CONSIDERATION
UNDER THE INDIAN CONTRACT ACT,
1872
Name : Rishabh Dayma
Roll No. : 78107
Enrollment no ; DC2100148
Course : MBA(FT)
Semester: 2nd semester
Subject: Business Environment
Faculty Name : Dr Aditya Shrivastva
Date of Submission:*
Contents
## 1. INTRODUCTION.........................................................................................................................3
2. DEFINITION AND ESSENTIAL ELEMENTS OF CONSIDERATION.......................................................4
2.1 Definition :..............................................................................................................................4
2.2 Essential Elements of Consideration........................................................................................4
3. TYPES OF CONSIDERATION............................................................................................................5
3.1 Based on Timing.......................................................................................................................5
3.2 Based on Nature......................................................................................................................6
4. LEGAL RULES REGARDING CONSIDERATION..................................................................................6
4.1 Consideration Need Not Be Adequate.....................................................................................6
4.2 Consideration Must Be Real and Not Illusory..........................................................................6
4.3 Consideration Must Be Lawful.................................................................................................6
5. EXCEPTIONS TO THE RULE "NO CONSIDERATION, NO CONTRACT"...............................................7
5.1 Natural Love and Affection (Section 25(1))..............................................................................7
5.2 Compensation for Voluntary Services (Section 25(2)).............................................................7
5.3 Promise to Pay a Time-Barred Debt (Section 25(3)).................................................................8
5.4 Completed Gifts (Explanation 1 to Section 25)........................................................................8
5.5 Agency Contracts (Section 185)...............................................................................................8
5.6 Charitable Subscriptions..........................................................................................................8
6. JUDICIAL INTERPRETATIONS..........................................................................................................8
6.1 Consideration and Privity of Contract......................................................................................8
6.2 Adequacy of Consideration......................................................................................................9
6.3 Pre-existing Legal Duty............................................................................................................9
9. CONCLUSION.................................................................................................................................9
10. BIBLIOGRAPHY.............................................................................................................................9
1. INTRODUCTION
The Indian Contract Act, 1872 codifies the legal principles governing contracts in India.
Among the essential elements for a valid contract, consideration holds a pivotal place. This
assignment critically examines the concept of consideration as delineated under the Indian
Contract Act, exploring its definition, essential characteristics, legal implications, and
exceptions.
2. DEFINITION AND ESSENTIAL ELEMENTS OF CONSIDERATION
2.1 Definition :
Section 2(d) of the Indian Contract Act, 1872 defines consideration 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."
2.2 Essential Elements of Consideration
From the statutory definition and judicial interpretations, the following essential elements of
consideration can be discerned:
2.2.1 Must Move at the Desire of the Promisor
For an act to constitute valid consideration, it must be performed at the express or implied
desire of the promisor. An act done voluntarily or at the instance of a third party does not
amount to consideration.
In Durga Prasad v. Baldeo (1880) 3 All 221, the plaintiff, at the request of the Collector of a
town, constructed shops at a marketplace. The defendants, who occupied these shops,
promised to pay the plaintiff a commission on articles sold through their shops. The court
held that this promise was without consideration as the act of constructing the shops was not
done at the desire of the defendants but at the desire of the Collector.
2.2.2 May Move from the Promisee or Any Other Person
Under Indian law, consideration need not necessarily move from the promisee. It may
proceed from a third party, which is a significant departure from the English common law
doctrine of "privity of consideration."
In Chinnaya v. Ramayya (1882) 4 Mad 137, a woman gifted certain property to her daughter
with the direction that the daughter should pay an annuity to the donor's brother (the
plaintiff). The daughter executed a deed agreeing to pay the annuity. When she failed to pay,
the plaintiff sued. The court held that although the consideration moved from the donor to the
defendant, the plaintiff could enforce the promise as Indian law allows consideration to move
from any person.
