Consideration is a vital part of a contract. Consideration is the cost of this contract. An agreement without lawful consideration is void and thus not enforceable by law except under certain conditions. Consideration is the price for the promise of this other being bought, and the promise given for value is enforceable by law.
In simple words, we can say that enforcing any legal contract requires it to have a part of consideration included in it. Consideration is the value of the contract which the promisee is ready to pay the promisor.
What is Consideration according to Indian Contract Act?
In simple terms, understanding the consideration is the contract’s price, and it may be right, interest or responsibility, etc. Following section 2(d) of the Indian Contract Act; When the promisor, promisee, or any other person has done or abstained from doing or promises made to do or refrain from doing something at the request of the promisor, promisee, or any other person, such act, abstinence, or promise is referred to as a consideration for the promise.
Why is consideration plays an integral part in contract law?
Consideration is the price that the promisor asks in exchange for their promise; it signifies it is a price for a promise. In many jurisdictions, consideration is not an essential element of a contract. It is sufficient that parties have reached a binding arrangement.
What are the essential points of consideration?
- Consideration can be given as per the desire of the promisor.
- That can be given by any person.
- The consideration can be considered in terms of past, present, or future.
- The consideration must be accurate and possess value.
What is the purpose of consideration?
Consideration is an essential element of a contract. It’s the agreed-upon exchange of something of value in exchange for something else. It aids in the creation of correct contracting goals as well as the reduction of rash promise making.
Essential elements of consideration in Indian contract act
(1) Consideration should be move as per the desire of the promisor
As per the desire of the promisor, the consideration can be made by the promisee or a third party. A third party causes such consideration but not as a desire of the promisor that will not count as a valid consideration.
Suppose A is going to morning walk, on-road he sees that B faced an accident and his cycle is damaged. A helps B and repair the bicycle without the instruction or desire of B, then after A can not ask or claim compensation for his work because he did his job only as a volunteer and not done on the desire of B.
(2) Consideration can be in the past, present or future
Consideration is the basis of each contract. The law claims the presence of consideration when a promise is to be enforced as establishing legal duties. A promise with no consideration is null and void. The following types of consideration can be defined in the law let’s see them in detail.
This type of consideration is given by the party of an agreement in the past; it is made before the date of promise. Suppose A contract to B to give his service within a year, whenever he needs it. After a year B promises to compensate A for the service. We can say that this type of consideration is called past consideration.
Present or executed:
This type of consideration is given at the time when the promise is made; it is known as a present of executed consideration. suppose when a salesman sells some product to a customer and he pays him a cash amount for such product.
Executory or Future:
Consideration may be something that is completed or in the process of being done. Additionally, it contains an act that’s promised to be carried out in the future. There may be promises which form the consideration for one another. Before the completion of a promise that forms a part of the consideration of the other promise, then this consideration is known as executory consideration. This type of consideration is also known as a future consideration.
For example, A promised to deliver 5 tones of wheat to B after one month; B agreed to that offer and promised to pay the price of wheat after one month. Here in that case A agrees to the promise which is given by B; Such kind of consideration can be called a future of executory.
(3) Consideration may move from the promisee to any other person
It is an essential part of valid consideration. It moves from the promise to another person. However, one important thing is that a stranger can be considered but not claimed until he does not become a party to the contract. Section 2(d) of the contract act clearly says that consideration moves the promisee or any other person.
Let’s understand with this example; A gives a gift to his son B, a shop in his town, and will specify that he pays Rs.1000 to his brother C every month. B executed a deed but failed to comply with this condition. C filed a suit for recovery. Defence B argues he is not liable to C because no consideration was moved from C.
Held the court give is finding that on the base of section 2(d) of the contract act, clarifying such definition’s word promisee or any other person means C is eligible to recover from B.
(4) It must have value in the eyes of the law
The consideration that is given to the party of an agreement may be adequate between them. It is also necessary such consideration has real value in the eyes of the law. Here, we should know that free consent between the parties of an agreement does not amount to valid consideration in the eyes of the law.
Suppose A agrees and promises B to withdraw the lawsuit against him. And in terms of the A-side, he pays compensation to B for a fixed amount. We can say this is a valid consideration in legal terms. But it should not count as a reasonable consideration if B agrees to withdraw the lawsuit with his free consent.
(5) Consideration should not count for specific work which the promisor is already bound to do.
When A person is bound to act something by law or contract, such promise is already to some activities. Consideration for that is not valid in the eyes of the law.
For example, if a public servant performs his duty as part of his work which is bound to do so, it is not a reasonable consideration.
(6) Consideration can not be unlawful
A consideration that is given against immoral or public policy is not counted as reasonable consideration. The court can not allow such a type of consideration or promise which violates public policy.
(7) Stranger to a Contract
The basic rule is that the contract parties are eligible to file a suit that is also known as privity of contract. In simple terms, we can say that the rule of privity means it is a relation between the parties who enter into the contract with their obligations. An agreement can not confer any right to impose a duty to another person other than the parties of said contract.
There is no legal validity of a contract without consideration. That’s why lawful Consideration plays a meaningful role in the agreement. So the importance of consideration in a contract can not be the decline or overrule when the parties want to enter into the contract with a specific purpose.
What are the Essentials of a Valid Contract as per the Indian Contract Act,1872?
Difference between a Void and a Voidable Contract under the Contract Act