One of the most important principles in contract law is consideration. As a result, every student of contract law should have a full grasp of the subject. According to the Indian Contract Act of 1872, each contract must include consideration to be legally enforceable. A contract that isn’t based on consideration isn’t regarded legitimate.
What Is the Meaning of the Term “Consideration”?
The response to the inquiry How do you make money from this contract?? is defined as a consideration in contract law. For a contract to be legally binding, both parties must get compensation. When you buy a jacket at your favorite shop, for example, the clothing is the consideration you get, while your money is the consideration the business receives.
A promise to do something you aren’t legally compelled to do or a vow not to do something you have the legal authority to do is typically considered a consideration.
Consideration is defined in Section 2(d) of this act as an item of value that one contractual party contributes to another in return for the effective execution of the contract’s terms and agreements. On this note, consideration might refer to a promise to do something, a promise not to do something, or a commitment to pay money.
For example, A said that he would paint B’s home for Rs.5,000. In this case, B is offering A Rs.5000 in return for the latter’s pledge to paint her home. This is not an example of a hasty agreement since each party is providing something of value to the other.
A Contract’s Legal Validity
A contract must have certain characteristics to be legally valid:
- The opposite party has accepted an offer made by one of the parties.
- A valuable object will be swapped for another valuable one, such as products, services, or cash.
- The contract deals with legal matters
- Both parties willingly consented to the contract, are mentally capable of carrying it out, and are above the legal age of consent.
Certain forms of contracts, such as real estate transactions or contracts lasting more than a year, are only legal in writing. Although oral contracts are lawful, they may be difficult to establish in court, so it’s always advisable to have any commercial agreement written down.
An Agreement’s Legal Elements
To assist resolve conflicts when this is uncertain, courts have devised rules to assess whether an agreement genuinely exists. First, there must be a verbal or written offer and acceptance. In most circumstances, the person that receives the offer considers it carefully before responding with a counteroffer. The party that made the first offer may change or remove it at any time. All of these events have the potential to cause misunderstanding and disagreement.
Some deals have an expiry date, although they do not last for a long amount of time. It’s up to the individual to decide what constitutes an acceptable period. If a party wishes to evaluate your offer for longer than you think is appropriate, you might ask them to pay for the option since you won’t be able to make any further offers during that period.
Accepting an offer as quickly as feasible is important since it might be canceled at any point until you accept it. The agreement is legally binding once you accept it and cannot be modified or withdrawn.
The following characteristics should be present in a legally valid consideration:
The real consideration is required
Because an agreement without consideration is invalid, the consideration offered by the two parties in a contract must be genuine or credible. Illegal activity should be avoided. A consideration is unreal if it is prohibited by law, if it is dishonest or unethical conduct, or if it may harm a person or property.
The promisor’s wish should be taken into account
Only at the promisor’s wish or request must consideration be offered in a contract. Any freely offered service will not be considered a consideration, and the person providing it cannot expect anything in return. For example, if A willingly took care of B while she was unwell, she (A) cannot demand any compensation for it. And there can’t be a contract if there isn’t any consideration.
It may entail the involvement of a third party
If the promisor has no objections, the promisee might offer consideration to the promisor or a third party under the Indian Contract Act of 1872. In such circumstances, the third party has the right to sue the contractual parties.
Consider about Past and Future
Three sorts of considerations may be made after a contract has been set up: past, present, and future. Executed and executor refer to the current and future concerns, respectively. As the name implies, an executed consideration has already been carried out by the person who made the commitment. An executory consideration, on the other hand, is a service that has been promised but not yet provided by one of the contractual parties.
A previous consideration may also be an act of service or forbearance that occurred before the contract agreement was put up. However, in this scenario, it is important to remember that the consideration is only legally acceptable if it was given at the request of the promisor by the promisee.
Circumstances that are out of the ordinary
An agreement that is made without consideration is null and invalid. According to section 25 of the Indian Contract Act, there are few instances where an agreement without consideration is lawful. Among them are: –
Services provided by volunteers
If a promise was made to someone who willingly supplied a service, then any agreement made without consideration is legally binding. Apart from voluntary service, a promise made in return for such service is regarded legitimate if a person executes an act that the promisor was legally forced to do.
Consider the void exception, which is an example of a contract without consideration. Assume that two people, A and B, are neighbors. One day, a fire broke out at B’s home, which A quickly discovered and extinguished. B agreed to pay A Rs.10,000 at a later date as a result of this. This is one of the agreements without consideration that a court will recognize as legal.
Affection and Love
Love and affection are another exception to the rule that an agreement made without consideration is invalid. According to section 25(1) of the Indian Contract Act, an agreement established between two persons who are closely related to one another by blood or are close relatives of one another, and the agreement is in writing and has been duly registered, is enforceable under law.
For instance, C promised to pay his brother D a certain amount each day for a year. A formal agreement was drafted and filed with the court. This leads to unconsidered arrangements in which C is obligated to pay D that quantity of money.
Debt with a Time Limit
Time-barred Debt is a sort of debt that occurs when one person borrows money from another and fails to return it on time. It is no longer lawfully collectible once a specific length of time has elapsed.
Even though it is an agreement without compensation, if the borrower made a written commitment to repay the sum, in whole or in part, and he or his authorized representative signed the agreement, it will be regarded as legally enforceable.
Donations & Gifts
An exception to the rule that an agreement without compensation is void is a gift or a charitable donation. Even though there is no compensation involved, any gift or charity transferred between a donor and a donee will be regarded as a legal agreement under the law. A promise to make a future donation is also legally binding.
The Indian Contract Act’s Section 10 discusses legitimate consideration, and Section 2(d) defines consideration, making it clear that consideration is an essential component of a valid and enforceable contract.
As a result, the majority of agreements reached without thought do not result in the establishment of a legally binding contract. Even insufficiency of the consideration, or its absence, might result in the creation of a legal contract under some situations. Section 25 of the Indian Contract Act specifies certain exclusions.
The rule of “no consideration, no contract” does not apply when an agency is established under Section 185 of the Indian Contract Act; no consideration is necessary to establish an agency. According to Section 148 of the Act, bailment occurs when things are handed from one person to another for a specific purpose, and the items are either returned or disposed of according to the directives of the person who delivered them.
As a result, no consideration is necessary to put the bailment contract into force. As a consequence of all of these exceptions, the law is simpler to execute in order to address unexpected conditions and incidents.