Q1 Discuss the doctrine of ‘ consideration’ under the Indian contract Act.
Marks 15
Consideration
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Q1 Discuss the doctrine of ‘ consideration’ under the Indian contract Act.
Marks 15
© 2020 ChinarLawInstitute.Com All rights reserved
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Doctrine of Consideration
Consideration is defined under section 2(d) which means when 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. In section 2(d) the word “something” means some value in the eyes of the law.
Consideration are of 3 types:-
1. Past Consideration
2. Present Consideration
3. Future Consideration
Consideration can be given in form:-
1. Price- Money
2. Benefit to the promisor
3. Detriment to the promisee
Consideration is must for every a valid contract, without consideration contract cannot become a valid contract.
When the contract is forming between Promisor and Promisee, the Consideration between them should be lawful. If contract is performed without the Consideration then, the contract is void. If Consideration is unlawful then the Agreement is void.
If their is no Consideration then the Agreement will not able to become a valid contract.
consideration is a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract. In a contract, one consideration is the exchanged for another consideration.
the term consideration in contract law refers to something of value given to someone in return for goods, services, or some other promise. In simple terms, consideration is the basic reason a party enters into a legal contract.
Marks 8
More explanation required
Doctrine of Consideration under Indian Contract Act
Consideration is one of the essentials of a valid contract(section 10). Subject to certain exceptions, the general rule in India is that “an agreement without consideration is void”(section 25).
In England, the contract are divided mainly into 2 categories:-
1.Contract under seal, or contract in the form of a deed. Such contracts are valid even without consideration.
2.Simple contracts or parol contracts. For the validity of such contracts the presence of consideration is needed.
Consideration means something in return of the promise. It may be either some benefit conferred on one party or some detriment suffered by the other.
According to Section 2(d) of the Indian Contract Act, 1872, consideration is defined 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 abstain from doing something, such act or abstinence is called a consideration for the promisee.”
Requirements of consideration
A consideration in order to be a valid one requires certain rules to be followed while made. They are listed as below:-
1. The consideration must move at the desire of the promisor.
The definition in sec. 2(d) clearly emphasizes that an act or abstinence which is to be a consideration for the promise must be done or promised to be done in accordance with the desire of the promisor. If such consideration is made at the will of a third party or without the desire of the promisor, it will not be a good consideration. Example. A saves B’s goods from a fire without being asked to do so. A cannot demand payment for his service.
B spent some money on the improvement of a market at the desire of the Collector of the district. In consideration of this D who was using the market promised to pay some money to B. Held, the agreement was void being without consideration as it had not moved at the desire of D.
2. The consideration may move from the promisee or any other person.
This means as long as there is a consideration it is immaterial who has furnished it. In English law, consideration must move from the promisee, but under Indian Law, consideration may move from the promise or even a stranger. But the stranger to the consideration cannot sue until he’s a party to the contract.
Example: ‘A’ by gift deed transferred certain property to her daughter with the direction that the daughter should pay an annuity to ‘A’s brother as had been done by ‘A’. Whereas daughter executed writing in favour of brother to pay the annuity. Afterwards, she refused to fulfil her promise saying that no consideration had moved from A’s brother. The court held that ’A’s brother was entitled to maintain the suit. [Chinnayya v. Ramayya (1882)]
3. The consideration may be an act, abstinence or forbearance or a return promise
It may be noted that the following are a good consideration for a contract:
a. Forbearance to sue – Forbearance to sue has always been regarded as valuable consideration. It is indeed, a kind of abstinence, which is so very clearly recognized as good consideration in the definition itself. “Forbearance to sue” means the plaintiff has a certain right of action against the defendant or any other person and on a promise by the defendant he refrains from bringing the action. This results in a benefit to the person not sued and a detriment to the person who could sue.
b. Compromise of a disputed claim – Compromise can also fall under the principle of forbearance; as such, the same applies to bona fide compromise of a disputed claim. The claim should be reasonable and the person claiming should believe that it is a valid claim.
c. Composition with creditors – A debtor who is financially challenged may call upon his creditors and request them to accept a lesser amount in satisfaction of their debts. If the creditors agree to it, the agreement is binding both upon the debtor and the creditor and this amounts to a compromise of the claims of the creditors.
