Gavin Howe
The Indian Contract Act, 1872, outlines the circumstances under which promises made by the parties to a contract become legally binding. Consideration is a vital concept in contract law, and it is defined as the price that the promisee agrees to pay to the promisor. In India, valid consideration exists when, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, or promises to do so. This consideration must be lawful and real, and it cannot be something the promisor is already bound to do.
| Characteristics | Values |
|---|---|
| Definition | An act of abstinence from doing something, at the desire of the promisor. |
| Must be desired by | The promisor. |
| Can move from | The promisee or another person. |
| Can be | An act, abstinence, or a promise. |
| Must be | Lawful and real. |
| Must not be | Immoral or against public policy. |
| Must be decided by | The parties involved, not a court of law. |
| Need not be | Equal in value. |
| Must not be | An act the promisor is already bound to do. |
| Must not involve | Involuntary labour or an infringement upon the personal liberty of a party to the contract. |
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What You'll Learn
What is the definition of consideration?
Definition of Consideration
Consideration is an essential part of a valid contract under the Indian Contract Act, 1872. Section 2(d) of the Act defines consideration 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 promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise."
In simpler terms, consideration is the price that the promisee agrees to pay to the promisor. This price can be in the form of a benefit to the promisor or a loss/detriment to the promisee. For example, A agrees to sell his property worth Rs 1 crore to B for Rs 10,000. Here, the consideration is the price B pays (Rs 10,000) to A for the property.
Consideration can be in the form of an act, abstinence, or a promise to do or abstain from doing something. For instance, in the case of White v. Bluett (1853), the promise by a father to release his son from an outstanding loan if the latter refrained from making complaints was refused to be enforced as it lacked the essential elements of a bargain.
It is important to note that the consideration must be made at the desire of the promisor. If an action is taken at the will of a third party or without the promisor's desire, it is not considered a valid consideration. Additionally, the consideration must be lawful and not forbidden by law, cause injury to a person or property, or be immoral.
Under Indian law, past consideration is considered valid, unlike in English law. This means that if a person renders voluntary services without a prior request or promise, and the receiver promises to pay for those services, such a promise is enforceable.
The consideration must also be real and not illusory, not physically impossible, legally permissible, and not based on uncertain events or conditions. The adequacy of consideration is not necessary, and it is up to the parties involved to decide its value. However, the decision must be made with the free consent of both parties.
In conclusion, consideration is a vital aspect of contract law in India, and it refers to the exchange of value between the promisor and the promisee, whether in the form of an act, abstinence, or a promise. It is essential for a contract to be legally binding and enforceable.
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What is the history of the concept of consideration in Indian law?
The Indian Contract Act, 1872, defines the term 'consideration' under Section 2(d). According to this section, 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 promises to do or abstain from doing something, such an act, abstinence, or promise is called a consideration for the promise. This means that consideration is something in return for a promise.
The history of the concept of consideration in Indian law can be traced back to the Indian Contract Act, 1872. The Act provides the legal framework for contracts and agreements in India, and Section 2(d) defines the term 'consideration'. This definition sets out the basic concept of consideration, which is essential for a valid contract.
Over time, the Indian courts have interpreted and applied the concept of consideration in various cases, refining and shaping the understanding of this concept in Indian law. For example, in the case of White v. Bluett in 1853, the court refused to enforce a promise by a father to release his son from an outstanding loan, as the essential elements of a bargain were lacking, and there was no valid consideration. This case highlighted the importance of consideration being 'good' or 'valuable', even though these words do not appear in the Indian Contract Act.
Another example is the case of Chinnaya vs Rammyya, where the court held that consideration can also move at the desire of a third party, but only if they are a beneficiary of the contract. This case provided clarity on the role of third parties in the concept of consideration.
Additionally, Indian law has distinguished itself from English law in its treatment of past consideration. While English law considers past consideration as no consideration, Indian law recognises it as good consideration due to the use of the words "has done or abstained from doing" in the definition of "consideration". This distinction has been highlighted in cases such as A's bike running out of petrol on his way to the office, where past consideration was recognised as valid.
Overall, the history of the concept of consideration in Indian law has evolved through a combination of statutory definitions, judicial interpretations, and case law applications, shaping the understanding and enforcement of contracts and agreements in the country.
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What are the criteria for valid consideration?
In Indian Contract Law, consideration is an essential element of a valid contract. The Indian Contract Act, 1872, defines the term 'consideration' under Section 2(d) as:
> "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 promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise."
The criteria for valid consideration are as follows:
- The consideration must be lawful: An illegal consideration is not valid and makes the contract void. It is unlawful if it is a forbidden act under any law, if it causes injury to a person or their property, or if it is immoral.
- The consideration must be real and possible: An impossible act, such as a physically or legally impossible act, cannot be classified as valid consideration. It should not be illusory or based on uncertain events or conditions.
- The consideration need not be adequate: The Indian law states that adequacy of consideration is not necessary, and the parties are free to bargain. However, the decision must be made with the free consent of both parties.
- The consideration must move at the desire of the promisor: The consideration will only be valid when the promisor has requested it. Any act done voluntarily does not constitute valid consideration.
