Consideration Under Indian Contract Act 1872

    Quid pro quo’, a legal maxim literally meaning something for something. It is a  common understanding between parties to supply a commodity, reciprocally for the merchandise or administrations which they have each profited by accepting. Consideration in layman’s term is the simple concept of give and take. The Indian Contract Act defines consideration as, ‘When at the desire of the promisor, the promisee or any other person has done or has 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’ [1] 

    ESSENTIALS ELEMENTS OF A VALID CONSIDERATION

    THE DESIRE OF THE PROMISOR


    In the case, Durga Prasad v. Baldeo, [2] the plaintiff was ordered by the Collector of the district to build certain shops within the market, bearing all prices himself. Those shops later came to be occupied by the defendant who promised the plaintiff 5% commission on all the articles he sold from his shop to make up for the money he spent building those shops. However, he failed to do so.
    The court dismissed the plea of the plaintiff on the idea of the very fact that the consideration was never made between the plaintiff and the defendant; it had been between the Collector and the plaintiff.

    IT MAY BE FURNISHED BY ANY INDIVIDUAL, NOT NECESSARY THE PARTY TO THE CONTRACT


    In the case, Chinnaya v. Rammaya, [3] an old lady transferred a property to her daughter. In return, she wanted her daughter to give an annuity to her aunt. At the time, she agreed to pay and even made a deed agreeing to pay the sum to the old lady’s sister. However, she stopped after a while stating that her aunt had not given her any consideration so she wasn’t bound to hold any promise.
    The Court during this matter held that there was sufficient consideration because the consideration had moved from her aunt to her mother. 

    IT MAY BE PAST, PRESENT OR FUTURE PAST

    If one party voluntarily performs an act, and the other party then makes a promise, the consideration for the promise is said to be in the past. It is not said to be a case of no consideration, and therefore, it is not valid and cannot be used to sue on a contract. It is said to be more of a moral obligation.
    In Kedarnath v. Gorie Mohammed [4], the defendant had agreed to subscribe Rs. 100 towards the construction of the town hall that was to be built in Howrah. On the faith of the promise, the authorities called for plans and entrusted the work to the defendants and accepted the responsibility of paying them. However, he failed to do so.
    The Court held that even though the promise was for a charitable purpose, he has to stand up to his promise and pay the due amount. 

    EXCEPTION TO THIS RULE If something is done in a business context and it is clearly understood by both sides that it will be paid for, then past consideration will be valid. In Re Casey’s Patents [5], the defendant managed some of the patents owned by the plaintiff, Stewart & Charlton. They signed a document saying that they will give one third of the shares of the patents to Casey for her services. When Casey went to register the document and claim her patents, the plaintiff requested to get the document deleted from the register. They claimed that it was not a deed and since there was no consideration the contract stands void. The Court of Appeal in this case held that Casey had to be paid for her services in some way. Therefore, her past work was considered as good enough consideration and the contract was held valid and had to be enforced.

    PRESENT (Executory) When the promisor and the promisee make an exchange of promises to do or abstain from doing something simultaneously.
    For example, X goes shopping at Y’s shop and selects a few items. In this case, the consideration offered from Y’s side would be the articles X seeks to buy whereas X would offer money as consideration. It consists of two promises.

    FUTURE (Executed)When the consideration offered by one of the parties in future further advances the reciprocated consideration to a further date. It consists of one promise followed by some action.
    For example, M books a few commodities from N’s factory for a certain amount to be delivered 10 days later. N upon delivering the commodities informs M that he would collect his payment after a week.

    IT NEED NOT BE ADEQUATE


    While it is necessary to provide considerations for the contract to be valid, the value of the consideration does not hold too much value. The value of both the considerations involved do not have to be exact. It should only be something that the law attaches value to. The adequacy is left to the discretion of the parties of the contract.
    For example, a house can be sold for Rs. 1 lac or Rs 10,000; a pen can be sold for Rs. 5 or Rs. 5000. The owner has the absolute right to sell his properties at the price of his liking. 

    IT MUST BE ‘SOMETHING OF VALUE


    PHYSICALLY IMPOSSIBLEconsiderations like making a dead person alive cannot be a consideration.

    LEGALLY IMPOSSIBLE anything that the law prohibits cannot be used as consideration.
    UNCERTAIN the consideration needs to be specified for a contract to be valid. Paying a reasonable remuneration in return for a commodity would not suffice as a valid consideration.
    In Stilk v. Myrick [6], a return voyage was between London and the Baltics when two of their crewmen abandoned the ship because they had not been paid yet. He promised to pay the rest of his seamen their wages and in addition to that equally divide the salary of his deserted crewmen among them if they safely arrive in London. However, upon their arrival they were not paid the additional money.
    The court in this particular case held that they were not entitled to the extra money for something they were already obligated to do.
    ILLUSORY– these are the kind of considerations that do not put any of the parties under obligation to one another. 

