Consideration - Definition - Law Dictionary Home Dictionary Definition consideration

Definition :

Consideration. Any act of the promisee (the person claiming the benefit of an obligation) from which the promisor (the person burdened with the obligation) or a stranger derives a benefit or advantage, or any labour detriment or inconvenience sustained or suffered by the promisee at the request, express or implied, of the promisor. See Laythoarp v. Bryant, 3 Scott 250; 2 Wms. Saund 137 h; Currie v. Misa, (1875) LR 10 Exch 153.

Consideration is one of the facts which the courts require as evidence of intention, (a) that a person intends his promise to be binding on him, or (b) that he intends to divest himself of a beneficial interest in property. In its widest sense consideration is the price, motive or inducement for a promise or for a transfer of property from one person to another. The nature or quality of the consideration which will be sufficient for these purposes varies with the nature of the transaction and in the absence of consideration the Courts will, except in the case of simple contract, accept other evidence from which intention will be inferred. A simple contract, that is to say, a promise by word of mouth or in writing which is not a deed, requires valuable consideration to support it, but if the promise is by deed, even the expressed absence of any consideration will not affect its validity either in law or equity (except for some kinds of equitable relief, see infra), because the execution of a deed is attended by formalities from which a deliberate intention to make a binding promise is presumed. Valuable consideration may be described as the very life and soul of a simple contractor parol agreement.

Valuable consideration may be:--

(a) Benefit to the promisor or loss or injury sustained by the promisee. It is not necessary that the consideration and promise should be equivalent in actual value, for it would be impossible precisely to determine whether, in a given case, the consideration were adequate, without a psychological investigation into the motives of the parties. If the consideration, however, be so insufficient as to 'shock the conscience,' equity would quash the contract, upon the ground that such great inequality betokens mutual mistake, or fraud or undue advantage on the one side, or mental incompetency on the other, and, inequity, inadequacy maybe a reason for refusing specific performance, Pegler v. White, 33 Beav 403.

(b) Forbearance for a time to institute a suit upon a well-founded claim, or even upon one which is doubtful, but not upon one utterly unfounded, is sufficient, since it is a benefit to the one party and a prejudice to the other. If the time of forbearance be stated, it must be a reasonable time, and an agreement to forbear per breve aut paululum tempus, or pro aliquo tempore, will not be sufficient inasmuch as the party promising may, in such case, sue immediately after the promise is made.

(c) Mutual promises are concurrent considerations, and will support each other if they be made simultaneously, unless one or the other be void.

Considerations which are insufficient for the purposes of a simple contract and may be insufficient for the validity of other transactions maybe found:'

(a) In so-called gratuitous or voluntary promises which are void for want of a reciprocal return however obligatory they may be in morals or in honour. A moral consideration founded upon mere affection or gratitude will not support a simple contract, as was held in Eastwood v. Kenyon, (1840) 11 A&E 438, after many conflicting decisions on the subject. Other instances of insufficient consideration or absence of consideration maybe found in:'

Cooke v. Oxley, (1790) 3 TR 653, and other authorities (see Chitty on Contracts, 15th Edn. At pp. 9, 10), showing that if an offer be made with liberty to consider it for a limited time, it may nevertheless be revoked at any time before such limited time has expired.

Foakes v. Beer, (1884) 9 App Cas 605, showing, in accordance with the old law, that if A. owes B. 100l. and B. agrees to take and takes 90l. in full satisfaction for the debt, without any other or fresh consideration, B. can nevertheless sue A. for the remaining 10l. See also Williams v. O'Keefe, 1910 AC 186, and a promise to pay by instalments is not sufficient consideration for extending time for a payment which is due immediately. See Foakes v. Beer, LR 9 AC 605, and ACCORD AND SATISFACTION.

(b) Illegal and impossible consideration. A contract may be illegal because it contravenes the principles of the Common Law, or the special requirements of a statute. The former illegality exists whenever the consideration is founded upon a transaction which violates public policy or morality:'as a contract to commit, conceal, or compound a crime; a contract for illicit cohabitation; or a contract in fraud of the rights and interests of third parties. The illegality created by statute exists when the act is either expressly prohibited, or when the prohibition is implied from the nature and object of the statute. A contract founded upon an impossible consideration is void; for the law will not compel a man to attempt to do that which is not within the limits of human capacity. Lex neminem cogit ad vana aut impossibilia; see ILLEGALITY.

(c) Executed consideration, i.e., already performed before the making of the defendant's promise, but if the past or executed consideration was furnished upon an express or implied request by the promisor from which a promise to pay or perform the promise would be implied, see Lampleigh v. Braithwaite, Sm. L.C., the contract will be upheld, otherwise an executed consideration will not support a promise.

Consideration has also been divided in regard to the time when it operates into 1st, executed (in another sense), i.e., f the consideration has been completed before the corresponding promise has been performed; 2nd, executory, or something to be done after the promise; 3rd, concurrent, as in the case of mutual promises; and 4th, continuing, i.e., executed in part only. The three last classes are sufficient to support a contract not void for other reasons, Story on Contracts, 71.

(d) Considerations moving from third persons. It is a general rule that in cases of simple contract, if one party make a promise to another for the benefit of a third, as no consideration moves from such third person, it is only the party to whom it is made, and not the party for whose benefit it is made, who may maintain an action upon it. See Tweddle v. Atkinson, (1861) 1 B&S 393; Re Empress Engineering Co., (1880) 16 Ch D 125; but if a trust be created for the third party, there is a departure from the rule and the third party can sue: see Gregory v. Williams, (1817) 3 Mer 582; Gandy v. Gandy, (1884) 30 Ch D 57.

