What is a Valid Consideration in Contracts?

Consideration plays a vital role in the formation of a contract. It refers to the exchange of promises or something of value between the parties involved. 

Whether it is money, goods, services, promised actions or abstaining from future actions, consideration forms the foundation of a legally binding agreement. Let’s delve into the concept of lawful consideration and its significance in contract law.

What is Consideration?

Consideration is essentially a promise for a promise or something given in exchange for something else. It is a fundamental element of a contract that ensures fairness and balance between the parties involved. Each party must provide consideration to the other to validate the contract.

For example, if A sells 500 bags of grain to B for Rs. 1 lakh, the consideration from A to B would be the bags of grain and the consideration from B to A would be the payment of Rs. 1 lakh.

Requirement of Lawful Consideration

To be valid and enforceable, consideration must meet certain criteria.

First and foremost, it must be legal in nature. This means that the consideration should not involve illegal activities or go against public policy. If the consideration is unlawful, the contract may be deemed void.

For instance, if B asks A to give him Rs. 50 in exchange for praying to a higher power for A to find a beautiful wife, this arrangement lacks legal consideration. Praying for a specific outcome is not a valid consideration as it does not hold real value in the eyes of the law.

Immateriality of Adequacy

The concept of adequacy is immaterial when it comes to consideration. The law does not concern itself with whether the consideration is proportionate or equal in value to what is being exchanged.

Instead, the focus is on whether the consideration holds some value or benefit in the eyes of the law.

For example, if A offers B a plot of land worth Rs. 50 lakh in exchange for a consideration of Rs. 65 lakh, Rs. 50 lakh or even Rs. 10 lakh, all these options would be considered valid considerations. The law recognizes that parties have the freedom to negotiate and determine the value of their exchange, as long as there is some value present.

The Exception to the General Rule of Consideration: Promissory Estoppel

In contract law, there is an exception to the general rule of consideration known as promissory estoppel. It applies when one person performs an action or acts at the instance of another party’s promise. Let’s explore two examples to better understand this exception:

Example 1:

A and B were watching a movie at A’s house. A asked B to go get a pizza and assured B that he would be paid for the pizza upon delivery. B, relying on A’s promise, goes and gets the pizza. However, later on, A refuses to pay B. Is there a valid consideration?

In this scenario, B acted on A’s request, and therefore A is bound by the principle of promissory estoppel. Even though there might not be a formal consideration exchanged, A’s promise and B’s reliance on it create a legal obligation for A to fulfill their promise and pay B for the pizza.

Example 2:

A wanted to have a community hall repaired and approached B to arrange funds. B promised to contribute Rs. 50,000 to the project. A proceeds with the hall repairs, but when A asks B for the promised amount, B refuses, claiming that there was no consideration. How should this situation be decided?

In this case, A acted based on B’s promise, and B’s promise prompted A to take action. This falls within the scope of promissory estoppel. B’s promise creates a legal obligation for B to fulfil their commitment and provide the Rs. 50,000 for the community hall repairs.

Promissory estoppel recognizes situations where one party makes a promise and another party relies on that promise to their detriment. It prevents the promisor from going back on its promise if it would result in injustice or unfairness to the promise.

Summary

Lawful consideration is a crucial aspect of contract law. It ensures that parties exchange something of value, whether it be money, goods, services or promises, to create a legally binding agreement. 

Consideration must be legal, have some real value and is not concerned with proportionality. By understanding the significance of lawful consideration, individuals can navigate contract negotiations with clarity and ensure the enforceability of their agreements.

Promissory estoppel serves as an exception to the general rule of consideration. When one person acts upon the instance of another’s promise, even without formal consideration, the principle of promissory estoppel can enforce the promise and hold the promisor legally bound.