Adequacy of Consideration (Present, Past, and Adequate Consideration): A Legal Analysis

Author: Muskaan Aggarwal.

INTRODUCTION

Under Section 2(h) of the Indian Contract Act 1872 (“Act”), a valid contract is any contract which is capable of being enforced by law. In addition to this, all contracts have certain requirements that need to fulfilled, as has been mentioned u/s 10 of the Act. This includes consideration, free consent, a lawful contract object, and lastly, the presence of competent parties. Therefore, consideration becomes one of the key requirements for a valid contract, especially considering how a contract without any valid consideration is void, as provided u/s 25 of the Act.

In this article author has discussed about present, past and adequate consideration.

CONSIDERATION AND ITS ESSENTIAL ELEMENTS

The meaning of consideration has been mentioned u/s 2(d) of the Act, which highlights the importance of a contractual understanding or meeting of minds, wherein the promisor must have promised the execution or abstinence, as discussed between the parties.

In the case of Currie v. Misa case((Currie v. Misa (1874) LR 10 Ex 153.)), consideration is defined as “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.”

There exist some essential elements for consideration that must be followed by all the parties entering into a contractual arrangement:

• It must move at the desire of the promisor:  

This means that the promisor must be involved in the consideration arrangement, and only the promisor. Promisor himself/herself is not required to be necessarily benefited by the consideration. Doing an act or abstaining from doings something on the promisor’s request is enough.

In the case of Durga Prasad v. Baldeo((Durga Prasad v. Baldeo and Others ILR [1881] 3 ALLAHABAD 221.)), the collector of a town had built some shops within the market, on his own expense. However, the collector eventually sued the shop owners when he did not receive any compensation in return of his generosity, considering they had promised to do so after the shops were built. However, the court had held that the shop-owners promise was not substantiated by any consideration, considering that the shops were never built on their request. It was the collector’s decision to make the shops, and hence, the show-owners are not liable to pay any compensation to the collector.

• Consideration may move from the promisee or any other person on behalf of the promisee:

As long as the person is a party to the contractual arrangement made between the parties, the person bears the right to sue against the consideration to the contract. The same had been highlighted by the Madras High Court in the case of Chinnaya v. Rammaya((Chinnaya v. Rammaya ILR (1876-82) 4 Mad 137.)). In this case, when a mother executed a sale deed with her daughter for an annuity payment for her brother, the brother was allowed to sue the daughter. This was because it was not necessary for only the promisee to sue.

• Past, Present, and Future nature of Consideration 

Consideration may be of three types:

1. Past Consideration:  Consideration in the past. A scenario wherein any consideration was passed between the parties even before a formal written agreement was formulated. While past consideration has been recognised within the Indian law, however, the English law doesn’t recognise past consideration as a valid consideration.
2. Present Consideration:  When consideration has been given by both the parties to the contract at the same time, or a case wherein there is a simultaneous movement of consideration between both the parties to the contract.
3. Future Consideration: Consideration for the future. It also involves a scenario wherein consideration was passed between the parties after a formal written agreement was formulated.

• No requirement for adequate consideration:

Consideration, as defined under law, simply means providing ‘something in return’. There is no mention of any requirement for that ‘something’ to necessarily be adequate. This means that even if a consideration is grossly inadequate, but the same has been mutually agreed between the parties, it shall be deemed to be a valid consideration. It is not the responsibility of the court to adjudge on any bad bargain that was undertaken by the parties themselves.

As provided under Explanation 2 to Section 25 of the Act, the promisor must have entered into the contract with his/her own free consent.

• It must be a real consideration:

This simply means that consideration must not be uncertain, illusory, or impossible to execute or abstain, and must be something that is possible.

• It must be a lawful consideration: 

To enter into a valid consideration, it must not be immoral, illegal or in opposition to public policy. Therefore, the consideration must be lawful in accordance with Section 23 of the Act.

The same had been highlighted in various cases such as Tweddle v. Atkinson((Tweddle v. Atkinson [1861] EWHC J57 (QB).)), Dunlop Tyre Co. v. Selfridge Ltd((Dunlop Pneumatic Tyre Co Ltd v. Selfridge Ltd [1915] AC 847.)), and M. C. Chakao v. State Bank of Travancore((M. C. Chakao v. State Bank of Travancore 1970 AIR 500.)).

• Consideration must be something other than any existing obligation of the promisor:

This means that you cannot agree to a consideration which the promisor was already expected to fulfil due to a prior obligation. This is mainly because both are different obligations, and the consideration of one obligation cannot be transferred as a consideration to another obligation of the promisor.

ADEQUACY OF CONSIDERATION

As discussed above, while it is expected that the consideration value must be adequately measured equal to the value provided by the promisor. However, it need not be adequate, but would still be counted to be valid.

There are several principles applicable to adequacy of consideration in contract law. These are:

• A consideration is not adequate and not valid, if the person was already expected to perform the task in question, prior to the entering of the contract.
• Consideration, ones agreed upon, is considered to be binding on the parties, irrespective of whether it was adequate or not.
• Not adequate if the consideration is worthless, or something that is misleading.
• The consideration value must be recognisable before the court of law.
• Consideration is not adequate if the same is in violation of public policy.

These principles also describe the difference between adequate consideration and sufficient consideration. While sufficient consideration takes into account the value of consideration, irrespective of whether the consideration is fair or not. On the other hand, adequate consideration is discussed in the context of fair value.

In the case of Thomas v. Thomas((Thomas v. Thomas (1842) 2 QB 851.)), even a £1 per annum consideration was allowed, considering the consideration did have some economic value to it. It may be argued that the consideration was neither sufficient nor adequate, it is valid in the court of law. Further, in the case of White v. Bluett((White v. Bluett (1853) LJ Ex 36.)), a promise of the son to not bore his father was not deemed to be a valid consideration because of the lack of economic nature to the consideration.

Another question that may be of consideration before the court is whether acts or abstinence of little value is capable of supporting the promise. The same was highlighted in the case of Chappell & Co Ltd. v. Nestle((Chappell & Co Ltd v. Nestle Co Ltd [1960] AC 97.)), wherein a chocolate bar wrapper sold for one shilling and six pence was taken to be a part of the consideration as well, even if the value in itself was negligible.

PAST CONSIDERATION

As discussed before, English law doesn’t allow for past consideration. However, when it comes to the rule related to past consideration even within English law, the exception of past consideration had been allowed in certain cases. This involved situations wherein any promise or debt was prohibited from being repaid due to the law of limitation; if there is any promise or debt which involves a voidable obligation (say a minor can request for past consideration after turning into a major); and any promise or debt that had been eliminated or could not be enforced due to bankruptcy.

However, India has a universal acceptance for past consideration, provided that the parties have mutually agreed on such a consideration to remain in force.

CONCLUSION

In conclusion, the courts have time and again given emphasis on the consent and the mutual understanding of the parties. Once the consent is properly established, adequacy or past and present nature of consideration doesn’t become an issue in the enforcement of the consideration.