Nature of Consideration for Contracts Consisting of Number of Terms

Introduction:

‘Consideration’ means ‘ something in return ‘, i.e.quid pro quo the essential mainstays of a legitimate agreement. In like manner speech, consideration alludes to something paid to somebody as a trade-off for something different which, in lawful phrasing can be perceived as the cost or payment which must be paid by the promisee to the promisor for doing or forgoing doing such an action.

The law stretches out enforceability just to those contracts or arrangements that are made for some consideration. The shortfall of consideration makes no legitimate commitment as the contracts or agreements in those cases turn out to be simply unwarranted or unenforceable by law.

In the established case of Currie v. Misa[1], the court defined consideration as, “A right, interest, profit, detriment, loss, or responsibility. Its main characteristic is that the promisor must give a promise of something that is of value, and the promisee must give something of value in exchange.” In simple terms, anything of value that is promised by one party to another can be viewed as a consideration.[2]

Definition under Indian Contract Act, 1872

Section 2(d) of the Indian Contract Act, 1872 defines consideration as, “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 abstains from doing something, such act or abstinence or promise is called a consideration for the promise.”[3]

In accordance with the definition given above, the return ensured for the execution of an understanding is known as consideration. Without consideration, there cannot be an agreement or contract except if it is expressly specified in the terms of the agreement to that extent. There is always some benefit or loss to both of the parties to such a contract or agreement because of such consideration. It is not mandatory that the promisor himself ought to be profited by the consideration. It is sufficient if the act or forbearance establishing such consideration was done in line with the promisor according to their desire.

Essentials of Consideration[4]

1. At the desire or longing of the promisor, something ought to be done or ought not to be done.
2. The promisee or some other third party needs to perform or abstain from performing something at the desire of the promisor.
3. Consideration can be concerning something in the Past, Present, or Future.
4. It is mandatorily required that Consideration should be satisfactory or just financial.
5. Consideration should be Real and Not Illusory or Impossible.
6. It should be a legitimate consideration.
7. Consideration should not be the performance of a lawful obligation.

Understanding the Essentials of Consideration

Consideration Should Move as per the Desire of the Promisor

An act or action more likely should be performed or abstained from being performed at the desire or solicitation of the promisor. Nonetheless, intentional demonstrations or acts performed at the desire of the promise or an outsider or third party are not a consideration according to law.

In the case of Durga Prasad v. Baldeo[5], on the order of the collector of a town Durga Prasad (plaintiff) built some shops at his own expense in a market. The shopkeepers who occupied these shops promised to pay the plaintiff commission on their sales. The plaintiff then initiated a suit against the shopkeepers when they did not pay the commission.

The court, in this case, held that the promise was not corroborated by any consideration as the shops were built on the collector’s order and not at the request of the shopkeepers. Therefore, there could not be a recovery.

Consideration May Move from the Promisee or Any Other Third Party

The consideration may move out from the promisee or an outsider to the contract or some other third party. Here, the word outsider or some other third party refers to someone who is not one of the parties to the agreement. At the point when the promisee or some other third party performs an act or action or refrains from performing an act or action, according to the desires of the promisor, such a demonstration is viewed as consideration.

In the case of Chinnaya v. Ramayya[6], ‘A’, by means of a gift deed, handed over the certain property to her daughter, with a direction that the daughter must pay an annuity to ‘A’s brother. On the same day, the daughter executed a deed in writing in favour of the brother and agreed to pay the annuity. Subsequently, the daughter declined to fulfil her promise and the brother filed a suit to recover the amount. The defendant (sister) contended that there was no consideration from the side of the brother, and he, being the stranger to the consideration had no right to sue.

The Court held that it is not necessary that consideration must move from the promisee himself, hence the brother was entitled to maintain the suit.

Consideration can be Concerning Something in the Past, Present, or Future

Consideration can be broadly categorized into the following kind:

Past Consideration

This alludes that acts or actions performed or abstained from being performed in the past which amounts to consideration as already been provided before the promise is given. Furthermore, if consideration for a current promise is provided earlier than the date of promise, it is regarded as past consideration.

Illustration: X is in desperate need of medical attention. Y rushes to X’s help and saved his life. Being grateful to Y, X promises to pay Y 25,000 for the help provided. Here, X’s motivation for making this promise in the past benefit that Y provided which gave rise to the moral obligation to compensate Y.

Present Consideration

This is the sort of consideration that is simultaneously given when the promise or agreement is made, implying that the act or forbearance from doing an act that adds up to consideration is completely performed.

Illustration: Paying money for the groceries while purchasing from a supermarket, paying daily wages of workers at the end of each day, etc. are apt examples of Present Consideration.

Future Consideration

As the name proposes this sort of a consideration is one that is yet to be performed. This implies that the promise or commitment will be acted on in the future.

Illustration: In instances of online shopping cash on delivery is a prominent example of Future Consideration.

