Meaning of consideration in law and the essentials of valid consideration has been discussed here. For the formation of a valid contract, valid consideration is one of the essential elements of a contract.
When the parties make an offer and acceptance they exchange some value of things like property exchange with money. This is the general meaning of consideration in the law of contract.
What is the Meaning of Consideration?
Here, the question may arise that what is the meaning of consideration? The consideration meaning is also derived from the Latin Maxim ‘Quid Pro Quo’. Which means something in return or some value that is given and taken. This means, when the parties perform the offer and acceptance then both parties should get something in return (quid pro quo) that is the consideration.
In simple words, good consideration is the value that is an exchange with the promise. Look at the example given below for a better understanding of the consideration of legal meaning.
Example: A makes an offer to buy the bike of B for Rs. 50,000/- and B agrees to sell. Here, the bike is the consideration for A and the price paid for the bike i.e. Rs. 50,000- is the consideration for B.
Definition of Consideration
The meaning and definition of consideration in law have been provided under section 2(d) of the Indian Contract Act, 1872, consideration is defined 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 abstain from doing something, such act or abstinence is called a consideration for the promisee”.
This definition of consideration is somewhat complicated. Right! So, let’s break it and understand its meaning.
When the consideration move at the desire of the promisor means at the will of the promisor.
The promisee or any other person either does something (in present, past, or future) or abstains from doing something (in present, past, or future).
Such an act or abstinence is known as consideration.
Moreover, there is more consideration of legal definitions, defined by various jurists. Here, are some definitions of consideration propounded by the jurists.
Blackstone defined consideration as, “Consideration is a recompense given by one party entering into a contract to another party.”
Fedrick Pollock defined consideration as, “Consideration is the price for which other party makes a promise.”
Justice Peterson defined consideration as “Consideration means something which is adequate means consideration should have some value in the eyes of law.
Essential Elements of a Valid Consideration
Essentials of valid consideration are provided as; After the offer and acceptance, consideration is the next step taken entering into a contract.
Here, we will discuss some essential elements of valid consideration in the Indian Contract Act;
- Consideration must be at the desire of the promisor
- Consideration may move from promisee or any other person
- Consideration must be real
- Consideration need not be adequate
- Consideration may be in Past, Present, or Future
- Consideration must be lawful
- Consideration should not be immoral or opposed to public policy
These consideration essential elements will discuss in detail;
1. Consideration must be at the desire of the promisor
As we read the definition of consideration in section 2 (d), the act or abstinence to do or not to do something must be at the desire of the promisor and not at any other third party.
This means, for the formation of a consideration, when the parties perform any act or abstinence to do or not to do something, such act or abstinence must be at the request of the promisor and not any other person.
When such act or abstinence is performed by the promisee which is not at the desire (request) of the promisor then there is no valid consideration.
In the case of Durga Prasad v/s Baldeo, 1880, Mr. A build shops with an order from the Colletor. A built these shops at his own cost. Where the shops allotted to different persons and they promised to pay a commission on the sale of goods to A.
Here, the court held that persons were not liable to pay such commission to A because this act (building shops) was made on the order of the collector and not on the desire of the persons.
2. Consideration may move from promisee or any other person
As per the definition of consideration, the consideration may move from the promisee to any other person. It means the act or abstinence to do or not to do something performed by the promisee or any other third person, then the consideration may move from the promisee to that third person.
Example: A gifted his property to his brother B with imposing one condition that he should pay a certain amount to A’s daughter X per annum. But, B refused to pay the amount to X. So, here B failed to fulfil the promise, and also the consideration of X is moved. And, X can file a suit for the same.
3. Consideration may be in Past, Present, or Future
As we discuss in the definition of consideration that the consideration may be done or abstained from doing (past), or does or abstains from doing (present), or promises to do or abstain from doing something (future).
The definition of consideration clearly shows that the consideration may be in past, present, or future. So, let’s discuss it in detail;
1. Past Consideration
In a general contract, then consideration should be with the contract, but in the past consideration the act has been done already before making any promise then it is known as Past Consideration.
According to Anson, the past consideration is no consideration and it is unenforceable in English Law. So, in Common Law, past consideration has no value.
But, in India, past consideration is considered. And, it has some exceptions as explained below;
a) Past Voluntary Service
If we read section 25 (2) of the Indian Contract Act, it talks about past considerations. According to Section 25 (2), if the promise to compensate wholly or in part to a person who has already voluntarily done something for the promisor, or something the promisor is liable to do.
Example: A has found a purse on the road and he searched the true owner of that purse i.e. B. A returns the purse to B. Then B gives him Rs. 500/- as a reward.
In the above example, A acted voluntarily and returns B’s Purse. This is Past Voluntary Service.
b) Past Service on Request
If any action takes place before the promise then it is called a past service. And, this is not a part under section 25 (2).
Even, in the Indian Contract Act, there is no provision provided for the consideration in the past service on request.
But still, it has been allowed in Indian law.
2. Present Consideration
When the promisor performs any act or abstinence to do or not to do something at the same time when the promise is made is called Present Consideration. The consideration and promise take place simultaneously in the present consideration.
In other words, the performance of the promisor and the promise made both are at the same time, this is known as Present Consideration.
Example: A goes to the stationery shop and buys a pen and pays Rs. 10/.
In the above example, buying a pen and getting Rs. 10, both the action has occurred at the same time. This is a present consideration.
3. Future Consideration
When the promisor promises to perform any act or abstinence to do or not do something is called Future Consideration.
Example: A wants to buy mangoes from B. A buys 1 dozen mangoes and pay for them. But, B has not mangoes right now, and he promises to deliver mangoes the next day. This is a future consideration.
4. Consideration must be real
Consideration must be real and have some value in the eyes of the law. The consideration should not be illusionary or impossible to perform. In simple words, the consideration must have some economic value.
Example: A offers B to put life in B’s dead wife. B accepts and pays a certain amount to A. Here, the consideration is not real and is impossible to perform. Hence, the agreement is void.
5. Consideration does not need to be adequate
The next rules of consideration are that the consideration of an agreement does not require the adequacy of consideration.
Here, you may ask what is the meaning of adequacy of consideration?
So, here is the answer, the adequacy of consideration means the consideration agreed by both parties in the formation of an agreement need not be equal in value. This means the consideration or the value or the promise agreed by the parties is not required to have equal value.
In the case of Thomas v/s Thomas, 1842, it was held that adequate consideration is not necessary for the contract.
Example: A gives a room on rent to B for a nominal price of Rs. 100/- per month. But, the regular price of the rent should be Rs. 500-800.
So, in the above example, the value of the consideration is not similar means not adequate.
6. Consideration should not unlawful, immoral, or opposed to public policy
The consideration must be abiding with the law of land. If there is any violation of law due to the parties agreeing upon the illegal consideration into their agreement then it is an illegal agreement.
The consideration must follow the public policies and abide by the law and do not affect society’s morality.
Example: A offers B to buy his smuggled goods for half of its price compared to market value. And, B accepts it. A contract is an illegal contract.
Here, in the above example, the consideration for B is smuggled illegal goods. So, the consideration is illegal, immoral and against the public policies and hence the agreement is not enforceable.
Essentials of valid consideration are the most important elements to constitute a valid consideration in the formation of a valid contract. The definition of consideration has been provided under section 2(d) of the Indan Contract Act, 1872.
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