Contract 5

Consideration

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010 1

 Quick Review
 The requirement of consideration
 Definition of consideration
 Types of consideration
 Other rules for consideration
 Privity of Contract

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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A contract is a legally binding agreement
 In order to create a valid contract which
is legally enforceable, there must be an
offer and an acceptance

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 Inaddition to an offer and acceptance,
we also need consideration in order to
create a contract
 Only contracts made by deed do not
require consideration

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 Consideration was defined in Currie v.
Misa (1875) as
 “Some right, interest, profit or benefit
accruing to one party, or some
forbearance, detriment, loss or
responsibility given, suffered or
undertaken by the other”

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 Basically, one party benefits in some way
or the other party is responsible for
doing something (or both)
 Paying (or promising to pay) money in
return for the goods or services is the
most common form of consideration

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 Executory Consideration
 Executed Consideration
 Past Consideration
 Forbearance

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 Past consideration does not form a valid
contract
 Normally, consideration is given at the time
the contract is made or at a later time
 Past consideration is where the action is
performed before the promise is made
 This is not good consideration because the
consideration must be given in return for a
promise
 This cannot be the case if the action was
performed before the promise was made

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 Performance must be legal
 Performance must be possible
• A promise to perform an impossible act cannot
create a contract

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 Consideration must be sufficient, but it
does not need to be adequate
 In other words, there must be something
which the court would regard as
consideration
 But the value of the consideration is
decided by the parties
 The court will not decide if the value is
enough

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 As we saw earlier, consideration must
come from the promisee
 From this, we get the principle of privity
of contract
 This means that a contract can only
impose rights and obligations on people
who are parties to the contract

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 Thatalso means that third parties (ie
people who are not party to the contract)
cannot sue to make sure the contract is
performed

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 In addition to offer and acceptance, we
also need consideration to create a valid
contract
 Basically, one party benefits in some way
or the other party is responsible for
doing something (or both)
 Paying (or promising to pay) money in
return for the goods or services is the
most common form of consideration

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 Consideration can be :
• Executory Consideration
• Executed Consideration
• Past Consideration
• Forbearance

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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Other rules:
 Performance must be legal
 Performance must be possible
 The person to whom the promise is made
must give consideration
 Consideration must be sufficient, but it
does not need to be adequate

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 Privityof Contract
 In general, third parties cannot enforce
contracts to which they are not a party

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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 THANKS

Astt.Prof. VIPIN KUMAR DBS-G 12/24/2010

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