Introduction:
Consideration, one of the most important elements of a contract, also refers to the price in the contract.
Section 2(d)[1], Indian Contract Act, 1872, defines consideration as: “when at the desire of the promisor, 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.”
Thus, consideration is the element of the contract which binds it together with the parties and is something that is of some value in front of the law, without which, the transaction reduces to a mere voluntary gift.
Provisions
Section 23[2] of the Indian Contract Act, 1872, enumerates which “considerations” are lawful, and which are not, and the ones falling in the latter category are:
- Ones that are forbidden by law
- Ones, if permitted, can defeat the provisions of the law
- Ones which are fraudulent, etc.
Therefore, any agreement or contract with an unlawful consideration as mentioned above will be void.
Section 25[3] lists out the exceptions of consideration, and it states that usually, a contract without consideration is void, unless it follows certain conditions, such as, if the contract is made on account of love and affection between parties, or if it is a promise of repayment to the other party who voluntarily did something for the former, or if it is a promise of repayment made to a creditor for a debt.
Conditions of a Valid Consideration
Under Section 2(d)[4], certain conditions are elucidated which validate a consideration in a contract, and they are as follows:
At the Desire of the Promisor
The statement in Section 2(d) of the Act clearly mentions that the consideration should be at the desire of the promisor. If this consideration is made at the will of the third person, or it is not what the promisor expected, then it is not a consideration.
It Can Move from the Promisee to Any Other Person
As mentioned in Section 2(d)[5], the consideration can not only move to the promisee but can also be to a third party. Therefore, even a stranger can benefit from this consideration and can sue on the contract, provided he is a party to said contract.
Consideration Can be Past, Present or Future
According to Section 2(d)[6], a consideration can contain something done in the past, done or not done in the present, or promised to be done or not done in the future.
This particular essential paved the way for different types of considerations:
- Past consideration
- Present consideration, also known as executed consideration
- Future consideration, also known as executory consideration.
Executed Consideration
Present or executed consideration refers to the situation where one party performs his part of the promise and has given his part of the consideration to the other party, leaving the other party with the liability to commit to his side of the promise. Thus, the only party is usually left with the commitment to be enacted upon.
The consideration, here, is given as soon as the promise is made. A good example of such is a cash sale.
A prominent case for executed consideration is Union of India v Chaman Lal Loona[7].
In that case, the Court observed, “an executed consideration consists of an act for a promise. It is the act which forms the consideration, and no contract is formed unless and until the act is performed, but the act stipulated for exhausts the consideration, so that any subsequent promise, without any subsequent promise, is merely nundum pactum(naked or bare promise).
In an executed consideration, the liability is outstanding on one side only; hence, it is a present as opposed to future consideration. Therefore, a contract becomes binding on the exchange of valid promises, one being the consideration for the other. There is nothing to prevent one of the parties from carrying out his promise, i.e., performing his part of the contract; whereas the other party who provides the consideration for the act of or detriment to the first may not carry out his part of the bargain simultaneously with the first party.
If the contract has been fully and completely performed on both sides, then no question of any further rights and liabilities under the consideration is executed on one side, there will be a right on one side and an outstanding liability on the other. However, if the consideration is executory on both sides, there will be outstanding rights and liabilities on both sides.”
Executory Consideration
Also known as a future consideration, executory consideration refers to the situation where before the formation of a legally binding contract, a person makes a promise after the other person has also promised, and both parties have yet to hold up on their promises.
Therefore, it is executory when both parties have yet to perform their parts of the promises. Executory can also be referred to as an act that is promised to be done in the future.
Example: A promised to deliver certain goods to B after a week, and B promises to pay the price of those goods in fifteen days.
Currently, this is executory consideration, as both haven’t fulfilled their party of the promise yet, but once that is done, it is executed consideration.
Executory Vs Executed Consideration
While being very similar concepts, there is a minute difference between executory and executed consideration:
In an executed consideration, only one party holds the liability, i.e., the one who did not hold up their end of the bargain, however, in executory consideration, the liability rests on both parties as none of them has paid their promise to the other.
Ultimately, the contract is concluded as soon as the promises are exchanged.
Conclusion
Consideration is an essential feature of any contract, without which, it cannot be rendered valid. Defined under Section 2(d) of the Indian Contract Act, 1872, it is what binds a contract well.
Agreements and contracts are not enforceable in any court of law if it is not backed by some consideration as it brings something which is of some value in the eyes of the law, moving from the plaintiff. It is based on the idea of reciprocity. It can be done by the promisor or any other person.
Section 2(d) also defines the types of considerations which are past, present or executed, and future or executory considerations.
Past consideration is a situation where both parties have fulfilled their part in the agreement, before its due date. It is mainly done at the need of the promisor.
Executed or present consideration is a situation where the consideration takes place simultaneously with the promisor, the act constituting the consideration being wholly and completely performed.
Executory or future consideration is a situation where the consideration takes the form of a promise to be performed in the future.
This article covers the main aspects of consideration, its essentials, what makes it valid, and its various types, emphasizing on executed and executory considerations.
References:
- Ishikaa Seth, The Concept of Consideration under the Indian Contract Act, 1872, LEGAL SERVICE INDIA E-JOURNAL, http://www.legalserviceindia.com/legal/article-5562-the-concept-of-consideration-under-the-indian-contract-act-1872.html
- Consideration under the Indian Contract Act, 1872, TAXMANN, https://www.taxmann.com/post/blog/consideration-under-the-indian-contract-act-1872/
- MariyaPaliwala, Consideration and Privity of Contract, IPLEADERS BLOG, https://blog.ipleaders.in/contract/
- Consideration in Contract | Meaning | Need | Kinds, ACCOUNTLEARNING.COM, https://accountlearning.com/consideration-contract-meaning-need-kinds/
- SouvikChattrejee, Consideration Under Indian Contract Act 1872, LEGAL BITES, https://www.legalbites.in/consideration/
- Nishtha Pandey, Consideration under the Indian Contract Act, 1872 (edited by Diva Rai), IPLEADERS BLOG, https://blog.ipleaders.in/consideration-under-the-indian-contract-act-1872/
- Jayshree, Consideration in a Contract, BLACK n’ WHITE JOURNAL, https://bnwjournal.com/2020/04/30/consideration-in-a-contract/
Other Sources:
[1]https://indiankanoon.org/doc/877630/
[2]https://indiankanoon.org/doc/1625889/
[3]https://indiankanoon.org/doc/1903729/
[4]https://indiankanoon.org/doc/877630/
[5] Ibid.
[6] Supra note 4.
[7]1957 AIR 652: 1957 SCR 1039
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