Consideration: DEFINITION OF THE TERM “CONSIDERATION” Sec. 2 (d) of the Indian Contract Act defines consideration as follows “Whe…
Consideration:
DEFINITION OF THE
TERM “CONSIDERATION”
TERM “CONSIDERATION”
Sec. 2 (d) of the
Indian Contract Act defines consideration as follows “When at a desire of the
promisor, the promisee or any other person has done or abstained from doing, or
does or abstains from doing, something, such act or abstinence or promise is
called a consideration for the promise.”
Indian Contract Act defines consideration as follows “When at a desire of the
promisor, the promisee or any other person has done or abstained from doing, or
does or abstains from doing, something, such act or abstinence or promise is
called a consideration for the promise.”
Essential elements of
Consideration
Consideration
1. The desire of the promisor
2. It may be furnished by any person
3. A stranger to a contract cannot sue
4. It may be past, present or future
5. It must be something of value
6. It need not be adequate
Thus consideration consists of
a) Act b)
Abstinence c) Promise
Abstinence c) Promise
Which may be rendered in the
a) Past b)Present c)Future
Example: X agreed to deliver a piece of
a sofa set to Y and Y agreed to pay Rs 5,000 on delivery. In this case, the
consideration for X is Rs. 5000 and for Y is sofa set.
a sofa set to Y and Y agreed to pay Rs 5,000 on delivery. In this case, the
consideration for X is Rs. 5000 and for Y is sofa set.
Essentials of Valid
Consideration:
Consideration:
(1) An act done voluntarily by the promisee
or at the desire of the third party will not constitute a valid contract.
or at the desire of the third party will not constitute a valid contract.
Example: A
voluntarily rescues B’s son from drowning in the river. Here, A cannot claim
remuneration from B, because he has not done it at B’s request.
voluntarily rescues B’s son from drowning in the river. Here, A cannot claim
remuneration from B, because he has not done it at B’s request.
(2) It may be
furnished by any person, not necessarily the party to the contract.
furnished by any person, not necessarily the party to the contract.
Case Law: Chinnaya Vs
Rammaya
Rammaya
An old lady
transferred a property to her daughter. In return, she wanted her daughter to
pay an annuity to her aunt (i.e.) the old lady’s sister. Accordingly, the girl
made a deed agreeing to pay a particular sum to her aunt. After a while, she
stopped paying the sum. Her contention was that since her aunt had not given
her any consideration, she was not obliged to hold on to her promise. The Court
however held that consideration had moved from her mother.
transferred a property to her daughter. In return, she wanted her daughter to
pay an annuity to her aunt (i.e.) the old lady’s sister. Accordingly, the girl
made a deed agreeing to pay a particular sum to her aunt. After a while, she
stopped paying the sum. Her contention was that since her aunt had not given
her any consideration, she was not obliged to hold on to her promise. The Court
however held that consideration had moved from her mother.
(3) A stranger to a
contract cannot sue.
contract cannot sue.
A person may be a
stranger to the consideration but he should not be a stranger to the contract.
The beneficiaries are not strangers.
stranger to the consideration but he should not be a stranger to the contract.
The beneficiaries are not strangers.
(4) Consideration may
be past, present or future.
be past, present or future.
a. Past Consideration: When something
is done or suffered before the date of the agreement, at the desire of the
promisor, it is called past consideration.
is done or suffered before the date of the agreement, at the desire of the
promisor, it is called past consideration.
Shyama Shastri
teaches music to Bala Murugan’s son at the latter’s request from January to
July. In September, Bala Murugan promises to pay Shyama Shastri a sum of Rs.
5000 for his services. The music lessons given by Shyama Shastri between
January and July are past consideration.
teaches music to Bala Murugan’s son at the latter’s request from January to
July. In September, Bala Murugan promises to pay Shyama Shastri a sum of Rs.
5000 for his services. The music lessons given by Shyama Shastri between
January and July are past consideration.
b. Present Consideration: Consideration
which moves simultaneously with the promise is called present consideration.
which moves simultaneously with the promise is called present consideration.
Example: Harish sells and delivers a
cycle to Rakesh, who promises to pay on the 1st of the next month. The
consideration moving from Harish is present consideration, which is moving
simultaneously with the promise of Rakesh.
cycle to Rakesh, who promises to pay on the 1st of the next month. The
consideration moving from Harish is present consideration, which is moving
simultaneously with the promise of Rakesh.
c. Future Consideration: When the
consideration on both sides is said to move at a future date, it is called
future consideration.
consideration on both sides is said to move at a future date, it is called
future consideration.
