Consideration: Meaning, Legal Rules & Its Exceptions-Contracts Act Notes

The Consideration Free Stock Photo- Prolawctor

Meaning of Consideration |Indian Contract Act, 1872 Notes|

  • Consideration is a quid pro quo i,e something in return it may be –
    • some benefit right, interest, loss or profit that may accrue to one party or,
    • some forbearance, detriment, loss or responsibility suffered on undertaken by the other party [currie V mussa]

  • According to Sir Frederick Pollock, “consideration is the price for which the promise of the other is bought and the promise thus given for value is enforceable.
  • Definition [Sec 2(d)]:- when at the desire of the Promisor, the promise or any other person.
    • has done or abstained from doing , or [Past consideration]
    • does or abstains from doing, or [Present consideration]
    • promises to do or abstain from doing something [Future consideration ] such act or abstinence or promise is called a consideration for the promise.

Example: ‘P’ aggress to sell his car to ‘Q’ for Rs.50,000 Here ‘Q’s Promise to pay Rs50,000 is the consideration for P’s promise and ‘P’s promise to sell the car is the consideration for ‘Q’s promise to pay Rs.50,000.

Example:‘A’ promises his debtor ‘B’ not to file a suit against him for one year on ‘A’s agreeing to pay him Rs.10,000 more. Here the abstinence of ‘A’ is the consideration for ‘B’s Promise to pay.

Legal Rules for valid consideration|Indian Contract Act, 1872 Notes|

  1. Consideration must move at the desire of the promisor.
    D constructed a market at the instance of District collector. Occupants of shops promised to pay D a commission on articles sold through their shops. Held, there was no consideration because money was not spent by Plaintiff at the request of the Defendants, but at instance of a third person viz. the Collector and, thus the contract was void. [Durga Prasad v. Baldeo]

  2. Consideration may move from the promisee or any other person who is not a party to the contract. [Chinnaya’s Vs Ramayya]
    A owed Rs.20,000 to B. A persuaded C to sign a Pro Note in favour of B. C promised B that he would pay the amount. On faith of promise by C, B credited the amount to A’s account. Held, the discharge of A’s account was consideration for C’s promise. [National Bank of Upper India v. Bansidhar]

  3. Consideration may be past, present, Future:
    • Under English law, Past consideration is no consideration.
    • Present consideration :- cash sale
    • Future or executory consideration:- A Promises to B to deliver him 100 bags of sugar at a future date . B promise to pay first on delivery.

  4. Consideration should be real and not illusory. Illusory consideration renders the transaction void consideration is not valid if it is.
    • Physically impossible
    • Legally not permissible
    • Uncertain 
    • illusory (fulfillment of a pre existing obligation)

  5. Must be legal:-
    Consideration must not be unlawful, immoral or opposed to public policy.

  6. Consideration need not be adequate. A contract is not void merely became of  the fact that the consideration is inadequate. The law simply requires that contract should be supported by consideration. So long as consideration exists and it is of some value, courts are not required to consider its adequacy.
    Example: A agreed to sell a watch worth Rs.500 for Rs.20, A’s consent to the agreement was freely given. The consideration, though inadequate. Will not affect the validity of the contract. However, the inadequacy of the consideration can be considered in order to know whether the consent of the promisor was free or not . [Section 25 Explanation II]

    Unlawful Consideration or object is Void [Section 23] |Indian Contract Act, 1872 Notes|

  7. The performance of an act what one is legally bound to perform is not consideration for the contract mean’s something other than the promisor’s existing obligation –

A contract not supported by consideration is void .

Ex. Nudo Pacto non oritur action, i,e, an agreement without consideration is void.

Exceptions to the Rule “ No consideration . No contract”

  1. Written and registered agreements arising out of love and affection:- [25 (1)]
    • Expressed in writing and registered under law for the time being in force for registration of document
    • Natural love and affection
    • Between parties standing in a near relation to each other
      Example:- An elder brother, on account of natural love and affection, promised to pay the debts of his younger brother. Agreement was put to writing and registered. Held, agreement was valid.
      Exception: Rajlukhy Dabee Vs Bhootnath Mukharjee
      Example: A Hindu husband by a registered document, after referring to quarrels and disagreements between himself and his wife, promised to pay his wife a sum of money for her maintenance and separate residence. Held that the promise was unenforceable since natural love and affection was missing.

  2. Promise to compensate [25(2)]
    • Promise to compensate wholly or in part
    • Who has already voluntarily done something for the promisor
    • Something which the promisor was legally compellable to do.
      Example:- A finds B’s purse and give to him. B Promise to give A Rs.500. This is a valid contract.

  3. Promise to pay a time – barred debt. [Sec 25(3)]
    • A debt barred by limitation con not recovered. Hence, a promise to pay a such a debt is without any consideration.
    • Can be enforced only when – in writing and sighed by Debtor or his authorized agent.
      Example : A owes B Rs.10,000 but the debt is barred by Limitation Act. A signs a written promise to pay B Rs.8,000 on account of debt. This is a valid contract.

  4. Completed gift- gift do not require any consideration.

  5. Agency (185) – According to the Indian contract Act. No consideration is necessary to create an agency.

  6. Bailment (148)- consideration is not necessary to effect a valid bailment of goods. It is Called Gratuitous Bailment.

  7. Remission (63).

  8. Charity– If a person promises to contribute to charity and on this faith the promises undertakes a liability to the extent not exceeding the promised subscription, the contract shall be valid.

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