1

(TAHIR

LATEEF

SHEIKH) CONTRACT ACT Roscoe Pound once said the social order rests upon the stability and predictability of conduct, of which keeping promise is a large item. Islam lays great emphasis on Promises and fulfilling the same. Everything in life largely depends upon promise. The human race came into existence because of broken promise. Adams example. What then is a promise? An assurance that one will or will not do something in the future is called a Promise. A contract put simply is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. In other words Contract is an agreement that can be enforced in a Court. Like other types of law, contract law reflects our social values, interests and expectations at a given point in time. To what extent our society allows people to make promises or commitments that are legally binding. It distinguishes between promises that create only moral obligations and promises that are legally binding. It also shows what excuses our society accepts for breaking certain types of promises. What contracts are considered to be contrary to public policy and legally invalid. A promise by a minor, promises by mentally incompetent person, or made on the basis of false fact ordinarily are agreements. Should these be enforced? All contracts are agreements but all agreements are not contracts. BASIC REQUIREMENTS OF A CONTRACT AN AGREEMENT. An agreement to form a contract includes an offer and an acceptance. One party must offer to enter into a legal agreement, and another party must accept the terms of the offer. There thus has to be two or more parties. 2. OFFER & ACCEPTANCE
1.

2 3.

4.

5.

6.

7.

CONTRACTUAL CAPACITY. Both parties entering into the contract must have the contractual capacity to do so. The law must recognize them as possessing characteristics that qualify them as competent parties. They should be major, of sound mind and not disqualified to make a contract by the law. THE GENUINENESS OF ASSENT. The apparent consent of both parties must be genuine so that it becomes enforceable at law. CONSIDERATION. Any promises made by the parties to the contract must be supported by legally sufficient and bargained for consideration (something of value received or promised such as money or to do or refrain from doing an act) FORM. The contract must be in whatever form the law requires. An agreement/ contract should be reduced in writing. Prophet (PBUH) advised on more than one occasion that the agreement should be reduced in writing. LEGALITY. The contacts purpose must be to accomplish some goal that is legal and not against the public policy.

THE OBJECTIVE THEORY OF CONTRACTS: Sometimes, parties claim that they should not be bound in contract because they did not intend to form an agreement that would be legally binding. Although the element of intent is of prime importance in determining whether a contract has been formed, it is not the partys subjective intent that a court looks to in deciding the issue. In contract law Intent is determined by what is called the Objective theory of contracts, not by personal or subjective intent, or belief, of a party. The theory is that intention to enter into a legally binding agreement, or contract, is judged by outward, objective facts as interpreted by a reasonable person. Objective facts include: 1. What the party said when entering into the contract 2. How the party acted or appeared (intent may be manifested by conduct as well as by oral of written words) 3. Circumstances surrounding the transaction.

CLASSIFICATION OF CONTRACTS
BILATERAL VS UNILATERAL CONTRACTS: Every contract requires 2 parties, An Offeror and Offeree. The offeree is the party to whom the offer is made. Whether the contract is classified as unilateral or bilateral depends upon what the offeree must do to accept the offer and to bind the offeror to a contract. If to accept the offer the offeree must only promise to perform the contract is bilateral. Hence a promise for a promise. Contract comes into existence as soon as the promises are exchanged. In contrast if the offer is phrased so that the offeree can accept only by completing the contract performance, the contract is unilateral contract. Promise for an act. A classic example of a unilateral contract is as follows: O says to P, If you carry this package across the Ravi Bridge, I will give you Rs.100 Only on Ps complete crossing with the Package does P fully accept Os offer to pay Rs.100. If P chooses not to undertake the walk, there are no legal consequences. Contests, lotteries, other competition involving prizes are examples of offer for unilateral contracts. If a person complies with the rules of the contest such as by submitting the right lottery number at the right place and time a unilateral contract is formed, binding he organization offering the prize to a contract to perform as promised in the offer. A problem arises in unilateral contracts when the promisor or offeror attempts to revoke the offer after promisee or offeree has begun performance but before the act has been completed. The promise can accept the offer only on full performance and under traditional contract

principles, an offer may be revoked at any time before the offer is accepted. The modern view however, is that an offer to form a unilateral contract becomes irrevocable once performance has begun. In Ravi Bridge example, suppose that P is walking across the bridge and has only 3 yards to go when O calls out to him I revoke my offer Under traditional contract law, Os revocation would terminate the offer. Under the modern view of unilateral contract, however, O will not be able to revoke his offer because P has undertaken performance and walked all but 3 yards of the bridge. In these circumstances, P can finish crossing the bridge and bind O to the contract.

