File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

Consideration in Contract Law: Past, Present And Future

Consideration is defined under Section 2(d) of the Indian Contract Act, 1872, as an act done or abstinence from an act or promise to be done or abstained from, at the desire of the promisor. This act or abstinence or promise constitutes the consideration for the promise. Therefore, consideration is the basis of a promise and is a switch or quid pro quo between the promisor and the promisee. Thus, consideration means something in return. Or in other words, it is return for a promise or price paid for a promise.

Contract law takes into account the exchange of something valuable between parties. This can be payment of money, transfer of property, performance of services, promises to refrain from actions, mutual promises or surrendering legal rights. For example, in a sale of goods agreement consideration would consist of paying money for received items. In lease agreements it could mean pay rent and get the right to stay at premises. A contract without consideration may be unenforceable under law because it lacks mutuality necessary for its enforcement by any court against every party concerned with such an agreement. It is what ensures that there is a mutual exchange which binds all contracting parties together

In English Law, consideration may be executed and executory, but not past. Past consideration is not regarded as consideration under English law.

In contract law, "executed consideration" and "executive consideration" refer to the different stages of the fulfilment of contractual obligations:
Executed Consideration:
This occurs when both parties have already fulfilled their respective obligations under the contract. In other words, consideration (something of value exchanged between the parties, such as money, goods, or services) has been provided and the contract is fully performed. At this stage, the contract is considered concluded.

Executory Consideration: This refers to the stage where one or both parties still have outstanding obligations to fulfil under the contract. Consideration has been promised but has not yet been fully provided or implemented. A contract is called "executory" because it is still in the process of being performed by the parties.

For example, if A agrees to pay B $100 to supply a product, and B has already supplied the product while A has paid $100, the consideration will be executed. Conversely, if A promises to pay B $100 upon delivery of the product, and B has delivered the product but A has not yet paid, then the consideration is executory until A fulfils his obligation to pay.

Legal Rules of Consideration:

In contract law, the consideration is an important element which differentiates a binding agreement from a simple promise. The legal principles of consideration are basic for the effectiveness and enforcement of contracts.

First, for a contract to be valid, it requires contemporaneous consideration - a valuable exchange between the parties, establishing mutual obligations and indicating an intention to be legally bound by the agreement.

Second, although the consideration must have legal value, it need not exactly correspond to the promise or action it supports. Any recognizable advantage or disadvantage will do.

Third, the consideration must be the result of a "negotiated" exchange, given in response to another's promise or action. Past actions or unilateral gifts do not constitute valid consideration.

In addition, the consideration must not be illegal, immoral, impossible, uncertain, ambiguous, fraudulent or against public policy. Contracts with illegal or immoral consideration are void and unenforceable. For example, a contract to sell illegal drugs would lack valid consideration.

Further, reasoning cannot be illusory or vague. It must be unambiguous and legally enforceable. Promises that are too uncertain or conditional can fail for lack of consideration.

Moreover, consideration cannot be imposed by law. It must be given freely and not as a result of duress, coercion or undue influence. Contracts entered into under such circumstances may be void.

Overall, consideration plays a vital role in the creation of a contract, ensuring that the parties are exchanging something of value and expressing their intention to be legally bound. Compliance with these legal rules helps maintain the integrity and fairness of contractual relationships.

Consideration may be Past, Present or Future:

Consideration, a fundamental concept of contract law, includes the past, present and future elements that form the basis of a binding agreement. It involves a promise or act given in exchange for something of value, known as a "quid pro quo". Understanding how consideration works across these dimensions is essential to understanding the validity and enforceability of contracts.

First, past consideration refers to acts or promises that occurred before the contract was made. Past consideration is generally not considered valid consideration in UK because there is no negotiated exchange at the time the contract is formed. For example, if 'A' promises to pay B for services rendered in the past without prior agreement, 'A' is not bound by law to fulfil that promise. However, there are exceptions to this rule. One such exception is where the promisor originally demanded past consideration and later promised to be compensated. In such cases, courts may enforce the promise if it is clear that compensation was expected.

Past consideration is a valid form of consideration in India. It is sufficient to support a promise and make an agreement enforceable. As per Section 2(d) of the Indian Contract Act, consideration can be past, present, or future. Therefore, agreements based on past consideration are legally binding in India.

Contemporaneous or present consideration, on the other hand, involves the exchange of promises or acts at the time the contract is formed. It requires both parties to provide each other with something of value, demonstrate mutual consent, and meet the requirements of a valid contract. For example, if 'A' promises to sell his car to B for a certain price, and B promises to pay that price, both parties agree to perform the consideration. This exchange of promises forms the basis of a binding contract, as each party gives something of value in exchange for the other's promise.

Future considerations refer to promises or actions that will occur in the future. It involves a promise made now in exchange for something to be given or performed later. While future promises alone are generally insufficient to create a binding contract, they may become valid consideration once the future act or promise is performed. For example, if 'A' promises to pay 'B' a sum of money in exchange for a promise to deliver goods to 'B' in the future, the promise becomes enforceable when 'B' fulfils his obligation by delivering the goods.

