Introduction To Business Law: Lecture 3: Consideration and Contingent Contracts

INTRODUCTION TO BUSINESS LAW
COURSE CODE: BUS 360

SECTION: 01
LECTURE 3: CONSIDERATION AND CONTINGENT

CONTRACTS
PRIMARY SOURCE: CHAPTER 4 & 9 COMMERCIAL LAW AND INDUSTRIAL LAW, 27 TH EDITION
BY ARUN KUMAR SEN AND JITENDRA KUMAR MITRA
Course Instructor: Seeratus Sabah

What is consideration?
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Subject to certain exceptions, an agreement is not enforceable unless each party

to the agreement gets ‘something’. This ‘something’ is called consideration.
Points to remember:
 The exchange of money and the receipt of the item is mutual consideration for
the transaction. To put it simply, consideration constitutes the benefit that you
receive from making the contract.
 It is a vital element in the law of contracts, consideration is a benefit which
must be bargained for between the parties, and is the essential reason for a
party entering into a contract.
 It is exchanged for the performance or promise of performance by the other
party (such performance itself is consideration).

 Not doing an act (forbearance) can be consideration, such as "I will pay you
10,000 taka not to build a road next to my house."

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 Each party must make a change in their "position."

Consideration is usually either the result of (as
mentioned earlier):
a promise to do something you're not legally
obligated to do, or a promise not to do something
you have the right to do (often, this means a
promise not to file a lawsuit).
- Sometimes this change in position is also called a
"bargained-for detriment."
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Example: How does consideration work in the real

world? Let's say you backed into your neighbor's car
and damaged it. Your neighbor is legally permitted to
sue you for the damage but instead agrees not to sue
you if you pay him 1.5 lac taka. This agreement
provides adequate consideration for the contract,
because each party is giving up something in the
exchange -- you're giving up some of your money
while your neighbor is giving up the right to sue you.
Types of consideration (with examples)
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1. Past consideration: Fahad did some graphics designing

work for Tasmia in the month of January (without
expecting any money). In February, Tasmia promises
to pay him a certain amount of money for his work.
The consideration of Fahad is ‘past consideration’
2. Present consideration: Imran buys a computer from a
store and pays the price immediately.
3. Future consideration: Today is 16th of May. Haiyan
promises Saddam to pay 75,000 taka on 20th June for
a television set to be delivered on 20th June.
Rules/Essential Factors of Consideration
6
1. Desire or request of the offeree/promisor is essential:

an act done without any request is a voluntary act and
does not come within the definition of consideration
Example: A sees B’s house on fire and helps in
extinguishing it. A cannot demand for payment for
his services because B did not ask for his help.
2. The consideration must be real:
Example: X promises Y to supply a bar of gold brought
from the sun. It is not a real consideration.
Rules/Essential Factors of Consideration cntd.
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3. Public duty: Where the promise is already under an

existing public duty, performance of that duty will
not amount to a consideration.
Example: A contract to pay money to a witness who
has received a subpoena to appear at a trial (Collins
v. Godefroy). Here, neither the money nor the
witness showing up at the court amounted to a
consideration.
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4. Promise to a stranger: A promise to a stranger to

perform an existing contract is enforceable because
the promisor undertakes a new obligation upon
himself which can be enforced by the stranger.
Example: X wrote to his nephew B, promising to pay
him 150 pounds in consideration of his marrying C.
B was already engaged to marry C. Held, the
fulfillment of B’s contract with C was consideration
to support X’s promise to pay the amount (Shadwell
v. Shadwell)
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5. Consideration need not be adequate: an agreement

is not void merely because the consideration is
inadequate as long as there is free consent of the
parties involved.
6. The consideration must not be illegal, immoral or
opposed to public policy.
7. The consideration may be present, past or future.
What is a contingent contract?
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A contingent contract is a contract to do or not to do

something, if some event, collateral to such contract, does or
does not happen.
Example: A contracts to pay B 50,000 taka if B’s house is
burnt. It is a contingent contract.
Example: X promises to pay 5,000 taka to anyone who
recovers some property lost by X. There is no contract until
or unless someone finds the lost property
Example: X promises to pay Y 30,000 taka if Y marries Z.
There is an offer by X which becomes a binding contract
when Y marries Z.
Rules regarding contingent
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contracts
1. The happening of a future uncertain event. Example: A makes
contract with B to buy B’s horse if A lives longer than C. The
contract cannot be enforced by law unless and until C dies in A’s
lifetime.
2. The non-happening of an uncertain future event. Example: A
agrees to pay B if a certain ship owned by B does not return. A
pays B if B’s ship sinks.
3. When event to be deemed impossible.
example: A agrees to pay B a sum of money if B marries C.
However, C marries D. The marriage of B to C may now be
considered impossible although it is possible that D may die C
may afterwards marries B.
Rules regarding contingent contracts cntd.
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4. The happening of an event within a fixed time and

the non-happening of an event within a fixed time
Note: see page 99 of text book for details
5. Impossible event. Example: A agrees to pay B
50,000 taka when B marries A’s daughter C. C was
dead at the time of the agreement. The agreement is
void.

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INTRODUCTION TO BUSINESS LAW

COURSE CODE: BUS 360

LECTURE 3: CONSIDERATION AND CONTINGENT

Course Instructor: Seeratus Sabah

Subject to certain exceptions, an agreement is not enforceable unless each party

party (such performance itself is consideration).

10,000 taka not to build a road next to my house."

 Each party must make a change in their "position."

Example: How does consideration work in the real

1. Past consideration: Fahad did some graphics designing

1. Desire or request of the offeree/promisor is essential:

3. Public duty: Where the promise is already under an

4. Promise to a stranger: A promise to a stranger to

5. Consideration need not be adequate: an agreement

A contingent contract is a contract to do or not to do

4. The happening of an event within a fixed time and

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