FORMAL AND SIMPLE CONTRACTS: A formal contract depends for it efficacy upon being expressed in a particular form (deeds under seal, bills of exchange, pro notes) A simple contract depends upon for its efficacy not on form, but on the fulfillment of the six requirements enumerated above. EXECUTED AND EXECUTORY CONTRACTS An executed contract is one that has been performed by all parties. An executory contract is one which has not been performed. A contract may be partly executed and partly executory. EXPRESS CONTRACT AND CONTRACTS IMPLIED IN FACT

An express contract is one in which the terms of the agreement are fully and explicitly stated in words oral or written. (A signed lease for an apartment or a house is an express written agreement. Classmate agrees to buy your book on phone for $ 50 it is an express oral contract has been made. A contract that is implied from the conduct of the parties is called implied-in-fact contract. This type of contract differs from an express contract in that the conduct of the parties, rather than their words, creates and defines the terms of the contract. Conduct rather than words creates and define the terms. (taxi cab example) In implied contract the following conditions exist: 1. The plaintiff furnished some service or property 2. The plaintiff expected to be paid for that service or property and the defendant knew that payment was expected. 3. The defendant had a chance to reject the services and the property and he did not

CONTRACT CONTRACT)

IMPLIED

IN

LAW

(QUASI

It means simply that in certain specified situation where A has conferred a benefit upon B, B must pay A the reasonable value thereof if Bs retention of the benefit would constitute unjust enrichment at As expense. For example, suppose that a vacationing doctor is driving down the highway and comes upon P lying unconscious on the side of the road. The doctor renders medical aid that saves Ps

life. Although the injured and unconscious P did not solicit the medical aid and was not aware that the aid had been rendered yet P received a valuable benefit and the requirements for a quasi contract were fulfilled. In such a situation, the law will impose a quasi contract and P normally will have to pay the doctor for the reasonable value of the medical services rendered.

VALID VOID & VOIDABLE CONTRACT

VALID CONTRACT A valid contract is agreement which is fully enforceable at law. VOID CONTRACT A void is an agreement which is not enforceable at law at all. It is considered to be of no legal consequences. VOIDABLE CONTRACT Voidable contract is an agreement which is enforceable at law at the option of one party thereto, but not at the option of the other party. In other words, a voidable contract is a contract which a party thereto may avoid or repudiate, while the other party cannot do so, but which is binding also on the party entitled to avoid unless and until he exercises his right to avoid. Thus voidable contract is one that is binding and enforceable but because of the lack of one or more of the essentials of a valid contract, it may be repudiated by the aggrieved party at his option. It is valid as long as it is not impeached by the party entitled to do so. If the party having the right to avoid his obligation does not exercise the right within a reasonable time, the agreement is binding and enforceable. A intending to deceive B, falsely represents that 500 maunds of indigo are made annually at As factory, and

thereby induces B to buy the factory, the contract is voidable at the option of B. The peculiarities of a voidable contract are: 1. It is valid and binding on both the parties so long as it lasts, 2. The law gives an option to one of the parties to avoid it, if he so chooses, 3. The party entitled to avoid the contract is not bound to avoid it, but may affirm it, 4. The other party remains bound to carry it out as agreed. When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. The party rescinding voidable contract is bound to restore to the other party any benefit, so far as may be, which he may be received under the contract. ELEMENTS RENDERING CONTRACTS VOIDABLE The following elements render a contract voidable: 1. When consent to an agreement is caused by coercion, fraud, misrepresentation or undue influence. (S. 19 & 19A) 2. When a party to an executor contract prevents the other party from performing his part of the contract (S. 53) 3. When a party to a contract, in which time is of essence, fails to perform his party of the contract at a fixed time (S. 65)

DISTINCTION BETWEEN VOID AND VOIDABLE CONTRACTS

VOID VOIDABLE 1.A contract which is not enforceable 1.An agreement which is at law, e.g., agreement by way of enforceable at law at the wager, agreement with alien option of one of the parties enemy and not at the option of the other The contract has no legal existence is valid so long as it is not at all avoided by the party entitled to do so The assent is caused by mistake of Assent is obtained by coercion, fact common to the mind of both undue influence, misrepresentation the parties or fraud It creates no legal rights and oblibinding on both the gation and in fact is a mere long as it lasts nullity It is merely not a contract at all the essentials It is valid and parties so

It lacks one or more of of a valid contract

AGREEMENTS EXPRESSLY DELCARED TO BE VOID. 1. Agreements made by incompetent persons are void, e.g., minor, aliens, foreign sovereigns, barristers (for fees) persons of unsound mind (s.11) 2. Agreements made under mutual mistake as to a matter of fact essential to the agreement or about a law are void. e.g., A agrees to buy from B a certain horse, it turns out

that the horse was dead at the time of bargain, though neither party was aware of the fact, the agreement is void (S. 21 to 23) 3. Agreement of which consideration or object is unlawful are void, e.g., agreement when forbidden by law, fraudulent, involves injury to any person or property or immoral or opposed to public policy (S.23 & 24) 4. Agreement made without consideration are void, e.g., A promises for no consideration to give B Rs. 1000/5. Every agreement in restraint of marriage of any person, other than a minor (S. 26) 6. An agreement the object of which is to deprive a person of his right to exercise a lawful profession, occupation, trade of business of any kind, is to that extent void, e.g., an agreement not to grow tea within 40 miles for five years even after termination of service is void (S.27) 7. Agreements in restraint of legal proceedings are void. Thus a stipulation that the parties to reference shall not appeal, against an award before any court of law is void (S. 28) 8. Agreements the meaning of which is not certain or capable of being certain e.g., A agrees to sell 100 tons of oil What kind of oil. 9. Agreements by way of wager are void even though the event to which they refer are themselves legal wager or bets on wrestling is illegal although wrestling being a sport is a such legal (S. 30) 10. Agreements contingent on an event happening and that even becoming impossible e.g., A contracts to pay B a sum of money when B marries C. C dies without being married (S. 32 36) 11. An agreement to do an act impossible in itself is void e.g., A agrees to discover treasure by magic (S.56) 12. Agreement which subsequently becomes impossible or unlawful is void e.g., A & B contracts to marry each other up till a fixed date. Before the fixed date B becomes mad. (S.56) 13. Where persons reciprocally promise, firstly to do certain things which are legal and secondly, under specified circumstances to d certain other things which are illegal.

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1. AGREEMENT An essential element of Contract formation is agreement the parties must agree on the terms of the contract and manifest to each other their mutual assent to the same bargain. Ordinarily, agreement is evidence by two events, an Offer and an Acceptance. One party offers a certain bargain to another party, who then accepts that bargain. The agreement does not have to be necessarily in writing. Both parties, however, must manifest their assent to the same bargain. Once an agreement is reached, if the other elements of the contract are present, [consideration, capacity and legality] a valid contract is formed generally creating enforceable rights and duties between the parties. Note that not all agreements are contracts. A and B may agree to play gold on a certain day, but a court could not hold that their agreement is an enforceable contract. A contractual agreement only arises when the terms of the agreement impose legally enforceable obligation on the parties. As stated above the essential element of an agreement is two or more parties. An offer by one party and an acceptance by the other.

CONTRACTUAL CAPACITY OF THE PARTIES

Although the parties to a contract must assume certain risks, the law indicates that neither party should be allowed to benefit from the other partys lack of contractual capacity the legal ability to enter into a contractual relationship. As per S. 11 of the Contract Act, 1872 Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject 1. MINORITY: A minor until he completes 18 years of age, or where if whose person or property or both a guardian is appointed completes the age of 21 years, (Section 3 of Majority Act, 1875) has no capacity to contract. An agreement thus entered into by a minor is void absolutely, i.e., it has no

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legal value. Therefore, a minor is not liable either to perform what he has promised to do under an agreement or to repay the money he had received under it. As a minor has no capacity to contract there can be no question of its ratification e.g., a promise by a minor on attaining majority to repay money advanced to him during minority cannot be enforced. A minor cannot be compelled to compensate for any benefit received by him under his agreement, which due to incapacity is void in law. A minor can have benefit however, during minority. He can be admitted to be benefit of partnership, can become a share holder of a company. Even if a minor obtains a loan by falsely representing that he is of full age, he is not stopped from setting up the plea of minority. He cannot be sued either (a) on the contract or (b) in tort for damages for the fraud, because to allow the injured party to sue would be giving him an indirect means of enforcing a void contract. RATIFICATION A minors agreement is void. Being a nullity it has no existence in the eye of law. It is therefore, incapable of ratification and cannot support a fresh promise by the infant after he has attained majority. NECESSARIES OF LIFE: If person supplies necessaries of life to a minor or to someone whom the minor is bound to support, the person who has furnished such supplies is entitled to be reimbursed from the property of such minor. Though the property of minor is liable for a reasonable compensation, the minor himself is not liable. If the minor had at the time the necessaries were supplied to him, a sufficient quantity of those necessaries already with him, the person supplying them is not entitled to recover any thing. Mohri Bibi Vs Dharmodas Gosh The question whether a contract entered into by a minor is void or voidable was addressed by the Privy Council in the above case. The question presupposes the existence of a

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contract within the meaning of the Act, so it cannot exist in the case of an infant. Where a minor, therefore, purports to enter into a contract, his alleged contract is VOID and not merely voidable, he being a person who is not competent to contract. A minors contract is not validated by the transfer of possession. Transfer of property or agreement to transfer property by him, is on the same footing as other contract and is void. Therefore, if on a fraudulent misrepresentation of age, a minor borrows money on a mortgage the deed would be void ab-initio. SPECIFIC PERFORMANCE under a contract entered into by a MINOR. The minors contract being a nullity in the eye of law, so no question of specific performance arises. But if a contract be entered into on behalf of an infant by one who is competent to act, e.g., a certified guardian and the contract be for the benefit of the minor, specific performance shall be allowed. SOUND MIND A person is said to be of sound mind for the purpose of making a contract if; at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to the effect upon his interests. The litmus test is whether the person is capable of comprehending what he is doing and its effect on his interest. Mere weakness of mind or temporary forgetfulness is not sufficient to hold some body of unsound mind. INTOXICATED PERSONS Intoxication is a condition in which a persons normal capacity to act or think is inhibited by alcohol or some other drug. A contract entered into by an intoxicated person can be either voidable or void. If the person was insufficiently intoxicated to lack mental capacity, then the transaction is voidable at the option of the intoxicated person even if the intoxication was purely voluntary. For the contract to be voidable, it must be proved that the intoxicated persons judgment and ability to reason were impaired to such an extent that he or she did not comprehend the legal consequences of entering

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into the contract. If, despite intoxication, the persons understood these legal consequences the contract would be enforceable. An intoxicated person, after becoming sober, may ratify a contract expressly or impliedly. Implied ratification occurs when a person enters into a contract while intoxicated and fails to disaffirm it within a reasonable time after becoming sober. DISQUALIFIED BY LAW TO CONTRACT. A person declared an insolvent or convicted of an offence which renders him disqualified from entering into a contract like conviction of an offence under the National Accountability Bureau Ordinance (NAB) etc. Persons belonging to enemy territory. Foreign ambassadors in their personal capacity. REQUIREMENT OF THE OFFER An offer is a promise or commitment to do or refrain from doing some specified thing in the future. Three elements are necessary for an offer to be effective. 1. The offeror must have a serious intention to become bound by that offer. 2.The terms of the offer must be reasonably certain or definite so that the parties and the court can ascertain the terms of the contract. 3.the offer must be communicated by the offeror to the offeree, resulting in the offerees knowledge of the offer. (i)INTENTION The serious intention becomes manifest from the words spoken or written or the action taken. It has to be objective and not subjective. Offers made in obvious anger, jest or undue excitement do not meet the intent test, because a reasonable person would not realize that a serious offer was not being made. Because these offers are not effective, an offerees acceptance does not cre4ate an agreement.

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EXPRESSION OF OPINION An expression of opinion is not an offer. It does not evidence an intention to enter into a binding agreement. STATEMENT OF INTENTION: If A says I plan to sell my stock in my shop for Rs. 100,000/- a contract is not formed if B accepts and tenders Rs. 100,000/- because a reasonable person would conclude that A was only thinking about selling his stock not promising to sell. RELIMINARY NEGOTIATIONS: A request or invitation to negotiate is not an offer. It only expresses a willingness to discuss the possibility of entering into a contract e.g., a statement Will you sell your Estate B or I wouldnt sell my car for less than Rs. 500,000/- is not an offer because a reasonable person in the offerees position would not conclude that these statements evidenced an intention to enter into a binding obligation. Likewise invitation to submit bids is not an offer, it is an invitation to make offers. ADVERTISEMENTS, CATALOGUES, PRICE LISTS AND CIRCULARS are treated not as offers to contract but as invitations to negotiate. Although most advertisements and the like are treated as invitations to negotiate, this does not mean that an advertisement can never be an offer. If the advertisement makes a promise so definite in character hat it is apparent that the offeror is binding him/her to the conditions stated that advertisement is treated as an offer. {Carlill Vs Carbiolic Smoke Ball Company} AUCTION Sometimes, what appears to be an offer is not sufficient to serve as the basis for contract formation. Particularly problematic in this respect are Offers to sell goods at auction. In an auction, a seller offers goods for sale through an auctioneer. This is not, however, a contractual offer. Instead, the seller is only expressing a willingness to sell. Unless the terms of the auction are explicitly stated to be without reserve, the seller (through auctioneer) may withdraw the goods at any time before the sale is closed by

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announcement on by fall of the auctioneers hammer. The sellers right to withdraw goods characterizes an auction with reserve; all auctions are assumed to be of the type unless a clear statement to the contrary is made. At auctions without reserve the goods cannot be withdrawn and must be sold to the highest bidder. (ii) DEFINITENESS OF TERMS. An offer must have reasonable definite terms so that, if it is accepted and a contract formed, a court can determine if a breach has occurred and can provide an appropriate remedy. What specific terms are required depends, of course, on the type of contract. Generally a contract must include the following terms either expressed in the contract or capable of being reasonably inferred from it: 1. The identification of the parties 2. The identification of the object or subject matter of the contract (also Quantity, when appropriate) including the work to be performed, with specific identification of such items as goods, services and land 3. The consideration to be paid 4. The time of payment, delivery or performance (iii) COMMUNICATION A third requirement for an effective offer is communication of the offer to the offeree, resulting in the offerees knowledge of the offer. Ordinarily one cannot agree to a bargain without knowing that it exists. Suppose that E advertises a reward for the return of his lost dog. H, not knowing of the reward, finds the dog and returns it to E. H cannot recover the reward, because he did not it had been offered. As per Section3 of the Contract Act, 1872 The communication of proposal (Offer) the acceptance of the proposal (Offer), and the revocation of proposal (Offer) and acceptance respectively are deemed to be made by an act or omission of the party proposing (Offeror) accepting (Offeree) or revoking by which he intends to communicate such proposal (Offer) acceptance or revocation or which has the effect of communicating it. COMMUNICATION WHEN COMPLETE

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The communication of a proposal (Offer) is complete when it comes to the knowledge of the person to whom it is made (Offeree) The communication of an acceptance is complete: As against the proposer (Offeror) when it is put in a course of transmission to him, so as to be out of the power of the acceptor (Offeree) As against the acceptor (Offeree) when it comes to the knowledge of the proposer (Offeror) The communication of a revocation is complete: As against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it. As against the person to whom it is made, when it comes to his knowledge. TERMINATION OF THE OFFER The communication of an effective offer to an offeree (Promisee) gives the offeree the power to transform the offer into a binding legal obligation (a contract) by an acceptance. The power of acceptance, however, does not continue forever, it can be terminated either by the action of the parties or by operation of law. TERMINATION BY ACTION OF THE PARTIES An offer can be terminated by the action of the parties in any of three ways by revocation, by rejection or by counteroffer. REVOCATION OF THE OFFER BY THE OFFEROR (PROPOSER) The offerors act of withdrawing an offer is called revocation. Unless an offer is irrevocable the Offeror (Proposer) usually can revoke the offer as long as the offeree before the offeree accepts. Revocation may be accomplished by express repudiation of the offer (e.g with a statement such as I withdraw my previous offer of Jan 01) or by performance of acts inconsistent with the existence of an offer, which are made known to the offeree. REJECTION OF OFFER BY THE OFFEREE (PROMISEE)

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The offer may be rejected by the offeree, in which case the offer is terminated. Any subsequent attempt by the offeree to accept will be construed as a new offer, giving the original Offeror (Now the offeree) the power of acceptance. A rejection is ordinarily accomplished by words or conduct evidencing intent not to accept the offer. As with revocation rejection of an offer is effective only when it is actually received by the Offeror. Mere inquiring about an offer does not constitute rejection. COUNTER OFFER BY THE OFFEREE A rejection of the original offer and the simultaneous making of a new offer is called a counteroffer. Suppose that D offers to sell his house to W for Rs. 10(m) W responds Your price is too high. Would you sell ir for Rs. 9.5 (m)? Ws response is s counter offer. TERMINATION BY OPERATION OF LAW: The Power of the offeree to transform the offer into a binding legal obligation can be terminated by law through the occurrence of the following events: 1. Lapse of time 2. Destruction of the specific subject matter of the offer 3. Death or incompetence of the Offeror or the offeree 4. Supervening illegality of the proposed contract SUMMARY METHODS BY WHICH AN OFFER CAN BE TERMINATED METHODS OF BASIC RULES TERMINATION BY THE ACT OF THE PARTIES REVOCATION 1. An offer can be revoked at any time before acceptance without liability unless the offer is irrevocable. 2. Except for public offers, renovation is not effective until received by the offeree. REJEC TION 1. Rejection of an offer is accomplished by words Or actions that demonst5rate a clear intent not to accept the offer or

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consider the offer further. Inquiries about an offer do not constitute a rejection 2. A rejection is not effective until received by the Offeror COUNTER OFFER A counteroffer is a rejection of the original offer and the making of a new offer. Inquiries are not rejection. BY THE OPERATION OF LAW LAPSE OF TIME 1. If a time period for acceptance is stated in the offer, the offer ends at the stated time. 2. If no time period for acceptance is stated, the offer terminates at the end of a reasonable period. DESTRUCTION Destruction of the specific subject matter of the offer terminates the offer DEATH OR Death or incompetence of either the Offeror or INCOMPETENCE the offeree terminates an offer unless an offer is irrevocable ILLEGALITY Supervening illegality terminates an offer. CONSIDERATION Consideration is usually defined as the value [such as money] given in return for a promise (such as the promise to sell a stamp collection on receipt of payment) Often consideration is broken down into two parts: (1) Something of legal value must be given in exchange for promise and (2) There must be bargained-for exchange. The something of legal value may consist of a return promise that is bargained for. If it consists of performance, that performance may (a) an act (Other than a Promise) (b) a forbearance (refraining from action) or (c) the creation, modification or destruction of legal relation. For example, A says to her son, When you finish paining the garage, I will pay you Rs. 1000/ As son paints the

