Running head: CONSIDERATION IN CONTRACTS
Consideration in Contracts
CONSIDERATION IN CONTRACTS
Contracts are essential in the field of business because they define boundaries to a
relationship between people working together (Agarwal, 2018). The contract lists the
responsibilities and obligations each business party owes the other. Since a deal is a legally
enforceable document, there are components of the contract that need to be present for it to be
considered as valid. One of these components is a consideration. It is a legal concept that arose
from the traditional idea of "bargained-for exchange" (Agarwal, 2018). Such a concept loosely
means that when two people agree to enter a contractual relationship, they must be willing to
part with something of value. Typically, this item of value would be money. However, over
time, courts have accepted that other items can be considered as consideration (Agarwal, 2018).
The value of the consideration payable by a person seeking to enter into a contractual
relationship with another person is regarded as being a matter of agreement between the two
parties (Agarwal, 2018). Such consideration is important because the value of payment payable
does not have to be in line with the standards set down in the market. To an outsider, the
consideration an individual paid might seem wrong or unfair.
Section 26 of the Contracts Act 1950
Consideration is a crucial pillar of any contract. Therefore, any agreement between two
people seeking to enter a contractual relationship must be concluded by an exchange of
considerations between the parties involved (Johnson, 2015). Generally, if one of the people
bound by contact is expected to pay some sort of consideration absconds their duty, then the
contractual relationship entered into holds no water. What this means is that failure to hand out
the consideration invalidates the previous agreement between the people wishing to be bound
by a contractual relationship (Johnson, 2015). Such a requirement is to be found in section
twenty-six of the Contracts Act 1950.
There are three forms of consideration a court will typically look at when it comes to
the determination of whether an agreement between the alleged parties to a contract exists. The
first is called executory consideration (Johnson, 2015). It happens when one person agrees by
way of a promise to do something for another person at a future date. The case of Murugesu v.
Nadarajah is best placed to illustrate this concept (1980). The case involved two people where
the respondent lived in an apartment owned by Murugesu. After a while, the respondent
decided to approach the owner to sell him the house. Initially, his offer was rejected, but after
a while, he accepted to sell the house to the respondent for RM 26,000 (Gu...
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