What are the Legal rules regarding consideration?

1. Consideration must move at the desire of the promisor:

The first important rule of consideration is that the act or forbearance must be done at the desire or request of the promisor. If it is done without his request or at the request of a third party, it will not be a valid consideration. It is very simple that unless a person offers to do something, how can he be made liable to pay for that?

Example:

A polished B's car without any request from B. Is B liable? Obviously not, as the polish on B's car was done without his request.

You will observe that if a person is made liable for acts done without his request, it will almost be impossible for him to pay every person who does an act for him. Let us take another example. D made certain improvements in the market at the request of the District Collector.

The shopkeepers agreed to pay commission to D on the articles sold in the market. Later on, B refused to pay the commission. The court held that the agreement was without consideration because the improvement was not made at the request of B but at the request of the District Collector. Hence it was void, being without consideration and B was not liable to pay any commission.

2. Consideration may move from the promisee or any other person:

It means that the act or forbearance may be done by the promisee himself or any other person on his behalf. In other words, consideration may be given by the promisee or any other person on his (promisee's) behalf.

Example:

A father gifted the whole of his property to his daughter on the condition that she should pay an annuity (annual payment) to her uncle (Father's brother). On the same day, the daughter entered into an agreement with her uncle and agreed to pay the annuity. Later on, the daughter refused to pay on the ground that the uncle did not give any consideration to her. The court held that the consideration was paid by the father on behalf of her uncle. Therefore, the uncle was entitled to recover the annuity. [Chinayya v. Ramayya.]

Thus from the above discussion, it should be clear that a stranger to consideration can file a suit to enforce his right. Under English Law, however, consideration must move from the promise and not from any other person. It means that under English Law, a stranger to consideration cannot file a suit to enforce his right.

3. Consideration may be past, present or future:

The words, "has done", "does" or "promises to do" indicate respectively that the consideration may be past, present or future.

(i) Past Consideration:

Where the act was done in the past or the promisor had received the consideration before the date of the promise, it is called a past consideration.

Example:

A found B's purse. After a month B promised to pay Rs. 5 to A as reward for the service rendered. B is paying Rs. 5 for past consideration. Under English Law, a past consideration is no consideration.

(ii) Present Consideration:

Where the act is done in the present or the promisor receives the consideration along with his promise, the consideration is present consideration. It is also called an executed consideration.

Example:

A purchases goods by paying money in cash. Here, the consideration is present consideration.

(iii) Future Consideration:

It is also called executory consideration. Where the act is to be done in future or the promisor is to receive consideration after the date of promise, it is a future consideration.

Example:

A agrees to sell his watch for Rs. 200 to B the next week. It is a case of future consideration. It should be noted that consideration for one party may be past, and for the other, it may be present or future.

Example:

A found B's purse last week. B promises to pay Rs. 5 the next week. For A, the consideration is future and for B, it is past.

4. Consideration must be real and not illusory:

Consideration must be real, i.e, it has some value in the eye of law. It should not be illusory.

Example:

A promised to pay Rs. 100 extra to a doctor for performing a successful operation. The promise of paying Rs. 100 extra in this case is illusory as the doctor is already bound to do his best for the patient.

The following have been regarded as good consideration:

(i) Forbearance to sue:

It has been pointed out earlier that consideration may be positive or negative. Negative consideration implies forbearing some right. Thus forbearance to sue a debtor can be a good consideration.

Example:

'A's Scooter is damaged by B negligently driving his car. B promises to pay Rs. 100 as repair charges for the scooter if A does not sue him in a court of law. Here, A's forbearance to sue B is a good consideration.

It should be noted that forbearance to sue must be for a lawful act or existing and lawful liability.

Example:

A murders B's son. A promises to pay Rs. 5,000 to B if he does not report the matter to the police. It is not good consideration as forbearance to sue in this case is not for a lawful act but an illegal act, which is punishable by law."

(ii) Compromise or composition of claims:

Compromising bonafide disputed claim is a good consideration. In fact, it is also a kind of forbearance on the part of the creditor. For example, a creditor agrees to accept less than what is actually due to him. However, the claim should be bonafide. If the claim turns out to be frivolous or unfounded, the consideration will fail and the debtor would be entitled to refund of the amount paid by him.

5. Consideration must not be something which the promisor is legally bound to do:

A promise to do something which a person is legally bound to do is not a good consideration. As such, pre­existing legal and contractual obligations cannot be regarded as good consideration.

Example:

A promised to pay Rs. 100 extra to a lawyer for winning the suit. A is not bound to pay Rs. 100 even if he wins the case as the lawyer was duty bound to do his best to win the case. Payment of one hundred rupees extra in this case is not a good consideration as it was a promise to do something which the lawyer was legally bound to do.

6. Consideration must not be illegal, impossible, uncertain, ambiguous, fraudulent, immortal or opposed to public policy:

The law does not compel anybody to do something illegal, impossible, immortal or opposed to public policy. On the countrary, the law punishes a person who does something illegal, immortal or opposed to public policy.

(i) Illegal Consideration:

Illegal consideration means doing an act which is prohibited by law. Example:

A promises to pay B Rs. 500 if he bears C. It is illegal.

(ii) Impossible consideration:

Impossibility may be physical or legal. In both the cases, the consideration would not be a good consideration.

Example:

(1) A promises to pay B Rs. 500 if two parallel straight lines meet each other. It is physically impossible and therefore void.

(2) A promises to pay B Rs. 1,000 if he can get him a smuggled Television set. It is legally impossible and therefore void.

(iii) Uncertain consideration:

A promises to pay an uncertain amount is not a good consideration.

Example:

A promise to pay B an amount to his satisfaction if he cures his son. It is not certain as to what amount is payable. It is void.

(iv) Immoral consideration:

Immoral consideration means an act against positive morality as recognized by law.

Example:

A lets out his house to a prostitute. A cannot recover the rent as consideration is immoral.

7. Consideration need not be adequate:

It is not necessary that there must be full return for the promise. There must be something rather than nothing. For example, A agrees to sell his watch worth Rs. 100 only for Rs. 10. A's consent to the agreement was given freely. The agreement is enforceable even though the watch is being sold for just one-tenth of its price. The law has left the quantum of consideration to be decided by the respective parties. Hence the law will not object to the inadequacy of consideration. The law will not enforce a promise only if it is without consideration.

However, inadequacy of consideration may be taken into account by the Court in determining the question whether the consent of the promisor was given freely, i.e., it was not caused by coercion or undue influence, etc. Hence in the absence of any such thing, the Court will not object to the inadequacy of consideration. Therefore, in many cases it has been remarked well, "the doctrine of consideration is a mere technicality irreconcilable either with business expediency or common sense."