Legal rules regarding consideration
There are a number of common issues as to whether consideration exists in a contract. Under English law: # Part payment is not good consideration. # Consideration must move from the promisee but need not flow to the promisor. # Consideration must be sufficient but need not be adequate. # Consideration cannot be illusory. # Consideration must not be past. Past consideration is not good consideration. # Moral consideration is not sufficient (except for contracts by deed, where "love and affection" is often cited as the nnecessaryconsideration). # Performance of existing duties is not good consideration. Meanwhile, the Indian Contract Act, 1872 which continues in force in Pakistan, Bangladesh, and India (the most populous common law jurisdiction) provides that valid consideration exists “when at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something" or, in other words, when each party receives something in return for entering into a contractual obligation. An agreement must be supported by a lawful consideration on both sides. Under the act, valid consideration must satisfy the following criteria: *It must move at the desire of the promisor. An act constituting consideration must have been done at the desire or request of the promisor. If it is done at the instance of a third party or without the desire of the promisor, it will not be good consideration. For example, "A" saves "B"'s goods from fire without being ask him to do so. "A" cannot demand payment for his service. *Consideration may move from the promisee or any other person. Under Indian law, consideration may be from the promisee of any other person i.e., even a stranger. This means that as long as there is consideration for the promisee, it is immaterial who has furnished it. *Consideration must be an act, abstinence or forbearance or a returned promise. *Consideration may be past, present or future. Past consideration is not consideration according to English law. However it is a consideration as per Indian law. Example of past consideration is, "A" renders some service to "B" at latter's desire. After a month "B" promises to compensate "A" for service rendered to him earlier. When consideration is given simultaneously with promise, it is said to be present consideration .. For example, "A" receives Rs.50/- in return for which he promises to deliver certain goods to "B". The money "A" receives is the present consideration. When consideration to one party to other is to pass subsequently to the maker of the contract, is said to be future consideration. For example. "A" promises to deliver certain goods to "B" after a week. "B" promises to pay the price after a fortnight, such consideration is future. *Consideration must be real. Consideration must be real, competent and having some value in the eyes of law. For example, "A" promises to put life to "B"'s dead wife, if "B" pay him Rs.1000/-. "A"'s promise is physically impossible of performance hence there is no real consideration. *Consideration must be something which the promisor is not already bound to do. A promise to do something what one is already bound to do, either by law, is not a good consideration., since it adds nothing to the previous existing legal consideration. *Consideration need not be adequate. Consideration need not necessarily be equal in value to something given. So long as consideration exists, the courts are not concerned as to adequacy, provided it is for some value. Additionally, under the Indian Contract Act 1872, any consideration is invalid if it is: #Forbidden by law #It involves injury to a person or property of another #Courts regards it as immoral #It is of such nature that, if permitted, it would defeat the provisions of any law #It is fraudulent, or involves or implies injury to the person or property of another, or #It is opposed to public policy #The consideration conveyed by at least one side seeks to restrain legal proceedings #The consideration includes public offices or titles #The consideration involves involuntary labour or otherwise infringes upon the personal liberty of a party to the contract #The consideration includes a marriage or a pecuniary inducement to marry. The most noticeable distinction between the English and Indian criteria for consideration is that English law prohibits past consideration while Indian law does not.History and comparative law
Systems based on Roman law (including Germany and Scotland) do not require consideration, and some commentators consider it unnecessary and have suggested that the doctrine of consideration should be abandoned, and estoppel used to replace it as a basis for contracts. However,Monetary value of consideration
Generally, courts do not inquire whether the deal between two parties was monetarily fair—merely that each party passed some legal obligation or duty to the other party.. The dispositive issue is the presence of consideration, not the adequacy of the consideration. The values between consideration passed by each party to a contract need not be comparable. For instance, if A offers B $200 to buy B's mansion, luxury sports car, and private jet, there is still consideration on both sides. A's consideration is $200, and B's consideration is the mansion, car, and jet. Courts in the United States generally leave parties to their own contracts and do not intervene. The old English rule of consideration questioned whether a party gave the ''value of a peppercorn'' to the other party. As a result, contracts in the United States have sometimes have had one party pass nominal amounts of consideration, typically citing $1. Thus, licensing contracts that do not involve any money at all often cite as consideration, "for the sum of $1 and other good and valuable consideration." However, some courts in the United States may take issue with nominal consideration, or consideration with virtually no value. Some courts have since thought this was a sham. Since contract disputes are typically resolved in state court, some state courts have found that merely providing $1 to another is not a sufficiently legal duty, and therefore no legal consideration passes in these kinds of deals, and consequently, no contract is formed. However, this is a minority position.Pre-existing legal duties
