Consideration: Meaning and Unlawful Considerations

Consideration is an essential element in the contract to make it qualify as a valid contract. No single promise can be enforceable if it is made without consideration. It is a term that is based on the maxim ‘quid pro quo’; i.e., something in return. Consideration is the price that is agreed to be paid by the promisee for the performance done by the promisor.

In the words of Pollock, “Consideration is the price for which the promise of the other is bought.”

Geeky Takeaways:

• Consideration is the act of doing something.
• Consideration is an act of abstaining from doing something.
• Consideration must be made at the will of the promisor.
• Consideration may be either past, present, or future.
• Consideration might not necessarily take place between the promisee and the promisor; rather, it can move from the promisee to a third party.
• A mere presence of consideration is not sufficient, it must be lawful.

What is Consideration?

Section 2 (d) of the Indian Contract Act 1872, defines consideration as follows: “When at the desire of the promisor, the promise 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 definition of Consideration consists of the following four components:

• The act of abstinence or promise which forms the consideration for the promise, must be done at the desire of the promisor.
• It must be done by the promisee or any other person.
• It may have been already executed is in the process of being done or may be still executory.
• It must be something to which the law attaches a value.

What Considerations and Objects are Unlawful?

Section 23 of the Indian Contract Act, 1872 establishes that the consideration of a contract is considered unlawful in certain cases. Through various judgments and reading them with the provisions of the Indian Contract Act 1872, an explanation of the above has been provided. The consideration or object of an agreement is unlawful in the following cases:

1. Forbidden by Law: When the consideration of a contract is prohibited by law, then it will cease to be a lawful consideration. Such considerations then become unlawful. And the effect of that is that the contract cannot be valid anymore. Unlawful consideration includes types of consideration that are specifically punishable by the law. This also includes those considerations that are prohibited by the appropriate authorities via rules and regulations. However, if the rules levied by such authorities are not under the law, then these will not apply.

For example, Mr. Narcos contracts with Mr. Professor that if he sells his car to him, he will pay the car’s value by supplying him with the same value of drugs. As this is strictly prohibited by the law, this is an unlawful consideration.

2. Defeat the Provisions Set Under The Law: When the consideration for a contract aims at defeating the existing provision of law or the intentions of the said law, in such a case, if the court establishes that the consideration is contradictory to the existing provisions of any law, it can discard the contract as void. Such a consideration will be considered an unlawful consideration for the contract, and such consideration will end up making the contract an invalid and void contract.

For example, Nirav and Vijay enter into an agreement where Nirav is the debtor and Vijay will not plead limitation. This, however, is done to defeat the intention of the Limitation Act, and so the courts can rule the contract void due to an unlawful object.

3. Fraudulent: A contract will be considered invalid or void by nature if the consideration of the said contract is fraudulent. To maintain the validity of a contract, it is important to understand what may fall under a fraudulent act. To understand the term fraud, Section 17 of the Indian Contract Act, 1872 can be referred to, which the act states that any act committed by a party to a contract with the intent to deceive another party or to induce that party into entering into the contract.

For example, Naresh promises Akash to drop the prosecution he has instituted against Akash for robbery, and Akash promises to restore the value of the things taken. The agreement is void.

4. Involve Harm or Injury to Any Other Person or Property: A consideration will not be considered a lawful consideration of a contract if such consideration includes any act that includes causing any harm to a person or property. When a person takes money as an object and, in return as a consideration, agrees to kill a third person or vandalize any third party’s property, It is worth noting that this type of consideration can be broadly included under an act forbidden by law as well.

For example, Raman agrees with Naman that if Raman sells his flat to Naman, Naman will kill Gagan. Here, as the act includes injury to a third person, such a consideration will be unlawful.

5. The Consideration Is Not Immoral: A consideration in a contract will be considered to be an unlawful consideration if it is exclusively regarded as an immoral act by the court. The contract would end up being invalid and void in the event of an immoral consideration.

For example, Sana lent money to Shoaib to obtain a divorce from his wife, Sania. It was agreed that once Shoaib obtained the divorce, Sana would marry her. However, the court passed the judgment that Sana cannot recover money from Shoaib since the contract is void on account of unlawful consideration.

6. Opposed to Public Policy: In any judiciary, it is important to maintain the essence of natural justice in the community. If the consideration for a contract is oppressive to public policy, the consideration will be considered unlawful, and the contract will be treated as an invalid contract or void by nature. The term public policy here means If the act included in the consideration is not particularly in favor of the good being of the community but rather brings inconvenience to society or the public, then such an act makes the consideration unlawful.

For example, Mango, a company based in India, deals with China in integrated circuits. The government of India has declared war on China. Even though, after the warning, Mango deals with China (trades with the enemy).

Conclusion

Consideration is an essential element in the contract to make it qualify as a valid contract. No single promise can be enforceable if it is made without consideration. However, a mere presence of consideration is not sufficient; it must be lawful. Section 23 of the Indian Contract Act, 1872 establishes that the consideration of a contract is considered lawful consideration unless the following things affect it: when they are exclusively forbidden by law, when nature defeats the purpose of the law, when they are fraudulent, when it involves injury to any other person or property, when the courts regard them as immoral, and when they are opposed to public policy. Any lawful consideration cannot contain any of the above; otherwise, the contract will be invalid and void, and the legal remedies available for parties in these cases will either be limited or unavailable. It is important for the parties to a contract to understand whether the consideration to the contract is lawful or unlawful, this will help them to save themselves from any probable losses or damage which can be caused by entering such contracts.

Frequently Asked Questions (FAQs)

1. What is Consideration?

Answer:

Consideration is the price that is agreed to be paid by the promisee for the performance done by the promisor. Section 2(d) of the Indian Contract Act, 1872 defines consideration 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 abstain from doing something, such an act, abstinence, or promise is called a consideration for the promise.”.

2. What is a Lawful Consideration?

Answer:

Section 23 of the Indian Contract Act of 1872 clearly establishes that the consideration of a contract is considered lawful consideration unless the following things affect it:

• When they are exclusively forbidden by law.
• When nature would defeat the purpose of the law.
• When they are fraudulent.
• When it involves injury to any other person or property.
• When the courts regard them as immoral.
• When they are opposed to public policy.

3. What is consideration forbidden by law?

Answer:

When the consideration of a contract is prohibited by law, then it will cease to be a lawful consideration. Such considerations then become unlawful in nature. And the effect of that is that the contract cannot be valid anymore. Unlawful consideration includes types of consideration that are specifically punishable by the law.

4. What is Consideration opposed to public policy?

Answer:

In the event that the consideration for a contract is oppressive to public policy, the consideration will be considered unlawful, and the contract will be treated as an invalid contract or void by nature.

5. If in a contract X agrees with Y that if X sells his flat to Y, Y will destroy the property of Z. Is this a valid contract?

Answer:

Here as X agrees with Y that if X sells his flat to Y, Y will destroy the property of Z. Here, as the act includes injury or destruction of property of a third person, such a consideration will be unlawful. As contract act has established that a consideration will not be considered a lawful consideration of a contract, if such a consideration includes any act that includes causing any harm to a person or property.