Importance of Consideration
Consideration is an essential element of a valid contract under the Indian Contract Act, of 1872. The doctrine of consideration is based on the principle of “quid pro quo”, meaning “something in return.” It ensures that both parties to a contract derive some benefit and incur a legal obligation. Without consideration, a contract is generally void unless it falls under certain exceptions provided in Section 25 of the Act.
Key Functions of Consideration
- Legal Enforceability: For an agreement to become a legally binding contract, consideration must be present. An agreement without consideration is typically void, except in specific situations.
- Mutual Obligation: Consideration ensures that both parties contribute something valuable, preventing one-sided obligations.
- Prevention of Gratuitous Promises: The law does not enforce promises made without consideration unless they fall under statutory exceptions.
- Fairness and Reciprocity: It guarantees fairness in contractual dealings by ensuring that each party receives a benefit or suffers a detriment in return.
Definition of Consideration Under the Act
Section 2(d) of the Indian Contract Act, 1872 defines consideration as:
“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, abstinence, or promise is called a consideration for the promise.”
Key Aspects of Consideration
- Past, Present, and Future Consideration: Consideration may be something already done (past), something being done (present), or something promised to be done (future).
- Can Move from the Promisee or Any Other Person: Unlike English law, where consideration must move from the promisee, Indian law allows it to come from a third party.
Exceptions to the Rule “No Consideration, No Contract” (Section 25)
Section 25 of the Indian Contract Act lays down exceptions where an agreement is enforceable even without consideration:
(i) Love and Affection (Section 25(1))
If an agreement is made out of natural love and affection between close relatives and is in writing and registered, it is valid even without consideration.
- Example: A father promises to transfer his property to his son out of love and affection through a registered deed. The agreement is valid even though there is no consideration.
(ii) Compensation for Past Voluntary Services (Section 25(2))
A promise to compensate a person for services already rendered voluntarily, or at the promisor’s request, is valid without fresh consideration.
- Example: A helps B during an accident without any expectation of payment. Later, B promises to pay A for the help. This promise is enforceable.
(iii) Promise to Pay a Time-Barred Debt (Section 25(3))
A promise to pay a debt barred by the Law of Limitation is enforceable if it is in writing and signed by the debtor.
- Example: X owes Y ₹10,000, but the debt becomes time-barred. X later signs a written promise to pay Y. The promise is legally enforceable.
(iv) Completed Gifts (Explanation 1 to Section 25)
A gift given voluntarily and accepted by the donee does not require consideration. Once given, it is legally valid and cannot be revoked.
- Example: A gives B a house as a gift through a registered deed. B accepts it. The transfer is valid despite no consideration.
Conclusion
Consideration is the foundation of a legally binding contract under Indian law. It ensures that agreements are based on reciprocity and legal enforceability. However, the law recognizes exceptions where contracts without consideration are still valid, such as agreements made out of love and affection, compensation for past services, payment of time-barred debts, and completed gifts. Understanding these principles helps in drafting legally sound agreements and recognizing when an agreement remains enforceable despite the absence of consideration.
Also Read:
Rights of undertrial prisoners in India
How To Send A Legal Notice In India
