This article is written by Abhishek Ramanuj of 6th Semester of New Law College, Bharati Vidyapeeth Deemed To Be University, Pune, an intern under Legal Vidhiya
Fundamental to the Indian Contract Act is the concept of consideration, which states that any legally binding agreement must provide something in exchange for a commitment made by another party. By ensuring that everyone benefits, this avoids exploitation and maintains justice. Acts, pledges, past, present, or future—as long as they are lawful and reasonable—can be considered consideration. There are certain exceptions, such as genuine affection, prior volunteer work, and gifts. This theory is a fundamental component of India’s contractual structure since it encourages responsible contracting, discourages one-sided benefit, and offers precise standards for enforceable agreements.
Consideration, Indian Contract Act, Gift, Voluntary task, Contract, Agreement, Affection
Contract is something which people make constantly in day-to-day life. Contracts play an essential part of a person life. Under Indian Contract Act governs everything related to contracts in India. All the agreements that people make doesn’t become enforceable in law until it fulfills all the essential conditions required under Section 10 of the Indian Contract Act. One such essential is Consideration. Any agreement to be legally enforceable in the court of law is that the agreement must consist of a valid consideration. If any agreements lack consideration it takes the form of a gift. So to differentiate between any contract and gift consideration forms an important differentiating point. Section 10 of the Indian Contract Act states that any contract without any lawful consideration is void and can’t be enforced by law. This is known as the Doctrine of Consideration.
What is Consideration
Consideration basically means something in return. It is an essential requirement for any valid contract under the Indian Contract Act. If any contract lacks consideration it would not be legally enforceable by any of the party unless in certain circumstances. What considerations are lawful and which are not are clearly stated under Section 23 of the Indian Contract Act. Section 23 of the Indian Contract Act states that all considerations are lawful unless-
- it is forbidden by law; or
- is of such a nature that if permitted, it would defeat the provisions of any law; or
- is fraudulent; or
- involves or implies injury to the person or property of another; or
- the Court regards it as immoral, or opposed to public policy
All those agreements which lack a lawful consideration is void and these types of agreements can’t be enforced by any of the parties in the court of law.
” In the legal sense, a valuable consideration can be any of the following: a party’s right, interest, profit, or advantage; or a detriment, loss, or obligation.,” Lush, J. stated consideration in the well-known English case of Currie v. Misa.
The more significant portion of this judicial description is the second one, which highlights that the other party’s abandoning of a legal right is what matters more than one party’s profit. It doesn’t matter if the person accepting the consideration gains anything from it or not; what matters is that he accepts it and the person providing it bears some responsibility or loses anything that could be valuable in the eyes of the law.
Nature of Consideration
- Consideration must move at the desire of the promisor
One of the most important essentials of a valid consideration is that it must move at the desire of the promisor. Consideration is not something which is imposed or forced. The movement of the consideration should always move freely as per the demand or request of the promisor.
It was determined that the subscriber had full knowledge of the objective of the subscription and had a duty to pay the contractor for their services based on the subscription in the Municipal Corporation of… v. The Secretary of State for India (1932) case. Therefore, it can be said that the promisor acted at their will when they entered into a contract with the contractor in the present circumstances.
- Consideration can be moved by the promisee or any other person
The movement of the consideration to the promisor is not compulsorily be done by the promisee itself it can be done by any other person. The only criteria are that the consideration should be lawful for forming a part of a valid contract
- Consideration can be in past, present or future
Consideration has been classified into 3 types i.e. past, present and future consideration. The past consideration can be said as that consideration that has been provided even before the contract has been made. Present consideration is that consideration which is being provided during the making of the contract and simultaneously future consideration are those considerations which is to be provided after the formation of contract has occurred.
- Consideration can be in a form of promise, act
Consideration can also be in a form of an act i.e. to do something in return or even abstaining from doing something can also form a part of a valid contract. The act that is being done should be lawful to form a valid consideration.
Actual commission is also not necessary, a promise to do something or not to do something will also form part of a valid consideration.
For ex. A promise to B not to do something in return of 500. In this the promise of not doing something will also act as a valid consideration and the contract between them will be a valid contract.
- Consideration should be a reasonable
The consideration is not necessarily being of an equal value. The only thing which is considered to regard whether a consideration is valid or not that it must be reasonable and must hold a value in the eyes of law and not minimal.
But as per explanation 2 of section 25 of the Indian Contract Act a consideration if it has been given by free consent will not lead to the contract being termed as a void contract merely on the ground that the consideration was inadequate only thing that is considered is that whether the consent was free or not.
- Consideration should be real and legal
The consideration should be a real not an illusion or imaginary thing. The consideration to be valid should also be legal as per the Indian Contract Act. Section 24 of the Indian Contract Act clearly states that any consideration must be legal to form a part of a valid contract. Any contract which lacks legal consideration would be regarded as a void contract will not have any effect in the eyes of law. The consideration should also be valid in accordance to Section 23 of the Indian Contract Act.
