Contract

This Act came into force on 1st September , 1872 and is called the contract
act 1872.The legislative intent behind its legislation is to ensure that
contractual obligations must be performed .it provides terms and conditions
for the validity of the contracts but leaves the form and the conditions of
contract to be mutually settled by the contracting parties.

Meaning according to the Black’s law dictionary (6th edition)

“An agreement between to or more persons which

creates an obligation to do or not to do a particular thing.”

According to Contract Act 1872 Section 2(h)

“An agreement enforceable by law is contract.”

Contract =agreement + enforceability

What is enforceability?

It is the basically factor of recognition that court gives to the obligations

arising from contractual relationship

Essentials of a contract

Contract

Offer Acceptances Consideration

 OFFER

Section 2(a)
“When one person signifies to another his willingness to do
or to abstain from doing anything, with a view to obtain the
assent of that their to such act or abstinence, he is said to
make a proposal.”

• You can modify your offer, but not after acceptance

(Lefkowitz)
• Items on shelf = Invitation to treat; Register = Offer;
Cashier accepts (Dawood)
• Offer is item on shelf & acceptance is implied by taking
it to cashier!!! (Sanchez-Lopez

Acceptances

According to section 2(b) of the contract Act 1872

“when the person to whom the proposal is made signifies His assent
thereto ,the proposal is said to be accepted. A proposal when accepted
becomes a promise.”

Example
Mr. A offers Mr. X to purchase a Car and tell all the terms and conditions
afterward Mr. X signifies his Assent to purchase a car it is called
acceptances
 Consideration:
“Something which is given and taken.”
Section 2 (d) of the Contact Act1872:

Definition:

“When at the desire of the promissory, the promisee or any other

person has done or abstained from doing or does or abstains from doing
or promise to do or abstain from doing. Something such act or
abstinence or promise is called a consideration for the
Promise.”

Importance of consideration

The courts will not enforce a simple contract unless it is supported by

valuable consideration, which is therefore an essential element in most
contracts. (Consideration is not necessary in contracts of record.)

Meaning of ‘valuable consideration’

It has been defined as ‘the price for which a promise is bought’

(Sir Frederick Pollock)

Consideration itself means ‘some right, interest, profit or benefit accruing to

one party or some forbearance, detriment, loss of responsibility given,
suffered or undertaken by the other’: per Lush J ., Currie v . Misa (1875).
Consideration therefore means the element of exchange in a bargain, and in
order to satisfy the requirements of English law it must be valuable
consideration, i.e. something which is capable of being valued in terms of
money or money’s worth, however slight. It may take the form of money,
goods, services, a promise to marry, a promise to forbear from suing the
promise, etc.
(Ref: introduction to B.law by P W Redmond Revised by R G Lawson)

Executory, executed and past consideration:

Executed consideration
consideration is an act in return for a promise. If ,
for example, A offers a reward for the return of lost property, his promise
becomes binding when B performs the act of returning A’s property to him.
A is not bound to pay anything to anyone until the prescribed act is done.
C’s act in Carlill’s case in response to the smokeball’s company’s promise
of reward was thus executed consideration.

Executory consideration
consideration is a promise given for a promise. If,
for example, customer orders goods which shopkeeper undertakes to obtain
from the manufacturer, the shopkeeper promises to supply the goods and the
customer promises to accept and pay for them. Neither has yet done
anything but each has given a promise to obtain the promise of the other. It
would be breach of contract if either withdrew without the consent of the
other.

Both executed and excutory consideration is provided at the time when the
promise is given; the act required as executed consideration is given
subsequently (eg the return of lost property). Anything which has already
been done before a promise in return is given is past consideration which
as general rule is not sufficient to make the promise binding. In such a case
the promisor may by his promise recognize a moral obligation (which is not
consideration), but he is not obtaining anything in exchange for his promise
(as he already has it before the promise is made).

Case: Re McArdle 1951

Under a will the testator’s children were entitled to a
house at their mother’s death. In the mother’s lifetime one of the children
and his wife lived in the house with the mother. The wife made
improvements to the house. The children later agreed in writing to repay to
the wife the sum of ₤488 which she spent on improvements. But at the
mother’s death they refused to do so.
Held:
At the time of the promise the improvements were past consideration and so
the promise was binding.

Case: Roscorla v Thomas 1842

The parties agreed on the sale and purchase of a
horse. Thereafter the seller warranted that the horse was “sound and free
from vice”. The plaintiff sued for breach of this promise.
Held:

The promise was made after the sale had been concluded and was
unsupported by fresh consideration.

In deciding whether consideration is past the courts do not always take a

strictly chronological view. If the consideration and the promise are
substantially the same transaction, it does not matter in which order they are
given. Thus manufacturers may give guarantees to persons who buy their
products from retailers. The buyer then sends a card to the manufacturer to
claim the benefit of the guarantee, and he usually does this after he has
bought the goods.

In three cases past consideration for a promise does suffice to make the
promise binding.

• Past consideration is sufficient to create liability on a bill of exchange (such as a cheque)

under s27 Bills of Exchange Act 1882. Most cheques are issued to pay existing debts.

