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Why can't a contract be formed without consideration? What is the legal logic behind this?
Under English common law, consideration is regarded as a necessary element of forming a simple contract, while special contracts (such as deeds by public documents) are not subject to this restriction. According to the case of Currie v Misa, consideration can be defined as "right, benefit, profit, advantage or forbearance, loss, liability". This means a promise of value from one party (the promisor) in exchange for a promise of value, such as goods, money, or behavior, from another party (the beneficiary of the promise).
The essence of consideration can be thought of as the values offered and accepted by people or organizations when entering into a contract.
For example, suppose A signs a contract with B, whereby A promises to buy a car from B for $5,000. In this example, A's consideration is to commit to pay $5,000, while B's consideration is to deliver the vehicle. If A does not promise to pay any value, B’s consideration is still the vehicle, and A’s consideration cannot be established, so there is no possibility of establishing a contract. However, even if B cannot legally bind A, if B still transfers the ownership of the vehicle to A, this is regarded as a gift.
Legal rules considered
Under English law, certain criteria must be met for consideration. For example, partial payment does not qualify as valid consideration, which must originate from the beneficiary of the promise and not necessarily flow to the promisor. Furthermore, consideration must be adequate, but not necessarily appropriate, and should not be nihilistic. Past considerations are not valid, and moral considerations are generally not sufficient to form a contract (except in public contracts, where emotion or love in some cases are considered unnecessary considerations).
According to the Indian Contract Act No. 1872, Section 23 expressly stipulates that legitimate considerations are the result of mutual benefit between the parties.
According to these rules, the existence of consideration becomes the main focus of the dispute, and any lack of consideration cannot form a valid contract. Therefore, if the court decides that no contract has been formed, it may still be possible to require some form of return based on merit or a delay in undertaking.
Historical and legal comparisons considered
In Roman legal systems (such as Germany and Scotland), the principle of consideration is not required, and some scholars even believe that the doctrine of consideration is redundant and should be replaced by the concept of estoppel. In fact, 19th-century judges combined two different legal traditions to make considerations an important basis for legal contracts.
As a means of resolving contractual disputes, the existence of considerations is relatively irrelevant to value; what matters is the legal obligations of the parties.
For example, U.S. courts generally do not investigate the financial fairness of a transaction as long as each party has assumed certain legal obligations. In actual circumstances, a contract can be established even if one party only provides a nominal amount, such as US$1. However, some courts have held that such symbolic considerations cannot meet legal requirements, resulting in the inability to form a contract.
Criticisms and future challenges considered
The main criticism considered is that it may merely be a formality, complicating business transactions and creating legal uncertainty, increasing the likelihood of litigation. In the current legal environment, many contracts rely heavily on the principle of consideration in the award and enforcement of contracts, but there is controversy as to whether this principle should continue to be maintained.
In addition, relevant laws in international trade often do not require consideration to verify the validity of a contract. Regarding the legal trends and market environment in the jurisdiction, whether the existence of consideration is really necessary, and whether there will be improvements or changes in the future time?
