CONSIDERATION: AN ESSENTIAL ELEMENT OF A CONTRACT

Definition & Meaning

The Indian Contract Act, 1872, Section 2(d) defines consideration as follows:

‘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 abstain
from doing something, such an act or abstinence or promise is called consideration
for the promise.’

1. Consideration must be at the desire of the promisor.

2. Consideration must move from one person to any other person.
3. Consideration may be past, present or future.
4. Consideration need not be adequate, but should be real.
5. It may be any act, omission or even a promise.

In the English case law of Currie vs. Misa ‘consideration’ was explained as:
“A valuable consideration in the sense of the law may consist either in some right,
interest and profit or benefit accruing to one party for some forbearance, detriment,
loss or responsibility given, suffered or undertaken by the other.”

EXAMPLE:

A promises to maintain B’s child, and B promises to pay RS.1000 yearly for the
purpose. Here, the promise of each party is the consideration for the promise of the
other party.

Legal Rules for Consideration

1. Consideration is a must in every contract:
No valid contract can be created without consideration. S. 25 of the Act
states, “an agreement without consideration is void.” However, this rule is
subject to some exceptions.
2. Consideration must move at the desire of the Promisor:
 The act or abstinence forming the consideration for promise must be done at
the desire or request of the Promisor. If it is done at the desire or request of
the third party or without the desire of the Promisor, it will not be a good
consideration.

[Durga Prasad vs. Baldeo, 1880]

Facts-
1. Durga Prasad was a builder, who on the orders of the district collector
constructed shops in a village at his own expense.
2. Some shopkeepers acquired the shops and promised Durga Prasad to
pay a certain amount. But did not pay the amount.
3. Durga Prasad filed a suit to recover the amount.

Judgment – The court held that the promise to pay commission was not
supported by consideration as the shops were not built at the desire of
shopkeepers but at the desire of the collector.

3. Consideration may move from the promisee or any other person:

A party who wishes to enforce a contract must be able to show that he

himself has furnished consideration for the promise of the other party. It means
that an act of consideration may be done either by the promise himself or by any
other person on behalf of him provided the act is done at the desire of the
promisor.

[Chinnayya vs. Ramayya, 1881]

Facts –

1. An old lady made a deed promising to gift her property to her

daughter Ramayya with directions to pay a certain sum to the lady’s
brother (Ramayya’s Uncle).
2. Ramayya accepted the deed and promised to pay an amount in favour
of Chinnayya.
3. Thereafter the daughter refused to pay the amount to her uncle.
4. Chinnayya filed a suit against Ramayya to recover the amount.
 Judgment- Court said that though the consideration did not move from
Chinnayya to Ramayya, but it moved indirectly from Ramayya’s mother
to Ramayya and hence Ramayya cannot deny the payment on the ground
that she has not received any consideration from Chinnayya.

4. Consideration must be real not illusory:

Consideration must be real and possible. It must not be illusory or uncertain.

It must have some value in the eyes of law.

5. Consideration may be past, present or future:

The words used in the definition under section 2(d) of the Indian Contract
Act, clearly state that consideration may be past, present or future.

6. It must be Lawful

Consideration must not be illegal; it must be Lawful. The consideration is deemed

to be unlawful

· If it is forbidden by law or,

· If it is of such a nature that if permitted, would defeat the provisions
of law; or
· If it is fraudulent; or
· If it involves or implies injury to the person or property of another; or
· If the court regards it as immoral or opposed to public policy.

7. It must be something other than the public duty of the promisee

Consideration must be something which the promise is not already bound to

do.

Example: A promised to pay money to a police officer to investigate crime.

Such an agreement will be invalid since the police officer is duty bound to do so
by law.

8. Consideration need not be adequate:

Whether consideration is adequate or not is the job of the parties to decide. They
can decide it at the time of making the agreement. However, it must have some
value in the eyes of law. An agreement to which the consent of the promisor is
freely given is not void merely because the consideration is inadequate. In other
words, if the consideration is inadequate, the consent of the promisor must be
freely given to make such agreement enforceable by law.

S. 25 Exception to the rule ‘no consideration no

contract’-

Natural love and affection

The contracting parties sharing blood relation or spouses or the parties
having an adoption deed are exception to the rule of consideration. The
contract shall arise out of the natural love & affection between the parties &
has to be in writing & registered.

