Consideration under contract law by gaurangi@lexcliq

Consideration’ means “something in return”, i.e. quid pro quo that is an essential element to find out the genuine intention of the parties of the promise to create legal relationship. Consideration is an essential component of a valid contract. Consideration is the price for the contract. An agreement without consideration is void and thus not enforceable by law except under certain circumstances.
According to Sir Frederick Pollock- Consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.” An agreement without consideration is a bare promise and exnudo pacto non aritio actio, i.e., cannot be held to binding on the parties.

What is a Consideration?
Consideration is the price of the contract and it can be right, interest or responsibility etc. According to section 2(d) of the Indian Contract Act “when at the desire of the promisor, promisee 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.”

Case Law

In Currie v. Misa, it was defined, “A valuable consideration in the sense of the law may consist either in some right, interest, forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other.”

EssentialsSomething should be done or abstained from doing at the desire of the promisor only.

  • Promisee or any other person has done or abstained from doing something at the desire of the promisor.
  • It can be Past, Present or Future.
  • It is not necessary that Consideration must be adequate.
  • Consideration must be Real and Not Illusory or Impossible.
  • It must be Lawful.

Types of consideration:-
Past consideration:
Past consideration is a promise for a voluntary act done in the past to help the party who is making promise to pay or to do something subsequently. It means consideration is promised to pay later for an act done without any promise from the other party.A promise is said to be given for past consideration when the promisor’s motivation for making the promise is a past benefit he received that gave rise to an obligation to make compensation. Earlier past consideration was no consideration but now it is a good and valid consideration.

Present or Executed consideration:
When the promisor receives consideration simultaneously with his promise, the consideration is termed as Present Consideration.

Future or Executory Consideration:
When a promise is to be executed on a future date it is called executory consideration or future consideration. In this the promisor makes an offer for a future date and the promisee promises to accept and execute the contract after that date this is future consideration. In this case both parties move the consideration to a future date. The liability becomes outstanding on both parties on a future date.

Essential elements of consideration
Consideration should be passed at the request of offeror:- offeree should send only such consideration which is wanted by the offeror. In the case where offeree sends unwanted consideration, he has no right to claim counter consideration. (Durga Prasad v. Baldeo)

Consideration may move from a promisee or any other person:- In Indian law, according to section 2(d) of the Indian Contract Act, consideration may move from the promisee or if the promisor has no objection, from any other person.

Consideration need not be adequate:- Consideration of the contract need not have equal magnitude. The inadequacy of consideration will not infect the validity of the contract. (Thomas v. Thomas)

Consideration must be lawful:- Presence of unlawful consideration makes the contract illegal and hence void.
Consideration must be real:- Consideration should not be of an illegal contract. It must be a believable concept.

Exceptions to Consideration:-
Section 25 of the Contract Act lays down a few exceptions when an agreement made without consideration is not void.

Exception 1- Natural Love and Affection

A written and registered agreement based on natural love and affection between near relatives is enforceable without consideration. The expression ‘near relative’ will include parties related by blood or marriage.

Exception 2- Past Voluntary Service

A promise to compensate a person, who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do, is enforceable. However, such service should have been rendered voluntarily and without promisor’s knowledge, and for the promisor only.

For example, a promise made after attaining the age of majority to pay for goods supplied to the promisor during minority was held to be within the exception.

Illustration:- A finds B’s mobile phone and gives it to him. B promises to give Rs. 100. This is a contract.

Exception 3- Time-barred Debt

A promise to pay a time-barred debt is enforceable.

Illustration:- X owes Y, Rs. 1,000, but the debt is barred by the Limitation Act. X signs a written promise to pay Y, Rs. 500 on account of the debt. This is a contract.

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