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, co ntract, 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 • Wh When en at the the des desir ire e of of the the pr prom omis isor or,, • 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 co nsideration for the promise.

Component of Consideration On the the basis basis of above definition a Consideration have 4 components:1. At the desire of th the e promisor 2. It mu must st be do done ne by pr prom omis isee ee or an anyy oth other er pe pers rson on.. 3. Fo Forr the the ac actt alr alrea eady dy co comp mple lete ted d or st stil illl in execution or may be still executory. 4. So Some meth thin ingg to to whi which ch la law w att attac ache hess val value ue..

Essential of Valid Consideration.

1.1. Con Consid eratio tion n should sh ould move desire iree Conside Considera siderat ration ion should sho uldmov move moveeat atthe thedes desir desire of ofthe thepromisor promisor 2. Consid eratio tion n May Ma y move mov fr th 2. Con Conside Considera siderat ration ion May move moveefrom from from omthe the thee promisee promiseeor orany anyother other ot herperson. person. 3. Consid eratio tion n may bbe e past, pas t,,prese pr esent, nt,t, 3. Con Conside Considera siderat ration ion may maybe past past, presen pre sent, future. future. 4. Consid eation ionnmay mmay ay be ssometh omethi thing ng va luee 4. Con Conside Consideat sideatio ation be besome som ething ingof of ofvalue value valu

Essential of Valid Consideration

1. Cons Conside idera rati tion on sho shoul uld d move move at at the 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 t he promisor.


• Thus acts done or services rendered voluntarily at the desire of any third party will not amount to the valid v alid 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 promise to pay commission on 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.


co nstructed • 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. • Th Thus us,, A stra strang nge e can can sue sue in cas case e if he he is awa aware re 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 settlement As the agent In 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 h e admits of this receipt to C, than C can recover this amount from A who shall be regarded as the agent of o f 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: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:-

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:-

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


b. Legally impossible impossible:-A :-A promise to do something which is illegal e.g, to beat someone as consideration. c. Unc ncer erta tain in Con onssid ide era rati tion on:-A :-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. Il Illu luso sory ry Co Cons nsid ider erat atio ionn: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 Rule Exception “ No Consideration, No Contract” C ontract” 1.

Agreem Agre emen entt ma made de on ac acco coun untt of na natu tura rall lo love ve an and d affection: An agreement made without consideration is enforceable if, it is

(i) Expressed in writing (ii)) Re (ii Regi giste stere red d under under the the law law for for the the time time bei being ng in in forc force e for for the registration of documents. (iii)) Mad (iii Made e on acc account ount of natur natural al love love & aff affecti ection. on. (iv) Betw Between een part parties ies stand standing ing in in a near near relat relation ion to to each each other. other.


2. Ag Agre reem emen entt to co comp mpens ensat ate e fo forr pa past st vo volu lunt ntar aryy se serv rvic ice: e:

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 .


In order to attract this exception, the following points should be taken in notice:a)

The ser The servi vice ce sh shou ould ld ha have ve ren ende dere red d voluntarily for the promisor. b) The promisor must be in existence at the time when service was rendered. c) Th The e pro promi mise se mu must st be to co comp mpen ensa sate te a per perso sonn who has himself done something for the promisor and not to a person who has done nothing for the promisor.


d) The The onl onlyy int inten enti tion on of th the e pro promi miso sorr sh shal alll to to compensate the promisee. Any other intention will not be consider under this exception. e) Th The e pro promi miso sorr to to who whom m the the se serv rvic ice e has has be been en rendered need not be competent to contract at the time the service was rendered. f) Th The e ser servvic ice e ren rende dere red d mus mustt be be leg legal al..


3.

Agree eeme mennt to to pa pay tim time e ba barr rre ed de 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. Cont Contrrib ibuuti tioon To ch cha ari rity ty::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.

Business Law Consideration Unit I

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