Definition of Consideration: Section 2(d) of the Indian Contract Act, 1872 defines consideration as an act, abstinence, or promise made by the promisee or any other person at the request of the promisor. This act, abstinence, or promise serves as the return or value for the performance of the contract. In simple terms, consideration is the benefit or return that is promised in exchange for fulfilling a contract.
Blackstone’s Definition: Renowned jurist Blackstone described consideration as the “recompense” or value given by one party to another in a contract. Essentially, it is the price or value exchanged to make a contract binding.
Importance of Consideration in a Contract: Consideration is a key element in the formation of a valid contract. Without consideration, a contract is generally considered void unless it falls under specific exceptions provided by the law. For a contract to be enforceable, there must be a benefit to one party or a corresponding loss to the other.
Essential Features of Consideration
- Something in Return: Consideration implies a mutual exchange of value between the parties.
- Lawful: The consideration must be lawful, meaning it must not violate any legal provisions.
- Mandatory: A contract without consideration is generally invalid under the law, except in specific exempted cases.
Illustration
For example, if X promises to deliver 10 kgs of basmati rice to Y and Y agrees to pay Rs. 500 upon delivery, Y’s promise to pay Rs. 500 is the consideration for X’s promise to deliver the rice.
Types of Consideration
1. Executed Consideration
Executed consideration involves an act done in return for a promise. For instance, if A offers a reward for returning lost property, A’s promise becomes enforceable only when B performs the act of returning the property. Until the act is completed, A is not obligated to pay the reward.
2. Executory Consideration
Executory consideration occurs when a promise is exchanged for another promise. For example, when a customer orders goods and a shopkeeper agrees to supply them, both parties exchange promises. The customer promises to pay for the goods, and the shopkeeper promises to deliver them. Neither party has acted yet, but their mutual promises make the contract binding. If either party withdraws without consent, it constitutes a breach of contract.
3. Past Consideration
Past consideration generally does not make a promise legally enforceable. It refers to a situation where the promisor recognizes a moral obligation, but no fresh consideration is exchanged since the act or benefit was already provided before the promise was made. In such cases, the promise lacks the necessary element of exchange to bind the promisor legally.
Rules for Valid Consideration
1. Consideration Must Be at the Desire of the Promisor
For consideration to be valid, it must be given at the promisor's request. In Durga Prasad v. Baldeo, the plaintiff constructed a market at the district collector's request, and shopkeepers later promised to pay him a commission. The court held that the contract was void because the plaintiff acted on the collector's request, not the shopkeepers’, making the consideration invalid.
2. Consideration Can Be Past, Present, or Future
Past Consideration: If the consideration is provided before the promise is made, it is called past consideration. For example, in Sindha Shri Ganpatsingji v. Abraham, services rendered to a minor and continued after his majority was held as valid consideration for the minor's later promise to pay.
Present Consideration: When the promise and consideration are performed simultaneously, it is called present or executed consideration, such as in cash sales where goods and payment are exchanged at the same time.
Future Consideration: If the consideration is provided after the promise is made, it is future or executory consideration.
3. Consideration Should Be Real and Not Illusory
Consideration must be genuine and have some value. For instance, in Kasturi Devi v. Chiranji Lal, the court upheld a wife's withdrawal of her lawsuit against her husband in exchange for his promise to pay her maintenance as a valid consideration.
4. Consideration Must Be Legal
Under Section 24 of the Indian Contract Act, 1872, if the consideration or its object is illegal or partially unlawful, the entire agreement becomes void. For example, a contract involving illegal activities cannot have valid consideration.
5. Consideration Need Not Be Adequate
Consideration does not have to be adequate; it is enough that it is lawful and agreed upon by the parties. Courts do not generally question the fairness of the amount.
6. Performance of an Existing Legal Duty Is Not Consideration
An act that someone is already legally bound to do cannot be considered valid consideration for a new contract. For a promise to be enforceable, the act must involve something beyond an existing obligation
