This Article is written by Arya Aradhana Routray, a Second-Year Law Student of National Law University, Odisha

INTRODUCTION

The “doctrine of consideration” is one of the fundamental principles of the common law of contracts. It has long been a part of English law and first became apparent throughout the formative years of English contract law. The key component of any legally binding contract is consideration, which is a benefit that the parties have agreed upon. “Blackstone has given the simplest definition of Consideration- Consideration is the recompense given by the party contracting to the other.”[1]

“Sir Frederick Pollock states that the term implies an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is taken, and the promise, given for value is enforced.”[2]

“The Indian Contract Act, 1872 Section 2(d) defines consideration as - 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 to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.”[3]

A promise must be made in exchange for something for the promisee to be able to enforce it, according to the doctrine of consideration. Therefore, consideration is the most fundamental criterion that a promise be bartered for. The demand for reciprocity in the creation of contractual obligations justifies the notion of consideration. The consideration is used to make a distinction between fundamentally legal contracts and purely customary social arrangements.

NECESSARY ELEMENTS OF CONSIDERATION

1. Consideration must move at the promisor's desire: The fundamental rule of Consideration is that it must be provided at the desire of the promisor. It won't count as a consideration if it's not carried out at the promisor’s desire or at the request of a third party. Promissory Estoppel is the legal term for this. It is not valid consideration if the promisee acts or refrains from acting on the desire of a third party or freely. E.g., From the factory, Abram is returning home. He notices that his friend Noah's home has caught fire route home. He prepares the essential equipment and extinguishes the flames. Abram is not entitled to receive compensation for his efforts because they were made voluntarily and not at Noah's (promisor) desire.

2. The promisee may move the consideration to any other person: According to law, the promisee may transfer the consideration to any other person. A third party who is not a party to the contract may provide the promisee with consideration. The situation is different in England. There, it is required that all consideration go to the promisee and no one else.

3. Consideration is an act, abstinence, forbearance, or detriment: The legal term consideration refers to much more than just monetary compensation. Under Section 2(d), an act, an abstinence from doing something, or a promise by the promisee must be made for it to be deemed as consideration. There wouldn't be a consideration if there were no acts, promises, or abstinence.

An act performed by a person can be considered consideration, and for abstinence to qualify as consideration, a person must refrain or agree to refrain from acting in a way that they are entitled to do so. Consideration is regarded as forbearance since forbearance entails giving up a legal right or claim. A useful factor to consider is the creditor's decision to refrain from enforcing execution and grant the debtor additional time to pay.

4. Consideration can be past, present, or future

● Past consideration- The promisee must have given past consideration—something they had already done (or refrained from doing)—before engaging in any kind of agreement. Consider that you are on the road when you see an accident. You assist the victim and transport them to the hospital. The guy provides Rs. 2,000 as payment for your help and any charges you might have spent a few days later. We will prioritize your help over everything else.

● Present or executed consideration- Present consideration is a consideration in which both parties promise to perform their part of the promise simultaneously. It is also known as executed consideration. For instance, you could buy fruits from a vendor and give him cash immediately away. This payment qualifies as the present consideration.

● Future or executory consideration: This occurs when a promisee or promisor defers taking an action to a later date. It indicates that the parties' responsibilities haven't been fulfilled yet. Consider the scenario when you purchase a car from a dealership and it is delivered the next week. Once the car is delivered, you consent to paying the vendor. This implies that a consideration is there between you and the vendor that is related to a future payment.

5. Consideration must be legitimate- A contract that contains an illegal consideration is void and has no legal standing. According to the Act, consideration is considered illegal if it violates any other laws, causes harm to a person or his property, or is immoral.

6. Consideration must be real and possible- There is no thought given to an impossible act. It must be possible to carry out whatever is chosen and accepted as consideration. Both physical and legal impossibilities exist. Additionally, there must be no uncertainty in the consideration.

7. Consideration may not be adequate- According to Indian law, the adequacy of consideration is not required. It is up to the parties to negotiate. A party's poor negotiating skills do not render the contract null and void. However, the decision ought to be taken with the free approval of both participants. For instance, you decide to sell your 1,000-rupee worth of books for 200 rupees. Legally, you cannot afterward say that this was not given sufficient consideration.

EXCEPTIONS TO CONSIDERATION

According to English law, a contract that has been sealed can be enforced even without payment. “Section 25 of the Indian Contract Act states that a contract entered without consideration is not valid. However, Section 25 outlines a few circumstances in which an agreement made without consideration is valid”[4]:

● Natural Love and Affection: A signed and written agreement between close relatives formed by genuine love and affection is binding without remuneration of any kind. "Near relative" refers to those who are connected through blood or marriage.

● Past Voluntary Service: An enforceable promise is one to pay back someone who has previously rendered services for the promisor either voluntarily or under legal duress. Such service, though, ought to have been carried out voluntarily, secretly, and exclusively for the promisor. For instance, the exception was determined to apply to a promise that is made while being a minor to pay for items that were provided to the promisor after reaching the age of majority.

