ROLE OF CONSIDERATION IN CONTRACTS

INTRODUCTION

The first condition for contracts to develop is a meeting of minds between the parties, which results in an agreement, and those agreements that are enforceable by law result in a contract. All agreements are contracts, but not all contracts are agreements. The offeror/promisor is the one who proposes to do or not do anything, and the offeree/promisee is the party to whom the proposal is made. One of the most important aspects of contracts is a consideration. The Indian Contract Act of 1872 defines it under section 2(d). When the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing, something, such act, abstinence, or promise is considered a consideration for the promise, according to Section 2(d) of the Indian Contract Act 1872.[1] It’s known as something in exchange or Quid Pro Quo. The importance of consideration is demonstrated by the fact that it is frequently stated that “without consideration, there is no contract.” The consideration must be genuine, that is, it must have some legal worth. On the other hand, it does not have to be adequate, but judges can consider adequacy to decide if the parties freely consented. As a result, love or affection cannot be considered a factor. It is not a good consideration for a promise to execute what one is already obligated to do, either by general law or by a specific obligation to the other party. It’s also crucial that anything is done at the promisor’s request, not at the request of a third party. In exchange for the unilateral commitment, an act or forbearance is sufficient consideration to justify the promise.[2] The consideration does not have to benefit the promisor personally. It suffices if the act or forbearance that constitutes consideration was performed at the promisor’s request. However, section 25 of the Indian Contract Act, 1872, contains provisions for unusual circumstances in which a contract proves to be legitimate even without consideration. According to Section 25 of the Indian Contract Act, 1872, an agreement without consideration is void unless it is in writing and registered, or if it includes a pledge to pay a debt that is forbidden by the statute of limitations.[3]

Essentials of Consideration

  • It must be at the promisor’s request; the promisee or any other person can do or refrain from doing something at the promisor’s request.
  • It should be worth something in the eyes of the law.
  • It has to be legal.
  • It must be certain, as performing any uncertain act is impossible.

Examples:-

  • Suppose A offers to buy a laptop from B for ₹20000 which B accepts. Here, the laptop is the consideration for A, and ₹20000 is the consideration for B.
  • Suppose A has taken a loan of ₹500000 from B and promised to repay after 2 years. After 2 years, A didn’t repay the loan amount. B told A that if he won’t repay the loan amount, he would sue him. A replied that if he grants him 6 months more, he will pay him additional 1 lakh rupees, for which B agreed. Here consideration for A is 6 months and consideration for B is 1 lakh rupees. This is an example of abstinence where A abstains B from suing him.

TYPES OF CONSIDERATION

Past, present (performed), and future considerations are the three sorts of considerations. It is important to highlight that prior consideration is not the same as executed consideration. Both the promise and the act that comprises the consideration are integral and co-related aspects of the same transaction in the case of performed consideration. Previously, the promise was considered to be separate from the act and not in substance co-related parts of the same transaction. Past consideration is an act performed without any expectation of reward. In executed consideration, on the other hand, an act is performed in response to a promise. As a result, under Section 2(d), consideration may include past, present, or future actions.[4]

Past Consideration –A promise for an act done or not done willingly in the past for the party who pledges to do or not do something later is known as past consideration. As a result, there is a promise to pay the consideration later for an act performed without the other party’s pledge. It was previously dismissed as unimportant, but it is now taken into account.

Present (executed) Consideration– A present or executed compensation occurs when a promisor agrees to perform or not do something while also receiving consideration for it.

Future (executory) Consideration– Executory or future consideration refers to when promises are to be carried out at a later date. In this case, the promisor makes a future date offer, and the promisee agrees to perform the contract after that date. As a result, both parties have outstanding liabilities at a later date.

CONSIDERATION MUST BE LAWFUL

Section 24 of the Indian Contract Act states that if the considerations and objects are illegal, the agreements are regarded void.

Section 23 establishes several requirements for lawful consideration. It states that if the consideration or object of an agreement is fraudulent or illegal, it is not legal. Also, if the consideration violates any law or causes harm to another person or property, it is regarded as illegal. One criterion for determining the legality of consideration or object is morality. The courts have the authority to determine whether a certain concept or object is immoral or against public policy.

EXCEPTIONS TO CONSIDERATION

  • A contract without consideration is generally unenforceable, although there are several circumstances in which a contract without consideration is enforceable and binding on the parties. Section 25 of the Indian Contract Act allows for this.
  • If uh close relatives or family members have a written and registered agreement based on natural love and affection, that agreement is foreseeable even if there is no consideration.
  • A pledge to pay for something done voluntarily for the promisor in the past is legally binding.
  • It is enforceable if a promise to pay a past-due obligation is given in writing and signed by the promiser or an agent authorised on his behalf.
  • Also, the contract of the agency is enforceable in absence of consideration.

CONCLUSION

One of the necessary elements for a contract to be legitimate is a consideration. The price of the contract is referred to as consideration. Without consideration, an agreement is exnudo pacto nonaritio action, which means it cannot be held binding on the parties. Contracts are stated to be for the sake of consideration. However, there are several unusual circumstances in which a contract can be held legitimate even if there is no consideration. Section 25 of the Indian Contract Act applies to these instances. However, in common parlance, it is critical, and it is impossible to create a legitimate contract without it, with the exception of situations specified by Section 25.

Author(s) Name: Nitesh Ranjan  (National University of Study and Research in Law, Ranchi)

References:

[1]The Indian Contract Act 1872, s 2(d)

[2]Fazaladdin Mandal v Panchanan Das, (1957) AIR Cal 92

[3]The Indian Contract Act 1872, s 25

[4]Pankaj Bhargava v Mohinder Nath (1991) 1 SCC 556

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