All about Consideration in Law of Contracts

Law of Contracts

Introduction

In simplest terms, consideration is what a promisor demands as the price for his promise.

Def- “an act or forbearance of one party or the promise thereof is the price for which the promise of the other is bought and the promise thus given for value is enforceable.”

Examples

  • A agrees to sell his house to B for Rs. 10,000. Here B’s promise to pay the sum of Rs. 10,000 is consideration for A’s promise to sell the house; and A’s promise to sell the house is the consideration for B’s promise to pay Rs. 10,000.
  • A promises to pay B Rs. 1,000 at the end of 6 months, if C, who owes that sum to B, fails to pay it. B promises to grant time to C, accordingly. Here the promise of each party is the consideration for the promise of the other party.
  • A promises, for a certain sum paid to him by B to make good to B the value of his ship if it is wrecked on a certain voyage. Here A’s promise is the consideration for B’s payment and B’s payment is the consideration for A’s promise.
  • A promises to maintain B’s child and B promises to pay A Rs. 1,000 yearly for the purpose. Here the promise of each party is the consideration for the promise of the other party.

(1) Consideration must move at the desire of the promisor

Accordingly, an act done at the desire of a third party is not a consideration.

Example

D constructed a market at the instance of the Collector of a District. The occupants of the shops in the said market promised to pay D a commission on articles sold through their shops. Held : There was no consideration because the money was not spent by the plaintiff at the request of the defendants, but voluntarily for a third person and thus the contract was void.

(2) Consideration may move from the promisee or any other person

Although it is necessary that consideration must move at the desire of the promisor, it may be supplied either by the promisee or any other person.

Examples

  • A who is indebted to B sells his property to C and C promises to pay off the debt to B. In case C fails to pay, B has no right to sue; C being stranger to the contract.
  • Upon A’s marriage his father and father-in-law entered into a contract to contribute a certain sum of money to be given to A after his marriage. A’s father paid his contribution but his father-in-law failed to pay.

Held : A could not sue his father-in-law since he (A) was a stranger to the contract

(3) Consideration need not be adequate

Example

A agrees to sell a horse worth Rs. 1,000 for Rs. 100. A denies that his consent to the agreement was freely given. The inadequacy of consideration is a fact which the Court should take into account in considering whether or not A’s consent was freely given.

(4) Consideration must be real and competent

Consideration must be real. If it is illusory, e.g., if a man promises to discover treasure by magic, the transaction is void.

Examples

(1) A promises to pay an existing debt punctually if, B, the creditor, gives him a discount. The agreement is without consideration and the discount cannot be enforced.

Exceptions to the Rule “No Consideration No Contract”

The general rule of law is that an agreement without consideration is void. “A bargain without consideration is a contradiction in terms and cannot exist.”* But there are a few exceptional cases where a contract, even though without consideration, is enforceable. They are as follows:

An agreement made without consideration is valid if

  • it is expressed in writing, and
  • it is registered (under the law for the time being in force for registration of documents), and
  • it is made on account of natural love and affection, and
  • made between parties standing in a near relation to each other.

Examples

(1) An elder brother, on account of natural love and affection, promised to pay the debts of his younger brother. The agreement was put to writing and was registered.

Held : The agreement was valid.

(2) A Mohammedan husband, by a registered agreement promised to pay his earnings to his wife.

Held : The agreement, though without consideration, was valid

Examples

  • A finds B’s purse and gives it to him. B promises to give A Rs. 50. This is a valid contract.
  • A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a valid contract.
  • A promise to pay, wholly or in part a debt which is barred by the law of limitation can be enforced if (a) it is in writing, and (b) is signed by the debtor or his authorised agent

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