Lawful consideration and Object

INTRODUCTION

A legally binding contract needs consideration as it is a vital element. So, a valid contract
does not exist without consideration. We know that by promise one party give or sacrifice
something and other party take something. This type of give and take or sacrifice is called
consideration by law[1]. If someone promises without any consideration that is called gift.
On the other hand give premise exchange of any consideration that is called contract. So it is
clearly seen that to become a valid agreement we need to consider its materiality and the level
of voidable.

An agreement made without consideration is void unless it is expressed in writing and

registered under the law for the time being in force for the registration of documents and is
made on account if natural love and affection between the parties standing in near relation to
each other. Agreement must be in writing and registered. If you have an oral arrangement or
unregistered agreement although it is in writing, it will not be valid even though it proceeds
from natural love and affection and even if the parties to it are near relations to each other. It
must be both in writing and registered.

This essay is discussed into two separate parts. First I want to discuss about
consideration[2]and void agreement quite elaborately and after that I will go through the
topic ‘insufficiency of consideration is immaterial, but an agreement without consideration is
void’. My objective to discuss in this way is because the whole topic is related with
consideration and void agreement. By understanding consideration and void agreement will
facilitate us to understand the concept of ‘insufficiency of consideration is immaterial, but an
agreement without consideration is void’.

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 Lawful consideration and Object

Consideration:

“Something which is given and taken.”

Section 2 (d) of the Contact Act1872:

Definition:

“When at the desire of the promissory, the promisee or any other person
has done or abstained from doing or does or abstains from doing or
promise to do or abstain from doing. Something such act or abstinence or
promise is called a consideration for the Promise.”

Importance of consideration

If a promise is made without consideration it is purely superfluous, and not matter how
sanctified and binding in honor it may be, it is not considered a legal obligation. Any contract
broken down and analyzed will show two clearly distinguishable parts: (i) the promise and
(ii) the consideration for the promise. Someone that makes a promise to do or not do
something usually does so as a return or equivalent of some loss, damage, or inconvenience
that may have been happened to the other party in relation to the promise.

The benefit so received and the loss, damage or inconvenience so caused is regarded in law
as the consideration for the promise. Thus, generally speaking, a contract cannot be thought
of without consideration.[6] “No consideration, no contract” is the rule of the law”.

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Meaning of ‘valuable consideration’

It has been defined as ‘the price for which a promise is bought’

(Sir Frederick Pollock)

Consideration itself means ‘some right, interest, profit or benefit accruing to one party or
some forbearance, detriment, loss of responsibility given, suffered or undertaken by the
other’: per Lush J ., Currie v . Misa (1875).

Consideration therefore means the element of exchange in a bargain, and in order to satisfy
the requirements of English law it must be valuable consideration, i.e. something which is
capable of being valued in terms of money or money’s worth, however slight. It may take the
form of money, goods, services, a promise to marry, a promise to forbear from suing the
promise, etc.

(Ref: introduction to B.law by P W Redmond Revised by R G Lawson)

Executory, executed and past consideration:

Executed consideration
Consideration is an act in return for a promise. If , for example, A
offers a reward for the return of lost property, his promise becomes binding when B performs
the act of returning A’s property to him. A is not bound to pay anything to anyone until the
prescribed act is done. C’s act in Carlill’s case in response to the smokeball’s company’s
promise of reward was thus executed consideration.

Executory consideration
Consideration is a promise given for a promise. If, for example,
customer orders goods which shopkeeper undertakes to obtain from the manufacturer, the
shopkeeper promises to supply the goods and the customer promises to accept and pay for
them. Neither has yet done anything but each has given a promise to obtain the promise of the
other. It would be breach of contract if either withdrew without the consent of the other.

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Both executed and excutory consideration is provided at the time when the promise is given;
the act required as executed consideration is given subsequently (eg the return of lost
property). Anything which has already been done before a promise in return is given is past
consideration which as general rule is not sufficient to make the promise binding. In such a
case the promisor may by his promise recognize a moral obligation (which is not
consideration), but he is not obtaining anything in exchange for his promise (as he already
has it before the promise is made).

Case: Re McArdle 1951

Under a will the testator’s children were entitled to a house at their
mother’s death. In the mother’s lifetime one of the children and his wife lived in the house
with the mother. The wife made improvements to the house. The children later agreed in
writing to repay to the wife the sum of ₤488 which she spent on improvements. But at the
mother’s death they refused to do so.

Held:
At the time of the promise the improvements were past consideration and so the promise was
binding.

Case: Roscorla v Thomas 1842

The parties agreed on the sale and purchase of a horse.
Thereafter the seller warranted that the horse was “sound and free from vice”. The plaintiff
sued for breach of this promise.

