This article is written by Ishika Gupta pursuing BBA L.LB from Gitarattan International Business School. This article aims to deliver all the basic elements related to consideration in detail and easy way.

INTRODUCTION

The Latin maxim “quid pro quo” means something in return. For a contract to be valid it is essential that there must be something given in return of the favour or promise i.e. consideration. In India, there is a general rule that a contract or agreement without consideration is deemed to be ‘nudum pactum’ i.e. null and void. It simply means that there must be some benefit to one party in return for the promise made by the other party.

As defined by Black Stone, “Consideration is a recompense given by the party contracting to the other”.

Lush J. said that the term ‘Consideration’ can be of any form i.e. some right, interest, profit or benefit conferred by one party or any loss borne by the other party to contract.

For instance, ‘A’ proposes to sell a house to ‘B’ for an amount of Rs. 20 Lakhs. In this transaction, ‘A’ enters into an agreement to hand over the possession of the house to ‘B’ and receives in its consideration an amount of Rs. 20 Lakhs which means that for ‘A’ consideration is Rs. 20 Lakhs and for ‘B’ consideration is the house.

Section 2(d), Indian Contract Act, 1872 defines consideration as, “when, at the desire of the promiser, 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”.

TYPES

Section 2(d) recognizes three kinds of consideration i.e. Past, Executed and Executory.

a) Past Consideration

The words “has done or abstained from doing” u/s 2(d) denotes that consideration is past. It means that consideration is given after the promise is made i.e. the other party is benefitted after the completion of the promise. For instance, ‘A’ makes a request to ‘B’ to find his laptop and return it back to him. After ‘B’ has returned the laptop back to ‘A’ and if ‘A’ promises to pay ‘B’ Rs. 1,000/- in return, it is a case of past consideration as the consideration is given past to the promise, but at the request of the promiser and is deemed to be a good consideration for the promise.

b) Executed Consideration

The words “does or abstains from doing” u/s 2(d) denotes that consideration is executed or present. It is said to be executed consideration if consideration is given right at the time of making a promise. In the illustration mentioned for the Past Consideration, if the consideration is provided simultaneously alongwith the making of the contract, it is a case of Executed Consideration i.e. if ‘A’ makes an offer that anyone who finds his laptop and brings the same to him, will be given Rs. 1,000/- and ‘B’ does the same, then ‘A’ is bound to pay Rs. 1,000/- to ‘B’.

c) Executory Consideration

The words “promises to do or to abstain from doing” u/s 2(d) denotes that consideration is executory or future. When the parties to the contract make promises to each other and perform them subsequently after making of the contract the consideration is said to be executory. For instance, if ‘A’ agrees to supply certain goods to ‘B’ and ‘B’ agrees to pay for them on a future date, this is a case of executory consideration.

ESSENTIALS

For a valid consideration, there are various legal essentials that must be satisfied:

1) Consideration should be provided only at the pleasure of the promiser

The consideration should neither be merely voluntarily given nor it should be given at the instance of the third party rather it should be provided as per the desire of the person who makes the promise.

In “Durga Prasad vs. Baldeo”, the consideration moved at the instance of a third party to contract and it was held by the court that a promise cannot involve consideration given by the third party and hence the contract was void.

2) Promisee or any other person may also provide Consideration

As per the general rule in India and as mentioned in Section 2(d) the consideration may also move as per the wish of the promisee or any other person and the contract would be deemed as valid. For instance, in “Chinnaya vs. Ramaya” ‘A’ entered into a contract with ‘B’, but the consideration was moved by a third party, ‘C’ to ‘B’ and not by a party to contract i.e. ‘A’. Although ‘A’ is a stranger to consideration, he can still enforce the contract against ‘B’.

3) There must be an Act, Abstinence or Promise by the Promisee to constitute consideration

According to Section 2(d), if nothing is done in exchange for the promise, there is no consideration making the contract null. Hence there must be an act, promise or abstinence in return of promise.

In the situation where there are more than one promisors, they can be bound only if one of them is provided consideration. Also, a mere promise to contribute some amount for the charitable purpose may not be enforceable as held in “Abdul Aziz vs. Masum Ali”

4) Consideration must be real

The consideration should not be impossible in any way be it legal or physical. It should be real and not substantial. However, the consideration is not meant to be adequate. For instance, ‘A’ promises ‘B’ that he can bring back alive a dead person in return of Rs. 1000/-. This is not possible to perform and this is not a valid consideration.

Also, the consideration must not be illegal, immoral or against the public policy.

5) Consideration should not be something which the promiser is already bound to do

If the contract is to be made valid it should involve a consideration that more than what a person already has to do also the person should not be legally bound to perform the specific act. If it is so there is no consideration assumed. Also, if ‘A’ is already bound to perform a particular contractual duty owed to ‘B’, ‘B’’s promise to pay something additional for the same promise is no consideration.

EXCEPTIONS

Section 25 of the Indian Contract Act, 1872, mentions three exceptions to the general rule which says that a contract without consideration is void.

1. If a promise is made out of love and affection in favour of relatives or any other person the promise is assumed to be valid even if there is no consideration.

For instance, mother out of love for her daughter promised to her to purchase land for her.

2. When a person has to compensate for his past voluntary actions it does not constitute consideration but the contract is still valid.

3. A contract is valid even without any consideration if it is a promise to pay a time-barred debt.

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Consideration under the Indian Contract Act, 1872