INTRODUCTION:
Consideration is basically an inducement given to enter into a contract that’s sufficient enough to render the promise enforceable within the courts. The technical requirements are either a detriment incurred by person making the promise or a benefit which is received by the other person.
Section 2d of the Indian Contracts Act, 1872 defines consideration.
It states that 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 a consideration for the promise.
Section 2d clearly states that the act which is to be the consideration by the promisee must be done by the desire of the promisor. If the consideration is made without the desire of the promisor or by a 3rd party it will not be considered a good consideration.
For Example :
X offers to sell his bike to Y for a sum of ` 1,00,000. Y accepts the offer. In this contract, X is the promisor and it is his desire to sell his bike for ` 1,00,000 ,Y is the promisee and on the desire of X he is purchasing the bike for ` 1,00,000. The consideration for X’s promise, is a sum of ` 1,00,000 while consideration for Y’s promise is the bike.
In Currie v. Misa, it was defined, “A valuable consideration in the sense of the law may consist either in some right, interest, forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other.”
ESSENTIALS OF CONSIDERATION
Consideration should be at the desire of the Promisor. The act should be done at the desire or request of promisor. Acts done at the desire of the 3rd party is not considered a consideration in the eyes of law.
For Example:
Y workshop is on fire. X rushes to Y’s help and later demanded ` 10,000 from Y. Is X justified in claiming ` 10,000 .No, he is not justified as there is no consideration here. It is a voluntary act of X. But if X goes to Y’s help at Y’s request who promises, to give ` 10,000 to X for the help then Y is bound to pay. As the consideration for Y is to get the help from X and consideration for X’s promise is ` 10,000
In Durga Prasad v. Baldeo, on the order of the collector of a town Durga Prasad built some shops on his own expense in a market. The shopkeepers who occupied these shops promised to pay to Durga Prasad commission on their sales. Durga Prasad sued the shopkeepers when he did not receive the commission. The court held that the promise was not supported by any consideration as the shops were built on the collector’s order and not at the request of the shopkeepers. Therefore there could not be a recovery.
Consideration can be past, present or future
Past Consideration:
Past consideration is basically a promise for voluntary act which is done in past to help the party making promise to pay or doing something subsequently. So, it means that consideration is promised to pay later for the act done without a promise by the other party.
Present Consideration:
Present consideration is also called as executed consideration. When the consideration is simultaneously received with the promise by the promisor, that consideration is called as Present Consideration.
Future Consideration:
Future consideration is also called as executory consideration. When a promise is to be executed on a future date it is called future consideration. In future consideration an offer is made by the promisor for a future date and the promisee promises to accept it and execute the contract after that particular date. So, Both parties move the consideration to a future date.
Difference between Executed (Present) and Executory (Future) Consideration
In Union of India v. Chaman Lal Loona, it was made clear that an executed consideration consists of an act for a promise. It is the act which forms the consideration……… In an executed consideration the liability is outstanding on one side only; it is a present as opposed to a future consideration. In an executory consideration the liability is outstanding on both sides.
It is in fact a promise for a promise; one promise is bought by the other. The contract is concluded as soon as the promises are exchanged. In other words, a contract becomes binding on the exchange of valid promises, one being the consideration for the other.If the contract has been fully and completely performed on both sides, no question of any further rights and liabilities under the contract is likely to arise.
If, however, the contract is one in which the consideration is executed on one side, there will be a right on one side and an outstanding liability on the other. If the consideration is executory on both sides, there will be outstanding rights and liabilities on both sides.
Consideration does not need to be Adequate. It is not essential for the consideration to be adequate ,essential is the conversion of agreement into contract in the presence of the Consideration. Consideration should have some value in eyes of law.
SECTION 23 OF ICA, 1872.
Section 23 of the Indian Contract Act, 1872 states whcich considerations and objects are lawful and which not. The consideration or object of an agreement is lawful, unless it is forbidden by law, or is of such a nature that, if permitted , it would defeat the provisions of any law, or is fraudulent, or involves or implies injury to the person or property of another, or the Court regards it as immoral, or opposed to public policy.
In all these cases, the consideration or object of an agreement said to be unlawful. Every agreement of which the object or consideration is unlawful is considered void.
In Fisher v. Bridges , the defendant agreed to buy land from the plaintiff. According to the defendant, before the making of the deed, which was subject to a mortgage, the plaintiff was aware that the land would be exposed to sale and sold by way of lottery in an illegal manner contrary to the statute. Part of the purchase money was unpaid by the defendant and the defendant made a covenant for payment. The plaintiff sued for payment based on this covenant.
It was found that the covenant was clearly given by the defendant to secure the payment of a part of the purchase or consideration money for the lands, the subject of the agreement. Accordingly, it was given as a security for payment of a debt that was tainted with illegality. Therefore, because the law would not enforce the payment of the debt, it would not enforce the payment of the security contained in the covenant because it sprung from, and was the creature of, an underlying illegal agreement.
