Consideration

Section 2(d) of the Indian Contract Act defines the term consideration as follows-

“when at the desire of the promisor, 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.”

In short, the term consideration means ‘something in return’ i.e. ‘QUID PRO QUO’.

Pollock- “the price for which the promise of the other is bought, and the promise thus given for
value is enforceable”.

Blackstone- “the recompense given by the party contracting to the other”

Illustration- A agrees to sell his car to B for Rs. 50,000. Here, B’s promise to pay the sum of Rs.
50,000 is the consideration for A’s promise to sell the car, and A’s promise to sell the car is the
consideration for B’s promise to pay the Rs. 50,000.

Case Law

1) Currie v Misa (1875) LR 10 Ex 153

FACT –

Mr Currie was the owner of a banking firm. Lizardi & Co. drew four bills of exchange from the bank
owned by Mr Currie and gave these bills of exchange to Mr Misa. At the time of drawing the bills,
the company was in good credit terms. These bills were transferred on the 11th of February and the
brokers were to be paid on the 14th of February. At the time of paying off the bills, Lizardi & Co.
were in a lot of debt and were thus pressurized by Mr Currie’s bank to pay off their debt. Due to this,
he gave a draft order to the banker of Mr Curie’s banking firm on Mr Misa which was equivalent to
the amount of the previously drawn bills.

When Lizardi & Co. stopped with the payments of their debts that had become long outstanding, Mr
Misa asked the bankers not to honour the cheque or order given before as they got to know about
the condition of Lizardi & Co.

Issue –

The main issue, in this case, was to identify-

If the cheque was payable

If existing debt forms a valid consideration as a negotiable instrument

Would the credit be the holder of the value of the cheque?

Judgement –

It was decided by the House of Lords that there cannot be a valid contract unless and until there is a
valid consideration backing the transaction. This consideration might amount to gain to either of the
party or may cause a loss to the other party.
It was also decided that there was the absence of sufficient consideration for the negotiable
instrument that came into view owing to the past debt. And so, no cheque was made by the
respondent.

The decision was eventually passed in the favor of the appellant, Mr Curie. And Misa was
responsible to pay off the amount of the debt.

Conclusion –

It was established in this case that “A valuable consideration is a sense of law which may consist
either in some right, interest, profit or benefit occurring to one party, or some forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other”.

Essential elements of consideration

1) Consideration should be passed at the request of offeror:-

offeree should send only such consideration which is wanted by the offeror. In the case where
offeree sends unwanted consideration, he has no right to claim counter consideration.

Case - Durga Prasad v. Baldeo and Others ILR [1881] 3 ALLAHABAD 221

Fact –

The plaintiff requested the district collector to construct some shops in his town. Those shops were
given for rent to the defendant for doing business. The rent was also fixed. Later, the defendant had
promised to the plaintiff that he will be giving a 5% commission to him on all articles which he is
going to sell through that shop in consideration of the construction of the building by the plaintiff by
spending huge money. However, the defendant failed to pay the commission. So Durga Prasad filed
a suit against the shopkeepers who did not give the commission.

Issues –

Whether the contract is valid or not?

Whether this is a proper contract or not?

Judgment

The court held that the claims for the plaintiff were rejected because there is no proper contract
between the plaintiff and the defendant mainly the contract has no proper consideration. Contract
without consideration is void. The promissory has no personal benefit about the contract. The
contract was done without the intention of the promissory. So the contract is void.

2) Consideration may move from a promisee or any other person:-

In Indian law, according to section 2(d) of the Indian Contract Act, consideration may move from the
promisee or if the promisor has no objection, from any other person.

In English law, consideration should move from promisee only. Though it is said so English law has
given an exception i.e there should be blood relation between the promisee and that other person
who is sending the consideration.

Case - Dutton v Poole (1678) 2 Lev 210

Contract law – Third party – Privity of contract

Facts

A son made a contract with his father for his father to not cut down an oak woodland. As
consideration for this, the son would make a payment to his sister of £1000 once she had married.
The money gained from the woodland would have been paid to the sister. The father died before
the sister was married and the son subsequently refused to pay his sister the money as was
previously agreed, at the time of her marriage. The sister sued her brother for the amount that was
originally promised between the father and son.

Issue

The concept of privity of contract had not been fully established at this stage and therefore this
decision had significant importance to the broader subject. The court had to understand whether
the daughter could be considered to be privy to the contract between the father and son regarding
the payment. Within this, it was vital for the court to establish whether the daughter had given
consideration for the promise that was made by the son, to his father, to pay the daughter the sum
of money upon her marriage.

Decision/Outcome

The court found in favour for the sister on the basis that the relationship between the father and the
daughter had made the sister a party to the agreement, even if she was not included at the time the
contract was agreed. The relationship between father and daughter was found to extend the
consideration that the father gave in the promise to the children.

