Question

a) Must consideration always be present to render a promise enforceable?

b) Does the magnitude of consideration matter? Explain.

c) how have the common law courts in some cases permitted a debtor to enforce a creditor’s gratuitous promise to reduce a debt?

Answer 1

a) Must consideration always be present to render a promise enforceable?

Consideration is an essential element of a valid contract. A promise without consideration cannot be enforced by law except under certain circumstances. Consideration is the necessary evidence by law of the intention of the parties to effect their legal relations. Consideration, broadly speaking, is the price paid by the promisee for the obligation of the promisor. The term ‘consideration’ is used in the sense of “something in return”, i.e. quid pro quo. An agreement without consideration is a bare promise and exnudo pacto non aritio actio, i.e., cannot be held to binding on the parties.

When no consideration is necessary

The general rule is that contracts made wihtout consideration are void. But Section 25 of the Contract Act lays down the undermentioned exceptions which make a promise without consideration valid and binding.

1. Promise made on account of natural love and affection

(i)    When a contract is made on account of naturla love and affection between the parties. (ii)        The parties are standing in a near relation to each other, and

(iii) The contract is in writing and registered under the law for the time being in force for the registration of documents.

(a) Examples: A, out of his love and affection, promises to give his wife, Rs.10,000. This promise is put into writing and is registered. It will be a valid contract without consideration.

(b) After persistent quarrels and disagreement between husband and his wife, the husband promised in writing to pay his wife, a sum of money for her maintenance and separate residence. The agreement was also registered. It was held that the promise was not enforceable because it was not entered out of natural love and affection. (Rajlusmi Dabee v. Bhootnath) (1900).

2. Promise to compensate for voluntary services: When a contract is made to compensate a person who has already done something voluntarily for the promisor, or done something which the promisor was legally compellable to do. Here two conditions must be fulfilled. First, the act must have been done voluntarily and for the benefit of the promisor, secondly, the intention of promisor must have been to compensate the promisee. This contract may be oral or written. Thus, services voluntarily rendered but not with gratuitous intention can form valid consideration for a promise given to compensate him.

3. Promise to pay a time barred debt: According to section 25(30, a promise by a debtor to pay a time barred debt is enforceable it is made in writing and is signed by the debtor or by his agent generally or specially authorised in that behalf. The promise may be to pay the whole or any part of the debt. The debt must be such, of which the creditor might have enforced payment but for the limitation of suits.

For example, A owes B Rs. 2,000 but the debt is barred by the Law of Limitation. A sign written promise to pay B Rs. 1,000 on account of the debt. This is a contract.

4. Agency:- Consideration is not necessary to create an agency.

5. Complete gift:- The rule ‘no consideration, no contract’ does not apply to completed gifts. According to explanation to section 25, nothing shall affect the validity, as between the donor and donee of any gift actually made.

b) Does the magnitude of consideration matter? Explain.

Elements of Consideration

In order for a contract to be considered valid and enforceable by the courts, three elements of consideration must be met. If one or more of these elements are missing, the contract lacks the necessary requirements, it could potentially be deemed invalid by the court. The required elements of consideration include:

1. The contract must include a bargain for the terms of the exchange. This means there must be something that is worth bargaining over to both the parties.
2. There must be a mutual exchange between the parties. In simple terms, all parties involved must benefit from the contract.
3. The exchange in the contract must be something of value.

Lack of Consideration

A contract may be deemed invalid by a court if it lacks recognizable consideration. Although the exchange of certain items or terms may seem like something valid on which to create a contract, not just anything meets the definition of consideration. Some of the scenarios where a contract lacks consideration includes:

• The agreement is more of a promise of a gift, rather than a contract
• One of the parties involved was already legally obligated to perform as specified by the contract
• The bargained for promise cannot be illusory. This means there cannot be a contract if the parties are not mutually agreed, or where only one party is required to perform.

c) how have the common law courts in some cases permitted a debtor to enforce a creditor’s gratuitous promise to reduce a debt?

A statute of limitations is a law requiring a lawsuit to be filed within a specified period of years. For example, in many states a contract claim must be sued on within six years; if the plaintiff waits longer than that, the claim will be dismissed, regardless of its merits. When the time period set forth in the statute of limitations has lapsed, the statute is said to have “run.” If a debtor renews a promise to pay or acknowledges a debt after the running of a statute of limitations, then under the common law the promise is binding, although there is no consideration in the usual sense. In many states, this promise or acknowledgment must be in writing and signed by the debtor. Also, in many states, the courts will imply a promise or acknowledgment if the debtor makes a partial payment after the statute has run.