ADMAS UNIVERSITY COLLEGE
HARGEISA-MAIN CAMPUS
CONSIDERATION
MEANING OF CONSIDERATION: consideration is one of the most important
essentials of a valid contract. Subject to a certain exceptions, an agreement made without
consideration is a nudum pactum (a nude or a bare agreement) and is void. When a
party to an agreement promises to do something. He must get “something” in return for
it. This “something” in return for something is known as “consideration”. In other words,
consideration is the price for which the promise of the other is bought and the promise
thus given for value is enforceable. Consideration is the evidence of mutual obligations
which the law can enforce. It is the sign and symbol of every bargain.
Example: Ahmed agrees to sell his house to Omar for $20,000. here, Omer’s promise to
pay the sum of $ 20,000 is the consideration for Ahmed’s promise to sell the house, and
Ahmed’s promise to sell the house is the consideration for Omer’s promise to pay
$20,000.
Definition of Consideration:
The term “consideration has been defined in various ways. The most popular and
influential definition of consideration is the given by Justice lush, in Curri. Vs. Misa.
According to him “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”.
According to this definition consideration consists in some benefit to the promisor, or
some detriment to the promise.
The British contract Act defines consideration as follows “when at the desire of the
promisor, the promise or any other person has doen or abstained from doing or
does or abtains form doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise are called a consideration for the promise.”
Consideration need not necessarily be in cash or kind. It may be an act or abstinence or
promise to do or not to do something. It need not always be doing some act. It cannot be
doing an act also.
Legal rules as to consideration:
1) Consideration must move at the desire of the promisor: the act done or loss
suffered by the promise must have been done or suffered at the desire or request
of the promisor. The act done at the desire of a third party or without the desire of
the promisor cannot be a good consideration. It is not necessary that the promisor
himself should be benefited by the acts of the promise. The benefit may be
intended for a third party. But the desire or request of the promisor is essential.
Subject: BUSINESS LAW
LECTURER: YUSUF O. GARAS
ADMAS UNIVERSITY COLLEGE
2)
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HARGEISA-MAIN CAMPUS
Example: A sees B’s house on fire and helps in extinguishing it. B did not ask for
A’s help. A cannot demand payment for his service.
Consideration may more from the promisee or any other person:
consideration can be given or supplied by the promise or any other person who is
not a party to the contract. As long as there is a consideration it is not important
who has given it. Therefore, a stranger to consideration can sue on a contract
provided he is not a stranger to contract. This is known as the “doctrine of
constructive consideration”.
Consideration may be past, present or future: consideration may be past,
present or future. But according to English law, consideration may be present or
future but never past.
Consideration need not be adequate: consideration need not be adequate to the
promise, but it must be of some value in the eye of law. So long as consideration
exists, the courts are not concerned as to its adequacy. Provided it is of some
value. The adequacy of the consideration is of the parties to consider at the time
of making the agreement. However, the inadequacy of the consideration may be
taken into account by the court in determining the question whether the consent of
the promisor was freely given. This is because inadequacy may suggest fraud,
mistake or coercion etc.
Example: Ali agrees to sell a car worth $2,000 for $200. Ali’s consent to the
agreement was freely given. The agreement is a contract not withstanding the
inadequacy of consideration.
Consideration must be real and not illusory: Although consideration need not
be adequate, it must be real, competent and of some value in the eyes of the law.
Real consideration is one which is not physically or legally impossible. If the
consideration is physically impossible, vague or legally impossible, the contract
cannot be enforced.
Consideration must be lawful. The consideration for an agreement must be
lawful. An agreement is valid if it is based on unlawful consideration.
Consideration is unlawful:
a) if it s forbidden by law or
b) if of such a natural that if permitted it would defeat the provisions of nay law,
or
c) is fraudulent, or
d) involves injury to the person or property of another,
e) court regards it as immoral or opposed to public policy
Example:
I ) A promises to maintain B’s child and B promises to A $ 2000 yearly for the
purpose. Here, the promise of each party is the consideration for the promise of
the other party. These are lawful considerations.
II ) A promises to obtain for B, an employment in the public services, and B
promises to pay $ 800 to A. the agreement is void as the consideration for it is
unlawful.
7) Consideration may be an act or abstinence or promise: Consideration may be
a promise to do something or not to do something. So it may be either positive or
Subject: BUSINESS LAW
LECTURER: YUSUF O. GARAS
ADMAS UNIVERSITY COLLEGE
HARGEISA-MAIN CAMPUS
negative. Consideration need not always be doing some act. It can be not doing an
act also.
8) Consideration 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. There
will be no detriment to the promise or benefit to the promisor over and above their
existing rights or obligations. Similarly, a promise to perform a public duty by a
public servant is not a good consideration.
