UNIT-2 CONSIDERATION
- Consideration-
In contract law, consideration is an essential element for a valid contract to be formed. It’s often defined by the Latin phrase “quid pro quo,” which means “something for something.” It is the value that each party gives and receives in an agreement. Without consideration, a promise is generally considered a gift and is not legally enforceable.
- Legal Rules of Consideration-
Consideration Must Be “Sufficient” but Need Not Be “Adequate”: This is a core principle. The law doesn’t care if the value of the consideration is equal or fair.
It Must Be at the Desire of the Promisor: The act or promise that constitutes consideration must be performed at the request of the person making the promise (the promisor), not voluntarily or at the request of a third party.
Consideration Can Be Past, Present, or Future:
- Executed (Present): This is when the promise and the consideration are given simultaneously. For instance, buying a cup of coffee and paying for it immediately.
- Executory (Future): This involves an exchange of promises to be performed in the future. For example, a contract where a company promises to deliver goods next month, and the customer promises to pay upon delivery.
- Past: Generally, an act done before a promise is made cannot be valid consideration for that promise. However, some legal systems, like Indian law, do recognize past consideration if the past act was done at the request of the promisor.
Performance of an Existing Duty Is Not Good Consideration: A promise to do something you’re already legally or contractually obligated to do is not valid consideration.
Consideration Can Be an Act or a Forbearance: It’s not just about doing something; it can also be about refraining from doing something. This is known as forbearance.
Consideration Must Be Lawful: An act, promise, or forbearance that is illegal, immoral, or against public policy cannot serve as valid consideration. A contract to pay a hitman to harm someone.
- Suit by a Third Party to a Contract-
In contract law, the general rule is that only the parties to a contract can sue or be sued on it. This principle is known as the doctrine of privity of contract. However, a significant exception to this rule exists for third-party beneficiaries. These are individuals or entities who are not part of the original contract but were intended by the contracting parties to receive a benefit from its performance.
- Validity of an Agreement without Consideration-
Exceptions to the Rule of Consideration
While the general rule is “no consideration, no contract,” there are specific exceptions where an agreement can be valid and legally enforceable even without consideration. These exceptions are often enshrined in specific legal statutes, such as the Indian Contract Act of 1872.
Natural Love and Affection: An agreement made without consideration is valid if it is made in writing, registered, and is a result of natural love and affection between parties who are in a near relation to one another. For example, a father promising to give his son money out of love and affection, if the promise is written and registered, can be a valid contract.
Compensation for Past Voluntary Services: A promise to compensate someone who has already voluntarily done something for the promisor is a valid agreement. This applies when a person performs a service without a prior agreement, and the person who benefited from the service later promises to pay for it.
Promise to Pay a Time-Barred Debt: If a debt has become time-barred by the law of limitation (meaning it’s no longer legally collectible), a written and signed promise by the debtor to pay that debt, in whole or in part, is a valid contract, even without new consideration.
Completed Gifts: The rule of “no consideration, no contract” does not apply to gifts that have been fully made and delivered. A gift that has been actually given and accepted is a valid transfer of property and does not require consideration to be legally effective.
Agency: Under certain laws, such as Section 185 of the Indian Contract Act, no consideration is necessary to create a contract of agency. An agent is appointed to act on behalf of a principal without the need for an exchange of value at the time of the agreement.