Compiled By

Vinit Pandya Harsh Shah Bhagwat Thakker (65) (73) (96)

Consideration
Introduction Section 25 of the Indian contract act opens with the declaration that an agreement made without consideration is void.In Section 2(d) of the Indian contract act consideration is defined as follows: 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 promisee to do or to abstain from doing, something , such act or abstinence or promise is called consideration for the promise. The definition in 2(d) requires, in the first place, that the act or abstinence, which is to be a consideration for the promise should be done at the desire of the promisor secondly, that it should be done by promisee or any other person and lastly that the act or abstinence may have been already executed or is in the process of being done or still executory, that is to say, it is to be done.

Acts Done At Request On the other hand an act done at the promisors desire furnishes a good consideration for his promise even though it is of no personal significance or benefit to him.

Unilateral Promises A unilateral promises or promise from one side only and is intended to induce some action by the other party. The promisee is not bound to act, for he gives no promise to his side. But if carries out the act desired by the promisor, he can hold the promisor to his promise. His act is at the same time an acceptance of and a consideration for the promise. An act done at the request of the offeror in response to his promise is consideration, and consideration in its essence is nothing else but a response to such a request.

Revocation Of Unilateral Promises There is yet another problem concerning such unilateral contracts. It is no doubt true that a promise which is given in return for an act is revocable before the promise begins to alter his position by acting upon the promise. Either way there is some difficulty. If the promisor is at liberty to revoke, he can frustrate the promise at his pleasure. On the other hand, if he has no such liberty, he will be bound even though the promisee may stop performance at his sweet will. The mere commencement of performance does not convert the offer into a contract in the sense that the promisor is bound to stay with his promise, but that if he revokes it, he may be sued for damages or on a quantum meruit.

Privity Of Contract And Consideration Promisee or any other person The second notable feature of the definition of consideration in section 2(d) is that the act which is to constitute a consideration may be done Promisee or any other person It means, therefore, that as long as there is a consideration for a promise, it is immaterial who has furnished it, It may move from the promise, or , if the promisor has no objection from any other person.

Past Consideration (Nundum Pactum) It is an age old principle that consideration should be contemporaneous with the promise. Consideration, being the price for promise, should be given in response to and as an inducement for the promise if the act has been done before any promise is made, it is called past consideration and a past consideration is no consideration Past And Executed Consideration A past consideration should however, be distinguished from executed consideration. Past consideration always consist of an act done without any promise but executed consideration is an act which has been done in response to a positive promise. Where, for example a reward is offered for finding a lost article ,the offer can be accepted only by producing the article to the offerer and that is also a consideration for the promise. An executed consideration consist of an act for a promise it is the act which forms the consideration. NO contract is formed unless and until the act is performed, e.g. the payment for the railway ticket, but the act stipulated for exhausts the consideration, so that any subsequent promise, without futher consideration is merely nundum pactum. In an executed consideration the liability is outstanding on one side only; it is a present as oppose to a future consideration. In an exeutory consideration, the liability is outstanding on both the sides. It is infact a promise for a promise;

One promise is bought by the other. The contract is concluded as soon as promises are exchanged. In mercantile contacts this is by far the most common variety. Consideration Must Be Of Some Value: Consideration, as defined in the act, means some act, abstinence or promise on the part on the part of the promisee or any oher person which has been done at the desire of the promisor. Does it, therefore , mean that even a worthless act will suffice to make a good consideration if it is only done at the promisors desire for eg . A promises to give his car to B, provided B will fetch it from the garage. The act of fetching the car cannot by any stretch of imagination be called a consideration for the promise. Yet it is the only act the promisor desired the promisee to do such an act no doubt satisfies the words of the definition. Forbearance To Sue: Forbearance to sue has always been regarded as a valuable consideration. It is , indeed , a kind of abstinence , which is so very clearly recognised as a good consideration in the definition itself. Forbearance to sue means that the plaintiff has a certain right of action against the defendant or any other person and on a promise by the defendant or any other person he refrains from bringing the action . Performance Of Existing Duties Performance Of Legal Obligations

