Topic: CONSIDERATION

Subject: Business Law

Project Instructor: (Prof. Ghaffar)

Group Members
Seemab Ashraf 047
Bilal Naeem 035
Maryam Irfan 010
Ali Akbar 036
Syed Abdullah 049
CONSIDERATION

Consideration is something in return. This ‘something in return’ need not necessarily be

equal in value with “something given”.

Consideration is one of the essentials of the valid contract.The term consideration

means some thing in return.

X agrees to sell his TV set to Y for rs.8000.

TV set is the consideration of Y and rs.8000 is the consideration of X

1) payment or money.

2) a vital element in the law of contracts, consideration is a benefit which must be

bargained for between the parties, and is the essential reason for a party entering into
a contract. ...

In a contract, one consideration (thing given) is exchanged for another consideration

WHAT IS CONSIDERATION?
Section 2 (d) the contract act…

“ When at the desire of the promisor, the promisee or any other person has done or
abstain from doing, or does or abstain from doing, or promises to do or abstain from
doing, something, such act or abstinence or promise is called consideration.

Basic Understanding of Consideration

According to Section 2(d) of the Indian Contract Act, 1872, consideration is defined as
follows:
“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 abstain from
doing something, such act or abstinence is called a consideration for the promisee.”

This is a complex sentence. Let’s break it down for further understanding and rewrite it
as follows:

At the desire of the promisor if the promisee either

Does something (in the past, present or future) OR

Abstains from doing something (in the past, present or future)

Then, this act of doing or abstinence is called Consideration. Now, it has two aspects,
either doing some act or abstaining from doing something. Let’s look at some examples:

Example 1 – Doing something

Peter and John enter into a contract where Peter promises to deliver 15 curtains to John
in one month’s time. Also, John promises to pay Peter an amount of Rs 3,000 on
delivery. In this contract, John’s promise to pay Rs 3,000, on delivery, is the
consideration for Peter’s promise. Also, Peter’s promise of delivering 15 curtains is the
consideration of John’s promise to pay.

Example 2 – Not doing something

Peter has taken a loan from his friend John. However, he has not repaid the loan yet.
John promises not to file a suit against Peter if he promises to repay the loan within a
week. In this case, abstinence on the part of John is due to the consideration of Peter’s
promise of repayment of the loan.

Consideration May be:

 An act - means doing of something.
  An abstinence - promising not to do something.

 A promise - the promise of each party is the consideration for each other

Examples:
• A promises to repair B’s car and B promises to pay Rs. 1 Lac. The promise of
one party is the consideration for the other party.

• A agrees to sell his house for Rs. 50 Lac to B. For A, the consideration is Rs.
50 Lac. For B, consideration is the house

ESSENTIALS OF VALID CONSIDERATION

1. Desire of the promisor :

The act or the abstinence must have been done at the desire of the promisor.
Any act performed at the desire of the third party cannot be consideration.

2. Promisee or any other person :

As long as there is a consideration for a promise, it is immaterial who has given

it. It may move from the promisee or if the promisor has no objection, from any
other person

3. Consideration must be lawful :

An agreement is void if it is based on unlawful object. An agreement is

considered unlawful if :

• It is forbidden by law

• Is of a nature that if permitted it would defeat the provisions of any law

• Is fraudulent

• Involves or implies injury to the person or property of another

 4. It must be something which the promisor is not already bound
to do :
A promise to do what one is already bound to do, either by general law or under an
existing contract, is not a good consideration for a new promise.

Examples:
• A, promise to put life in B’s death brother on B’s promise to pay him Rs. 1 Lac.

• A promise to pay Rs. 1 Lac to B on his promise to beat C.

• A employs B for a certain work and B promises to pay A.

5. May be past, present or future :

• Past – Award in cash for saving the house from fire

• Present – Cash sales

• Future – X promises to deliver 100 quintals of rice to Y after a month and Y

promises to make the payment a month after delivery of rice.

6. It need not be adequate :

Consideration is something in return. This ‘something in return’ need not
necessarily be equal in value with “something given”. The law simply requires
consideration. It does not state how much consideration must be there.
The courts are concerned with the consideration and not their adequacy,
provided it is of some value.

As per Explanation 2 of Sec. 25, an agreement to which the consent of the promise is
freely given, is not void merely because consideration is inadequate.

Law only requires presence of consideration & not the adequacy of it. ( Selling a car
for just Rs. 5000)

7. Consideration must be real and not illusory:

 The consideration, although it need not be adequate, must be real, competent and
of some value. Sentiments for making a promise cannot bind the promise. It must also
not be illegal or impossible or illusory or sham. The consideration may not be real
because of 

i) Physical impossibility,

ii) Legal Impossibility,

iii) Uncertainty,

iv) Illusory consideration.

“ N0 consideration, No contract” – Exceptions to the rule

Natural love & affection

is valid if it satisfies the following conditions.

• It is registered under law.

• It is made out of love & affection.

• It is between parties standing in a near relation to each other.

X promises his son o give Rs. 1000 in writing & get it registered.

Compensation for services rendered :

In order that a promise to pay for the past voluntary services be binding, the following
essentials must exist

• the act must be done voluntarily

• for the promisor or it must be something which was the legal obligation of the
promisor

• the promisor must be in the existence at the time when the act was done

• the promisor must agree now to compensate the promise

Time barred debt :

Where a promise in writing signed by the person making it or by his authorized agent,
is made to pay a debt barred by the limitation it is valid without consideration. Time-
barred debt is money a consumer borrowed and didn't repay but which is no longer
legally collectable because a certain number of years have passed. Time-barred debt is
also known as debt that is beyond the statute of limitations.

Completed gifts:

In this case the rule “No consideration, No contract” shall not affect the validity as
between the donor and the donee, of any gift actually made. Thus gifts do not require
consideration. A gift, in the law of property, is the voluntary transfer of property from one
person (the donor or grantor) to another (the donee or grantee) without full valuable
consideration. In order for a gift to be legally effective, three requirements must be met:
Delivery of gift to donee. Acceptance of gift by donee.

Agency:

According to section 185 of the Contract Act, no consideration is required to create an

agency.

The definition of agency law deals with agent-principal relationship and

it's a relationship where one party has the legal authority to act in place
of another. The definition of agency law deals with agent-principal relationships; that
is a relationship where one party has the legal authority to act in place of another.
Relationships that are commonly associated with agency law include employer-
employee, administrator-decedent or executor, and guardian-ward.

Remission:
No consideration is required for an agreement to receive less than what is due. This is
called remission in the law. REMISSION. A release. The remission of the debt is either
conventional, when it is expressly granted to the debtor by a creditor having a capacity
to alienate; or tacit, when the creditor voluntarily surrenders to his debtor the original
title under private signature constituting the obligation.

Guarantee:
 There is no consideration required in the case of a contract of guarantee .A Contract to
perform the promise, or discharge the liability, of a third person in case of his default is
called Contract of Guarantee. A guarantee may be either oral or written. The person
who gives the guarantee is called the Surety. The person on whose default
the guarantee is given is called the Principal Debtor.

.MEANING AND ESSENTIALS:

It is the price for which the promise of the other is bought and the promise thus given
for value is enforceable.

 Must move at the desire of the party to contract. May be past, present or future.

 Need not be adequate.

 Must be real.

 Must be something which the promisor is not already bound to do.