ACKNOKWLEDGEMENT

It is a great pleasure to express my deep sense of thanks and gratitude to my course instructor
and guide Dr Anurag Agrawal. His dedication and keen interest above all and his
overwhelming attitude to help his students had been solely and mainly responsible for
completing my work. His Scholarly and timely advice, meticulous scrutiny, and his logical
approach have helped me to a very great extent to accomplish my project in an excellent
manner. I owe a deep sense of gratitude to Prof. S.P. Srivastava Dean of the School of Law
and Governance, Central University Of South Bihar, for ensuring we are provided with the
best facilities and surroundings to fetch the best out of ourselves. His prompt inspirations,
timely suggestions with kindness, enthusiasm, and dynamism have also enabled me to
complete my project on time. It is my great privilege to thank my parents for their constant
encouragement throughout my research period.

-PRATEEKTIWARI.
 TABLE OF CONTENTS

1. Acknowledgment

2. Research methodology

3. Chapterisation

4. Body of research

5. Bibliography

Research Methodology

In this project, I have adopted Doctrinal research. Doctrinal research is essentially a library-
based study, which means that the materials needed by a researcher may be available in
libraries, archives, and other database, various types of books were used to get the adequate
data essential for this project. I also used a computer laboratory to get important data related
to this topic and found several good websites which were very useful to better understand this
topic.

CHAPTERISATION

1. What is Consideration?

2. What are the types of Consideration?

3. What are the essentials of a valid Consideration?

4. How is Consideration measured?

5. Importance of consideration in a contract.

6. Legal Requirements of Consideration.

7. What if Consideration is not offered in a contract.

8. Exceptions of Consideration.

1. What is Consideration?

Consideration is what makes the foundation of a contract. An agreement without

consideration cannot amount to a legally enforceable contract. According to The Indian
Contract Act, 19872 , consideration is something done at the desire of the promisor. As
consideration, the promisor may ask the promisee or any other person to door abstain from
doing something. This act of abstinence from it is known as the consideration to the contract.
Let us understand this in simpler terms with an example. Assume Mr. X sells his car to Mr. Y
for Rs. 2,00,000. Mr. Y accepts the offer and agrees to pay him the amount. The sum of Rs.
2,00,000 will be a valid consideration, making this agreement a contract.

To get into more detail, let us see the types of consideration to a contract.

2. What are the types of Consideration :

Consideration may be of three types– past, present, and future. These are explained as:

Past consideration: Past consideration is something that the promisee has already done (or
abstained from doing) before entering into any agreement. For example, Mr. A provided
transportation to Mr. B in June. In July, Mr. B agreed to pay Mr. A Rs. 1,000 for the service.
Since the act occurred before promising to pay, it serves as past [Link] many cases,
it is also known as moral consideration. Let us see how. Assume that you are driving when
you witness an accident on the road. You help the injured person and take them to a hospital.
A few days later, as a token of appreciate on, the person offers Rs—2,000 for your help and
any expense you may have incurred. The help you extended is taken as past consideration.

Present or executed consideration : This is when you provide the promisor with the
consideration simultaneously while entering into a contract. This kind of act is always done
(or not done) in response to an agreement with another party. For example, you buy fruits
from a vendor and immediately pay him the price. This payment is taken as executed or
present consideration
Future or executory consideration: Future consideration is when the promisor, promisee, or
both move the act to a future date. It means that the parties have not yet performed their
obligations. For instance, you purchase a car from a showroom, which will be delivered next
week. You agree to pay the seller when the car arrives. This implies that there is a contract
between you and the seller, with a future consideration.

Various factors make the consideration valid. Let us get into the details

3. What are the essentials of a valid Consideration :

The following things are required to make a consideration valid:

The consideration must move at the desire of the promisor This implies that the
consideration will only be valid when the promisor has requested it. Effectively, any act done
voluntarily does not constitute valid consideration. For example, if you help a person find his
missing wallet and then ask for a reward, he is not bound to pay you. The help you provided
was voluntary and not asked for by the person. The consideration may move from the
promisee to any other person It is not necessary for the promisee to supply the consideration.
It may move from any other person. Even if you are a stranger to consideration, you can sue
as long as you are a party to the contract.

The consideration must be lawful

An illegal consideration is not valid and makes the contract void. The Act declares
consideration as unlawful if it is a forbidden act under any law, if it causes injury to a person
or his property, or if it is immoral.

