Consideration: Meaning, Essentials and FAQs

Consideration is one of the essentials of a valid and lawful contract and without it, we cannot create a legally binding agreement. It creates an obligation on the parties within the contract. Any contract that is not supported by consideration is generally made by people in a rash and hurry, and because of that, these agreements are not treated as valid as per the law. In general terms, we can define consideration as the thing we give to another person when he/she fulfills the promise. In a contract, it is essential that the promise must be backed by a consideration otherwise there is no liability on the party to execute their duties.

Geeky Takeaways:

• Consideration can be called as the price that a party pays to another party for the promise.
• The promisee or any other person who is part of the contract can provide consideration but the condition that is needed to be satisfied for a valid consideration is that it must only be moved at the desire of the promisor.
• Only the parties to the contract can initiate any legal proceedings against each other, and no other person is allowed to do the same. This is known as the Doctrine of Privity of Contract.
• According to Section 10 of the Indian Contract Act of 1872, a contract without consideration is void.

What is a Consideration?

The Indian Contract Act, 1872 defines consideration under Section 2(d) of the act. As per the act, the definition of consideration is “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 a contract, the consideration can differ for both parties; i.e., If two parties A and B, enter into a contract for buying a car, A has to sell the car, and B has to pay a certain sum, then the consideration of A is the sum, and for B the consideration is the sum in this agreement. A consideration will be only treated as a lawful consideration when it has some value in the eyes of the law. The consideration doesn’t need to have the same/equal value. It must be real and must not be an uncertain event that is impossible to perform. Any immoral consideration is not a good consideration and is considered to be illegal.

Essentials of a Valid Consideration

There are some essentials of a valid consideration that must be there for a contract to be valid. These essentials of valid consideration are explained below:

1. Consideration can only be moved at the Desire of the Promisor: As per the Indian Contract Act 1872, a valid consideration must only be moved by the desire of the Promisor and no one else. If anyone other than the promisor promises something, then, it would not constitute a valid consideration. In the case Durga Prasad v Baldeo, the court established that the person who has constructed the market is not acting as per the will of the defendant. So he cannot claim any consideration for the same.

2. Consideration by Promisee or any other Person: As per the Indian Contract Act 1872, consideration can be provided by Promisee or any other person, but the condition which needs to be satisfied is that it must move only at the desire of the promisor. As per English law, any stranger to consideration does not have any right and cannot sue. But as per Indian law, a stranger to consideration has the right to sue, it only needs to be a party in the agreement.

3. Consideration could also be Past, Present, or Future: As per the Indian Contract Act 1872, consideration can be past, present, or future depending upon the nature of the transaction. When the parties fulfill the promises simultaneously, it is a Present Consideration. In case the promisor has fulfilled his promise but shall receive the consideration after some time, then it is termed Future Consideration. When the promisor receives the consideration before fulfilling his/her promise then it is called Past Consideration.

4. Consideration must be Real, not Illusionary: As per the Indian Contract Act, 1872, the consideration must be real and not illusionary. The court through its various judgments explains that the consideration must have some value in the society. Those things are not considered as considerations that are illusionary or do not have any value.

5. Consideration need not be Adequate: As per the Indian Contract Act, 1872, the promise and the consideration don’t need to have the same value. The court made it clear that the consideration needs to be real and the value for the same is not considered by the court.

Conclusion

There are a few essentials of a valid contract, and a lawful consideration is one of them. It is not possible to enter into a contract without a valid consideration. Consideration can be past, present, or future depending upon the nature of the transaction. A contract without consideration is not possible as per the prevailing law. Various exceptions are defined under Section 25 of the Indian Contract Act 1872, which caters to the needs of the people that these rules can hamper. The consideration need not have equal value to the promise but must be real.

Frequently Asked Questions (FAQs)

1. Which Section defines Consideration under the Indian Contract Act, 1872?

Answer:

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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”

2. What is the importance of Consideration in a contract?

Answer:

Consideration is an essential element of a contract and without it a contract cannot be formulated.

3. What is Past Consideration according to the Indian Contract Act, 1872?

Answer:

As per the Indian Contract Act 1872, when the promisor receives the consideration before fulfilling his/her promise then it is called Past Consideration.

4. Is it essential that the Consideration should have the same value as the promise?

Answer:

No, as per the Indian Contract Act 1872, it is not necessary that both the promise and consideration should have the same value. As per the act, the consideration must be real and not hypothetical.

5. What is the Doctrine of Promissory estoppel?

Answer:

This Doctrine is an exception to the Doctrine of Consideration. In this Doctrine, if a promise is made to be acted upon in the future and the party has performed their part then it is the liability of the other party to also perform their part and they cannot back out from the situation.