Consideration, it is generally said, must be something more than what the promisee is already bound to do. A person may be bound to do something by law or by contract. performance of a legal duty is no consideration for a promisee. A promise to perform an existing duty is, sufficient consideration to support a promise, so long as there is nothing in the transaction which is contrary to the public interest Pre-Existing Contract With Third Party Where a person has contracted to do an act and a third person promises to pay him a sum of money if he would go ahead with the performance, is there a consideration for the promise. Also acceded to the proposition that if a person contracts with another to do a certain thing, he cannot make the performance of it a consideration for a new promise to the same individual. But there is no authority for the proposition that where has been a promise to one person to do a certain thing, it is not possible to make a valid promise to another to do the same thing. A contract under seal means a contract which is in writing and which is signed, sealed and delivery

Essentials Of A Valid Contract According to sec.10 all agreements are contracts if they are made by free consent of parties competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void.

Offer and acceptance: there must be an agreement between two parties that is one making an offer and other accepting the offer Intention to create legal relationship: If there is no intention of making a legal relationship between the parties then there is no contract between them. Lawful consideration: An agreement to be enforceable by law must be supported by consideration. Consideration means advantage or benefit moving from one party to the other. Capacity of parties- competency: They must be capable enough to enter into a contract. He should be of age of majority , of the sound mind and should not be disqualified from contracting by any law to which he is subject Free and genuine consent: It is essential to the creation of every contract that there must be free and genuine consent of the parties of the agreement. Lawful object:The object of the agreement must be lawful. It means it should not be illegal or immoral etc. Agreement not declared void: The agreement must not have been expressly declared void by law in force in the country Certainty and possibility of performance: The agreement must be certain and not vague or indefinite. If it is vague and it is not possible to ascertain its meaning, it cannot be enforced

Legal formalities: It is in the hands of the party as to how the contract must be made, that is by writing or spoken mouth

Exceptions To Consideration Indian law, however, does not recognize any such exception. But section 25 of the contract act lays down a few exceptions. 25. An agreement made without consideration is void, unless--1) It is in writing and registeredit is expressed in writing and registered under the law for the time being in force for registration of documents, and is made on account of natural love and affection between parties standing in a near relation to each other, or unless 2) Or is a promise to compensate for something doneit is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; unless 3) or is a promise to pay a debt barred by limitation lawit is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in a part debt of which the creditor might have enforced payment but for the law for the limitation of suits

In any of the cases, such an agreement is contract Explanation.nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made. Explanation.2An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the court in determining the question whether the consent to the promisor was freely given. 1)Natural Love And Affection The essence of the first exception is that a written and registered agreement based on natural love and affection between near relatives is enforceable without consideration. Who is near relative? The act provides no guidance, nor has the expression been judicially construed. The expression will without doubt include parties related by blood or marriages. Again, what is meant by natural love and affection? There is always some degree of instinctive love and affection between parties nearly related. But this instinct may sometimes be overruled by external circumstances. 2) Past Voluntary Service Secondly, a promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor, is enforceable. In other words, a promise to pay for a past voluntary is binding. It is necessary to attract this exception that the service should have been rendered voluntarily and also for the promisor. Thus, where services were rendered voluntarily and also for the subsequent promise to pay for them could not be brought within

the exception. But a promise made after attaining majority to pay for goods supplied to the promisor during minority has been held to be within the exception. The court in that case said It is now settled law that a promise by an infant is in law a mere nullity and void but we fail to see how an agreement made by a person of full age to compensate a promisee, who has already voluntarily done something for the promisor even at a time when the promisor was a minor does not fall within the purview, of section25(2) of the Indian contract act. As at the time when the thing was done the minor was unable to contract, the person who did it for the minor must, in law, be taken to have done it voluntarily. But he has in fact done something for the minor and if words mean anything at all, surely his case must be deemed to come within the scope of the act. Gifts Actually Made [S.25(Exp.1)] The provisions as to consideration do not affect as between donor and donee the validity of any gift which has actually been made. A gift of movables which has been completed by delivery and gift of immovables which has been perfected by registration cannot be questioned as to their validity only on the ground of lack of consideration. They may be questioned otherwise. Where a gift of property was made by registered deed and attested by two witnesses, it was not allowed to be questioned by the donor on the ground that she was the victim of fraud which she was not able to establish.

Bibliography

Essentials of Mercantile Law by N.D.Kapoor The Law of Contract Internet