CONSIDERATION: MEANING, ESSENTIALS, KINDS, CONCEPT OF AGREEMENT WITHOUT CONSIDERATION

This article will be discussing about meaning of consideration under Indian Contract Act, its essential elements, kinds, concept of agreement without consideration and difference between English Law and Indian Law in respect of Consideration. 

 

1. CONSIDERATION: MEANING

 

Consideration is a technical term used in the source of ‘quid pro quo’ means something in return. Consideration is one of the essential elements to support a contract. when a party to an agreement promises to do something, he must get something in return. This something is called Consideration.

 

In the word of Pollock, “Consideration is the price for which the promise of the other is brought and the promise, thus, given for value is enforceable.”

 

According to Blackstone, “Consideration is the recompense given by the party contracting to the other.”

 

[In Thomas vs. Thomas, (1842), justice Patterson defines Consideration means something which is of some value in the eye of law. It may some benefit to the plaintiff or some detriment to the defendant.]

 

In Fazaluddin vs. Panchu Das, 1957, the Calcutta High Court has observed that consideration is the price of a promise, a return or quid pro quo something of value received by the promisor as inducement of the promise.

 

Section 2(d) of the Indian Contract Act defines the term consideration. According to it where at the desire of the promisor, the promisee or any other person has done or abstain from doing or does or abstains from doing or promises to do or to abstains from doing something, such act or abstinence or promise is called a consideration for the promise.

 

2. ESSENTIAL ELEMENTS OF CONSIDERATION:

 

For a valid a consideration the following requirements need to be satisfy;

 

i. At the desire of the promisor:

 

The consideration should be given at the desire of the promisor, not that of the third person. The act done at the plaintiff’s desire may be of no significance or personal benefit to the plaintiff it will be considered a good consideration.

 

ii. By promisee or any other person:

 

The consideration doesn’t need to be given by the promisee. It may come from any other person also. It is immaterial as to who furnished it.

 

iii. Privity of consideration:

 

Privity of consideration means a stranger of consideration.

 

3. KINDS OF CONSIDERATION:

 

In Section 2(d) of the Indian Contract Act, the words, ‘has done or abstained from doing or does or abstains from doing or promises to do or abstain from doing’ are used which very well shows that consideration is of three types that is Past Consideration, Present Consideration and Future Consideration.

 

i. Past consideration:

 

when the consideration is given before the promise of the promisor, it is called past consideration. If the consideration is in the form of an act, the act is done before the promise. Thus, in case of past consideration the promise is not in existence when the consideration is given.

 

INDIAN LAW: –

 

In India past consideration is a good consideration provided it has been given at the desire or request of the promisor. For example, X renders some services to B at the desire or request of the B and after some days B promises to pay Rs. 400 to X for these services. It is a good consideration. If the services had been rendered without the request or desire of B, it will not be a good consideration. However, it is to be noted that even in such condition the promise will be binding if it falls within the scope of section 25(2). According to Clause (2) of Section 25 creates an exception to the general rule that an agreement without consideration is void. Under this clause an agreement will be binding even without consideration if it is a promise to compensate, wholly or on part, a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do.

 

ENGLISH LAW: -

 

Under the English law the general rule is that the past consideration is no consideration. The basis of this general rule is that consideration is a price for the promise and therefore it should be given for obtaining the promise or in lieu of the promise. In the case of past consideration, the consideration is given prior to the promise and therefore it cannot be said that the consideration has been given for obtaining the promise or in lieu of the promise.

 

But this general rule is subject to certain exceptions which have been stated below.

 

a. Past consideration is given at the request of the promisor:

 

A past consideration will support a subsequent promise, if the consideration was given at the request of the promisor. 

 

b. Negotiable instruments:

 

An exception has been created by the Bill of Exchange Act, 1882 also. The Act makes it clear that valuable consideration for a bill may be constituted by any consideration sufficient to support a simple contract and also by an antecedent debt or liability.  

 

c. A debt precedent:

 

The existence of a precedent debt is considered sufficient consideration for a subsequent promise to pay that debt.

 

ii. Executed or present consideration:

 

Executed or present consideration is a consideration which is given in response to a promise. In such consideration one party does all that he bound to do under the contract and only the performance of the promise by the other party remains to be done.

