Consideration is defined under 

Section 2d of the Indian Contracts Act, 1872. It

is defined as when the promisee at the request to the promisor has:

 Done or abstained from doing something,

 Does or abstains from doing something,
 Promises to do or abstain from something,

Then such act or abstinence is called consideration.

Table of Contents
o Why do we need consideration
o Legal requirements as to consideration
o Stranger to a contract
 Exception
 Past consideration
o Past act at request good consideration
o Past voluntary service
o Past service at request past and executed
o Executory Consideration
 Value need not be adequate
 Inadequacy as evidence of imposition
 Forbearance to sue 
 Compromise good irrespective of merits
 Performance of existing duties
o Performance of legal obligations
o Performance of contractual obligations
 Pre-existing contract with the promisor
 Promise to pay less than the amount due
o Exceptions to the rule in Pinnel Case
 Part-payment by the third party
 Composition 
 Payment before time 
 Promissory estoppel
o Position under the Indian contract act is different than under English Law
 Under English Law
 Under Indian Law
 Pre-existing contract with the third party
 Consideration and motive
 Absence of consideration
 Exceptions under Section 25, Indian Contract Act
o Fiduciary relation
o Past voluntary services 
o Time barred debt
 Gift actually made
 Inadequacy of consideration
 Conclusion
 References
Why do we need consideration
Only the promises that are backed by consideration are enforceable because
any promise made without any obligation is usually very rash and without any
sort of deliberation. The reason for making consideration an essential part of a
contract is because it levies a sort of burden on the parties to fulfil the terms of
the contract. For Example, if, A promises to give B a car without B doing or
abstaining to do anything for it, makes the promise by an unenforceable. This
will be a gift and not a contract per se.

Legal requirements as to consideration

 Must move at the desire of the promisor- Section 2d of the Indian
Contract Act, 1872, clearly mentions that the consideration should be
at the desire of the promisor if the consideration is made at the will of
the third person or is not according to the promisor then it is not a
good consideration.

 Can move from the promisee or another person- Unlike English law in

which the consideration must move at the desire of the promisor, in
Indian law as long as there is consideration it is immaterial as to who
has furnished it. Moreover, in the case of Chinnaya vs Rammyya the
consideration can also move at the desire of the third party but only in
the condition where he is the beneficiary of the contract. 

 Can be an act, abstinence or even a promise- If the promisee does

something or abstains from doing something for the promisor, at his
desire, then it will be a good consideration.
 Can be past, present or future:

PAST- When the consideration is given before the promise was made. For
example- A saves B at the latter’s desire. B after a month promises to pay A.
the act of A will amount to past consideration for the payment made by B.
PRESENT- When the consideration is given at simultaneously to the promise
made, then this is present consideration or executed consideration. For
example- cash sales.

FUTURE- When the consideration of the promise made is to be passed at a

future date then that is called future or executory consideration. For example- A
promises to pay B, when the latter will fetch newspaper for him.

 Consideration need not be adequate- It is not necessary that the

consideration is equal or adequate for the promise made. However, it
is mandatory that the consideration should be something in which the
law attaches some value. It is for the parties to decide the value of the
consideration and not a court of law. For example- A sells table to B
and B gave him rs 500. It will be difficult for the court to ascertain the
value of the table, so if A is satisfied with the amount given then the
consideration is valid.

 Should be real- although the consideration need not be adequate it

should be real and not illusory. The consideration should not be
physically impossible, legally not permissible or based on an uncertain
event or condition.

 Should not be something which the promisor is already bound to do- a

consideration to do something which the promisor is already required
to do is not a good consideration. For example- the public duty done by
a public servant.
 Should not immoral, or against the public policy of the
state- under Section 23 of the Indian contract it is given that
consideration should not be illegal, immoral or against public policy.
the court should decide the legality of the consideration and if found to
be illegal than no action on the agreement should be allowed.

Stranger to a contract
It is a general principle that the contract can be enforced only at the behest of
the parties to the contract. No third party could enforce it. It arises from the
contractual relationship between the two parties. However, Lord Dennings has
criticised this rule a number of times as this rule has never benefited the third
party whose roots go deeper in the contract. This rule has two consequences-

 No third party could enforce the contract.

 The contract between the parties cannot levy an obligation on any
person other than those party to a contract.

Exception

There are three exceptions to this rule:

 Marriage settlements- When an agreement is made with regards to

marriage, family settlement or partition and is made in such a way that
it benefits another person who is not a party to the contract then he
may sue for the enforcement of the contract.

