CONSIDERATION UNDER INDIAN CONTRACT ACT

Written By :- Shivangi Choudhary (Amity Law School)

INTRODUCTION

Consideration is an essential element of a valid contract without which no single promise will be enforceable. It is a term used in the sense of quid pro quo, i.e., ‘something in return’. Having a double aspect of a benefi­t to the promisor and a detriment to the promisee, it has to be really understood in the sense of some detriment as envisaged by English Law.

WHAT IS CONSIDERATION?

Consideration is the price agreed to be paid by the promisee for the obligation of the promisor. The word consideration was described in a very popular English case of Misa v. Currie as:

“A valuable consideration in the sense of law may consist either in some right, interest, profi­t or benefi­t accruing to one party (i.e. promisor) or forbearance, detriment, loss or responsibility given, suffered or undertaken by the other (i.e., the promisee).”

Section 2(d) de­fines consideration as follows:“When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing or promises to do or abstain from doing something, such an act or abstinence or promise is called consideration for the promise”.

Analysis of Defi­nition of Consideration

  • CONSIDERATION IS AN ACT- DOING SOMETHING.

Example- Ajay promises Bhuvan to guarantee payment of price of the goods which Bhuvan wanted to sell on one month credit to Chaitanya. Here selling of goods on credit by Bhuvan to Chaitanya is consideration for A’s promise.

  • CONSIDERATION IS ABSTINENCE- ABSTAIN FROM DOING SOMETHING.

Example- Abhishek promises Bharti not to ­file a suit against him if he (Bharti) would pay him (Abhishek) Rs. 1, 00,000. Here abstinence on the part of Abhishek would constitute consideration against Bharti’s payment of Rs. 1, 00,000 in favor of Abhishek.

  • CONSIDERATION MUST BE AT THE DESIRE OF THE PROMISOR.
  • CONSIDERATION MAY MOVE FROM PROMISEE OR ANY OTHER PERSON.
  • CONSIDERATION MAY BE PAST, PRESENT OR FUTURE.

Thus from above it can be concluded that:

Consideration = Promise / Performance that parties exchange with each other.

Form of consideration = Some benefi­t, right or profi­t to one party / some detriment, loss, or forbearance to the other.

RULES REGARDING CONSIDERATION

  • CONSIDERATION MUST MOVE AT THE DESIRE OF THE PROMISOR

Consideration must be offered by the promisee or the third party at the desire or request of the promisor. This implies “return” element of consideration. Contract of marriage in consideration of promise of settlement is enforceable.

An act done at the desire of a third party is not a consideration.

In Durga Prasad v. Baldeo, D (defendant) promised to pay to P (plaintiff ) a certain commission on articles which would be sold through their agency in a market. Market was constructed by P at the desire of the C (Collector), and not at the desire of the D. D was not bound to pay as it was without consideration and hence void. Example: R saves S’s goods from ­re without being asked to do so. R cannot demand any reward for his services, as the act being done voluntary.

  • CONSIDERATION MAY MOVE FROM PROMISEE OR ANY OTHER PERSON

In India, consideration may proceed from the promisee or any other person who is not a party to the contract. The defi­nition of consideration as given in Section 2(d) makes that proposition clear. According to the definition, when at the desire of the promisor, the promisee or any other person does something such an act is consideration. In other words, there can be a stranger to a consideration but not stranger to a contract.

Example: An old lady made a gift of her property to her daughter with a direction to pay a certain sum of money to the maternal uncle by way of annuity. On the same day, the daughter executed a writing in favour of the brother agreeing to pay annuity. The daughter did not, however, pay the annuity and the uncle sued to recover it. It was held that there was sufficient consideration for the uncle to recover the money from the daughter. [Chinnayya vs. Ramayya (1882)]

  • EXECUTED AND EXECUTORY CONSIDERATION:

A consideration which consists in the performance of an act is said to be executed. When it consists in a promise, it is said to be executory. The promise by one party may be the consideration for an act by some other party, and vice versa.

Example: A pays ` 5,000 to B and B promises to deliver to him a certain quantity of wheat within a month. In this case A pays the amount, whereas B merely makes a promise. Therefore, the consideration paid by A is executed, whereas the consideration promised by B is executory.

  • CONSIDERATION MAY BE PAST, PRESENT OR FUTURE

The words “has done or abstained from doing” [as contained in Section 2(d)] are a recognition of the doctrine of past consideration. In order to support a promise, a past consideration must move by a previous request.

It is a general principle that consideration is given and accepted in exchange for the promise. The consideration, if past, may be the motive but cannot be the real consideration of a subsequent promise. But in the event of the services being rendered in the past at the request or the desire of the promisor, the subsequent promise is regarded as an admission that the past consideration was not gratuitous.

Example: ’A’ performed some services to ‘B’ at his desire. After a week, ‘B’ promises to compensate ‘A’ for the work done by him. It is said to be past consideration and A can sue B for recovering the promised money.

  • CONSIDERATION NEED NOT BE ADEQUATE

Consideration need not to be of any particular value. It need not be approximately of equal value with the promise for which it is exchanged but it must be something which the law would regard as having some value. Something in return need not be equal to something given. It can be considered a bad bargain of the party.

It may be noted in this context that Explanation 2 to Section 25 states that an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate.But as an exception if it is shockingly less and the other party alleges that his consent was not free than this inadequate consideration can be taken as an evidence in support of this allegation.

Example: X promises to sell a house worth `6 lacs for `1 lacs only, the adequacy of the price in itself shall not render the transaction void, unless the party pleads that transaction takes place under coercion, undue influence or fraud.

  • PERFORMANCE OF WHAT ONE IS LEGALLY BOUND TO PERFORM

(consideration must not be performance of existing duty) the performance of an act by a person who is legally bound to perform the same cannot be consideration for a contract. Hence, a promise to pay money to a witness is void, for it is without consideration. Hence such a contract is void for want of consideration. Similarly, an agreement by a client to pay to his counsel after the latter has been engaged, a certain sum over and above the fee, in the event of success of the case would be void, since it is without consideration.

But where a person promises to do more that he is legally bound to do, such a promise provided it is not opposed to public policy, is a good consideration. It should not be vague or uncertain.

  • CONSIDERATION MUST BE REAL AND NOT ILLUSORY

Consideration must be real and must not be illusory. It must be something to which the law attaches some value. If it is legally or physically impossible it is not considered valid consideration.

Example: A man promises to discover treasure by magic. This transaction can be said to be void as it is illusory.

  • Consideration must not be unlawful, immoral, or opposed to public policy

Only presence of consideration is not sufficient it must be lawful. Anything which is immoral or opposed to public policy also cannot be valued as valid consideration.

Example: A agrees with B to sell car for `2 lacs to B. Here A is under an obligation to give car to B and B has the right to receive the car on payment of `2 lacs and also B is under an obligation to pay `2 lacs to A and A has a right to receive `2 lacs.