Rules Governing Consideration in Contracts

Rules governing consideration in a Contract

The following are the Rules governing consideration in a contract.

  1. Consideration must move at the desire of the promisor.
  2. Consideration may Move front the Promisee or any other Person
  3. Consideration may be Past, Present or Future
  4. Consideration need not be Adequate
  5. Consideration must not be Illusory but should be Real

They are briefly explained as below.

Rules Governing Consideration

Rules Governing Consideration

1. Consideration must Move at the Desire of the Promisor

In Indian Law, consideration must move at the desire of the promisor. The act performed at the desire of third party cannot be consideration. But the promisor need not necessarily derive any benefit from the contract. The benefit may be intended for a third party. All that is necessary is that the desire of the promisor and the action of the promisee should have a connection.

Further, for consideration to be present in a contract, it is necessary that what is done must have been done at the desire of the promisor, and not voluntarily.

Example: A notices B‘s house being on fire and voluntarily rushes to help B. Here there is no consideration. However, if A goes to help B, at the desire of B, there is good consideration.

2. Consideration may Move front the Promisee or any other Person

In Indian Law, consideration may move either from the promisee or “Any other person” i.e., stranger. Thus, it would be sufficient if a third party moves the consideration provided the promisor has no objection. The contract in such a case will be enforceable.

Example: A granted an estate to B and directed her to make an annual payment to A‘s brother. B, by an agreement made on the same date with A‘s brother promised to carry out A‘s direction. Later on, B refused to make the payment to A‘s brother on the ground that there was no consideration on the part of A‘s brother. It was held by the Court that there was sufficient consideration for B‘s promise to A‘s brother, because the consideration in India need not move from the promisee, but can move from any other person.

3. Consideration may be Past, Present or Future

Consideration may be classified as past, present and future. Past consideration is something wholly done, or borne, or suffered before the making of the agreement.

When the consideration for a present promise was given before the date of the promise, it is said to be past consideration. A past consideration if given at the request of the promisor will support a subsequent promise. A past consideration is as good as present or future consideration.

Under the English law, consideration must be present or future and there is no such thing as past consideration. The employer promises if the servants put forth extra work in consideration where of a bonus to them, it is a promise for past services, which is good under Indian law. In India, past consideration is a good consideration.

4. Consideration need not be Adequate

Consideration need not be adequate or equivalent to the promise. All that is necessary is that an agreement should be supported by consideration, and the parties are left free to determine the appropriate consideration for a promise at the time of making the bargain.

Adequacy or otherwise of consideration is only the look out of the promisor, and not the duty either of the law or of the Courts to determine the consideration or embark upon an enquiry as to its adequacy.

Example: If A promises to sell a house worth INR. 500,000 for INR. 50,000 only, the inadequacy of the price in itself shall not render the transaction void. But where a party pleads coercion, undue influence or fraud, inadequacy of consideration will also be a piece of evidence to be looked into.

Example: A agrees to sell a horse worth Rs.1,000 for Rs.10. A denies that his consent to the agreement was freely given. The inadequacy of consideration is a fact which the Court should take into account in considering whether or not A‘s consent was freely given.

5. Consideration must not be Illusory but should be Real

Consideration should be real, certain, competent, definite and not vague, uncertain, illusory or impossible. If it is illusory e.g. if a man promises to discover treasure by magic, the transaction is void.

Example: A promises to shift a mountain from one place to another if B paid Rs.10,000. A‘s promise is physically impossible of performance.

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