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Consideration: An essential to a valid contract

INTRODUCTION

Contract law is the backbone of the corporate legal world, governing the variety of agreements that individuals and firms enter in their day-to-day lives. The contract law constitutes various essentials like the offer, acceptance, communication, etc. but what we will investigate is a consideration. Consideration in its essence is defined under Section 2(d) of the Indian Contract Act of 1872. It states that “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.”


Consideration may or may not be adequate. The concept of consideration is a fundamental principle that ensures the enforceability of contracts. Consideration is a vital element of contract formation, serving as the thread that binds parties to their promises and provides a legal framework for contractual relationships. It acts as a Quid Pro Quo and should be in reciprocity.

 

ESSENTIAL ELEMENTS OF CONSIDERATION

 

AT THE DESIRE OF THE PROMISOR

The consideration (any act or abstinence from it) must be done only when the promisor desires it. The voluntary act of the promisee by himself or by the influence of a third party to the contract leads to consideration being not valid. Cases like Kedarnath Bhattacharji v Gorie Mahomed and Durga Prasad v Baldeo elaborate on the same.

 

ADEQUACY- NEED NOT BE ADEQUATE BUT INADEQUACY CAN BE QUESTIONED

An agreement where the consent of the offeror is freely given is not void if the consideration is inadequate. It is up to the court to examine if the consideration is inadequate by determining if the consent of the proposer was freely given. Eg – A agrees to sell a horse for Rs.1000 to B for Rs.10. A’s consent was freely given. Hence, it is a valid contract notwithstanding the inadequacy of the contract. However, if A denies consent it’s on the court’s discretion to decide if consent was freely given or not. The case of Chappell and Co vs. Nestle serves as a perfect example of the same.

 

FLOW FROM PROMISEE OR ANY OTHER PERSON

If the promisor doesn’t object to the source of consideration, it can move from someone who is not the promisee as well. The privity of the contract remains intact in the contract. Chinnaya v. Ramayya elaborates on the same.

 

PAST, PRESENT AND FUTURE CONSIDERATION

Past consideration always includes an act done without any promise. Let’s look at them through an example. A found B’s purse. B promised to pay Rs.500 to compensate for the act. Hence, a valid contract. Consideration of promise was given earlier, and promise was made thereafter. Past consideration for a prior promise is not a good consideration for a new promise. Cases like Eastwood v Kenyon set limits to it.

 

Present consideration includes acts that are in progress. These are also called executed considerations as the act has already been done for the promise.

 

Future consideration includes Acts that will be done in the future or at a later duration. They are also called executory considerations. For Example, A and B form a contract where A will supply B with walnuts next week and B will make payment after that.

 

CONSIDERATION MUST BE REAL, LAWFUL AND HAVE SOME VALUE

Consideration should hold value not only in the eyes of the parties but also in the eyes of the law. This has been further talked about in Chidamabara Iyer v. P.S. Renga Iyer. While it should hold value, the consideration should also be real. This means that it should be specific and physically possible by nature. Impossible consideration like getting stars from the sky in return for the act is void as it is impossible in real circumstance and in the eyes of the law. Such consideration is also called illusory consideration where consideration is so unrealistic that it does not stand any legitimacy in the court. Section 23 of the Indian Contract Act elaborates on the legality of consideration.

 

EXCEPTIONS TO COMPULSORY CONSIDEATION

Section 25 of the Indian Contract deals with the exceptions in which there is no need for consideration to constitute a valid contract. Let us look at every exception in brief :-

 

NATURAL LOVE AND AFFECTION

As per Section 25(1) of ICA, the Act which is written and registered under the law and made on account of natural love and affection between parties in near relation is exempted from consideration. Near relation is not defined in the Indian Contract Act but generally refers to family and friends (those related by blood or familial bond such as marriage, adoption, etc).

 

PROMISE TO COMPENSATE FOR SOMETHING DONE

A promise to compensate wholly/partially for something that the promisee has already voluntarily done for the promisor or something the promisor was legally compellable to do falls under Section 25(2) of the Indian Contract Act.

 

TIME-BARRED BY LIMITATION ACT

This is discussed in Section 25 (3). If A owes B Rs 1000 but the debt is barred by the limitation act. Signing a promise to pay Rs.500 on account of debt constitutes a valid contract. A precedent debt is a good consideration for a subsequent promise to pay the same.

 

CONCLUSION

In its essence Consideration ensures the integrity of agreements, promotes fairness and reciprocity, and stands guard to preserve the genuine intentions of all parties involved. By mandating a valuable exchange between individuals, consideration acts as a fortification against hollow words and unenforceable agreements, providing a solid bedrock upon which lasting contractual relationships can be built. Consideration serves as an intention to create legally binding obligations embodying the essence of binding agreements.

 

REFERENCE BOOKS

Law of Contract by Avtar Singh – https://amzn.to/3RHvxZh

 

The Indian Contract Act by Mullah – https://amzn.to/44WyEPT

 

Contract 1 by R.K bangia – https://amzn.to/46btJvq

 

Indian Contract Act 1872 Bare Act- https://amzn.to/3EGvnt5

 

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