CONSIDERATION
Consideration is price of the promise. It is in nature of quid pro quo, that is, something for something. It is the price for which the promise of other is brought and promise thus given for value is enforceable. Consideration is “some right, interest, profit or benefit accruing to one party or forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other”. This refers to the position of both the promisor, and the promisee in an agreement.
In law, When at the desire of the promisor (person making the proposal), the promisee (person accepting the proposal) 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.
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From the above definition it can be inferred that
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Consideration is doing or not doing something
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Consideration must be at the desire of the promisor
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Consideration may move from one person to any other person
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Consideration may be past, present or future
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Consideration should be real though not adequate
For example, A promises to sell his house to B for Rs. 5 lakhs. Here, A is the promisor and B is the promisee. B agrees to buy the house for the said price. Here, B will be the promisor and A will be the promisee. That is, A must part with the house and B must part with Rs. 5 lakhs. Thus, Consideration is mutual and has two sides.
It is also possible that there may not be any identifiable benefit towards consideration. For example, A promises to carry B’s goods free of charge and B allows A to carry the same. Here B has suffered a detriment or disadvantage while allowing A to carry his goods. This is sufficient consideration.
Above example shows that Consideration has dual aspect. It is not necessarily a gain or advantage to the promisor but it can even be a loss or detriment to the promisee.
Similarly in a contract of guarantee of Loan, where A applies for a loan from Bank B, and if B insists on a guarantee by G. B gives loan to A on G’s guarantee. Here, G will be promisor and B promisee. The benefit conferred on A by B at the guarantee of G, is sufficient consideration for G. In other words B has suffered a detriment which is the consideration for the guarantee of G to repay the loan which B has given to A. Detriment to one is benefit to another.
But Consideration is sine qua non for a contract. In the absence of consideration, a gratuitous promise will not result in an agreement. For example, a promise to subscribe to a charitable cause cannot be enforced.
Essentials of a Consideration
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Consideration must move at the desire of the promisor.
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Consideration can flow either from the promisee or any other person. That is, consideration can legitimately move from a third party. For example, A by a deed of gift made over certain property to her daughter D with condition that A’s brother B should be paid annuity by D. In furtherance, D executes a document on the same day agreeing to pay the annuity accordingly, but declined to pay after sometime. B sued D. D contends that there was no consideration from B and hence there was no valid contract. Held, that the consideration did flow from B’s Sister A to D. Such consideration from third party is sufficient to enforce the D’s promise.
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Consideration may be past, present or future. For example where A pays Rs. 5000/- to B requesting him to deliver certain quantity of rice, to which B agrees. The consideration for B is present (or executed) as A has already paid, while for A, consideration is future (or executory) as B is yet to deliver the rice.
Similarly, when A pays a premium of Rs. 5000/- seeking insurance cover for the year, from the insurance company which the company promises in the event of fire, the consideration paid by A to the insurance company is executed but the promise of insurance company is executory or yet to be executed.
Consideration may also be constituted in the past acts of promisee, but the act must have been non-gratuitous and also at the desire of the promisor.
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Consideration must be real and not illusionary. It must be something of value.
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Consideration need not be adequate. That is to say, consideration need not necessarily be of the same value as of the promise for which it is exchanged. For example, A may very well sell his motorbike valued at Rs. 50,000/- for a sum of Rs. 10,000/-
Law leaves the party to make their own bargain. Inadequate consideration would not invalidate an agreement but inadequate consideration raise suspicion over free will and could be taken into account by the court in deciding whether the consent of the promisor was freely given. (Topic of free consent dealt with separately)
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The performance of an act by a person what he is legally bound to perform, cannot be consideration for a contract. For example, a promise to pay money to a witness for giving evidence is void. The witness is legally bound to furnish evidence and hence there is no consideration.
But where a person promises to do more than he is legally bound to do is a good consideration. For example, Police is bound to maintain law and order and protect person and property. But where police provides stationary guard at request of owner of property on agreed price for such service. It was held that the promise to pay the amount was not without consideration. The police, no doubt, were bound to afford protection, but they had discretion as to the form it should take. The undertaking to provide more protection than what they deemed to be necessary was a consideration for the promise of reward.
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Consideration must not be unlawful, immoral, or opposed to public policy.
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Consideration may be positive or negative. Consideration is positive when some act needs to be done. It is negative when some act is to be purposely omitted.
Agreement without Consideration
The general rule is that an agreement without consideration is void. However, there are certain exceptions to the general rule. They are –
1. Agreement on account of Natural love and affection:
Such an agreement must be –
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In writing and registered
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Made on account of natural love and affection
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Between parties standing in a near relation to each other
In aforementioned conditions, an agreement is enforceable by law even without consideration.
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2. Compensation paid for past voluntary services:
Such an agreement must be –
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A promise to compensate
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Wholly or in part
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Person rendered services to the promisor
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Such service was rendered voluntarily.
That is, a promise to compensate wholly or in part for past voluntary services rendered by someone to promisor does not require consideration for being enforced. However the past services must have been rendered voluntarily to the promisor. Further the promisor must have been in existence at that time and he must have intended to compensate.
3. Promise to pay debts barred by limitation:
Such an agreement must be –
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A promise, made in writing
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Signed by the person to be charged therewith, or by his agent
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To pay
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Wholly or in part
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A time barred debt
That is, Where there is a promise in writing to pay a debt, which was barred by limitation, is valid without consideration. The law of limitations prescribes time within which an action must be initiated, after the lapse of which the same is called barred by time or limitation.
4. Creation of Agency:
By law, no consideration is necessary to create an agency. An “agent” is a person employed to do any act for another or to represent another in dealings with third persons.
5. Gifts actually made
In case of completed gifts, no consideration is necessary.
