Essentials of Consideration

Meaning of Consideration

Consideration is one of the most important elements of a valid contract. It refers to something of value given, done, or promised in return for a promise.

Under Section 2(d) of the Indian Contract Act, 1872, consideration means an act, abstinence, or promise done or given at the desire of the promisor by the promisee or any other person.

In simple terms:

Consideration is the price paid for a promise.

For example, A agrees to sell his laptop to B for ₹50,000. Here, B’s payment of ₹50,000 is consideration for A’s promise to sell the laptop, while A’s promise to sell the laptop is consideration for B’s promise to pay.

Basic Formula

Promise + Consideration + Other Legal Requirements = Contract

The general rule is expressed as:

“No consideration, no contract.”

However, this rule is subject to important exceptions under Section 25.

Definition under Section 2(d)

Section 2(d) provides that when, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, or does or abstains from doing something, or promises to do or abstain from doing something, such act, abstinence or promise is called consideration for the promise.

The definition covers three important forms:

1. Act
2. Abstinence
3. Promise

It also establishes that consideration may move from the promisee or any other person.

Essentials of Valid Consideration

1. Consideration must move at the desire of the promisor

The act or abstinence must be done at the desire or request of the promisor.

If an act is performed voluntarily or at the request of someone other than the promisor, it will generally not constitute consideration under Section 2(d).

For example:

A asks B to repair his house. B repairs the house. A’s request caused B to perform the act, so the repair can constitute consideration for A’s promise to pay.

But if B voluntarily repairs A’s house without A requesting it, A’s subsequent promise to pay may not be supported by consideration in the ordinary contractual sense.

Durga Prasad v. Baldeo (1880)

The plaintiff constructed a market at the request of the Collector. The shopkeepers later promised to pay him commission.

The court held that the construction was not consideration for the shopkeepers’ promise because it had not been done at their desire.

Principle: Consideration must move at the desire of the promisor.

2. Consideration may move from the promisee or any other person

This is a distinctive feature of Indian contract law.

Section 2(d) expressly provides that consideration may move from the promisee or any other person.

Therefore, it is not necessary that the consideration must come directly from the person receiving the promise.

Chinnaya v. Ramaya (1882)

A woman transferred property to her daughter subject to the condition that the daughter would pay an annuity to the woman’s brother. The daughter agreed but later refused to pay.

The court recognized that consideration could move from a person other than the promisee.

Principle: Under Indian law, consideration may move from the promisee or any other person.

3. Consideration may be an act

An act performed at the desire of the promisor can constitute consideration.

For example:

A promises to pay B ₹10,000 if B repairs A’s computer.

B repairs the computer.

The repair is the consideration for A’s promise to pay.

4. Consideration may be an abstinence

Consideration may consist of refraining from doing something that a person has a right to do.

For example:

A owes B ₹50,000. B agrees not to file a legal claim for six months if A pays the amount with agreed interest.

B’s abstinence from immediately enforcing the claim can constitute consideration for A’s promise, provided the arrangement otherwise satisfies legal requirements.

Thus:

Doing something can be consideration, and refraining from doing something can also be consideration.

5. Consideration may be a promise

A promise to do something in the future can itself constitute consideration.

For example:

A promises to deliver 100 books to B next month, and B promises to pay ₹20,000 on delivery.

Each promise may constitute consideration for the other.

This creates reciprocal promises under Section 2(f).

6. Consideration may be past, present or future

Indian contract law recognizes consideration in forms that may relate to the past, present or future, provided the requirements of Section 2(d) are satisfied.

Past Consideration

An act has already been performed at the promisor’s desire, and a subsequent promise is made in return.

For example:

A requests B to perform a particular service. B performs it. A later promises to pay B ₹10,000 for the service.

Where the act falls within Section 2(d), it can constitute consideration.

Present or Executed Consideration

The consideration is performed at the time of the promise or transaction.

For example:

A pays ₹10,000 and B immediately delivers the goods.

Future or Executory Consideration

Both parties promise to perform something in the future.

For example:

A promises to deliver goods next month, while B promises to pay next month.

7. Consideration must be real

Consideration must have some legal value. It must not be purely imaginary, impossible or meaningless.

For example:

A promises to pay B ₹10,000 if B discovers a hidden treasure by using supernatural powers.

Such an act cannot ordinarily constitute real consideration because it has no legally recognizable value.

The consideration need not be economically substantial, but it must be legally recognizable.

8. Consideration need not be adequate

Consideration need not be equal or proportionate to the value of the promise.

For example:

A sells a watch worth ₹20,000 to B for ₹5,000.

The consideration may be inadequate, but inadequacy by itself does not make the agreement void, provided there is genuine consent and the other requirements of a valid contract are satisfied.

Section 25 specifically recognizes that an agreement is not necessarily void merely because the consideration is inadequate.

However, inadequacy of consideration may be relevant in determining whether consent was freely given.

9. Consideration must be lawful

Consideration must not be unlawful.

Under Section 23, consideration is unlawful if, among other things, it is:

• forbidden by law;
• fraudulent;
• involves injury to a person or property;
• immoral; or
• opposed to public policy.

An agreement based on unlawful consideration cannot become an enforceable contract merely because the parties have agreed to it.

For example:

A promises to pay B ₹1 lakh for helping him carry out an illegal activity.

