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Consideration in Contract Law

Introduction​

Consideration is one of the essential elements of a valid contract under Indian law. It refers to something of value that is exchanged between parties as part of the agreement. This chapter will explore the concept of consideration in detail, examining its importance, requirements, and practical implications.

Definition and Importance​

Consideration serves several crucial purposes in contract formation:

  1. Provides mutual benefit to both parties
  2. Creates a legally enforceable obligation
  3. Differentiates contracts from mere promises

According to Section 25 of the Indian Contract Act, 1872, "when at the desire of the promisor, the promisee or any other person has done anything which the promisor should not be normally entitled to expect having regard to the relations existing between them and to the circumstances of the case."

Requirements of Consideration​

To be valid, consideration must meet certain criteria:

  1. It must be sufficient
  2. It must be real
  3. It must move from the promisee
  4. It must not be past consideration

Let's examine each requirement in detail:

Sufficient Consideration​

Consideration is considered sufficient if it has some economic value or can be seen as valuable to the promisor. This doesn't necessarily mean monetary value; it could also be in the form of services or other benefits.

Illustration: In the case of Rajasthan State Agricultural Marketing Board v. Ram Lal Jadli [(1997) 8 SCC 539], the Supreme Court held that even a nominal payment could constitute sufficient consideration.

Legal Section: Section 25(1) of the Indian Contract Act, 1872

Real Consideration​

Real consideration means that the performance promised should not already exist at the time the contract is made. Past consideration is generally not enforceable under Indian law.

Illustration: In the case of Chinnaswami Chetti v. Veeraswami Chetti [AIR 1925 Mad 305], the court held that a promise made after the event cannot constitute consideration.

Legal Section: Section 25(2) of the Indian Contract Act, 1872

Moving from the Promisee​

Consideration must move from the promisee to the promisor. This means that the performance promised should be rendered by the person to whom the promise is made.

Illustration: In the case of Shivaji Singh v. State of U.P. [(1994) 2 SCC 653], the Supreme Court held that where a public servant accepts a bribe, the bribe constitutes consideration moving from the promisee (the briber) to the promisor (the public servant).

Legal Section: Section 25(3) of the Indian Contract Act, 1872

Not Past Consideration​

As mentioned earlier, past consideration is generally not enforceable under Indian law. This principle ensures that promises are made in anticipation of future actions rather than as compensation for past events.

Illustration: In the case of Bharat Bank Ltd. v. Subeswar Prasad [AIR 1954 SC 582], the Supreme Court held that a promise to pay for services already rendered cannot constitute valid consideration.

Legal Section: Section 25(4) of the Indian Contract Act, 1872

Conclusion​

Understanding the concept of consideration is crucial for law students and LLB students studying contract law. It forms the foundation of contract formation and enforcement. By grasping the requirements of sufficient, real, moving, and non-past consideration, one can better analyze and draft contracts effectively.

Remember, while this chapter provides a comprehensive overview of consideration, always refer to the latest legal precedents and amendments to the Indian Contract Act when dealing with specific cases or drafting contracts.