CkBooks Online – Free Online Books

CONSIDERATION & ESSENTIALS OF CONTRACT
Consideration
Consideration is one of the essentials of a valid contract. Consideration has been defined in section 2 (d) of
the Act which is reproduced below: “When at the desire of the Promisor, the Promisee or any other person who has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”.
The following points emerge from the above definition:

• The Consideration is an act or abstinence.
• Such act or abstinence should be done at the desire of the Promisor.
• Such act or abstinence may be done by the promisee or any other person.
• Such act or abstinence has already been executed or it is still to be executed, i.e., executory.

Examples:
1. Mr. Yasir agrees to sell his car to Mr. Fahad for Rs 600,000. Here for Mr. Yasir’s promise to sell the car,
the consideration is Rs 600,000 and for Mr. Fahad’s promise to buy the car, the consideration is the car
which he shall receive on performance of this contract.
2. Mr. Usman hires the services of Mr. Umer as an accountant at a monthly salary of Rs. 20,000. In this illustration, the monthly salary of Rs 20,000 is the consideration for Mr. Umer and the services which have
been promised to be rendered by Mr. Umer is consideration for Mr. Usman.
Scope and essentials of Consideration: The scope and essentials of consideration are wide ranging which are outlined below:

• Consideration must be conducive to contract.
• Consideration at the desire of third party
• Consideration may proceed from third party.
• Concept of inadequate consideration
• Absence of consideration
• Proof of consideration
• Future promise as legal consideration
• Past consideration

Consideration must be conducive to contract
Opening of an account leads to a contract between the customer and the bank. If bank pays a cheque by its own mistake of an amount more than the credit balance in customers account, the payment shall be treated without consideration as terms of contract didn’t stipulate payment of any cheque of an amount more than the balance available in the account.
Consideration at the desire of third party
Consideration may move from third party but third party is not entitled to file a suit under the contract.
Concept of inadequate consideration
Inadequate consideration remains the consideration for all legal purposes. Acceptance of a liability by the debtor of an amount more than the amount of money advanced by the creditor shall be treated as a good consideration.
Absence of consideration
A meritorious and gratuitous consideration for example natural love and affection or showing obedience as a gesture of respect cannot be treated as good consideration or valuable consideration and as such may lead to absence of consideration.
Proof of consideration
In case of a contract in writing, recitals/stipulations regarding consideration shall be treated as good proof of consideration.
Future promise as legal consideration
Future promise shall be good consideration if it gives rise to a legal obligation which the Promisor could be compelled to perform Past consideration

