The concept of consideration categorizes as a benefit that is bargained between the parties. It is a very important ingredient to form a valid contract. Consideration holds value and is paid to the party on the performance of the contract, and consideration can be of a variety of forms, it can form an act, promise, and thing therefore, it could be a positive act and could be a negative act.
The precondition for consideration is: –
- Bargain regarding the items which parties will going to exchange.
- There should be mutual exchange between the parties.
- Exchange should be something of value to it.
Section 2 (d) of the ICA, defines: –
Consideration will be valid if it is done at the desire of the promisor. It explains that in consideration for a promise to be applicable, the promisee must promise something or give something in return for that promise which is made between the parties. The most basic requirement for consideration is that a promise is bargained for. The consideration helps to make a difference between everyday legally enforceable contracts between the parties and social agreements.
Section 2 (g) explains that essential ingredients for a formation of a contract are proposal, acceptance, and consideration and if any of these 3 elements are absent then the contract or agreement itself is void. It needs to be lawful and performable and if it’s not enforceable by law then the agreement is void.
Parties entering into a contract or formulating a contract have the benefit of that transaction in their minds. To get benefit from that transaction, they intend to gain something hence, they enter into a contract. It tries to explain that two parties would not have agreed to something unfavorable and unbeneficial for them in a contract.
The essential requirement for a valid consideration are:-
- Consideration must come from the desire of promisor: – The act of forming a consideration must be done by the request or desire of the promisor hence, act done should be voluntary.
- Consideration can move from the promisee or other person: – The explanation of consideration in section 2 (d), about the consideration that it need not move from the promisee alone but may move from 3rd person. The meaning is even a stranger to the consideration can sue on that contract but for that, he should be party to the contract which is called ‘Doctrine of Constructive Consideration’.
- It may be past, present, or future: – The word about “has completed or refuse from doing that act, or does or deny from that, or someone has promises to do or refuse from doing” these lines indicate that the consideration has done or not done in the past, present, or promised to be done but not completed in future.
- Consideration should be real: – Consideration must be competent and it should be real and if it’s illegal or uncertain then it will not be a valid consideration.
Section 10 explains what an agreement considers a contract and if we see consideration from a formation of a contract point of view, consideration needs to be lawful and it should come from the free consent of the parties.
Section 2 (e) and 2 (f) together talk about reciprocal promises which can form an agreement. E.g. X promises Y that X will purchase Y car and in return, X will give horses to Y means they both are making reciprocal promises to each other and both reached an agreement. Throughout this transaction when X promises Y that he will give his horses to Y in exchange for a car then both are making consideration for each other because both are getting benefited through the exchange of actual monetary value.
If there is no consideration that means the formation of a contract never took place. Consideration is a very wide term and it is not restricted to monetary benefit but it should not be imaginary because it’s not understood by law.
Functions of consideration: –
- Enforceability: – Consideration became an integral part of formation of a contract because one’s consideration is involved in the transaction between the parties, you can enforce the performance of that contract against the other.
- Identification: – As soon as we identify what the consideration is, we will be able to identify whether the contract they enter into was formed bona fide intent or not, whether they actually intended to contract for that thing or not.
- Legitimacy/ Undeniability: – Consideration helps to determine identification and enforceability of that contract therefore, it helps to determine the intent of the parties for a legally legitimate contract.
- Nishtha Sinha and Prachi Grover, ‘Law Of Contract: Doctrine Of Consideration’ (Lexlife India, 2020) <https://lexlife.in/2020/05/12/law-of-contract-doctrine-of-consideration/#:~:text=The%20doctrine%20of%20consideration%20is,the%20common%20law%20of%20contract.&text=In%20essence%2C%20the%20doctrine%20of,return%20for%20that%20promise%20made.> accessed 5 November 2020.
- Aditya Ashu, ‘Importance Of Consideration In Contract’ (Legalservicesindia.com) <http://www.legalservicesindia.com/article/1600/Importance-of-Consideration-in-Contract.html> accessed 6 November 2020.
- ‘Essentials Of Valid Consideration’ (Free BCom Notes) <https://freebcomnotes.blogspot.com/2016/04/essentials-of-valid-consideration.html> accessed 6 November 2020.
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