Example: Satish promises to sell and
deliver 10 bags of wheat to Kamesh for Rs. 8000 after a week, upon Kamesh’s
promise to pay the agreed price at the time of of delivery.
deliver 10 bags of wheat to Kamesh for Rs. 8000 after a week, upon Kamesh’s
promise to pay the agreed price at the time of of delivery.
(5) Consideration
must be ‘something of value’
must be ‘something of value’
Consideration must be real and competent. It should not be
a) Physically
impossible
impossible
b) Legally
impossible
impossible
c) Uncertain
d) Illusory
(6) Consideration
Need Not Be Adequate.
Need Not Be Adequate.
The owner has the absolute right to sell his property at the
price he likes.
price he likes.
Thus a pen of Rs. 5 can be sold for Rs. 5 lakh, a luxury car
of Rs. 1 crore can be sold for Rs. 11000 or less.
of Rs. 1 crore can be sold for Rs. 11000 or less.
CONTRACTS WITHOUT
CONSIDERATION
CONSIDERATION
Section 25 of
Indian Contract Act 1872, lays down few exceptions, where consideration is not
essential for the formation of contract, such contracts also include past
voluntary services, gift and it also includes promises to pay time barred debt
or done out of natural love and affection
Indian Contract Act 1872, lays down few exceptions, where consideration is not
essential for the formation of contract, such contracts also include past
voluntary services, gift and it also includes promises to pay time barred debt
or done out of natural love and affection
Generally a
contract without consideration is void, however in certain exceptional cases a
contract may be valid even if it is not supported by consideration.
contract without consideration is void, however in certain exceptional cases a
contract may be valid even if it is not supported by consideration.
Following are the
exceptions to the general rule “No consideration, No contract”:
exceptions to the general rule “No consideration, No contract”:
a. Agreement made on
account of natural love and affection.
account of natural love and affection.
An Agreement made
without consideration is enforceable if, it is made between parties in near
relationships. (Ex: Husband and wife / Brother and sister, parents &
children ).
without consideration is enforceable if, it is made between parties in near
relationships. (Ex: Husband and wife / Brother and sister, parents &
children ).
It must comply with following conditions:
·
Out of natural love and affection
Out of natural love and affection
·
In writing
In writing
·
Also registered
Also registered
Note: Such
agreements must be made in writing and registered under the law for the time
being in force.
agreements must be made in writing and registered under the law for the time
being in force.
Inadequacy of
consideration does not make the contract void. In cases of inadequacy of consideration it is essential that the
consent must be a free consent.
consideration does not make the contract void. In cases of inadequacy of consideration it is essential that the
consent must be a free consent.
Natural love and affection exist between blood relationships
and in relationships of husband and wife.
and in relationships of husband and wife.
Case Law:
Venkataswamy v. Rangaswamy
Venkataswamy v. Rangaswamy
An older brother
on account of natural love and affection, promised to pay the debts of his
younger brother. The agreement was in writing and registered. Held, the older
brother was liable to the creditors.
on account of natural love and affection, promised to pay the debts of his
younger brother. The agreement was in writing and registered. Held, the older
brother was liable to the creditors.
Case Law : Rajlakhy v.
Bhootnath
Bhootnath
A man promised to
transfer a house property in favour of his wife. He put this agreement in the
form of a deed and also registered it. In the deed there was a mention of their
frequent quarrels and arguments and hence they had decided to live separately.
Held, that the wife could not enforce the agreement because it was not made out
of love and affection.
transfer a house property in favour of his wife. He put this agreement in the
form of a deed and also registered it. In the deed there was a mention of their
frequent quarrels and arguments and hence they had decided to live separately.
Held, that the wife could not enforce the agreement because it was not made out
of love and affection.
b. Agreement to
compensate for past voluntary service:
compensate for past voluntary service:
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 which the promisor,
was legally compelled to do.
without consideration is valid, if it is a promise to compensate, wholly or in
part, a person who has already voluntarily done something which the promisor,
was legally compelled to do.