The consideration must be real and possible

An impossible act cannot be classified as valid consideration. Whatever is decided and

agreed to as consideration must be capable of being performed. Impossibility may be legal or
physical. Moreover, the consideration must not be uncertain.

The consideration may not be adequate

The Indian law states that adequacy of consideration is not necessary. The parties are free to
bargain. A poor negotiation by one party does not make the contract void. However, the
decision must be made with the free consent of both parties. For example, you sell your
books worth Rs. 1,000 for Rs. 200 as per your wish. You cannot legally claim this as
inadequate consideration later.

4. How Consideration is measured :

In the majority of contract cases, the court will require the parties to prove that ther was
adequate consideration at the time the parties formed and signed the contract at issue.
Consideration will be deemed adequate when it corresponds as closely as possible to the
value of the services or goods provided in the contract. The value of goods and/or services
are typically measured by using the fair market value of those goods and/or services at the
time that the contract was created. It is important to note, however, that consideration in a
contract does not have to equally match the value of the goods or services. Instead, it just
needs to approximately equate to their values.

A court will normally evaluate the adequacy of consideration by determining what would be
considered a reasonable value in the eyes of an average consumer. For example, imagine that
one party promised to offer the other party a TV that is worthRs.2000. If the other party
agrees to only pay them Rs. 1800 for the TV, then a court may find this amount to be
adequate consideration for the TV. On the other hand, if the party only paid them Rs. 3000
for the TV, then the court might not rule that this amount qualifies as adequate consideration.
However, the out come of a case will mostly depend on the facts surrounding a particular
issue and may be subject to the discretion of a court. Lastly, it should be noted that past
actions or services will not qualify as consideration for a new contract. In addition, 1promises
that are fake or that are impossible to perform will also not constitute valid consideration and
thus will render the terms of a contract as invalid.

5. Importance of Consideration in a contract :

The Indian Contract Act, 1872 clarifies that any contract without consideration is void. It is
essential because it creates an obligation on both parties to fulfill their promises. If it is not
present, the burden on the parties may not be enough to ensure the completion of the contract.

1
illusory promises
 6. Legal requirements of Consideration :

Consideration is required to be "adequate," meaning that the exchange in value should be

reasonably balanced. A consideration's value is typically determined by the market value of
goods and services. While parties to a contract can negotiate as they wish, consideration must
at least be deemed reasonable in order to hold up in court. Under many states' laws, mutual
consideration, or the exchange of value between a contract's parties, is a critical component in
contract formation. If mutual consideration is not present in a contract, under some
circumstances a state may deem the contract to be unenforceable. For example, if two parties
enter a contract in which one party is required to provides a good or service while the other is
not required to provide anything of value, the contract lacks consideration.

Other examples of situations in which consideration is lacking include:

● Illusory promises, where an obligation is uncertain

● Gifts

● Past performance, or creating obligations retroactively

For example, if Party A promises to provide Party B a good in exchange for advance payment
from Party B, there is sufficient consideration, or exchange of value. Similarly, if Party A
pays restitution to Party B in exchange for a promise from Party B that they will not sue for a
claimed harm, the promise not to sue can be understood as consideration. Courts and
legislatures typically require consideration in contracts. While in some jurisdictions, the
courts do not review the adequacy of consideration, in definite or vague terms may still in
some cases invalidate a contract unless it becomes clear from subsequent actions.

In contracts that are related to trademarks or copyrights, this means that royalties could be
discontinued if the contract only grants the right to use the intellectual property and the
licensor does not actually have the right to the intellectual property, assuming that the
licensor was not aware that the rights were not valid. If the contract provides that the licensor
will discontinue the use of the rights, however, this could constitute forbearance that is
adequate for the contract to continue. It is therefore important to evaluate what parties are
exchanging when you set up a contract or licensing agreement.
 7. What if Consideration is not offered in contract :

In the event that a court finds that a contract was not formed with consideration, then it ill
most likely rule that the contract is invalid and unenforceable under the law. In which case,
neither party will be able to sue one another if there is a dispute over the terms of a contract
since no actual contract exists. In other words, a contract will not be seen as valid if no
consideration was exchanged at the time the contract was formed.

Accordingly, it is very important that all parties to a contract be aware of the requirement of
adequate consideration. This is especially true at the beginning of the contract, such as during
the negotiation and drafting stage of forming a contract. In addition, depending on the facts of
a particular case, a court may find that an exchange was an implied gift if there was no
consideration, but the parties exchanged services.

