Introduction:
‘Consideration’ is ‘anything in return,’ i.e. quid pro quo, which is a key factor in determining the parties’ true willingness to form a legal relationship. Something in exchange for a promise is known as consideration. It may be either some benefit conferred on one party or something detriment suffered by the other. A contract is said to be valid when there is a presence of consideration. And subject to certain exceptions, the general rule in India is that “an agreement without consideration is void.” Section 2 (d), Indian Contract Act, 1872 defines consideration as:-
“When, at the desire of the promisor, 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.”[1]
Lush J. defines consideration as follows in Currie v. Misa[2]:
“In the legal sense, a valuable consideration might be any entitlement, claim, revenue, or benefit incurring to the party, as well as any repayment, damage, loss, or responsibility delivered, incurred, or received by others.[3]”
A offers to sell his van to B for Rs. 1000 as an example. The consideration for A’s promise to sell the van is B’s commitment to pay the sum of Rs. 1000, and A’s promise to sell the van is the consideration for B’s promise to pay the Rs. 50,000.
Elements of a Valid Consideration
Only the Promisor’s Desire is Put into Consideration.
Consideration must have been at the desire of the promisor, rather than merely voluntarily or at the instance of some third party. In Durga Prasad Versus Baldeo,[4]A constructed certain shops in the market at the instance of the collector of the place. B then took up one of the shops in the market. Since A had constructed the market, B promised to pay a certain commission on the articles sold through B in that market. B failed to pay. In an action by A to recover the commission, it was held that since the construction by A had been made at the desire of the collector of the place and not at the desire of the promisor B, A was not entitled to recover the amount.
The Promisee’s or Any Other Person’s Consideration
According to Indian Law, the consideration may be given by the promise or any other person. Thus if A promises to give his cycle to B, the consideration for this cycle may be given either by B or by any other person, say X. Under English Law, consideration must be given to the promisee and no one else. Thus, there, for the promise by A to give his cycle to B, consideration must be paid by B and nobody else.
In the case of Chinnaya Versus Ramayya[5], A, an old lady, transferred some property to her daughter, B, ad in consideration for this transfer, B made a promise to pay an annuity of Rs. 653 to C (A’s brother). C sued B to recover the promised amount. It was held that for this promise between B and C, even though the consideration was not given by C, but by any other person, A, the promise was enforceable according to Indian Law. C is referred to as a stranger to consideration in this context.
Consideration Must be Past, Executed, and Executory
According to Section 2(d), consideration may be Past, Executed (present), or Executory (future)-
- Past consideration is a promise for a personal act performed in the past to assist the person committing to pay or do something in the future. It indicates that in exchange for an act performed without any guarantee from the other party, compensation is promised to be paid later. For example, I’d like you to help me find my missing dog. It is an instance of past consideration if I declare to give you Rs.100 once you have completed the same.
- Present or Executed Consideration occurs when the promisor receives payment at the same time as he makes his commitment. For example, A purchases $5000 worth of items from a seller and promptly pay the shopkeeper. The term “consideration” literally means “right now.”
- Executory consideration or future consideration refers to a commitment that will be fulfilled at a subsequent stage. At some point in the future, both parties will be liable. For example, after a week, Rupali agrees to sell and deliver a new bracelet to Kiran. Kiran accepts the deal and promised to pay after receiving the bracelet in one month.
Something- An Act, Abstinence, or Promise by the Promisee
According to the definition of consideration contained in Section 2(d), when at the desire of the promisor, the promisee or any other has done or abstained from doing, or if someone acts or refrains from conducting something or agrees to perform or refrain from performing something this is referred to as a consideration for the promise. It signifies that there is no consideration if nothing is performed in response to an offer, i.e. when there is no action, forbearance, or promise.
