Consideration in Law of Contract

Section 2 (d) of Indian Contract Act, 1872 defines ‘Consideration’

Consideration in Law of Contract says, “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”

Example 1: Sale of Goods

Scenario: John agrees to buy a car from Sarah.

Consideration:

           *John’s Consideration: John agrees to pay $10,000 to Sarah.

           *Sarah’s Consideration: Sarah agrees to transfer the ownership of her car to John.

In this example, the mutual exchange of value makes the agreement a binding contract. John’s consideration is the payment of $10,000, and Sarah’s consideration is the car.

Example 2: Service Agreement

Scenario: Emily agrees to paint Mark’s house.

Consideration:

             *Emily’s Consideration: Emily agrees to provide painting services for Mark’s house.

             *Mark’s Consideration: Mark agrees to pay Emily $2,000 for her services.

Here, Emily’s promise to paint the house and Mark’s promise to pay $2,000 are the considerations that form the basis of their contract. The mutual promises create a legally enforceable agreement.

In both examples, the consideration involves a clear exchange of value, which is essential for the validity of the contracts.

The six essential elements of consideration in contract law are:

1- Mutuality: Consideration must be mutual, meaning both parties to the contract must exchange something of value. Each party must offer something to the other party as part of the agreement.

2- Legally Sufficient Value: The consideration must be something of legally sufficient value. This doesn’t necessarily mean it has to be equal in value to what the other party is offering, but it must be something that the law recognizes as having value. It can be a tangible item, money, a service, or a promise to perform (or refrain from performing) a particular act.

3- Bargained-For Exchange: The consideration must be the result of a bargain between the parties. This means that each party’s consideration must be given in exchange for the other party’s consideration. There must be a causal connection between the promise and the consideration.

4- Present or Future: Consideration must relate to something that is either being done or promised in the present or the future. Past consideration (something that was already given or performed before the promise was made) is not valid consideration.

5- Adequacy: While the law does not require the consideration to be adequate or of equal value, it must be something that is recognized as having some value. Courts typically do not assess whether the consideration is adequate, as long as it is legally sufficient.

6- Legal Possibility: The consideration in Law of Contract must be something that is possible and legal. If the promised act is illegal or impossible to perform, it cannot be considered valid consideration. For example, a promise to commit an illegal act cannot serve as consideration.

These elements ensure that the consideration provided in a contract is valid and enforceable, forming the foundation for a legally binding agreement.

Books Recommended:      Check it Out

1. Beatsen (ed.)-Anson’s Law of Contract : (27th Ed. 1998)

2. Anson-Law of Contract (1998), Universal, Delhi

3. Pollock and Mulla-Indian Contract Act

4. Avtar Singh-Law of Contract, Eastern Book Co.(Lucknow)

5. S.K.Kapoor- Samvidha Vidhi (Hindi)