Consideration
Introduction
Consideration is something of value that is given or promised by one party in exchange for something of value given or promised by another party in a contract or agreement. In simpler words, it's what each party gives or promises to give in exchange for the other party's performance or promise of performance. It could be money, goods, services, promises, or restraining from doing something.
Meaning
Consideration is a term that used in legal contracts and agreements that refers to something of value that is exchanged between two parties. Each party gives or promises to give something of value in exchange for the other party's performance or promise of performance.
Definition
Consideration is something that is done, not done, promised to be done, or promised not to be done by one party at the request or desire of the other party in exchange for something of value. It is a necessary element in the formation of a valid contract.
The oxford dictionary define consideration as
"Something of value given by one party to another in return for something else, typically in the context of a contract or agreement."
Examples
Ø You agreed to pay 5000 rupees for a new pair of shoes from a shoe store. The consideration you provide is the5000 rupees payment, while the consideration the store provides is the shoes.
Ø You promise to mow your neighbor's lawn for $50, and your neighbor agrees to pay you the $50. The consideration you provide is the lawn mowing service, while the consideration your neighbor provides is the $50 payment.
Ø An employer promises to pay an employee a salary of $50,000 per year in exchange for the employee's work. The consideration the employer provides is the salary, while the consideration the employee provides is their work.
Importance of Consideration
·
Consideration makes a contract legally
binding
·
It clarifies the terms and expectations of
the contract
·
It ensures fairness and equity for both
parties
·
Consideration creates a binding obligation on
both parties
·
Without consideration, a contract would be
considered a gift or a promise without legal obligation
·
Consideration enables a contract to be
enforced in a court of law
Nature of Consideration
Consideration in a contract is when each party gives or promises something of value to the other party in exchange for something . This exchange must be willful and mutually Approved, and the consideration must have some value in the eyes of the law. It can be something that has already been performed or something that is promised to be performed in the future, but it cannot be something that was done in the past. Consideration is what makes a contract legally binding and enforceable, and it helps to ensure that the terms of the contract are fair and equitable for both parties.
Kinds of Consideration
There are two main types of consideration in a contract:
Executed consideration:
This type of consideration refers to something thathas already been performed or completed at the time the contract is made. For example, if a contractor has already completed the construction work before the contract is signed, the completed work can be considered executed consideration.
Executory consideration:
This type of consideration refers to something that is promised to be done or performed in the future. For example, if a customer agrees to pay a contractor for work that will be completed at a later date, the promise to pay is executory consideration.
Types of Consideration
There are three types of consideration which are given below:
1. Past consideration:
Past consideration Refers to something that has already been given or performed before the agreement was made. It is not valid consideration because it was not given in exchange for the other party's promise.
Example: A man repairs his neighbor's car without any prior agreement, and the neighbor promises to pay him for the repair after the job is done. The consideration is past because the man did the repair work before any agreement or promise was made.
2. Present consideration:
Present consideration refers to something that is given or performed at the time the contract is made. It is also called executed consideration because it is already completed or performed at the time the contract is formed.
Example: A customer orders a pizza from a restaurant and pays for it at the time of the order. The consideration is present because the payment is made at the same time as the pizza is ordered.
3. Future consideration:
Future consideration refers to something that is promised to be given or performed at a future date. It is also called executory consideration because it is something that will be completed or performed in the future.
Example: A company hires an employee and promises to pay them a bonus at the end of the year if they meet certain performance goals. The consideration is future because the bonus payment will be made in the future if the employee meets the performance goals.
Essentials of Consideration
Consideration is a vital aspect of a contract and its essentials are given below:
Ø Valuable
It must be Valuable commodity and value must be given or promised by both parties.
Ø Legal
The consideration must be legal and not against the law.
Ø Possible
The consideration must be possible to perform.
Ø Collective
Both parties must give or promise commodity of value in exchange for the other party's pledge.
Ø Capacity to contract
The parties must have the capacity to contract.
Exceptions of Consideration
1.
Love and Affection: A promise based on love and affection does not constitute
consideration in a contract. For example, a father promises to give his son a
car as a gift out of love and affection, and the son does not provide anything
in exchange. This is not a contract since the son did not provide
consideration.
2.
Contract of Agency: In a contract of agency, the agent acts on behalf of the
principal and is not required to provide consideration. The principal may
promise to pay the agent a commission or fee for services rendered, but this is
not considered consideration.
3.
Voluntary Services: A promise to provide voluntary services without any
expectation of payment is not considered consideration in a contract. For
example, if a person volunteers to help clean up a park, they are not providing
consideration since they are not receiving any payment.
4.
Time-barred debt:
A promise to pay a time-barred debt is not enforceable since the debtor is not
receiving any consideration. For example, if a debtor promises to pay a debt
that is beyond the statute of limitations, the creditor cannot enforce the promise
since the debtor is not providing consideration.
5.
Contract under seal: In some jurisdictions, a contract under seal is enforceable
without consideration. A contract under seal is a formal contract that is
signed and witnessed.
6.
Extension of Time Limit: An extension of time limit on a pre-existing debt does not
constitute consideration. For example, if a debtor agrees to pay a debt one
month later than the original due date, the creditor is not receiving any new
consideration.
Un-lawful Consideration
Unlawful consideration is when something illegal, immoral, or against public policy is promised or given as part of a contract. This makes the contract void and un enforceable by law.
Cases of un-lawful Consideration
Carlill v. Carbolic Smoke Ball Co. (1892):
In this case, the defendant company advertised that they would pay £100 to anyone who used their smoke ball product and still contracted the flu. The plaintiff purchased and used the product as directed, but still contracted the flu. When she sought to claim the reward, the company refused. The court held that the promise of reward was a part of the consideration in the contract, but it was not unlawful, as the company had made the offer publicly.
Jones v. Star Credit Corp. (1969):
In this case, the plaintiff entered into a loan agreement with the defendant corporation. The plaintiff claimed that the defendant's collection methods were unlawful, and therefore the contract was based on unlawful consideration. The court held that the collection methods did not render the contract unenforceable, as they did not affect the validity of the consideration.
Krall v. Henry (1903):
In this case, the plaintiff rented aroom to the defendant for the purpose of watching the coronation procession of King Edward VII. The defendant agreed to pay rent for the room, but the procession was cancelled due to the King's illness. The defendant argued that the contract was based on the unlawful consideration of the coronation procession, which did not take place. The court held that the cancellation of the procession was a fundamental part of the consideration, and therefore the contract was frustrated and could not be enforced.
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