Business Law Consideration Unit I

Business Law

Consideration

Unit I

CONSIDERATION

INTRODUCTION

• Consideration is one of the essential elements of a valid contract.

• No Consideration = No Contract• A consideration of some sort or other is so

necessary to the forming of the contract, that is nandum pactum

• This mean agreement to do or pay something on one side without any consideration is not supported by law.

Definition of Consideration

• Section 2(A) defines Consideration as • When at the desire of the promisor, • the promisee or any other person has

done or abstained from doing, something• or promises to do or to abstain from doing

something• such act or promise is called a

consideration for the promise.

Component of Consideration

On the basis of above definition a Consideration have 4 components:-

1. At the desire of the promisor2. It must be done by promisee or any other

person.3. For the act already completed or still in

execution or may be still executory.

4. Something to which law attaches value.

Essential of Valid Consideration.

1. Consideration should move at the desire of the promisor

2. Consideration May move from the promisee or any other person.

3. Consideration may be past, present, future.

4. Consideation may be something of value

1. Consideration should move at the desire of the promisor

2. Consideration May move from the promisee or any other person.

3. Consideration may be past, present, future.

4. Consideation may be something of value

Essential of Valid Consideration

1. Consideration should move at the desire of the promisor:-

In order to constitute legal consideration, the act or abstinence forming the consideration for the promise must be done at the desire or request of the promisor.


• Thus acts done or services rendered voluntarily at the desire of any third party will not amount to the valid consideration.


• Durga Prasad v/s Baldeo

• D had built, at his own expense, a market at the request of the collector of the District. The shopkeeper in market promise to pay commission on the sale of goods to D.

• The D can not sue the shop –keepers as the promise to pay contract is not consider as contract.


• Because D ( the promisee) had constructed the market not at the desire of the shopkeepers ( the promisor) but at the desire of the collector to please him.


2. Consideration may move from the promisee or any other person:-

The second essential of valid consideration, as mentioned in the definition is that consideration need not move from the promissee alone but may proceed from the third person. Thus, as long as there is consideration for a promise it is immaterial who has furnished it.


• Thus, a stranger can also sue on a contract provided he is a party to contract.

• This is called “Doctrine of Constructive Consideration.”


• Chinnayya VS Ramayya

• ‘A’ an old lady by a deed gift made over certain property to her daughter R.

• With a direction that ‘R’ will pay an annuity to ‘A’ brother ‘C’ as done by ‘A’.

• On the same day ‘R’ wrote a letter to ‘C’ to inform that she is agree to pay annuity.

• Afterward she declined to fulfill the contract.


• It was held the words “ the promisee or any other person’ in section 2(d) clearly shows that the stranger or third part may maintain suit.

• Hence the maternal uncle has he was aware of the contract and the consideration can maintain suit.

• Thus, A strange can sue in case if he is aware of the contract but not the consideration.


• In this case as the maternal uncle was the third party but still as a right to maintain suit as he was aware about the contract.

• In case of just gift deed from “A” it can not sue the ‘R’ as he was not the party to ‘R”.


Exception to the Stranger to a contract can not sue:-

Where an express or implied trust is created.

Family settlementAs the agentIn the case of agency


Where an express or implied trust is created:-

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


• Amir Ullah vs Central Govt:-

An addressee of an insured article is entitled to sue the Post office in case of loss, as on receipt of such article, the post office becomes in law a constructive trustee for the addressee.


Family settlement:-

Where a provision is made in a partition or family arrangement for maintenance or on other things allows the third person of the family to sue,


• Veeramma vs Appayya:-

A daughter along with her husband entered into the contract with her father to look after the mother and property of father will be conveyed to him.Later on she refused to look after mother.here the mother being stranger to contract but as she knew abt the contract can sue her daughter.


When the defendant constitutes himself, as the agent of the third party:-

Thus if A receives some money from B to be paid over to C and he admits of this receipt to C, than C can recover this amount from A who shall be regarded as the agent of C.


