Consideration under Indian Contract Act

1. Introduction

The Indian Contract Act 1872 is the main act governing all aspects of contracts in India. Its basic principles are based on the English Common Law. It deals with the formation of a contract, types of contracts, parties to a contract, consideration etc. It extends to the whole of India 2 [except the State of Jammu and Kashmir]; and it shall come into force on the first day of September, 1872.

2. Interpretation-clause

In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context:

(a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;
(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise;
(c) The person making the proposal is called the promisor, and the person accepting the proposal is called the promisee;
(d) 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;
(e) Every promise and every set of promises, forming the consideration for each other, is an agreement;
(f) Promises which form the consideration or part of the consideration for each other are called reciprocal promises;
(g) An agreement not enforceable by law is said to be void;
(h) An agreement enforceable by law is a contract;
(i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract;
(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable[1].

Consideration is defined under section 2d of the Indian Contracts Act, 1872. It is defined as when the promisee at the request to the promisor has:

Done or abstained from doing something,
Does or abstains from doing something,
Promises to do or abstain from something

3. Section 23 in The Indian Contract Act, 1872

23. What consideration and objects are lawful, and what notThe consideration or object of an agreement is lawful, unless The consideration or object of an agreement is lawful, unless" it is forbidden by law, or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.[2].Example

A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code (45 of 1860).

4. Need for Consideration in Contract

Only the promises that are backed by consideration are enforceable because any promise made without any obligation is usually very rash and without any sort of deliberation. The reason for making consideration an essential part of a contract is because it levies a sort of burden on the parties to fulfil the terms of the contract. For Example, if, A promises to give B a car without B doing or abstaining to do anything for it, makes the promise by an unenforceable. This will be a gift and not a contract per se. Consideration may be something which is done or in the process of being done. It also consists of an act which is promised to be done in the future. There may be promises which form the consideration for each other. Before the completion of a promise which forms a part of the consideration of the other promise, then such consideration is called executory consideration.

For example- if A promises to pay B when he will sell the goods to him. Until time A does not get the goods, the consideration is executory, when he got the goods and paid for the same, the consideration is executed. If B does not sell the goods then A could also breach for the suit.

5. Exceptions to the consideration under Indian Contract Act, 1872

SECTION 25. Agreement without consideration, void, unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law, unless;

(1) Natural love and affection

When the promise is made without consideration due to natural love and affection, such kind of promise will be considered as valid but the promise must be in writing and registered under the law for the time being in force. The agreement will not become void even if it is made without consideration.

Essential ingredients;

Agreement must express in writing;
It must be registered under the law for time being in force for registration;
Promise is made on account of love and affection;
Agreement should be between parties and standing in near relation to each other

Related cases :

SM RAJLUKHY DABEE v/s BHOOTNATH MOOKHKERJEE, (1900) 4 CWN 488[3].
Bhiwav.Shivram (1899)1 Bom LR 495 [3].

6. Conclusion

Exceptions to consideration under Indian Contract Act include natural love and affection, past voluntary services, promise to pay a time-barred debt, creation of an agency, gifts, bailment and charity. Consideration is an essential element of a valid contract. Without it, the contract is void and thus cannot be enforced. It is important to note that when you enter into a contract, you must have a valid consideration, adequacy of which is immaterial. It may be an act done in the past, present, or future.