 Covenants running with the land- in cases of the contract of

property the purchaser will be bound by all the conditions and
covenants of the land, even though he was not a party to the original
contract. 
 Acknowledgement of estoppels- in case the terms of the contract
require that an agreement has to be made with the third party, then
this has to be acknowledged. This acknowledgement could be
expressed or implied. This exception covers the areas where the
promisor either expressly or by conduct has posed himself to be an
agent.
Past consideration

It is the consideration which is made before the agreement. It is something

which the promisee has already done at the desire of the promisor. 

For example- A rescues B. B promises to give him Rs. 1000 for the same. Here
it is a past consideration as the act of rescuing happened before any
agreement. 

In English law past consideration is no consideration. If A saves B and B

promises him to pay but later refuses to do so, then under English law, A
cannot enforce it in a court of law. B can give him the money, but that would
not be considered as a past consideration but it would be by way of gratitude.
This, however, causes a lot of inconveniences, as if a person would pay for the
past act then he shall have to recognise the past consideration which is not
valid under English Law. the report of the law commission of England proposes
to remove this rule.

In India however, there is no compulsion to follow the English law and past
consideration is regarded to be valid. 

Past act at request good consideration

The past act done for consideration would be a good consideration. In the case
of Lampleigh vs Brathwait, in which the defendant requested the plaintiff to help
him get a pardon from the king. The plaintiff put in efforts, travelled up to the
king etc.his request was not sanctioned. The defendant promised to pay him for
the same. Later he refused to do so. Plaintiff sued him in a court of law. The
court held that the defendant must pay the plaintiff because he has himself
requested him to help him. Hence the act of the plaintiff, although done in the
past, would still be regarded as a valid consideration.
 

Past voluntary service

If a person renders voluntary services without any request or promise from
another and the person receiving the services makes a promise to pay for the
services, then such a promise is enforceable in India under Section 25(2) of the
Indian Contract Act, 1872 which states: ‘‘An agreement made without
consideration is void unless it’s 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 compellable to do; or unless.’’

For Example- Peter finds Noah’s wallet on the road. He returns it to him and
Noah promises to pay Peter Rs 500. This is a valid contract under the Indian
Contracts Act, 1872.

Past service at request past and executed

An act done before the giving of a promise to make a payment or to confer
some other benefit can be a consideration for the promise. The act must have
been done at the promisor’s request, the parties must have understood that the
act was to be remunerated either by a payment or the conferment of some
other benefit, and payment or the conferment of a benefit must have been
legally enforceable had it been promised in advance.

Executory Consideration
Consideration may be something which is done or in the process of being done.
It also consists of an act which is promised to be done in the future. There may
be promises which form the consideration for each other. Before the completion
of a promise which forms a part of the consideration of the other promise, then
such consideration is called executory consideration.
For example- if A promises to pay B when he will sell the goods to him. Until
time A does not get the goods, the consideration is executory, when he got the
goods and paid for the same, the consideration is executed. If B does not sell
the goods then A could also breach for the suit.

Value need not be adequate

Consideration is defined as an act of abstinence from doing something, at the

desire of the promisor. The consideration should be of some value in the eyes of
law, but the courts have been very liberal in interpreting and anything of value
by the parties is regarded as a valid consideration. 

The value need not be adequate for the promise made. The court will not
enquire whether the value of the consideration is equivalent to the promise that
is made. If the parties agree to the value of the consideration then it is
sufficient. This rule is applicable as per Indian and English law.

Inadequacy as evidence of imposition

The inadequacy of consideration is regarded to check whether the consent is

freely given. For example- A agrees to sell his property worth Rs 1 crore to B for
Rs 10,000. denies that his consent for the sale of the property was not freely
given. A party seeking to set aside the transaction based on the inadequacy of
the consideration must show that he was unable to understand it or was by way
of some imposition. If the court is satisfied that the contract was freely entered
into then it would not matter whether the consideration was adequate or not.

Where the consideration is inadequate it could be because of fraud, coercion,

mistake etc. the same would be the case when the consideration is so low that
it shows some serious inequality of the bargaining power. 
Forbearance to sue 

The most usual form of forbearance is the forbearance to sue within a

reasonable time. This promise to forebear can be expressed or implied from the
circumstances. Sometimes it is very difficult to construe from the fact whether it
was an agreement to forbearance (which is not a good consideration until not
backed by the request of the promisor) or actual forbearance. Hence to clarify
in the case Bittan Bibi vs Kuntu Lal, it was held that the promise of forbearance
should move at the desire of the promisor.

Forbearance to sue on a claim which is void is not a consideration. Moreover,

abstaining to sue could be valid consideration only when the person who is
abstaining, has a valid right to sue. Also, it is not necessary to specify the time
for such abstinence. A request for forbearance without specifying the length is
understood to be a forbearance for a reasonable time.

