Consideration in Contract | Meaning | Need | Kinds

What is Consideration in a Contract?

Consideration is the foundation of every contract. The law enforces only those promises that are made for consideration. An agreement without consideration subject to certain exception is void. In the absence of consideration, a promise is purely gratuitous and creates no legal obligation.

The term consideration is used in the sense of quid proquo (Something in return). Thus, consideration is the price for which the promise of other is bought.

Consideration must result in a benefit to the promisor, and a detriment or loss to the promisee, or a detriment to both.

Definition given in Sec. 2(d) of the Indian Contract Act 1872

Sec. 2(d) of the Indian Contract Act 1872, defines consideration as,

When at 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 abstains from doing something, such act or abstinence or promise is called a consideration for the promise.

In other words, the return promised for the performance of the contract is known as consideration. Without consideration, there cannot be a contract excepting in those cases where it is exempted specifically. Some benefit to the plaintiff or some loss to the defendant must be the outcome of consideration.

Its not about money alone

Consideration does not mean payment of money only. Forbearance to sue is a good consideration. Further, a promise can be a consideration for another promise. A single consideration may support more than one promise. It can also consist in performance.

Settlement of dispute can be a good consideration for the promise. Likewise, if the promisee gives up any legal right, he gives adequate consideration to support the other party’s promise. Thus, refraining from smoking, gambling or drinking would supply the consideration needed to support the other party’s promise to pay a certain sum of money to the one who refrained.

Where a person gives up something which but for the promise he is free not to give up or where a person does not give up something which but for the promise he is free to give up, it is called “Detriment” in Law. But the mere doing of a thing, which a person is already legally bound to do, is no consideration for a new promise in his favor.

Need for Consideration

Consideration is the very essence of a contract. If there is no consideration in an agreement, it is not enforceable by law except in certain cases. As somebody has said, “No Consideration, No Contract“. As a matter of fact, consideration is the very life and blood of every contract.

Kinds of Consideration

A Consideration may be:

1. Executory Consideration or Future Consideration,
2. Executed Consideration or Present Consideration, or
3. Past Consideration.

1. Executory or Future Consideration

Executory or future consideration is one that takes the form of a promise to be performed in the future. It is the price promised by one party in return for the other party’s promise. For instance, an engagement to marry someone, or a promise to deliver goods, or to render services at a future date.

2. Executed or Present Consideration

Executed or present consideration is one which takes place simultaneously with the promise. The act constituting the consideration is wholly or completely performed. For instance, if A buys a book from a book-seller and pays the price and the book-seller delivers the book to A there and then, the consideration in this case is executed or present, since it is performed by both the parties simultaneously.

3. Past Consideration

Past consideration is one, which took place and is complete before the promise is made.