Essentials Of Valid Contract- Part II

In the last article ESSENTIALS OF VALID CONTRACT- PART I, we have briefly analysed the essentials of first four elements of Valid Contract as per Indian Contract Act, 1872. In this article we will analyse definition and essentials of Consideration.

Consideration is often expressed in the Latin term ‘QIUD PRO QUO’, which means in return of something.

Section 2 (d) of 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”

Before understanding the definition of consideration let us understand the meaning of terms integrated in the definition:

i. Promisor: a person one who makes promise

ii. Promisee :a person to whom a promise is made

Now let us divide the definition of consideration in parts to understand its significance.

Essentials of Consideration:

1. Considerations at the desire of Promisor: The consideration should pass on to promisor as per his/ her own wishes. If promisee offers something which is not of promisor’s interest it cannot be treated as Consideration and therefore in the absence of desired consideration the Promisee shall not have any right to claim any remedy / counter consideration.

2. Consideration from promisee or any other person: The consideration may pass on to Promisor from Promisee or any other third person. It is not necessary that the promisor himself/ herself should be benefited by the consideration as furnished by the promisee. It is enough if any act is done at the request of the promisee.

Example: A has entered into a contract with B but A himself has not agreed to pay any consideration to B whereas C (who is not party to contract) agreed to pay the same. As per Indian Contract Act, although C is strangers to the Contract, he can still sue to enforce the promise against B.

3. Consideration for an act, abstinence or promise on the part of the promisee-

Consideration can be for:

a. “An act”: Consideration can be for an act (desired action) performed by promisee or any other person who is legally liable to perform as per the terms of a contract.

b. “Abstinence”: Consideration can be for forbearance of the promisee for promisor’s promise.

c. “Promise”: Consideration in the form of the promise must necessarily be given by the promisee in return from the promise of the promisor. Consideration can be envisaged as reciprocal promises.

4. Consideration can be Past, Present or Future:Consideration can be classified as Past, Present and Future consideration.

a. Has done or abstained from doing (Past): The consideration which is paid before execution of contract is known as past consideration.

b. Does or abstains from doing (Present): The consideration which is passed simultaneously at the time of execution of contract is known as present consideration.

c. Promises to do or abstain from doing something (Future): The consideration which is to be passed in future i.e. after the execution of contract is called future consideration.

Apart from what is determined by the definition of “Consideration” let us understand few other essentials of Consideration

5. Consideration need not be adequate:Consideration under the Contract need not be sufficient. In other words the insufficient consideration if agreed between the parties is considered as good consideration in the eyes of law.

Example: If there is a Rent Agreement between A and B according to which A has to provide his house to B at a rent of ten rupees, such contract will be considered as a Valid Contract because Consideration need not be adequate.

6. Consideration must be lawful:Unlawful Consideration makes the Contract illegal.

Example: A agrees to pay Rs.10,000 B while B agrees to murder C in consideration. In this case the Consideration is forbidden by law and therefore void.

7. Consideration must be real: Consideration should be factual and not illusionary. It must be something which has some value in the eyes of the law. It can be inadequate but should not be unreal by its nature.

CASE LAWS:

There are various case laws on “Consideration”. Let us analyse few of them to understand the implication of consideration to enforce the “Valid Contract”.

Durga Prasad vs. Baldeo, (1880)

Brief facts: In this case there was a contract between A and B. According to the contract A was supposed to provide for all requirements to B to run the market and the profits were agreed to be shared between the parties. Upon C`s request, B made the market available for 24 hours for a consideration from C. Thereafter C refused to give remuneration to B on the ground that he (C) has no consideration from B. Afterwards B claimed remuneration from A for rendering additional work to which A refused.

Held: The agreement was void being without consideration as it had not moved at the desire of A. Hence the Court decided that the additional work done by B was not wanted by A and hence B cannot claim anything from A.

Abdul Aziz vs. Masum Ali, (1914)

Brief facts: The secretary of a Mosque Committee filed a suit to enforce a promise that the promisor had made to subscribe Rs.500 for re-building a mosque.

Held: It was held that the promise was not enforceable because there was no consideration in the sense of benefit, as the person who made the promise gained nothing in return for the promise made, and the secretary of the Committee to whom the promise was made, suffered no detriment as nothing had been done to carry out the repairs. Hence the suit was dismissed.

Chinnaya vs. Ramayya, (1882)

Brief facts : An old lady, by a deed of gift, made over certain property to her daughter D, under the direction that she should pay her aunt, P (sister of the old lady), a certain sum of money annually. The same day D entered into an agreement with P to pay her the agreed amount. Later, D refused to pay the amount on the plea that no consideration had moved from P to D.

Held: It was held that P was entitled to maintain suit as consideration had moved from the old lady, sister of P, to the daughter, D.

Kedar Nath vs. Gauri Mohamed (1886)

Brief facts: The secretary of a Mosque Committee filed a suit to enforce a promise that the promisor had made to subscribe Rs.500 for re-building a mosque and the secretary in this case incurred a liability on the strength of the promise.

Held: It was held that the secretary could recover the amount as the promise resulted in a sufficient detriment to the secretary. However the promise could be enforced only to the extent of the liability (detriment) incurred by the secretary. In this case, the promise, even though it was gratuitous, became enforceable because on the faith of the promise secretary had incurred a liability.

Conclusion: A contract follows when one contracting party promises to do something in exchange for something in return. “Consideration” is one of the essential elements to validate the contract. Although Indian Contract Act, 1872 is based on the principles of English Common Law, under English Law past consideration and consideration from third party are not considered as valid Consideration. No doubt without consideration agreement is void, it also has few exceptions which include agreement pursuant to natural love and affection, gift, donation and voluntary services.

to be continued….

(In case of any inconsistency or clarification/ suggestions, Author can be contacted for further details at [email protected])

Disclaimer: The views and opinions expressed in this article are those of the author. The legal information is not advice and should not be treated as such.