4. The consideration may be past, present or future
The words used in sec 2(d) are “… has done or abstained from doing (past), or does something or abstains from doing (present), or promises to do or abstain from doing something(future) something…” this clearly states that consideration may be past present or future.
a. Past – if the consideration by a party to an agreement was given in the past, i.e. before the date of promise, it is called past consideration. Example: A renders some service to B at the latter’s desire. After a month B promises to compensate A for the services rendered to him. It is past consideration.
b. Present or executed – When the consideration is given at the same time the promise is made. It is called present or executed consideration. The best example of such consideration would be a cash sale. When we buy something in consideration for money from a shop it is a present consideration.
c. Future or Executory – When the consideration from one party to the other is to pass subsequently to the making of the contract, it is a future consideration. Example: D promised to deliver certain goods to P after a week; P promises to pay the price after a fortnight. The promise of D is supported by the promise of P. consideration in this case is future or Executory.
5. Consideration need not be adequate
It is however not necessary that consideration must be adequate to the promise made. Consideration as considered to be “something in return”, it need not necessarily be equal to the value to the “something given”. But it should be something to which the law attaches value. The adequacy of consideration depends upon the parties, how valuable it is to them while entering the agreement, not for the court when it is sought to be enforced.
Example: A purchases a table from B for Rs. 500. It is a difficult task for the court to ascertain whether the value of the table is worth the price is given or not.
6. Consideration should not be illusory but real
Although the consideration accepted may not be adequate but it should be real and not illusory and should be competent and of some value in the eye of law. There is no real consideration in the following cases.
a. Physically Impossible – A promises to put life in B’s dead wife on behalf of Rs. 500. This is physically impossible to perform.
b. Legally Impossible – A owes to B Rs. 100. He promises to pay Rs. 510 to C, the servant of B, who in return promises to discharge A from his debt. This is legally impossible because C cannot give a discharge for a debt due to B.
c. Uncertain Consideration – A engages B for doing certain work and promises to pay a “reasonable” sum. There is no recognized way to ascertain the “reasonable” remuneration. This consideration is uncertain consideration.
7. Consideration should not be something which the promisor is already bound to do
A person may already be bound to do something by law or by contract. A promise to do something which he is already bound to do is not a good consideration. Likewise, a promise to perform a public duty by a public servant is not a good consideration.
8. Consideration must not be illegal, immoral or against the public policy
Sec 23 of the Contract Act 1872 refers that consideration to an agreement should not be something illegal, immoral or something against the public policy. The court should decide whether the consideration promised is lawful or unlawful. Where it is unlawful the courts should not allow the action on the agreement.
Position under the Indian contract act is different than under English Law
Under English Law
It is an established rule under English law that the third party cannot sue a contract made for his own benefit. Apart from special circumstances. A person who is not a part of the contract cannot enforce or rely for protection on its provisions. Such right can be conferred to a property by way of trust but it cannot be on a stranger to a contract as a right to enforce the contract.
Under Indian Law
It is established that the consideration can move from a third party but it cannot sue for its own agreement. However, there was lots of confusion on this point. Although the definition of “consideration” is wider in the Indian than in the English law since common law is applicable, therefore it is generally applied that the third party cannot enforce the contract.Law Commission of India in one of its reports mentioned that the contract must be enforceable by a third party if it expressly for his benefit but the defences of the party to the contract must also be considered. It is also proposed that the parties cannot alter the terms of the contract once the third party takes over the contract.
Exceptions under Section 25, Indian Contract Act
In English law, a contract which is under the seal is enforceable without consideration. In Indian law, there are no such provisions but still, The general rule is the ex nudo pacto non-oritur action, which means that no right of action arises from the contract which is entered into without any consideration. Still, under Section 25 of the Indian Contract Act,1872.it provides certain exceptions under Section 25 of the Indian Contract Act.
