Tax and Legal law ppt

1. Ch. – 4 – Consideration

2. Concept And Importance Of Consideration
Introduction :
Consideration is a vital element in the law of contracts. It is a
benefit which is bargained between the parties and this is the main
reason for a party to enter into a contract. Consideration must be of
value to the parties and it is given for the performance by the other
party. This performance itself is called consideration . In law,
one consideration is given for getting another. consideration in
return. Not doing an act (forbearance) can also be a
consideration.
Example : A tells B if you do not construct road next to may
boundary, I will pay you Rs. 100000.
The main purpose of consideration is to ensure that parties fulfil
their promises.

3. Example: Mr. A offers to drive Mr. B to work on Mondays and
Tuesdays and in return Mr. B does the same on Wednesdays and
Thursdays. This will constitute a bilateral contract, which will be
binding on both A and B, the moment they accept these terms.
From the above-mentioned discussion you would find that-
1. Consideration is vital element in law of contracts.
2. Consideration is a benefit which must be bargained for
between the parties.
3. Consideration is the essential reason for a party entering into
a contract.
4. Consideration must be of value between the parties.
5. In a contract one consideration is given in return for another
consideration.
6. Not doing an act can also be consideration.

4. Example: I will pay you Rs 1000 if you do not park your truck in front
of my gate.
Consideration is one of the essential elements to support a contract.
It is the sign and symbol of every bargain. Subject to certain
exceptions, an agreement made without consideration is void. In law,
the word consideration is used for :
a. Something in return. b. The price of the promise.

5. Indian Definition: [S–2(d)]
1. When at the desire of the promisor;
2. the promisee or any other person;
3. has done or abstained from doing; or
4. does or abstains from doing; or
5. promises to do or to abstain from doing;
6. something;
7. such an act, abstinence or promise is called a consideration for
the promise.
Explanation:
[S. 2(f)] says promises which form the consideration or part of the
consideration for each other are called reciprocal promises.
Promisor is one who has made a promise or makes a promise.
Promisee is one to whom a promise has been made.

6. [The consideration may consist either of :
a. An act i.e. doing something–positive act.
Example: A proposes to sell his motor car to B for ` 20,000.
b. An abstinence or forbearance: not doing something or
abstaining or refraining from doing something–negative act.
Example: A says to B “I will pay you Rs. 10,000 if you do not make a
road next to my house.
c. A return promise: The parties get something in return.

7. 1. Consideration must move at the desire of the promisor:
a. An act Constituting the consideration must have been done or loss
suffered by the promisee at the desire or request of promisor.
b. An act done without desire or request of the promisor, is a
voluntary or gratuitous act which does not come within the
definition of consideration.

8. Example: A saves B from fire, without being asked to do so. A
cannot demand payment for his services, because it is a gratuitous
act.
c. An act done at the desire or request of the Third Person is not a
good consideration in the eyes of law.
d. It is not necessary that the promisor himself should be
benefitted by the consideration.

9. 2. Consideration may move from the promisee or any other
person: Under the English Law, consideration must move from the
promisee or his agent, if it is given by a third person other than the
promisee, it is no consideration.
Indian Law: Consideration may move from the promisee or
any other person i.e. even a stranger. This means that as long as
there is consideration for a promise it is immaterial who has
furnished it.

10. 3. Consideration may be past, present or future:
Consideration may be classified into three types :
a. Past: has done or abstained from doing.
b. Present: Does or abstains from doing.
c. Future: Promises to do or abstain from doing.
It may be both positive and negative i.e. the act to do OR not
to do.
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11. 4. Something – (It need not be adequate) : Consideration means
something in return, this something in return need not be equal in
value to something given. The law only provides that a contract
should be supported by some consideration.

12. 5. Consideration must be real and not illusory: The
consideration to be valid must be real and valuable and must not be
illusory or sham.
There is no real consideration in the following cases:
a. Physical Impossibility, b. Legal Impossibility,
c. Already existing public duty, d. Uncertain
Consideration.
e. Illusory consideration.
Example: A engages B for doing a certain work and promises to pay
a “reasonable sum”. There is no recognised method of ascertaining
the reasonable remuneration. The promise is unenforceable as
consideration is uncertain

13. 6. Consideration must not be illegal, immoral or opposed
to public policy : [S–23] The consideration given for an agreement
must be lawful one. Where the consideration to a contract is illegal,
immoral or against public policy, the courts do not allow action on
such a contract.
• Prostitution, gambling, hiring a person to break leg of another
person, inducing someone to break an agreement, talking to
someone to back out a promise etc.

14. Exceptions To The Rule, “No Consideration No Contract (S 25)
Agreements without consideration [S.25]
According to the Indian Contract Act, 1872 “An agreement
enforceable by law is called a contract”.
[S. 2(g)] says “An agreement not enforceable by law is said to be
void.”
[S. 25] says “An agreement is declared to be void if it is not
supported by consideration”.
These provisions lead us to a general rule-every agreement
must be supported by consideration and an agreement without
consideration is void.

15. “No consideration, No contract” is the general rule. As a general
rule, consideration is essential for the validity of an agreement i.e. in
other words an agreement made without consideration is void.
However deal with exceptions to this rule.

16. 1. Natural love and affection: [S–25(1)]
For this the agreement has to be
a. in writing
b. registered under the law for registration of documents and
c. made out of natural love and affection
d. between the parties standing in a near relationship to each
other.

17. Example: A for natural love and affection, promises to give his son B
Rs 1000. A puts his promise to B in writing and registers it. This is a
contract.
Contracts between father and son, between brothers, husband and
wife, if they proceed out of natural love and affection have all been
held to be enforceable.
2. Compensation for Voluntary Services [S–25(2)] : A promise to
compensate wholly or in part, a person who has already
voluntarily done something for the promisor.
Example: A finds B’s purse and gives it to him. B afterwards
promises to give A `100. This is a contract.

18. 3. Promise to Pay a Time Barred Debt [S–25(3)] : A promise by a
debtor to pay a time barred debt is enforceable provided it is made :
a. in writing and
b. is signed by the debtor or by his agent.
c. the promise may be to pay the whole or any part of the debt.
d. the debt must be such that the creditor might have enforced
payment, but for law of limitation.
Example: A owes B ` 1,000 but the debt is barred by law of
limitation. A signs a written promise to pay ` 500 to B on account of
the debt. This is a contract.

19. 4. Completed Gift: [Explanation 1 to S–25] : The rule “no
consideration no contract” does not apply to completed gifts.
The gifts actually made by a donor and accepted by the donee are
legally valid without consideration. Therefore, a completed gift does
not require consideration.
For example : A transfers a flat to B by a duly written and registered
“deed of gift”. This is valid in the eyes of law eventhough no
consideration has moved.

20. Unlawful Consideration [s 23]
[S.23] – The consideration or object of an agreement is lawful
unless –
a. it is forbidden by law; or
b. is of such a nature that, if permitted, it would defeat the
provisions of any law; or
c. is fraudulent; or
d. involves or implies injury to the person or property of
another; or
e. the court regards it as immoral, or opposed to public policy.