Business Law

Consideration – Meaning And Elements Of Consideration

Consideration – In everyday language, a consideration is something for something. If a person does, or promise to do, something, he expects (and is promised) something in return – which is the quid pro que or compensation without which the promise is not valid. This ‘something’ is called consider other words, ‘consideration is the price that is paid for buying somebody’s promise’.

When one makes a promise to another, he does so to receive or gain something which the other person has or which can be made available by him to the person making the promise. A consideration can be a profit or loss, a benefit or damage, or an obligation, but a contract without consideration is not enforceable by law.

Elements of Consideration

(1) Consideration must be the result of the promisor’s desire – Any action, or abstinence from action, must be at the desire or request of the promisor. If such an action, or abstinence thereof, is at the instance of a third party, or is done without the consent or desire of the promisor, then it is nota consideration.

In other words, if a person does not need a thing or service which is provided to him, he does not become liable to pay for it if it is provided without his express demand. Hence, a promisor’s desire or instruction is a pre-requisite for consideration. If A sells his car, which is valued at 1,00,000 to B for 50,000, it does not make the transaction illegal because the contract involves a consideration that has been defined and is at the desire of the promisor. The case of Durga Parsad vs. Baldeo is an important example.

(2) Consideration may be a promise to do or abstain from doing something – It can be for a negative or a positive act. In a positive act, the promisee does something at the express wish of the promisor whereas, in a negative act, the promisee abstains from or postpones doing something at the wish of the promisor.

For example – A makes a contract to sell his house for 10 lakh to B. In this case. 10 lakh is a positive consideration for A. On the other hand, if A has given a loan of 10 lakh to B to be paid back by a certain date, and is thinking of filing a suit because he has not received repayment and is approached by B with a request not to file the suit and accept 1 lakh as interest for one vear, after which he will repay the loan, it will be a negative act which is a consideration for A for not filing the suit.

(3) Consideration may be past, present or future – The Indian Contract Act recognise past present and future considerations whereas the English law does not recognise a past consideration. These are briefly discussed in what follows.

  • Past Consideration: When a consideration by a party for a present promise was given in the past, i.e., before the date of the promise, it is said to be a past consideration. It implies consideration for having done, or having abstained from doing, something in the past. For example, A renders a service to B that the latter wants. After a week, B promises to pay 1,000 to A for the service. It is a past consideration and A is entitled to the promised amount.
  • Present Consideration: A consideration to do or abstrain from doing something given simultaneously with the promise is a present consideration. A cash sale, for example, is a present consideration.
  • Future Consideration: When the consideration from one party to the other is to pass subsequent to the act of doing or abstaining from doing something, it is called a future consideration. For example, if A promises to sell 100 quintals of rice from the coming crop at 800 per quintal to B, and B promises to make the payment for the same within a week of its receipt, it is a case of future consideration.

(4) Consideration must be legal, real and certain – A contract wherein the consideration is illegal, unreal or uncertain is void, the parties to such contract cannot take the recourse of law to enforce their rights.

For example – if A promises to pay 10,000 to B to beat up C against whom he has a grudge, it would be an illegal consideration for B to accept because if he does beat up C and A refuses to pay the amount, he cannot take the recourse of law to get it. If X promises to give an amount of money to Y, and Y promises to pray for X’s long life, it would be a consideration which is not real for X. Similarly, if A promises to sell his car to B for whatever B wants to pay for it, it would be an uncertain consideration for B, and the contract would be void.

(5) Consideration need not be adequate – As said earlier, consideration is ‘something in return’ The ‘something in return’ need not necessarily be equal to ‘something given’. The law provides that a contract should be supported by a consideration. So long there is a consideration, the law is not concerned about its being adequate, as per Section 25, but a contract must have a consideration.

An agreement does not become void because of the consideration not being adequate. If A decides to sell his car valued at 1,00,000 for 10,000 to B, it is his free consent and the agreement will be deemed to be a contract.

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