Unit Four :Consideration

COURSE TO BE COVERED
Meaning of Consideration
Need of Consideration
Kinds of consideration
Legal rules Regarding Consideration
Exception to the Rule no consideration no Contract
Meaning of Consideration:
• Consideration is supposed to be the most essential element for a valid
contract. It is the return that both parties will get because of binding
in contract. A promise will be enforceable by law only due to the
presence of consideration. In simple words it is something in return
that every parties involved in the contract get in the form of return as
they are bound by the contract.
• According to section 2 (d) of contract act 2056 “ Consideration means
a promise made to do or not to do any work in return of performance
or non performance of any work mentioned in the offer.”
• According to Sir Frederic “ Consideration is the price of promise of the
next parties.”
• According to Black’s law dictionary “ Consideration is the cause or
price of goods which convinces the parties to fulfill the promise
mentioned in the contract.”
• According to Pollock “ Consideration is the price for which the
promise of the other is bought.”
• From the above definitions consideration has the following features
• Consideration is a promise to do or not to do any work
• It is something in return of any promise
• It is mentioned in the contract.
• It can be the past, present or future.
• It may be more or less reasonable
• It can not be illegal, immoral and against the public policy.
• Consideration consists of some value in the eye of law.
• It is a return promise by the promisee at the desire of the promiser.
Need of Consideration
• Consideration is an essential element and a universal requisite of
every contract. A simple contract without consideration can not
create legal obligation but simply results in moral duty and can not be
enforced in a court of law. Consideration is an essential and necessary
because it reflects a variety of policies and serves a number of
functions such as,
• It provides an evidential proof that there was a transaction between
the parties and promise was made to do or not to do something.
• It ensures that the promisor has deliberately decided to enter into a
contract .
Need of Consideration contd..
• Absence of consideration gives space of doubt that parties have into
an agreement under pressure, fraud or mistakes and hence is no free
consent of either party.
Kinds or Types of Consideration
• Consideration is generally classified into three types
(1)Past consideration
(2)Present or executed Consideration
(3)Future or Executory Consideration
Past Consideration
If a consideration is given before the time of creation of the contract, it
is past consideration. In other words if the consideration for a present
promise was already given in the past time or before the date of
promise such consideration is called past consideration.
Present or Executed Consideration
• If the consideration is received at the time of creation of contract
itself, it is called present consideration. Eg ‘A’ Buys certain goods from
a shop and makes necessary payments at the same time so this kind
of consideration is called present consideration.
Future or Executory Consideration
• If both of the parties makes an agreement to receive consideration in
some future date it is called future consideration. In this type of
consideration both the parties involved in the contract will fulfill their
liability in the future. For e.g. construction company agrees to
construct the road and the department of road agrees to pay after the
completion of construction of road so this type of consideration is
known as future consideration.
Rules Regarding Consideration
Consideration as already stated is the most essential element for a valid
contract. Though Nepalese contract has not given much importance to
consideration but English and Indian contract act has given high priority
for consideration and the general rules regarding consideration are as
follows.
• Consideration must be real and something of value in the eyes of law.
• Consideration must be furnished at the desire of the promisor
• Consideration may move from the promisee or the third person
• Consideration may be of past, present or future
Rules Regarding Consideration contd….
• Consideration must be lawful
• Consideration need not be adequate
Exception to the rule no consideration no
contract
• There are some exceptions to the rule no consideration no contract,
which are as follows.
(1) Natural love and affection: Under this situation the agreement without
consideration is also enforceable by law, if it is based on natural love
and affection. It will be valid if following conditions are valid.
(i)It is made on a written document
(ii)The document is registered according to that particular law which is in
force
(iii)It is made on account of natural love and affection
(iv) It stands in an immediate relation.
Exception to the rule no consideration no
contract contd…
(2)Promise to pay time barred debt: The promise to pay time barred
debt is also enforceable even in the absence of consideration but such
debt must be in the written form and signed by the creditor or his
authorized agent
(3) Donation or Gift: If donation is provided, it will be valid even in the
absence of consideration
(4) Agency Contract: No consideration is necessary to create an agency.
An agent perform his activity for the interest of his principal being
connected with the third party.
(5) Compensation for service: A promise to compensate partially or fully
for the service of a person who has voluntarily done something also will
be valid even in the absence of consideration. It will be applicable if
(i)The act is done voluntarily
(ii) Something is done for the promisor
(iii) An act done when the promisor agrees eg: Ram found the lost bag of
Hari and returned to him. Hari promises to give RS 500 to Ram as a
reward, it will be a valid contract. Similarly A provides support to the
children of B who was infant, If B promises to pay compensation for the
expenses it be the valid contract.