Past consideration is legal consideration. Services rendered in past by an employee against a promise to pay him bonus etc. in future is a good consideration in the eye of law.
When agreements lead to contracts:
All agreements are contracts if they fulfill the requirements as contained in section 10 of the Contract Act, 1872 which are outlined below:
1. Free consent of parties
2. Parties competent to contract,
3. Lawful consideration
4. Lawful object, and
5. Agreements not expressly declared to be void
The terms of the definition of consideration are explained hereunder:
“At the desire of the Promisor”—The act of constituting the consideration must have been at the desire or request of the promisor, as when a person contracts a marriage in consideration of a promise of a settlement. As act done at the desire of a third party is not a consideration. Thus a promise by the defendants to pay to the plaintiff a commission on articles sold through their agency in a market constructed by the plaintiff, not at the desire of the defendants, but of the Collector of the place, is void under S. 25, being without consideration. Nor can it be supported under clause 2 of that section, which enacts that an agreement without consideration is void, unless it is a promise to compensate a person who has already voluntarily done something for the Promisor.
“Or any other person”— It is well settled law that consideration must move from the promisee. Under the Act, however, consideration may proceed from the promisee or any other person.
Past consideration —-In the same clause the words “has done or abstained from doing” call for special attention. They declare the law to be that an act done by A. at B’s request, without any promise from B., may be a consideration for a subsequent promise from B. to A. Now, the general principle of the common law is that in the formation of a contract the consideration is given and accepted in exchange for the promise. Hence the acceptance of the consideration and the giving of the promise must be simultaneous, and, in order to have the effect of binding the party making it, a request must be the offer of a promise in return for some consideration, which offer will become a promise (if not meanwhile revoked) if and when the consideration is furnished as requested. Thus the consideration must always be present at. the time of making the promise, and there is no such thing as a past consideration. If a service is rendered without any immediate promise or understanding that it is to be recompensed, it is a merely gratuitous act having no legal effect except such transfer of property of the like as may be contained in the act itself. If there be such a promise, express by words or tacit by understanding, to be inferred from the circumstances, there is at once an agreement, in which, if the recompense be not specified, the promise is to give such reward as may be found reasonable. A subsequent promise specifying the reward will not make an obligation where there was none before, but will show what the parties thought reasonable, and there is generally no reason why the parties’ own estimate, in a matter which concerns only themselves, should not be accepted. Such a promise “may be treated either as an admission which evidences, or as a positive bargain which fixes, the amount of that reasonable remuneration on the faith of which the service was originally rendered”. In many common circumstances the fact of service being rendered on request is ample evidence of an understanding that it was to be paid for according to the usual course.
“Or does or abstains from doing”: Forbearance as Consideration:— The essence of consideration is that the promisee takes on himself some kind of burden, or “detriment,”. Where the consideration is a present performance and not a promise, the detriment may consist either in actually parting with something of value, or in undertaking a legal responsibility, or in foregoing the exercise of a legal right. It is not common experience that the exercise of one’s legal rights is always profitable; nevertheless that which the law deems worthy of its protection must be presumed to be of some value. Thus the performance which constitutes a consideration may be negative as well as positive, provided that the promisee’s abstinence from exercising a right was undertaken at the request of the promisor. There need not be a total abandonment of the right, or an undertaking to suspend it for a definite time. Such an undertaking, if it exists, is of course not a performance, but a promise, and then the contract is formed by mutual or reciprocal promises. Where it was agreed at the time of partition that a particular co-sharer should realise arrears of rent due before partition, and distribute the amounts to the other co-sharers in proportion, and the particular co-sharer failed to realise the amounts, it was held that the other co-sharers could claim their share of the rent from him as there was consideration for the agreement. There is an element of fiction in some of the cases on forbearance. The consideration in such cases may be executed or executory. If the debtor promises to pay or to give security, and the creditor promises to forbear, there is a bilateral contract and the consideration is executory. If there is a request for forbearance, coupled with a promise to pay or give security, and followed by forbearance, there is a unilateral contract and the consideration is executed. In the cases, however, there is often neither an express request for forbearance nor an express promise to forbear, and if there is to be consideration one or other must be implied. The difficulty of implying a promise to forbear is that such an implication is often at variance with the facts, and the element of fiction is therefore more apparent.
Compromise
The most usual and important kind of forbearance occurring in practice is that which is exercised or undertaken by way of compromise of a doubtful claim. It is a question of some importance within what limits the abandonment or compromise of a disputed claim is a good consideration.
Apparent forbearance when really an act: Actual performance is sometimes apparently passive. A trader exposes his goods for sale, the price being marked or otherwise well known. A customer comes in, takes the object he wants, and gives his name to the trader. The case is common enough. Here a captiously literal person might say that the consideration on the trader’s part is forbearing to interfere with the customer’s action. But what we do say, both in law and in common sense, is that the seller, by authorising the buyer to take the goods within his reach, in fact sells and delivers them by the buyer’s own hand, and the act, though mechanically the buyer’s, is in substance the seller’s. This remark is needed only when the sale is on credit. If ready money is expected and given, there is no promise at all in the transaction, and therefore no contract; see the commentary on the next following words.
