Chapter V. Consideration and Effects of Contract

By English law no simple contract is binding upon a party unless he receives consideration for his promise. The promisor is said to receive consideration for his promise when the promisee does, forbears, or suffers, or promises to do, forbear, or suffer, something in exchange for, and at the time of, the promise made to him.

Inasmuch as the intrinsic reason and motive for entering into a contract is an essential element of it, and a condition sine qua non of its existence, to this extent we may say that consideration is necessary for the validity of a contract by the law of nature. Thus, if I give an alms to a beggar merely because he represents himself to be destitute, he will have no right to the alms if he is not destitute but well off. Again, if I buy a horse for running in a carriage and the animal which I obtain is quite useless for my purpose, the contract is null and void. However the English doctrine of consideration is different from this. In English law consideration must be something of value, not necessarily of equal or adequate value, but there must be a quid pro quo; a merely good consideration, as pity, gratitude, or relationship, will not be sufficient. If a simple contract has no such valuable consideration, it has no binding force. However, want of valuable consideration will not make a contract null and void in conscience; it will be valid in conscience if it has all the elements required by the law of nature, and in consequence it will be obligatory in the forum of conscience. English courts of law. It will merely be unenforceable in

The primary effect of a contract is to impose an obligation on the parties which binds them in justice to fulfil the contract. If one party fails to do so, the other will have a right to be compensated for the loss that he has suffered.

The extent and quality of the obligation imposed by a contract will depend on the intention of the parties, which may be gathered not only from the express terms used by them, but also from the law, from custom, usage, and the character of the parties.

Only the parties who entered into the contract are bound by it. They may agree together to confer a benefit on some third person; the latter will then receive advantage from the contract, but his rights and liabilities will not be affected by it.

It used to be a common practice to confirm an agreement by oath, and the older theologians have much to say on the questions which arise from such a practice. It is now seldom done, and the matter may be treated briefly.

If an oath is added to a valid contract, besides the obligation of justice, a fresh obligation is added which binds the party out of reverence for his oath to fulfil his engagement. Inasmuch as the oath is accessory, and what is accessory follows the nature of the principal, the obligation arising from the oath will receive its interpretation from, and will cease with, the obligation of the contract. By Roman law, whose provisions were adopted by the canon law, the contracts of minors and certain other contracts which were of themselves rescindable, became irrescindable when they were confirmed by oath. This, however, was an effect of positive law, which has no counterpart in English jurisprudence.

The obligation of a contract may, according to the intention of the parties, depend on whether a certain event has happened or will happen in the future. The contract is then conditional, not absolute. If the event is past or present, but it is not known by the parties whether it has happened or not, the contract at once is valid or not, according as the condition is fulfilled or not, but the parties will not know whether they are bound by the contract until they know whether the condition be fulfilled or not.

When the event is future, and its happening will, according to the intention of the parties, discharge the parties from obligation under the contract, the condition is subsequent. The parties are bound by the contract and will continue to be so bound, unless and until the subsequent condition is verified.

When the parties agree that the contract shall depend upon the happening of a future event, there is a condition precedent. An obligation at once arises from such an agreement of awaiting the event; when it has taken place the contract becomes absolute and begins to bind without any fresh act of the contracting parties; if the event does not take place, the obligation is discharged.

Sometimes on entering into a contract something is given as earnest, which serves as evidence that the contract has been concluded, or as security that it shall be performed. Unless there is a contrary agreement between the parties, the earnest will be treated as part payment or will be returned upon performance; it will be forfeited if the party who gave it fails to perform; it will be returned if the party who received it fails to perform.

If it is agreed that a certain sum is to be paid in the event of breach of contract by the party who was in default, the whole sum will be due if it represents liquidated damages. If, on the contrary, it is a penalty, the injured party, according to English law, cannot recover more than the amount of the loss actually suffered by him.¹

¹ Digest, n. 313.