Consideration in Contract Law

Introduction

When diving into the intricacies of contract law, one of the fundamental concepts that stands out is “consideration.” In essence, consideration is the glue that binds a contract, making it legally enforceable. Let’s explore what consideration entails, why it is necessary, and its various forms and legal requirements.

What is Consideration?

Consideration in contract law refers to something of value exchanged between the parties involved. It’s the “quid pro quo,” or “something for something,” that legitimizes a promise. Consideration can manifest in two primary ways:

1. Benefit to one party: This might include a right, interest, profit, or benefit accruing to one party.
2. Detriment to the other party: This might involve some forbearance, detriment, loss, or responsibility suffered or undertaken by the other party.

Sir Frederick Pollock defines consideration as the price paid for a promise, making the promise enforceable when given for value.

Legal Definition of Consideration

According to Section 2(d) of the Indian Contract Act, 1872:

• When, at the desire of the promisor, the promisee or any other person:
  • (a) Has done or abstained from doing something (past consideration).
  • (b) Does or abstains from doing something (present consideration).
  • (c) Promises to do or abstain from doing something (future consideration).

These actions, abstentions, or promises constitute consideration for the promise.

Importance of Consideration in Contracts

Consideration ensures that people make promises seriously and with a sense of obligation. Without consideration, people might make promises rashly and without deliberation, making them unenforceable. For example, if person A promises to give person B a car without requiring anything in return, it’s merely a gift, not a contract.

Legal Requirements for Consideration

Several legal stipulations must be met for consideration to be valid:

1. At the Desire of the Promisor: The act must be done at the promisor’s request.
2. From the Promisee or Any Other Person: In Indian law, consideration can come from the promisee or another person, unlike English law which requires it from the promisee only.
3. Can Be an Act, Abstinence, or a Promise: Consideration can take many forms, including acts, abstentions, or promises to act or abstain.
4. Past, Present, or Future: Consideration can be something already done (past), being done (present), or promised to be done in the future (future).

Characteristics of Valid Consideration

• Need Not Be Adequate: The value of consideration does not have to be equal to the value of the promise. Courts do not assess the adequacy but ensure that consideration exists and has some legal value.
• Must Be Real and Not Illusory: Consideration must be tangible and legally permissible.
• Not Already Bound by Law: An obligation already required by law cannot serve as valid consideration.
• Must Not Be Immoral or Against Public Policy: Any consideration involving illegal, immoral, or publicly adverse actions is invalid.

Exceptions and Special Cases

1. Stranger to a Contract: Generally, only parties to a contract can enforce it. However, exceptions exist, such as marriage settlements or property covenants.
2. Past Voluntary Service: Promises to compensate for past voluntary services are enforceable under specific conditions in Indian law.
3. Promissory Estoppel: This doctrine prevents a promisor from going back on a promise if the promisee has relied upon it to their detriment.

Conclusion

Understanding consideration is crucial for grasping the fundamentals of contract law. It ensures that contracts are entered into with deliberation and mutual obligation. By meeting the legal requirements and adhering to the principles outlined in the Indian Contract Act, parties can form binding and enforceable agreements that stand the test of legal scrutiny.

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Also Read: Flaw in Consent

Reference: juro.com