What do you understand by the term consideration?
What is the
effect of an agreement made without consideration or for an
unlawful consideration and in what exceptional cases consideration
may be dispensed with?
INTRODUCTION:
Section 10. All agreements are contracts if they are made by the free
consent of parties competent to contract, for a lawful consideration and
with a lawful object, and are not hereby expressly declared to be void.
Section 23: Agreements the consideration for which is unlawful is void.
Section 25: Agreements made without consideration are void except
certain cases.
DEFINITION OF CONSIDERATION:
According to Section 2(d), Consideration is defined as:
"When at the desire of the promisor, the promisee has done or
abstained from doing, or does or abstains from doing, or promises
to do or abstain something, such an act or abstinence or promise is
called consideration for the promise."
Blackstone:
“Consideration is the recompense given by the party
contracting to the other”.
Effect of agreement made without consideration:
Consideration is the essence of contract without which contract is
void.
In short, Consideration means quid pro quo i.e. something in return.
An agreement must be supported by a lawful consideration on both
sides.
ADEQUACY OF CONSIDERATION:
Anything lawful can form consideration for the parties no matter what
it’s economic or market value is e.g. used wrapper of chocolate or dirty
tissue paper can form good consideration.
Anson in Principles of law of Contract: “Courts can hardly assume the
job of setting what should be the appropriate consideration for a
promise. It is entirely for the parties.
Explanation 2 of Section 25: –
“An agreement to which the consent of the promisor is freely given
is not void merely because the consideration is inadequate; but the
inadequacy of the consideration may be taken into account by the
Court in determining the question whether the consent of the
promisor was freely given.”
Consideration may take in any form i.e. money, goods, services, a
promise to marry, a promise to forbear etc.
WHAT CONSIDERATIONS AND OBJECTS ARE LAWFUL AND WHAT
NOT: Section 23
The consideration or object of an agreement is lawful, unless and until it
is-
1. Forbidden by law: for example sale of intoxicants.
Illustration;
“A” was licensed under an excise Act to work a liquor shop.
The Act forbade the sale, transfer or sublease of the license or
the creation of partnership to run the shop but “A” took the
“B” into partnership. The partnership was held void as such
act was forbidden by law.
2. Is of such nature that ,if permitted, it would defeat the provisions of
any law ,
Though not directly forbidden by law yet defeat provision of any
law.
Illustration;
“A” and “B” being partners of a firm entered into an
agreement to conceal income in certain respects so as to
evade income tax. The contract is unlawful.
3. Is fraudulent, or
Fraudulent purpose makes the contract void because of illegal
object
Illustration;
“A” debtor agreed to pay a separate commission to one of his
creditors in order to induce his consent to a composition
which was proposed with other creditors. Contract is void as
consideration and object is illegal.
4. Involves or implies injury to the person or property of another,
Agreement between two persons to injure person or property of
another constitutes unlawful consideration and object. So such
agreements are void.
Illustration;
Two person entered into agreement to publish libel against
third person. Such agreement is void.
5. Immoral Contracts:
Agreements the object of or consideration for which is immoral is
unlawful e.g. interference in marital relations, dealings with
prostitutes.
6. Against public policy:
If consideration or object of agreement is against public policy then
agreement is void e.g. marriage breakage agreements, agreements
in restraint of marriage, trade, interference in course of justice.
EXCEPTIONS WHEN CONSIDERATION MAY BE DISPENSED WITH:
According to Section 25:
“An agreement made without consideration is void, unless–
1. it is expressed in writing and registered under the law for the time
being in force for the registration of documents, and is made on
account of natural love and affection between parties standing in a
near relation to each other; or unless
2. it is a promise to compensate, wholly or in part, a person who has
already voluntarily done something for the promisor, or something
which the promisor was legally compellable to do, or unless
3. it is a promise, made in writing and signed by the person to be
charged therewith, or by his agent generally or specially authorized
in that behalf, to pay wholly or in part a debt of which the creditor
might have enforced payment but for the law for the limitation of
suits.
In any of these cases, such an agreement is a contract.”
So following are the exceptions:
i. Agreements based upon natural love and affection.
ii. Agreements to pay for past voluntary services.
iii. Agreements to pay time barred debt.
iv. Consideration is unnecessary in contract of agency. Section 185
v. Gift.
vi. Contract between creditor and surety.
ILLUSTRATIONS
(a) A promises, for no consideration, to give to B Rs.1,000. This is a
void agreement.
(b) A, for natural love and affection, promises to give his son, B, Rs.
1,000. A puts his promise to B into writing and registers it. This is
a contract.
(c) A finds B's purse and gives it to him. B promises to give A Rs.50.
This is a contract.
(d) A supports B's infant son. B promises to pay A's expenses in so
doing. This is a contract.
(e) A owes B Rs.1,000, but the debt is barred by the Limitation Act. A
signs a written promise to pay B Rs.500 on account of the debt.
This is a contract.
(f) A agrees to sell a horse worth Rs.1,000 for Rs.10. A's consent to
the agreement was freely given. The agreement is a contract
notwithstanding the inadequacy of the consideration.
(g) A agrees to sell a horse worth Rs.1,000 for Rs.10. A denies that his
consent to the agreement was freely given. The inadequacy of the
consideration is a fact which the Court should take into account in
considering whether or not A's consent was freely given.