Example: A promises to pay $ 200 to police officer for investigation into a crime.
This promise is without consideration because the police officer is already bound
to do so by law.
Kinds of Consideration:
1) Past consideration: where the promisor had received the consideration before the date
of the promise, the consideration is termed as “past consideration”. It means a past act or
forbearance.
Examples:
a) A renders some services to B in the month of June. In July, B promises to pay A $100.
the consideration of A is past consideration.
b) a teaches the son of B’s request in the month of January and in February B promises to
pay A $200 for his services. The services of A will be past consideration.
2) Present consideration: where the promisor receives consideration along with his
promise, the consideration is termed as “present consideration”. in other words, when
the consideration and the promise are simultaneous, it is called present consideration.
present consideration is also called “ executed consideration”.
Example:
a) A agrees to sell his car to B fro a sum of $5000. B pays money to A at the time of
making of the contract consideration will be taken as “present” for A.
b) A receives $200 in return for which he promises to deliver goods to B. the money
A receives is the present consideration for the promise he makes to deliver the
goods.
3) Future consideration: this is also called “executory consideration” where the
promisor has to receive consideration in future for his promise, the consideration is said
to be “Future consideration” it is a promise for the promise. Mutual promises to marry,
or promise to work return of promise of payment are examples of future consideration.
Example: a) A promises to deliver car to B after a week. B promises to pay the price after
a month. The promise of A is supported by the promise of B. the consideration in this
case is future.
Exceptions:
Subject: BUSINESS LAW
LECTURER: YUSUF O. GARAS
ADMAS UNIVERSITY COLLEGE
HARGEISA-MAIN CAMPUS
There are, however, certain exceptions to the rule that past consideration is no
consideration. Under the exceptions, past consideration is as good as present or future
consideration. The exceptions are as follows:
1) Services rendered at the request of the promisor. When the consideration
consists of services rendered at the request of the promisor, it is a good
consideration. The request may be either express or implied.
2) Promise to pay a time-barred debt: where a debt is bound by limitation, the
debtor can waive the benefit of that plea and promise to discharge the debt. Such a
promise is enforceable. A time-barred debt can be taken as valid consideration for
a subsequent promise.
3) Negotiable instrument: where a negotiable instruments is given in consideration
of some past act, that past act will form as a good consideration for the issue of
the negotiable instrument and the party who gets the instrument can validly
enforce it.
Unreal Considerations: in the following cases, the consideration is not legal because of
physical or legal impossibility or uncertainty. The following are not real considerations.
1) Physical impossibility: if a person agrees to perform an impossible act for a
consideration, the promise is not enforceable. The promise is unreal. Discovering
treasure by magic or making two parallel straight lines meet or putting life back
into a dead body cannot be enforced as promises because of impossibility.
2) Legal impossibility: whenever the performance of a promise is legally
impossible, consideration is not real.
3) Uncertain consideration: consideration is not real and is not enforceable if it is
uncertain or ambiguous.
Examples: A engages B for doing a certain work and promises to pay a
“reasonable sum”. There is no recognized method of ascertaining the
“reasonable” remuneration. The promise is not enforceable as it is uncertain.
4) Illusory consideration: an illusory consideration is not real and is unenforceable.
Example: A promises to give B one ton of gold brought from the sun. the
consideration is sham and illusory.
5) Pre-existing legal obligations: 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. Similarly, a promise to perform a public duty by a public servant
is not a consideration.
Real or Good Consideration: The following are good real or considerations:
1) Forbearance to sue: forbearance to sue is a kin of abstinence. It means a person
who has a right of action against another person refrains from bringing the action.
Forbearance to sue may be forever or for a short or limited time. Forbearance to
sue at the desire of the debtor is a good consideration.
Subject: BUSINESS LAW
LECTURER: YUSUF O. GARAS
ADMAS UNIVERSITY COLLEGE
HARGEISA-MAIN CAMPUS
Example: A has a right to sue his debtor B for $5000. But he postpones suing as B
agreed to pay $ 2000 more. Such forbearance is a valuable consideration for the
promise of B.
2) Compromise of a disputed claim: Compromise is a kind of forbearance. The
compromise of a disputed claim is a good consideration for the fresh agreement of
compromise.
Example: A sues to recover a debt of $2000 from B. B denies the whole debt and
promises to pay $500 to A as a sort of compromise. This compromise of B is
supported by consideration and is valid.
3) Composition with Creditors: A person who is not in a position to pay his debts
fully may call a meeting of his creditors and request them to accept a lesser
amount. If the creditors and request them to accept a lesser amount. If the
creditors agree to it, the agreement is binding upon the debtor and creditors.
Subject: BUSINESS LAW
LECTURER: YUSUF O. GARAS