2.2.3 Must Have Value in the Eyes of Law
Consideration must have some value in the eyes of law, though the courts do not generally
inquire into its adequacy. It need not be measurable in monetary terms but must have some
legal value.
3. TYPES OF CONSIDERATION
3.1 Based on Timing
3.1.1 Past Consideration
When an act or abstinence that constitutes consideration was performed or observed before
the promise was made, it is termed as past consideration. Under Indian law, unlike English
law, past consideration is valid.
In Sindha v. Abraham (1895) 20 Bom 755, the court recognized that services rendered in the
past at the request of the promisor constituted valid consideration for a subsequent promise to
compensate.
3.1.2 Present Consideration
When consideration and promise are simultaneous, it is called present consideration. This is
the most common form of consideration in day-to-day transactions.
3.1.3 Future Consideration
When the consideration is to move at a future date, it is called future consideration or
executory consideration. Most bilateral contracts involve future consideration from both
parties.
3.2 Based on Nature
3.2.1 Executory Consideration
When the consideration consists of a promise to do something in the future, it is executory
consideration. Both parties have yet to perform their obligations.
3.2.2 Executed Consideration
When one party has performed their part of the consideration, it is executed consideration.
The other party's obligation remains executory.
4. LEGAL RULES REGARDING CONSIDERATION
4.1 Consideration Need Not Be Adequate
The law is concerned with the presence of consideration and not its adequacy. Courts do not
examine whether the consideration is adequate in value to the promise made, provided it has
some value in the eyes of law.
In Chidambara Mudaliar v. Koothaperumal AIR 1954 Mad 427, the court observed that the
adequacy of consideration is for the parties to consider at the time of making the agreement,
not for the court when it is sought to be enforced.
4.2 Consideration Must Be Real and Not Illusory
While consideration need not be adequate, it must be real and not illusory, impossible, or
vague. If a promise is so vague that its meaning cannot be ascertained, or if it is physically
impossible to perform, it cannot constitute valid consideration.
4.3 Consideration Must Be Lawful
Section 23 of the Act stipulates that the consideration must be lawful. Consideration is not
lawful if it:
- Is forbidden by law
- Is fraudulent
- Involves injury to the person or property of another
- Is immoral or opposed to public policy
In Ratanchand Hirachand v. Askar Nawaz Jung AIR 1976 AP 112, a contract to pay money
to a person for using influence with government officials for securing a contract was held
void as the consideration was opposed to public policy.
5. EXCEPTIONS TO THE RULE "NO CONSIDERATION, NO CONTRACT"
Section 25 of the Indian Contract Act provides certain exceptions to the rule that an
agreement without consideration is void:
5.1 Natural Love and Affection (Section 25(1))
An agreement made without consideration is valid if:
- It is expressed in writing
- It is registered under the law
- It is made on account of natural love and affection
- It is between parties standing in a near relation to each other
In Rajlukhy Dabee v. Bhootnath Mookerjee (1900) 4 CWN 488, the Calcutta High Court held
that a written agreement by a husband to pay his wife a monthly allowance was enforceable
without consideration as it was based on natural love and affection.
5.2 Compensation for Voluntary Services (Section 25(2))
A promise to compensate, wholly or in part, a person who has already voluntarily done
something for the promisor, or something which the promisor was legally compelled to do, is
enforceable.
In Sindha v. Abraham (1895) 20 Bom 755, the court upheld a promise to pay for services
already voluntarily rendered.
5.3 Promise to Pay a Time-Barred Debt (Section 25(3))
A written and signed promise to pay a debt barred by the law of limitation is enforceable
even without fresh consideration.
5.4 Completed Gifts (Explanation 1 to Section 25)
The rule regarding the necessity of consideration does not apply to completed gifts. Once a
gift is completed by delivery, it cannot be rescinded on the ground of absence of
consideration.
5.5 Agency Contracts (Section 185)
No consideration is necessary to create an agency relationship.
