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Consideration

Saroj ghimire, advocate


ll.m.uk, ll.m.india
 To form an agreement, offer and
acceptance is needed. But mere form of
an agreement doesnot lead to become
contract. Contract establishes from the
bargain, this means each of the party
must promise to give or do something for
the other.
 This element of exchange is known as
‘consideration’.
 Contract is a private law in which parties are
free to make their terms and condition,
consideration to be exchanged. Party Autonomy.
 Thus when the make contract they can decide
something which is to be exchanged between
them.
 That something which parties decided to
exchange is called consideration.
 Consideration is the next essential element with
out which there can be no contract. So it is said
“ No consideration no contract”.
 Under English law, ‘Unless the consideration has
been given in return for a promise, the courts
will not oblige the person giving the promise
(the promisor) to fulfil the promise he has
given’.
What is consideration?
 It is mutual promise to exchange benefits and
sacrifices between the parties. Generally, in
agreements both parties make promises and
they do not make those promises without any
value or price, which is known as consideration.
 Here one party gets something and one loses,
something, such getting and loosing is known as
consideration It is the promise to exchange
thing of value.
 Consideration may be made in the form of
money, goods, and a promise to do or not to do
something or providing services. It is a technical
term used in the sense of a quid pro quo
(something in return) and must be benefit to the
promisor or a detriment to the promisee or both.
 In the English case, Currie Vs Misa
(1875)L.Rex162, Consideration was
defined as,” Some right, interest, profit or
benefit accruing to one party, or some
forbearance, detriment, loss or
responsibility given, suffered or
undertaken by the other.
 Section 25 of the Indian Contract Act 1872
opens with the declaration that “an
agreement made without consideration is
void…….”
 In England also “promises without
consideration are not enforced, because
they are gratuitous”.
 Nepalese Contract Act 2000 under Section
2(d), Consideration means any promise
made to do or not to do as per the offer
made.
It must be an exchange:
 one person does something, because the
other person does something. In the
exchange; what is benefit to the offeree
is, at the same time sacrifice to the
offeror- like wise the benefit bargained for
by the offeror results in a sacrifice by the
offeree. The legal term used for this
sacrifice is ‘detriment’.
 A simple example is; Ramesh agrees to sell his
house to Santosh for Nrs 20 Lakhs. For
Ramesh’s promise the consideration is Nrs 20
lakhs and for Santosh’s promise, the
consideration is the house.
 Here both the parties are benefitted. Ramesh is
benefitted because he has received money and
Sandra is benefitted because she has the land
and simultaneously they are at loss or
detriment. The purchaser is losing the purchase
price and the seller the land.
 Robin engages Davendra as a security
guard in his office for Nrs 10000 a month.
The monthly wage is the consideration
received by Davendra and the services of
Ddra constitutes the consideration
received by Robin.
 Here Robin is benefited by the service of
Devendra and Devendra is benefitted by
receiving money simultaneously detriment
is there in Robin’s part because he is
losing the money and Devendra is serving
to Robin.
Consideration may take the form of :
 An action: doing something or giving
something
 A forbearance; not doing something, and
in forbearing to act, giving up some
benefit or right
 A promise to act or a promise to forbear
from acting in future
Carrington v. Loan La May
 Carrington agreed to Loan La May his copy of
the film “The Birth of the Nation” So that La May
could do his research project. There was no
understanding that La May would pay for the
use of film. Carrington then refused to allow La
May to use his print of the film. Although
Carrington might have ethical duty to lend La
May the film, their agreement was not
enforceable one in that it contained no
bargained for promise.
Rules of consideration
 1. Consideration required for all
contracts: a contract without consideration is
gift.
 2. Consideration shall be at the desire of
promisor. (Offeror):
 If it is at the desire of promisee, that would
be treated as counter offer.
 3. Consideration must move from
promisee or from any other person.
Consideration may be past,
present or future
 Executed consideration (present
consideration)
 Consideration which moves simultaneously with
the promise is called Present Consideration or
Executed Consideration. Here the parties of the
contract perform their duties at the moment of
the formation of contract. If the both parties
side by side perform their duty then it is called
present consideration.
 A buys an article from a shop and pays the price
immediately. The consideration moving from A
is present or executed consideration.
 In other terms, executed consideration is
where one party promises to do
somenting in return for the act of another.
 Case of reward.
 A offered of £50 reward for the one who
brings his lost dog.
 B sees the advert, finds the dog and
returns it to the A.
Executory/ Future Consideration
 When the consideration is to move at a future
date, it is called future consideration or
executory consideration.
 It is oriented toward future.
 In a contract the consideration may be
executory on both sides. They plan to execute
the contract in the days ahead.
 They promise in the present time for the
exchange in future.; A promise may support a
promise. Thus a promise to pay money at a
future date for goods to be delivered at a future
date is valid contract.
Past consideration
 Example:
 John give Susan a lift home in his car after
work.On arrival, Susan offers John £10 towards
the petrol but, finding that she has not got any
change, she says she will give him the money
next day at work.
 John cannot enforce Susan’s promise to pay £
10 because the consideration for the promise
(giving lift) is in the past. John would have given
Susan the lift home without expecting payment
and so there was no bargaein between the
parties.
Consideration must be real not
illusory
Consideration must be of
some value but need not be
adequate:
 It is a matter for the parties themselves to
determine what they consider is the
proper value of their acts or promises.
Adequacy of consideration refers to the
fairness of bargain. In general a court will
not question the adequacy of
consideration if the consideration is legally
sufficient.
 Under the doctrine of freedom of contact, parties are
normally free to bargain as they wish. If people could
sue merely because they had enforced into an unwise
contract the courts would be overloaded with frivolous
suits.
 In extreme cases, a court of law may consider the
adequacy of consideration in terms of its amount or
worth because inadequate consideration may indicate,
fraud, undue influence, lack of bargained for exchange.
It may also reflect party's incompetence. For e.g. an
individual might have been too intoxicated or simply too
young to make a contract)
 Therefore, it is up to the parties to decide
the terms of their contract. The court will
not intervene to require equality in the
value exchanged; as long as the
agreement has been freely entered into,
the consideration exchanged need not be
adequate.
 Suppose Romeo has a house worth
£1M.and he sells it for £100000. A
£100000 sale could indicate that the buyer
unduly promised Romeo into selling or
that Romeo was defrauded into selling the
house for £100000 which is far below the
market value. (Of course it might also
indicate that Romeo was in a hurry to sell
and that the amount was legally
sufficient).
Thomas v Thomas`
 The executors of a man’s will allowed the widow
to live in the house of her deceased husband for
a rent of £1 per year.
 The defendant later claimed that £1 per year
was not consideration, because it was well
below an economic rent for the property .
 He removed the widow from the house and the
widow sued for breach of contract. The court
held that the nominal rent of £1 was valid
consideration, even though it was not adequate.
 The widow won the case
Consideration must be legal:

