Lawful Consideration

 Introduction

 Meaning

 Types of consideration

 Rules regarding consideration

 Exceptions to consideration

 Conclusion
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Introduction:

It is in the human nature, capacity, or rather the lack of it, to be dependent upon others in order to derive the utility from

any economic or non-economic transaction and, in this context, humans tend to agree with one another to either do

something or abstain from doing something in the form of an understanding called ‘agreement’. However, as human species

tend to create recurring numerous agreements on a daily basis, not all of them could be protected, sanctioned and enforced

by the law, unless there is a quid pro quo or consideration involved, which then turns it into a legally enforceable contract,

upon due satisfaction of certain other conditions as well. In this context, specific sections of the Indian Contract Act 1872

throw essential light on the concept of consideration and provides required guidance for the consideration which becomes

the object of a legally enforceable contract between the two parties.

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Meaning of Consideration:

 As per section 2(d) of the Indian Contract Act 1872, 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 to abstain from doing) something,

such act or abstinence or promise is called a ‘consideration’ for the promise.

 In the context of Indian Contract Act 1872, “Consideration” means a reasonable equivalent or other valuable benefit

passed on by the promisor to the promisee, or by the transferor to the transferee

 When the term consideration is qualified by the term ‘adequate’, it makes consideration stronger so as to make it

sufficient and valuable having regard to the facts, circumstances, and necessities of the case ( Sonia Bhatia v. State of U.P.

1981)
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Meaning of Consideration (contd.):

 As per section 2e, every promise and set of promises, forming the consideration for each other, is an agreement

 As per section 2f, promises which form the consideration or part of the consideration for each other, are called reciprocal

promises

 Further, section 8 states that acceptance by performing conditions or receiving consideration – performance of the

conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a

proposal, is an acceptance of the proposal. Thus consideration forms the basis underpinning of the acceptance and

subsequent enforcement of a contract

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Types of Consideration:

As mentioned, anything which becomes an object for a party which ‘has done or abstained from doing’ something,

constitutes a consideration and could be seen under three major types

 Past consideration: consideration should be given in response to and as an inducement for the promise. If the act has

been done before any promise is made, it is called past consideration and is enforceable in India by the virtue of section

25(2) which says that ‘a promise to compensate, wholly or in part, a person who has already voluntarily done something

for the promisor’ is enforceable. Further, past service at request could be construed to be consideration for the purpose

of implementation of a contract
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Types of Consideration:

 Past and executed consideration: past consideration always consists of an act done without any promise, but executed

consideration means an act which has been done in response to a positive promise. For eg. If a reward is offered for

finding a lost article, the offer can be accepted only producing the article to the offeror and that is also a consideration

for a promise

 Executory consideration: In this consideration, the liability is outstanding on both sides and it is a promise for a promise

– one promise bought by another promise. Accordingly, consideration may consist of an act which has already been, or is

in the process of being done. It may also consist of an act which is only promised to be done at some future time. There

may be a simple exchange of promises and each promise is a consideration for each other. For eg. A agrees to sell and B

to buy a quantity at a certain price – A promises to delivery goods and B promises to pay – until the goods are actually
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Rules regarding Consideration:

Section 23 in chapter II of Indian Contract Act 1872, discusses the considerations and objects which are lawful, and which are

not lawful:

The consideration or object of an agreement is lawful, unless:

 It is forbidden by law

 Is of such a nature that, if permitted, it would defeat the provisions of any law

 Is fraudulent

 Involves or implies injury to the person or property of another

 The court regards it as immoral, or opposed to public policy

 Accordingly, every agreement of which the object or consideration is unlawful is void

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Rules regarding Consideration:

Section 24 adds that if considerations and objects are unlawful even in part, such agreement is void:

 However, a contract cannot be held to be void, only because of its terms gives absolute right to the parties to cancel the

contract
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Exceptions to consideration:

Section 25 says that agreement without consideration is void, unless a) it is in writing and registered, or b) is a promise to

compensate for something done, or c) is a promise to pay a debt barred by limitation law.

Accordingly, an agreement made without consideration is void, unless:

 It is expressed in writing and registered under the law, and is made on account of natural love and affection between

parties standing in a near relation to each other

 It is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor,

or something which the promisor was legally compellable to do so

 It is a promise - made in writing and signed by the person to be charged therewith/ or by agent - to pay wholly or in part

a debt of which the creditor might have enforced payment but for the law for the limitation of suits (time barred debt)
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Exceptions to consideration:

 An agreement where consent is freely given but with inadequate consideration is not void de facto, however, the

inadequacy may be taken into account by the court in determining the question whether consent was freely given

 Chapter X Section 185: No consideration is necessary to create agency relationship