Legal Rules of Consideration Essay

Legal rules as to consideration: 1) Consideration must move at the desire of the promisor:the act done or losssuffered by the promise must have been done or suffered at the desire or requestof the promisor. The act done at the desire of a third party or without the desire ofthe promisor cannot be a good consideration. It is not necessary that the promisorhimself should be benefited by the acts of the promise. The benefit may beintended for a third party. But the desire or request of the promisor is essential. Example: A sees B’s house on fire and helps in extinguishing it. B did not ask forA’s help. A cannot demand payment for his service. 2) Consideration may more from the promisee or any other person:consideration can be given or supplied by the promise or any other person who isnot a party to the contract. As long as there is a consideration it is not importantwho has given it. Therefore, a stranger to consideration can sue on a contractprovided he is not a stranger to contract. This is known as the â€Å"doctrine ofconstructive consideration†. 3) Consideration may be past, present or future: consideration may be past,present or future. But according to English law, consideration may be present orfuture but never past. 4) Consideration need not be adequate: consideration need not be adequate to thepromise, but it must be of some value in the eye of law. So long as considerationexists, the courts are not concerned as to its adequacy. Provided it is of somevalue. The adequacy of the consideration is of the parties to consider at the timeof making the agreement. However, the inadequacy of the consideration may betaken into account by the court in determining the question whether the consent ofthe 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 theagreement was freely given. The agreement is a contract not withstanding theinadequacy of consideration. 5) Consideration must be real and not illusory: Although consideration need notbe 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 theconsideration is physically impossible, vague or legally impossible, the contractcannot be enforced. ) Consideration must be lawful. The consideration for an agreement must belawful. 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 immora l or opposed to public policy Example: I ) A promises to maintain B’s child and B promises to A $ 2000 yearly for thepurpose. Here, the promise of each party is the consideration for the promise ofthe other party. These are lawful considerations. II ) A promises to obtain for B, an employment in the public services, and Bpromises to pay $ 800 to A. the agreement is void as the consideration for it isunlawful. 7) Consideration may be an act or abstinence or promise: Consideration may bea promise to do something or not to do something. So it may be either positive orSubject: BUSINESS LAW LECTURER: YUSUF O. GARASADMAS UNIVERSITY COLLEGEHARGEISA-MAIN CAMPUS negative. Consideration need not always be doing some act. It can be not doing anact also. ) Consideration must be something which the promisor is not already bound todo: a promise to do what one is already bound to do, either by general law orunder an existing contract, is not a good consideration for a new promise. Therewill be no detriment to the promise or benefit to the promisor over and above theirexisting rights or obligations. Similarly, a promise to perform a public duty by apublic servant is not a good consideration. Example: A promis es to pay $ 200 to police officer for investigation into a crime. This promise is without consideration because the police officer is already boundto do so by law. Exceptions: There are, however, certain exceptions to the rule that past consideration is noconsideration. Under the exceptions, past consideration is as good as present or futureconsideration. The exceptions are as follows: 1) Services rendered at the request of the promisor. When the considerationconsists of services rendered at the request of the promisor, it is a goodconsideration. The request may be either express or implied. 2) Promise to pay a time-barred debt: where a debt is bound by limitation, thedebtor can waive the benefit of that plea and promise to discharge the debt. Such apromise is enforceable. A time-barred debt can be taken as valid consideration fora subsequent promise. 3) Negotiable instrument: where a negotiable instruments is given in considerationof some past act, that past act will form as a good consideration for the issue ofthe negotiable instrument and the party who gets the instrument can validlyenforce it. Unreal Considerations: in the following cases, the consideration is not legal because ofphysical or legal impossibility or uncertainty. The following are not real considerations. ) Physical impossibility: if a person agrees to perform an impossible act for aconsideration, the promise is not enforceable. The promise is unreal. Discoveringtreasure by magic or making two parallel straight lines meet or putting life backinto a dead body cannot be enforced as promises because of impossibility. 2) Legal impossibility: whenever the performance of a promise is legallyimpossible, consideration is not real. 3) Uncertain consideration: cons ideration is not real and is not enforceable if it isuncertain or ambiguous. Examples: A engages B for doing a certain work and promises to pay aâ€Å"reasonable sum†. There is no recognized method of ascertaining theâ€Å"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. theconsideration 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 fora new promise. Similarly, a promise to perform a public duty by a public servantis 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 personwho 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 tosue at the desire of the debtor is a good consideration. Example: A has a right to sue his debtor B for $5000. But he postpones suing as Bagreed to pay $ 2000 more. Such forbearance is a valuable consideration for thepromise of B. 2) Compromise of a disputed claim: Compromise is a kind of forbearance. Thecompromise of a disputed claim is a good consideration for the fresh agreement ofcompromise. Example: A sues to recover a debt of $2000 from B. B denies the whole debt andpromises to pay $500 to A as a sort of compromise. This compromise of B issupported by consideration and is valid. 3) Composition with Creditors: A person who is not in a position to pay his debtsfully may call a meeting of his creditors and request them to accept a lesseramount. If the creditors and request them to accept a lesser amount. If thecreditors agree to it, the agreement is binding upon the debtor and creditors.