 Consideration requires that the benefits and


sacrifices promised between the parties be
legal. Absence of legality renders the
consideration invalid. Thus a party cannot
agree to do something that he or she does not
have legal right to do. Similarly, a party cannot
promise not to do something that he or she
has no legal right to do.
Pre-existing duty need no
consideration:
 Collins v Godfrey 1831
 The defendant promised to pay the
plaintiff for giving his evidence and
attending the court which was his duty.
 When the plaintiff tried to enforce the
promised payment, it was held that there
was no binding agreement, as he had
provided no consideration by simply
fulfilling his existing duty.
 However, if a promisee does more than
his duty, he is entitled to claim the
consideration.
 Glasbrook v Glamorgan CC 1925,
 The court decided in favour of police
authority that they have provided more
protection than their public duty required
and entitled for consideration
Stilk v Myrick
 Eleven sailors agreed to crew a ship on a
voyage from London to the Baltic and
back. Two sailors deserted in the Baltic,
and other nine refused to continue their
work, claiming higher wages. The captain
agreed to pay them more when they got
back to London, subsquently refused to
make extra payment. The sailor sued for
extra wages, but lost.
Held:
 The court held that they had agreed to
crew the ship for the two way voyage, and
their agreement in the Baltic to fulfil their
existing contractual obligations was not
sufficient consideration in return for the
promise of higher pay.
Hartley v Ponsonby (1857)

 When nineteen out of thirty-six crew of a


ship deserted, the captain promised to pay
the remaining crew extra money to sail
back, but later refused to pay saying that
they were only doing their normal jobs. In
this case, however, the ship was so
seriously undermanned that the rest of
the journey had become extremely
hazardous.
 It was held that sailing the ship back in
such dangerous conditions was over and
above their normal duties. It discharged
the sailors from their existing contract and
left them free to enter into a new contract
for the rest of the voyage. They were
therefore entitled to the money.
Williams v Roffey (1990)
 Roffey had a contract to refurbish a block of
flats and had sub-contracted the carpentry
work to Williams. After the work had begun,
it became apparent that Williams had
underestimated the cost of the work and
was in financial difficulties. Roffey,
concerned that the work would not be
completed on time and that as a result they
would fall foul of a penalty clause in their
main contract with the owner, agreed to
pay Williams an extra payment per flat.
ation.
 Williams completed the work on more flats
but did not receive full payment. He
stopped work and brought an action for
damages. In the Court of Appeal, Roffey
argued that Williams was only doing what
he was contractually bound to do and so
had not provided consider
 It was held that where a party to an
existing contract later agrees to pay an
extra "bonus" in order to ensure that the
other party performs his obligations under
the contract, then that agreement is
binding if the party agreeing to pay the
bonus has thereby obtained some new
practical advantage or avoided a
disadvantage.
 In the present case there were benefits to
Roffey including (a) making sure Williams
continued his work, (b) avoiding payment
under a damages clause of the main
contract if Williams was late, and (c)
avoiding the expense and trouble of
getting someone else. Therefore, Williams
was entitled to payment.
Glassbrooke v GCC (1925)

 The police were under a duty to protect a


coal mine during a strike, and proposed
mobile units. The mine owner promised to
pay for police to be stationed on the
premises. The police complied with this
request but when they claimed the
money, the mine owner refused to pay
saying that the police had simply carried
out their public duty.
 It was held that although the police were
bound to provide protection, they had a
discretion as to the form it should take. As
they believed mobile police were
sufficient, they had acted over their
normal duties. The extra protection was
good consideration for the promise by the
mine owner to pay for it and so the police
were entitled to payment.
Exception to the rule no
consideration no contract:
 Nepalse law is silent.
 Indian law, ‘agreement without
consideration is void’.
 13(4): consideration must be legal.
Exceptions:
 Natural love and affection:
 Rajlakhi Devi v Bhootnath
 A husband by a registered document,
after referring to quarrels and
disagreements between him and his wife
promised to pay for her maintenance, but
no consideration move moved from her:
 Held:, the agreement was void for want of
consideration because it was not made out
of natural love and affection.
Gift
 Contract Act is silent but law of property
on National code on Dhan Bakashko
Chapter recognised that if property is
transferred with deed, it is valid even if
nothing is given by the other party.
 Time Barred Debt: