Contract Formation Law and Practice

Question: Discuss about the Contract Formation for Law and Practice. Answer: Introduction: A contract is a document which creates legal relations between two or more parties, and in which two or more parties promise to do something, in exchange for a consideration[1]. A contract has six essential elements, which are an offer, an acceptance, a consideration, capacity, clarity and intent[2]. Consideration is a crucial element of a contract, and without a consideration, the contacts are considered void in majority of the cases[3]. In the following parts, the various aspects related to consideration have been highlighted. Consideration is the value which is promised by one of the contracting parties, during the formation of the contract, to the other contracting parties, for doing or from refraining to do the promised task. In short, consideration is the price for the promise made[4]. Without a consideration, the contract is void, unless such a contract is made to compensate, whether partly or wholly, for the promise which has already been fulfilled, or such a contract is written and registered within the applicable law, and is given on account of affection and natural love, amongst the contracting parties[5]. Consideration is one of the critical hinges, upon which the contracting system is based[6]. The consideration can be anything, which has certain value, and includes goods or series, which are generally exchanged under the contract, so as to give the validity to the contract. For a specific promise, the consideration exists when some benefit, right, interest or profit is accrued due to some responsibility or forbearance, which has been given or undertaken due by the promise[7]. It signifies that some kind of advantage or benefit has been passed on to a party, or some loss or detriment has been suffered by the other party. So, consideration has an evidentiary purpose in the eyes of the law, as it signifies loss, detriment, interest or benefit, undertaken or suffered by the other party[8]. The consideration has to be executed or executory, but it cannot be past. In other words, the consideration has to be brought into existence, either after or with the promise[9]. If the consideration comes before the promise, it is not considered a good consideration. In the case of Roscorla v Thomas[10], this very notion was held, and the judges concluded that the promise was not binding. This was because in this case, the sole consideration which was provided in the promise regarding the soundness of the horse was related to the entering in the original contract; and this happened even before the promise was made. Consideration can be anything which is decided between the parties, as long as it has an economic value[11]. In the case of Chappell Co Ltd v Nestle Co Ltd[12], Lord Somervell held that the consideration can stipulated by the contracting parties. This is a landmark case confirming the doctrine that the consideration needs not to be adequate, but has to be sufficient. As the wrappers were more than simply a condition which was precedent, the three wrappers were considered as a party of the consideration. In general parlance, adequacy and sufficiency, have same meaning, but when it comes to the legal parlance, adequacy relates to the situation in which the price which an individual pays is disproportionate to the value of the thing which the individual receives in return[13]. For instance, Harry pays a price of $50 for a duplex; in such a case, it can be said without a doubt that the consideration is not adequate. Though, the courts view that it is the personal wish of an individual to decide at which price they want to sell the products or services, and so, the validity of a contract is not affected by the inadequacy of consideration. In the case of Grogan v. Cooke[14], Manners LC stated that the court will not minutely check the consideration for being full or ample, if it is evident that bona fide, the consideration is fair. It is quite correct notion that the courts do not consider each and every consideration to be adequate or inadequate as it would prove cumbersome and impracticable for the courts. This is because it is beyond the means of the court to fix or ascertain a value for the good or services contained in the contract, before they are bought to the court. For a consideration to be taken as sufficient, it has to be clearly established in the eyes of law that the consideration has an economic value[15]. Along with the consideration having an economic value, it needs to be of a kind or in a manner in which is recognized in the eyes of the law. There have been various instances where the insufficient consideration is considered acceptable and lawful, and these include cases of natural love, affection, prayers, moral duty, amongst the other things. For instance, if an individual promised to carry out certain task, which was already obligated upon him by the law, in such a case, this would not amount to being a sufficient consideration to form a contract. This is because, here the individual simply repeats the obligation which is already required of them, and there is no new obligation. A duty which is already owed by the individual, the performance of such a duty is an insufficient consideration under the law[16]. In the case of Collins v Godefrey[17], after a subpoena had been issued to the plaintiff, he had given the evidence at the civil trial. Later on, the defendant made a promise where he would pay a fee of six guineas to the plaintiff. But, it was held subsequently that the owed fee could not be recovered by the plaintiff, due to the absence of a consideration for the promise, as he was under a legal obligation to attend the trial as per the subpoena. So, when the law imposes a public duty over an individual, it cannot be considered as a sufficient consideration. When an individual is bound by the terms of the pre-existing contract, which creates an obligation over the other party, the sufficiency of the consideration is absent[18]. If a promise is made by plaintiff to the other party, to carry out a promise which was previously made by the other party, in such a case, the consideration taken to be insufficient. This is because the plaintiff owes the promise to the other party already, due to the pre-existing contract, and hence, the promise is to meet the obligation which is already owed to the other party[19]. This can be seen in the matter of Stilk v Myrick[20], the plaintiff was under the obligation because of a pre-existing contract, to sail a ship from London to Baltic and bring it back. Before the ship could go back to London, two of the members of the crew jumped the ship. The work of the two members was done by the other crew members and as a kind gesture towards the crew, for doing the extra work, the captain promised, that the wages of the jumped crew members, would be divided between the rest of the crew members. But, upon returning to London, the ship owner refused to pay the promised extra wage. The claim made by the defendant was that the work done by the members was the one which the contract required them to undertake and so, no extra wages had to be paid. This reasoning was agreed upon the court and stated that the crew members had simply carried on the work, which was obligated on them, and which was to sail the ship back to home, as per their contract. Generally, affection and natural love are the promises which are made with the families. In the matter of Re Wilson[21], the father had made a promise to give his property to his son for love and affection. Following this, he made a promise to pay an allowance to his son, as assistance in the maintenance of the property. In this case, the judge Johnson J considered that the relationship between the case parties, along with the circumstances in which the dealing took place, made it impossible to hold this as a bounty by a father on his son, and not the making of a bargain which involved mutual consideration. In other words, the judge held that there was no agreement for a valuable consideration. The decision was rightly made in this case, as the father made a generous promise by giving his property to his son and the maintenance allowance. As has already been highlighted in the earlier parts, the court cannot decide the value of the time of son or the materials that are needed for the assistance or maintenance of the property, and so, it is difficult to agree with the decisions of the judges. In one of the Canadian cases of Zecevic v The Russian Orthodox Christ the Saviour Cathedral[22], the church, along with its priest was sued by the plaintiff, after the priest failed to perform the funeral service. The subject of money never arose between the priest and the plaintiff, the plaintiff had not paid any fees to the plaintiff for the funeral service, and a fee was not set for the funeral services. But, the experience of priest dictated that the payment for such series ranged from 0 to $800, and it customary to pay the priest for the funeral. Gray J, in t he Ontario High Court, stated that in the given case, there was an absence of an intention, to enter into legal relationship, as there was no promise regarding the payment. And this implies that there was an insufficient consideration in this agreement. In the case of Pando v. Fernandez[23], prayer was considered as an essential part of the contract amongst the parties. Since the efficiency of the prayer could not be measured or proved in any court, so, a prayer was not taken as a sufficient consideration. In this case, the plaintiff was very religious and he had claimed that he had made a purchase of the winning lottery ticket, the worth of which was $2.8 million, with the money of the defendant, as she had promised to give him a share of the prize money on equal basis, provided that he prayed to Saint Eleggua, and produce the lottery number of her ticket, so that she could win the lottery. The New York Supreme Court held that the plaintiff could not provide the evidence that the prayer was effective and that the prayers of the saint had resulted in the selection of the lottery numbers, which led to the winning of lottery. So, it cannot be proved that the terms of the contract had been complied with. Further, the court stated that an antithesis of proof or evidence is faith. Hence, an individual cannot establish that the prayers or faith has resulted in an event. The judges emphasized on the part that the prayer was the main question here and not the winning numbers. And so, the consideration was not sufficient in this case[24]. But when an act is done, which is beyond the duty stated, it can be considered as a valid consideration. An example of this is the case of Glasbrook Bros Ltd v Glamorgan[25], in which the plaintiff had requested the police to provide him with a guard for full time, which would protect the mine during the strike and in exchange, money was offered. The judges held that even though it was the duty of the police to protect, it was not their duty to provide an individual with a full time guard. And so, the payment for the guard service was a valid consideration, as it was beyond the call of duty. Also, if the duty covered in the pre-existing contract is exceeded, then it is taken to be sufficient consideration. In the case of Hartley v Ponsonby[26], the crew was offered addition money if they remained loyal and agreed to work in dangerous conditions. Since, this money was offered for something which was beyond their pre-existing contract, it was held to be a sufficient consideration. From the above analysis, it can be concluded that consideration is a crucial element to any contract and without a valid consideration, the contract is not valid. Though, there are various exceptions to this rule and these are the cases of contract covering prayer, moral duty, love and affection, amongst the other things. Consideration can be anything which is stipulated or fixed between the contracting parties, as long as it has an economic value. In the previous parts, the various aspects of contract were also highlighted. The consideration cannot be a past consideration and has to be executed or executory. Most importantly, a consideration can be inadequate, as the parties are free to decide what it is; but, it cannot be insufficient. The sufficiency of the consideration relates to the consideration having value in the eyes of law. So, it can be summarized that a consideration is an important element of a contracts, and has to be sufficient in the eyes of law, though it can be inadequate, due to the freedom provided to the parties, to choose what the consideration would be. 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