5.6 Charitable Subscriptions
Though not explicitly mentioned in the Act, courts have generally held that promises of
subscription for charitable purposes are enforceable without consideration on grounds of
public policy.
6. JUDICIAL INTERPRETATIONS
Indian courts have interpreted the doctrine of consideration with flexibility, keeping in view
the commercial necessities and peculiarities of the Indian social context.
6.1 Consideration and Privity of Contract
In M.C. Chacko v. State Bank of Travancore AIR 1970 SC 504, the Supreme Court
distinguished between "privity of contract" and "privity of consideration," clarifying that
while Indian law allows consideration to move from a third party, the doctrine of privity of
contract (which restricts a third party from enforcing a contract) still applies.
6.2 Adequacy of Consideration
In Vijaya Bank v. N.S. Nataraja Setty AIR 1969 Mys 8, the court emphasized that it is not for
the courts to weigh the quantum of consideration as long as it is not illusory.
6.3 Pre-existing Legal Duty
In Sonia Bhatia v. State of UP (1981) 2 SCC 585, the Supreme Court held that performance
of a pre-existing legal duty does not constitute valid consideration for a new promise.
9. CONCLUSION
The doctrine of consideration remains a fundamental aspect of contract law in India, serving
the dual purpose of distinguishing legally binding promises from mere gratuitous
undertakings and providing evidence of the parties' intention to create legal relations. The
Indian Contract Act's approach to consideration is pragmatic, recognizing various forms and
sources of consideration while providing statutory exceptions where enforcement without
consideration serves the interests of justice and commercial necessity.
While the traditional doctrine faces challenges in the context of modern commercial and
technological innovations, its basic principles remain relevant in ensuring that contracts are
meaningful exchanges rather than unilateral promises. The flexibility shown by Indian courts
in interpreting and applying the doctrine has allowed it to adapt to changing social and
economic conditions.
As contract law continues to evolve, the doctrine of consideration may undergo further
refinements and adaptations, but its core purpose of ensuring that contracts represent genuine
bargains between parties is likely to endure.
10. BIBLIOGRAPHY
Primary Sources:
1. The Indian Contract Act, 1872
2. Durga Prasad v. Baldeo (1880) 3 All 221
3. Chinnaya v. Ramayya (1882) 4 Mad 137
4. Rajlukhy Dabee v. Bhootnath Mookerjee (1900) 4 CWN 488
5. Sindha v. Abraham (1895) 20 Bom 755
6. M.C. Chacko v. State Bank of Travancore AIR 1970 SC 504
7. Sonia Bhatia v. State of UP (1981) 2 SCC 585
8. Chidambara Mudaliar v. Koothaperumal AIR 1954 Mad 427
9. Ratanchand Hirachand v. Askar Nawaz Jung AIR 1976 AP 112
Secondary Sources:
1. Avtar Singh, Law of Contract and Specific Relief (12th ed., Eastern Book Company, 2017)
2. Pollock & Mulla, Indian Contract and Specific Relief Acts (15th ed., LexisNexis, 2018)
3. Anson, Law of Contract (30th ed., Oxford University Press, 2016)
4. M.P. Furmston, Cheshire, Fifoot and Furmston's Law of Contract (17th ed., Oxford
University Press, 2017)
5. Nilima Bhadbhade, Contract Law in India (Kluwer Law International, 2010)
6. Ewan McKendrick, Contract Law: Text, Cases, and Materials (8th ed., Oxford University
Press, 2018)
7. D.K. Srivastava, Law of Contract (2nd ed., Central Law Publications, 2016)
8. N.S. Bindra's Interpretation of Statutes (12th ed., LexisNexis, 2017)
9. G.C. Chesire and C.H.S. Fifoot, Law of Contract (11th ed., Butterworths, 1986)
10. A.G. Guest, Anson's Law of Contract (29th ed., Oxford University Press, 2010)