Consideration serves several important functions in contract law. First, it ensures that contracts are based on mutual consent and voluntary agreement between the parties involved. Without consideration, there is a risk that one party will make a promise without receiving anything in return, leading to unfairness and potential disputes. Second, consideration functions as a form of evidence of the parties' intention to be bound by the terms of the contract. It shows that each party has provided something of value, thereby expressing their commitment to the agreement. In addition, consideration helps distinguish between social promises or donations and legally binding contracts. In the contractual context, a distinction must be considered between mere expressions of goodwill and promises intended to create legal obligations.

Consideration is a cornerstone of contract law, encompassing elements from the past, present, and future. It entails the reciprocal exchange of promises or actions between parties, forming the foundation of enforceable agreements. Comprehending consideration's significance is paramount in assessing the validity and enforceability of contracts. Consideration fosters fairness and clarity in contractual relationships by establishing the basis for mutual obligations.

Exceptions to Consideration:

Section 25 of the Indian Contract Act states that agreements without consideration are void, yet there are several exceptions.

Natural Love and Affection: Contracts rooted in natural love and affection are valid if written and registered. For example, when Ram promises his son Shyam his house out of love, it is enforceable if it is documented and registered.

Compensation for past voluntary services: A promise to compensate for past voluntary services is enforceable. However, involuntarily rendered services are not included. For example, a husband's promise to his wife regarding alimony, disclosing disagreements, is not enforceable.

Promise to pay time-barred debt: Even if the debt is time-barred, a promise to pay without bribery is valid under Section 25(3) of the Indian Contract Act, 1872. The promise should be in writing, signed and should relate to the time-barred debt.

Gift: Completed gifts are exempt from the consideration rule. The Property Transfer Act permits property transfers through written and registered documents, even without consideration.

Agency (Section 185 in the Indian Contract Act, 1872): No consideration is required for the establishment of an agency. If A authorizes B to act as agent before C, the contract is enforceable, even without consideration. A will be bound by the acts of B on his behalf towards C.

Famous Case Laws on Consideration:
Several famous case laws have shaped the doctrine of consideration in contract law.

Some notable examples include:
Lalman Shukla v. Gauri Dutt: The descendant's nephew fled and servants were sent to find him. While the servants went to look for him, the defendant posted a reward for anyone who would bring back his nephew. The claimant, unaware of this reward, brought the nephew back home. Although he was awarded some amount, he later filed a lawsuit claiming that he deserved to be paid the reward. The court stated that there was no contract concluded between the plaintiff and the defendant, as the basic necessity of a valid contract is knowledge and agreement with the proposal in order to convert the proposal into an enforceable agreement.

Currie v. Misa (1875): This case established the modern definition of consideration as "any right, interest, profit, or benefit accruing to one party, or any indulgence, injury, loss, or liability given, suffered, or assumed by another party."

Tweddle v. Atkinson (1861): The court held that the suit would not succeed because no stranger against consideration could enforce a contract, even if made in his favour. The court held that the promisor could not sue unless the consideration of the promisee shifted to him. Consideration must pass from the party entitled to sue under the contract.

Chappell & Co Ltd v. Nestle Co Ltd (1960): This case extended the definition of consideration to include acts or indulgences beyond traditional forms of consideration. The purchase of chocolate bars to receive a free music recording was considered to be valid consideration.

Williams v. Roffey Bros & Nicholls (Contractors) Ltd (1991): In this case the court recognized the concept of practical benefit as a form of consideration. He held that the promise to pay additional money to the contractor for timely completion of the work was enforceable because it promised a practical benefit.

Stilk v Myrick (1809): Two sailors deserted a ship, leaving only nine remaining crew members. The captain promised to pay the remaining crew an additional sum if they completed the voyage, but subsequently refused to honour his promise. The court ruled that since the remaining crew members were already contractually obligated to complete the voyage, the captain's promise of additional compensation was not supported by valid consideration. Therefore, the captain was not legally bound to pay the extra money.

These cases illustrate the evolution of the consideration doctrine and its importance in determining the validity and enforceability of contracts. They have made a significant contribution to shaping the principles of contract law in jurisdictions around the world.

Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers

Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


How To File For Mutual Divorce In Delhi


How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Increased Age For Girls Marriage


It is hoped that the Prohibition of Child Marriage (Amendment) Bill, 2021, which intends to inc...

Facade of Social Media


One may very easily get absorbed in the lives of others as one scrolls through a Facebook news ...

Section 482 CrPc - Quashing Of FIR: Guid...


The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of t...

The Uniform Civil Code (UCC) in India: A...


The Uniform Civil Code (UCC) is a concept that proposes the unification of personal laws across...

Role Of Artificial Intelligence In Legal...


Artificial intelligence (AI) is revolutionizing various sectors of the economy, and the legal i...

Lawyers Registration
Lawyers Membership - Get Clients Online

File caveat In Supreme Court Instantly