Consideration in business law 

Introduction 
Everything in this world is based on contracts. Not only commercial relations but personal
relations are based on contracts too. Prenuptial agreements, commercial contracts, contracts of
indemnity, guarantees etc. are all examples of contracts. Business law is grounded on contracts
too. 
Consideration is an important element of a contract  It is defined under section 2d of the Indian
Contract Act, 1872. Without consideration, there can be no contract as per section 25 of the
Indian Contract Act, 1872. Therefore, in business law consideration holds a significant position
without which no contract or agreement can be made. 
In this paper, we will understand the term consideration and the relevance of consideration in
business law. We will look at the important elements of consideration in business law. We will
also understand the concept of ‘legally sufficient value’ and at the end, we will look at some
important case laws regarding consideration in business law.

What is consideration
An act, benefit, interest, right, promise, good or service, etc. is given freely in exchange for
anything with a monetary value known as consideration. It is essential since every legally
binding contract calls for equal consideration for all parties. Practically speaking, consideration
is the factor based on which a contract is established. In other words, it is a crucial factor in why
the parties sign contracts.
As an illustration, let's say you go to a store and ask the owner to give you a certain item in
exchange for payment. Here, you and the shopkeeper engage in a contract whereby she
provides you with something in exchange for payment of a consideration, and both parties profit
from the arrangement. In exchange for the other party's performance or promise of
performance, consideration must provide value to both parties to the contract. In a contract,
commodities and services are often exchanged, but consideration can be anything the parties
decide.
A contract without consideration is nudum pactum. If the contract wherein the consideration is
not provided then that contract is void. Some exceptions are there though. There are many rules
of consideration provided under the Indian Contract Act, 1872 which we will learn in the next
section.

Relevance of consideration in business law 

Consideration is very important in business law since every business includes entering into a
contract and their consideration comes into play. Consideration is an essential ingredient of any
contract and whenever we talk about business law we talk about consideration too. 
Consideration clause is included in most business contracts. A consideration clause is a section
of a contract that usually states that the parties have agreed to exchange something of worth or
service for another thing of value or service from the other party.
The exchange of products or services for a fee, money, or other monetary recompense is the
most typical type of consideration. This legal clause can be found in a wide range of contracts,
including real estate contracts, insurance contracts, and other agreements where the conditions
of a party's salary or compensation are specified.
For instance, a party will formally agree to surrender the title to a property in a real estate
transaction in exchange for the purchase price. An employee will consent to provide services in
exchange for a salary under the terms of an employment contract.
A consideration clause is frequently included in insurance contracts. In essence, the
consideration clause in an insurance policy gives information about the potential cost of the
insurance coverage and the payment deadlines (like a payment schedule).
Any other form of payment that the parties contractually agree upon as compensation will also
be described in the "consideration" section.
In the employment contracts you can find consideration statements like the following statement:
“Consideration. The Employer will give you the following severance benefits as long as you
have punctually completed this Agreement (which includes a general release and waiver of
claims and other undertakings included), do not revoke it, and otherwise abide by its
provisions.”

Elements of consideration in business law

Items of value provided by one party to the other in a contract are considered elements of
consideration in business law. A commitment to do or refrain from performing a lawful act also
qualifies as consideration. The consideration might take the form of money or property.

General elements of Consideration

 The promisor has the authority to act or refrain from acting concerning a certain aspect
of consideration. It is invalid if the promisor or a third party provides no consideration.
Services and activities performed freely are not taken into account. Giving unwelcome
consideration does not make one eligible for receiving unwanted regard in return. As an
illustration, if you save someone from drowning, they are not obligated to reimburse you
because the rescue was not expressly requested. 
 The person pledging, or anybody else they want may provide consideration. Although
English contract law stipulates that only the pledged party or a member of their
immediate family may relocate the consideration, Indian contract law also makes this
distinction.
 Consideration must be a tangible object, not just an abstract idea. It might not be a
pledge to carry out unknown or physically impossible conduct. For instance, a contract
promising to raise the deceased in return for payment is not legitimate.
 Consideration may have been paid in the past, be paid now when the contract is signed,
or be promised to be paid in the future. Although all three forms of consideration are
legitimate in Indian law, past consideration is not recognised by English contract law.
 Consideration cannot be dishonest, unlawful, cause harm to people or property, morally
repugnant, or go against public policy.
 All parties do not necessarily have to give each other equal regard. As long as both
parties concur, consideration may be wholly insufficient, insufficient, or enough. Even if
the value is very little, it must still exist. For instance, if you agree to sell someone your
home for $100,000, you cannot later revoke the agreement if you learn that the home is
worth $200,000 instead. That's because, although insufficient, some attention has been
provided. In the case of a contract dispute, the court may examine seriously insufficient
 consideration. Something that the party was previously compelled to undertake by law
cannot constitute consideration since it adds nothing of value.

