presentation on the basic contract law principle: Consideration

Basic contract law principle

1. Law of Contract Doctrine of Consideration

2. CLASSICAL ELEMENTS OF A CONTRACT OFFER ACCEPTANCE CONSIDERATION

3. Can this be considered as an exchange?

4. Moral Obligation = Consideration ?

5. Moral Obligation = Consideration ?

6. Contract without consideration Nudum Pactum - Bare promise or naked promise Ex nudo pacto non oritur actio - A contract without consideration is void The law does not look favourably on an exchange of promises which resulted in only one party obtaining something  something for nothing . Quid pro quo- something in return Consideration is the price for which promise of the other is bought.

7. What is Consideration?

8. What is Consideration? X promised to install the television & home theatre for Y Y promises to pay X Rs. 5,000 for the job. X’s obligation leads to right to payment Y’s obligation leads to right to have the installation Consideration is – ‘ a valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.’ (Currie v Misa, (1875) LR 10 Ex 153, 162)

9. What is Consideration? According to Section 2(d) of the Indian Contract Act, 1872, consideration is defined as follows: “ 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 is called a consideration for the promisee . ” At the desire of the promisor if the promisee either - Does something (in the past, present or future) OR Abstains from doing something (in the past, present or future)

10. What amounts to consideration

11. What is Consideration? As per Section 2(d), consideration is something in return of a promise which consists of : an act, abstinence or forbearance, done at the desire of the promisor, by the promisee or any other person, which can be either already executed or is in the process of execution or may still be executory. At the desire of A, B agrees to take care of his garden for him for a price, Taking care of the garden would be regarded as consideration moving from B, and the price would be regarded as consideration moving from A.

12. Consideration Doing something X and Y enter into a contract where X promises to deliver 15 jackets to Y in one month’s time. Y promises to pay X an amount of Rs 5,000 on delivery.  Y’s promise to pay Rs 5,000, on delivery, is the consideration for X’s promise.  X’s promise of delivering 15 jackets is the consideration of Y’s promise to pay.

13. Consideration Not doing something A has taken a loan from B. A has not repaid the loan yet. B promises not to file a suit against A if he promises to repay the loan within a week.  A bstinence on the part of B is due to the consideration of A’s promise of repayment of the loan.

14. Consideration An agreement without consideration is void Consideration is - may consist in some right, interest, profit or benefit accruing to one part or some detriment, loss , forbearance or responsibility given, suffered or undertaken but the other It must be an act of abstinence, forbearance or return of promise May be present, past or future Need not be adequate Must be real not vague, indefinite, or illusory Must not be something which the offeree / promisor is already bound to do Must be Lawful - should not be illegal- immoral opposed to public policy

15. Essential Elements Consideration must move at the desire of the promisor An act or abstinence without any request from the promisor is a voluntary act Voluntary acts not a consideration. An act or abstinence done at the request of a third party does not constitute consideration. An act shall not be a good consideration unless done at the desire of the promisor even if the promisor is not benefitting anything. A buys life saving medicines for B of their own accord. Can A demand payment for such an act? Can this voluntary act on his part be the reason for A to make such a demand?

16. Essential Elements Chief Minister of Delhi asked X to construct shops at his own expense. X carries out the instruction Shopkeepers took possession of the newly made shops and promised to pay commission to X on their weekly sales. However, the shopkeepers refused to pay the commission after some time. The shopkeepers are benefiting from the improvements made in the market’s infrastructure. Can X demand payment from the shopkeepers ?

17. Essential Elements X (wife) filed for a divorce against Y (husband) The court granted X’s petition for divorce. Later, Y (husband) promised to give Rs. 2000 per year as maintenance The wife had not applied to the Divorce Court for divorce only and not for maintenance. Husband refused to pay. Was any consideration given to the wife in order to not apply for maintenance ? Did the husband request the wife to not apply for maintenance ?

