For our studentsLAW OF CONTRACTS

Consideration is one of essential feature for a valid contract specified in Section 10 of the Indian Contract Act, 1872 (“Act”). Consideration is the price for a promise or something in return i.e. quid pro quo. A contract without consideration is not binding on the parties. Consideration is the necessary evidence of the intention of the parties to effect their legal relations.

Section2 (d) of the Act sates that, 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 or promise is called a consideration for the promise.

Essentials of Consideration:

1. Desire of the promisor:

   The action or abstinence from action must be done at the desire of the promisor. If the promisee has does something or abstains from doing something at the desire of a third party or voluntarily, it is not valid consideration. The consideration has to be done at the instance of the promisor or the promise will not be able to enforce the same.

   It does not matter who furnishes the consideration. The consideration may be moved by the promisor or promisee.

   In Kedarnath Bhaattacharya vs Gauri Mohammed, 1887, Cal HC, The town planners of howrah thought of erecting a townhall at howrah, provided sufficient subscription were collected. Howrah municipality started to raise necessary fund by public subscription for construction of townhall at Howrah. The defendants one of the subscribor’s of this fund for Rs 100 signed his name in the subscription book at that amount. On the faith of the promised subscription the plaintiff entered into a contract with a contractor for the purpose of the building the town hall.

   Later the defendant subscriber said that there was neither promise nor consideration was involved. Defendant was held liable and was stated that the purpose of subscription was known and on faith of their subscription and an obligation was to be incurred to pay the contactor for the work, which is consideration involved on the basis of promise. Secretary had acted on the faith of the promise and incurred a liability.

2. It can be past, present or future consideration:

   Past Consideration: If the consideration is given after the promise is fulfilled, then it can be termed as past consideration. Past consideration is good consideration as long as it flows from the promisor. This scenario is covered under Section 25(2) of the Act, which states acts done at request and for which a promise to pay is given later. Every request for an act carries an implied promise to pay.

   Past voluntary services: A person may render voluntary services to another without any request or promise. In some cases, the receiving party may subsequently make a promise to pay for the services rendered. Such a promise in enforceable in India under Section 25(2) that provides that “a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor” is enforceable.

   Present Consideration: When consideration and promise are reciprocal or happen simultaneously, it is called present or executed consideration.

   Future Consideration: If the consideration for a promise is yet to be performed or is in process of performance, then it is called future or executory consideration. G: Unil goods are delivered it is executory in nature.

3. It must be lawful

   The consideration must not be unlawful or opposed to public policy.

   Explanation 2 to Section 25 states that a contract which is supported by consideration is valid irrespective of the fact that the consideration is inadequate. A contract is not invalid merely due to inadequacy of consideration. However, the Courts may look into inadequacy of consideration to ascertain whether the consent of a party was freely obtained or not. It is the duty of the parties to negotiate on the terms and conditions of the contract.

4. Intention to be legally bound

   Parties must be legally bound and there has to be willingness of the offeree to perform certain act under the contract.

   In case of Balfour v Balfour, (1919) 2 KB 571, A husband was ransferred o Ceylon for work purpose and had agreed to send maintenance payments to his wife. At the time of the agreement the couple were happily married. The relationship later soured and the husband stopped making the payments. The wife sought to enforce the agreement. The agreement was a purely social and domestic agreement and therefore it was presumed that the parties did not intend to be legally bound.

   In case of McGregor vs. McGregor, Husband and wife withdrew complaint against each other under a settlement agreement by which husband promised to pay wife an allowance and wife refrained from pledging husband’s credit. Court held this to be a valid contract.

   Carlil vs Carbolic Smoke Ball case (refer Lec 1).

5. Privity of Contract:

   A person cannot sue for a breach of contract if he himself has not provided any consideration for it and is not a party o a contract. Even, if that person is a beneficiary. A third person who himself is not a party in a contract cannot sue under the principle of privity of contract.

   In case of Tweddle v Atkinson, (1861) EWHC QB J57,

   A couple were getting married. The father of the bride entered an agreement with the father of the groom that they would each pay the couple a sum of money. However when the time came the father in law broke his promise and the claimant (son in law) sued. It was held that the groom was not party to the agreement and the consideration did not move from him. Therefore he was not entitled to enforce the contract.

Exceptions: (Section 25)

An agreement without consideration is enforceable in following circumstances:

1. Agreement made on account of natural love and affection - Section 25(1):

   An agreement made without consideration is enforceable if, it is (i) expressed in writing, and (ii) registered under the law for the time being in force for the registration of documents, and is (iii) made on account of natural love and affection, (iv) between parties standing in a near relation to each other. Agreement to compensate for past voluntary service: Covered above in essentials of consideration.

2. Agreement to pay a time-barred debt:

   Where there is an agreement, made in writing and signed by the debtor or by his authorised agent, to pay wholly or in part a debt barred by the law of limitation, the agreement is valid even though it is not supported by any consideration. A time barred debt cannot be recovered and therefore a promise to repay such a debt is without consideration.

3. Forbearance to sue:

   Forbearance to sue means where a party has a right of action against the other party or a third person and he refrains from bringing action in consideration of promise by the other or third party. Forbearance to sue is valuable consideration provided such action does not give rise to an illegal contract.

4. Contribution to charity:

   A promise to contribute to charity, though gratuitous, would be enforceable, if on the faith of the promised subscription, the promisee takes definite steps in furtherance of the object and undertakes a liability, to the extent of liability incurred, not exceeding the promised amount of subscription. Refer case of Kedarnath vs. Gaurie Mohammad.

References:

1. Contract and Specific Relief by Avtar Singh, 10th Edition.
2. Pollock and Mulla, Indian Contract Act and Specific Relief Act, 14th Edition.
3. Universal Law Series of Contract and Specific Relief by Himanshi Mittal.