3) Consideration need not be adequate:-

Consideration of the contract need not have equal magnitude. The inadequacy of consideration will
not infect the validity of the contract.

CASE - Thomas v Thomas (1842) 2 QB 851; 114 ER 330

Consideration need only be legally not economically adequate.

Facts

Before he died, Mr Thomas said he wished for his wife to have the house they lived in for the rest of
her life. However, this was not written into his will. After he died, his executors, ‘in consideration of
such promise’, agreed with Mrs Thomas that she would pay a peppercorn rent of £1 per year in
return for being allowed to live in the house. They later tied to dispossess her.

Issues

A valid contract must be supported by consideration. That is, the promisee must promise to do
something in return for the promise of the other party. It was argued that there was no contract
because Mrs Thomas, the promise, provided inadequate consideration as the rent was nothing like a
commercial rent for the property. Mrs Thomas argued that her promise to pay rent and keep the
house in repair was good consideration.

Decision/Outcome

The executors statement did not create a contract as it only expressed their motive for entering into
the agreement. However, the £1 rent was recognized as good consideration. Patteson J said (at 859):
Motive is not the same thing as consideration. Consideration means something which is of some
value in the eye of the law, moving from the plaintiff:

Without consideration the transaction was merely a voluntary gift. However, by agreeing to pay rent
in return for being allowed to stay in the property, Mrs Thomas had provided consideration, even
though it was not economically adequate or anything like a commercial rent for the building.
Therefore, the contract was enforceable.

4) Consideration must be lawful:-

Presence of unlawful consideration makes the contract illegal and hence void.

Illustration- A promises to maintain B’s child and B promises to pay A Rs. 1,000 yearly for the
purpose. Here, the promise of each party is the consideration for the promise of the other party.
They are lawful considerations.

5) Consideration must be real:-

Consideration should not be of an illegal contract. It must be a believable concept.

Types of consideration

Consideration is of the following five kinds

1) Past Consideration-

Past consideration is something wholly done, forborne, or suffered before the making of the
agreement.

Illustration:- A saves B’s life. B promises to pay A Rs. 21,000 out of gratitude. Here, the
consideration is past, because A did nothing or refrained doing anything on account of B ’s promise.
Whatever he did, he did before B’s promise was made.

2) Present Consideration-

The consideration which moves simultaneously with the promise is called present consideration or
executed consideration.

Illustration:- X buys an article from a shop and pays the price immediately. The Consideration moving
from X is present or executed consideration.

3) Future Consideration-

This type of consideration is a promise to do or abstain from doing something in the future.
Sometimes executory consideration is also known as a future consideration.

Illustration:- A promises to pay a sum of money to B in consideration of B’s promise to delivers a

book for A. As B’s promise has not yet been performed, it is executory.

4) Unreal Consideration-
When a consideration exists only in words, and not in fact. Then such consideration is known as
unreal consideration for a promise.

Illustration:- A promises to pay B, Rs. 2,000 on a particular day, in consideration of a promise by B to

pay A Rs. 500 at the same time, the consideration is ‘unreal’ or ‘illusory’, and the promise will be
regarded as merely a gratuitous promise by A to pay B, Rs. 1500.

5) Unlawful Consideration-

Section 23 of the Act describe the term unlawful consideration. A consideration is said to be
unlawful if-

1) It is forbidden by law;

2) It would defeat the provision of any law;

3) It Is fraudulent;

4) Involves or implies injury to the person or property of another;

5) It is regarded as immoral or opposed to public policy, by the Court.

Illustration- A, B and C enter into an agreement for the division among them of gains acquired or to
be acquired, by them by fraud. The agreement is void, as its object is unlawful.

Exceptions to Consideration:-

Section 25 of the Contract Act lays down a few exceptions when an agreement made without
consideration is not void.

Exception 1- Natural Love and Affection

A written and registered agreement based on natural love and affection between near relatives is
enforceable without consideration. The expression ‘near relative’ will include parties related by
blood or marriage.

Exception 2- Past Voluntary Service

A promise to compensate a person, who has already voluntarily done something for the promisor, or
something which the promisor was legally compellable to do, is enforceable. However, such service
should have been rendered voluntarily and without promisor’s knowledge, and for the promisor
only.

For example, a promise made after attaining the age of majority to pay for goods supplied to the
promisor during minority was held to be within the exception.

Illustration:- A finds B’s mobile phone and gives it to him. B promises to give Rs. 100. This is a
contract.

Exception 3- Time-barred Debt

A promise to pay a time-barred debt is enforceable.

Illustration:- X owes Y, Rs. 1,000, but the debt is barred by the Limitation Act. X signs a written
promise to pay Y, Rs. 500 on account of the debt. This is a contract.