Author Name:   aditya.ashu

Importance of Consideration in Contract

Consideration: “Something which is given and taken. ”Section 2 (d) of the Contact Act 1872 defines contract as “When at the desire of the promissory, the promise or any other person has done or abstained from doing or does or abstains from doing or promise to do or abstain from doing. Something such act or abstinence or promise is called a consideration for the promise.”

“When at the desire of the promissory, the promise or any other person has done or abstained from doing or does or abstains from doing or promise to do or abstain from doing. Something such act or abstinence or promise is called a consideration for the Promise.”

1.1  Importance of consideration
Consideration is the foundation of ever contract. The law insists on the existence of consideration if a promise is to be enforced as creating legal obligations. A promise without consideration is null and void.
1.2  Types of Consideration
1.      Executory,
2.      Executed
3.      Past consideration
Executed consideration is an act in return for a promise. If ,for example, A offers a reward for the return of lost property, his promise becomes binding when B performs the act of returning A’s property to him. A is not bound to pay anything to anyone until the prescribed act is done.
 
Executory consideration is a promise given for a promise. If, for example, customer orders goods which shopkeeper undertakes to obtain from the manufacturer, the shopkeeper promises to supply the goods and the customer promises to accept and pay for them. Neither has yet done anything but each has given a promise to obtain the promise of the other. It would be breach of contract if either withdrew without the consent of the other.
 
Past consideration which as general rule is not sufficient to make the promise binding. In such a case the promisor may by his promise recognize a moral obligation (which is not consideration), but he is not obtaining anything in exchange for his promise(as he already has it before the promise is made).

2.      Essentials of a valid consideration:
The essentials of valid consideration are as under:
2.1  At the desire of the promisor.

2.2  Promisee or any other person.

2.3  Consideration may be past, present or future.

2.4  Consideration must be real.
 
2.1  Consideration must move at the desire of the promisor:
In order to constitute legal consideration, the act or abstinence forming the consideration for the promise must be done at the desire or request of the promisor. Thus acts done or services rendered voluntarily, or at the desire of third party, will not amount to valid consideration so as to support a contract.
 
2.2  Consideration may move from the promisee or any other person:
The second essential of valid consideration, as contained in the definition of consideration in Section 2(d), is that consideration need not move from the promisee alone but may proceed from a third person.
Thus, as long as there is a consideration for a promise, it is immaterial who has furnished it. It may move from the promisee or from any other person. This means that even a stranger to the consideration can sue on a contract, provided he is a party to the contract. This is sometimes called as ‘Doctrine of Constructive Consideration’.
 
2.3  Consideration may be past, present or future:
The words, “has done or abstained from doing; or does or abstains from doing; or promises to do or to abstain from doing,” used in the definition of consideration clearly indicate that the consideration may consist of either something done or not done in the past, or done or not done in the present or promised to be done or not done in the future. To put it briefly, consideration may consist of a past, present or a future act or abstinence. Consideration may consist of an act or abstinence:
 
2.3.1 Past consideration: When something is done or suffered before the date of the agreement, at the desire of the promisor, it is called ‘past consideration.’ It must be noted that past consideration is good consideration only if it is given by the promisee, ‘at the desire of the promisor.

2.3.2 Present consideration: Consideration which moves simultaneously with the promise is called ‘present consideration’ or ‘executed consideration’

2.3.3 Future consideration: When the consideration on both sides is to move at a future date, it is called ‘future consideration’ or ‘executory consideration’. It consists of an exchange of promises and each promise is a consideration for the other.

2.4  Consideration must be ‘something of value’: The fourth and last essential of valid consideration is that it must be ‘something’ to which the law attaches a value. The consideration need not be adequate to the promise for the validity of an agreement.

3. Conclusion
Consideration is a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract. Consideration must be of value and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration. Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts.

Contracts may become unenforceable or rescindable for failure of consideration when the intended consideration is found to be worth less than expected, is damaged or destroyed, or performance is not made properly. Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts.   

Without lawful consideration is not meaningful for any valid contract. Contract considered many essential elements and lawful consideration is integral part or element of a valid contract. Which Lawful consideration follows some rule then we called good consideration. But some exceptions to the rule – No consideration, No contract. In English law a contract under seal is enforceable without consideration.

The  author can be reached at: aditya.ashu@legalserviceindia.com

ISBN No: 978-81-928510-1-3
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