Compensation for past voluntary services.

If an action is performed by one party voluntarily for the other party in the
past, & the other party promises to compensate the first party it’s a contract.

Promise to pay time barred debt.

Where there is an agreement made in writing and signed by the debtor or by
his authorized agent, to pay wholly or in part a debt barred by law of
limitation, the agreement is valid even without any consideration.

Gift already made.

According to Section 25, ‘Nothing shall affect the validity, as between the
donor and done, of any gift actually made’

Contract of agency.
If a person is appointed as an agent, his appointment is valid even without
consideration.

Agreement to accept lesser performance of the promise.

 Agreeing to accept less than what is due needs no consideration. Similarly,
an agreement to extend time of performance on a contract need not be
backed by consideration.

Promise to pay contribution to charity.

A promise to pay for charity is a gracious promise and is thus not bound by
the need of consideration.

LEGALITY OF OBJECTS & CONSIDERATION

Ss. 23-24

· An agreement will not be enforced by the court if its object or the

consideration is unlawful.
· The expression “Object of an Agreement” means the very purpose of the
agreement.
· The object and the consideration must both be lawful, otherwise the
agreement is void.

· Section 23 of the Indian Contract Act 1872, declares what kinds of

consideration and objects are not lawful. If the object or consideration is
unlawful for one or the other of the reasons mentioned in Section 23, the
agreement is illegal and therefore void.

According to the law, following objects and considerations are unlawful-

1. If it is forbidden by law-
If the consideration or the object of a contract were forbidden by law, it
would be unlawful and hence unenforceable.

Relevant case law

Nazarali v. Baba Miya (1916) 40 Bom. 64.
1. A license to cut grass was given by the Forest Department.
 2. One of the terms of the license was that the licensee should not assign
his interest on the license without the permission of the Forest Officer,
and a fine was prescribed for a breach of this condition.
3. It was held that there was nothing in the Forest Act to make it
obligatory upon the parties to observe the conditions of the license the
assignment would be binding upon the parties.
4. It was competent to the Forest Officer to revoke the license if he
thought fit to do so.
5. As the Act did not forbid the transaction but merely imposed a
condition for administrative purpose.

2. If it were permitted, it would defeat the provisions of any other law

The consideration of an agreement would be unlawful if it is of such nature
that if permitted, would defeat the provisions of any law.

Relevant case law

Alexander v. Rayson
● P let a flat to R for $1200 a year.
● To reduce the municipal tax he entered into two agreements with R.
a. One, by which the rent was stated to be $450 only
b. Other by which R agreed to pay $750 for services in connection with
the flat.
● In a suit filed against R to recover $750, it was held that the agreement
was made to defraud the municipal authority and was void and A
cannot recover the money.

3. If it is fraudulent
An agreement, whose object or consideration is to defraud others, is
unlawful and hence void.

Relevant case law

Shaib Ram Vs Nagar Mel, (1884) Punjab. Record no 63
(a) The object of an agreement between A and B was to obtain a contract
from the commissariat department for the benefit of the court.
 (b) It could not be obtained for both of them without practicing fraud on
the department.
(c) It was held that the object of the agreement was fraudulent, and that the
agreement was therefore void.

4. If it involves or implies injury to the person or property of another

If the object or consideration of an agreement is to cause injury to the person
or property of another, it is void being an unlawful agreement.

Example –
a. An agreement to kill someone for Rs. 5, 00, 000 is illegal and hence void.
b. An agreement which compels a debtor to do manual labour for the
creditor as long as the debt is not repaid in full is void.

5. If court regards it as immoral

If an object or consideration is an agreement is immoral, the agreement
becomes illegal and hence void. The word ‘immoral’ depends upon the
standard of ‘morality’ prevailing in a particular society.

Example –

A had lent money to B to obtain a divorce from her husband C. It was agreed one
B obtains the divorce A would marry her. But the courts held A cannot recover
money from B since the contract is void on account of unlawful consideration.

6. If the court regards it as ‘opposed to public policy’

An agreement is unlawful if the court regards it as ‘opposed to public policy’
i.e. it is against public good or interest or when it is harmful to the public
welfare, thus is void.
Examples – Trading with enemies, Securing corrupt influence for getting
work done, Agreements creating interest against duty.