What is a Consideration?
Consideration
is based on the term ‘quid-pro-quo’ which means ‘something in return’. When
a person makes a promise to other, he does so with an intention to get some
benefit from him. This act to do or to refrain from doing something is known as
consideration.
A
agrees to sell his car to B for ` 50,000.
Car
is the consideration for B and the price Rs 50,000 is the consideration for A.
Definition of Consideration:
According to Section 2(d) of Indian Contract Act,
1872,
“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, to abstain from doing something, such act, abstinence, or,
promise is called a consideration for the promise”.
If
we analyse this definition, Consideration may be:
(1)
An act, i.e., doing of something.
In
this sense consideration is in an affirmative form. (+)
Example.
A promises B to guarantee payment of price of the goods which B sells on credit
to C. Here selling of goods by B to C is consideration for A’s promise.
(2)
An abstinence or forbearance, i.e., abstaining or
refraining from doing something.
In
this sense consideration is in a negative form.
Example.
(a) A promises B not to file a suit against him if he pays him Rs 500. The
abstinence of A is the consideration for B’s payment.
(3)
A return promise.
Example.
A agrees to sell his horse to B for Rs10,000.
Here B’s promise to pay the sum of Rs. 10,000 is the consideration for A’s
promise to sell the horse, and A’s promise to sell the horse is the
consideration for B’s promise to pay the sum of Rs 10,000.
Essentials of a Valid Consideration:
The
following are the essentials of valid consideration:
1. A Consideration must move at the Desire of the Promisor:
The
first essential of consideration is that the act or abstinence must have done
at the desire of the promisor. It follows that any act performed at the desire
of the third party cannot be a consideration.
Example:
2. A Consideration may be given by the Promisee or by any other Person:
Under
the Indian Law, it is not necessary that consideration must be given by a
promisee only. Consideration may also be given by any other person. A contract
is valid as long as consideration is given, whether by the promisee or any
other person.
For
E.g. Chinnayya v/s Ramaya In this case 'A' transferred certain
property by deed of gift to her daughter 'B', with the condition that 'B'
should pay certain annuity to 'A's brother 'C'. 'B' agreed to pay the annuity
to her uncle 'C' in writing. Later on, she denied to pay it on the ground that
no consideration had moved from 'C' to her (B). It was held that consideration
might also move from any other person. Therefore ‘C’ was entitled to maintain a
suit.
(Note:
Stranger to consideration can maintain a suit, if he/she is beneficiary to
contract)
3. Consideration need not be Adequate:
Consideration
means "something in return" which need not necessarily be equal in
value with "something given". The law simply provides that a contract
should be supported by some consideration and the courts of law are not
concerned as to its adequacy.
How
much consideration or payment must there be for a contract to be valid, is
always the lookout of the promisor. Courts do not see whether a person making
the promise has recovered full value in return for the promise.
Thus,
if A promises to sell his pen worth Rs 80 for Rs 20 only. This is his own will
and the inadequacy of the price can not render
the contract void.
However,
if A pleads coercion, undue influence or fraud, then the inadequacy of
consideration will also be a piece of evidence to be looked into
4. Consideration must be Real and not Illusory:
Although
the consideration may be inadequate but it must be real, competent, and must
have some value in the eyes of law. It should be physically, legally possible to
be performed. It should not be illusory.
Example: A promises to discover treasure by magic. The
agreement is void, being illusory.
5. Consideration must not be Illegal, Immoral or Opposed to Public Policy:
Consideration
must not be illegal, immoral, or opposed to public policy. Every agreement, of
which the object or consideration is illegal, immoral, or opposed to public
policy, is void under Section 23 of Indian Contract Act.
6. A Consideration may be Past, Present, or Future:
The
consideration may be past, present, or future. This is clearly indicated by the
words, used in the definition of consideration given in the Act.
A
consideration which moves simultaneously with the promise is called present
(or executed) consideration.
‘Cash
Sales’ provides an excellent example of the present consideration.
Where
the consideration is to move at a future date it is called future or
executory consideration. It takes the form of a promise to be performed in
the future.
Example:
A, a shopkeeper, promises B, a household lady, to deliver certain items of
grocery after three days. B promises to pay for it on delivery.
A
past consideration is something wholly done, forborne or suffered before the
making of the contract.
Example:
A saves B’s life. B promises to pay A Rs 10,000 out of gratitude. The
consideration for B’s promise is a past consideration, something done before
making of the promise.
7. Consideration must be something, which the Promisor
is not already bound to do.
Example:
(I) Its duty of a Police officer to take care of law and order.
(ii)
A received summons to appear as a witness at a trial. B, a party to the suit,
promises to pay A ` 1000 in addition to A’s expenses. The promise of B is not
enforceable as A was under a legal duty to appear and give evidence. The
agreement is void as it is without competent consideration.
(iii)
A promises to pay an existing debt punctually if B, the creditor, gives him
discount. B agrees to give discount. The promise to give discount is without
consideration and cannot be enforced as giving existing debt punctually is
already a duty.
For Further Reading
Exceptions to The Rule of No Consideration No Contract
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