MEANING
Presence of consideration is one of the essentials of valid contract. It is one of the most important element to support a contract. Consideration means something in return of a promise. It may be any benefit also. In other words, consideration means a reasonable, valuable benefit received in return of a promise. The general rule in India is that an agreement without consideration is void.
The consideration is the life blood of every contract. Every contract consists of two parts:-
- The promise on the one hand
- The consideration for the promise on the other hand.
DEFINATION
SECTION 2 (D) of Indian Contract Act 1872 defines consideration as when at the desire of promisor, the promisee or any other person has done or abstained from doing or does or abstains from doing some thing, such act, or abstinence or promise is called a consideration.
CASE LAW : CHIDAMBARA V. P.S. RENGA, AIR 1965 SC 193: (1966) 1 SCR 168.
The consideration should be something which not only the parties regard but regard but the law can also regard as having some value. It must be real and not illusory, whether adequate or not;
ESSENTIAL ELEMENTS OF VALID CONSIDERATION:
- Consideration to be given at the desire of the promisor.
- Consideration to be given by the promisee or any other person.
- Consideration may be past, present or future.
- There must be some act, abstinence, or promise by the promisee, which constitutes consideration for the promise.
1. CONSIDERATION ONLY AT THE DESIRE OF PROMISOR : It is important that consideration must be given at the desire of promisor or in other words it means that consideration must be given in accordance with the desire of promisor. In DURGA PRASD VS. BALDEO, the plaintiff constructed certain shops in the market to please the collector of that place. Subsequently, the defendant occupied one of the shops in the market. Since, the plaintiff had spent money for the construction of market, the defendant in return made a promise to pay commission on the articles sold by him through his agency. The defendant failed to pay promised commission to plaintiff. It was held that consideration did not move at the desire of defendant. It was held that the promise to pay commission did not amount to a contract because the building of the market was not the result of a request made by the promisor, but by the Collector of the place.
An act done at the promisor’s desire furnishes a good consideration for his promise even though it is of no significance. In KEDAR NATH V. GAURI MOHAMMAD (1886) 1 L.R. 15 CAL. 64, the defendant agreed to pay contribution of Rs.100 for the construction of a town hall at howrah. On the faith of the promised subscription, the plaintiff entered into a contract with a contractor for the purpose of building the hall. But the defendant failed to pay the amount. It was held that the defendant was liable to pay. The entering into a contract with the contractor was done at the desire of the defendant so as to constitute consideration.
2. CONSIDERATION BY PROMISEE OR ANY OTHER PERSON : Consideration may be given by promisee or any other person for example ‘A’ promises to give his watch to ‘B’ for consideration of Rs. 2000/-. However, the consideration of Rs. 2000/- was paid by ‘C’ on the behalf of ‘B’, this constitutes a valid consideration. This constitutes a valid contract in India but not in England. In England consideration should be given by promisee and none else. In CHINNAYA VS. RAMAYA, A, an old lady granted an estate to her daughter with a direction that the daughter should pay amount of Rs. 653/- annually to ‘A’s brother. The daughter promised to pay the amount to A’s brother but she actually did not pay in accordance with the promise or in other words, she could not pay and claimed that A’s brother had no right of action. The Madras High Court held that the consideration had been furnished by defendant mother and that is enough consideration to enforce the promise.
3. CONSIDERATION MAY BE PAST, PRESENT AND FUTURE: The Indian Contract Act recognises 3 types of consideration. When in return for the promise, the promisee or any other person:
- has done or abstained from doing, the consideration is past.
- does or abstains from doing, the consideration is executed or present.
- promises to do or to abstain from doing, the consideration is executory or future.
Whether the consideration is past, present or future, but it must be given at the desire of the promisor by the promisee or any other person.
a) PAST CONSIDERATION : It means consideration was given for any promise earlier and promise is made there after is called past consideration. FOR EXAMPLE, I request you to find out my lost dog. After you have done the same, I promise to pay you Rs. 100/- for that, it is a case of past consideration.
b) EXECUTED OR PRESENT CONSIDERATION : When one of the parties to contract has performed his part of the promise which constitutes the consideration for the promise by other side it is known as executed or present consideration. Promise of performance by other side is only thing now to be done. FOR EXAMPLE ‘A’ makes an offer of reward of Rs. 100/- to any one who finds out his lost dog and brings same to him. B finds the dog and delivers the same to A. The consideration is present consideration.
c) EXECUTORY OR FUTURE CONSIDERATION : When one person makes a promise in exchange for promise by the other side, the consideration is known as executory or future consideration. FOR EXAMPLE, A agrees to supply certain goods to B. B agrees to pay for them on future date. This is a case of executory consideration.