1.Fiduciary relation
In case of a contract entered into between the relatives or on account of natural love and affection is enforceable without consideration. The meaning of love and affection is not judicially construed but parties who are nearly related would have instinctive love and affection. However, this could be overruled with regards to some external circumstances, like between the wife and husband who are compelled to live separately because of quarrelling. But a settlement to be given to a man by the wife by way of maintenance could be enforced without any consideration because it will result in peace and family harmony.
The term “family” (in this context) should be understood as a group of people living together and possessing a right of succession, inheritance etc., but the family could be construed as a people who are bonded by natural love and affection.
2.Past voluntary services
A promise to compensate the person who has done something voluntary in the past for the promisor is enforceable. This exception is attracted in the cases when the services are rendered voluntarily. Thus where a service is rendered on behalf of a company which is not in existence, a subsequent promise to pay would not attract this provision. Even where the promisee has done something for the promisor, which he had to do legally, then it will also be covered under this exception.
In Case of a Minor
In Karam Chand vs Basant Kaur, the court held that even where the promisor after attaining majority, promises to pay for the goods attained in minority will also fall under this provision. The court said that although the promise made by a minority is void but is the promise is made by a person of full age to the promisee who has done something for him voluntarily when the promisor was a minor, then it will also attract this exception.
3.Time barred debt
A promise to pay a time-barred debt is enforceable and it should be signed by the person or his agent. It could be to pay for the whole debt or in part. The debt to be enforced could be paid except for the law of limitation. However, the person who is under no obligation to pay to another person is under no obligation under this clause.
The promise to pay the debt must be expressed, it is not sufficient if the intention to pay could not be gathered from the circumstances. Acknowledgement of the debt is different from the promise to pay the debt. The acknowledgement of the person should be done before the period of limitation. Promise to pay a time-barred debt is a new contract. It is not just merely an acknowledgement of the existing liability.
4.The exception of consideration are further defined as per section 150 , 185 of ICA in which section 150 of ICA describe that in case of bailment no consideration is needed and as per 185 of the ICA describes that consideration is not required in case of agency but as per section 122 of TPA agreement of gift is a valid contract but it does not require consideration.
Inadequacy of consideration
Adequacy of the consideration means that the consideration which is paid is equal in value to the value for which it is paid. Consideration can be terms of money, property etc. inadequate consideration is not void but it renders the contract unenforceable because of the improper bargaining or by itself.
Conclusion
Consideration is defined under Section 2(d) of the Indian Contract Act,1872. It could be past, present or future, and must only concern the parties to the contract and not any third party. But there are various exceptions present under Section 25 of the Act, these exceptions are made keeping in view various circumstances, so that the interest of the parties of the contract or even the third party is not compromised. Moreover the consideration need not be adequate, however it should be valuable according to the parties of the contract.
Marks 10
Be specific
A contract, in order to be valid requires nine essential elements. One of those essential elements is Consideration. Subject to certain exceptions, an agreement made without consideration in nudum pactum (a nude contract) and is void. Consideration is a technical term used in the sense of quid pro quo (something in return). When a party to an agreement promises to do something, he must get ‘something’ in return. That ‘something’ is defined as a Consideration.
As per Blackstone, “Consideration is the recompense given by the party contracting to the other”
Section 2(d) of The Indian Contract Act, 1872 defines it 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.”
Certain important points regarding consideration are as follows:
1. Consideration can be past, present or future, and must only concern the parties to the contract and not any third party. But there are various exceptions present under Section 25 of the Act. Moreover, the consideration need not be adequate, however it should be valuable according to the parties of the contract.
2. Consideration can be in form of
*Price
*Benefit to promisor
*Detriments suffered by Promisee
The above definition was created in Curie v Misa. It was later confirmed in Thomas v Thomas and was finally applied in Carlill v Carbolic Smoke Ball Co.
It was held in Carlill v Carbolic Smoke Ball Co. the promisee has given the consideration to promisor in the form of benefit and also the promisee suffered detriments.
