CONSIDERATION
CHAPTER # 4
What is Consideration
Consideration is an essential element in a contract.
Subject to certain exceptions, an agreement is not
enforceable by law unless each party gets
something. This “something” is called
consideration.
What is Consideration
Section 2d of the Contract Act defines Consideration as:
When at the desire of the promisor, the promisee or
any other person, has done or abstained from doing, or
does or abstains from doing, or promises to do or abstain
from doing something, such act or abstinence or promise
is called consideration for the promise.
The term consideration is used in the sense of quid pro
quo i.e. something in return.
Quid Pro Quo means ‘I want something, you want
something. You give me what I want, I will give you want
you want’.
Essential Elements of a valid
consideration
It must move at the desire of the promisor:
The act or the abstinence must have been done at the desire of
the promisor. Any act performed at the desire of the third party
cannot be consideration.
It must move from the promisee or any other person:
As long as there is a consideration for a promise, it is
immaterial who has given it. It may move from the promisee or
if the promisor has no objection, from any other person.
Essential Elements of a valid
consideration
It may be past, present or future:
Past Consideration: When the consideration for a present promise
was given before the date of promise, it is said to be past
consideration.
Present Consideration: When the consideration for a promise is
given simultaneously with the promise it is called present
consideration.
Future Consideration: A future or executory consideration is a
promise to do or give something in return in future for the promise
then made.
Essential Elements of a valid
consideration
It does not need to be adequate:
Inadequacy of the consideration is no ground for refusing the
performance of the promise.
Consideration must be real:
Consideration must be real and not illusory. If it is physically
impossible, vague or legally impossible, the contract cannot
be enforced.
Essential Elements of a valid
consideration
Consideration must be lawful:
An agreement is void if it is based on unlawful object. An
agreement is considered unlawful if:
It must be something which the promisor is not already bound
to do:
A promise to do what one is already bound to do, either by
general law or under an existing contract, is not a good
consideration for a new promise.
Stranger to Consideration
While discussing rules regarding consideration, we have seen that
consideration may be given by the promisee or by a third party.
When consideration is given by a third party then the promisee is
called stranger to consideration. Under the Contract Act, a stranger
to consideration can file a suit to enforce the promise.
However, under the English law, a stranger to a consideration
cannot enforce the contract.
Stranger to Contract
If a person is not a party to a contract, he is called a stranger to
contract.
This is a cardinal principle of law that only a party to a contract
can sue. If a person is not a party to a contract, he cannot sue
even if the contract is for his benefit.
To create legal relationship, privity of contract (contractual
relationship) is necessary.
Stranger to Contract
A contract cannot confer any right nor impose any liability
upon a person who is not a party to it.
For example, A agrees with B to give Tk. 5,00,000 to C. C
cannot file a suit against A to recover Tk. 5,00,00 as there is no
contract between A and C (Contract is between A and B) and C
is a stranger to the contract.
No Consideration No Contract:
Exceptions
A promise without consideration is a gift. A promise
without consideration is a gratuitous (free of charge)
undertaking and cannot create a legal obligation.
Under the Contract Law, the presence of
consideration is, as a rule, essential to the validity of
contracts.
No Consideration No Contract:
Exception
Natural love and affection:
A written or registered agreement based on natural love
and affection between the parties standing in near relation
to each other is enforceable without consideration.
Example, Mr. A agreed to pay Tk. 5,00,000 to his younger brother
out of natural love. This promise was made in writing and
registered. If Mr. A refuses to pay Tk. 5,00,000 to his younger
brother, the latter can enforce the promise in the Court.
No Consideration No Contract :
Exception
Compensation for services rendered:
A promise to compensate, wholly or in part, a person who has
voluntarily done something for the promisor is enforceable without
consideration.
Example, Mr. A found Mr. B's purse and gave it to him. B promised
to pay a reward of Tk. 1000 to A. Later on, B cannot refuse payment
on the ground that there was no consideration.
No Consideration No Contract :
Exception
Time barred debt:
A promise made in writing to pay a time-barred debt is
enforceable even without consideration.
A time-barred debt is an unpaid debt which is no longer
legally collectable because too many years have passed.
Example, A owed B Tk. 1,00,000 but the debt has
already been time-barred. Now, A signs a written
promise to pay B the sum of Tk. 1,00,000. This is a
valid contract.
No Consideration No Contract :
Exception
Completed gifts:
Any gift actually made is valid. Thus, gifts do not
require consideration.
Example:
A gave a watch as a gift to B on his birthday. Later on, A cannot
demand his watch (gift) back on the ground that there was no
consideration (as A did not get anything in return for the watch).
No Consideration No Contract :
Exception
Agency:
No consideration is required to create an agency.
Remission:
No consideration is required for an agreement to receive less than
what is due. This is called remission in the law.
Guarantee:
There is no consideration required in the case of a contract of
guarantee.
Doctrine of Promissory Estoppel
Promissory estoppel is a legal principle that a promise is
enforceable by law, even if made without formal consideration,
when a promisor has made a promise to a promisee who then
relies on that promise to his subsequent detriment (economic
loss).
Promissory means conveying or implying a promise.
Estoppel means legal principle/rule of law that prevents one from
denying a fact.
Doctrine of Promissory Estoppel
This doctrine can help you to recover your losses. It states that
an aggrieved party can recover damages if those damages were
the result of a promise made by a promisor and the promise
was significant enough to move the promisee to act on it.
Example : Mr. X establishes an industrial unit on the faith of tax
concession announced by the government for a particular
period of time. The govt. is bound by the estoppel and cannot
withdraw tax concession earlier than promised by it.
THE END OF THE CHAPTER