- The consideration may move from the promisee or another person: Unlike English law, in Indian law, it is not necessary for the promisee to supply the consideration. It can move from any other person, including a third party, as long as there is consideration.
- The consideration should be of some value in the eyes of the law: The courts have been liberal in interpreting this, and anything of value to the parties is regarded as a valid consideration. The value need not be equivalent to the promise made, and it is for the parties to decide the value, not the court.
- Past consideration is valid: Unlike English law, Indian law recognises past consideration as valid. This means that if a person renders voluntary services without any request or promise, and the receiver promises to pay for the services, such a promise is enforceable.
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How does consideration make agreements valid and enforceable?
Consideration is an essential element of a valid contract under the Indian Contract Act, 1872. It is defined as the price that the promisee agrees to pay to the promisor, which can be in the form of a benefit to the promisor or a loss/detriment to the promisee. In other words, it is something in return for a promise, which can consist of an act, abstinence, or a promise to do or abstain from doing something. This consideration must be desired by the promisor, and it must be lawful, real, and possible.
The presence of consideration in a contract ensures that the contract is valid and enforceable by law. Without consideration, a contract is void and cannot be enforced. This is because gratuitous or voluntary promises made without consideration are often rash and lack due deliberation. The law aims to prevent a party from obtaining "something for nothing," ensuring that both parties exchange something of value.
Consideration is what each party to the contract agrees to give up or receive in return for the other party's promise. For example, in a sales contract, the seller's consideration is the goods sold, and the buyer's consideration is the money paid for those goods. This mutual exchange of consideration makes the contract valid and enforceable, as each party has given up something or accepted a burden or loss.
The Indian Contract Act recognises past, present, and future consideration. Past consideration, which is not recognised under English law, occurs when one party performs their part of the promise before the promise is made. For example, if A renders a service to B, and B promises to compensate A after a month. Present consideration occurs when the consideration and promise are exchanged simultaneously, such as in a cash sale. Future consideration involves a promise to provide consideration at a later date, such as promising to deliver goods after a week in exchange for payment after a fortnight.
To summarise, consideration makes agreements valid and enforceable by ensuring that both parties provide something of value in the contract. This can be in the form of an act, abstinence, or a promise, and it must be desired by the promisor and lawful. Without consideration, agreements lack legal validity, and courts will not enforce them.
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What are the differences between English law and Indian law on consideration?
Indian law on consideration is similar to English law, as both are based on the principles of contract law developed under common law. However, there are some key differences between the two systems:
English law recognises consideration as a necessary element for the formation of a valid contract. It refers to the concept of "bargain" or "bargained-for exchange", where there must be a mutual exchange of value between the parties. The consideration can take various forms, such as a promise to do something, refraining from doing something, or providing goods or services.
Indian law, on the other hand, does not explicitly recognise consideration as a separate essential element for a valid contract. Instead, it focuses on the consent of the parties and the existence of a lawful object and consideration together to form the essence of 'lawful consideration' under Section 10 of the Indian Contract Act, 1872. The law requires that any agreement without consideration is void unless it is expressly covered by any of the specified categories of contracts under Section 25 of the Act.
Another difference lies in the scope and interpretation of the term "consideration". In English law, the consideration must be sufficient but need not be adequate. This means that the exchange does not have to be equal in value, as long as something of value is exchanged. Indian law, however, requires that the consideration should be "real" and "lawful". The consideration must be "real" in the sense that it should be actually given or promised and not illusory. It must also be "lawful", which means that it should not be forbidden by law or immoral.
Additionally, English law allows for past consideration to be valid in certain circumstances, such as when it is clearly linked to the present promise. Past consideration is where one party has already performed an act before the other party makes a promise to pay or exchange something of value. Indian law, however, does not recognise past consideration as valid. Any act or forbearance already done before the giving of a promise cannot be good consideration for that promise.
Indian law also differs from English law in terms of the doctrine of "privity of contract". In English law, only the parties to a contract can sue or be sued for its breach. Indian law, however, allows third-party beneficiaries to enforce contracts in certain circumstances under the Contract Act and the Specific Relief Act.
Finally, Indian law provides specific performance as a remedy for breach of contract in certain cases, whereas English law generally only awards monetary damages. Specific performance requires the party in breach to perform the contract as initially agreed upon. This reflects a more performance-oriented approach in Indian contract law compared to the compensation-oriented approach in English law.
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Frequently asked questions
Consideration is an essential part of a contract, which is defined as an act of abstinence from doing something, at the desire of the promisor. It is a price that the promisee agrees to pay to the promisor.
A valid consideration must be real, competent, and have some value in the eyes of the law. It must also be lawful and not be a forbidden act, cause injury to a person or their property, or be immoral.
English law prohibits past consideration, whereas Indian law does not. In English law, consideration must move from the promisee, but in Indian law, it can be from the promisee or a third party.
An example of past consideration is when "A" renders a service to "B" at "B's" desire. After a month, "B" promises to compensate "A" for the service. Present consideration is when "A" receives Rs. 50/- in return for a promise to deliver goods to "B".
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