3. Lawful consideration being the essential element to form a contract, without this there shall be no valid contract as per Section 10
4. As per section 25, an agreement without consideration is void agreement. This is however, subject to certain exceptions.
5. If consideration is not lawful, the agreement is void as per section 23.
6. As per section 2(d), consideration may be “something” which must have some value in the eyes of law as was held in Chidambara Iyer v Ranga Iyer 1965 SC, by Subba Rao, Justice and also it should be real and not fictitious as was held in Sanda Bhati v St. of UP (Mad HC)
Rule of Privty of Consideration
It is an established rule under English law that the third party cannot sue a contract made for his own benefit. Although the definition of “consideration” is wider in the Indian than in the English law since common law is applicable, therefore it is generally applied that the third party cannot enforce the contract.
Marks 11
Also include kinds of consideration
The term contract is defined by Sir Fredrick Pollock as” an Act or forbearance of one party, ot the promise thereof, it the price for which the promise the other is bought and the promise thus given for value is enforceable”. And section 2(d) of Indian Contract Act 1872 (for brevity ICA) defines consideration as “when at the desire of the promisor, the promisee or any other person has done or abstain from doing, or does or abstains from doing, or promises to do or abstain from doing, something, such act or abstinence or promise is called a consideration for promise”.
From the above definition under section 2(d) ICA we can provide following facts about consideration:
1. Consideration is always at desire of promisor in lieu of promise.
2. It can be given by promisee or any other party: it means consideration can also be given by a third party
3. Consideration can be positive or negative form: the consideration can be by doing something (positive) or by abstain from doing something (negative)
4. Consideration can be past, present or future: it is not necessary that the consideration from a contract be performed at time of contract only. There can be possibility it was done already in past or promise to do it in future.
5. Consideration may or may not be adequate: the definition says consideration to be “something” that means a consideration must have some value in eyes of law but it says nothing about adequacy. Also the term adequate is a subjective term one amount adequate for one may not be adequate for another. So consideration must be a value which is “something” in eyes of law. However an inadequate consideration do creates suspicion in eyes of law.
Any contract without consideration is void as provided under section 25 ICA, and as per section 23 ICA the consideration also must be lawful. A lawful consideration means:
1. Which is not forbidden by law
2. It should not be of a nature which would any provision of law if permitted
3. It should not provide injury to any person or its property
4. It should not be immoral or oppose to public policy
However there can be exceptional cases where there can be contract without consideration as provided under section 25 ICA, they are:
1. Section 25(1) ICA: a contract made on account of natural love and affection can be without consideration if it is made in writing and registered as per the law. This type of contract is possible only in parting standing in near relation and also in natural love & affection.
2. Section 25(2)ICA: if a promise to compensate person who has already done something for promisor voluntarily then contract without consideration is allowed.
3. Section 25(3) ICA: in case of a timed bared debt, if a debt on a person is bared to be enforced because of limitation Act and the person promises to pay the creditor the money payable or some part to it then it will be a valid contract.
Other points to be kept in mind for consideration are:
1. Performance of a public duty that is a public duty which the person is bound to do is not a consideration
2. Performance of a duty that is already owned by the promisor is not a consideration
3. In India past consideration is a good consideration whereas in England person is not bound unless & until it is proved that he had intention to compensate at the time of request.
Marks 12
Well explained
The term consideration means something for something, or something given or received for something else, i.e., quid pro quo. Every man is by the law of nature bound to fulfil his engagements. It is also true that the law of the country supplies no means, nor affords any remedy, to compel the performance of an agreement made without sufficient consideration. Section 2(d), 10,23,24,25 and 185 of the Indian Contract Act.
Definitions : Sections 10 says that a lawful consideration is essential for a valid contract. Section 2(d) has defined Consideration as When at the desire of the promiser, 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.
Definitions of Consideration
(a) Blackstone : Consideration is the recompence given by the party contracting to the other.
(b) Pollock : Consideration is the price for which the promise of the other is bought.
