CONSIDERATION: FEATURES OF VALID CONSIDERATION

This blog is written by Adhya Gupta, student of UPES Dehradun.

ABSTRACT

Consideration is one of the crucial elements to assist a contract subject to certain exceptions. This is the universal rule that a contract is a bargain. Consideration fundamentally means ‘something in return.’ If a party gives something to another, then he must get something from another. Everything has a price, a value. Similarly, the promise should also have a price. Thus a promisor gives a promise and a promisee gives consideration, ie. the promisee must do something for the promisor. A gratuitous promise is not enforceable by law. Only proposal and acceptance are not sufficient for the contract and hence the third element ie. consideration is also needed.[1]

Keywords: consideration, contract, bargain, something, price

INTRODUCTION

Generally, every contract needs consideration. An agreement made without consideration is nudum pactum (a nude contract) and is void in nature. Consideration is a technical term used in the sense of quid pro quo ie. something in return. When a party to an agreement promises to do something, he must get ‘something in return’. This ‘something’ is known as consideration.[2]

To use the words of Pollock, “Consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable”. Section 2(d) of the Indian Contract Act, 1872 defines it as “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstain 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”.[3]

In the case of Thomas v Thomas,[4] Justice Patterson defines consideration as “something which of some value in the eyes of law. It may be some benefit to the plaintiff or some detriment to the defendant”.

ESSENTIALS OF CONSIDERATION

• Consideration must move at the Desire of the Promisor

An act constituting consideration must have been done at the desire or request of the promisor. If it is done at the instance of a third party or without the desire of the promisor, it will not be a good consideration.

For Example, Ram saves Shyam’s goods from fire without being asked to do so.

In the case of Durga Prasad v Baldev Singh[5], a promise was made by Durga Prasad to pay Baldev Singh a commission on articles through their agency in a market, which was constructed by Baldev Singh at the desire of the collector of that place, not at the desire of Durga Prasad. The promise was held to be without consideration and therefore void.

• Consideration may move from the promisee or any other person

Under English Law, consideration must move from the promisee only.

In the case of Tweddle v Atkinson,[6] the respective fathers of the husband and the wife agree that each should pay a sum of money to the husband and the husband should have the power to sue for each sum. After the death of both the contracting parties, the husband sued the executors on the agreement of the wife’s father. The action was rejected because the husband was a stranger to consideration. Since the consideration was to be given by the son-in-law but was given by the father-in-law, so there was no consideration.

In the case of Chinnaya v Ramayya,[7] an old lady, by a deed of gift, made over certain property to her daughter D, under the direction that she should pay her aunt, P (sister of the old lady) a certain sum of money annually. The same day D entered into an agreement with P to pay her the agreed amount. Later D refused to pay the amount on the plea that no consideration had moved from P to D. Held, P was entitled to maintain suit as consideration had moved from the old lady, sister of P to the daughter, D.

• Consideration may be an Act, Abstinence, or Return Promise

Forbearance to sue: If a person who could sue another for the enforcement of a right agrees not to pursue his claim, this constitutes good consideration for a promise by the other party/person. This results in a benefit for a person that was not sued and a detriment to the person who had the chance to sue.

In the case of Debi Radha Rani v Ram Dass,[8] Debi Radha is ready to sue her husband for maintenance allowance. On her husband agrees to pay her a monthly allowance by way of maintenance, she forbears to sue. It was held that the wife’s forbearance to sue amounts to consideration for the husband’s agreement for payment of maintenance allowances.

• Consideration may be Past, Present, or Future

Consideration may be passed, present (executed), or future (executory).

Past Consideration

If the act has been done before any promise is made, it is called past consideration.

In English Law, past consideration is no consideration as in Anson’s words, ‘it is a mere sentiment of gratitude or honor promoting a return for benefits received,’

Example: Akash renders some services to Bismah at her desire. After a month, Bismah promises to compensate Akash for the services rendered to him. It is past consideration. Akash can recover the promised amount.

Present or Executed Consideration

When the consideration is granted simultaneously with the promise, ie. at the time of promise, it is called present consideration as in the case of cash on delivery.

Example: Jinisha receives INR 5000 in return for which she promises to deliver certain goods to Sonam. The money Jinisha receives is the present consideration for the promise she makes to deliver the goods.

Future or Executory Consideration

When the consideration from one party to another is to pass subsequently to the creation of the contract, it is defined as future or executory consideration.

Example: Deepak promises to deliver certain goods to Pranali after a month and Pranali promises to pay its price after 2 months. The promise of Deepak is supported by the promise of Pranali. This is future or executory consideration.

• Consideration need Not be Adequate

Consideration means something in return. This ‘something in return’ need not necessarily be equal in value to ‘something given. The law only wants that a contract should be assisted by consideration. As long as the consideration exists, the courts are not concerned about its adequacy, unless it is of some value.

In the case of Chidambara v P.S. Ranga,[9] it was held that consideration shall be something that not only the parties regard but the law can also regard as having some value. It must be real and not illusory. But the consideration need not be adequate. If the consideration is of some value, the courts will not enquire whether it was equivalent to the promise that a party gave in return. Thus, the law is unconcerned with adequacy and leaves it to the parties to determine at the time of maturity of the agreement.

• Consideration must be Real and Not Illusory

Although consideration need not be adequate, it must be real and of some value in the eyes of law. There is no real consideration in the following circumstances:

● Physical Impossibility:

Aman promises to put life inside Aditya’s dead wife if Aditya pays him INR 500. Aman’s promise is physically impossible.