In case of Agency:-Where a contract is entered into by an agent the principle can sue on it.


3. Consideration may be Past, Present, or Future:-

The consideration for the contract can be of past , future or present depending upon execution of the contract.


PAST CONSIDERATION:-PAST CONSIDERATION:-

When the consideration was given before the date of the promise it is said to be past consideration, but it must be at the request of the promisor.

E.g:- A render some service to B today, and after a month B promises to compensate him for the services rendered to him it will be a past consideration.


PRESENT CONSIDERATION:-PRESENT CONSIDERATION:-

When the consideration was given simultaneously with the promise it is said to be present consideration.

E.g:- A promise to give time to a debtor is good consideration. The best example of present consideration is cash sale.


FUTURE CONSIDERATION:-FUTURE CONSIDERATION:-

When the consideration from one party to another is to move at some future date, it is called future consideration.

e.g.:- A promises to deliver ten bags of rice to B after a fortnight and B promises to make the payment one

week after the delivery. In this case the consideration is future.


4. Consideration must be ‘ something of Value’:-

The law only insist upon the presence of free consent consideration and do not bother about its adequacy or inadequacy. It leaves upon people to decide the consideration but it emphasis that the consideration must be real.


• Consideration must be real:-

Though the consideration need not be adequate, it must be of some value in the eye of law, i.e. it must be real and competent. Where consideration is

a. Physically impossible:-A promise to do something which is physically impossible e.g, to make a dead man alive.


b. Legally impossible:-A promise to do something which is illegal e.g, to beat someone as consideration.

c. Uncertain Consideration:-A promise to do something too vague and uncertain e.g, a promise to pay amt which will be appropriate is not correct as it do not have a specific amount.


d. Illusory Consideration:-

Consideration is illusory if it consists in a promise to perform a public duty, or to perform a contract already made with the promisor.


COLLINS vs GADEFROY

C (the plaintiff) received a subpoena ( a kind of summon) to appear at a trial as a witness on behalf of G (the defendant). G promised him a sum of money for his trouble. On default by G, C filed the suit for the recovery of the promised sum. It was held C being under a public duty to attend and give evidence, there was no consideration for the promise and hence the promise is enforceable.


Exception to the RuleException to the Rule“ “ No Consideration, No Contract”No Consideration, No Contract”

1. Agreement made on account of natural love and affection: An agreement made without consideration is enforceable if, it is

(i) Expressed in writing (ii) Registered under the law for the time being in

force for the registration of documents.(iii) Made on account of natural love & affection.(iv) Between parties standing in a near relation to

each other.


2. Agreement to compensate for past voluntary service:

A promise made without consideration is also valid if it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor or done something which the promisor was legally compellable to do.

Essential of Valid Consideration In order to attract this exception, the following points should be taken in notice:-

a) The service should have rendered voluntarily for the promisor.

b) The promisor must be in existence at the time when service was rendered.

c) The promise must be to compensate a person who has himself done something for the promisor and not to a person who has done nothing for the promisor.


d) The only intention of the promisor shall to compensate the promisee. Any other intention will not be consider under this exception.

e) The promisor to whom the service has been rendered need not be competent to contract at the time the service was rendered.

f) The service rendered must be legal.


3. Agreement to pay time barred debt:

Where there is an agreement, made in writing and signed by the debtor or by his authorized agent, to pay wholly or in part a debt barred by the law of limitation, the agreement is valid even though it is not supported by any consideration.

4. Completed gift :

A gift does not require consideration in order to be valid between the donor or donee.


5. Contract of Agency:- No consideration is required for forming a contract.

6. Contribution To charity:-A promise to contribute to charity

though gratuitous, would be enforceable if on the faith of the promised subscription the promisee takes definite steps in furtherance of the objects and undertakes a liability incurred, not exceeding the promised amount of subscription.

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Business Law Consideration Unit I

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