Consideration under Indian Contract Act, 1872

The definition given of "consideration" as by Sir Frederick Pollock, which was approved by the House of Lords is as Follows –

 

“An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought and the promise thus given for value is enforceable”.

 

        Lush J. defined consideration as "some right, interest, profit or benefit accruing to one party for some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other,"

 

Section 2 (d) of the Indian Contract Act defines "Consideration thus-

 

“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 or abstinence or promise is called a consideration for the promise”.

 

       Thus, consideration may take the form of delivery of anything which has a money value, or payment of money itself or rendering some services, or doing something which under law a person is not bound to do (e.g. forbearance to sue) or a promise to do any or all of those things.

 

For example –

 

i. Forbearance to sue for ejectment is good consideration for an agreement to pay enhanced rent.

 

ii. A promises to pay B Rs. 1000 at the end of six months if C, who owes the money to B fails to pay it. B promises to grant time to C accordingly. Here the promise of each party is the consideration for the promise of the other.

 

iii. A promises, for a certain sum paid to him by B. to make good the value of his ship if it is wrecked on a certain voyage. Here, A's promise is the consideration for B’s payment and B’s payment is the consideration for A’s promise.

 

Rules governing the consideration

 

1. Consideration is essential to every contract - A contract not supported by consideration is void and can only be called as gratuitous promise.

 

        In Abdul Aziz v Masum Ali, (1914) 36 All 268: 23 IC 600, a person had verbally promised to the Secretary of the Mosque Committee to subscribe a sum of money for rebuilding the mosque. On a suit by the Secretary to enforce the simple promise, it was held that the promise was not enforceable as there was no consideration in the sense of benefit to the promisor or defendant to the promise.

 

         However, a gratuitous promise is enforceable if on the strength of the promise, the promisee suffers a detriment undertake liabilities.

 

         In Kedarnath v Gori Mohammed, (1886) 14 Cal 64, A promised B to subscribe a sum of money for the construction of a Town Hall. On the strength of A's promise, B called for plans and entrusted the work to contractors and undertook certain pecuniary liabilities. In a suit against A it was held that, though consideration in the sense of benefit to A was absent, still consideration in the sense of detriment to B was present and the suit was decreed.

 

         In the words of Salmond "a promise without consideration is a gift; one made for a consideration is a bargain."

 

2. Consideration must move at the desire of the promisor and from the promisee or any other person - The promisor must desire the act or forbearance on the part of the promisee. Under section 2(d) there must be a link between the desire of the promisor and the act or forbearance on the part of the promisee. In other words, the act or forbearance on the part of the promisee should not be at the instance of a third party

 

         Further, consideration must proceed from the promisee or any other party, unlike in English Law, where @mideration must flow from the promisee only.

 

        In Chinnaya Ram v Ramayya, (1881) 4 Mad 137 A an old lady, by a deed of gift, made over certain property to her daughter with a direction that the daughter should pay an annuity to A's brother. By an agreement of even date between the daughter of A and the brother of A, the daughter promised to pay the annuity. The daughter, however, did not pay the annuity. A's brother sued the daughter. It was held that the consideration moved from A, the donor of the estate, though not from her brother and that was sufficient consideration for the daughter’s promise to A’s brother because the consideration in Indian law can move from the promisee or any other person.

 

          Hence, under Indian law a stranger to consideration can sue while in English law he cannot.

 

3. Consideration need not be adequate - Adequacy of consideration is the look-out of the promisor and it is not the business of courts to adjudicate on the sufficiency or insufficiency of consideration. However, in case the plea of coercion, fraud or undue influences is raised by a party to a contract, the adequacy of consideration will also from the part of the evidence to be considered in deciding the case.

 

4. Consideration must not be illusory but real and competent - If a man promises to convert an ordinary paper into currency notes or to make parallel lines meet, it is illusory consideration. Consideration should not be vague.