For instance, if a friend offers to repair another friend’s roof as a favor and does not ask for
payment or anything else in return for repairing their roof, then this transaction will not
establish a contract since no consideration has been exchanged between the two friends. A
court would most likely deem this to be a gift or a kind act.

One other situation that will not qualify as providing consideration under the terms of a
contract is if a party is offering something of value that is already required by law. For
example, if a mechanic promised not to further damage a car that already needed to be
repaired, this would count as providing consideration under a contract. Basically, the
customer is paying the mechanic to have their car repaired, not to ensure that the mechanic
does not do further damage to it .

8. Exceptions to Consideration :

Section 25 of the Contract Act lays down a few exceptions when an agreement made without
consideration is not void.

Exception 1- Natural Love and Affection A written and registered agreement based on
natural love and affection between near relatives is enforceable without consideration. The
expression ‘near relative’ will include parties related by blood or marriage.
Exception 2- Past Voluntary Service A promise to compensate a person, who has already
voluntarily done something for the promisor, or something which the promisor was legally
compellable to do, is enforceable. However, such service should have been rendered
voluntarily and without promisor’s knowledge, and for the promisor only. For example, a
promise made after attaining the age of majority to pay for good supplied to the promisor
during minority was held to be within the exception.

Exception 3- Time-barred Debt. A promise to pay a time-barred debt is enforceable.

Body of the research :

Introduction : If Ram says to Shyam, I promise to give you Rs. 1000 on June 1 and Shyam
repliesI gratefully accept your promise.

Should Shyam be able to enforce Ram’s promise in a court if Ram refuses to pay him Rs.
1000 on June1?

From a moral standpoint, the court should enforce Ram’s promise simply because he made it.
However, from legal point of view, the question arises whether power of the Government be
used to enforce such a promise where no economic exchange has taken place.

The transaction between Ram and Shyam does not involve an exchange; Ram’s promise is
simply gratuitous (a gift). The gratuitous promises such as Ram’s are not enforceable at law.
A promise is enforced by the law only if it is supported by consideration.

Section 10 of the Indian Contract Act, 1872, describes lawful consideration as one of the
essential ingredients to constitute a valid contract which means that an agreement without
consideration is void. This is doctrine of consideration. We find at the outset that bare words
of promise have no standing/binding on either party. The reason why the law enforces only
those promises which are made for consideration is that gratuitous or voluntary promises are
often made rashly and without due deliberations.

In the Contract law, our problem is to determine the presence or absence of consideration or
the facts that will operate to create legal duties and other legal relations. The law looks with
dis favour upon an exchange of promises which would result in one of the parties obtaining,
‘Something for nothing’. It supplies no means nor affords any remedy to compel the
performance of an agreement made without sufficient consideration.

Conclusion with suggestion :

In conclusion, consideration is a crucial element in the formation of any legally binding

agreement. It acts as an incentive for the party to full fill their obligations under the contract,
and it ensures that both parties receive some form of benefit or advantage from entering into
the agreement. However, consideration can sometimes be a point of contention in contract
disputes, particularly when one party alleges that there was no valid consideration. To avoid
the contract. While consideration doesn't necessarily have to be monetary, it should have
some tangible value. In some cases, consideration can also be something that benefits the
other party, such as a promise not to sue. To ensure that consideration is present in a contract,
it's important to carefully draft the terms and review them with legal experts. Parties should
also ensure that the consideration is clearly specified in the agreement.

Furthermore, it's important for parties to be aware of any existing laws and regulations that
may impact the validity of the agreement. For example, contracts with minors or mentally
incapacitated persons may not be enforceable. In light of these considerations, we suggest
that parties take a proactive approach to contract formation by seeking legal guidance and
ensuring that all terms are clearly specified and agreed upon. This can help prevent disputes
and ensure that all parties are satisfied with the outcome of the agreement.

Bibliography

INTERNET SOURCES

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●[Link]
nsactions/

● [Link]

● [Link]

● [Link]

CASES

● Carlill vs Carbolic Small Boll Co. (1893) 1 Q.B. 256

● Alliance Bank vs Broom (1864)2 Dr. & S289

● Durga Prasad vs Baldev, (1880) ILR3 ALL 221

BOOKS

● Dr. R.K. Bangia; contract-1; Allahabad Law Agency