BY SHIVAM PATEL, B.A.LL.B (HONS.), FACULTY OF LAW, C M P degree College Affiliated to University of Allahabad.
ABSTRACT
In the changing sphere of contract law the doctrine of consideration is recognised as a foundation of contractual obligations. The doctrine rooted under section 2(d) of the Indian Contract Act assures that there can be no contract without consideration echoing a principle of no consideration no contract. But in this world of digital commerce and technological advancement, one must ask whether the doctrine still holds relevance? The article shall analyse and explore the various aspects of the doctrine including its essential elements, kinds, exceptions and most importantly the relevance of the doctrine. The article will also unravel the importance of consideration whether it is just a historic term or a foundation of an enforceable contract.
INTRODUCTION
Imagine a world where every promise or agreement, though a very informal and casual, could be the matter of a lawsuit. A promise to give gift, to visit someone next week or to purchase coffee for your friend. Without any circumscribed boundaries and limits, then such world would fall into a trap of disputes and courts would be overburdened with lawsuits. This is when the doctrine of consideration comes into scene and sets all confusions and problems aside and make sure that only promises backed by value and intent are enforced in a court of law.
Indian contract Act under section 10 makes it one of the essentials to create a valid contract and expressly states that any contract without consideration is void subjected to exception carved out in section 25 of the Indian Contract Act. The paper embarks on the roots and relevance of the consideration and analyse the various definitions and importance of the doctrine of consideration.
The word consideration has its origin from the Latin term quid pro quo which means something for something. It states that each party should do something for the other party in order to constitute a valid contract. In the digital world the complexities in contractual relations are growing therefore it has been of crucial significance to analyse the doctrine of consideration. This legal concept of consideration in India is governed by the section 2(d) of the Indian Contract Act. Now, let’s analyse the doctrine of consideration in detail.
WHAT IS DOCTRINE OF CONSIDERATION UNDER INDIAN CONTRACT ACT?
The term consideration has been derived from a Latin term ‘quid pro quo’ that means something for something. The consideration is one of the key and foundational components of any legally binding contract defined under section 2(h) of the Indian Contract Act 1872.
The doctrine of consideration implies that in a contract entered into between two parties, each party is obliged to do or to abstain from doing something for the other party in order to create a valid contract. The term consideration has been defined under section 2(d) of the Indian Contract Act 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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.
According to Blackstone, Consideration is the recompense given by the party contracting to the other.
To Sir Frederick Pollock consideration means an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is taken, and the promise, given for value is enforced.
Let’s take an instance, A promises B that he is ready to sell his car to B and thereof; B also agrees to give 2 Lakh rupees to A. In this case, the consideration for A is Rs. two lac and for it is the Car. This entire process would be termed as Consideration.
We all are aware that to constitute a valid contract, there must be consideration. Subjected to some exceptions, any contract without valid consideration is said to be void. Now, let’s analyse those core essentials elements which make consideration to be valid one.
UNDERSTANDING THE ESSENTIAL ELEMENTS OF THE CONSIDERATION
- The consideration must move at the desire of the promisor.
As per section 2(d) it must move at the desire of the promisor. If it is not given at the desire of promisor, it would not be considered as a valid consideration. The definition starts with “when at the desire of the promisor…,” which clearly implies that the consideration must move at desire of the promisor. Any act done voluntarily without the consent of the promisor does not constitute a valid consideration.
- The consideration may move from the promisee or any other person authorized.
The consideration may move from the promisee or any other person on that behalf. As opposed to privity of contract, privity of consideration is not applicable in India. As held in the case of Chinnayya vs. Ramayya, it is not necessary that only the promisee is obliged to pay the consideration to the promisor. Any third party on behalf of the promisee can also make consideration to the promisor. In the instant case the mother of the defendant made a gift deed in favour of her daughter subject to a condition that the defendant would pay annuity of 653 rupees to the plaintiff, mother’s sister. The defendant got signed the gift deed and started paying the sum of her aunt occasionally she (defendant) stopped paying so. It was held that though the plaintiff was a stranger to the contract but being a beneficiary, she is entitled to the annual sum of 653 Rs. by the defendant.
- The consideration should be lawful.
It must be ensured that any act, abstinence or promise in the form of consideration should not be illegal before law or it should not be injurious to the third party. Any act which is immoral cannot be the basis of consideration otherwise it would be considered as invalid consideration resulting in a void contract. For instance giving someone 1 lac rupees in order to kill someone or giving 20,000 rupees to someone to sell out drugs would not constitute a valid consideration. Additionally the consideration should not be such that is impossible to be performed otherwise, it would not be a valid consideration.
- The consideration may be inadequate
As per explanation 2 of section 25 of Indian Contract Act, the consideration is not invalid merely because it is inadequate.it reads as follows —
An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.
At the time of entering into contract, the parties mutually decide the subject of consideration. The court is not concerned with the adequacy of consideration whether it is enough or not, the Court has to analyse the element of free consent. If the consent is freely given then the amount of consideration is immaterial, whether it is adequate or not.
ANALYZING THE KINDS OF CONSIDERATION
After going through the main essentials of a valid consideration, it would be easy to understand the kinds of consideration. Let’s analyse the types of consideration one by one.