Consideration May Not be Satisfactory or Just Financial

Consideration need not really be of particular worth or need not be comparable to the worth of the promise or agreement. As something given in return need not really be of equivalent worth to something promised or guaranteed. Therefore, consideration should be something of significant worth, according to law, which the parties are allowed to decide while going into the agreement.

Illustration: A person willing to sell his car which was purchased for 5,00,000 with his free will and consent for just 2,00,000. It still amounts to a valid contract.

Consideration Must be Real and Not Illusory or Impossible

Consideration must be real meaning that the consideration should not be physically or legally impossible to perform. Consideration becomes illusory when there is a physical and legal impossibility or even when consideration for the performance of an act is uncertain.

Physical Impossibility

In the event that an agreement is made to do genuinely outlandish things that cannot be performed, it is anything but a genuine consideration. For example, A promises to pay B a sum of Rs. 50,000 if he will be able to run 100 km in 5 minutes. This is not a valid consideration as it is physically impossible for anybody to do so.

Legal Impossibility

On the off chance that an agreement is made to do a demonstration that is now precluded by law then additionally it is not substantial consideration. For example, A enters into a contract with B that he will pay a sum of Rs. 2,00,000 to B if, B will abduct C. This contract cannot be executed as consideration is illegal.

Uncertain Consideration

Consideration must be certain otherwise it is impossible to carry out the contract or agreement. For example, A car mechanic says that he may either charge Rs. 5000 or Rs. 8000 for his service. As the amount of consideration is uncertain hence, it becomes difficult to enter into a contract.

Consideration must be Lawful

According to section 23 of the Indian Contract Act, 1872 Consideration should be lawful, otherwise, the agreement becomes void. Consideration is not lawful in the following situations:[8]

• When it is for performing an act that is already forbidden by the law.
• When it is for the purpose of causing injury to a person or property of another person.
• When it is for performing an act having immoral turpitude.
• When it is for performing an act that is opposed to public policy.

When a part of the agreement is unlawful the whole agreement will become void except in those cases when the unlawful part can be separated from the lawful one.

Consideration Must not be the Performance of Legal Duty

If a person is duty-bound to perform an act as per law, such an act does not amount to consideration. Such contracts are regarded as void contracts. However, if a person promises to do something which is over and above what he/she is legally bound to do, provided it is not opposed to any rule or public policy, then such an act amounts to consideration.

Privity of Consideration

Just the parties to an agreement are limited by the agreements just as by the outcomes of that agreement. An alien or outsider to a contract, cannot record a suit for upholding any of the rights or liabilities emerging out of such an agreement. It implies that an individual who stands to get an advantage from the agreement (an outside beneficiary) is not qualified for making any implementation move regardless of whether the person is denied the promised advantage in the event that the person is not involved with that agreement.

In the case of Tweddle v. Atkinson[9], the father of the groom and the father of the bride agreed that each of them shall pay a sum of money to the boy, and after marriage, the husband should have full power to sue for such sums. After the death of both the contracting parties the husband sued the executors of the wife’s father upon the above agreement, but the action was held not to be maintainable because the husband was not a party to the contract.

Agreements not requiring Consideration

As stated above Consideration is fundamental to a contract, without which there will be no contract at all. However, there are certain agreements that are deemed valid and enforceable even without consideration. Some of which are as follows:

1. Written agreement based on natural love and affection amidst the parties, who are in close relation with one another.
2. A promise to pay a person fully or partially for the same act performed by him or her voluntarily, in the past.
3. Written promise by the promisor himself or his authorized agent to pay a time-barred debt.
4. Contract of Agency
5. Completed gifts or gift deeds
6. Contract of Bailment
7. Charity
8. Will be executed on behalf of a deceased person.

Conclusion

Therefore, considering the above perspectives seen with respect to the idea and nature of consideration in contracts, we need to view consideration as one of the major components that force enforceability and attempt to comprehend the unmistakable sort of relationship it makes between the parties to a contract.

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References:

[1](1874) LR 10 Ex 153

[2]https://corporatefinanceinstitute.com/resources/knowledge/deals/consideration/

[3]https://www.advocatekhoj.com/library/bareacts/indiancontract/2.php?Title=Indian%20Contract%20Act,%201872&STitle=Interpretation-clause

[4]https://www.taxmann.com/post/blog/consideration-under-the-indian-contract-act-1872/

[5](1881) ILR3ALL221

[6](1882) I.L.R. 4 Mad. 137

[7]https://businessjargons.com/consideration.html

[8]https://www.advocatekhoj.com/library/bareacts/indiancontract/23.php?Title=Indian%20Contract%20Act,%201872&STitle=What%20consideration%20and%20objects%20are%20lawful,%20and%20what%20not

[9][1861] EWHC QB J57] (1861) 1 B&S 393 (1861) 121 ER 762