The general rule is that "No consideration, no contract". So, a contract made without consideration in it is void.

However, law excludes considerations in few exceptions because it invokes the concept of Promissory Estoppel.

Natural love and affection

For example, a father, out of love and affection towards his son, makes a formal written registered document as per law, transfers a piece of land he owns. In this contact, the consideration is not essential because it arises out of natural love and affection.

It is important to note that except for the consideration, all other requisites for an essential contract will have to be present to be a valid contract failing which it becomes void.

In general, it is essential that the parties of the contract should be "the parties standing in near relation to each other". Thus, a contract with a person out of family and unrelated to the family cannot enter into a contract without consideration.

  • Further, the presence of "love and affection" is necessary. Mere agreement to offer some money by a husband to a wife without love and affection will not become a contract. For example, a husband, by proper documentation, made an agreement to give some money as a settlement for her separate residence and maintenance. Here, the contract was not covered by the exception because the agreement was made not on account of natural love and affection. (Rajlukhy Dabee v Bhootnath Mookerjee)
  • When a brother makes an agreement and partitions an ancestral property among all other brothers as per legal provisions, the agreement made in this process is a valid contract even when compensation is not involved because the brother did the act of partitioning of the property out of love and affection on his brothers. (Bhiwa v Shivaram)
  • When a person agrees to repay the debt taken by his brother by way of a registered document, the person is legally bound to enforce the repayment. It was held that the latter was entitled to sue the former in case of breach of agreement.

Compensation for past voluntary service

When a promise is made to compensate, wholly on in part, a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do is enforceable although made without consideration.

Examples:

  1. A finds B's purse and gives it to him. B promises to give A Rupees 50. This is a valid contract.
  2. If A supports B's infant son. B promises to compensate A's expenses in so doing. That is a contract.

Necessary conditions

  1. The act must have been done voluntarily and not at request.
  2. The act must have been done for the promisor. (Durga Prasad v Baldeo)
  3. The act must have been done for a promisor who was in existence at the time when the act was done. The work done by a promoter of a company before its formation cannot be said to have been done for the company.
  4. The act done must have been done for a promisor who is competent to contract at the time when the act was done. Hence a promise by a person on attaining majority to repay money lent and advanced to him during his minority does not come within the exception, the promisor not being competent to contract when the loan was made to him. (Pollock and Mulla)(Related Case Laws: Indran Ramaswami v Anthappa Chettian, Suraj Narain v Suraj Ahir. A different view has been taken in Musammat Kundan Bibi v Sree Narain and in Karam Chand v Basant Kuar)
  5. The intention of the promisor should be to compensate the promisee. If the intention is not to compensate, the promise will not come within this clause. Abdulla Khan v Purshottam
  6. The service rendered must be legal. In Alice Verses William, it was held that a promise to pay for past cohabitation with a woman whose husband is alive is adulterous. But divergent views are held by High Courts in India on the question whether the same principle could be applied to a promise to pay a woman for past cohabitation which is not an infringement of the penal law.

Agreement to pay time barred debt

A promise made in writing and signed by the person to be charged therewith, or by his agent generally or specially authroised in that behalf to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

Necessary conditions

  1. The debt must be such of which the creditor might have enforced payment but for the law of limitation of suits.
  2. A mere acknowledgement of the debt is not sufficient. There must be promise to pay the debt.
  3. The promise must be in writing and signed by the debtor or his authorised agent.
  4. The promise must be given by the person to be charged therewith and not by any third party.

A promise made by a person who is under no obligation to pay the debts of another does not fall within the clause. But Madras High Court in P. Govinda Nair v P. Achutan Nair, held that the words "by the person to be charged therewith" in Section 25(3) are wide enough to include the case of a person who agrees to become liable for the payment of a debt due by another and need not be limited to the person who was indebted from the beginning.

Completed gift

Absence of consideration shall not affect the validity, as between the donor and donee, of any gifts actually made.

Contract of agency

No consideration is necessary to create an agency.

Remission by the promisee after the performance of the promise

Contribution to the charity

Consideration as in Legal Practice

  • Consideration is a technical term indicating that a tribunal has heard and judicially determined matters submitted to it. *Meaney v. State Industrial Accident Commission, 113 Or, 371, 232 P. 789, 791.

Related Legislation

  • Law of Property (Miscellaneous Provisions) Act 1989
  • Section 10 of Indian Contract Act, 1872: What agreements are contracts
  • Section 8 of Malaysian Contracts Act, 1950: Acceptance by performing conditions, or receiving consideration
  • Section 24 of of Malaysian Contracts Act, 1950: What considerations and object are lawful, and what not
  • Section 25 of of Malaysian Contracts Act, 1950: Agreements void if considerations and objects unlawful in part
  • Section 26 of of Malaysian Contracts Act, 1950: Agreement without consideration, void, unless
  • Section 80 of of Malaysian Contracts Act, 1950: Consideration for guarantee
  • Section 138 of of Malaysian Contracts Act, 1950: Consideration not necessary

Related topics