The Contract Act-1872

Consideration

 

1. Meaning:

An agreement is not enforceable unless each party to the agreement get something. This “something” is called consideration.

In the English case, consideration was defined as, “some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the others.” 

P agrees to sell his house to Q for Tk 400,000. For P’s promise, the consideration is Tk 400,000. For Q’s promise, the consideration is the house.

H engages Q as a clerk in his office for Tk 2,000 a month. The monthly wages is the consideration received by Q; the services of Q constitute the consideration received by H.

X promises not to file a suit against Y if Y pays his Tk 100 by a fixed date. The forbearance of X is the consideration for Y’s payment. 

2. Types of consideration:

Consideration may be classified into 3 types, as follows: 

i)(i) Past consideration-when the consideration of one party was given before the date of promise, it is said to be past.

Suppose that X does some work for Y in the month of January ( without expecting any payment). In February Y promises to pay him some money. The consideration of X is past consideration. Under English law past consideration is no consideration. 

 

ii) Present consideration-consideration which moves simultaneously with the promise is called present or executed consideration.

B buys an article from a shop and pays the price immediately. The consideration moving form B is present consideration.

 

iii) Future consideration-when the consideration is to move at a future date, it is called future or executory consideration.

In a contract the consideration may be executory may be in both sides. Thus a promise to pay money at a future date for goods to be delivered at a future date is a valid contract. 

 

3. Essential factors of consideration:

i)(i) Desire or request of promisor is essential

ii)(ii) The consideration must be real

iii)(iii) Public duty

iv)(iv) Promise to a stranger

v)(v) Consideration need not be adequate

vi)(vi) The consideration must not be illegal, immortal, or opposed to the public policy.

vii) (vii) The consideration may be present, past, or future

viii)(viii) It may move from the promisee or from any other person. 

 

i)(i) Desire or request of promisor is essential

P sees Q’s house on the fire and helps in extinguishing it. Q did not ask for his help. P can not demand payment for his services.

The collector of a district asked D to spend some money on the improvement of a market and he did so. D can not demand payment from the shopkeepers using the market for having improved the market. ( Durga Prasad V. Baldeo-1880)

 

i)(ii) The consideration must be real

The consideration must have some value in the eye of law. It must not be shame or illusory.

Illusory consideration-G promises for no consideration, to give H Tk 1,000. This is a void agreement. No consideration, no contract.

Impossible act-X promises to supply Y one apple of gold brought from the sun. The consideration is shame and illusory and there is no contract.

 

i)(iii) Public duty:

Where the promise is already under an existing public duty, an express promise to perform, that duty will not amount to consideration.

But a promise made to a stranger to perform an existing contract, is enforceable because the promisor undertakes a new obligation upon himself which can be enforced by the stranger. 

 

(iv) Consideration need not be adequate:

P agrees to sell a horse worth Tk 1,000 at Tk 10. P’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

D promises to B to sell land in Khulna at Tk 10,000 per Katha. The agreement is valid provided the consent of D was freely given. 

 

4.“No consideration, no contract”-exceptions of the rule:

‘A promise without consideration is a gift; one made for a consideration is a bargain’

There are exceptional cases where a contract is enforceable even though there is no consideration:

i)(i) Natural love and affection

ii)(ii) Voluntary compensation

iii)(iii) Time-barred debt

iv)(iv) Agency and Completed gift. 

 

Void contract:

P engaged B to kill C and borrowed Tk 10,000 from D to pay B. Here the agreement with B is illegal. The agreement with D is collateral to it, if D is aware of the purpose of the loan. In this case the loan transaction is void and D can not recover the money. But if D is not aware of the purpose of the loan, it may be argues that the loan transaction is not collateral to the other illegal agreement and is valid.