Consideration under Indian Contract Act
1. Definition of Consideration
According to Section 2(d) of the Indian Contract Act, 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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."
2. Essentials of Consideration
For consideration to be valid, it must meet certain essential criteria:
It must be lawful: The consideration must not be illegal or against public policy.
It must be real and not illusory: Consideration must be something tangible or capable of being valued.
It must be something of value: Even though it may not be equal in value, there should be an exchange of value.
It must move from the promisee: Consideration must flow from the promisee, even if it benefits a third party.
It must be present or future: Past consideration is generally not valid, though there are some exceptions.
It must not be vague: The consideration must be specific and defined clearly.
3. Types of Consideration
Executed Consideration: When a promise is made and already performed, it is executed. For example, if you pay for goods before receiving them, the consideration is executed.
Executory Consideration: This refers to a promise for a future act. For example, agreeing to pay someone a certain amount for a service to be performed later.
4. Past, Present, and Future Consideration
Past Consideration: In general, past consideration (i.e., something given or done before the promise was made) is not valid under Indian law. However, there are exceptions where past acts can form valid consideration (for instance, where there is a written agreement or a reciprocal arrangement).
Present and Future Consideration: These are generally valid, as they involve a promise made by both parties for a mutual exchange.
5. Consideration Need Not Be Adequate
The law does not require that the consideration be equivalent in value. The doctrine of freedom of contract means that the parties to a contract can decide the value of consideration. Even if one party gives something less valuable than the other party, the contract is still valid, provided the consideration is lawful and there is mutual consent.
6. Gratuitous Promise or Without Consideration
A promise made without consideration is not enforceable in India. For example, if someone offers to give you a gift but doesn't ask for anything in return, that is a gratuitous promise and cannot be enforced as a contract under the Indian Contract Act.
However, contracts made out of love and affection (like a gift given to a relative) can be valid under certain conditions. Section 25 of the Indian Contract Act specifically deals with contracts made without consideration, except in cases like:
Natural love and affection: A promise made out of love and affection to a close relative.
Promise to pay a time-barred debt: A promise to pay a debt that has become time-barred (i.e., no longer legally enforceable because the statute of limitations has passed) is valid if made in writing and signed.
7. Contracts Without Consideration
Section 25 of the Indian Contract Act specifies some exceptions to the rule that a contract must have consideration:
Natural love and affection (if the promise is made in writing and registered).
Agreement to compensate for voluntary services: If someone provides a service voluntarily, and the person who benefits from it promises to compensate them, the promise is enforceable.
8. Importance of Consideration
Legal Enforceability: Consideration is a core component for the enforceability of a contract. Without valid consideration, the contract would be deemed void or unenforceable.
Evidence of Intent: Consideration also reflects the intention of the parties to be bound by the contract.
Key Case Laws:
Chidambara Pillai v. M. R. Ramaswamy: This case reiterated that consideration need not be adequate, but it must be lawful.
Thomas v. Thomas: Here, it was established that consideration need not be of equal value, but must have some value.
Conclusion:
Consideration is fundamental to the validity of contracts under Indian law. It acts as a necessary element to prove that the parties intended to enter into a binding agreement. Without valid consideration, a promise is typically not enforceable, with some exceptions.
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