Example: Seema rescued Vishnoo from
drowning in the river. Raghu, Vishnoo’s father, in gratitude for Seema’s
service, promises to pay Rs.5000/- to Seema. This contract between Seema and
Raghu is valid, although it is not supported by consideration.
drowning in the river. Raghu, Vishnoo’s father, in gratitude for Seema’s
service, promises to pay Rs.5000/- to Seema. This contract between Seema and
Raghu is valid, although it is not supported by consideration.
c. An agreement to
pay time-barred debt:
pay time-barred debt:
Where there is an
agreement, made in writing and signed by the debtor or by his authorized agent,
to pay wholly or in part a debt barred by the law of limitation, the agreement
is valid even though it is not supported by any consideration. A time barred
debt cannot be recovered and therefore a promise to repay such a debt is
without consideration, hence the importance of the present exception.
agreement, made in writing and signed by the debtor or by his authorized agent,
to pay wholly or in part a debt barred by the law of limitation, the agreement
is valid even though it is not supported by any consideration. A time barred
debt cannot be recovered and therefore a promise to repay such a debt is
without consideration, hence the importance of the present exception.
What is a time barred debt?
The limitation
Act lays down that if a debt is not recovered within the period of limitation,
(generally 3 years in the case of contracts) the debt becomes legally
unenforceable. Such a debt is called time barred debt.
Act lays down that if a debt is not recovered within the period of limitation,
(generally 3 years in the case of contracts) the debt becomes legally
unenforceable. Such a debt is called time barred debt.
Conditions:
1. The promisor
himself must be liable for the debt.
himself must be liable for the debt.
2. There must be an
‘express promise to pay.
‘express promise to pay.
3. The promise must
be in writing and signed by the debtor or his agent.
be in writing and signed by the debtor or his agent.
d. Gift:
A gift does not
require consideration in order to be valid. “As between the donor and the
donee, any gift actually made will be valid and binding even though without
consideration.” Movables can be gifted without any registered document but for
a gift of immovable property it is essential to get the document written,
attested and registered.
require consideration in order to be valid. “As between the donor and the
donee, any gift actually made will be valid and binding even though without
consideration.” Movables can be gifted without any registered document but for
a gift of immovable property it is essential to get the document written,
attested and registered.
Vasant Rajaram Narvekar
v. Ankushu(1995)3BomCR196
v. Ankushu(1995)3BomCR196
If the gift deed is duly attested by two witness and duly
registered gift is valid.
registered gift is valid.
e. Contribution to
Charity:
Charity:
A promise to
contribute to charity, though gratuitous, would be enforceable, if on the faith
of the promised subscription, the promisee takes definite steps in furtherance
of the object and undertakes a liability, to the extent of liability incurred,
not exceeding the promised amount of subscription.
contribute to charity, though gratuitous, would be enforceable, if on the faith
of the promised subscription, the promisee takes definite steps in furtherance
of the object and undertakes a liability, to the extent of liability incurred,
not exceeding the promised amount of subscription.
Case Law: Abdul Aziz
Vs. Masum Ali
Vs. Masum Ali
Donations were
invited for renovation of a mosque. A person promised to donate Rs. 500 towards
it. But the mosque authorities took no steps towards the work. Held, that the
promisee could not enforce the promise as they had not taken any steps in
furtherance of the object.
invited for renovation of a mosque. A person promised to donate Rs. 500 towards
it. But the mosque authorities took no steps towards the work. Held, that the
promisee could not enforce the promise as they had not taken any steps in
furtherance of the object.
Some other examples
·
A promises to pay Rs. 1000 to B, without
any consideration. Agreement is void.
A promises to pay Rs. 1000 to B, without
any consideration. Agreement is void.
·
A, out of natural love and affection,
promises his son to pay Rs. 20000, to buy a bike, A puts his promise in writing
and register it. This is a Contract
A, out of natural love and affection,
promises his son to pay Rs. 20000, to buy a bike, A puts his promise in writing
and register it. This is a Contract
·
A, founds B’s Documents and give it to him.
B promises to pay A Rs. 100 as reward. This is a contract.
A, founds B’s Documents and give it to him.
B promises to pay A Rs. 100 as reward. This is a contract.
·
A owes Rs. 10,000 to B but the debt is
barred by the limitation act. A promises to pay Rs 6000, on account of the debt
and also signs the agreement for the same. This is a contract.
A owes Rs. 10,000 to B but the debt is
barred by the limitation act. A promises to pay Rs 6000, on account of the debt
and also signs the agreement for the same. This is a contract.
·
A agrees to sell a horse worth Rs 1 lakh
for Rs. 1. A’s consent to the agreement was freely given. This is a contract,
the inadequacy of the consideration does not make’s the agreement void as there
is free consent of A.
