Consideration: Definition and Meaning


In a world where companies are on the rise, it is impossible to ignore the concept of contracts and the significance of their role in the corporate sector. To put it simply, a contract is really a promise that the law will upholde concept of contracts and the significance of their role in the corporate sector. To put it simply, a contract is really a promise that the law will uphold. It is an offer that becomes a promise if it is accepted.

According to Section 2(h) of the Indian Contract Act, a contract is an "agreement enforceable by law". A "promise with consideration" is another term for a contract. All of the fundamental components of a contract are listed and substantively defined under Section 2 of the Indian Contract Act's interpretation clause. One of these contract conditions is "consideration.".

What is "consideration"?

Section 2(d) of the Indian Contract Act provides the following definition of "consideration" −

When at the desire of the promisor, the promisee, or any other person

Has done or abstained from doing something; (Or)

Does or abstains from doing something; (Or)

Promises to do something or to abstain from doing something;

Then such an act, abstinence, or promise is called a consideration for the promise.

QUID PRO QUO, or "something in return," is what the phrase "consideration" essentially implies.

Important factors to be considered with regard to form consideration

It is crucial that a consideration satisfy specific requirements in order to be regarded as valid in legal terms. The following explains these key components −

  • The promisee or any other individual may initiate consideration; nevertheless, the promisor must initiate consideration first.

  • Attention may be given to the past, present, or future.

  • Consideration must have some worth.

  • Real consideration must be given, as must legal consideration.

Exceptions to Consideration

A few exceptions to the rule that a contract entered into without consideration is void are outlined in Section 25 of the Contract Act. Exceptions are illustrated below.

  • Natural love and affection,

  • Past voluntary service, and

  • Time-barred debt.

Stranger to contract vs. stranger to consideration

A third party who is not a party to the contract cannot be sued or sued against under it. Yet it has no bearing on his legal rights under the contract if one of the parties is a stranger to the consideration.

Who is a stranger to the contract?

A stranger to the contract is a person who is not a party to it (i.e., neither a promisor nor a promisee). An agreement can only be enforced against the parties to it and is only enforceable under contract law.

The term "privilege of contract" refers to the relationship that exists between the parties to a contract. According to the privity of contract, the listed consequences take place −

  • A person who is not a party to a contract cannot be sued on it even though he contributed the consideration.

  • Only the parties to a contract may be granted rights or subjected to responsibilities flowing from it. As a result, Z cannot enforce a contract between X and Y.

Who is a stranger to consideration?

According to the Indian Contract Act, the consideration may be transferred from the promisee or any other person to create a legitimate contract. The promisee can be seen as a stranger to the consideration if the consideration shifts from someone other than the promisee.

As an illustration, suppose A promises B that he will pay B Rs. 1000 if B can procure a painting from C for A. Here, consideration is being transferred from C to A (painting a picture for A by C) and from A to B (Rs. 1000), but B is a stranger to the consideration, hence the relationship of promisor and promisee only exists between A and B. The reciprocity of consideration characterises the relationship between A and C.

There are certain exceptions to the doctrine of privity of contract

The following situations are exceptions to the rule that a third party is not permitted to sue −

  • Covenants running with the land;

  • Beneficiary under trust or a charge;

  • Doctrine of promissory estoppel;

  • Family settlements;

  • Marriage settlement of minor.

Legality of Consideration

A lawful consideration and object are required elements of a valid contract, according to Section 10 of the Indian Contract Act, 1872. The circumstances in which the consideration and goal (purpose or design) of an agreement may be judged to be unlawful are outlined (Section 23 of the Act).

For the purposes of an agreement or compromise, anything that is not permitted by Section 23 is unlawful, and any decree that incorporates such an agreement or compromise is invalid.

The following agreements are declared void by the section for being illegal −

  • If the consideration or object is illegal, a party seeking to enforce a contract that is expressly illegal and made a crime by law lacks a cause of action.

  • Where the consideration or object contravenes any law's provisions, whether the parties were aware of the law or not, a contract that calls for doing something that would violate the law is void.

  • Where the consideration or object is of a fraudulent nature, agreements that involve the commission of a wrong, the commission of a fraud against a third party, or the commission of a fraud against the public are illegal and void.

Conclusion

The consideration must be legitimate; that is, it cannot be accomplished through physical or legal means. If there is a degree of ambiguity in the consideration, it will also not be seen as legitimate since if the consideration is not certain, it is difficult to carry it out. Consideration must be specific and communicated in a transparent manner. Otherwise, there would be uncertainty, and the consideration would be deemed invalid because it would be hard to define exactly what it is.

Frequently Asked Questions

Q1. What is consideration in contract elements?

Ans. Consideration: The promise of something of value in return for the stated conduct or inaction. This can be demonstrated by a substantial outlay of resources, a promise to provide a service, a commitment not to do something, or reliance on the promise

Q2. What are the major types of consideration?

Ans. There are four types of consideration. Executory (future) consideration; executed (present) consideration; Past Consideration; and Conditional consideration.

Q3. What is the element of consideration?

Ans. Elements of consideration are that a performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and given by the promisee in exchange for that promise.

Updated on: 06-Apr-2023

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