Consideration under Law of Contracts
Consideration, also known as QUID PRO QUO which means “something in return” that something in return can be anything whether benefit enjoyed or detriment suffered. Section 10 of the Indian Contract act says, Presence of Consideration is one of the essentials of a valid Contract. The general rule in Indian Contract act is “an agreement without consideration is void” although there are certain exceptions to it.
Definition of Consideration
Consideration has been defined in section 2(d) of the Indian Contract Act, 1872. “When at the desire of the promiser, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.”
Essential Elements of Consideration
A proper reading of this definition will make you understand that there are certain essential things which are required to be fulfilled to constitute consideration. These essentials have been discussed under:
- Consideration only at the desire of the Promisor: The consideration should be only given at the desire of the promiser. This should not be voluntary or at the desire of any third party. In a famous case of Durga Prasad v Baldeo, the consideration was not moved with the desire of the promiser then it was held that the same is not sufficient to constitute as Consideration.
- Consideration by promisee or any other person: In England, consideration cannot come from any other person except the parties to contract. In India, even if the consideration flows from third party will be valid enough to form contract. The position of it in India has been well explained in Chinnaya v Ramaya, where the consideration was provided by the defendants mother who was a third party to contract, the Madras High Court held that consideration provided by Defendants mother is acceptable under the provisions of Consideration.
- Consideration maybe Past, Present or Future: According to Section 2(d) of the Indian Contract act, three kinds of consideration are recognised, Past (has done or abstained from doing), Executed (does or abstains from doing) and future (promises to do or to abstain from doing). Past consideration means that the consideration for a promise has been performed earlier and promise is performed later. However, Past services that had been voluntary done does not constitute to consideration. The past act or services performed should be at the request of promiser in order to constitute good consideration. Present consideration means that a party to a contract has performed his part of the promise which constitutes the consideration for the other side. It is to be noted that consideration herein is given simultaneously with the formation of contract. Future consideration basically means that a future date is specified to give that consideration. For example, X agrees to provide his services to Y and Y agrees to compensate in future.
- Something (an act, abstinence or promise by promisee) Constitutes Consideration: Section 2(d) of the Indian Contract act clearly specifies, “Something such as act or abstinence or promise” is called consideration for the promise. It clearly tells that if nothing is done in exchange for the promise it means there is no act or abstinence or promise. If these things are not there, there is no consideration too.
Adequacy of Consideration
In England, adequate consideration is must in order to fulfill a contract. In India, consideration is valid even if it is not adequate. Explanation 2 to section 25 of the Indian Contract act, 1872 clearly says, “An agreement to which the consent of the promiser is freely given is not void merely because the consideration is inadequate; but the inadequacy may be taken into account by the court in determining the question whether the consent of the promiser was freely given”
It means that parties can make contract of their choice but consent should be free. The court will not question the inadequacy of consideration. For example, X agrees to sell his gold ring at Rs. 10 whose original cost is Rs. 10,000. The agreement here will be contract irrespective of the fact that consideration was inadequate. Another example, If X agrees to sell his gold ring worth Rs. 10,000 for Rs. 10. X later denies that the consent to an agreement was freely given. Here while examining Court will take into account the inadequacy of Consideration.
Consideration should also be real and unsubstantial. For example, A mere promise of not to tease someone is not enough to be called as Consideration. In an English case, White v. Bluett it was held that a promise by son not to bore is father does not constitute a good consideration.
There is a general rule in Section 25 Of the Indian Contract act 1872 that an agreement without consideration is void. Although, the same section provides three exceptions to this general rule. The three exceptions are:
- Promise due to natural love and affection: This has been explained under Section 25(1). In this if the promise is made which favors the near one on the account of natural love and affection, will be valid even that doesn’t have consideration. It should be kept in mind that there must be a near relationship, promise made must be out of natural love and affection and should be in writing and registered. From Rajlucky Dabi v Bhoothnath Banerzee, it can be concluded that in the absence of natural love and affection agreement without consideration is void.
- Compensation for Past voluntary Services: Section 25(2) of the Indian Contract Act, 1872 provides this exception. When something has been done at the desire of the promiser that is good enough to constitute Consideration. There are certain cases where the act has been done earlier and voluntarily. Later promiser undertakes to compensate for it, then the promiser becomes bound to compensate under this section. For example, X voluntarily found notes of Y which were lost earlier, Y then promises to pay later. This agreement is a valid contract.
- Pay time barred debt: Section 25(3) of the Indian Contract Act, 1872 describes it. In order to fulfill this situation there are certain essentials which needs to be satisfied i.e., the promise must be to pay wholly or in part a time barred debt and should be in the form of writing and should be signed by the person charged. The debt must be a time barred debt, if the debt was made at the time of person’s minority and later person promises to pay that debt. That does not become enforceable under this exception.
Consideration is one of the essentials for valid contract. Certain essentials needs to be fulfilled to constitute valid consideration. General rule suggests that an agreement with consideration is void. However there are few exceptions to it.
Author: Dheeraj Diwakar,
Dr. Ram Manohar Lohia National Law University, Lucknow 1st year