4. SOME ACT, ABSTINENCE OR PROMISE BY THE PROMISEE: It means that there must be some act, abstinence or promise in exchange for the promise. If nothing is done in exchange for promise, there is no act, no abstinence, or no promise, there is no consideration.
a) CONSIDERATION RECEIVED BY ONE OF THE JOINT PROMISORS’ : When there are several joint promisors’ but consideration has been received by only one of them, this is sufficient consideration.
b) CONSIDERATION NEED NOT TO BE ADEQUATE : A contract which is supported by consideration is a valid contract even if consideration is inadequate. FOR EXAMPLE, A agrees to sell his horse worth Rs. 1000/- to B only for Rs. 10/-. IN DEVJI SHIVJI V KARSANDAS RAMJI , the transfer of the goodwill and the whole of the assets of a business worth Rs. 1,00,00,000 for Rs 1,00,000 only was held valid.
c) CONSIDERATION SHOULD BE REAL : In WHITE VS. BLUETT, A son used to complain to his father that his brothers were given more property than him. The father promised to pay the debts incurred by the son, if he stops complaining. It was held by the court of law that is not a real consideration.
EXCEPTIONS OF CONSIDERATION (S. 25)
SECTION 25 as a general rule declares that agreement without consideration is void. However, this section mentions three exceptions, when there is no need of any consideration for validity of contract. SECTION 25 states that an agreement made without consideration is void unless:
- It is expressed in writing and registered and is made on account of natural love and affection between parties in a near relationship to each other.
- It is a promise to compensate, wholly or in a part a person who has already voluntarily done something for the promisor, or something which the promisor was legally bound to do.
- It is a promise, made in writing by the person or his agent to pay time barred debt.
EXPLANATION 1 makes it clear that SECTION 25 does not apply to the cases of gifts.
EXPLANATION 2 makes it clear that the consideration must have some value in the eyes of law, even though it need not be adequate.
1) PROMISE DUE TO NATURAL LOVE AND AFFECTION : When the promise is made in favour of near relation due to natural love and affection, the contract is valid even though there is no consideration for same. The expression ‘near relative’ will include parties related by blood or marriage. The following are requirements to be satisfied in this section:
- Parties to agreement must be in near relationship to one another.
- Promise should be made due to natural love and affection.
- The promise shall be in writing and registered.
In RAJLUCKY DABEE V. BOOTHNATH MOOKERJEE, the defendant promised to pay his wife a fixed sum of money every month for her separate residence and maintenance. The agreement mentioned certain quarrels and disagreements between them. The court could not find any trace of love and affection between them. The agreement was held to be void for lack of consideration.
In BHIWA V SHIVARAM, a brother transferred half of his property in the favour of another brother to have cordial relation. It was held that transfer is made on account of natural love and affection. Such an agreement is binding.
THRESIA V. JOHNY, 2003(3) RCR (CIVIL 157(KERALA) - An oral agreement without consideration is void under SECTION 25 of Act unless it is in writing, registered and made on account of natural love and affection; or is a promise to pay a time barred debt.
2) COMPENSATION FOR PAST VOLUNTARY SERVICES : A promise to compensate a person, who has already voluntarily done something for the promiser, is enforceable. When a person without the knowledge of promisor or otherwise on request does some service and the promisor undertake to recompensate for it. FOR EXAMPLE, when “A” finds “B” purse and hand it over to “B”. “B” promises to pay Rs. 50/- to “A”. Although the act of “A” was voluntary one, the absence of consideration does not make it void.
In KARAN CHAND V. BASANT KAUR, a promise is made during minority to pay for the goods supplied to the promisor, after attaining majority was held to be within this exception.
3) PROMISE TO PAY TIME BARRED DEBT : A promise to pay a time barred debt is enforceable. The promise to pay must be express.
The following are requirements to be satisfied in such a case:
- The promise to pay a time barred debt by promisor or by any other person duly authorized by him.
- The promise must be made in writing and signed by promisor or by his duly authorized agent.
In R. SURESH CHANDRA & COMPANY V. VADNESE CHEMICAL WORKS, it was held that a statement in the balance sheet of a firm singed by a partner stating that the firm is liable to the plaintiff, it amounts to a promise within the meaning of SECTION 25(3) of the Contract Act.
(4) AN AGENCY [SECTION 185]; No consideration is necessary to create and agency.
