Consideration
Chapter: Consideration
- The scope of the Unit is given below:
- Definition of Consideration
- Essential Elements of Consideration
- Stranger to Consideration and Stranger to Contract
- Exceptions to the Rule of Stranger to Contract
- “An Agreement without Consideration Is Void”-Exceptions to the Rule
- Check Your Progress
- Summary
- Glossary
Definition of Consideration
Section 2(d) of the Indian Contract Act defines consideration thus: “When at the desire of the promisor, promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called consideration for the promise.” Consideration from the above definition is a price paid for the fulfillment of a promise. It consists of some act or abstinence that has legal recognition. Three important aspects form a contract. These are offer, acceptance and consideration.
The reason only contracts with consideration are valid contracts is because the court believes that voluntary promises are made on the spur of the moment. Often, they are impulsive rash decisions made without proper deliberation. The law also does not favorably consider an exchange of promises without any return to another. Therefore, if a person makes an offer to another person it is not binding on him / her if no consideration is given. He / she can revoke the offer as no consideration has been attached to the offer.
Illustration
Manu promised to give Tina money to study. There was no consideration attached to it. Manu can revoke the offer as it is not binding in law.
Essential Elements of Consideration
There are five essential elements of consideration.
- It is an Act or Abstinence.
- It is Moved at The Desire of The Promisor.
- It may Move from Promisee to Another Person or Persons.
- It can be Past, Present or Future.
- There must be Some Consideration in a Contract Even Though it is Inadequate for the Type of Contract being Made.
- Consideration must be Real and Not Illusory or Impossible.
- It must be Lawful.
1.Act or Abstinence
Consideration is a promise to do something or to abstain from doing something (according to section 2d). Lush has Defined consideration “as the result in a benefit to the promisor and a detriment or loss to the promisee or a detriment to both”.
1.When we say that consideration is an act it acquires an affirmative tone.
Illustration
Anil promises Dolly that he will guarantee the payment of 15 computers if he sells them to Dev, who is his uncle. Dolly's sale of computers to Dev is a consideration of Anil's promise.
2.When we say that consideration is abstinence or forbearance it becomes negative in form because one party agrees to accept less in order to help the other. Thus one party is able to benefit due to the abstinence of another who refrains from some gain.
Illustration
Sunil promises his friend that he will not file a suit against him if he gives him 5 cameras and Rs 10,000. Sunil’s abstinence is consideration for his friend’s articles and money.
Case law 1
Radha Rani Vs Ram Dass A.I.R (1941) Pat 282
A woman wanted to sue her husband for a monthly maintenance allowance. The husband agreed to pay that amount. The wife had been held back from the courthouse. Her very act was considered to be abstinence to sue and, therefore, to be taken into consideration.
3.A compromise may also be considered to be an act or abstinence.
Illustration
Malik and Company requested that their creditors accept 20% less than the total amount they owed, as the company had gone bankrupt but had the intention of clearing the debts as far as it could. The creditors have agreed to accept the offer. This is a good consideration and a valid contract as a compromise has been reached and agreed upon by all the parties.
2.It is moved at the desire of the promisor.
The promisor must move the request for consideration. If it is moved at the desire of a third person it will not form good consideration even if the promisor desired it. Therefore the promisor must first give consideration
Case Law 2
Durga Prasad Vs Baldeo (1880) 3 All 221 D
On the order of the collector of the town, Durga Prasad built a number of shops at his own expense on the market. The shopkeepers who occupied these shops promised to pay Durga Prasad's commission on their sale. Durga Prasad sued the shopkeepers when he had not received a commission. The court held that no consideration was given to the promise, since the shops were built on the order of the collector and not at the request of the shopkeepers. There could therefore not be a recovery.
Illustration
Seema jumped in an unused dry well before her house. Meena jumped too and was able to draw Seema out of the well. Meena cannot demand any payment from Seema as she was not asked by her to save her life. She jumped on her own without the promisor even requesting her to do so.
Illustration
Leena has a small boutique in the Tilak Nagar market. There was a fire on the market and some people were trapped. A person went to her boutique to save the people. Can that person ask for money for the services rendered as five people have been saved and many cloth balls have been removed to a safe area. No payment can be demanded, but Leena may, as a courtesy, give some reward if she wants to do so. It can not be forced as consideration has not been moved by the Promisor.
3.It may be Moved or Move from the Promisee or Another Person
When a promisor gives a promise, the promisee or any other person may provide a valid consideration in return.
Case Law 3
Chinnaya vs Ramaya (1882)4 Mad 137
The old lady made an agreement with her daughter that she would give her some landed property, but the condition was that the daughter would pay her aunt a certain amount on a regular basis as a maintenance allowance. The daughter promised her aunt (mother's sister) money for maintenance. Later, however, she stopped paying her aunt the money. The aunt filed a case against her neice for not paying her money. The decision was in favour, as it was a perfectly valid consideration.
Under the English Law consideration must move from the promisee. This is supported by the case of Tweddle vs Atkinson (1861) I B&S 392. The Indian Law states that consideration may move from the promisee or any other person. It may even move through a stranger. However the stranger to a contract can only sue if he/she is party to the contract. This means that it is important to have some valid consideration to an agreement to make it a valid contract.
Illustration
Juhi gives jewellery worth Rs.50,00,000 to her daugher-in-law Rani and in return asks Rani to give her daughter Rs 2,00,000 when she inaugurates her new house. Rani promises her mother-in-law to give the amount to her daughter as consideration for the gift that she receives. On the date of the inauguration Rani does not keep her promise. Juhi’s daughter goes to court. Can she get relief? Yes, Juhi’s daughter can get relief since Rani had promised the money as consideration for the gift received by Juhi.
A person who does not provide consideration in an agreement is a stranger to the agreement. A stranger gets rights in the contract if he/she becomes a party to the contract.
4.Consideration can be Past, Present or Future.
One of the important elements of consideration is that it can be past, present or future.
Past Consideration: When consideration is provided before a person becomes a promisor, it is called past consideration. Such a situation can arise when a person has done some work that is desired by another but is compensated later on. He does not receive the benefit immediately. English Law does not consider past consideration to be good. However it accepts time barred debts as good past consideration.
Illustration
Sonam went to a friend's house where she suddenly had a severe stomach pain. She was examined by a doctor in the neighborhood and given some medicine. At that time, there was no talk of compensation for the services of the physician. Later Sonam went to the doctor's clinic to thank him and also gave him Rs 500 for his services. That's the past consideration. The doctor received the fees for the services he had provided earlier.
Future Consideration: When a promise is to be executed on a future date it is called executory consideration or future consideration. In this the promisor makes an offer for a future date and the promisee promises to accept and execute the contract after that date this is future consideration. In this case both parties move the consideration to a future date. The liability becomes outstanding on both parties on a future date.
Illustration
Ruhi promises to sell and deliver a new wristwatch to Rekha after a week. Rekha accepts the offer and promises to pay after one month of receiving the watch. This is executory or future consideration.