The consideration is unlawful and the agreement cannot be enforced.

10. Consideration must not be impossible

Consideration must involve something capable of being performed.

If the promised consideration is physically or legally impossible, it cannot ordinarily support an enforceable contractual obligation.

For example:

A promises to pay B ₹10,000 if B produces a living dinosaur.

The promised act is impossible and cannot constitute valid consideration.

11. Consideration must have some legal value

The law does not require consideration to be economically equivalent to the promise, but it must have legal value.

A purely moral obligation, affection or gratitude does not automatically constitute consideration.

For example:

A says:

“Because you are my good friend, I promise to give you ₹1 lakh.”

Friendship alone is not consideration for the promise.

However, certain promises without consideration may still be enforceable under the exceptions in Section 25.

12. Consideration must be distinguished from motive

Motive is the reason why a person enters into an agreement. Consideration is the legal value exchanged for the promise.

For example:

A sells his house to B for ₹50 lakh because he wants to move to another city.

• ₹50 lakh = consideration
• A’s desire to move to another city = motive

Motive and consideration are therefore not the same.

Consideration and Privity

A useful distinction in Indian contract law is that consideration may move from a third person, but this does not mean that every third person can sue on the contract.

The rule concerning consideration is therefore different from the rule of privity of contract.

For example, under Chinnaya v. Ramaya, consideration could come from a person other than the promisee. This does not mean that a stranger to the contract automatically acquires the right to enforce it.

Exceptions to “No Consideration, No Contract”

The general rule under Section 25 is that an agreement made without consideration is void.

However, Section 25 recognizes important exceptions.

1. Agreement based on natural love and affection

An agreement without consideration can be valid where:

• it is made on account of natural love and affection;
• it is between parties standing in a near relation to each other; and
• it is expressed in writing and registered.

2. Promise to compensate for past voluntary services

A promise to compensate a person who has already voluntarily done something for the promisor may be enforceable in circumstances covered by Section 25.

3. Promise to pay a time-barred debt

A written and signed promise to pay a debt barred by limitation may be enforceable even without fresh consideration, subject to Section 25.

4. Completed gifts

Section 25 clarifies that the rule regarding absence of consideration does not affect the validity of a gift actually made.

Consideration vs Motive

Basis	Consideration	Motive
Meaning	Legal value exchanged for a promise	Reason for entering into the transaction
Legal importance	Essential in ordinary contracts, subject to exceptions	Generally not an essential element
Example	₹50 lakh paid for a house	Desire to buy a larger house
Effect	Supports enforceability	Usually does not create contractual rights

Consideration vs Condition

A condition is a term or requirement that determines when or how a contractual obligation is to be performed.

Consideration, on the other hand, is what is given, done, abstained from, or promised in return for a promise.

For example:

A agrees to sell a car to B for ₹5 lakh, provided B pays the price by 10 December.

• ₹5 lakh = consideration
• Payment by 10 December = contractual condition/term

The two concepts should not be confused.

Important Cases

Durga Prasad v. Baldeo (1880)

Principle: Consideration must move at the desire of the promisor.

Chinnaya v. Ramaya (1882)

Principle: Under Section 2(d), consideration may move from the promisee or any other person.

Kedarnath Bhattacharji v. Gorie Mohamed (1886)

The case is commonly cited in relation to subscription promises and consideration arising where a promise is acted upon and liability is incurred in reliance on the subscription.

Principle: Where a promise induces action or liability in circumstances recognized by law, consideration may be established.

Abdul Aziz v. Masum Ali (1914)

The case illustrates the general rule that a gratuitous promise unsupported by consideration is not enforceable, subject to statutory exceptions.

Important Points for Exams

1. Consideration is defined under Section 2(d) of the Indian Contract Act, 1872.
2. It is often described as the price of a promise.
3. It must move at the desire of the promisor.
4. It may move from the promisee or any other person.
5. It may consist of an act, abstinence or promise.
6. Under Indian law, consideration can be past, present or future, provided it falls within Section 2(d).
7. Consideration must be real and legally recognizable.
8. Consideration need not be adequate.
9. Consideration must be lawful.
10. A promise without consideration is generally void under Section 25, subject to statutory exceptions.
11. Consideration is different from motive.
12. Durga Prasad v. Baldeo emphasizes the promisor’s desire.
13. Chinnaya v. Ramaya establishes that consideration may move from a third person.

Quick Revision

Section: 2(d), Indian Contract Act, 1872

Meaning: Act, abstinence or promise given at the desire of the promisor in return for a promise.

Who may provide it? Promisee or any other person

Forms: Act, abstinence, promise

Time: Past, present or future

Must it be adequate? No

Must it be lawful? Yes

General rule: No consideration, no contract

Main exception provision: Section 25

Leading cases:

• Durga Prasad v. Baldeo — consideration must be at promisor’s desire
• Chinnaya v. Ramaya — consideration may move from any person

Conclusion

Consideration is a fundamental element of a contract and is defined under Section 2(d) of the Indian Contract Act, 1872. It may consist of an act, abstinence or promise and may move from the promisee or any other person. Valid consideration must be given at the desire of the promisor, must have legal value, and must be lawful. It need not be adequate, but the absence of consideration generally makes an agreement void subject to the exceptions contained in Section 25.