18. Essential Elements Consideration may move from the promisee or any other person Requirement of consideration for a promise is of prime importance Who furnishes that consideration is not restricted to promisee It can move from the promisee , or any other person provided the promisor has no objection to the same. A has bought a life insurance where he has to pay premium of 5000 per month. B, who is A’s broker promises to pay the premium. The consideration is moving from the broker to the insurance company – Is this valid?

19. Essential Elements A transferred a property to B as a gift. A also instructed B that the transfer will happen only when he agrees to pay some amount to X’s brother Z as a living expense. B agreed and signed an agreement with Z for paying the living expense. However, B did not pay and Z filed a suit against B. Can B argue that there was no consideration from Z? Was there any consideration at all?

20. Essential Elements Consideration is an act, abstinence, forbearance or detriment An Act - An act done by a person can constitute consideration. An abstinence  – refraining or promise to refrain from doing something that he or she is privileged to do. X promised to pay his nephew Y, a sum of Rs. 50,000 if he would refrain from drinking for 3 months. As requested, the nephew stopped drinking However, his uncle died without making the payment. Y claimed the money out of the uncle’s estate as his legal right. Such abstinence amounted to consideration ?

21. Essential Elements Consideration as forbearance –foregoing one’s legal right or claim. / promise in exchange for a negative act Deciding to not file a case for non-payment of loan if paid by certain date OR A promises to pay B, his cousin, Rs. 5000 if C will give up his part-time job in Subway for a year and work with him instead. Payment will be made only if B agrees and performs the promise. B fulfils terms of the offer, but A refuses to pay. If B brings suit to recover Rs. 5000, will A be liable?

22. Essential Elements Consideration as detriment detriment suffered by the promisee or any other person, When one does something that they are not obligated to do A – If you give me Rs. 1000, I will tutor your child for 5 months. A pays the amount but B refused to tutor. A files a case against B. A’s act of making the payment  acceptance & detriment ? A’s promise - supported by consideration?  Parting with something of value where one was not otherwise legally obligated to do so.

23. Essential Elements Consideration can be past, present or future Past Consideration – For something (act) that was done even before a promise was made an act already done by one as consideration for a promise of the other. Act done on promisor’s request when A promises to compensate B for what B had done (for the promisor A) in the past (before making of the promise) A does some work for B (at his request) in the month of February without expecting any return from B. In April, B promised to pay him some money for the work previously done in February.  Since S performed the work / object in the past, was there any consideration?

24. Essential Elements Y works for X as his close servant. On X’s instruction, Y had made certain discoveries about the business secrets of X’s rival. Such effort was beyond his general duties. Therefore, X decided t o give Y a bonus of Rs. 2000 However, X refused to pay at a later stage. T he servant had put forth extra work. The bonus was in consideration of that hard work previously done which was subsequently promised to pay by the master.

25. Past Consideration Braithwaite, killed a man. He asked Lampleigh to secure him a pardon from the king. Lampleigh spent many days journeying at his own cost across the country to where the King was and back again. He successfully secured a pardon Braithwaite promised to pay the Lampleigh £100 in gratitude.  He later failed to pay the money. Lampleigh sued.  Lampleigh had acted even before a promise to pay was made. Is there any consideration? Promise is traced back to the original request made which deems the act as a good consideration

26. Past Consideration M cared for the son of W when he was ill. The son died and W promised to compensate M for taking care of the son Later W refuses to pay the compensation. Can M bring an action to recover the compensation promised by W?

27. Essential Elements Consideration based on Time Executed Doing an act in return of which a promise is given It may be an act based on an advertisement – returning a lost dog Performing or fulfilling the requirements mentioned in an advertisement Executory Promise for a promise (reciprocal promise)

28. Essential Elements Present Consideration / Executed Consideration Emphasis on the execution of promise with performance. consideration which moves at the same time when a promise is made i.e., consideration is executed after the offer is made & has gained acceptance The act of buying and selling A offers B Rs. 1000 if B runs from Civil Lines to Pragati Maidan . B accepts A’s offer, B runs from Civil Lines to Pragati Maidan , Accepting the offer and simultaneously executing it  the consideration which makes A’s promise a binding contract.