(5) A COMPLETED GIFT [Explanation 1 to Sec. 25]. The rule “No consideration, no contract” does not apply to completed gifts. According to Expl. 1 to Sec. 25, nothing in Sec. 25 shall affect the validity, as between the donor and donee, of any gift actually made.
CONSIDERATION OR OBJECT BECOMES UNLAWFUL
One of the essentials of a valid contract is that the consideration and the object should be lawful. If the object or consideration is unlawful, the contract is void. The distinction between illegal and void contracts is very thin but it is there. The law may either forbid an agreement to be made, or it may merely say that if it is made the courts will not enforce it. In the former case, it is illegal in the latter only void. The expression ‘void’ means without legal force, effect or consequence, not binding, invalid, null, worthless, cipher, useless and ineffectual etc. (NUTAN KUMAR V. IIND ADDITIONAL DISTRICT JUDGE, BANDA, AIR 1994 ALL 298). SECTION 23 of the Indian contract act provides that if the consideration or object of an agreement is unlawful, the contract is void. IN UNIVERSAL PLAST LTD. VS. SANTOSH KUMAR, where the plaintiff received part payment in advance from the defendant for sale of spindles against ban under Essential Commodities act, it was held that neither the remaining price nor the advance could be claimed by either party, as the sale of spindles was illegal.
In the following cases, the consideration or object becomes unlawful:-
- When it is forbidden by law
- It would defeat the provisions of any law.
- It is fraudulent
- It involves or implies injury to the person or property of another.
- When it is immoral.
- The court regards it as opposed to public policy.
(1) WHEN IT IS FORBIDDEN BY LAW :- Any agreement to do an act which is prohibited by I.P.C. or by some other law, the contract is not enforceable because of its unlawful nature for e.g. `A’ agrees to pay `B’ Rs.10, 000/- if `B’ kills `C’. The prohibition may be express or implied. The imposition of a penalty by the legislation for any specific act is an express prohibition. Thus, an agreement for sale of liquor without licence is void. In NUTAN KUMAR V. IIND ADDITIONAL DISTRICT JUDGE, Banda that an agreement of lease between a landlord and tenant without allotment or release order as required by the law is void .So, the agreement not enforceable in a court of law.
2) IT WOULD DEFEAT THE PROVISION OF ANY LAW :- If the object or consideration of an agreement is of such a nature that if it is permitted, it would definitely defeat the provisions of any law, such an agreement is void for e.g. an agreement with a minor ( MOHRIBIBI V. DHARMODAS ), or unsound mind is void.
3. FRAUDULENT PURPOSE :- If the consideration or object of an agreement is to commit fraud, the agreement is void. For e.g. `A’, `B’, `C’ enters into agreement to cheat `D’ to earn Rs.1 Lac from him, the agreement is void, because their purpose is fraudulent. Therefore, the contract is not enforceable by law because of its fraudulent purpose. IN MANNI RAM V. PURSHOTTAM LAL, A, knew that Railway Company would not grant a contract to him. Therefore, he made a contract with B that B should forward an application to Railway Company for contract but A will be serving as a real contractor. The contract was granted to B. A filed a suit against B to claim the real contractorship. It was held that the object was to commit fraud with the Railway Company. Thus, the agreement was void.
4. AGREEMENTS INJURIOUS TO PERSON OR PROPERTY :- If the consideration or object of the agreement is to cause injury to a person or property of the person, the agreement is void. FOR EXAMPLE
- `A’ enters into contract with `B’ to hit `C’ in lieu of Rs.10, 000/-.
- `A’ promises to pay `B’ Rs.10, 000/- if `B’ hits the car of `c’.
5. IF IT IS IMMORAL : If the consideration of an object of an agreement is immoral as opposed to the public policy the agreement is unlawful and void. FOR EXAMPLE A agrees to give his daughter to `B’ for one night for Rs.10, 000/- the agreement is void because of its immoral nature. In BAI VIJLI V. NANSA NAGAR, the plaintiff advanced a loan to a married woman to get the divorce from her husband and then marry the plaintiff. The object of the agreement was held to be immoral.
6. IF THE court is satisfied that the agreement between the parties is opposed to the public policy the agreement is void. Public policy is a vague term and is difficult to give it a definite meaning. Public policy means the policy of law at a stated time and act which is injurious to the trust of society.
The following agreements have been held to be opposed to public policy:
- Trading agreement with an enemy.
- Marriage brokerage contract.
- Agreement tending to injure the public service.
- Agreements which tend to prevent the course of justice.
- Agreements in connection to injure the public service.
- Agreements which affect the freedom of trade.
- Agreements which are against good morals.