1. Introduction
The Indian Contract Act of 1872 serves as the base of Indian Contract Law, providing a detailed structure for contract definition and enforcement. Consideration is one of the main components that make up the centre of a legal contract. This idea of considerations is critical in contract creation since it assures that the parties to a contract transfer something of value, resulting in a binding agreement.
Consideration is a basic term which highlights contract's quid pro quo structure. Quid pro quo structure under contract law generally means "something for something" [1], similarly a consideration under contract law is a contract between two or more parties when there is an exchange of something valuable. Section 25 under Indian Contract Act plays a very important role as it states that an agreement without consideration is void.
2. Consideration under Indian Contract Act,1872
2.1 Definition of Consideration
Consideration is anything of value exchanged between contract parties. It might be an act, a promise to do or refrain from doing something, or a combination of the three. Consideration is a necessary component of making a contract legally binding.
The definition of consideration according to Section 2(d) of the Indian Contract Act,1872 is mentioned below:
Consideration as when at the desire of the promisor, the promisee or any other person has done or abstains from doing, or does or abstains from doing or promises to do or abstains from doing something, such act or abstinence or promise is called consideration for that promise. [2]
2.2 Essentials for a valid Consideration [3]
- At the desire of the promisor
- Promisee or any other person
- Consideration may be past, present or future
- Consideration must be real
2.3 Key Elements
For a consideration to be valid following points must be fulfilled:
- A consideration must proceed in accordance with the promisor's desire or request. It suggests that the promisee should not do the deed freely or voluntarily.
- Consideration can be an executed act, an act completed or an executory act, a promise to complete a future act. The key aspect is that it must be valuable in the perspective of law.
- Legal consideration is required. Any conduct or commitment that violates any law or public policy is ineligible for consideration.
- As per the definition of consideration it simply indicates that something in return is consideration which must actually be of some value in the eyes of law, that something can be adequate or grossly inadequate. Law only requires the presence of some consideration in a valid contract; its adequacy is not required in law. According to Explanation 2 of Sec. 25, an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given. [4]
2.4 Importance of Consideration under Indian Contract Act,1872
- The inclusion of consideration assures that the contract is not based on unlawful or immoral conduct, promoting agreement's legality and ethical norms.
- Contract validity depends on consideration. A promise may not be legally binding if it is not accompanied by proper compensation.
- The Indian Contract Act,1872 clarifies that any contract without consideration is void. It is essential because it creates an obligation on both the parties to fulfil their promises. If it is not present, the burden on the parties may not be enough to ensure the completion of the contract. [5]
2.5 Types of Consideration
Considerations can be classified into three types which are explained below:
- Past Consideration- In contract law, past consideration refers to a circumstance in which one party agrees to perform something in exchange for a commitment that the other party has previously fulfilled. In general, the law does not recognize past consideration as valid consideration for a contract. This is based on the idea that a contract should be formed through a bargained-for exchange where both parties give something of value at the time of the agreement. Past consideration is legitimate if it was shifted at the promisor's earlier request. It must be anything the promisor is already legally obligated to perform.
- Present or executed consideration- When consideration has been given by both the parties to the contract at the same time, or a case wherein there is a simultaneous movement of consideration between both the parties to the contract.[6]
- Future or executory consideration-Executory consideration, also known as future consideration, refers to a promise that will be carried out at a later time. This is future consideration since the promisor is making an offer for a later date, and the promisee is promising to accept and execute the contract after that date. Each promise, in this particular case, is a consideration for the other. In this instance, both parties postpone the payment of the consideration. At a later date, both parties are liable for the obligation. [7]
2.6 Exceptions
There are several conditions where a contract is enforceable even if there is no consideration. Few of these conditions are mentioned below:
- Section 185 of Indian Contract Act states that an agency can be formed without a consideration.
- Section 25(1) of Indian Contract act explains that a contract without consideration will be valid only if it is made out of natural love and affection between two or more parties through a written and registered document.
- Under Section 25(2) it is stated that a promise made without consideration is valid if, it is a promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do.[8]
3. Conclusion
Under the Indian Contract Act of 1872, consideration is an essential principle of contract law. In contractual conversations, it assures fairness, legitimacy, and mutual duties. Contracting parties must be attentive of the kind and sufficiency of consideration in order to construct legitimate and enforceable agreements. Understanding the concept of consideration is crucial for both legal practitioners and anyone interested in contractual transactions, since it is the fundamental basis of contract validity and effectiveness in the Indian legal system.
4. Citations
[1] Adam Hayes "Quid Pro Quo: Definition, Examples, and Legality", available at: https://www.investopedia.com/terms/q/quidproquo.asp#:~:text=Quid%20pro%20quo%20describes%20an,quo%20consideration%20is%20often%20warranted. (last visited on January 11, 2024)
[2] Taxmann"Consideration under the Indian Contract Act", available at: https://www.taxmann.com/post/blog/consideration-under-the-indian-contract-act-1872(last visited on January 10, 2024)
[3] Aditya Ashu "The importance of consideration in contract", available at: https://www.legalservicesindia.com/article/1600/Importance-of-Consideration-in-Contract.html (last visited on January 10, 2024)
[4] Sanjay Rawat "Consideration under Indian Contract Act", available at: https://sociallawstoday.com/consideration-under-indian-contract-act/ (last visited on January 10, 2024)
[5] Ayushi Mishra "Consideration in Contracts: Meaning, Importance, Rules, and Examples", available at: https://www.tickertape.in/blog/importance-ofconsideration-in-contract/#:~:text=The%20Indian%20Contract%20Act%2C%201872,the%20completion%20of%20the%20contract. (last visited on January 10, 2024)
[6] Muskaan Aggarwal "Adequacy of Consideration (Present, Past, and Adequate Consideration): A Legal Analysis", available at: https://vidhinama.com/adequacy-of-consideration-present-past-and-adequate-consideration-a-legal-analysis/( last visited on January 11, 2024)
[7] Anindita Deb "Is consideration necessary for a contract", available at: https://blog.ipleaders.in/consideration-of-a-contract/(last visited on January 11, 2024)
[8] The Indian Contract Act,1872, s. Section25(2)