29. Essential Elements Future Consideration / Executory Consideration – promise to do something in future Example – Promise to sell something in return for a promise of payment OR in return of promise of work A promised to pay B Rs. 25,000 if he constructs a swimming pool on the university ground by June 2023. B accepted and started the construction of the swimming pool. A refused to pay Is this promise enforceable?

30. Rules regarding consideration Adequate Consideration It must have some value in the eyes of law It must be real not illusory It must be something which a promisor is not already bound to do A promise to pay less amount than due is not binding Consideration must be lawful

31. Adequate Consideration Consideration = “something in return” A contract must be supported by consideration. It need not necessarily be equal in value to the promise. Parties are mostly free to make their own bargains Courts are not concerned with the adequacy as long as it has value i.e., the law attaches value to the consideration Adequacy of the consideration is for the parties to consider at the time of making the agreement,

32. Adequate Consideration An agreement to which is consent is freely given shall not be void for want of consideration. However the inadequacy of the consideration maybe considered by the court in deciding whether the consent was given freely or not. A peppercorn maybe treated as sufficient valuable consideration to a promise to pay Rs. 1000/-

33. Adequate Consideration X offers to sell land in Delhi to Y for Rs. 80,000. Y accepts. Y later discovers that the actual value of the land is Rs. 50,000. Y is liable on its promise to pay Rs. 80,000, even though the object to be received was of a lesser amount. Reason- X incurred a detriment when he promised to sell the land, thereby surrendering its right to keep the property. This element of detriment constituted a consideration sufficient to support Y’s promise to pay Therefore, Y’s claim of inadequacy was of no relevance.

34. Adequate Consideration X agrees to sell a house worth Rs. 85,0000 for Rs. 50,000. A’s consent to agreement was freely given. The agreement becomes a contract even with the inadequacy of the consideration.

35. Adequate Consideration N had a contract with company C manufacturing gramophone records to buy some of their music recordings. Such contract was made to boost the sales of the music recordings. N made advertisements offering to sell the music records at a discount price to anyone presenting three wrappers from their chocolate bars: To get one of the NEW STARS records collect three wrappers of 3 chocolate bars of N, fill a coupon and send a postal order for 5/- with those three wrappers. The wrappers themselves were worthless and were thrown away by N. C sought an injunction restraining the manufacture and sale of the records because they breached copyright.  Was the intention of reproducing / selling the records of their work for retail communicated?  Were the three wrappers of the three chocolate bars part of the consideration or merely qualification to buy the record?

36. Consideration of value No value in the eyes of law = insufficient consideration Consideration of value = a right, an interest or a property accruing to one party or some loss or responsibility suffered or undertaken by the other. Promise to give a reasonable sum in return for a service cannot be enforced on the grounds of uncertainty i.e., consideration must be certain. Something of value in the eye’s of law

37. Consideration cannot be illusory Should be real, i.e.  it must not consist of an impossible act Should be ascertainable & certain Impossibility existing at the time of formation of the contract will make the consideration unreal  ineffective Physical impossibility – A promises to pay B Rs. 1,00,000 in consideration of B bringing a star from the sky to the earth  absurd and physically impossible. Legal impossibility – A owes Rs. 1,000 to B. He promises to pay Rs. 200 to C, who is B’s servant, who in return promises to discharge A from the debt. This is legally impossible because C cannot give discharge for a debt due to B, his master. Illusory consideration – Illusory consideration gives impression of consideration which is not actually there. These agreements lack mutuality.

38. Consideration cannot be illusory S and D enter into a contract under the terms of which D promises to buy from S all the coal he “might wish” over the next 6 months, with S promising to sell such quantity at the current market price per ton. Because of the language used, intentionally or accidentally, D has not bound himself to buy any quantity of coal at all  thus he has incurred no detriment at all.  if D later desires some coal, he is free to buy from whomever he wishes.

