Introduction
Section 2(d) of the Indian Contract Act, of 1872, defines consideration 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 abstain from doing something, such act or abstinence or promise is called consideration for the promise.” Put simply, parties exchange something of value in a contract, constituting consideration.
Importance of Valid Consideration
Consideration is fundamental to a binding contract. Without it, a contract may be rendered invalid or unenforceable. It ensures a mutual exchange of value, making the contract legally binding and enforceable in a court of law. Consideration must be significant, adequate, unconditional, and real, not impractical or legally impossible.
Key Elements of Valid Consideration
1. Desire of the Promisor
Consideration must be given at the desire of the promisor. This means that the promisee or any other person must act at the request of the promisor. The act, abstinence, or promise should not be forced or imposed upon them.
- The Municipal Corporation of…v. The Secretary of State for India (1932): This case established that consideration must be given willingly in response to the promisor’s request.
2. Consideration by Promisee or Any Other Person
The promisee or any other person can give consideration. This inclusivity means that a third party can provide consideration, as long as it fulfils the other essentials.
- Chinnaya v Ramaya (1882): This case confirmed that a third party’s consideration is valid under the Indian Contract Act.
3. Past, Present, or Future Consideration
Consideration can be past, present, or future. Past consideration involves an act done before making the contract, present consideration occurs at the time of the contract, and future consideration promises to do something later. Section 2(d) of the Indian Contract Act recognizes all three forms as valid, as long as they support the contract.
4. Forms of Consideration: Act, Abstinence, or Promise
Consideration can take the form of an act (doing something not legally required), abstinence (refraining from doing something one has the right to do), or a promise. This variety ensures flexibility in forming valid contracts.
- In M/S Atma Ram Properties Pvt Ltd v. M/S Federal Motors Pvt Ltd (2004), the Supreme Court ruled that an act of payment can be valid consideration.
5. Adequacy and Reality of Consideration
While consideration need not be equal in value, it must be real and not illusory. It should have some value in the eyes of the law, ensuring the contract’s binding nature. Courts may examine the adequacy of consideration in cases involving fraud or coercion.
- Vijay Minerals Pvt Ltd v. Bikash Deb (1995): This case highlighted that consideration must have some value and a grossly inadequate consideration can be a ground for invalidating a contract.
6. Legality of Consideration
Consideration must be lawful and not against public policy or prohibited by law. Section 24 of the Indian Contract Act specifies that illegal or immoral acts cannot constitute valid consideration.
Conclusion
Understanding the essentials of valid consideration is crucial for forming enforceable contracts. The promisor must desire the consideration, which can involve third parties and take various forms, including past, present, and future actions. It must be real, legal, and adequate, ensuring that the contract remains binding and enforceable. By adhering to these principles, parties can protect their rights and interests in contractual agreements.
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Reference: vedantu.com