Held:
The promise was made after the sale had been concluded and was unsupported by fresh
consideration

In deciding whether consideration is past the courts do not always take a strictly
chronological view. If the consideration and the promise are substantially the same
transaction, it does not matter in which order they are given. Thus manufacturers may give
guarantees to persons who buy their products from retailers. The buyer then sends a card to
the manufacturer to claim the benefit of the guarantee, and he usually does this after he has
bought the goods.

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In three cases past consideration for a promise does suffice to make the
promise binding.

 Past consideration is sufficient to create liability on a bill of exchange (such as a cheque) under s27
Bills of Exchange Act 1882. Most cheques are issued to pay existing debts.

 After six (or in some case twelve) years the right to sue for recovery of a debt becomes statute-
barred by the Limitation Act 1939. if , after that period, the debtor makes written
acknowledgement of the creditor’s claim, it is again enforceable at law. The debt, although past
consideration, suffices.

 When a request is made for a service this request may imply a promise to pay for it. If, after the
service has been rendered, the person who made the request promises a specific reward, this is

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Essentials of a valid consideration:

The essentials of valid consideration are as under:

1: At the desire of the promisor .

2: Promisee or any other person.

3: Consideration may be past, present or future.

4: Consideration must be real.

1: At the desire of the promisor:

In order to constitute legal consideration the act or abstinence forming the consideration for
the promisor. The act performed at the desire of the third party cannot be said to be the
consideration. Similarly the acts done or services rendered voluntarily will not amount to
valid consideration.

2: Promisee or any other person:

The valid consideration is that consideration needs not to move from the promise alone but
may proceeds from a third person. This means that even stronger to the consideration can sue
on a contract.

3: Stranger to a contract cannot sue:

He/She shouldn’t be a stranger because “privet of contract”(mutually of will) is essential for
enforcing any of the rights arising out of the contract. So the stranger cannot be sue.

Exceptions:

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1: Trust:

In case of trust, the beneficiary can sue to enforce his rights under the trust, though he was
not a party to the contract between the settler and the trustees.

2: Charges:
A person in whose favour a charge in same specific immovable property has been created
may enforce it. Though he may be a stranger to the contract creating the charge.

3: Family settlements:
This exception arises in cases of family arrangements or marriages settlements or where
provision is made for the marriage expenses of female members. Such members though not
parties to the agreements can sue on the breach of agreements.

4: Agent:
Where a person act as a agent for his principal , the principal can sue on a contract though he
is not a party to a contract.

5:Agency:
A principal even if undisclosed may sue on a contract made by an agent

6:Assignment:
Assignmets of rights under a contract in favour of a third party either voluntary or by
operation Of law , the assignee can enforce the benefits of the contract.

3:Consideration may be Past , Present or Future:

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 Lawful consideration and Object

The words “has done or abstained from doing (past) or does or abstains from doing or
promises to do (present) or to abstain from doing (future)” It indicates which has already
been done at the desire of the promise or in progress or is promised to be done in future.

1: Positive or Negative:
It’s may consists of either a positive act or an abstinence i.e a negative act.

2:Past Consideration:
When the act has been done before means its show its past consideration

3:Present:
PLD 1958 section (Ind) – 1:

It takes simultaneously with the promise is called “Present Consideration” or Executed

Consideration”. The act constituting the consulting is wholly or completely performed.

4:Future:
18 PLD -1957 – DACCA- 233:

When the consideration on both sides is to move at a future date . It is called “Future
Consideration” or executory Consideration. It consists of promises and each promise is a
consideration for the other.

4:Consideration Must Be Of Some Value:

It must be of some value. It is not necessary that consideration should be adequate to the
promise for the validity of an agreement. The law only insists on the presence of
consideration and not on the adequacy of it . An agreement to which the consent of promise
has been freely given is a valid contract need with standing of the consideration .Courts never
inquire a promise is equivalent to promise obtained. The adequacy of the consideration is for
the parties to consider at the time of making the agreement.

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5:Consideration Must Be Real:

1- Physical Impossible
2- Legally
3- Uncertain Consideration
4- Illusory Consideration

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Adequacy and Sufficiency of Consideration

The court will also seek to ensure that a particular act or promise can actually be seemed to
be consideration. Learn these rules:

a) Consideration need to be adequate (that is, equal in value to the consideration

received in return). There is no remedy at law for someone who simply makes a
poor bargain.

b) Consideration must be sufficient.

c) It must be capable in law of being regarded as consideration.

Adequacy:

It is presumed that each party is capable of serving his own interests, and the courts will not
seek to weigh up the comparative value of the promises or acts exchanged.

Thomas v Thomas 1842

The Facts:
By his will the claimant’s husband expressed the wish that his widow should have the use of
his house during her life. The defendants, his executors, allowed the widow to occupy the
house

(a) in accordance with her husband’s wishes

(b) in return for undertaking to pay a rent of £1 per annum.

They later said that their promise to let her occupy the house was not supported by
consideration.

Decision:
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 Lawful consideration and Object

Compliance with the husband’s wishes was not valuable consideration (no
economic value attached to it), but the nominal rent was sufficient consideration.