Real and Valuable Consideration is an Essential
The parties are independent to enter into any contract they want. If with their free consent, they strike a bargain where the consideration is too high or too little, the courts will not go into the question of adequacy and inadequacy of consideration. A, for example, agrees to sell a donkey valued Rs. 800 rupees for Rs. 20 rupees. A wilfully consented to the contract’s conditions. Although it is not necessary that the consideration should be adequate, it is, however, necessary that it should be real or valuable and should not be unsubstantial or non-gratuitous. ‘The judges will not execute promises that are made in good faith. As a valuable consideration, profit must be given. Something of value in the eyes of the law’ is what a valuable consideration is. Promise not bore the promisor is not enough to constitute consideration.
In White Versus Bluett[6], a son used to complain to his father that his brothers had been given more property than him. The father promised that he would release the son from debt if the latter stopped complaining. After the father’s death action was brought by the executors to recover the debt. The court decided that the son’s promise not to annoy his father with complaints in the future was insufficient value for the father’s commitment to discharge him, and hence the son remained accountable for the amount.
When an Agreement Without Consideration is Enforceable
As a general rule, an agreement without consideration is unenforceable under Section 25. It, however, mentions the following three exceptions when an agreement without consideration results in a valid contract:-
Promise Due to Natural Love and Affection
When the promise is made in favor of a near relation on account of natural love and affection, the same is valid even there was no consideration for such a promise. Such an agreement should be-
- in favor of a near relative,
- as a result of natural affection and love,
- in writing,
- and registered
Compensation for Past Voluntary Services
If a person, A, renders some voluntary services to B, and B promises to compensate A for A’s services, B is bound by the promise. Although in this case, there is no consideration as the services have not been rendered at the request of B, the agreement is valid.
Promise to Pay a Time-Barred Debt
Another situation when an agreement is a valid contract without any consideration is a promise to pay a time-barred debt. Such a promise must be in writing and signed by the person to be charged therewith, or his duly authorized agent. Such a promise must be expressed. A mere acknowledgement of the time-barred debt, without any express promise to pay the same, does not create any liability to pay the time-barred debt. (Tulsi Ram Versus Ram Singh)
Rule of Consideration Under English Law
Consideration is a condition in English courts. Agreements in England are primarily classified into 2 types:-
- Contracts undersealed, or contracts in the format of deeds. Even if there is no consideration, such contracts are legal.
- Basic contracts, often known as parole agreements. The presence of consideration is required for such contracts to be legal.
Previous consideration is not a consideration, according to English law. Without any consideration encouraging the other party to execute the promise, a promise in exchange for a prior action is considered to be the only statement of goodwill for the reward previously provided. Consideration must be “executive” or “executed,” not “past”; that is, consideration must be provided in the present or the future, but actions previously done cannot be considered. It must be of some value, even if it is of small worth, for consideration to be valid consideration. There is no need that the compensation is economically equivalent to the subsequent commitment. If just one person provides consideration, the agreement is a “plain promise” and is unenforceable.
Conclusion
Because gratuitous or voluntary agreements are sometimes made impulsively and without proper thinking, the law only enforces those promises made for consideration. Because both parties are required to be under some type of duty or cost to execute the promise made in an agreement, consideration is necessary. The agreement may simply become a gift if it is not given legal consideration. The tribunals will not execute gratuitous contracts. There has to be some real value in it. ‘Something of value in the eyes of the law’ is what a valuable consideration is (Thomas v Thomas). A monetary payment or a promise to pay an amount of money is a significant consideration. In the view that the courts are unconcerned about the reasonableness of the transaction between two contractual parties, valuable consideration does not have to be sufficient consideration.
References:
- Dr. R.K. Bangia, Indian Contract Law, Allahabad Law Agency.
- Avtar Singh, Contract Law and Specific Relief, Twelfth Edition.
Other Sources:
[1]https://indiankanoon.org/doc/877630/
[2](1874) LR 10 Ex 153
[3]https://www.sec.gov/Archives/edgar/data/820609/000119312510160027/dex102.htm
[4](1881)ILR3ALL221
[5]ILR (1876-82) 4 Mad 137
[6](1853) LJ Ex 36
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