Examples of Past, Present, and Future Considerations

 Past consideration refers to something that was provided in advance of the contract's
signing. It is also known as executed consideration. Say someone discovers a missing
wallet and gives it to the owner, who agrees to pay $100 within a week. Therefore, the
previous consideration is the return of the wallet.
 The promise is accompanied by present compensation, most frequently cash in return
for commodities. If you pay cash for your groceries, the cash serves as your
consideration while the foods serve as the store's consideration. Even though it is
neither stated nor recorded, this agreement constitutes a contract.
 After the contract is created, future consideration will be provided. Consider placing an
online order for a product that will arrive in a week. When the item is delivered, payment
is due. 

Legally sufficient value

As previously said, consideration does not have to be sufficient, but it must be agreed upon by
both parties and sufficient in law. 
Legally sufficient indicates that the evaluation is made up of one of the following:
 a group's agreement to do something that they are not legally required to take.
 a promise not to do anything that, other than it, is allowed by law.
 a promise made by one party to do whatever that the other side would not have to.
 The judge will not think contemplation adequate where the obligation is ethical but not
legal.
 The terms of the contract are vague and include no promises to do or refrain from doing
anything specific.
 It serves to define already-taken-place occurrences.
 The person is already required by law to refrain from or carry out the deeds.
The court will not consider consideration to be adequate if
 Only moral obligations, not legal ones, apply.
 The contract's provisions are ambiguous and provide no precise promises about what
will or won't be done.
 It refers to past occurrences.
 The conduct in question must already be committed or abstained from by the party
under the law. 

Elements of legally sufficient value

Consideration is the sum provided in exchange for a promise. For consideration to be legally
adequate, it must be "something of legal value."
These may come into play:
 promising to carry out an action for which there is no existing legal duty.
 doing a task that one is even if not necessary for.
 avoiding doing something for which one has a good reason to.
Consideration includes two parts: It must include everything with legal merit and serve as the
basis for negotiations between the parties. A promise is given in a contractual obligation in
exchange for performance. The promisor is bound by the agreement after the promisee
completes, or in many cases, begins to complete, the activity.

Principles of legally sufficient value

Considerations include things like money, a promise to do something, or a promise not to do
something.
A prior element, such as a person agreeing to carry out work that they are already required by
law to do or have already finished, is inadequate.
Once the parties have agreed on a price, the commitment may be recognised as binding even if
the value is not precisely equal to it.
When a consideration contains an unneeded component or an untrue pledge, it is deemed
inadequate. The amount of quality provided in exchange for payment must have a monetary
worth that the court can understand.
An element that goes against official policy, like trafficking, is viewed as inadequate.

Case laws 
Durga prasad v. Baldeo
In Durga Prasad v. Baldeo, 1880 the plaintiff established a few stores in a bazaar on the
collector of the town's orders. Due to the plaintiff's financial investment in the building, the
defendants eventually took over the stores and agreed to pay him a commission on any items
sold via their agency at the bazaar. The plaintiff's attempt to get the commission back in court
was denied. It was held that the offeree should only send consideration what the offeror
requests. The offeree does not have the right to assert counter consideration if unwelcome
consideration is sent.