 

5. Pre-existing legal obligation - If a person is already bound by statutory or official duty to do a particular act the performance of the act cannot be the consideration for a promise.

 

        Similarly, an agreement to perform a contractual duty with a person to whom it is already owed is not made for consideration.

 

6. Consideration must be legal or lawful - Section 23 of the Indian Contract Act states-

 

        “The consideration or object of an agreement is lawful, unless -

it is forbidden by law; or

is of such a nature that, if permitted, it would defeat the provisions of any law; or

is fraudulent, or

involves or implies injury to the person or property of another, or

the court regards it as immoral, or opposed to public policy.

         In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void".

 

          For example, A promises to obtain for B an employment in the public service, and B promises to pay Rs. 1000 to A. The agreement is void as the consideration for it is unlawful.

 

7. It may be past, present or future (Executed, Executory and Past consideration) - Executed consideration or present consideration refers to consideration which takes place simultaneously with the promise. Thus, if C buys a watch from a watch shop and pays the price and the watch seller delivers the watch then and there, the consideration is 'executed’ since it is performed simultaneously by both parties.

 

        Executory consideration, on the other hand, refers to consideration for a promise, which is to be furnished in the future.

 

        Example - A promises to paint a picture in three months, in return for which B promises to pay A Rs. 100. Since the promises which are reciprocal have to be performed in the future, the contract is a contract with executory consideration.

 

        Past consideration - In English law, past consideration is no consideration, the only exception being the doctrine enunciated in Lompleigh v Brathwaite, AD 1615 Hob 105, i.e., a past consideration will support a subsequent promise, if the consideration was given at the request of the promisor.

 

        In India, section 2(d) enacts, obviously following the decision in Lampleigh v Brathwaite, AD 1615 Hob 105, that if past services were done at the request of the promisor, it will be a valuable consideration for a subsequent promise of reward by the promisor.

 

Conclusion

 

         Consideration under the Indian Contract Act, 1872 is central to the creation and enforceability of contracts. It encompasses past, present, and future acts or forbearances, and may move from the promisee or even a third party. While adequacy is not necessary, legality, reality, and the promisor’s desire are essential, ensuring that all contracts rest on a clear, lawful, and valuable foundation.

 

Frequently Asked Questions (FAQ)

 

Ø What is consideration under the Indian Contract Act, 1872?

Consideration is defined in Section 2(d) of the Act as: "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 or abstinence or promise is called a consideration for the promise".​

 

Ø Is consideration necessary for a valid contract?

Yes, as per Section 10 and Section 25, consideration is essential for a valid contract. The general rule is "no consideration, no contract" except for certain exceptions provided by law.​

 

Ø What are the features of valid consideration?

s Must be real and have value in the eyes of law

s Must be lawful

s Must be at the desire of the promisor

s Can move from promisee or any other person

s May be past, present, or future

s Need not be adequate, but must be something the law regards as of value.​

 

Ø Can consideration move from a third party?

Yes, consideration may move from the promisee or any other person, which means even a third party can furnish consideration if the promisor desires it.​

 

Ø What are the exceptions to the rule “no consideration, no contract”?

Certain agreements are valid even without consideration, such as:

s Agreements made out of natural love and affection (if parties are close relatives and the agreement is in writing)

s Promise to compensate for past voluntary services

s Promise to pay a time-barred debt

s Completed gifts

s Agency and guarantee contracts

s Contracts of remission.​

 

Ø Must the consideration be adequate?

No, the law does not require consideration to be adequate; it only needs to be something the law accepts as having value, but gross inadequacy of consideration may be evidence of contract defects like fraud or coercion.​

 

Ø What makes the consideration unlawful?

According to Section 23, consideration is unlawful if it:

s Is forbidden by law

s Defeats any provision of law

s Is fraudulent

s Implies injury to person or property

s Is immoral or opposed to public policy.​

 

Ø Can past consideration be valid?

Yes, past, present, or future consideration is valid under Indian law, provided it was given at the desire of the promisor