What is Consideration

Dear Readers,

In the second post, we covered meaning of important term called Agreement. We discussed that an agreement is defined as every promise and every set of promises forming consideration for each other. Please click on link below to read the post again


In view of the above, it is imperative to know what is Consideration, in order to understanding definition of Agreement. The purpose of this post is to discuss the meaning of Consideration and to explain its significance for a valid Contract

How we define Consideration

The term Consideration means an advantage or benefit or things of value in lieu of doing something for someone. Let us assume there is an Agreement between Party A and Party B. Whereas, Party A promises to provide (or do) something of value to the Party B, and in return, Party B provides certain advantages or benefit to B. All such benefits, rewards, and advantages moving from one party to the other and creating value for each other under the agreement are called Consideration

As per Section 25 of Indian Contract Act, 1872, an agreement without consideration is VOID. Hence, an agreement is legally enforceable only when both parties give something and get something in return. Therefore, Consideration is a necessary ingredient of a valid Contract and it must be there for all parties to the Contract. Consideration may be in cash or kind or a promise for doing or not doing something

Examples under commercial agreements

  1. Under Purchase Agreement, Buyer receives Goods and Seller receives the agreed Money. So, Goods are consideration for Buyer and money for the Seller
  2. In Service Contract, one party gets Services & other the agreed Money. So, Services are consideration for Service Receiver and agreed Money for Service Provide


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