Consideration : Definition, Importance and Rules

Definition

Consideration, in its simplest form, refers to what a promisor requires as the value or price for fulfilling a promise. According to Sir Frederick Pollock, it is defined as "an act or forbearance of one party, or the promise thereof, which constitutes the price for which the promise of the other party is bought, rendering it enforceable."

In Currie v. Misa (1875) L.R. 10 Ex. 162, consideration was described as "a valuable consideration in the eyes of the law, which may consist of a right, interest, profit, or benefit accruing to one party, or a forbearance, detriment, loss, or responsibility undertaken by the other."

From these definitions, it is evident that the term 'consideration' conveys the idea of 'quid pro quo'—"something in return." This could mean any form of benefit, right, or profit, or alternatively, a detriment, loss, or obligation on the other party.

In Tanzania, consideration is defined under Section 2(d) of the Law of Contract Act, "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 from doing something, such act, abstinence, or promise is called consideration for the promise."
Examples

1. A agrees to sell his house to B for Tzs. 10,000,000. Here, B’s promise to pay Tzs. 10,000,000 is the consideration for A’s promise to sell the house, and A’s promise is the consideration for B’s payment.

2. A promises to pay B Tzs. 10,000,000 at the end of six months if C fails to pay the same amount owed to B. B agrees to grant C time accordingly. Here, the mutual promises form the consideration for each other.

3. A promises, for a certain sum paid by B, to compensate B for the loss of a ship wrecked on a voyage. A’s promise is the consideration for B’s payment, and B’s payment is the consideration for A’s promise.

4. A promises to maintain B’s child, and B promises to pay A Tzs. 10,000,000 annually for the purpose. Each promise serves as consideration for the other.

Importance of Consideration

A promise made without consideration is merely a gratuitous promise and lacks the legal binding power of a contract. A valid contract consists of two primary components: the promise and the consideration for that promise. A promisor typically makes a promise in return for some inconvenience, loss, or damage suffered by the other party. This benefit received, or loss endured, is regarded as consideration in law. As a general rule, "no consideration, no contract" holds.

Case Examples
1. Abdul Aziz v. Mazum Ali (1914) 36 All. 268
A man verbally promised to donate Rs. 500 for mosque reconstruction but later refused. The court held that the agreement was void due to the absence of consideration.

2. Kedarnath v. Gori Mohamed (1886) 14 Cal. 64
A promise to subscribe Rs. 100 for building a Town Hall led the Secretary to entrust work to contractors based on this assurance. The court upheld the agreement since the promise was supported by consideration in the form of liability undertaken by the Secretary.

The essence of consideration underpins the principle that agreements inherently involve mutual exchanges of promises, and without this element, a contract lacks enforceability.

Rules of Consideration

1. Must Originate from the Promisor’s Desire
Acts performed without the promisor’s request do not constitute valid consideration. For example, in Durga Prasad v. Baldeo (1881) 3 All. 211, the plaintiff built a market at the Collector's request. The shop occupants’ promise to pay a commission was deemed void since the expenditure was not at their request.

2. May Emanate from Promisee or Another
Consideration need not always move directly from the promisee. In Chinnayya v. Ramayya (4 Mad. 137), a lady gifted property to her daughter on the condition that an annuity be paid to her brother. Despite the brother not being a party to the initial contract, the court upheld the promise since consideration can move from a third party.

3. Need Not Be Adequate
Courts do not require consideration to be equivalent in value to the promise. For example, if A sells a house worth Rs. 80,000 for Rs. 20,000, the inadequacy of the price does not render the transaction void unless undue influence, coercion, or fraud is evident.

4. Consideration must be real, not illusory
The consideration for a contract must be genuine and capable of enforcement. If the consideration is physically impossible, legally prohibited, or uncertain, it is deemed illusory and cannot support a valid contract.

Example
A promises to bring a dead man back to life in exchange for Tzs. 10,000,000 from B. Such consideration is physically impossible and therefore invalid.

Similarly, if A agrees to pay B for the supply of 100 liters of water from a mirage, the consideration is deemed illusory as the promise cannot be performed.

5. Consideration Must Be Legal
For a contract to be enforceable, the consideration must be lawful. Section 23 of the Indian Contract Act, 1872, specifies that the object and consideration of a contract must not violate the law, public policy, or morality. If the consideration is illegal, the entire contract becomes void.

Examples of Illegal Consideration

1. Prohibited by Law: A agrees to sell narcotic drugs to B in exchange for money. Since the sale of narcotic drugs is prohibited by law, the consideration is illegal, and the contract is void.

2. Fraudulent or Immoral Acts: A promises B to hide evidence of a crime in exchange for money. The consideration involves an immoral act and is therefore invalid.

3. Against Public Policy: A enters into a contract with B to create false evidence for a court case in exchange for money. This violates public policy and renders the consideration illegal.

Effect of Illegal Consideration
A contract with illegal consideration cannot be enforced by courts. Moreover, parties to such a contract cannot claim any rights or seek remedies under it. In some cases, the parties may also face legal consequences for entering into an illegal agreement.

Exception
If the illegal portion of a contract can be severed without affecting the lawful parts, the valid parts of the contract may still be enforceable, provided they can stand independently of the illegal consideration.