“Or promises to do or to abstain from doing something”: Mutual Promises:— These words, supplemented by sub sections (e) and (f), convey in a somewhat indirect and inconspicuous manner the extremely important proposition that a contract may be formed by the exchange of mutual promises, each promise being the consideration for the other. In this case neither promise is of any value by itself, but each of them derives its value from the exchange which makes them both binding. This effect of mutual promises is not a logical deduction from the general notion of consideration, but a positive institution of law required by the convenience of business in civilized life. In many archaic systems of law there is no obligation to perform a promise until there has been performance or at least some act done towards performance on the other side. The widespread custom of giving something by way of earnest “to bind the bargain” is a relic of this view.
A consideration which consists in performance (or so far as it consists in performance) is said to be executed. If and so far as it consists in promise, it is said to be executory. Some writers, speak of a contract in which the consideration on one side is executed as unilateral, and of a contract in which it is executory on both sides as bilateral. This terminology is concise and convenient. It is obvious that the consideration cannot be wholly executed on both sides. For where performances, and performances only, are exchanged, of which a sale of goods over the counter for ready money is a familiar example, nothing remains to be done by either party, and there is no promise at all and nothing for the law to enforce.
The proposal to give a promise for a promise is accepted by giving the promise asked for, and thereupon, if there be no special ground of invalidity, the two parties are both bound, each being both promisor and promisee. It does not seem necessary or useful or indeed true to say that the promise of the party who accepts has ever been a proposal, though the language of sub-section (b) does not seem to recognize the existence of promises which have not passed through that stage. Still it is true that, but for the counter promise or “reciprocal promise” as the Act has it, neither party’s “signification of willingness” could become a promise within the definition of the Act; and in this sense we may say, if we please, that the acceptance of an offered promise, by giving the reciprocal undertaking asked for, has itself the nature of a proposal, though it becomes a promise in the act of utterance, and there is no moment at which it exists merely as a proposal. But it does not appear that anything of practical importance can turn on this.
Promises of forbearance: — An actual forbearance to exercise a right may be a good executed consideration, provided it is at the promisor’s request. So a promise of forbearance may be a good executory consideration. The validity of such considerations, as distinct from their formal definition, is discussed in section 25.
“Such act or abstinence or promise is called a consideration for the promise”:—Further requirements.–. It will be observed that, according to the terms of the definition, it is only required that something, no matter what, should have been done, forborne, or promised at the request of the promisor. We shall find, however, that in some cases expressly provided for by the Act, and in others apparently not so provided for are recognized in practice, the legal effect of consideration in making promises binding is withheld from acts, forbearances, and promises which arc within the terms of the definition. One would expect the Act to say somewhere that, in order to have legal effect, a consideration must not only be something which the promisor asked for and got, but must be “good” or “valuable”; that is to say, something which not only the parties regard, but the law can regard, as having some value. This is a fundamental rule of law.
Agreement and Contract
The distinction between “agreement” and “contract” made by sub-section (h) is apparently original. The conditions required for an agreement being enforceable by law are contained in the Act, where it will also be seen that the absence of any such condition makes an agreement void, and certain defects will make a contract voidable.
Suit for recovery of contract amount—Where defendant failed to prove that any breach of agreement was committed by plaintiff justifying stoppage of payment to him, while admitting liability to pay claimed amount, plaintiff held, was entitled to decree of his suit.
Agreement to sell— Agreement to sell does not create title in property.
Interpretations of documents—Arbitration agreement—Contract—Arbitration agreement essentially a contract and to be governed by same rules in matter of interpretation as apply to construction of contract. Contract to be construed in harmonious manner and each part to be construed in harmony with other parts so that a rational meaning may be given to all parts of contract.
Essentials of valid Contract:
These are outlined below:

• Offer and acceptance
• Legal relationship
• Legal consideration
• Competent parties
• Free consent of the parties
• Lawful Object
• Terms of agreement to be complete and certain
• Possibility of performance
• Contract to be got registered & in writing, wherever required
• Contract not declared void under the Act. Now we shall discuss each of these in detail.

Offer and Acceptance
For an agreement, it is essential that there should be offer by one party and acceptance of that offer by the other party. The acceptance must be absolute and unqualified.
Legal Relationship
The agreement must lead to a legal relationship between the parties. The parties must have intention to create legal relationship. Social agreement does not create any legal relationship, hence not contract enforceable by law.
Legal Consideration
According to sec 23 the consideration or object of an agreement is lawful if it is not forbidden by any law or not fraudulent or does not cause injury to a person or property or not immoral.
Competent Parties
The parties to an agreement must be competent in the eyes of law otherwise the agreement cannot be enforced by the court of law.
According to section 11, following persons are competent to enter into a contract:

• having attained the age of majority
• of sound mind
• not disqualified from contracting by any law to which he is subject

Lawful Object
The purpose of the agreement should not be against the law. For example, the contract in restraint of trade shall not be valid contract since it is against the provisions of the Constitution of Pakistan.