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A point to consider
19/9/2006 The Star ARTICLES OF LAW By BHAG SINGH
TWO or more people can agree to anything they wish but, for this to be
recognised as a binding arrangement, it must be a contract. Only then will
the court enforce it.
Section 10(2) of the Contracts Act 1950 provides that: “All agreements are
contracts if they are made by the free consent of parties competent to
contract, for a lawful consideration and with a lawful object, and are not
hereby expressly declared to be void.”
Based on this, if there is in law no consideration, then the agreement does
not even attain the status of a contract. This means that though parties
have come to terms with each other, it will not be an arrangement that is
binding in the eyes of the law.
The consideration must, apart from being consideration per se, also be
lawful. There are some exceptions to this requirement, which apply more in
relation to domestic affairs or in situations where one party acts neither
in the hope nor the expectation that it will be compensated or rewarded.
However, where the transaction is a non-domestic one and entered into in the
ordinary expectation of mutual benefit and gain, the absence of
consideration – in particular, lawful consideration – would jeopardise the
arrangement entered into.
The principle relating to consideration derives its origins from the English
law. It was used, and relied upon, as the British Colonial Empire spread its
wings.
In the Indian continent, the principles derived from decided cases were
reduced into writing and then exported to other countries where they were
incorporated and enacted into local laws, such as in our own.
One of the earliest statements as to what constitutes consideration is found
in Curie v. Missa in the following terms:
“A valuable consideration, in the sense of the law, may consist either in
some right, interest, profit or benefit accruing to the one party, or some
forbearance, detriment, los or responsibility given, suffered or undertaken
by the other.”
However, different writers have debated and disagreed over the scope of this
definition. Initially the concept was based on a benefit-and-detriment
theory. In such circumstances, if there was strictly no consideration at
all, the transaction would be of no effect. But later rules developed into
saying that consideration must be sufficient but need not be adequate.
As the law developed, trivial acts have been held to be sufficient
consideration though not adequate. Chappell & Co v. Nestle was a case
whereby Nestle offered for sale gramophone records in return for 1/6d and
three wrappers from their chocolate bars.
The House of Lords held that the wrappers themselves, although of trivial
economic value, were nevertheless part of the consideration, even though
Nestle threw the wrappers away. As Lord Somervell said:
“A contracting party can stipulate for what consideration he chooses. A
peppercorn does not cease to be good consideration if it is established that
the promisee does not like pepper and will throw away the corn.”
Some writers have expressed dismay at this approach to the law and as
well-known writer Atiyah said: “It would be ridiculous to assert that the
sending or the receipt of the wrappers necessarily involved an actual
detriment to the sender or a benefit to the defendants.”
Still, what is required in relation to consideration is that it is
sufficient in law, though inadequate in reality and practical terms. This
clearly emerges from the judgement of Scrutton LJ in L’Estrange v. F Graucob
Ltd where his Lordship said:
“When a document containing contractual terms is signed, then, in the
absence of fraud, or, I will add, misrepresentation, the party signing it is
bound, and it is wholly immaterial whether he has read the document or not.”
It appears that a successful challenge to an agreement entered into becoming
a contract cannot usually be mounted solely on the ground that consideration
is inadequate.
At the same time, it does not mean that the fact that the consideration is a
minimal sufficient amount, the contract in all aspects and for all purposes
will be held to be valid.
This is apparent from the above words of Scrutton J who has provided a
caveat in case of fraud. Thus where consideration being legally adequate is
economically insufficient, the existence of fraud or duress may yet give the
matter an entirely different complexion.
The role of consideration in contract formation is both complex and
controversial. The fact that there is adequate consideration must be viewed
in the context of the surrounding facts and circumstances.
A court may hold an agreement to be unenforceable even though consideration
is adequate but insufficient and yet this may itself have influenced the
outcome because of fraud or misrepresentation. |
