CONCEPT OF CONSIDERATION IN A CONTRACT: A CRITICAL ANALYSIS

INTRODUCTION

The term consideration is defined under section 2(d) of the Indian contract act 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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.” It is based on the principle of Quid Pro Quo meaning something in return. It can be negative or positive meaning it can induce a person to do something or may stop him from doing it. It should be real, competent and of some value in the eyes of law. Consideration is the most important part of the contract. Without consideration, the contract is considered void. This can be seen from the maxim ex nudo pacto non arbitur actio which means that no action arises from an agreement without consideration.

TYPES OF CONSIDERATION

In section 2(d) of the Indian contract act, the words “has done or abstained from doing or does or abstains from doing or promises to do or abstain from doing” are used which very well shows that consideration is of three types that is past, present consideration, and future consideration.

  • Past consideration – When one of the parties has done something for a promise in the past then it is considered a past consideration. It is an act that is done before any promise is made. For example, A asked B to help her in writing a book she does the same when the book got published A decides to give 20% royalty to Mr. B for helping him. This is a valid consideration because Mr. B has considered in the past by helping in writing book. When we see the same thing as per English law then it is no consideration there. It is like Nudum Pactum meaning a naked promise. So, it does not consider it.
  • Present consideration – When consideration is done at the time of the promise, or it is performed at the time of the promise. The act amount to consideration is fully performed. For example, a goes to a car showroom to buy a car. He immediately decides and buys a car and makes the payment at the same time. Thus, this is present consideration.
  • Future consideration– When consideration from one or both party is pending or yet to be performed at a future date. It is a type of activity which is promised by the parties to be done at future date. E.g.: In online shopping, you paid First and goods are promised to be delivered to you at future date.

Stating another example:  A and B agree to sell a car. B said that I will give you your car in April and in return A said I will pay you at the same time. Thus, in both cases, there is a future consideration.

ESSENTIALS

  1. At the desire of promiser – The act or abstinence which is considered as a consideration in the contract should be done at the desire of the promiser. The act or abstinence will not be considered at the consideration unless it is done at the desire of the promiser.
  2. Promisee or any other person – Unlike English law, In India, a consideration may move from the Promisee or any other person which may not be a party to the contract. Under English law this rule is not applicable they follow Privity of consideration which India does not follow.
  3. Privity of consideration – It means that only Promisee and no other person can give consideration. It means consideration will pass from the parties to the contract only and no stranger to a contract can move it. First, this principle was not followed in the case of Dutton vs Pooley and it was held that when the parties are in a near relationship then the court will presume that the consideration moved from Promisee itself.  But later on, this principle was overruled in Tweedle vs Atkinson. In this case, a plaintiff who was going to marry a daughter of G, the father of the plaintiff along with G agrees that the plaintiff would get a sum of money which they both will pay. But G failed to do so and the plaintiff instituted a suit, it was held that no stranger to consideration can take advantage of a contract although made for this benefit. It can be seen here that a law of privacy of consideration has been followed here.

“A contract without consideration is void”

Consideration is required in every agreement; a contract without consideration is void. The necessity of consideration can be seen in section 10 where it can be seen that for an agreement to become a contract consideration is required. Section 25 of the Indian contract act expressly provides that an “Agreement without consideration, void, unless it is in writing and registered, or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law.” As can be seen from section 25 consideration is not required when:

Natural love and Affection: In the case of natural love between the parties’ consideration is not required. To enforce this exception, one has to fulfill some conditions like:

  1. An agreement must be in writing: As per section 25(1) of the Indian contract act, an agreement must be in writing and registered. No act in the contract act forces the person to have the agreement in writing it is the only act that restricts writing to enforce this exception. Forex: A on account of natural loving affection promises to give his son a sum of 10000 and put this deed in writing along with getting it registered. This is a valid contract.
  2. It must be registered: Certain agreements need to be registered for example gift deed is required to be registered as per section 123 of the transfer of property act.
  3. Close relationship: The Term Close relationship has not been defined under any act. It can be a blood relationship or Martial Relationship Between the parties.
  4. Natural love and affection: Without natural love and affection this exception cannot be enforced as one can see from the case of Rajlukhey Dabee vs Bhootnath. In this case, the defendant promised to pay his wife a fixed sum of money every month for separate existence and maintenance. The agreement was contained in a registered deed, but it also mentions quarrels and disagreements between the parties. Defendant later denies giving and when the case went to court, the court refused to regard the agreement as covered by the exception as there is no trace of natural love and affection between the parties whose quarrels compel them to separate or to take divorce.

The exception is natural to love, affection and close relationship between parties are rebuttable presumptions it means that court will presume that there is natural love and close relationship in parties. It is only through the evidence it can be proved otherwise.

  • Past voluntary services: It is defined under section 25(2) of the Indian Contract Act. Past voluntary service means when a person has done something voluntarily for the promiser even without consideration then the agreement is enforceable. These are the services rendered without any request or promise but just for the promiser.  Under Indian law these are enforceable but under English law, these are not enforceable. For example Mr. A safe B from drowning Mr. B’s promise to give 25000 then the agreement for Consideration is enforceable. Though there is no consideration because it is not done at the desire of the promiser, it is done for the promiser, so this consideration is valid.
  • Time barred debt: It is a type of debt in which the lender does not receive money nor does he take legal action within the limitation period. This time-barred debt can be enforced only when the borrower gives
  • Written document
  • Signed by him or his agent generally or specifically authorized on his behalf.

 The condition is that it must be an express promise to pay the debt. For example, A have to take Rs.1000 from the B but he did not pay and he A also doesn’t go to the coat for 3 years barring his action due to the limitation period but later B comes and say I want to repay you and if he gives in writing and signs the paper then A can go to the court to enforce it as he comes under this exception. 

CONCLUSION

Section 10 of the Indian contract act mentions about essentials of a contract of which consideration is one. On basis of this consideration court may sometimes decides whether the contract is valid. Though it does matter to court in which consideration one sells or deals something but if a person came to court that his consent was not free then the court will also look into this factor.  Thus, consideration is one of the most important elements of the contract.

Author(s) Name: Khushi Jain