Consideration under Indian Contract Act : Meaning, Essential constituents and Exceptions
1.MEANING OF CONSIDERATION (Sec. 2 (d))
When, at the desire of the promisor
The promise or any other person
Has done abstained from doing, or does/abstains from doing, or promises to do to abstain from doing, something
Such act/abstinence promise is called a consideration for the promise.
2.ESSENTIALS OF A VALID CONSIDERATION
| Consideration must move at the desire of the desire of the promisor. | An act or abstinence shall constitute a good consideration only if it is of the desire of the promisor. |
| Consideration may move from promise or any other person. | • So long as there is consideration for promise, it is immaterial as to who has furnished it • If a party receives consideration. the contract is valid, even though the person furnishing the consideration is not a party to the contract. • Where a third party furnishes the consideration, it is valid consideration • As long as there is consideration in a contract, it is immaterial as to who has given this consideration. This rule is generally stated as “Privity of consideration is not required. |
| No adequacy of consideration required | • The law requires that there must be consideration in every contract • However, adequacy of consideration is not required. Even if it is proved that such consideration is inadequate, the contract is not void. • The fact of inadequacy of consideration shall be given due weightage while determining whether the consent of the promisor was freely given or not. |
| It must be different from existing obligation | Consideration received by a party must something more than the other party’s contractual and legal obligation. |
| Consideration must be lawful | An agreement is void if the consideration furnished by any of the parties is unlawful |
| It must be real, and not illusory | • Consideration received by a party must be of some value • Consideration must not be illusionary is existing |
3.EXCEPTIONS TO THE RULE: NO CONSIDERATION (Sec. 25) NO CONTRACT
| Agreements made on account of natural love and affection Conditions | • The agreement is made in writing • The agreement must be registered. • The agreement must be made between the parties standing in immediate relation to each other. • There must be natural love and affection between the parties However mere nearness of relationship does not imply natural love and affection. | ||
| Compensation for past voluntary services-conditions | • A party renders some services to the other parry or performs the legal obligation of the other party • The services are rendered without any desire of the other party, i.e., the services are rendered voluntarily. • The other party afterwards promises to compensate the former party for the services rendered to him. | ||
| Promise to pay time-barred debt | Meaning of time barred debt | A creditor can sue the debtor for recovery of his money by going to the Court of law. However, if the creditor fails to institute the suit within 3 years of debt becoming due for payment, the debt is said to be time barred debt, i.e., the creditor cannot institute the suit after the expiry of said period of 3 years | |
| General rule | The general rule is that an agreement to pay a time barred debt is void | ||
| Exception | An agreement to pay a time barred debt is enforceable if the following conditions are satisfied • The debt is a time barred debt. • The debtor promises to pay the time barred debt. • The promise is made in writing. • The promise is signed by the debtor | ||
| Completed gift | • Agreement to make a gift is not enforceable. • However, once a gift has actually been made, the donor cannot demand it back on the ground that there was no consideration. | ||
| Agency | No consideration is necessary to create an agency | ||
| Remission | No consideration is necessary for an agreement to receive less than what is due | ||
| Guarantee | In a contract of guarantee, consideration received by the principal debtor shall be sufficient consideration for the surety | ||
4.PRIVITY OF CONTRACT (Sec. 25)
| Privity of consideration | • It is well established that privity of consideration is not required • Consideration may move from promisee or any other person • So long as there is consideration for promise, it is immaterial who has furnished it | ||
| Privity of contract- Meaning | • The general rule is that only the parties to a contract can sue • In other words, if a person is not a party to the contract (Le, a stranger to contract), he cannot sue | ||
| Privity of contract Example | Dunlop Pneumatic Tyre Co V Selfridge and Co • D entered into a contract of sale of certain tyres to P • The contract provided that P shall not sell the tyres below the list price Also, the contract provided that P shall at time of resale, impose a condition on the retailer that sale by retailer shall not he made below the list price • P sold certain tyres to SS resold certain tyres below the list price • In a suit instituted by D against S, the Court held that such suit was not maintainable since there was no privity of contract between S and D | ||
| Privity of contract exception | Creation of a trust. | Beneficiary is not a party to the agreement creating a trust However, the beneficiary is allowed to sue the trustee for enforcement of trustee’s duties | |
| Marriage / Family arrangements | Where a Marriage or family settlement is made, the person who is a beneficiary under such settlement is entitled to sue even though he may not be a party to sue settlement | ||
| Acknowledgement | The person, who becomes an agent of a third party by acknowledgement, can be sued by such third party | ||
| Assignment of a contract. | An assignee is entitled to exercise all the rights which could have been exercised by the assignor previously, even though the assigned was not a party to the contract as originally made | ||
