Consideration in Contract No Consideration, No Contract

Consideration in Contract

No Consideration, No Contract

To attain Validity and to create legal relations, the Contract should be with two directional consideration. In the absence of two directional consideration, it can be said that there is no contract at all (only Social agreement). But, the following are situations where Contract attains Validity with one directional consideration.

·                     Affection based Contracts

·                     Promise to pay time bared debt

·                     Charities

·                     Completed Gifts

·                     Extension of Time

·                     Negotiable Instruments

·                     Voluntary Services

·                     Agency Contracts

Affection based Contract: If the contract is an outcome of affection, one directional consideration is sufficient to bring Validity to the Contract.

·                     A case on this point is Raj Lukhy (Vs) Bhoothnadh. In this case A and B are husband and wife respectively. There are frequent clashes and misunderstandings between them. As a result, on one day, a contract has formed between them according to which they have to live separately and for B`s livelihood, A has to Contribute amounts to B. Upon breach of Contract by husband, wife files a suit. Here only one directional consideration can be observed. At the same time it can be confirmed that their Contract is not at outcome of affection. Thus the Contract is held to be Void.

·                     Another case on this point is Venkata Swamy (Vs) Ranga Swamy in this case A and B are brothers. A, as a consequence of affection on B, Promises to discharge B`s debts. In the court it is held that it is a Valid Contract due to presence of affection. Same decision is made in poon bee bee (Vs) Faiz Bhiksh and Bheema (Vs) Shivaram.

Promise to pay time bared debt: Limitation Act has specified durations to perform the Contract. It is called limitation period. In case of pro-note limitation period is three years. After expiry of three years from the date of Pro-note, the debt becomes time bared debt. Where creditor cannot proceed legally to recover the amount. If debtor promises to pay time bared debt, then a new Contract gets formed between Creditor and debtor, where there will be one directional consideration only. i.e. From debtor to Creditor only. But it is Valid Contract.

Charities: In case of Contracts relating to Charities, there will be only one directional Consideration. Such a Contract is at times Valid and at times Void. If the party who has to get the amount of charity, comes across any suffering, then it is Valid Contract. In the absence of loss, the Contract is Void.

·                     A case on this point is Kedarnadh (Vs) Ghorie Mohammad. In the case a Contract gets formed between A and B according to which A has to donate certain amount to B for construction of a town hall. Having trust in A`s promise, B borrows money temporary and commences the construction work. Thereafter A refuses to pay and B sues. As B has come across laws court decides that the contract is Valid and hence, he can recover the amount.

Completed Gifts: Gifts are of two types namely Promised Gifts and Completed Gifts. In case of Promised Gift, The Contract is Void and in case of Completed Gifts the Contract is Valid. If promised gift is not given, the other party cannot proceed legally to get that gift. The person who has handed over the gift, cannot get it back by proceeding legally.

Extension of Time: In case where extension of time to settle the debt is agreed between debtor and creditor, A new contract comes into operation. In such contract there will be only one directional consideration. But it is Valid.

Negotiable Instruments: In case of negotiable instruments, as per the provisions of Negotiable Instruments Act 1881, Consideration will be presumed. So a Contract relating to negotiable instrument attains Validity with one directional consideration.

Voluntary Services: In case where a party renders voluntary service, the contract which gets formed after such service, attains Validity with one directional consideration.

Agency Contracts: In case of Agency Contracts also one directional Consideration is sufficient to bring Validity to the Contract.

Past Consideration is No Consideration

The Consideration which had already being passed before formation of Contract is called Past Consideration.

Indian Law: According to Indian law, Consideration may be past, present or future. So here past consideration is Valid.

England Law: According to England Law, Consideration must be either present or future. Thus in England past Consideration is not Valid.

Exceptions for the statement Past Consideration is No Consideration

The following are situations where past consideration also attains Validity in England.

Service upon request: When a Service is done upon request of the party, such service, though past consideration, attains Validity.

·                     A case on this point is Campleigh (Vs) Breathwait. In this case B is sentenced to death. A is kings relative. B request`s A to Save him from that punishment, by utilizing his (A`s) influence at King. A does so. Thereafter B promises to give certain reward to A to which A gives his acceptance. Here Consideration from A to B is past Consideration. But it is given Validity and the Contract is held to be Valid.

Promise to pay time bared debt: In case of Promise to pay time bared debt the new Contract formed between Creditor and Debtor attains Validity by means of making the past Consideration Valid.

Negotiable Instruments: In case of negotiable instruments also England law gives Validity to past Consideration.

Consideration may move from Promisee or any other Person

England Law: According to England law, consideration should move from promise only. But there is an exception where consideration may move from a person other than promisee. Here condition is – there must be blood relationship between promisee and that other person.

·                     A case on this point is Dutton (Vs) Poole.

Indian Law: According to Indian law, consideration may move from promisee or any other person.

·                     A case is Chinnayya (Vs) Ramayya. In this case A has a daughter namely B and a brother namely C. A makes an offer to B according to which A will transfer certain property to B and B has to pay annuity to C. Thus a Contract gets formed in between them. There after B promises to C to pay annuity. Afterwards B gets failed in paying annuity to C on the ground that she (B) has no Consideration from C. Here Court decides that consideration is obtained by B from A. Thus it is held that B has to pay annuity to C.