Consideration under the Indian Contract Act, 1872: Meaning, Essentials and Exceptions

An agreement is not necessarily a legally enforceable contract. For an agreement to become a contract, the law generally requires consideration, subject to recognised statutory exceptions. Consideration refers to the act, abstinence or promise exchanged in return for another person’s promise.

The principle is commonly expressed as “no consideration, no contract.” Under the Indian Contract Act, 1872, however, consideration has a broader meaning than simply paying money. It may involve doing something, refraining from doing something, or promising to do or refrain from doing something. This note explains the meaning of consideration, its essential features, the exceptions to the general rule and the differences between Indian and English law.

Meaning and Definition of Consideration

Section 2(d) of the Indian Contract Act, 1872

Section 2(d) of the Indian Contract Act, 1872 defines consideration. When, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, does or abstains from doing something, or promises to do or abstain from doing something, that act, abstinence or promise is consideration for the promise.

Section 2(e) explains that every promise, or set of promises, forming consideration for each other constitutes an agreement. Section 10 establishes the requirements for an agreement to become a contract, including free consent, competent parties, lawful consideration and a lawful object. Section 25 generally provides that an agreement made without consideration is void, subject to specified exceptions.

Consideration under English Law

In Currie v Misa (1875) LR 10 Ex 153, consideration was described in terms of a benefit or interest accruing to one party, or a detriment, loss or responsibility undertaken by the other. In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, consideration was described as the price for which the promise of the other party is bought. These formulations reflect the idea of consideration as the element exchanged in a contractual bargain.

Essentials of Valid Consideration

1. Consideration Must Move at the Desire of the Promisor

The act or promise constituting consideration must be performed at the request or desire of the promisor. An act performed independently or at the request of a third person does not ordinarily qualify as consideration for that promisor’s promise.

In Durga Prasad v Baldeo (1880) ILR 3 All 221, the plaintiff constructed shops at his own expense on the orders of the Collector. The defendant, who occupied one of the shops, promised to pay the plaintiff a commission on goods sold. The court refused to enforce the promise because the construction had been undertaken at the Collector’s request, not at the defendant’s desire.

By contrast, in Kedar Nath Bhattacharji v Gorie Mohamed (1886) ILR 14 Cal 64, a person promised a subscription towards the construction of a town hall. Relying on that promise, the plaintiff entered into a contract with a builder. The court held that the promise was enforceable because the expenditure was incurred on the strength of the subscription promise.

2. Consideration May Move from the Promisee or Any Other Person

Under Section 2(d), consideration may be provided by the promisee or by any other person. Indian law therefore does not insist that the person seeking to enforce a promise must personally have provided its consideration.

In Chinnaya v Ramayya (1882) ILR 4 Mad 137, a woman transferred property to her daughter, who promised to pay an annuity to the woman’s brother. When the daughter failed to pay, the brother brought a claim. The court allowed it, recognising that the consideration could move from a person other than the promisee.

English law generally requires consideration to move from the promisee, as illustrated by Tweddle v Atkinson (1861) 1 B & S 393. Two principles must therefore be distinguished: privity of consideration, which concerns who provided the consideration, and privity of contract, which concerns who is a party to the agreement. Indian law does not generally require privity of consideration, but privity of contract remains the general rule, subject to recognised exceptions.

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3. Consideration May Be Past, Present or Future

Section 2(d) recognises consideration involving acts already performed, acts being performed, and promises to perform acts in the future.

Past consideration refers to an act already completed at the promisor’s desire before the promise is made. Present or executed consideration arises when the act and promise are exchanged at the same time, as in a cash sale. Future or executory consideration involves promises to perform later, such as a promise to deliver goods next month in return for payment.

Indian law recognises past consideration where the act was done at the promisor’s desire. English law generally takes a stricter approach. In Roscorla v Thomas (1842) 3 QB 234, past consideration was not treated as sufficient to support a subsequent promise. A limited exception is illustrated by Lampleigh v Brathwait (1615) Hob 105, where an earlier act performed at the promisor’s request could support a later promise in the relevant circumstances.

4. Consideration Need Not Be Adequate, but It Must Be Real

The law does not ordinarily assess whether the consideration exchanged by the parties is economically equal or fair. The parties may decide the value of their bargain, provided that the consideration is real and legally recognised.

In Thomas v Thomas (1842) 2 QB 851, nominal rent was treated as valid consideration, whereas a moral wish or duty alone was insufficient. In Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87, chocolate wrappers were accepted as consideration despite their limited commercial value to the buyer, because they had value within the transaction.

Explanation 2 to Section 25 of the Indian Contract Act provides that an agreement is not void merely because its consideration is inadequate. However, a court may consider inadequacy when determining whether the promisor’s consent was freely given.

Consideration must nevertheless be genuine. An illusory or excessively vague promise, or an act that is physically impossible or lacks legal value, may fail to qualify as valid consideration.

5. Consideration Must Not Merely Repeat an Existing Duty

A promise to perform an obligation that a person is already legally bound to perform may not constitute fresh consideration for an additional promise.

In Stilk v Myrick (1809) 2 Camp 317, sailors who were promised additional pay after two crew members deserted could not enforce the promise because they were already contractually obliged to perform the relevant work.