The Calcutta High Court observed in the case of Fazaluddin v. Panchanam Das [ AIR 1957 Calcutta 95], that considered is the price of a promise, a return or quid pro quo, something of value received by the promise. The payment of money is the most common form of consideration. A nudum pactum ( without consideration ) promise is not enforceable, however scared and binding in honour it may be. It is purely a gratuitous act and hence it cannot create any legal obligation.
Essential elements of consideration :
1. Consideration should be given at the desire of the promiser.
2. It should be given by the promisee or any other person.
3. Consideration may be past, present or future.
4. There should be some act or abstinence.
(1) At the desire of the power of the promisor: In Durga Prasad v. Baldeo – The plaintiff on the order of the collector of a town, built at his own expense certain shops in a bazaar. The shops came to be occupied by the defendants who, in consideration of the plaintiff having expended money in the construction, promised to pay him a commission on articles sold through their agency in the bazar. The plaintiff’s action to recover the commission was rejected.
(2) Consideration to be given by the promisee or any other person: In Tweedle vs. Atkinson (G’s daughter married to plaintiff. Both fathers agreed to pay money to plaintiff. G did not pay. Plaintiff sued his executors. Held: Though sole object was plaintiff’s benefit yet he was stranger to contract. Therefore, action failed).
(3) Consideration may be past, present or future: Section 2(d) – “…. has done or abstained….”. These words signify that consideration is an act which has already been done at the desire of the promisor, or is in progress or is promised to be done in future.
(4) Act, abstinence or promise constitutes consideration:
a. Consideration must be of some value
b. Consideration need not be adequate
c. Forbearance to sue is a valuable consideration
d. Performance of existing duties
e. Promise to pay less than the amount which is due
Exceptions to the rule that an agreement without consideration is void (Section 25): Section 25 of the Contract Act lays down a few exceptions, when an agreement made without consideration is not void. It may be noted that even in the case of negotiable instruments, where the consideration is presumed under Section 118, they would be void if it is proved that no consideration has passed between the parties.
Explanation 1 makes it clear that Section 25 does not apply to the cases of gifts. A gift (which is not an agreement) does not require consideration in order to be valid.
Explanation 2 makes it clear that the consideration must have some value in the eyes of law, even though it need not be adequate.
Exception 1 – Natural Love and Affection
Exception 2 – Past Voluntary Service
Exception 3 – Time – Barred Debt
Other Exceptions
Some other instances where a consideration is not to make a contract valid are – a contract of agency ; remission by the promise of performance of the promise ; an agreement to extend time for performance of a contract, a promise to contribute to charity in certain circumstances.
Marks 11
Exceptions need more explanation
According to Section 2(d) of the Indian Contract Act, 1872, when at a desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promised to do or abstains from doing something, such act or abstinence is known as a consideration for the promise.
Consideration is one of the essentials for a valid contract. Any agreement without a valid consideration is considered as a void contract.
The essential elements of a valid consideration are as follows:
1. The consideration must move at the desire of the promisor.
2. The consideration may move from the promisee or any other person, even a stranger. But the stranger to the party cannot sue until he becomes a party to the contract. Therefore, it is immaterial who has furnished a consideration until there is a valid consideration.
3. The consideration may be an act, abstinence or forbearance or a return promise.
4. The consideration may be past, present or future.
a. Past – Past consideration is the consideration by a party to an agreement was given before the date of promise.
b. Present – Present or executed consideration is the consideration which is given at the same time the promise is made.
c. Future- Future or Executory consideration is given from one party to the other is to pass subsequently to the making of the contract.
5. Consideration need not be adequate. It is generally considered to be something provided in return, the adequacy of consideration depends upon the parties, how valuable it is to them while entering the agreement
6. Consideration should not be illusory but real. Any consideration which is practically impossible or uncertain cannot be considered as a valid consideration.
7. Consideration should not be something which the promisor is already bound to do either by law or by any contract.
8. Consideration must not be illegal, immoral or against the public policy
Marks 10
Connect sec 23 & 25 as well
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