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What is consideration

Notes on consideration in Contracts Act

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5 views

What is consideration

Notes on consideration in Contracts Act

Uploaded by

vqrnvyrv78
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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What is consideration

The meaning of consideration can be derived from the Latin term “quid pro quo,”
which means “something for something.” It states that each party entering into a
contract should offer something to the other party.

According to Section 2(d) of the Indian Contract Act, 1872, “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 the following definition,
a promissor is the party that performs a promise and a promisee is the party to which
a promise is made.

The consideration must move at the desire of the promisor

The definition of consideration under the Indian Contract Act, 1872, starts with
“when, at the desire of the promisor….”, which clearly specifies that any act or
abstinence or promise by the promisee should act at the desire of the promisor. It
means that any act or abstinence done voluntarily or without the desire of the
promissor is not a valid consideration in the eyes of the law.

The consideration may move from the promisee to any other person or a third party

As long as there is no objection by the promissor, the consideration may move to any
other person or proceed from any other person than the promisee. In simple words, it
states that it is not a mandate that only the promisee should grant the consideration;
it can also be provided by any other person. This transfer of obligation to pay from
one person to another does not have any effect on the validity of the consideration
involved in the promise.

The consideration must not be unlawful


It’s obvious that any act, abstinence or promise made that is considered illegal in the
eyes of the law is not a valid consideration. Also, if there is an involvement of any
injury to a person or property of another person or is immoral in nature, it makes the
consideration invalid under the Indian Contract Act, 1872. Such considerations make
the contract void.

The consideration must not be physically impossible

A consideration that is not physically possible to be performed or carried out is


considered invalid. A decision should always be something that is capable of being
performed or carried out.

The consideration may not be adequate

When two parties enter into a contract, they agree on something of value
(consideration) to exchange. The amount or value of the consideration is decided by
the parties themselves. The court does not interfere or question whether the
consideration is fair or adequate.

However, if the consideration seems inadequate, the court may use this fact to check
whether both parties freely agreed to the contract. In other words, the court might
look into whether one party was pressured or misled into accepting the contract. As
long as both parties agreed to the terms voluntarily, the contract remains valid, even
if the consideration seems small or unequal.

Types of consideration

1. Executory consideration
2. Executed consideration
3. Past consideration
Executory consideration

Whenever there is a contract between two parties, there are some promises and
obligations that need to be fulfilled. When these promises or obligations are not yet
fulfilled by the parties involved in the contract, it is known as executory
consideration. It generally refers to those promises or obligations that will be
executed in the future.

Executed consideration

Under executed consideration, the promises and obligations made by the parties in
the contract are already fulfilled or completed. It is also known as present
consideration, as the concerned parties have successfully completed their part of the
contract.

Past consideration

Past consideration refers to an act or benefit that has already been performed or
given before a promise is made. Unlike regular consideration, which involves an
exchange of something in the present or future, past consideration occurs when one
party promises to reward or compensate the other for something that was already
done.

Agreement without consideration is void : exceptions

“agreement without consideration is void, unless it is in writing and registered, or is a promise


to compensate for something done, or is a promise to pay a debt barred by limitation law.”

It basically covers some circumstances where, even in the absence of consideration, an


agreement is not void. Let’s take a brief overview of these exceptions.

An agreement in the absence of consideration is void unless:


● Section 25(1)– This Section exempts the rule of consideration in cases of
agreements made on account of natural love and affection between the
parties.
● Section 25(2)- This Section spells out the concept of past consideration as an
exception to the rule of consideration. Generally, past consideration is not
considered as valid but there are certain exceptions that we have previously
gone through under the types.
● Section 25(3)- When a promise is made to pay a debt that is barred by law of
limitation, such promise is valid even in absence of any new consideration.

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