Consideration in Business Law
Consideration in Business Law
Introduction
Everything in this world is based on contracts. Not only commercial relations but personal
relations are based on contracts too. Prenuptial agreements, commercial contracts, contracts of
indemnity, guarantees etc. are all examples of contracts. Business law is grounded on contracts
too.
Consideration is an important element of a contract It is defined under section 2d of the Indian
Contract Act, 1872. Without consideration, there can be no contract as per section 25 of the
Indian Contract Act, 1872. Therefore, in business law consideration holds a significant position
without which no contract or agreement can be made.
In this paper, we will understand the term consideration and the relevance of consideration in
business law. We will look at the important elements of consideration in business law. We will
also understand the concept of ‘legally sufficient value’ and at the end, we will look at some
important case laws regarding consideration in business law.
What is consideration
An act, benefit, interest, right, promise, good or service, etc. is given freely in exchange for
anything with a monetary value known as consideration. It is essential since every legally
binding contract calls for equal consideration for all parties. Practically speaking, consideration
is the factor based on which a contract is established. In other words, it is a crucial factor in why
the parties sign contracts.
As an illustration, let's say you go to a store and ask the owner to give you a certain item in
exchange for payment. Here, you and the shopkeeper engage in a contract whereby she
provides you with something in exchange for payment of a consideration, and both parties profit
from the arrangement. In exchange for the other party's performance or promise of
performance, consideration must provide value to both parties to the contract. In a contract,
commodities and services are often exchanged, but consideration can be anything the parties
decide.
A contract without consideration is nudum pactum. If the contract wherein the consideration is
not provided then that contract is void. Some exceptions are there though. There are many rules
of consideration provided under the Indian Contract Act, 1872 which we will learn in the next
section.
Case laws
Durga prasad v. Baldeo
In Durga Prasad v. Baldeo, 1880 the plaintiff established a few stores in a bazaar on the
collector of the town's orders. Due to the plaintiff's financial investment in the building, the
defendants eventually took over the stores and agreed to pay him a commission on any items
sold via their agency at the bazaar. The plaintiff's attempt to get the commission back in court
was denied. It was held that the offeree should only send consideration what the offeror
requests. The offeree does not have the right to assert counter consideration if unwelcome
consideration is sent.
Lampleigh V. Braithwait
In Lampleigh v. Brathwait, the defendant asked the plaintiff to facilitate his plea for a pardon
from the monarch. The complainant made an effort, went to the king, etc., but his plea was
denied. In return, the defendant agreed to reimburse him. Later, he objected to doing it. A
lawsuit was filed against him in court. The defendant was ordered to reimburse the plaintiff by
the court because the plaintiff had asked the defendant to assist him. Therefore, even though
the plaintiff's action was completed in the past, it would still be taken into account.
Conclusion
Section 2d of the Indian Contract Act of 1872 defines consideration. It can be about the past,
the present, or the future, but only the parties to the contract and no other parties. To ensure
that the interests of the contracting parties or even third parties are not jeopardised, Section 25
of the Act contains several exceptions. These exclusions are made with a variety of conditions
in mind. Additionally, the consideration need not be sufficient but rather should be worthwhile in
the eyes of the contracting parties.
References
Lampleigh v Braithwaite (lawteacher.net)
Thomas v Thomas - 1842 (lawteacher.net)
KEDARNATH VS. GORIE MOHAMMAD – A CASE STUDY - Jus Corpus
CASE ANALYSIS OF DURGA PRASAD V. BALDEO AND OTHERS - nslrj.in
Nudum Pactum: Everything You Need to Know (upcounsel.com)
Section 25 in The Indian Contract Act, 1872 (indiankanoon.org)
The Indian Contract Act, 1872|Legislative Department | Ministry of Law and Justice | GoI
Learn About Legally Sufficient Value | Chegg.com
What is a consideration in business law (bartleylawoffice.com)