    A STRANGER TO A CONTRACT CANNOT SUE

    Only parties of the contract can sue or be sued to enforce their rights. This is called the ‘Doctrine of Privity of Contract’. 

    DOCTRINE OF PRIVITY OF CONTRACT

    This rule basically states that no third party, one which is not remotely related to the parties involved, has the rights to sue even if it is a beneficiary of the contract.
    In the case Dunlop Pneumatic Tyre Co. Ltd v. Selfridge Co. Ltd [7], Dunlop, tire manufacturers made an agreement with their dealers that their tires won’t be sold below the recommended retail price. They also made them take this as an undertaking from their clients (Selfridge). So, when Selfridge sold the tires at a lesser rate, they were sued by Dunlop to enforce the contract by injunction and claim damages. Selfridge argued that their contract had been with Dew, and hence, Dunlop could not enforce it.
    The House of Lords held that since there wasn’t any consideration between Dulop and Selfridge nor any agency relationship between Dew and Selfridge. Thus, the appeal was dismissed. 

    EXCEPTIONS TO THIS DOCTRINE 

    TRUST- where trust is created, the beneficiary can sue. In Rana Uma Nath Baksh Singh v. Jang Bahadur [8], Rana’s father appointed him as his successor and left him his entire estate. In return, he promised to pay his illegitimate son, Jang Bahadur, a certain amount of money after he attained majority. Once Jang Bahadur rached majority and asked for his share he refused to pay him and said that he was not a contender to the contract. The Court held that a trust was established between Uma Nath Baksh Singh and his father on behalf of Jang Bahadur. Therefore, he was entitled to the money.

    CHARGE– where charge is created on a specific immovable property.

    AGENCY– the third party can sue the principal if the contract is according to the authority and the agent if it is not.

    MARRIAGE– if the agreement is made under family settings to profit a stranger to the contract, then the stranger can sue. In Daropti v. Jaspat Rai [9] , a woman was mistreated by her husband so she left him. Her husband then formed an agreement with her father stating that he would now treat her properly and if he fails to do so, he would give her maintenance and provide her with a residence. She was ill treated again and driven out of her house. She sued him again.
    The Court ruled that since the woman was a beneficiary of the contract between her husband and her father, she can sue and is entitled to get the benefits. 

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    CONTRACTS WITHOUT CONSIDERATIONS 

    A contract without any consideration is generally held void. However, section 25 of the Indian Contract Act, 1872 lays down a few exceptions to this ‘no consideration no contract’ rule. The exceptions are the following-

    • Out of Love & Affection- agreements made between parties in near relationships (husband/wife, brother/sister, parents/children) out of love and affection are enforceable without considerations; provided that they are in writing and registered.
    • Voluntary Services in the Past– a contract without consideration is only valid and enforceable if it is a promise to compensate entirely or in part, a person who has voluntarily done something which the promisor, was legally compelled to do
    • To Pay Time Barred Debt– when the debtor or his agent have signed in writing to pay entirely or partially a debt barred by the law of limitation, that contract is valid even without any consideration. A time barred debt cannot be recovered and thus, to pay such a debt is without consideration. 
    • Gift– completed gifts are valid, binding and exempted from the need of considerations. Movables can be gifted without any registered document whereas immovable objects that are gifted have to be written, attested and registered for them to be held valid. 
    • Charity– a promise to contribute to charity, though gratuitous, would be enforceable, if on the faith of the promised subscription, the promise takes definite steps in furtherance of the object and undertakes a liability, to the extent of liability incurred, not exceeding the promised amount of subscription.

    CONCLUSION

    From the above discussion, we can see that consideration is considered the core establishment of every contract and structures its premise. The entire embodiment of the contract lies upon the guarantee that the parties have made to each other and consideration is the key to enforcing it.

    REFERENCES

    1. The Indian Contract Act, 1872 (Act 9 of 1872), s.2(d).
    2. 1881, ILR 3 ALL, 221.
    3. 1884, ILR 4 MAD, 137.
    4. 1887, ILR 14 CAL, 64.
    5. 1892, 1 Ch 104.
    6. 1809, 170 ER 1168.
    7. 1915, AC 847.
    8. AIR 1938 PC 245.
    9. 1905 PR 171.

    BY MEHER THAPAR | GOVERMENT LAW COLEGE , MUMBAI

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