• After six (or in some case twelve) years the right to sue for recovery of a debt becomes
statute-barred by the Limitation Act 1939. if , after that period, the debtor makes written
acknowledgement of the creditor’s claim, it is again enforceable at law. The debt, although
past consideration, suffices.

• When a request is made for a service this request may imply a promise to pay for it. If, after
the service has been rendered, the person who made the request promises a specific reward,
this is treated as fixing the amount to be paid under the previous implied promise rather than
as a new promise.
Essentials of a valid consideration:
The essentials of valid consideration are as under:

1: At the desire of the promisor .

2: Promisee or any other person.
3: Consideration may be past, present or future.
4: Consideration must be real.

1: At the desire of the promisor:

In order to constitute legal consideration the act or abstinence forming the

consideration for the promisor. The act performed at the desire of the third
party cannot be said to be the consideration. Similarly the acts done or
services rendered voluntarily will not
amount to valid consideration.

2: Promisee or any other person:

The valid consideration is that consideration needs not to move from the
promise alone but may proceeds from a third person. This means that even
stronger to the consideration can sue on a contract.

3: Stranger to a contract cannot sue:

He/She shouldn’t be a stranger because “privet of contract”(mutually of

will) is essential for enforcing any of the rights arising out of the contract. So
the stranger cannot be sue.

Exceptions:

1: Trust:

In case of trust, the beneficiary can sue to enforce his rights under the trust,
though he was not a party to the contract between the settler and the
trustees.

2: Charges:
A person in whose favour a charge in same specific immovable property has
been created may enforce it. Though he may be a stranger to the contract
creating the charge.

3: Family settlements:

This exception arises in cases of family arrangements or marriages

settlements or where provision is made for the marriage expenses of female
members. Such members though not parties to the agreements can sue on the
breach of agreements.

4: Agent:

Where a person act as a agent for his principal , the principal can sue on a
contract though he is not a party to a contract.

5:Agency:

A principal even if undisclosed may sue on a contract made by an agent

6:Assignment:

Assignmets of rights under a contract in favour of a third party either

voluntary or by operation
Of law , the assignee can enforce the benefits of the contract.

3:Consideration may be Past , Present or Future:

The words “has done or abstained from doing (past) or does or abstains from
doing or promises to do (present) or to abstain from doing (future)” It
indicates which has already been done at the desire of the promise or in
progress or is promised to be done in future.

1: Positive or Negative:

It’s may consists of either a positive act or an abstinence i.e a negative act.
2:Past Consideration:

When the act has been done before means its show its past consideration

3:Present:

PLD 1958 section (Ind) – 1:

It takes simultaneously with the promise is called “Present Consideration” or
Executed Consideration”. The act constituting the consulting is wholly or
completely performed.

4:Future:

18 PLD -1957 – DACCA- 233:

When the consideration on both sides is to move at a future date . It is called
“Future Consideration” or executory Consideration. It consists of promises
and each promise is a consideration for the other.

4:Consideration Must Be Of Some Value:

It must be of some value. It is not necessary that consideration should be

adequate to the promise for the validity of an agreement. The law only
insists on the presence of consideration and not on the adequacy of it . An
agreement to which the consent of promise has been freely given is a valid
contract need with standing of the consideration .Courts never inquire a
promise is equivalent to promise obtained. The adequacy of the
consideration is for the parties to consider at the time of making the
agreement.

5:Consideration Must Be Real:

1- Physical Impossible
2- Legally
3- Uncertain Consideration
4- Illusory Consideration

Adequacy and Sufficiency of

Consideration

The court will also seek to ensure that a particular act or promise can
actually be seemed to be consideration. Learn these rules:

a) Consideration need to be adequate (that is, equal in value to the

consideration received in return). There is no remedy at law for
someone who simply makes a poor bargain.

b) Consideration must be sufficient.

c) It must be capable in law of being regarded as consideration.

Adequacy:

It is presumed that each party is capable of serving his own interests, and the
courts will not seek to weigh up the comparative value of the promises or
acts exchanged.

Thomas v Thomas 1842

The Facts:
By his will the claimant’s husband expressed the wish that his widow
should have the use of his house during her life. The defendants, his
executors, allowed the widow to occupy the house
(a) in accordance with her husband’s wishes
(b) in return for undertaking to pay a rent of £1 per annum.
They later said that their promise to let her occupy the house was not
supported by consideration.

Decision:
 Compliance with the husband’s wishes was not valuable
consideration (no economic value attached to it), but the nominal rent was
sufficient consideration.

Sufficiency:

• Consideration is sufficient if it has some identifiable value. The

law only requires an element of bargain, not necessarily that it
should be a good bargain.
Chappell & Co v Nestle Co 1960

The Facts:
As a sales promotion scheme, the defendant offered to supply a record to
anyone who sent in a postal order for 1s.6d and three wrappers from 6d bars
of chocolate made by them. The claimants owned the copyright of the tune.
They sued for infringement of copyright. In the ensuing dispute over
royalties the issue was whether the wrappers, which were thrown away when
received, were part of the consideration for the promise to supply the record.
The defendants offered to pay a royalty based on the price of 1s.6d per
record, but the claimants rejected this, claiming that the wrappers also
represented part of the consideration.
Decision:
The wrappers were part of the consideration as they had commercial value to
the defendants.
• As stated earlier, forbearance or the promise of it may be sufficient
consideration if it has some value, or amounts to giving up
something of value.

