Consideration Contract Law

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Consideration Contract Law

Brief Introduction About Consideration Contract Law

Put, consideration means something in return, be it goods, services, or in kind. Quid pro quo meaning “something in return” is a Latin phrase associated with consideration. When it comes to consideration contract law, then a valid contract must include it, and it should be provided to every party involved in the dealings. The majority of the time, consideration is monetary; however, it can be in kind as well. In legal terms, consideration in the contract law refers to a promise of something valuable by someone for something valuable.

Consideration must have:

  1. A mutual agreement among the involved parties.
  2. Exchange of something with value.
  3. A bargain with the terms of exchange.
  4. An offer must be made.
  5. The offer must be accepted.
  6. The said dealings must be legal.

In case one of the involved parties is unable to aptly bargain due to false information, threat, or other scenarios, then the consideration contract law is null. Going with the same concept, in case one party gets nothing of value, then a valid contract cannot be established.

Who takes the Consideration Contract Law – People Involved

There must be at least two parties involved in the dealings when it comes to consideration contract law. One party would be the promisor/offeror, and the other one would be the promisee/offeree. The promisor is the person who initiated the contract with an offer, while promisee is the person who agreed to it. The involved parties can be higher; however, every party involved must get consideration for their services.

Purpose of the Consideration Contract Law – Why do you need it?

The purpose of consideration in the contract law is to bind the involved parties. If there is no motivation offered, then no party would be interested in performing their assigned tasks. No party involved will perform even the easiest of tasks if they are not getting something in return.

Consideration contract law binds them to perform the actions as they become legally liable to do so. There would be no liability assigned to them without consideration as the law would not consider it a legal contract. If the contract is not legal, then the involved parties would not be able to sue each other.

There are some exceptional cases when consideration is not included. These are:

  1. An act out of natural affection or love.
  2. An agreement that is a promise for a gift, more than a contract.
  3. Past voluntary services.
  4. Promise for paying a time-barred debt.
  5. Charity.
  6. One involved party was already obligated legally to perform an act, as mentioned in the contract.
  7. Agency creation.
  8. There can be no illusory bargain meaning there is no contract without mutual agreement. This includes when only one involved party is required to act.

Contents of the Consideration Contract Law

Consideration may be essential to form a legal contract, but there are various kinds of it. Here is everything you need to know about the various types of consideration contract law:

  • Past Consideration.
  • Past Voluntary Services.
  • Present or Executed Consideration.
  • Future or Executory Consideration.

Past Consideration

Consideration being the price for a promise is generally provided to persuade the desired performance. It can very well be provided before making the promise. This is considered a past consideration.

Example: Raju hires Suman for some farm work in the harvesting period. Suman is promised to be paid 10,000 at the time of crop sowing. Suman’s services in the past form the valid past consideration.

Past Voluntary Services

There are times when a person might perform voluntary tasks without any promise or request from the other parties. In case the party receiving the benefits makes a return promise to reward for the services, then it will be considered consideration for past voluntary services.

Example: Manju finds Aman’s wallet somewhere. She returns the wallet, and Aman promises to pay her Rs 100 for this. This comes as past voluntary services under consideration of contract law.

Present or Executed Consideration

When the consideration takes place simultaneously alongside the promise, then it is considered present or executed consideration. The said act regarding the consideration is either partly or wholly performed.

Example: Sandeep buys a pen from Hemant, and Hemant gives him the pen there. The act is performed simultaneously and is said to be present consideration under contract law.

Future or Executory Consideration

If the consideration takes the form of a future performed promised, then it is considered to be future or executory consideration. It is the promised price of one party for the promise of the other involved party.

Example: Arif promises Sana to deliver some goods. This is executory or future consideration in the contract law.

