Consideration

Meaning of Consideration

An agreement must have a consideration in order to be legally enforceable. Consideration is a word used in technical contexts to mean "quid pro quo," or "something for something." It is generally referred to as the promise's price. A party must get something in exchange for his deed or promise when making a promise under an agreement. Contract law has designated this something as consideration. In actuality, it is the cost at which someone else's promise is purchased.

In Currie vs. Misa, it was defined that a valuable consideration, in the sense of law, may consist of some rights, interests, profits or benefits accruing to one party or some forbearances, detriment, loss or responsibilities given, suffered or undertaken by the other.

Patterson J. defines consideration as something which is of some value in the eye of law. It may be some benefit to the plaintiff or some detriment to the defendant.

Section 2 (d) of the Indian Contract Act, 1872 defines as follows: 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 is called a consideration for the promise.

Section 2 (d) of the Contract Act, 2056 reads: Consideration is a promise to do or not to do in return for the act done or undone which is mentioned in the offer.

Example:

• X consents to selling Y his bike for Rs. 200000. Here, X's promise to sell the bike serves as payment for Y's promise to pay Rs. 200000, and Y's promise to pay Rs. 200000 serves as payment for X's promise to sell the bike.

Features of Consideration

• Something for something is consideration.
• It is the promise's cost.
• In the eyes of the law, it has some value.
• It is a responsibility or benefit to one person and a right or obligation to another.
• It is given in exchange for a vow.
• It is given upon the promisor's request.

Essentials of a Valid Consideration

• The requirements for a legitimate consideration are:
• Whenever the promisee, promisor, or any party so desires.
• Past, present, or future are all possible.
• It has to be true.
• Both parties need to concur on it.
• It doesn't have to be adequate.
• It shouldn't be forbidden or against the law.
• It could be both material and immaterial.

Importance of Consideration

A legitimate contract must always contain consideration as a necessary component. For those agreements, the key question is not whether or not the agreement is supported by a consideration. A party must get something in exchange for his deed or promise when making a promise under an agreement. An agreement must have a consideration in order to be legally enforceable. And only promises that are given in exchange for something else are legally binding. The following is a statement of the need or significance of consideration:

• To exempt social issues from the application of law, promises made without payment are referred to as gratuitous and are not enforceable in court.
• Agreements without due consideration may be reached hastily or emotionally, when commitments are routinely made without the goal of creating enforceable legal obligations.
• The common human instinct is to want something in exchange for an action or commitment to take an action. As a result, if there is a promise to act but no consideration, it goes against human nature, and laws cannot compel things that are in accordance with human nature.
• Finally, the lack of deliberation raises a question about whether free will, which is necessary for the validity of the interaction, exists.

Types of Consideration

It can be divided into the following three categories according to the timing at which it passes from the promisee to the promisor:

Past Consideration

Consideration is referred to as past consideration when it has already been transferred from the promisee to the promisor.

Example:

• In January, X helps Y in some way. Y promises to give him Rs. 2000 in February in exchange for the service. This is the prior thought. X can get Rs. 2000 back from Y.

Present Consideration

It is referred to as the present consideration when the payment for the present promise is made simultaneously.

Example:

• In exchange, X promises to deliver some things to Y and receives Rs. 3000. The payment X gets serves as the current consideration for the delivery of the things he has promised to provide.

Future Consideration

Future consideration is required when the consideration for the current promise will be changed in the near future.

Example:

• After a month, X pledges to send some products to Y, and Y agrees to pay a week after delivery. Y's pledge backs up X's promise. Both commitments are for consideration in the future.

Additionally, it can be divided into the following three categories:

• Executed Analysis
• Considerations for Executor
• Historical Perspective

Rules Regarding Consideration

• Consideration must proceed according to the promisor's free will.
• The promisee or any other individual may move it.
• It must have some worth in the eyes of the court's legal system.
• It has to be in exchange for a promise.
• It doesn't have to be enough.
• It must be genuine and not made up.
• It needs to be moral or legal. Acts that are immoral or illegal cannot be used as compensation.
• It could be a pledge, an act, or abstinence.
• Past, present, or future are all possible.
• No consideration means no agreement.

Exceptions to the rule 'No consideration, No contract'

Contract based on natural love and affection:

• Writing is required.
• Registration is required.
• The parties must genuinely love and care for one another.

Example:

• For reasons of natural affection and effect, father X promises to provide his son Rs. 1000. X registers his vow and puts it in writing. This agreement is legitimate.

However, it should be recognized that proximity does not always engender genuine love and affection.

Contract to compensate the past voluntary service:

It also covers any compensation for pro bono work. For instance, suppose Mr. B contacts the fire department because Mr. X's house is on fire. Instead of Mr. B, Mr. X is come to make the payment.

Promise to pay for time barred debt:.

It also covers the debtor's payment of the debt in its strictest sense, without any consideration.

Example:

• X lent Y Rs. 2000 on June 5, 2016. Y signs a written agreement on June 6, 2017 promising to give X Rs. 2000. This is an agreement.

Contract of the agency:

It contains the agreement reached with the agents.

Completed gift:

It includes gifts given to loved ones, such as real estate like a home, piece of land, building, or automobiles.

Example:

• By use of a properly drafted and recorded deed, X gifted some property to Y. This agreement is binding.

Charitable subscriptions or donations:

It covers gifts made to people or organizations for charitable purposes.

References:

Business Law, Ram Prasad Shrestha;M.K Books, Bhotahity, Kathmandu,2013

Merchantile law, ICAI, 2013

Yugaraj Pandey