|
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.
|