A promise under seal, such as a covenant or bond, does not require any consideration to be enforceable at law by an action upon the covenant or by damages for breach or any other remedy or defence in law, but the claim is always open to any defences arising out of want of any consideration in factor otherwise available to the covenant or inequity, and equity will not enforce a covenant without consideration unless the covenant has been executed in law, or a trust had been declared in performance of the promise, Jefferys v. Jefferys, 1 Cr & Ph 138. If the promisor cannot show a reason inequity why he should not execute his promise according to his deed in law, equity will not intervene to help him, but if the promisee cannot show more than a promise in legal form, equity will not exert its auxiliary jurisdiction in his favour.

In regard to the transfer of property, as distin-guished from contract to transfer property of any description, consideration plays an important part as evidence of the intention of the transfer. In the absence of consideration or an express or implied trust, the solemnity of the transfer, whether by feoffment in former days, or by deed or registration now, the legal completion of the transaction did and does not, as between the grantor and grantee, import either consideration or evidence that the grantor intended to divest himself of the beneficial ownership. Before 1926 in the absence of consideration in plying or raising a use or of any declaration of a use or of a trust, a resulting use or trust would be presumed [Fowkes v. Pascoe, LR 10 Ch 343; Beckwith's Case, (1589) 2 Co Rep 56b and 58b] in favour of the grantor, see also Norton on Deeds, ch. Resulting Trusts. This implication has been removed, in regard to deeds executed after 1925 by the Law of Property Act, 1925, s. 60, which provides that in a voluntary conveyance made after that year a resulting trust will not be implied merely because the property is not conveyed for the use or benefit of the grantee, see also Law of Property Act, 1925, 1st Schedule, Part II., paragraph 3, and the L.P. Amendment Act, 1926, but it is still open to the persons beneficially entitled to prove that the transfer was intended to be in trust for him. In the absence of an express declaration of trust or of circumstances in which the transferee is presumed to hold on trust, the consideration required to give a conveyance its expressed effect or to raise a use which was not expressed were money, money'' worth, blood or marriage, see Norton on Deeds, and even where consideration is expressed, e.g., by the words in consideration of five shillings though the transfer might be complete in law, it is open to the grantor to prove that the consideration was merely nominal. The consideration of marriage covers all beneficiaries within the consideration, that is to say, the children of the marriage. It is not the same as 'consideration of blood' which as between grantor and grantee may support a simple or bare conveyance to the grantee. 'Blood' may mean a child or blood relation. Considerations such as 'love and affection' r gratitude for past services are also merely voluntary against creditors, see VOLUNTARY CONVEYANCES.

The word 'consideration' has not been defined in the Transfer of Property Act, but there is no doubt that it has been used in that Act in the same sense as in the Indian Contract Act and excludes natural love and affection. If it were to be otherwise, a transfer would really amount to a sale within the meaning of S. 54 of the Transfer of Property Act, or to an exchange within the meaning of S. 118 for each party will have the rights and be subject to the liabilities of a seller as to what he gives and have the rights and be subject to the liabilities of a buyer as to that which he takes, Shakuntala v. State of Haryana, (1979) 3 SCC 226: AIR 1979 SC 843: (1979) 3 SCR 232.

It means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor to the transferee, Sonia Bhatia v. State of U.P. (1981) 2 SCC 585: AIR 1981 SC 1274 (1280): (1981) 3 SCR 239. [U.P. Impoition of Celling and Land Holdings Act (1 of 1961), s. 5(6)]

When at the desire at the promisor, the promise 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 or abstinence or promise is called a consideration for the promise. [Indian Contract Act, 1872 (9 of 1872), s. 2(d)]

Consideration does not mean incidental or collateral examination of any matter by the Income-tax Officer in the process of assessment. There must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection', C.I.T v. Gurjargravures (P.) Ltd., AIR 1978 SC 40 (43): (1977) 4 SCC 571. (Income-tax Act, 1961)

The connotation of the word 'consideration' occurring in sub-s. (1) of s. 98 Comprehends 'taking note of or 'paying heed to' depending upon the nature of the subject. It may be open to the councilors to express views even within the limited time available. No standard can be prescribed in such matters, Corpn. of the City of Bangalore v. Kesoram Industries and Cotton Mills Ltd., 1989 Supp (2) SCC 753: AIR 1993 SC 322 (325). [City of Bangalore Corporation Act, 1949, s. 98(1)]

Has been defined as something that is legally regarded as the equivalent or return given or suffered by one for the act or promise of another, Regional Provident Fund Commissioner v. Shiv Kumar Joshi, (2000) 1 SCC 98.

A valuable consideration in the sense of the law may consist either is some right, interest, profit or benefit accruing to the one party, or some forebearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other, Fleming v. Bank of New Zealand, (1900) AC 577 (586).

Means everything receive in return for the supply of services or the provision of services, Nell Gwynn House Trustees v. Customs Comrs. [H.L. (E)], (1999) 1 WLR 181.

If the consideration for a disposal is money, the money is the amount of the consideration. If it is anything other than money, then it has to be valued, Marren (Inspector of Taxes) v. Marriage, (1980) 3 All ER 95.

May be a customs agent or forwarding agent who is insolvent or in liquidation. Or a consignee may be a bank, the directors of which might well refuse to embark on costly litigation on behalf of a customer even though that customer offered so indemnify the bank for costs, Western Digital Corpn. v. British Airways Plc (CA), (2001) QB LR 733.

Consideration, has been difined as some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other at his request, Currie v. Misa, (1875) LR 10 Exch 153 (162)