 

For example, A makes an offer of rewords of 600 rupees to anyone who finds out his lost watch and brings it to him. B finds it and gives it to A. Giving the watch is the acceptance of the offer and also consideration therefore and consequently, A is bound to pay 600 rupees to B.

 

iii. Executory or future consideration:

 

In such consideration one party makes a promise in response to a promise made by the other party. It is a promise for promise and the performance of the promise remains outstanding on both parties.

 

4. AGREEMENT WITHOUT CONSIDERATION IS VOID:

 

The general rule of law is if there is no consideration contract is void i.e., an agreement without consideration is void. However, there are certain exceptions mentioned in section 25 and 185 of the Indian Contract Act, under which agreements are enforceable even though they are made without consideration. These exceptions may be discussed as under –

 

i. Love and affection:

 

Section 25(1) of the Indian Contract Act provides that an agreement without consideration is void unless it expressed in writing and registered under the law for time being in force for the registration of documents and is made on account of natural love and affection between the parties standing in a near relation to each other. Section 25(1) thus, makes it clear that if an agreement is written and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between the parties standing in near relation to each other, then the agreement may be valid without consideration.

 

In Ramdass vs. Kishan Dev, (1984), it was held that a written and registered agreement based on natural love and affection between near relative is enforceable even if it is without consideration.

 

ii. Compensation for voluntarily services:

 

According to Clause 2 of Section 25, an agreement without consideration may be valid if it has been entered into to compensate, wholly or in part, a person who has already voluntarily done something for the promisor or something which the promisor or something which the promisor was legally compellable to do. For example, X finds B’s purse and gives it to him. B promises to give X Rs. 50. It is a contract.

 

iii. Promise to pay a time-barred debt:

 

From Clause (3) of Section 25 it becomes clear that an agreement without consideration may be valid and enforceable contract if it is a promise made in writing and signed by the person to be charged therewith or by his agent generally or specially authorized on that behalf, to pay wholly or in part a debt of which the creator might have enforced payment but for the law the limitation of suits.

 

iv. Gift:

 

The general rule that an agreement without consideration is void is applicable only on case of agreement but it does not apply in case of gifts actually made. Explanation I to section 25 makes it clear that nothing in this section shall affect the validity as between the donor and donee of the gift actually made. Thus, the general rule that an agreement without consideration is void, does not apply in case of completed gift.

 

v. Agency:

 

Section 185 of the Indian Contract Act clearly provides that no consideration is necessary to create an agency.

 

vi. Gratuitous bailment:

 

The rule that an agreement without consideration is void does not apply in case of gratuitous bailment. The gratuitous bailment may be valid and enforceable without consideration.  

 

5. DIFFERENCE BETWEEN INDIAN LAW AND ENGLISH LAW:

 

The difference between the English Law and Indian Law in respect of consideration may be summed up as follows –

 

a. Under the English Law the contracts are divided into two categories, such as,       

           

                            i.        Contract under seal or speciality

                          ii.        Simple contract.

 

A contract under seal is taken to mean a contract which is in writing and signed sealed and delivered. The contract under seal is valid without the necessity for consideration. In simple contract consideration is necessary.

 

In India as a general rule consideration is necessary for the validity of a contract, whether it is under seal or a simple contract not under seal. Therefore, no distinction has been made between the contract under seal and simple contract.

 

b. Under English Law consideration must be move from the promisee and promisee only. If it is not given by the promisee but by somebody else, the promisee will be stranger to consideration and he cannot enforce the contract.

 

In Indian Law the consideration may be given by the promisee or any other person and, thus, even a stranger to consideration can enforce the contract.

 

c. Under English Law as a general rule past consideration is not a valid consideration but under Indian Law a past consideration is also a valid consideration.

 

d. Under English Law consideration, to have legal effect, need to be adequate but must have some value in the eye of law. Natural love and affection is not sufficient in English Law to support a contract. Under the Indian Law, however, natural love and affection is a valid consideration under section 25 of the Indian Contract Act.

 

6. CONCLUSION:

 

At last, it can be concluded by saying that, the benefit that each party receives or anticipates to receive in exchange for entering into a contract is known as consideration. Consideration is frequently monetary, but it can be a promise to perform a specific act, or a promise to refrain from doing something. In order to be legally binding for a contract or agreement, every party to the contract must receive some type of consideration. In other words, a contract is a two-way street, so each party must receive something of value from the other party. Illegal or immoral acts are not legally accepted as to serve consideration.