There are three kinds of consideration mentioned under Indian Contract Act. These are as follows:-
i) Present consideration
ii) Past consideration
iii) Future Consideration
- Present Consideration– It is mentioned under section 2(d) of Contact Act, when a party does or abstains from doing…” it implies that present consideration take place at the time of entering into contract. For instance A purchase a Car from B and pays him 1 Crore rupees immediately. It would be termed as present or executory consideration.
- Past consideration– Past consideration means when promisee has done or abstained from doing something for the promisor in the past and get something thereafter. Generally for any act voluntarily done, nothing id given in exchange of that. But section 2(d) contains the rule of past consideration which forms an exception to the general rule. To understand this tricky concept, let’s take an illustration. If you are doing an unpaid internship under an advocate, doing a lot of hard work there. Later on you are paid any amount of money by the advocate by seeing your hard work and dedication. It will constitute to a valid consideration.
- Future Consideration– Future consideration comes into picture where one party has done or performed his part of promise but the other party would do so in future. Or we can say when certain obligations are yet to be fulfilled by the other party, then it will be considered as future consideration.
LANDMARK JUDGEMENTS ON THE DOCTRINE OF CONSIDERATION.
- Currie vs. Misa- In this case the court held that consideration must consist either in some right, interest, profit or benefit going to the other party or some forbearance, detriment, loss or responsibility incurred by another party. Thus the Court held that there cannot be any enforceable contract without consideration or benefit to the other party.
- Durga Prasad vs. Baldeo-The Court in this case ruled that consideration should move at the desire of the promisor to create a valid contract. In the instant case, there was a plaintiff Durga Prasad who assisted the defendant in making a shop on the advice of collector. Then subsequently demanded certain amount from occupiers on account of providing assistance to the occupiers. The lower court rejected the claims of plaintiff and held that efforts made by plaintiff were to please the collector and were not made at the desire of the promisor. Therefore it did not constitute a valid consideration, hence the plaintiff is not entitled to claim the amount in exchange of his hardwork and diligence which were made by him at the instance of the collector.
- Chinayya vs Ramayya– This case is a very landmark case in the contract law specially for the concept of consideration. The case is cited as a precedent and as an illustration to understand the section 2(d) of the Indian Contract Act, where it states it is not always necessary that the consideration should move from the promisee only. The case has established and clarified the principle that the consideration can also move from a third party on behalf of promise rather than directly from the party to the contract. In this case the mother of the defendant made a gift deed in favour of her daughter subject to a condition that the defendant would pay annuity of 653 rupees to the plaintiff, defendant’s mother’s sister. The defendant got signed the gift deed and started paying the annuity to her aunt but occasionally she (defendant) stopped paying giving annuity to her aunt. When the plaintiff brought an action in the court of law for enforcing the claims and fulfilling the promise the defendant contended that her mother was a party to the contract and she is stranger to the contract therefore she cannot be forced to fulfil the promise or to furnish the consideration. The claims of defendant were rejected by the court and it was held that though the defendant was a stranger to the contract but being a third part on behalf of promisee, she is entitled to transfer the annual sum of 653 Rs. to her aunt.
EXPLAINING THE RELEVANCE OF THE DOCTRINE IN THE MODERN WORLD: IS IT STILL RELEVANT?
The doctrine of consideration remains highly relevant even today, though there are certain criticisms in this regard but it cannot be denied the doctrine holds extreme relevance in modern time period. In the world where there is no barter system prevails, it is the consideration that ensures certainty and flexibility in the contractual transactions. In today’s commercial world, every contract revolves around intention to make profits that involves the exchange of money, goods, services, or promises. Consideration happens to be the foundational element of enforceability in a contract. Though there are varying interpretations of the term in different nations and among various organizations like in England there is a more focus on intention to create a contractual relationship rather than consideration. Additionally UNIDROIT principles also emphasizes on the Intention to create a contract rather than consideration as a foundational element of any contract. Despite varying perspective, Consideration holds a significant relevance in modern worlds. It ensures that mere moral or gratuitous promises are not enforced in the courts of law Courts uses the doctrine of consideration to filter out the cases of non-consideration, unenforceability and mere gratuity and relieve the burden of courts from unnecessary suits and petitions.
The Consideration has vital importance under Indian Contract Act 1872 to such an extent that under section 10 of the said Act, it is one of the essentials of contract to create a valid contract. Even the term has been defined under a separate section, (2 ) (d),so as to ensure it application in various contract.
Although the contract entered into without consideration are considered void, but section 25 of the act carves out three exceptions where any contract even without consideration is considered to be valid. The exceptions are as follows-
i) Contract out of natural love and affection with written and registered agreement.
ii) Something done for the past voluntary services.
iii) For time-barred claims.
Except these three exceptions, contract without consideration are considered as void and unenforceable in any court of law.
CONCLUSION
In conclusion, it is obvious, that the consideration as a main and foundational element of the contract was prevalent and is still a pre-requisite and mandatory condition to create a valid contract. Subjected to certain exceptions laid down under section 25 of Indian Contract Act, any contract without consideration is considered to be void.. Both parties work on the principle of quid pro quo which means something for something; it means every party is obliged to do or to abstain from doing something for the other party in a contract. Hence no one can deny the fact that consideration hold immense importance in India as well as well in the world.
