Whenever two parties enter into an agreement, they promise to give at least something in exchange to each other. And if there is nothing in return, none of them would ever agree. Therefore, this return is an essential part of any agreement to form a valid contract. This (return) is what consideration is. Section 2 of the Indian Contract Act defines consideration.
In this law note, you will learn about the concept of consideration and its kinds as per the Indian Contract Act, 1872.
What Is Consideration?
The general meaning of the word ‘consideration’ is something in return. It is a kind of incentive given to the other party to enter into a contract, which is adequate to render the promise enforceable in the court of law.
How Pollock Defines Consideration
As per Pollock, consideration is the price for which a promise is made, and this promise is of such a nature that it is enforceable by law.
It means that consideration is the price paid for the contract, and it must be lawful as a contract without consideration is void.
Section 2(d) of the Indian Contract Act
Section 2(d) of the Indian Contract Act defines the term ‘consideration’. 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.
Example of Consideration
Rajat signs a contract to buy a car from Nikhil for 5 lakhs. Here Rajat’s consideration is the 5 lakhs and Nikhil’s consideration is the car.
Currie vs Misa (1875): The court held that a valuable consideration in the sense of the law may consist either in some right, interest, forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other.
Note: Inadequacy of the consideration in any contract is immaterial. It may be any value which the parties have promised to perform for each other.
Kinds of Consideration
There are three kinds of consideration:
Let us discuss them one by one.
1. What Is Past Consideration
Past consideration is a type of consideration that the promisor has already received before the promise is made to him. Section 2(d) of the Contract Act uses the word ‘has done or abstained from doing,’ which signifies that such considerations were made in the past.
In English law, there is no concept like past consideration.
Example: X was drowning. Y, a passerby, saves his life. Later, X promises to give an amount of 500 out of happiness. So, this is a past consideration, and X is bound to pay Y 500 as consideration.
2. What Is Present Consideration
Present consideration is a consideration in which both parties promise to perform their part of the promise simultaneously. It is also known as executed consideration.
Example: X buys chocolate of Rs 10 from Y. X immediately pays him the amount and simultaneously receives the chocolate.
Union of India vs Chaman Lal Loona (1957): In this case, the court differentiated between executed and executory consideration.
3. What Is Future Consideration
Future consideration is a type of consideration in which one party performs his part of the promise immediately, and the other party promises to perform his part of the promise on a future date. It is also known as executory consideration.
Example: X agrees to supply 10 kg of rice to Y. Y agrees to pay for the rice on a future date. Here, the promise made by Y to pay X for the rice is a future consideration.
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