Section 2(d) of the Indian Contract Act, 1872, 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 act or abstinence or promise is called a consideration for the promise.”
In simple terms, consideration is something of value that is exchanged between the parties in a contract. It can be an act, a forbearance (abstinence from doing something), or a promise to do or not to do something. Consideration can move from the promisee or any third party, making it valid under Indian law.
Essentials of Consideration:
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It Must Be at the Desire of the Promisor:
Consideration should be provided at the request of the promisor. If a person voluntarily does something without the promisor’s desire, it does not qualify as valid consideration. For example, if A repairs B’s house without B’s request and later demands payment, A cannot claim it as consideration because it was not done at B’s request.
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It Can Be Provided by the Promisee or Any Other Person:
Under Indian law, consideration can flow from the promisee or a third party. This is known as the “doctrine of privity of consideration.” As long as the promisor’s request is fulfilled, it doesn’t matter who provides the consideration. This is in contrast to English law, which requires that consideration must move from the promisee only.
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It Can Be Past, Present, or Future:
Consideration in Indian law can be:
- Past Consideration: An act done before the promise is made. For example, A performs a service for B, and afterward, B promises to pay A for it. This is past consideration.
- Present (or Executed) Consideration: An act done in response to a promise. For instance, A pays B for goods, and B delivers them immediately.
- Future (or Executory) Consideration: A promise made for a future act. For example, A promises to deliver goods to B, and B promises to pay A after delivery.
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It Must Be Real and Have Some Value:
Consideration must be something of value in the eyes of the law. It doesn’t need to be adequate (equal in value to the promise) but should be sufficient and legal. The adequacy of consideration is generally not questioned by the courts unless there is evidence of fraud or undue influence.
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It Must Be Lawful:
Consideration should be legal, moral, and not against public policy. For instance, promising to pay someone for committing an illegal act is not valid consideration and renders the contract void.
Exceptions to Consideration:
Although consideration is essential for a valid contract, certain situations do not require consideration for an agreement to be enforceable. These exceptions are outlined in Section 25 of the Act:
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Agreements Made Out of Natural Love and Affection:
If an agreement is made between close relatives out of love and affection, it is enforceable even without consideration, provided it is in writing and registered.
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Promise to Compensate for Voluntary Services:
A promise to pay for something voluntarily done in the past without request can be enforceable if it was done for the promisor’s benefit. For example, if A finds B’s lost item and B later promises to pay A for it, the promise is enforceable.
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Promise to Pay a Time-Barred Debt:
A written and signed promise to pay a debt barred by the limitation period is enforceable without consideration.
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Agency and Guarantee Agreements:
Under Sections 185 and 127 respectively, a contract of agency and contracts of guarantee do not require consideration to be enforceable.
Doctrine of Privity of Contract and Consideration:
While the doctrine of privity of contract states that only parties to a contract can enforce it, the privity of consideration rule in Indian law allows consideration to flow from a third party. This flexibility makes Indian contract law more inclusive in ensuring that valid agreements are recognized.