39. Consideration cannot be illusory S and J entered into an agreement whereby S loaned some amount to J S dies. The lawyers of S found the agreement with both their signatured and sue J for non-payment of the debt. J argued that before S died they had agreed that S would not enforce the agreement for repayment if the J stopped complaining about S’ distribution of his property amongst the children. According to J, S had waived his right to pursue J for the debt. Held-  the agreement between S and J was not enforceable as it was not supported by good consideration. merely stopping to complain cannot be considered as forbearance.  It was a simple promise

40. Consideration cannot be illusory D agreed with his nephew W that if W would refrain from drinking, using tobacco, swearing, and playing cards or billiards for money until he became 21, D would pay him Rs 5,000. When W turned 21 he wrote a letter to D stating that W had performed his part of the agreement and had earned the Rs. 5,000. D and W agreed that Rs. 5,000 plus interest should remain with until W was capable of taking care of it. D died without paying P the Rs. 5,000 plus interest.  W restricted his lawful freedom of action within certain prescribed limits upon the faith of D’s agreement. W’s forbearance was a benefit to D and a detriment to W.  As D benefited by having W refrain from certain conduct and P suffered a detriment by denying himself the enjoyment of that conduct.

41. Promise to perform an existing legal & contractual duty under a duty imposed by law Where a person is responsible to perform certain duty under laws of land, performance of such duties cannot form a consideration A promise to pay B, who had received summons to appear at a trial in a civil suit, a certain sum being a compensation  the promise was without consideration as B was already under a duty imposed by law to appear and give evidence under a duty emanating from an existing contract : If a person is bound to perform certain act under an existing contract, the same performance cannot form a good consideration for any other contract. E.g.- A promised to pay an advocate an additional sum if the suit was successful. The advocate was under a pre-existing contractual obligation to render the best of his services under the original contract  the promise was void for want of consideration.

42. Pre-existing duty A consideration cannot consist of performance / promise of performance, that the party had a pre-existing duty to perform. Fresh Consideration S was contracted to work on a ship owned by M for 500/- per month As per the agreement S promised to do anything needed in the voyage regardless of emergencies. After the ship docked at Calicut two men deserted, and after failing to find replacements the captain promised the crew the wages of those two men divided between them if they fulfilled the duties of the missing crewmen as well as their own. After arriving at their home port, the captain refused to pay the crew the money he had promised to them. Is there a consideration?

43. Pre-existing duty Gauri’s nephew went missing. Gauri sent all the servants in search for the missing nephew ( Lalman Shukla being one of the servants). Lalman Shukla was provided with money and other expenses for his railway fare. As soon as Lalman Shukla left the house Gauri made an announcement that any person who will trace and find his missing nephew will be rewarded with Rs 501. Lalman Shukla was not aware of such offer. Lalman traced the boy and brought the boy back home. After knowing about the reward Lalman Shukla claimed the money from his master but, Gauri Dutt denied paying the reward to him.

44. Pre-existing duty Points to note- Knowledge of Offer? Acceptance of such Offer? Was the act part of Lalman’s obligations and duties as a servant?

45. Pre-existing duty Roffey were builders who were contracted to refurbish 27 flats belonging to a housing corporation. The contract had a penalty clause for late completion. Roffey subcontracted some work to Williams, a carpenter. Roffey notices that Williams is falling behind with his work they offered him bonus payment to finish work on time. Williams carried on working until the payments stopped. He sued the Roffey for breach of contract.

46. Pre-existing duty The test for understanding whether a contract could legitimately be varied was set out as follows: A has formed a contract with B for work Before its completion, A has reason to believe B may not be able to complete the assigned work A promises B more money to finish work on time A "obtains in practice a benefit, or obviates a disbenefit" from giving the promise There must be no economic duress or fraud The benefit to A is capable consideration for B’s promise, so that the promise will be legally binding. The practical benefit of timely completion , even though a pre-existing duty is performed, constitutes good consideration.

47. Pre-existing duty Held- a promise to make bonus payments to complete work on time was enforceable if the promisor obtained a practical benefit and the promise was not given under duress of by fraud. It was Roffey’s idea to offer the extra payment as bonus. Additionally, Roffey gained a practical benefit by avoiding the penalty clause.