INTRODUCTION
In the Indian Contract Act,1872, Consideration remains one of the essential elements of a valid contract. A promise will become legally enforceable only when there is consideration. In simple Words, consideration refers to something of value which is given in return for a promise. An agreement without consideration is declared void under Sections 2(d), 10, and 25.[1] This requirement shows that contracts are based on mutual exchange rather than personal promises.
However, the concept of consideration under Indian law is not completely rigid. The Act considers different types of consideration, including past, present, and future consideration, and also provides some exceptions where agreements without consideration may still be considered valid. This shows that while consideration is necessary, the law also allows flexibility in specific conditions. This blog explores the necessity, types, and exceptions of consideration under Indian contract law.
MEANING AND RATIONALE OF CONSIDERATION
Consideration is referred to as the agreed amount of the Contract, and it can be a claim, share, or obligation, etc.
According to the Indian Act,1872 (Section 2(d)), “when, at the desire of the promisor, 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.”[2]
Key features of Consideration:
- Consideration must proceed at the desire of the Promisor- an act must be done on the desire of the promiser, either from the promisee or any other third party. The acts done voluntarily or at the desire of a third party will not constitute a consideration legally.
Case law- In Durga Prasad v. Baldeo,[3] The collector of a town ordered Durga Prasad to build some shops at his own expense in the market. The shopkeepers who occupied the shops promised to pay Durga Prasad commission on their sales. Durga Prasad sued the shopkeepers when he didn’t receive the commission. The court held that the promise was not assisted 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 one person to any other person- Consideration can either move from the promisee or from any other person.
Case law-
In Chinaya v. Ramayya[4]An old woman signed a registered deed gift in which she transferred some property to her daughter. In the same document, the daughter agreed to pay an annual payment to her maternal uncle. Later, the daughter refused to pay the amount. The woman(sister) argued that, as there was no consideration from the side of the brother, and that he, being a stranger to the consideration, had no right to sue. It was held that it is not necessary that consideration must move from the promisee himself. Therefore, the brother had the right to file a suit.
RATIONALE BEHIND CONSIDERATION
- Reciprocity – Consideration reflects the idea of Reciprocity. Traditionally, a contract is considered a negotiation in which one party gives something of value in exchange for a promise from the other party. This idea shows that the parties aimed to create binding obligations instead of making a casual promise.
- proof of genuine intent- When a person transfers something of value or undertakes a legal obligation, it identifies that the promise was not made lightly. So this indicates the genuine intent of that person.
This indicates that Indian law adopts a broader view than English law.
TYPES OF CONSIDERATION
- Past consideration – it refers to an act that was made before a promise that was made in the past. Section 2(d) of the Indian Contract Act clearly says that Consideration can be past, present, or future. [5]Therefore, Past Consideration is considered valid under Indian law.
- Past consideration in English law- In English law, Past Consideration is not valid. Consideration may be in the present and future but not in the past. Therefore, an agreement based on past consideration is void.[6]
This shows that the Indian Contract Act is broader than the English Law.
- Present Executed) Consideration – It refers to the act in which consideration is made at the time the contract is made. The performance and promise take place together. If one party performs their obligation, then in return, the other party’s obligation to perform arises immediately.
This shows that when both parties perform at the same time, there’ll be less confusion among them. This type indicates the mutual exchange between the parties.
- Future (Executory)Consideration –
It refers to something that is promised to be performed in the future. In this, both parties make promises, but neither of them has performed their part yet. The obligations are expected to be made on a future date.
This shows that there can be an existence of a contract even before the performance begins. There is legal protection for contracts that are to be made in the future.
NECESSITY OF CONSIDERATION
Consideration, offer, and acceptance are considered important pillars of a Contract. In simple words, we can say that Consideration is when goods and services are exchanged for other goods and services, and in return, the seller gets something of value.
There is no promise made without consideration. It is a very important condition for a promise. If there is no consideration, then there will be no obligation to fulfil what the party has promised.
Without Consideration, there will be no contract as well.
We can simply say that ‘No consideration, no contract ‘. It means that A contract will not be considered valid without consideration. There must be an exchange of something for value; only then will the contract be considered as valid under the law.
According to Section 25 of the Indian Contract Act, 1872, an agreement without consideration is considered void. [7]This statement shows that consideration is of a mandatory nature for a contract. This shows that the law differentiates between moral promises and legally enforced promises. Legal protection is granted only for those promises that are made with reciprocal exchange.
EXCEPTIONS UNDER SECTION 25
- Natural Love and affection –
If two parties who are having close relations with each other, such as blood relatives or spouses, make a written and registered agreement with love and affection, then an agreement can be valid without consideration. However, the writing and registration requirements prevent misuse in the legal system.[8]
- Past Voluntary Services –
If a person has voluntarily provided a service in the past, and the other party promises to pay at a later date. Then, the contract will be considered as legally binding but with some conditions, which are further discussed in Section 25(2) of the Indian Contract Act. This shows fairness where a person has already benefited from another person’s act.[9]
- Promised to pay time-barred debt-
If a person makes a promise which is written and signed by them or by their authorised representative for paying a debt which is time-barred, then the promise is valid even without consideration. A person can pay a debt fully or partially. The writing requirement protects a person from false obligations and claims.[10]
- Completed Gifts-
If someone (donor) gives a gift to someone and that person accepts it, the agreement will be considered valid and enforceable, even without consideration. Now it is clear that once a gift is made, it cannot be challenged on the grounds of no consideration.
INADEQUACY OF CONSIDERATION
It refers to a situation in which the exchanged value is not equal, but it will be considered valid if the consent was given freely. Even if the Consideration seems inadequate, the agreement is still valid. [11]This shows that In Contract law, freedom of contract exists. However, if the Consideration is significantly inadequate, the Court may consider that as evidence of fraud, coercion, or undue influence. In this case, the Inadequacy of consideration lacks freedom of free consent.
CONCLUSION
The Indian Contract Act,1872, discusses Consideration as an essential element of a valid contract. The law states that an agreement is considered void without consideration. This is a general rule applicable in Contract law. This ensures that only those promises that are made seriously by any form of exchange become legally enforceable. Simultaneously, the act discusses various types of consideration and also mentions some exceptions under Section 25 of the Indian Contract Act. This shows that the law is not completely stiff, and it allows flexibility in special conditions. Overall, consideration plays an important role in clarifying, while it also allows fairness where necessary.
Author(s) Name: Jhalak Vardhan (Mangalayatan University, Aligarh)
References:
[1] Indian Contract Act 1872, ss 2(d), 10, 25.
[2] Indian Contract Act 1872, s 2(d).
[3] Durga Prasad v Baldeo (1880) ILR 3 All 221.
[4] Chinnaya v Ramayya (1882) ILR 4 Mad 137.
[5] Indian Contract Act 1872, s 2(d).
[6] Currie v Misa (1875) LR 10 Ex 153.
[7] Indian Contract Act 1872, s 25.
[8] Indian Contract Act 1872, s 25(1).
[9] Indian Contract Act 1872, s 25(2).
[10] Indian Contract Act 1872, s 25(3).
[11] Indian Contract Act 1872, s 25 Explanation 2.