● Legal Impossibility:

In the case of Harvey v Gibbons,[10] A owes INR 100 to B. He promises to pay INR 510 to C, the servant of B, who in return promises to discharge A from the debt. This is legally impossible because C cannot give the discharge for debt due to B, his master.

● Uncertain Consideration:

Varun engages Shikhar for doing certain work and promises to pay a ‘reasonable’ sum, there is no recognized method of ascertaining the ‘reasonable’ remuneration. The promise is unenforceable as the consideration is uncertain.

● Illusory Consideration:

In the case of Stilk v Myrick,[11] two of the crew of a ship deserted it halfway through the voyage. The captain thereby promised to divide the salary of the deserters among the rest of the crew if they worked the vessel home. It was held that they could not recover the amount as the consideration was illusory. They were already under an obligation to bring the vessel home.

• Consideration must be something that the Promisor is not already bound to do

The Concept of Pre-existing Obligation comes into play here. Consideration must be something more than what the promisor is already bound to do by contract or by law. But doing or agreeing to do more than one’s legal or official duty will serve as consideration.

In the case of Ramchandra v Kala Raju,[12] the plaintiff (a vakil) accepted a vakalatnama from the defendant to act for him in a certain suit. More than 2 months afterward, the defendant executed in favor of the plaintiff an agreement, called therein as ‘inam chitthi’whereby the defendant agreed to pay the plaintiff INR 61 as ‘inam’ in addition to his full fee if the suit was decided in favor of the plaintiff. There was no fresh consideration proceeding from the plaintiff when he obtained the ‘inam chitthi’. It was held that the plaintiff was not entitled to the special reward (inam).

• Consideration must Not be Illegal, Immoral, or opposed to public policy

As per Section 23 of the Indian Contract Act, 1872, object and consideration should not be forbidden by law. The act, which has been declared an offense by law, is supposed to be forbidden.

Example: A promises to give INR 1 Lakh if B kills C. In this case, the object of the agreement is to kill C, which is forbidden by law as it is an offense.

This is a universal rule that agreement cannot contradict the law. If there is a clash between the two, the law will prevail. The term of agreement violative of any provisions of the law will be void, being unlawful object consideration.

In the case of Mohinder Singh v State of Punjab,[13] a person, who was elected as a sarpanch for a period of five years, made an agreement with another member that the latter would be given a two-year term and the elected one the remaining three years. The agreement was held void as defeating the provision of the Punjab Panchayat Raj Act 1994.

CASE LAWS

In the case of Abdul Aziz v Masum Ali,[14] a Mohammedan subscribed INR 500 to a fund started for rebuilding a mosque but took no steps to rebuild it. It was held that the promise was not binding as the principle of promissory estoppel was not applicable. The promisee did not change legal position. So the agreement was void and without consideration.[15]

In the case of Kedarnath Bhattacharji v Gorie Mahomed,[16] a person promised to pay a subscription for the purpose of building a town hall in Howrah. He signed his name in the subscription book for an amount of INR 100. Believing this, the promisee engaged a contractor for the construction. Later, the promisor refused to pay on the ground that there was no consideration from the promisee. The action was brought by the promisee and the court held that the promisor was liable to pay the subscription on the basis of promissory estoppel.

In the case of Gousmohoddin v Appa Sahib,[17] the landlord filed a suit against the tenant, for possession of premises and arrears of rent. The suit was decreed in his favor. In execution, the landlord obtained an order for the attachment of the movable property of the tenant. In consideration of the tenant's agreement not to appeal against the decree, the landlord allowed him one month’s time to pay the balance of the decretal amount and vacate the premises. It was held that the agreement was valid.

CONCLUSION

​​Section 2 (d) of the Indian Contract Act, 1872 defines the term consideration. It might be from the past, present, or future, and it must solely apply to the contracting parties and not to any third parties. However, under Section 25 of the Act, there are a number of exceptions that are created in light of certain circumstances, so that the interests of the contracting parties or even a third party are not compromised. Furthermore, the consideration does not have to be enough, but it must be beneficial to the contracting parties.[18]

REFERENCES

[1] R C Srivastava, The Principles of Contract (first published 2018) 92, 93, 94, 95. [2] Pollock on Contracts, (13th edn, 1950) 113. [3] The Indian Contract Act 1872, s2(d). [4] Thomas v Thomas [1842] 2 Q.B. 851. [5] Durga Prasad v Baldev Singh [1881] ILR 3 ALL 221. [6] Tweddle v Atkinson [1861] 1 B&S 393. [7] Chinnaya v Ramayya [1882] 4 Mad. 137. [8] Debi Radha Rani v Ram Dass [1941] Pat. 282. [9] Chidambara v P.S. Ranga [1965] SC 195. [10] Harvey v Gibbons [1981] S.E. 2d 574. [11] Stilk v Myrick [1809] 2 Camp. 37. [12] Ramchandra v Kala Raju [1877] 2 Bom. 362. [13] Mohinder Singh v State of Punjab [2009] NOC 434. [14] Abdul Aziz v Masum Ali [1914] All. 22. [15] R C Srivastava, The Principles of Contract (first published 2018) 98. [16] Kedarnath Bhattacharji v Gorie Mahomed [1887] ILR 14, Cal. 64. [17] Gousmohoddin v Appa Sahib [1976] Knt. 90. [18] Nishtha Pandey, ‘Consideration under the Indian Contract Act, 1872’ (Blog iPleaders, 19 December 2019) <https://bit.ly/357Tdjb> assessed 17 February 2022.