Horton v Horton 1961

The Facts:
Under a separation agreement, the defendant agreed to pay his wife (the
claimant) £30 per month. Under the deed this amount was a net payment
after deduction of income tax; for nine months the husband paid it without
any deduction so that the wife had to make the deductions herself. He then
signed a document agreeing to pay such amount as´ after the deduction of
income tax should amount to the clear sum of £30´. He paid this for three
years, then stopped, pleading that the later agreement was not supported by
consideration.
Decision:
The later was supported by consideration: the wife could have sued to have
the original agreement rectified, but did not.
(Ref: ACCA –Paper 2.2 corporate & business law)

Exceptions to rule “no consideration no

contract.”

In English law a contract under seal is enforceable without consideration. In

the words of Anson:

“English law recognizes only two kinds of contracts, the contract made by
deed that is under seal, which is called a deed or specially and the simple
contract”

A contract under seal means a contract which is in writing and which is

signed. Sealed and delivered. The Indian law of contract does not recognize
such exceptions. But section 25 of the contract Act 1872 lays down some
exceptions.

1. Contract with blood relatives on the basis of natural love and

affection.
2. Contract to compensate for past voluntary service.
3. Contract for the payment of a time barred debt.
4. Contract to give something as gift.
5. Contract to remit something.
6. Agency contract.
7. Donation contract.

Contract with blood relatives on the basis of

love and affection

Agreement without consideration void, unless it is in writing and

registered.--- it is expressed in writing and registered under the law for the
time being in force for registration of documents, and is made on account of
natural love and affection between parties standing in a near relation to each
other.
(Section 25)
It is clear from the above provision that a contract without consideration
shall be enforceable if the following conditions are satisfied.
i. The contract is in writing
ii. The contract is registered with the proper authority
iii. The contractual relation must be between/among the near relatives

[Who is a near relative? The contract Act 1872 provides no

guidance, nor has the expression been judicially constructed. The
expression will without doubt include parties related by blood or
marriage.]
iv. The contract is based on the basis of natural love and affection

[What is meant by natural love and affection? --------- There is

always some degree of instinctive love and affection between parties
nearly related]

The instinctive love may sometimes be overruled by external circumstances.

For example, in Rajlukhy Dabee v. Bhootnath Mokerjee, Mr. Bhootnath,
a husband due to a dispute with his wife Rajlukhy Dabee signed a registered
contract in favour of his wife agreeing to pay her a certain sum of money for
her maintenance. Later he refused to pay the amount. The wife filed a suit
against him and claimed the maintenance amount. It was held by Calcutta
High Court that the agreement was Void for want of consideration.

[What is void agreement? An agreement not enforceable by law is said to

be void agreement. -----section 2(g)]

Contract to compensate for past voluntary

service

A promise to compensate a person who has already done something for the
promisor is enforceable. It is important to note that the service should have
been rendered voluntarily.

Relevant Case Law

It was held in Sindha v Abraham (1895) that services rendered at the desire
of the minor expressed during his minority and continued at the same
request after his majority from a good consideration for a subsequent
promise by him in favour of the person who rendered the services.

Contract for the payment of time barred debt

A time barred debt is one which cannot be recovered from the debtor
through the court of law, because, the limitation law helps the vigilante not
the indolent. However, the section 25(3) of the law of contract states that
where there is an agreement, made in writing and signed by the debtor or by
his authorized agent to pay a debt barred by the law of Limitation, the
agreement is valid even it is not supported by consideration.

Contract to give something as gift

A contract whereby one contracting party agreed with the other party to give
something as gift against no reciprocal consideration is valid and
enforceable. The section 25-explanation 1, states that a gift does not require
reciprocal consideration to be valid and enforceable. Any gift made and
possession delivered will be binding between the contracting parties i.e.,
donor and donee.
In order to make a valid gift the following essentials are considered
necessary:
i. Capacity of donor
ii. Intention of donor to make gift
iii. Intention of possession of the gift property
iv. Acceptance of gift by the donee.
SOURCES:

BIBLIOGRAPHY:

ACCA: CORPORATE AND BUSINESS LAW (PAKISTAN VARIANT)

LAW AND BUSINESS (4TH EDITION) by LAWRENCE S. CLARK,
ROBERT J. AALBERTS and PETER D. KINDER
LAW FOR BUSINESS by A. JAMES BARNES, TERRY M. DWORKIN
and ERIC L. RICHARDS

Net Resources

Www. student law.com

Www.altavista.com
www.lawweb.html
 University of Management and Technology

Business Law
Resource person
Mr.Rehan Aziz Sherwani

Assignments

Submitted by

Sabahat Javeed
084232068