How to Draft the Consideration Contract Law

There are several things you must keep in mind before proceeding with the consideration of contract law. If we look at the legal definition of consideration closely, then we would find all the essential elements to be kept in mind. The definition of consideration under the contract law states that “When at promisor’s desire, the promisee or any said person performs or refrains from performing something, has performed or refrained from performing, such performance or refrainment is a consideration.”

The definition is certainly sophisticated, so let us break it down. It states:

At the promisor’s desire, either perform something (future, past, or present) or refrains from performing (future, past, or present.)

Performing something: Sandeep and Aman formed a contract where Aman would write 400 words daily for him. He would monthly receive Rs 3,000 for it. The 400 words are a consideration for Sandeep, while the Rs 3,000 would be considered consideration for Aman.

Refraining from performing: Nandu and Rohit are both chicken vendors in a small market. Nandu promises Rohit to pay Rs 50,000 if he stops selling in the nearby area to which Rohit agrees. Here the money is Rohit’s consideration while Rohit’s refrainment from selling is Nandu’s.

A few more points to remember in the consideration contract law:

  1. It has to move to the promisor’s desire.
  2. It can move to any person from the promisee.
  3. It can be present, future, or past.
  4. Law must deem the consideration to have some value.
  5. It must not be unlawful.
  6. It must not bind to an unlawful act.

Negotiation Strategy

There are a few other points regarding the consideration in the contract law the parties should bear in mind during the negotiations. These are:

  1. The parties involved should consider the benefit of both the parties in the negotiations. The contract should not favor one party more than the other.
  2. The assigned tasks should be rewarded aptly according to their scale of difficulty.
  3. The parties should discuss the consideration in detail and agree to a fixed amount before proceeding with the dealings.
  4. A proper channel for payment should be established to facilitate efficiency.

Benefits and Drawbacks of the Consideration Contract Law

Coming up to a mutual agreement and forming a legal contract is only possible after the confirmation of consideration. While it has numerous benefits, it has some drawbacks as well. Here are the pros and cons one should keep in mind regarding the application of the consideration contract law:

Benefit

  1. The performance of the parties excels because of it.
  2. A well-remunerated party is sure to come back for more business.
  3. An agreement of consideration helps in establishing the duties and boundaries between the parties.
  4. Any future dispute or conflict can be avoided with a written agreement of consideration.
  5. The parties would know precisely what they are working for.
  6. The accountability and responsibility can be divided according to the consideration the parties are receiving.

Drawbacks

  1. The amount of consideration can lead to possible conflicts of interest.
  2. Compulsory consideration can reduce humane and good-hearted acts.
  3. This may lead to reduced wills and trusts.

What Happens in Case of Violation?

Anyone who intends to form a legal contract should make consideration a part of it as the law deems it necessary. It not only acts as a medium of motivation, but it also fulfills one of the two essential requirements of a legal contract as well. No contract (rare exceptions) can be considered legal if the parties involved are not getting consideration for their services.

If the contract does not include it, then the court can step in and deem it null or void. The said contract must have mutual agreement and consideration in the contract to get it enforceable by law. This directly means that no involved party in the consideration contract law would be able to sue each other in case anything goes wrong. There are several drawbacks to not doing so. Let us learn some of them with an example:

Ram, a contractor, asked Mukesh to assemble enough material to build the mansion he desires. In this case, no consideration is discussed, and if Mukesh does form the contract, then it may be considered void. If Mukesh fails to perform his part, then no legal action can be taken against him by Ram, and the same applies to Mukesh as well.

In conclusion, consideration in the contract law is a must if you are looking to create a legal contract. In case any contract lacks this, then the involved parties would lose several key rights in the dealings. Consideration must have some value in the eyes of the law; otherwise, the court can intervene and even declare the contract null(1).

Consideration is not only needed to get the contract enforceable by the law, but it also acts as the motivation for the involved parties. The amount related to the consideration contract law may not be apt; it only needs to have a value of some kind. If for some reason, one involved party was unable to engage in appropriate negotiations regarding the consideration, then the contract can be deemed void by the court.