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garage. The act of painting the garage is the consideration that creates the contractual obligation of A to pay her son Rs. 1000/-. Suppose, however, that A says to her son In consideration of the fact that you are not as wealthy as your brothers, I will pay you Rs. 5000/ This promise is not enforceable because As son has not given any consideration for Rs.5000/- promised to be given by his mother. LEGALITY OF CONSIDERATION Any contract without consideration is void. The consideration has under all circumstances to be legal and lawful. A consideration is unlawful if a) It is forbidden by law b) It is of such a nature that if permitted, it would defeat the provision of any law (ARBITRATION is an exception so is entering into a contract/agreement to pay the debit beyond the period of legal limitation ) c) Is fraudulent d) Involves/implies injury to the person or property of another e) Court regards it as immoral or opposed to Public Policy. Public Policy means any act the following of which would be against the general interest of the community. Agreements which tend to prevent the course of justice have thus generally been described as opposed to public policy LEGAL SUFFICIENCY OF CONSIDERATION Consideration must be legally sufficient which means consideration for a promise must be either legally determinable to the promise (the one receiving the promise) or legally beneficial to the promisor (the one making the promise). HAMER VS SIDWAY INADEQUACY OF CONSIDERATION Adequacy of consideration refers to the fairness of the bargain. In general, a court will not question the adequacy of consideration if the consideration is legal and legally sufficient. Under the doctrine of freedom of contracts, parties are normally free to bargain as they wish. If people

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could sue merely because they had entered into an unwise contract, the courts would be overloaded with frivolous suits. Inadequacy of consideration, per se, is not actionable. However, in case there is an element of fraud, misrepresentation, undue influence etc. the inadequacy of consideration can be legally looked into. Suppose D has a house worth PKR 1 M and he sells it for PKR 0.5 M. It could indicate that the buyer unduly pressured D into selling of D was defrauded in selling the house at far below market value. [Of course, it might also indicate that D was in a hurry to sell and that the amount was legally sufficient] CONTRACTS THAT LACK CONSIDERATION Sometimes one of the parties [or both parties] to a contract may think that they have exchanged consideration when in fact they have not. The following situations the parties promises or actions do not qualify as a contractual consideration: 1. Pre-existing duty: A promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. [Sheriffs case] If a party is already bound by contract to perform a certain duty that duty cannot serve as a consideration for a second contract. [contractor demanding more/extra money for the same contract ] 2. Unforeseen difficulties: The rule regarding preexisting duty is meant to prevent extortion and the so called holdup game. What happens though when a honest contractor who has contracted with a landowner to construct a building runs into extraordinary difficulties which were unforeseen at the time of the formation of the contract. In such circumstances the court may allow exceptions to the pre existing duty rule. 3. Past Consideration Promises made in return for actions or events that have already taken place are unenforceable. These promises lack consideration in that the element of bargained for exchange is missing. In short, you can bargain for something to take place now or in the

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future but not for something that has already taken place. Therefore, past consideration is no consideration. PROMISES ENFORCEABLE WITHOUT CONSIDERATION There are some exceptions to the rule that only promises supported by consideration are enforceable. Circumstances in which promises will be enforce despite the lack of what one normally considers legal consideration are as follows: 1. Promises to pay debts that are barred by a statute of limitation. 2. Detrimental reliance or promissory estoppels {The estoppels arises from the promise and hence promissory estoppel is the term used} [The doctrine is applied in a wide variety of contexts in which a promise is otherwise unenforceable, including that of a promise not supported by consideration. For the doctrine to be applied, the following elements are required: a) There must be a clear and definite promise b) The promisee must justifiably rely on the promise c) The reliance normally must be of a substantial and definite character d) Justice will be better served by enforcement of the promise. 3. Charitable subscriptions. Subscription to religious, educational and charitable institutions are promises to make gifts and are unenforceable on traditional contract grounds because they are not supported by legally sufficient consideration. The modern view, however, is to enforce these promises under the doctrine of promissory estoppels or to find consideration simply as a matter of public policy. The Promise for enforcement is that a promise is made and an institution changes it position because of reliance on that promise