Contents of Article
Introduction
In contract law, consideration is a fundamental element that legitimizes the promises made between the parties, thereby forming a legally enforceable contract. As per Section 2(d) of the Indian Contract Act, 1872, consideration is defined as something of value given or promised by one party in exchange for the promise or act of another party. It can be past, present, or future and must be lawful to validate the contract. However, the law recognizes specific exceptions where a contract may be enforceable even without consideration. This article delves into the meaning of consideration, the legal rules surrounding it, and the exceptions to consideration under the Indian Contract Act, supported by relevant case laws and sections from the Act.
Meaning of Consideration
Section 2(d) of the Indian Contract Act, 1872, defines consideration 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.”
In simpler terms, consideration is the price paid by one party for the promise of the other. It is the quid pro quo or “something in return,” which the law requires for a contract to be binding. Consideration can be in the form of an act, forbearance, or a promise to act or refrain from acting.
Example:
- A agrees to sell his car to B for ₹500,000. Here, B’s payment of ₹500,000 is the consideration for A’s promise to sell the car, and A’s promise to sell the car is the consideration for B’s payment.
Legal Rules of Consideration
For consideration to be valid and enforceable, it must meet certain legal requirements under the Indian Contract Act:
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Consideration Must Move at the Desire of the Promisor
Consideration is valid only if it is given at the request or desire of the promisor. Acts done voluntarily, without the promisor’s request, do not constitute valid consideration under contract law. This is a critical distinction because actions taken without a request cannot be legally binding.
Case Law: In Durga Prasad v. Baldeo (1880), the plaintiff had constructed some shops at the defendant’s request. Later, the defendant promised to pay a commission for the work. The court held that since the original act (construction of shops) was not done at the promisor’s request, it did not constitute valid consideration. -
Consideration Can Move from the Promisee or Any Other Person
Unlike English law, Indian law allows consideration to move from any person, not just the promisee. This means a third party can provide the consideration, and the contract can still be enforceable between the original parties.
Case Law: In Chinnaya v. Ramayya (1882), a woman gifted land to her daughter and directed her to pay an annuity to the woman’s brother. The daughter failed to pay, and the brother sued. The court held that the consideration provided by the third party (the mother) was valid, making the contract enforceable. -
Consideration May Be Past, Present, or Future
- Past Consideration: This involves an act done before the promise is made, and in India, such past acts are considered valid consideration if done at the promisor’s request.
- Present Consideration: Consideration that occurs at the time the contract is formed, such as the simultaneous exchange of goods and money.
- Future Consideration: A promise to perform an act or abstain from an act in the future.
Case Law: In Lampleigh v. Brathwait, past consideration was held to be valid as the act was done at the request of the promisor.
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Consideration Need Not Be Adequate but Must Be of Some Value
The law does not require the consideration to be equal in value to the promise, but it must be something of legally recognized value. The adequacy of consideration is irrelevant as long as it is of some value in the eyes of the law. This ensures that courts do not interfere in the bargain struck between parties unless the consideration is a mere illusion.
Example: A agrees to sell a watch worth ₹10,000 to B for ₹1,000. Despite the inadequacy, the contract is valid if entered into freely. -
Consideration Must Be Lawful
Under Section 23, the consideration must not be illegal, immoral, or opposed to public policy. If the consideration is unlawful, the contract is void.
Example: An agreement to sell narcotics in exchange for money is void because the consideration is unlawful. -
Consideration Must Be Real
Consideration must have some actual value. It cannot be illusory or impossible to perform. If the consideration is physically or legally impossible, it is not valid.
Exceptions to the Rule of Consideration
While Section 25 of the Indian Contract Act establishes that an agreement without consideration is void, there are notable exceptions where a contract is still enforceable even in the absence of consideration:
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Natural Love and Affection (Section 25(1))
A written and registered agreement made out of natural love and affection between close relatives is enforceable without consideration. The relationship between the parties must be such that it gives rise to an expectation of mutual trust and affection.
Example: If a father promises to give his son ₹1,000 out of natural love and affection and the agreement is in writing and registered, it is enforceable without consideration. -
Compensation for Voluntary Services (Section 25(2))
If a person voluntarily does something for another and the latter subsequently promises to compensate them, the promise is enforceable even without fresh consideration.
Example: If A finds B’s lost wallet and later B promises to pay A ₹500, this promise is enforceable even though there was no prior agreement between them. -
Promise to Pay a Time-Barred Debt (Section 25(3))
A written and signed promise to pay a debt that has been barred by the Law of Limitation is enforceable even without consideration. This provision ensures that even when a debt is no longer legally recoverable due to the passage of time, a fresh promise made in writing is binding.
Example: A owes B ₹5,000, but the debt is time-barred. If A later makes a written promise to repay the debt, the promise is enforceable despite no new consideration. -
Agency
As per Section 185 of the Indian Contract Act, no consideration is necessary to create an agency. Thus, the principal’s appointment of an agent to act on their behalf is enforceable even without consideration. -
Completed Gifts
Once a gift is completed, the transferor cannot reclaim it on the grounds that it lacked consideration. The absence of consideration in the case of gifts does not invalidate the transfer.
Latest Case Law on Consideration
Kastoori Devi v. Chiranji Lal (1960)
In this case, the court ruled that the withdrawal of a suit by a wife against her husband was valid consideration for the husband’s promise to pay her maintenance. This case highlights that forbearance or abstaining from asserting a legal right can be a valid form of consideration.
Indermal v. Ram Prasad (1970)
The court held that performing an act one is already legally bound to do does not constitute valid consideration unless the promisee provides some additional benefit. This case reinforces the requirement for consideration to be something of value, not merely an obligation already owed.
Conclusion
Consideration forms the foundation of every valid contract under the Indian Contract Act, 1872. It represents the exchange of value that binds the parties to their promises. The legal rules governing consideration—such as its need to move at the desire of the promisor, its ability to be past, present, or future, and the requirement that it must be lawful—ensure fairness in contractual obligations. While consideration is typically required, Section 25 provides notable exceptions, allowing for enforceable agreements in cases of natural love and affection, voluntary services, and time-barred debts. Understanding these nuances, along with the latest case laws, enables law students and legal professionals to navigate contract law more effectively.