● Time-barred Debt: A promise to pay off a debt that is past due is legally binding. Writing down the promise is required. Additionally, it needs to be signed by the promisor who has been given special or general authorization to act on their behalf.

● Completed gifts: Explanation 1 to Section 25 states that no consideration, no contract principle shall not apply to any donations that are genuinely made between the giver and the recipient.” Therefore, if someone transfers specific properties to another in line with the “Transfer of Property Act,” that person cannot later demand the transferred property back on the basis that no consideration was given.

RELEVANT CASE LAWS IN CONSIDERATION

➔ In the case of Montford v. Scott, the Defendant gave the Claimant a six-month option to pay £10,000 and purchase his home. The claimant contributed £1 in exchange. The defendant claimed to have retracted the option before the six-month deadline. Even so, the claimant later attempted to use the option. The claimant filed a specific performance lawsuit when the defendant declined to sell. In response, the defendant claimed that the option was invalid because the claimant had not given it enough thought. The claimant was successful, according to the Court of Appeal. Since the amount of thought is immaterial to whether an option is acceptable, £1 was adequate. The option might still be used by the claimant because the defendant's attempt to withdraw it was ineffective. Therefore, the claimant was entitled to specific fulfillment of the contract.[5]

➔ In the case of Kedar Nath v. Gouri Mohammed, the defendant assured the plaintiff that he would pay for the building of a town hall in Howrah, but afterward backed out, saying there was no consideration. The High Court concluded that the members had willingly decided to pay the contractor for this job and accepted the subscription since they knew what the money would be used for. According to section 2(d) of the Indian Contract Act, there is thus a valid contract between the parties, and the respondent is obligated to pay the agreed-upon sum. Additionally, once the task has started, a person cannot back out of their commitment. This significant case clarifies that "any act done at the will of the promisor's wish is taken as the fulfillment of consideration of a contract" in response to the reassertion of the rule of law.[6]

➔ In the case of Durga Prasad v. Baldeo, the plaintiff, asked the district collector to build some stores in his community. These stores were made available to the defendant for business purposes at rent. Later, the defendant promised the plaintiff that in return for the plaintiff's significant financial investment in the construction of the building, he would pay him a 5% commission on every item he sold through that shop. The defendant, however, did not cover the commission. The retailers who didn't pay the commission were then sued by Durga Prasad. The court held that “the claims for the plaintiff were rejected because there is no proper contract between the plaintiff and the defendant, mainly the contract has no proper consideration. Contract without consideration is void. The promissory has no personal benefit to the contract. The contract was done without the intention of the promissory. So, the contract is void.”[7]

CONCLUSION

In conclusion, it is evident that the doctrine of consideration has been and will continue to be a crucial prerequisite for the formation of all legally valid contracts. An advantage that the parties must agree upon before a contract may be entered into, is known as consideration, by a party. A contract involves the exchange of one consideration (something given) for another consideration. A legitimate contract must contain several fundamental components, including lawful consideration. Consideration must always originate from a new obligation because it is not enforceable to receive payment under an existing duty. Although Section 25 has several exceptions that make agreements without consideration legal, excluding them any agreements without consideration are void.

REFERENCES

1. Rajesh Kapoor, 'Avtar Singh's Law of Contract & Specific Relief' (2022) Eastern Book Company, 13th edn.

2. Bhumesh Verma, 'Consideration in A Contract' (2023) Mondaq https://www.mondaq.com/india/contracts-and-commercial-law/1331752/consideration-in-a-contract accessed 24 September 2024.

3. Nishtha Sinha, ‘Law of Contract: Doctrine of Consideration’ (2020) Lexlife https://lexlife.in/2020/05/12/law-of-contract-doctrine-of-consideration/ accessed 1 October 2024.

4. Sir Frederick Pollock, ‘Pollock’s principles of Contract’ (Stevens & Sons, 13th Edn.).

5. P. Benson, 'The Idea of Consideration', (2011) 61 The University of Toronto Law Journal 241- 278.

6. Drishti Judiciary, 'Consideration in Indian Contract Law' (2023) https://www.drishtijudiciary.com/to-the-point/ttp-indian-contract-act/consideration accessed 24 September 2024.

[1] Nishtha Sinha, ‘Law of Contract: Doctrine of Consideration’ (2020) Lexlife https://lexlife.in/2020/05/12/law-of-contract-doctrine-of-consideration/ accessed 1 October 2024.

[2] Sir Frederick Pollock, ‘Pollock’s principles of Contract’ (Stevens & Sons, 13th Edn.).

[3] Indian Contract Act, 1872, Sec. 2(d)

[4] Indian Contract Act, 1872, Sec. 25

[5] Mountford v. Scott, [1975] 1 All ER 198

[6] Kedar Nath v. Gouri Mohammed, (1886) 7 I.D. 64 Cal.

[7] Durga Prasad v. Baldeo, (1881) 3 AII 221