Kedar Nath v. Gorie Mohamed

The facts of the case are as follows: 
As long as enough subscriptions could be collected, it was deemed wise to build a town hall in
Howrah. The Commissioners of the Howrah municipality set out to work toward this goal to raise
the required finances through public subscription. The defendant entered his name in the
subscription book as a subscriber for Rs. 100, contributing to the fund. The plaintiff made a
contract with a builder to construct the hall based on the anticipated subscription. However, the
defendant did not make the payment required for constructing the hall. However, the defendant
did not make the payment and argued that there was no payment in exchange for his pledge.
However, he was held accountable since people were requested to subscribe while aware of
the intended use of the funds and were aware that by doing so, a financial responsibility to pay
the contractor for the job would be created. The pledge reads, "I offer to give money for it in
return for your consenting to engage in a contract to build." Because the plaintiff entered into a
contract with the contractor at the defendant's (the promisor's) request, Section 2(d)'s definition
of "consideration" is satisfied.
It was a promise to pay for the performance of an act, and once the promise started to be
fulfilled, it could not have been cancelled. The law in England has also long held that an action
taken at another person's direct or inferred request is sufficient consideration to support a
commitment.
Thomas V. Thomas
In this case, Mr Thomas said in his last will that he wanted his wife to live out her days at the
home they shared. This, however, was not stated in his bequest. After his passing, his
executors and Mrs Thomas agreed that she would pay a peppercorn rent of £1 year in
exchange for being permitted to dwell in the house. Later, they tied her up to get rid of her.
A contract must be backed with consideration to be legal. In other words, the promisee must
agree to do something in exchange for the other party's promise. It was asserted that there was
no contract since Mrs Thomas, the promise, gave little consideration because the rent she
demanded the property was not comparable to commercial rent. Mrs Thomas stated that it was
a decent consideration for her to agree to pay the rent and maintain the house.
The executors' declaration just stated their purpose for engaging in the arrangement; it did not
constitute a contract. The £1 rent, however, was acknowledged as a favourable factor. At 859,
Patteson J remarked:
Consideration and motive are not the same things. Consideration is defined as something that
has some legal worth, starting with the plaintiff:
The exchange amounted to nothing more than a gift given voluntarily. Mrs Thomas had however
shown consideration by consenting to pay rent in exchange for being permitted to remain in the
property, even though it was neither economically sufficient nor even close to a commercial rate
for the structure. As a result, the contract may be enforced.

Lampleigh V. Braithwait
In Lampleigh v. Brathwait, the defendant asked the plaintiff to facilitate his plea for a pardon
from the monarch. The complainant made an effort, went to the king, etc., but his plea was
denied. In return, the defendant agreed to reimburse him. Later, he objected to doing it. A
lawsuit was filed against him in court. The defendant was ordered to reimburse the plaintiff by
the court because the plaintiff had asked the defendant to assist him. Therefore, even though
the plaintiff's action was completed in the past, it would still be taken into account.

Conclusion 
Section 2d of the Indian Contract Act of 1872 defines consideration. It can be about the past,
the present, or the future, but only the parties to the contract and no other parties. To ensure
that the interests of the contracting parties or even third parties are not jeopardised, Section 25
of the Act contains several exceptions. These exclusions are made with a variety of conditions
in mind. Additionally, the consideration need not be sufficient but rather should be worthwhile in
the eyes of the contracting parties.

Frequently Asked Questions (FAQs)

What is a consideration?
An act, benefit, interest, right, promise, good or service, etc. is given freely in exchange for
anything with a monetary value known as consideration. 

Which act governs consideration?

Indian Contract Act, 1872 governs the consideration in India. Section 2(d) of the ICA, 1872
defines the term consideration.

What are the essential elements of legally sufficient value?

The following are the essential ingredient of the legally sufficient value:

1. Promising to do something for which one has no previous legal obligation.

2. Performing an act for which one is even if not required.
3. Abstaining from doing something for which one has a legitimate claim.

References 
 Lampleigh v Braithwaite (lawteacher.net)
 Thomas v Thomas - 1842 (lawteacher.net)
 KEDARNATH VS. GORIE MOHAMMAD – A CASE STUDY - Jus Corpus
 CASE ANALYSIS OF DURGA PRASAD V. BALDEO AND OTHERS - nslrj.in
 Nudum Pactum: Everything You Need to Know (upcounsel.com)
 Section 25 in The Indian Contract Act, 1872 (indiankanoon.org)
 The Indian Contract Act, 1872|Legislative Department | Ministry of Law and Justice | GoI
 Learn About Legally Sufficient Value | Chegg.com
 What is a consideration in business law (bartleylawoffice.com)