A party that ''already'' has a legal duty to provide money, an object, a service, or a forbearance, does not provide consideration when promising merely to uphold that duty. That legal duty can arise from law, or obligation under a previous contract. The prime example of this sub-issue is where an uncle gives his thirteen-year-old nephew (a resident of the state of New York) the following offer: "if you do not smoke cigarettes or drink alcohol until your 18th birthday, then I will pay you $5,000". On the nephew's 18th birthday, he tells the uncle to pay up, and the uncle does not pay. In the subsequent lawsuit, the uncle wins, because the nephew, by U.S. criminal law, already had a duty to refrain from smoking cigarettes while under 18 and from drinking alcohol while under age 21. The same applies if the consideration is a performance for which the parties had previously contracted. For example, A agrees to paint B's house for $500, but halfway through the job A tells B that he will not finish unless B increases the payment to $750. If B agrees, and A then finishes the job, B still only needs to pay A the $500 originally agreed to, because A was already contractually obligated to paint the house for that amount. An exception to this rule holds forBundled terms
Contracts where a legally valueless term is bundled with a term that does have legal value are still generally enforceable. Consider the uncle's situation above. If the same uncle had instead told his 13-year-old nephew the following offer: "if you do not smoke cigarettes, do not drink alcohol, swear or play cards for money (gamble) before your 21st birthday, then I will pay you $5,000". On the nephew's 21st birthday, he asks the uncle to pay up, and this time, in the subsequent lawsuit, the nephew may win. Although the promise of not drinking alcohol and gambling while under the age of 21 was not valuable consideration (it was already legally prohibited), most states allow smoking by age 18 and swearing is not illegal at any age. Even though smoking is legally restricted until age 18, it is legal for those above 18, and thus the promise to forbear from it entirely has legal value. However, the uncle would still be relieved from the liability if his nephew drank alcohol, even though ''that'' consideration is valueless, because it was paired with something of legal value; therefore, adherence to the entire, collective agreement is necessary.Past consideration
Generally, past consideration is not a valid consideration and has no legal value. Past consideration is consideration that has already flowed from the promisee to the promisor. That is, the promisee's act or forbearance predates the promisor's promise. Past consideration therefore cannot be used as a basis when claiming damages. An exception to this rule is where there is a duty owed to a third party. An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. For this to hold, three conditions must be satisfied (Pao On v Lau Yiu LongOption contracts and conditional consideration
Generally, conditional consideration is valid consideration. Suppose A is a movie script writer and B runs a movie production company. A says to B, "buy my script." B says "How about this – I will pay you $5,000 so that you do not let anyone else produce your movie until one year from now. If I do produce your movie in that year, then I will give you another $50,000, and no one else can produce it. If I do not produce your movie in that year, then you're free to go." If the two subsequently get into a dispute, the issue of whether a contract exists is answered. B had an option contract—he could decide to produce the script, or not. B's consideration passed was the $5,000 down, and the possibility of $50,000. A's consideration passed was the exclusive rights to the movie script for at least one year.In settlements
Suppose B commits a tort against A, causing $5,000 inCriticism
The primary criticism of the doctrine of consideration is that, in its present form, it is purely a formality that merely serves to complicate commerce and create legal uncertainty by opening up otherwise simple contracts to scrutiny as to whether the consideration purportedly tendered satisfies the requirements of the law. While the purpose of the doctrine was ostensibly to protect parties seeking to void oppressive contracts, this is currently accomplished through the use of a sophisticated variety of defences available to the party seeking to void a contract. In practice, the doctrine of consideration has resulted in a phenomenon similar to that of Ḥiyal in Islamic contracts, whereby parties to a contract use technicalities to satisfy requirements while in actual fact circumventing them in practice. Typically, this is in the form of "peppercorn" consideration, i.e. consideration that is negligible but still satisfies the requirements of law. The doctrine of consideration is expressly rejected by the UNIDROIT Principles of International Commercial Contracts on the grounds that it yields uncertainty and unnecessary litigation, thereby hindering international trade. Similarly, the United Nations Convention on Contracts for the International Sale of Goods similarly does not require consideration for a contract to be valid, thereby excluding the doctrine with regard to contracts covered by the convention even in common law jurisdictions where it would otherwise apply. Consequently, the continued existence of the doctrine in common law jurisdictions is controversial. Scots lawyer Harvey McGregor's " Contract Code", a Law Commission-sponsored proposal to both unite and codify English and Scots Law, proposed the abolition of consideration. Some commentators have suggested that consideration be replaced by estoppel as a basis for contracts.e.g. P.S. Atiyah, 'Consideration: A Restatement' in ''Essays on Contract'' (1986) p.195, Oxford University Press However, any change to the doctrine of consideration in the jurisdictions in which it exists would need to implemented by legislationSee also
*Notes
References
{{Authority control Contract law Legal doctrines and principles