INTRODUCTION OF CONSIDERATION:
According to section 10 of Indian Contract Act, ‘Consideration’ is one of the essential elements of a valid contract. In the words of Blackstone- “A consideration of some sort or other is so necessary to the forming of a contract, that a nudum pactum, or agreement to do or pay something on one side, without any compensation on the other, will not at all support an action; and a man compelled to perform it. The law supplies no means nor affords any remedy to compel the performance of an agreement made without consideration.” The breach of a gratuitous promise cannot be redressed by legal remedies. It is only when a promise is made in return of ‘something’ from the promise, that such promise can be enforced by law against the promisor. This something in return is the consideration for the promise.
DEFINITION OF CONSIDERATION:-
Section 2(d) of the Indian Contract Act defines consideration as—When at the desire of promisor the promisee or any other person has done or obtained from doing or does or abstains from doing or promises to do or abstains from doing something such Act or abstinence or promise is called Consideration to the promise.
EXAMPLE:– ‘A’ agrees to sell his house to ‘B’ and ‘B’ agrees to pay 10lakhs to ‘A’. Here A’s promise to sell his house is for B’s consideration to pay 10lakhs. Similarly, B’s promise to pay 10Lakhs is for A’s consideration to sell his house to B.
ESSENTIALS OF VALID CONSIDERATION:-
1. Consideration must move at the desire of Promisor:– Acts done or services rendered voluntarily, or at the desire of third party, will not amount to valid consideration so as to support a contract.
The leading case on this point is
Durga Prasad v.Baldeo (1880).
2. Consideration may move from the promise or any other person:– It means that as long as there is a consideration for a promise, it is immaterial who has given it. It may move from the promise, or if the promisor has no objection, from any other person. Consideration moving from a third party who is minor is no consideration.
The leading case on this point is
Chinnaya v.Ramaya (1882).
3.Consideration may be past, present or future.
In English law, only present and future. No past consideration is considered or accepted.
4.It needs to be adequate:- The law of contract nowhere laid down that consideration should be adequate to the promise. What is required is that there must be some consideration for the promise.
5.Must be real:- Though consideration need not be adequate, it must be real and competent. Where consideration is
The above shall not be valid.
EXCEPTIONS OF THE RULE, “No consideration, No contract” —
1.An Agreement made on account of natural love and affection – as per Section 25(1) there are four essential requirements which must be followed with to enforce an agreement made without consideration.
- Expressed in writing,
- Registered under the law for the time being in force for the registration of documents,
- Made on account of natural love and affection; and
- Between parties standing in near relation to each other.
2.COMPENSATION FOR SERVICES RENDERED— Under Section 25(2)—An agreement without consideration is void. To apply this rule, following essentials must exist-
- The act must have been done voluntarily;
- For the promissory or it must be something which was the legal obligation of the promisor;
- The promisor must be in existence at the time the act was done; AND
- Promisor must agree now to compensate the promise.
3.AGREEMENT TO PAY A TIME BARRED DEBT—Under Section 25(3)—The debt must be such of which the creditor might have enforced payment but for the law for the limitation of suits.
A time barred debt cannot be recovered and therefore a promise to repay such a debt is without consideration, hence the importance of present exception.
4.COMPLETED GIFTS – Explanation 1 to section 25 provides that the rule ‘No consideration, No contract’ shall not affect validity of any gifts actually made between the donor and the done.
5.AGENCY – Section 185 which says that no consideration is needed to create on agency. Exception to the general rule.