Sufficiency:
 Consideration is sufficient if it has some identifiable value. The law only requires
an element of bargain, not necessarily that it should be a good bargain.

Chappell & Co v Nestle Co 1960

The Facts:
As a sales promotion scheme, the defendant offered to supply a record to anyone who sent in
a postal order for 1s.6d and three wrappers from 6d bars of chocolate made by them. The
claimants owned the copyright of the tune. They sued for infringement of copyright. In the
ensuing dispute over royalties the issue was whether the wrappers, which were thrown away
when received, were part of the consideration for the promise to supply the record. The
defendants offered to pay a royalty based on the price of 1s.6d per record, but the claimants
rejected this, claiming that the wrappers also represented part of the consideration.

Decision:
The wrappers were part of the consideration as they had commercial value to the defendants.

 As stated earlier, forbearance or the promise of it may be sufficient consideration

if it has some value, or amounts to giving up something of value.

Horton v Horton 1961

The Facts:
Under a separation agreement, the defendant agreed to pay his wife (the claimant) £30 per
month. Under the deed this amount was a net payment after deduction of income tax; for nine
months the husband paid it without any deduction so that the wife had to make the deductions
herself. He then signed a document agreeing to pay such amount as´ after the deduction of
income tax should amount to the clear sum of £30´. He paid this for three years, then stopped,
pleading that the later agreement was not supported by consideration.

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Decision:
The later was supported by consideration: the wife could have sued to have the original
agreement rectified, but did not.

(Ref: ACCA –Paper 2.2 corporate & business law)

Exceptions to rule “no consideration no contract.”

In English law a contract under seal is enforceable without consideration. In the words of
Anson:

“English law recognizes only two kinds of contracts, the contract made by deed that is under
seal, which is called a deed or specially and the simple contract”

A contract under seal means a contract which is in writing and which is signed. Sealed and
delivered. The Indian law of contract does not recognize such exceptions. But section 25 of
the contract Act 1872 lays down some exceptions.

1. Contract with blood relatives on the basis of natural love and affection.
2. Contract to compensate for past voluntary service.
3. Contract for the payment of a time barred debt.
4. Contract to give something as gift.
5. Contract to remit something.
6. Agency contract.
7. Donation contract.

Contract with blood relatives on the basis of love and affection

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Agreement without consideration void, unless it is in writing and registered.--- it is expressed

in writing and registered under the law for the time being in force for registration of
documents, and is made on account of natural love and affection between parties standing in
a near relation to each other.

(Section 25)

It is clear from the above provision that a contract without consideration shall be enforceable
if the following conditions are satisfied.

i. The contract is in writing

ii. The contract is registered with the proper authority
iii. The contractual relation must be between/among the near relatives

[Who is a near relative? The contract Act 1872 provides no guidance, nor has the
expression been judicially constructed. The expression will without doubt include
parties related by blood or marriage.]

iv. The contract is based on the basis of natural love and affection

[What is meant by natural love and affection? --------- There is always some
degree of instinctive love and affection between parties nearly related]

The instinctive love may sometimes be overruled by external circumstances. For example, in
Rajlukhy Dabee v. Bhootnath Mokerjee, Mr. Bhootnath, a husband due to a dispute with
his wife Rajlukhy Dabee signed a registered contract in favour of his wife agreeing to pay her
a certain sum of money for her maintenance. Later he refused to pay the amount. The wife
filed a suit against him and claimed the maintenance amount. It was held by Calcutta High
Court that the agreement was Void for want of consideration.

[What is void agreement? An agreement not enforceable by law is said to be void

agreement. -----section 2(g)]

Contract to compensate for past voluntary service

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A promise to compensate a person who has already done something for the promisor is
enforceable. It is important to note that the service should have been rendered voluntarily.

Relevant Case Law

It was held in Sindha v Abraham (1895) that services rendered at the desire of the minor
expressed during his minority and continued at the same request after his majority from a
good consideration for a subsequent promise by him in favour of the person who rendered the
services.

Contract for the payment of time barred debt

A time barred debt is one which cannot be recovered from the debtor through the court of
law, because, the limitation law helps the vigilante not the indolent. However, the section
25(3) of the law of contract states that where there is an agreement, made in writing and
signed by the debtor or by his authorized agent to pay a debt barred by the law of Limitation,
the agreement is valid even it is not supported by consideration.

Contract to give something as gift

A contract whereby one contracting party agreed with the other party to give something as
gift against no reciprocal consideration is valid and enforceable. The section 25-explanation
1, states that a gift does not require reciprocal consideration to be valid and enforceable. Any
gift made and possession delivered will be binding between the contracting parties i.e., donor
and donee.

In order to make a valid gift the following essentials are considered necessary:

i. Capacity of donor
ii. Intention of donor to make gift
iii. Intention of possession of the gift property
iv. Acceptance of gift by the donee.

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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. 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.

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.

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