Types of consideration
- Executory Consideration – An executory consideration is a commitment to do action at a later time. For instance, if you agree to paint my house and I agree to give you $100 for the job, then your executory consideration would be the promise to paint the house and my executory consideration would be the commitment to give you $100.
- Executed Consideration- Executed consideration is something that has already been done. In the event that, for instance, you paint my house and I give you $100, the painting itself is your executed consideration and the $100 payment represents my executed consideration.
- Past Consideration- Past consideration refers to actions taken in the past that were not done in response to a promise made. The act of saving my life from a burning building, for instance, would be considered past consideration, while my commitment to pay you $1,000 would be considered executory consideration. Generally speaking, past consideration is insufficient to make a commitment enforceable.
Exceptions of Doctrine of Consideration
The Doctrine of Consideration has certain restrictions under section 25 of the Indian Contract Act.
- Natural Love and Affection
Assume that two people who are close to each other—for example, spouses or blood relatives—make a formal, legally binding pact out of pure love and affection. If so, that contract is enforceable even in the absence of consideration. Therefore, in contract law, commitments made out of pure love and affection are exempt from consideration.
- Previous Volunteer Services
Let’s say someone has previously given a service willingly and the person receiving the service agrees to pay the service provider later. If so, the following circumstances apply to the contract’s legal binding status:
- In the past, the service was provided voluntarily.
- The promisor received the service.
- When the voluntary service was rendered, the promisor was already established (this is especially important if the promisor is an organization).
- The promisor has indicated that they would be willing to pay for their unpaid labor.
- Promise to pay a Time-Barred Debt
An exception to consideration is the pledge to pay off any debt that has run its course. Let’s say someone promises in writing, under the signature of themselves or a designated representative, to pay off a debt that has passed the statute of limitations. In that instance, the commitment is nevertheless enforceable in the absence of consideration. The debt may be paid in full or in part as per the promise.
- Establishing an Agency
Section 185 of the Indian Contract Act 1872 states that the establishment of an agency does not require consideration. Put differently, consideration is not necessary for the formation of an agency contract.
The Indian Contract Act, 1872’s Explanation (1) states that gifts are exempt from the “no consideration, no contract” rule. When it comes to presents, an agreement is deemed legitimate and enforceable even in the absence of remuneration if the giver offers a gift and the recipient accepts it.
Significance of the Indian Contract Act’s Doctrine of Consideration
The Indian Contract Act of 1872 relies heavily on the notion of consideration for a number of reasons.
- Compliance with Agreements:
Since agreements without compensation are null and void under Section 10 of the Act, consideration is a prerequisite for any legally enforceable contract. This keeps commitments from being made carelessly and guarantees that each party will benefit from the deal.
Since each person assumes responsibility or gives up something in return for something else, it promotes justice and reciprocity.
- Predictability and Certainty:
The Act establishes precise standards for figuring out which agreements are enforceable by requiring contemplation. Both individuals and corporations need this predictability because it gives them the confidence to enter into contracts knowing that the promises made will be kept.
Because the party attempting to avoid the contract bears the burden of proof for lack of consideration, it reduces disagreements and legal action related to non-performance
- Preventing Unjust Enrichment
The idea forbids one party from unfairly benefiting at the expense of another. Without regard for reciprocity, one party may profit unjustly from another’s commitment without providing anything in return.
It maintains the mutuality and consent principles, guaranteeing that both parties voluntarily join into the agreement and are aware of the value exchange that is taking place.
- Encouraging Contracts That Are Responsible:
The duty of consideration urges parties to carefully evaluate the parameters of an agreement before making promises. This lowers the possibility of signing contracts with unfair terms or unreasonable expectations and encourages prudent contracting.
It deters people from making rash commitments or signing contracts carelessly because of the potential repercussions of the agreement’s legal enforceability.
- Modifications and Exceptions:
Though compensation is usually required, the Act acknowledges the value of informal agreements and prevents injustice in some circumstances by recognizing specific exceptions, such as gifts under seal and promissory estoppel. This gives the doctrine flexibility so that it can adjust to various contracting realities.
The fundamental principle of the Indian Contract Act is the notion of consideration, which is essential to maintaining contracting processes that are accountable, transparent, and equitable. It promotes clear principles for enforceable agreements, supports reciprocity, and stops exploitation by requiring a valuable exchange for every promise. It is important because it discourages making unwarranted promises, encourages good contracting, and provides dependable legal remedy. This concept preserves the integrity of contracts, establishing the groundwork for a safe and equitable contractual environment in India by discouraging one-sided enrichment and promoting fair considerations.
- Law of Contract by Avtar Singh
 Indian Contract Act, 1872, No. 10
 Indian Contract Act, 1872, No. 23
 Currie v Misa  LR 10 Ex 153
 Municipal Corporation of… v. The Secretary of State for India (1934) 36 BOMLR 568
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