What is the relevance of consideration to the validity and performance of a contract? Indicate the different types of considerations supported by instances. In what circumstances can a valid agreement be made without consideration?

Question: What is the relevance of consideration to the validity and performance of a contract? Indicate the different types of considerations supported by instances. In what circumstances can a valid agreement be made without consideration? [RJS 1980-81]

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Answer

Subject to certain exceptions, an agreement made without consideration in “nudum pactum” (a nude contract) is void. Consideration is a technical term used in the sense of “quid pro quo” (something in return). When a party to an agreement promises to do something, he must get ‘something’ in return. That ‘something’ is defined as a Consideration.

The simplest definition is by Blackstone, “Consideration is the recompense given by the party contracting to the other”. In other words, it is the price of the promise.

Section 2(d) of The Indian Contract Act, 1872 defines it as follows: “when at the desire of the promisor, the promise 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.”

Why consideration is needed?

The reason why law only enforces those promises which are made for consideration is that gratuitous or voluntary promises are often made rashly and without due deliberation. Consideration is needed because in an agreement both the parties are required to be in some sort of obligation or burden which would make them perform the promise made. Without consideration, the agreement may just become a gift.

Example: If ‘A’ promises to pay ‘B’ Rs. 100/- for nothing, ‘B’ neither doing nor promising to do anything in return to compensate ‘A’ for his money, A’s promise has no force of law.

The words used in Section 2(d) are “… has done or abstained from doing (past), or does something or abstains from doing (present), or promises to do or abstain from doing something(future) something…” this clearly states that consideration may be past, present or future.

Past – if the consideration by a party to an agreement was given in the past, i.e. before the date of promise, it is called past consideration. Example: ‘A’ renders some service to ‘B’ at the latter’s desire. After a month ‘B’ promises to compensate ‘A’ for the services rendered to him. It is past consideration.

Present or executed – When the consideration is given at the same time the promise is made. It is called present or executed consideration. The best example of such consideration would be a cash sale. When we buy something in consideration for money from a shop it is a present consideration.

Future or Executory – When the consideration from one party to the other is to pass subsequently to the making of the contract, it is a future consideration. Example: ‘D’ promised to deliver certain goods to ‘P’ after a week; ‘P’ promises to pay the price after a fortnight. The promise of ‘D’ is supported by the promise of ‘P’. Consideration, in this case, is future or Executory.

Exceptions to Consideration

In English law, a contract under seal is enforceable without consideration. In the words of Anson: “English law recognizes only two kinds of contract, the contract made by deed that is under seal, which is called a deed or specialty, and the simple contract.

“A contract under seal means a contract which is in writing and which is “signed, sealed and delivered”.

Exception under Section 25, of The Indian Contract Act,1872 however, does not recognize any such exception. But Section 25 of The Indian Contract Act,1872 lays down a few exceptions.

Section 25. An agreement made without consideration is void, unless.—

1. 1. It is in writing and registered.—It is expressed in writing and registered under the law for the time being in force for registration of [documents], and is made on account of natural love and affection between parties standing in a near relation to each other; or unless
   2. Or is a promise to compensate for something done.—It is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; unless
   3. Or is a promise to pay a debt barred by limitation law.—It is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X