Reciprocal Promises and Consideration: Essential Conditions Precedent for Formation of a Valid Contract

Introduction:

Section 2(h) of the Indian Contract Act, 1872, defines a contract as “an agreement that is legally enforceable.” A contract is made up of reciprocal promises made by the two parties. The promises made by each side bind them legally. If one person offers and the other accepts it, a legal agreement is created. All agreements, however, are not contracts since they are not legally binding. An agreement to sell a radio set, for example, may be a contract, while an agreement to watch a movie may be merely an agreement that is not enforceable by law. Only agreements that satisfy the conditions of Section 10 of the Indian Contract Act, 1872, are considered contracts. On the contrary, all contracts are agreements.

According to section 2(e) of the Act of 1872, “any promise or group of promises constituting the consideration for one another forms an agreement.” For example, ‘A’ offers to deliver his watch in exchange for ‘B’ paying ‘A’ an amount of Rs. 2,000. If one side offers and the other accept it, a promise is made. An agreement is a promise made between two parties to each other. A contract is formed based on reciprocal promises. Reciprocal promises between both parties are essential for an agreement to be enforceable. Moreover, an agreement should be made for consideration. 

Conditions for a Valid Contract

A contract is an agreement that satisfies the condition mention in Section 10 of the 1872 Act. As a result, the following are the conditions for a valid contract:

1. Both parties have developed a mutual understanding. An agreement is formed when one party makes a proposition or makes an offer, and the other party accepts it.

2. The agreement should be formed by parties who are legally competent in contracting.

3. In regards to the agreement, there should be a legal consideration and lawful objective.

4. When the parties engage in an agreement, they should do so with their free consent.

5. There should not be any agreements that have been specifically declared null or void. 

Reciprocal Promises

The Indian Contract Act of 1872 defines promise under Section 2(b). An offer is made when anyone shows his intention to do (or not do) something. The offer becomes a promise if the other individual (whom the offer is made) accepts it. In the case of Carlill Versus Carbolic Smoke Ball Co.[1], The defendant advertised its product, “Carbolic Smoke Ball,” as an influenza preventative. They advertised that anyone who contracted influenza, cold, or any other illness after using the Smoke Ball 3 times a day for 2 weeks would gain an award of Rs 10,290. The plaintiff bought a Smokeball based on the advertisement and used it according to the defendants’ instructions, yet she still got influenza. The plaintiff filed a lawsuit against the defendant to receive the award that they had mentioned. The plaintiff’s act of performing the requisite criteria and therefore accepting the general offer developed it into a contract. She was, therefore, entitled to claim the reward by the court.  

Once an offer has been accepted, the contract is formed. But if the other party is unwilling to fulfil their part of the promise, the other party is not obliged to fulfil their end of the contract. For instance, if Akshay and Rupal have a contract, Akshay does not have to pay for the products unless Rupal is interested and willing to do so. Similarly, Rupal is under no obligation to deliver the items unless Akshay is ready and willing to do so. The individual who proposes is referred to as the ‘promisor,’ and the person to whom the proposal is made is referred to as the ‘promisee.’ These promises together create a contract (the promises which the promisee makes in exchange for the consideration ). Reciprocal promises are those that form the basis of a contract. The Act of 1982, Section 2(f), defines reciprocal promises. Consideration is part of the reciprocal promises which are formed. 

Consideration

‘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. One of the elements for a contractual agreement is the existence of consideration. Subject to certain exceptions, the general rule in India is that “an agreement without consideration is void.” Consideration means something in return for the promise it may be a profit granted on one side or a disadvantage incurred by the other. Section 2(d), of the Act,1872 defines consideration. 

Essentials required to be satisfied so that there is valid consideration:-

1. Something must be performed or not performed only at the desire of the promisor. In Durga Prasad versus Baldeo[2], it was held by the court that since the consideration did not move at the desire of the defendants (promisor in this case), this does not constitute valid consideration and therefore the defendants were not liable in respect of the promise made by them. 
2. At the request of the promisor, the promisee or another person has done or abstained from doing anything. In Chinnaya v. Ramaya[3], A transferred some property to her daughter by a deed of gift, with the condition that the daughter pays an annuity to A’s brother. The daughter executed a formal agreement in the brother’s benefit on the very same day, promising to pay the lump sum. After the daughter failed to keep her commitment, the brother filed a lawsuit to collect the money. The defendant (sister) argued that there was no consideration on the part of the brother and that he had no right to sue because he was a stranger to the consideration. It was decided that consideration does not have to transfer from the promisee himself. As a result, the brother had the right to continue the lawsuit.
3. It can be-

• 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 word “consideration” means “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. 

1. Consideration doesn’t need to be reasonable. For instance, With his free will, A consented to sell his Cell phone valued at 40,000 for 2,000. It is a lawfully valid agreement.
2. Real consideration is required, not fictitious or impossible. For example, A physician claims that his services will cost $10,000 or 6,000 dollars. Because of the ambiguity regarding the actual value, this is an uncertain consideration and difficult to carry out. 
3. It has to be legal. If a section of an agreement is illegitimate, the entire agreement will be nullified, unless the unlawful element can be distinguished from the legal part.

Object and Consideration Legality 

An important characteristic of a legitimate agreement is that objective and consideration must be legal and not in violation of the law. However, the agreement will be deemed invalid since the objective and the consideration of the object are unlawful. The Indian Contract Act of 1872,

Section 23, specifies which objects and considerations are legal and which are not:

1. If the objective or consideration in question is expressly prohibited by law.
2. Are of such a kind that they will undermine the law’s fundamental aim.
3. When the object or consideration is deceptive.
4. If any individual or the individual’s property is damaged as a result of this.
5. If any specific aims or reasons have been deemed immoral by the court.
6. Those objectives and considerations are contrary to public policy and have the potential to damage the public.

If any of these components are present in a contract, it is unenforceable and invalid.

Conclusion 

Contracts have gained importance in our life. Thousands of times a year, whether intentionally or accidentally, we enter into contracts. People enter into a contract with the seller even when they buy chocolate. An agreement must include the basic components of a valid contract for it to be legally binding. Both the promisor and the promisee have specific duties to each other under a contract. These responsibilities can also be expressed as a reciprocal promise or a promise in exchange for a promise. 

An important characteristic of a legitimate contract is that the purpose and consideration must be legal and not in violation of the law. Consequently, the contract would be considered void since the objective and the consideration of the object are illegal. In certain situations, the purpose under which the individuals decide to agree is legal, but the consideration for it violates the provisions of legal consideration, rendering the agreement unlawful, and vice versa. As a result, for a contract to be legitimate, both the purpose and the consideration must be legal. These are the essential elements of a contract that must be implemented; although, other requirements may exist.

References:

1. Dr. R.K. Bangia, Indian Contract Law, Allahabad Law Agency.
2. Avtar Singh, Contract Law and Specific Relief, Twelfth Edition.

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Other Sources:

[1][1893] 1 QB 256; [1892] EWCA Civ 1

[2](1880) 3 All. 221.

[3](1882) I.L.R. 4 Mad. 137