A agrees to sell a horse worth Rs 1 lakh
for Rs. 1. A’s consent to the agreement was freely given. This is a contract,
the inadequacy of the consideration does not make’s the agreement void as there
is free consent of A.
Practice Exercise
1. Sec 2(d) of The Indian Contract Act,1872
deals with?
deals with?
A.
Offer/Proposal
Offer/Proposal
B. Acceptance
C.
Consideration
Consideration
D.
Agency
Agency
Ans:
C
C
2.
When at a desire of the promisor, the promisee or any other person has done or
abstained from doing, or does or abstains from doing, something, such act or
abstinence or promise is called
When at a desire of the promisor, the promisee or any other person has done or
abstained from doing, or does or abstains from doing, something, such act or
abstinence or promise is called
A.
Consideration
Consideration
B.
Promise
Promise
C.
Acceptance
Acceptance
D.
None of these
None of these
Ans:
A
A
3.
Consideration consists of
Consideration consists of
A.
Act
Act
B.
Abstinence
Abstinence
C.
Promise
Promise
D.
All of the above
All of the above
Ans: D
4.
Consideration may be rendered in the
Consideration may be rendered in the
A.
Past
Past
B.
Present
Present
C.
Future
Future
D.
All of the above
All of the above
Ans:
D
D
5. A proposes to sell a house to B for 10000 Rs.
Is this valid consideration
Is this valid consideration
A.
Yes
Yes
B.
No
No
C.
Maybe
Maybe
D.
None of the above
None of the above
Ans:
A (Consideration need not be adequate)
A (Consideration need not be adequate)
6.
Consideration must be
Consideration must be
A.
Legally impossible
Legally impossible
B.
Illusory
Illusory
C.
Physically impossible
Physically impossible
D.
Real and competent
Real and competent
Ans:
D
D
7.
An act done voluntarily by the promisee or at the desire of the third party
will __________ a valid contract.
An act done voluntarily by the promisee or at the desire of the third party
will __________ a valid contract.
A.
Constitute
Constitute
B.
Not constitute
Not constitute
C.
Accept
Accept
D.
None of the above
None of the above
Ans:
B
B
8.
Sec. _______ of Indian Contract Act 1872, lays down few exceptions, where
consideration is not essential for the formation of contract
Sec. _______ of Indian Contract Act 1872, lays down few exceptions, where
consideration is not essential for the formation of contract
A.
2(d)
2(d)
B.
21
21
C.
25
25
D.
None of the above
None of the above
Ans:
C
C
9.
An older brother on account of natural love and affection, promised to pay the
debts of his younger brother. Will this be valid?
An older brother on account of natural love and affection, promised to pay the
debts of his younger brother. Will this be valid?
A.
Yes
Yes
B.
No
No
C.
Maybe
Maybe
D.
None of the above
None of the above
Ans:
A
A
10.
Considerations & objects are unlawful where it is
Considerations & objects are unlawful where it is
A.
forbidden by law or defeat the provision of any law
forbidden by law or defeat the provision of any law
B.
which is fraudulent
which is fraudulent
C.
which is immoral & against the public policy
which is immoral & against the public policy
D.
all the above
all the above
Ans:
D
D
11.
Agreement without consideration is
Agreement without consideration is
A.
Void
Void
B.
Voidable
Voidable
C.
Valid
Valid
D.
None of the above
None of the above
Ans:
A
A
12.
A promises to pay Rs. 80000 to B, without any consideration. This agreement is
A promises to pay Rs. 80000 to B, without any consideration. This agreement is
A.
Void
Void
B.
Voidable
Voidable
C.
Valid
Valid
D.
None of the above
None of the above
Ans:
A
A
13.
A, finds B’s horse and returns it to B. B promises to pay Rs.3000 as reward. Is
this valid?
A, finds B’s horse and returns it to B. B promises to pay Rs.3000 as reward. Is
this valid?
A.
Yes
Yes
B.
No
No
C.
Maybe
Maybe
D.
none of the above
none of the above
Ans:
A
A
14.
If wants to sell his son for Rs. 2 will it be a valid consideration?
If wants to sell his son for Rs. 2 will it be a valid consideration?
A.
No
No
B.
Yes
Yes
C.
Maybe
Maybe
D.
None of the above
None of the above
Ans:
A
A
15.
Consideration which is Illusory in nature is
Consideration which is Illusory in nature is
A.
Void
Void
B.
Voidable
Voidable
C.
Valid
Valid
D.
None of the above
None of the above
Ans: A
