Contract Act, 1872 - Consideration

Consideration is the amount paid to receive the advantage under a contract. As a general rule there cannot be a contract without consideration. Even if there is consideration it should be lawful. There are certain rules laid down under contract act and all these rules must be fulfilled by consideration. 

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 to abstain form doing something, such act or abstinence or promise is called a consideration for the promise”.

ESSENTIALS FOR A VALID CONSIDERATION
  • Consideration must move at the desire of the promisor: In case consideration is not moved at the desire of the promisor it will not be a valid Consideration.  (Durga Prasad v. Baldeo)
  • Consideration may move from the promisee or any other person: Though it is important that consideration must move at the desire of the promisor, however it is immaterial who moves it. It can be moved by promisee or any other person. (Chinnayya Vs. Ramayya)
  • Consideration may be past, present or future: In India consideration may by past present or future. 
  • Consideration may be an act or an Act of abstinence: Consideration may be to do something or to abstain from doing something, For Example Forbearance to Sue, Compromise with creditors.
  • Consideration may not be adequate: For a valid Contract there must be a Valid and Lawful Consideration. However it may not be adequate to return consideration. 
  • Consideration must be real and not illusionary
  • Consideration must not be for what promisor is already bound to do
  • Consideration must not be illegal, immoral or opposed public policy

STRANGER TO A CONTRACT CAN NOT SUE
A Contract Creates Jus in Personam (Right against a person). So the general rule is that Contract can not provide any right or liability to any stranger or to the person who is not the party to the contract. However there are certain exceptions to this rule. 
  • In the case of trusts, the beneficiary may enforce the contract
  • In case of Family Settlement or family partition
  • Assignment Of A Contract
  • Contracts Through Agents
  • Covenants running with the land

CONTRACT WITHOUT CONSIDERATION IS VOID
Consideration is important for a contract to be valid even if it is inadequate it must exist in an agreement to make it a valid Contract.  As general rule a contract without consideration as void. However there are certain exceptions where a contract without consideration shall valid.
  • Love and Affection
  • Compensation for Voluntary Services
  • Promise to Pay a Debt Barred by Limitation Act
  • Completed gifts
  • Charity

These online MCQ Mock tests and MCQ questions includes all main concepts of the chapter in CS foundation Business Environment and Entrepreneurship

Start Exam