SECTION 24 OF ICA
Section 24 of the Indian Contracts Act, 1872 states that the agreement is considered void if the considerations or the objects are unlawful. If any of the part of a single consideration for one or more objects is unlawful ,the agreement is considered void. Consideration can be given for one or more than one object. Consideration will be considered void (void ab initio) if any one part of the object is unlawful and other part of the object is lawful.
In Alice Mary Hill v. William Clarke, (1905) 27 ALL 266, a woman agreed to live with a man, in adultery in lieu, of a monthly consideration of Rs.50. The agreement was declared void, as the lawful part can’t be separated from the unlawful one.
SECTION 25 OF ICA
Section 25 of the Indian Contracts Act 1872 states that an 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 of the promisor was freely given.
1.Consideration should be Lawful .
2.Consideration needs to be lawful, for the agreement to be valid. Unlawful consideration leads to a void agreement. Section 23 of the Indian Contract Act states that consideration is not lawful in these situations:
3.When consideration is made of an act which is forbidden by law
4.When injury is caused to a person or to the property of another person by it .
5.When it is declared to oppose to public policy.
In Tweddle v. Atkinson, the father of the groom and the father of the bride, agreed that each of them shall pay a sum of money to the boy, and after marriage the husband should have full power to sue for such sums. After the death of both the contracting parties the husband sued the executors of the wife’s father upon the above agreement, but the action was held not to be maintainable because the husband was not a party to the contract.
Exceptions to Section 25 (General rule)
Complete gift
Complete gifts do not require consideration .So, no rules that state there is no contract without any consideration applies to completed gifts, they can be made without any consideration. As section 25 of Indian Contracts Act ,1872 explains that nothing will affect the validity of any gift made between the donor and the donee.
Agency
For the creation of agency a consideration need not be necessary.
Promise to compensate for voluntary services
When a contract is created to compensate someone, who has already done something for the promisor voluntarily ,or has done something which the promisor can legally do.
Promise to pay a time barred debt:
A promise which is made by a debtor to pay a time barred debt is enforceable. A time barred debt is signed by the debtor which is made in writing. The time barred debt should be such for which the creditor may enforce the payment by the limitation of suit.
Promise made on account of natural love and affection :
When a contract is created on account of natural love and tenderness between the parties.The parties are in near relation to each other. The contract is registered under the law for the time being in force for registration of the documents and is in writing
Privity of Consideration
The privity of consideration means that much as the party is a stranger to the consideration as he or she has not paid the consideration, but consideration is paid by someone for the benefit of the beneficiary. This kind of contract can be executed by filing a suit by beneficiary.
In Chinaya v. Ramayya, A, by a deed of gift, made over certain property to her daughter, with a direction that the daughter should pay an annuity to A’s brother, as had been done by A. On the same day the daughter executed a writing in favour of the brother agreeing to pay the annuity. The daughter declined to fulfil her promise and the brother sued to recover the amount.
The defendant (sister) contended that no consideration from the brother, and that he being the stranger to the consideration had no right to sue. Held, it is not necessary that consideration must move from the promised himself. A contract can be supported can be supported even by a consideration from a person other than the promised. Therefore, the brother was entitled to maintain the suit.
There are various exceptions to the doctrine of privity :
Trust :
A beneficiary under an agreement to create a trust can sue upon the agreement, though he/she was not a party to the contract between the settler and the trustees.
Nawab Khawaja Muhammad Khan v. Nawab Hussaini Begum, the Privy Council firmly established an exception to the doctrine of privity of contract and allowed an action by a stranger to the contract. In this case the appellant executed an agreement with the respondent’s father. By this agreement he agreed that in consideration of respondent’s marriage with his son (both, bride and bridegroom were minor at the time) he would pay to the respondent ` 500 per month in perpetuity for her kharch-e-pandan (betelbox or betel leaf expenses) from the date of marriage.
He also charged his property in Agra and Dholpur with this money and mentioned that in case of his death his heirs or representative would pay the money out of these properties. The arrear of the money was claimed by the plaintiff after separation from her husband. In this case it was held that she could enforce the promise in her favour.
Although she was not a party to the agreement but as the contract is entered for her benefits only so she was clearly entitled to proceed in equity to enforce her claim. The Privy Council observed that it might occasion serious injustice to apply the common law doctrine of privity of contract in a country like India where marriages are contracted for minors by parents or guardians.
Family Settlement
If the contract is made in a family arrangement for the benefit of a stranger (person who is not a party to the contract), then that stranger can sue in his right as a beneficiary of the contract .
Estoppel or Acknowledgement
If a contract needs that a party pays a precise amount to a third-party and he/she acknowledges it, then it becomes a binding obligation for the party to pay the third-party. The acknowledgment may also be implied.
Contract through an Agent
If a person entered into a contract by an agent, where agent acts with the scope of his authority and in the name of that person .
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