THE ENIGMA OF CONSIDERATION WHILE CONTRACTING
Introduction
Any agreement becomes a contract when it meets the requirement set up in the Sec. 10 of the Indian Contract Act, i.e.-
Competency of parties
Lawful Consideration
Free Consent
Lawful Object
Element of Consideration hence is not only the legal but practical foundation of contract because, in general cases, no one would be willing to take up obligations in return of no enjoyment of rights. Hence, importance of consideration in a contract is utmost.
A consideration, in layman’s tongue, is anything given in exchange for the other thing by both parties. A legal definition provided in section 2 (d) is “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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;”
Illustration
A offers to sell his watch for Rs 12,000 to B. Herein, watch and the sum is the consideration.
At the same time, along with the existence of consideration, its legality is also emphasised by the said section. Every Aspect of consideration will be covered in the following sections.
Hence, a valid consideration is:
At the desire of the promisor
Doing or abstaining from doing in present, past or future
By promisee or other person
No consideration
In General cases, no consideration culminates into a void agreement as per section 25 and 10, but in exceptions listed in the same section, a contract without consideration would pass the test of the provision. In cases where:
A contract in writing and registered arising out of natural love and affection;
A promise to pay, wholly or partly, for a past voluntary act;
A promise in writing and signed duly to pay, wholly or partly, for a time-barred debt
Firstly, in the first scenario, contracts arising out of natural love and affection include such which are between people in near relation, like a father gifting his property to a grandson, or a brother gifting a plot to his sister. ‘Natural love and affection’ has been judicially interpreted in several cases.
Secondly, a past voluntary act includes any act done by a person where, in normal case, he was bound to be remunerated but he chooses to do the act voluntarily without seeking any payment. If the person receiving such benefits promises to pay for such an act, the agreement so arising is legal and enforceable. Illustration- A teaches B’s son Z for his mathematics exam voluntarily, Z tops the class in mathematics. Elated B promises Rs 20,000 to A for the past services, a valid contract arises out of such a transaction.
Thirdly, the Indian Limitation Act sets a period of time within which a suit needs to be filed for a defaulted repayment of a debt. Once beyond the period, no suit is actionable. In case the defaulter of such a time-barred debt promises to pay either whole or part of the debt forms a fresh contract which will not be termed void due to want of consideration.
Consideration but Illegal
There can be an instance where a contract has appropriate consideration but still ends up being void. This can happen in the case of illegal considerations or where the object is illegal.
Illustration
A contracts with Z to buy 25 gm of cocaine for a sum of Rs 40,000. It is void due to illegality. But what considerations are void? The Indian Contract Act has not left this question unanswered and has laid the pertinent rule in the section 23, 24. And 5.
The Indian Contract Act covers this situation as well under section 23. The provision lays that the following would be tantamount to an illegal consideration or object.
Forbidden by Law: When a consideration or the object of a contract has been expressly or impliedly forbidden by law, the contract arising out of such a consideration is void. Illustration: X contracts with Z to buy fresh weed in return of his car, buying and selling weed is forbidden by law.
Defeats the Provision of any Law: If an act does something to circumvent the provision of law and eventually defeats the very objective of law itself. Illustration: A makes a contract with B to deliver him his new iPhone in return B would not follow the IPC.
Fraudulent
Causes harm to people or property: The consideration, if in any way, leads to harming a property to causes harm to people
Immoral or against public policy: The decision of whether consideration is against public policy is in the hands of the judge, this may include promoting adultery, illegal activities, incest etc.
Whether low consideration leads to voidability?
Inadequacy of consideration here means that the consideration is not in proportion with each other; an example is Rs 20,000 in exchange for a plot with a market value of Rs 1,00,000.
Generally, the rule set by the statutes and judicial interpretation is that inadequacy of consideration in no way leads to voidability of a contract, however, it may cause doubt in the mind of the judge and may raise eyebrows. Also, it has been laid down by Subba Rao J. of Supreme Court in case of Chidambara v. P.S. Renga [1] that consideration "shall be 'something' which not only the parties regard but the law can regard as having some value.
Section 16, which deals with undue influence, sub-section (3) lays that in cases where the contract on its face looks unconscionable, which means not reasonable and highly tilted towards a party, the onus on dispelling the doubt on undue influence is on the one in position to dominate. The illustration (f) of section 25 of the ICA backs that inadequacy does not lead to voidability. The illustration (f) reads as follows: "A agrees to sell a horse worth Rs. 1,000 for Rs. 10. As consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration."
Hence, even though the validity of the contract is not affected by the amount or adequacy of consideration, it helps in litigations to terminate the contract by proving lack of free consent. The Peppercorn Theory suggests that even a small item like a peppercorn can be considered sufficient consideration when given in exchange for a promise. Lord Somervell [2] states that "A contracting party can stipulate for whatever consideration he likes,"
Conclusion
The article tried to move around the concept of consideration and various aspects of it. Its necessity, instances of its absence, its inadequacy and illegality were discussed to get a better grasp of the concept. Consideration is one of the most important elements of a contract and the question of consideration stands as an important discussion for a lawyer involved in civil litigation.
References
[1] Chidambara Iyer v P S Renga 1966 1 SCR 168.
[2] Chappel & Co Ltd v Nestle Co Ltd, 1960 AC 87,114
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