Similarly, in Collins v Godefroy (1831) 1 B & Ad 950, the performance of an existing public duty was not sufficient consideration for an additional payment.

The English decision in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 recognised that a practical benefit obtained by a promisor, such as avoiding delay penalties, could constitute consideration for a promise of additional payment in the absence of fraud or duress.

Part-payment of a debt presents a related issue. In English law, Foakes v Beer (1884) 9 App Cas 605 established that payment of a smaller sum does not ordinarily discharge the entire debt. Section 63 of the Indian Contract Act, however, allows a promisee to dispense with or remit performance, extend the time for performance, or accept another satisfaction. The Indian statutory position is therefore more flexible.

6. Consideration Must Be Lawful

Section 23 of the Indian Contract Act, 1872 sets out when consideration or an object is unlawful. Consideration is unlawful where it is forbidden by law, would defeat the provisions of a law, is fraudulent, involves injury to another person or property, or is regarded by the court as immoral or opposed to public policy.

An agreement supported by unlawful consideration is void. Lawfulness is therefore an essential requirement, even where the parties have exchanged something of value.

Exceptions to the Rule: Agreements Without Consideration

Section 25 generally declares agreements made without consideration void, but it recognises specific exceptions. These exceptions permit certain promises to be enforceable even when ordinary consideration is absent.

Natural love and affection: An agreement made out of natural love and affection between parties standing in a near relationship may be valid if it is in writing, registered under the applicable law and satisfies the statutory conditions.

Compensation for past voluntary services: A promise to compensate a person who has already voluntarily done something for the promisor, or something the promisor was legally compellable to do, falls within the statutory exception.

Time-barred debts: A written and signed promise to pay the whole or part of a debt that could have been recovered but for limitation may be enforceable under Section 25.

Completed gifts: Explanation 1 to Section 25 preserves the validity of a gift actually made between donor and donee.

Agency: Under Section 185, no consideration is necessary to create an agency.

Charitable subscriptions: A subscription may be enforceable where liability has been incurred in reliance on the promise, as illustrated by Kedar Nath Bhattacharji v Gorie Mohamed.

Promissory Estoppel and Consideration

Promissory estoppel is a related doctrine under which a party may, in appropriate circumstances, be prevented from withdrawing a promise on which another party has relied. It does not simply replace consideration as a general requirement for every contract.

In Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130, a promise to accept reduced rent was considered in the context of reliance by the other party. Indian courts subsequently recognised promissory estoppel, including in Motilal Padampat Sugar Mills Co Ltd v State of Uttar Pradesh (1979) 2 SCC 409, where the doctrine was applied against the government in the relevant circumstances.

The doctrine can operate to prevent a promisor from going back on a promise where the legal requirements are satisfied. It should, however, be distinguished from the ordinary contractual requirement of consideration.

Consideration under Indian Law and English Law

Point of comparison	Indian law	English law
Source	Section 2(d) of the Indian Contract Act	Primarily developed through case law
Who may provide consideration?	Promisee or any other person	Generally, the promisee
Past consideration	Valid when the statutory requirements are satisfied	Generally insufficient, subject to limited exceptions
Privity of consideration	Not generally required	Generally required
Part-payment of debt	Section 63 permits acceptance of less than full performance	Foakes v Beer applies the general rule against discharging the balance by part-payment alone
Exceptions to the requirement	Includes Section 25 exceptions and Section 185 on agency	Includes distinct doctrines and rules, such as contracts under seal and equitable doctrines

References

Statute

The Indian Contract Act, 1872 (Act No. 9 of 1872), Sections 2(d), 2(e), 10, 23, 25, 63 and 185.

Cases

• Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130.
• Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87.
• Chinnaya v Ramayya (1882) ILR 4 Mad 137.
• Collins v Godefroy (1831) 1 B & Ad 950.
• Currie v Misa (1875) LR 10 Ex 153.
• Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847.
• Durga Prasad v Baldeo (1880) ILR 3 All 221.
• Foakes v Beer (1884) 9 App Cas 605.
• Kedar Nath Bhattacharji v Gorie Mohamed (1886) ILR 14 Cal 64.
• Lampleigh v Brathwait (1615) Hob 105.
• Motilal Padampat Sugar Mills Co Ltd v State of Uttar Pradesh (1979) 2 SCC 409.
• Roscorla v Thomas (1842) 3 QB 234.
• Stilk v Myrick (1809) 2 Camp 317.
• Thomas v Thomas (1842) 2 QB 851.
• Tweddle v Atkinson (1861) 1 B & S 393.
• Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1.

Books and Secondary Sources

• Pollock & Mulla, Indian Contract and Specific Relief Acts (LexisNexis), commentary on Sections 2(d), 10 and 25.
• Avtar Singh, Law of Contract and Specific Relief (Eastern Book Company), chapter on consideration.
• Treitel, The Law of Contract (Sweet & Maxwell), chapters on consideration and privity.
• Chitty on Contracts (Sweet & Maxwell), chapter on consideration.
• iPleaders, Kedarnath Bhattacharji v Gorie Mohammad.
• iPleaders, Role of Consideration under Indian Contract Law.