What is consideration?

Consideration in contract law refers to something paid by one person to another in return for goods or services. It comes under the basics of a contract which makes the contract enforceable by law. Consideration in a contract is made the contract a valid contract. It is the price of the contract which is to be paid by one person to another if he really wants to make the contract enforceable.

What is consideration?

Consideration is essential for a valid contract which is known as the price of the contract. The consideration can be a right, responsibility of interest in a written contract which is given by one party to another party. The parties who have the capacity to contract, can give the [consideration] in a contract to do or abstain from doing something.  For example. Amit makes a contract with Rocky to give him $2000 if he does not bunk his morning class. Here, the contract is for abstaining Rocky to do something.

No consideration no contract

An agreement without [consideration] is unable to bind two parties into the contract. That is why it is said that no consideration no contract. The agreement loses its strength to bind the parties to do or not to do something.

Example of consideration

A offer B to sell his old house for a sum of $40000. B accepts that offer and comes into the contract. Now the [consideration] for A is $40000 and for B is the old house. Both the parties exchange the [consideration] according to the need.

A made contract with B not to marry C and he will pay her $300. B marries D. Now, A is liable to pay her $300 as [consideration].

Essentials of valid consideration under Indian contract act

When litigation occurs in the court of law due to a dispute in contract, it becomes most important to prove that there is a valid [consideration]. There are some essentials of consideration that should be followed while doing the contract. So, let us discuss these essentials:

Consideration must be done at the desire of the promisor

Any voluntarily act done by a person without the desire of promisor is not valid consideration. It means, if a person does something for another person with his free will but not by the desire of the promisor, the promisor shall not be liable to pay.

Example

A house is on fire. B, who is a neighbour A comes to near his house and starts helping him to control the fire. After the fire control, B asks A to pay him $500 to help him in the control the fire. Here, it is not valid [consideration] because B has done this voluntarily.

But, in the same condition, A went to B’s house and request him to help him to control the fire and promise him to pay $500 in return. B helps him in that. Now A is liable to pay him the [consideration].

Consideration may proceed from promisee or by another person

It is not important that the [consideration] must be done by the promisee. It can be proceeded by any other person.

Example

A make contact with B that he will sell his house to him for the sum of $7000. A sell his house to B and make the papers of the house in the name of B. But, C, who is the brother of B makes the payment to A for that property on behalf of B. Now, the B cannot claim that the payment is not given by the B as he was the main party in the contract of sale.

Consideration must be real and possible to do

It must be real and legally possible.

Example

A contract with B that he will pay him $7000 is he will finish 400KM in 30seconds. Here, the 400KM in 30 seconds is impossible.

Consideration must be lawful

Any [consideration] which is not lawful is void and is not enforceable by law. It must follow the public policies.

Example

A make contact with B that he will pay him $10000 if he murders C. Here, the murder is not lawful.

Consideration need not be Adequate

It is not necessary that the [consideration] must be adequate. If a person is doing this with his free consent, it will be considered valid.

Example

A wants to sell his bike worth $5000 for $300 with his free will. The is a valid contract.

Types of consideration in contract

There are mainly three types of consideration in the Indian contract act:

Present consideration

Present consideration is also known as executed [consideration]. A contract, in which the [consideration] takes place simultaneously is a present [consideration].

Example

Ankit buy books from a book-seller and pay him $300 for the books. In return, the bookseller provides him with the books. Here, the consideration has been done from both sides and it is present [consideration].

 Future consideration

Future consideration is also known as executory consideration. A contract, in which a person promises to make the [consideration] in future is called future [consideration].

Example

Ankit buy books from a book-seller and promise him to pay $300 after one week. The bookseller provides him with the books. Here, the consideration is future because Ankit will pay the money after one week.

Past Consideration

A [consideration] that took place before the formation of a contract is called past [consideration].

Example

Ankit buy books from a book-seller and tell him that he has already paid him $300 extra when he purchased notebooks for his brother. The bookseller provides him with the books. Here, the [consideration] was already paid before making the contract to buy books.

Conclusion

Every agreement and promise enforceable by law needs [consideration] as the price of the agreement. Any agreement without [consideration] cannot be enforceable by law. The consideration can be past, present and future consideration.

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