Compromise good irrespective of merits

It is an important kind of forbearance which is undertaken by way of a

compromise of a doubtful claim. The important element here is to ascertain the
limits of which the compromise will function and will still be a good
consideration. The difference between forbearance and compromise is that in
the latter claim is not admitted and the claimant promises to abandon the claim.

The abandonment of a doubtful or disputed claim is a good consideration even if

it later turns out to be unsustainable. The test is to find whether the person
thought in good faith and he has a case which he was abandoning. A
compromise of a claim arising out of an illegal contract is insufficient as a
consideration unless the compromise arises out of a dispute of fact as to
whether the contract is illegal.
Performance of existing duties

Performance of legal obligations

The performance of what one is already bound to do, either by general law or
by a specific obligation to the other party, is not a good consideration for a
promise, because such performance is not a legal boundation a person.
Moreover, on the performance of a legal obligation, a reward from the private
organisation is taken then it would be against the public policy. It should be
ensured that the legal duty actually exists. But if a man who already has a legal
obligation undertakes to do something or to do something in any of the
admissible way i.e. the person has forgotten the choice that the law allows him
to take is a good consideration.

Moreover, the actual performance of an existing duty may confer a factual

benefit, because on actual performance the promise is saved of pursuing a legal
remedy for its breach. 

Performance of contractual obligations

Pre-existing contract with the promisor

Usually, the performance of a duty already owed under the contract to the
promisor is not good consideration. Even in terms of public policy, it is
necessary to discourage a tendency to use improper pressure or threatening to
break one’s contract unless another party complies by paying or promising to do
so. The promisee must find it beneficial to perform the promise immediately
rather than paying for its breach which may not fully compensate the promisor.
Promise to pay less than the amount due

A promise to pay less than what is due in the contract cannot be regarded as
consideration. This rule was given in Pinnel’s case. The court held that a smaller
amount cannot in whole satisfy a larger sum. However, a gift of the horse, robe
etc can be considered as a good satisfaction because under certain
circumstances it is considered to be more beneficial than money, otherwise, the
person would not accept it.

This holding was criticised in a way wherein several cases the jurist held that if
the party is content to receive any amount be it less than the sum and he is
satisfied by the same, then it should be considered to be a valid consideration.
However, in spite of all this criticism, the Pinnel’s Case was applied unanimously
in various circumstances.

Exceptions to the rule in Pinnel Case

Part-payment by the third party

The part payment by the third party may be a good consideration for the whole
debt.

Composition 

Payment of a lesser amount would be a good consideration for the larger sum
where this is done for some already entered compromise. 

Payment before time 

Payment of a lesser sum before the time or in a different mode, a different

place than agreed by the parties or the gift of a horse or robe etc is a valid
satisfaction of the goods.
Promissory estoppel

The doctrine of promissory estoppel is considered to be a departure from the

doctrine of consideration. A promise that was made in future is estoppel. If the
promise is made with the intention that it would be acted upon and it was in
actuality acted on, then the promisor cannot be allowed to back out and it could
be enforced in a court of law as well.

Promissory estoppels differ from traditional contract theory. It protects reliance.

This doctrine was developed to prevent injustice if the promisee suffers from
any injustice due to the reliance on the promise of the promisor, even though it
was not required a consideration. However, in English law, the doctrine of
promissory estoppel is used only as passive equity and is invoked only in the
cases of defence.

Position under the Indian contract act is different

than under English Law

Under English Law

It is an established rule under English law that the third party cannot sue a
contract made for his own benefit. Apart from special circumstances. A person
who is not a part of the contract cannot enforce or rely for protection on its
provisions. Such right can be conferred to a property by way of trust but it
cannot be on a stranger to a contract as a right to enforce the contract.

Under Indian Law

It is established that the consideration can move from a third party but it
cannot sue for its own agreement. However, there was lots of confusion on this
point. Although the definition of “consideration” is wider in the Indian than in
the English law since common law is applicable, therefore it is generally applied
that the third party cannot enforce the contract.

Law Commission of India in one of its reports mentioned that the contract must
be enforceable by a third party if it expressly for his benefit but the defences of
the party to the contract must also be considered. It is also proposed that the
parties cannot alter the terms of the contract once the third party takes over
the contract.

Pre-existing contract with the third party

A promise to perform a pre-existing contractual obligation with a third party can

be a valid consideration for another contract. The point of conflict in these kinds
of arrangements is regarding the presence of consideration for the promisor.
This conflict was settled in the case of Shadwell vs Shadwell, where the plaintiff
got engaged and his uncle wrote him a letter promising him to pay 150 pounds
throughout his lifetime. 

The jurists in the above case held that there was adequate consideration for the
contract as it could be construed from the fact that it was made because of the
engagement of his nephew. Moreover, marriage is of great interest to the near
relatives. Also, the contract is binding on the uncle as it is possible that the
plaintiff has undertaken many liabilities on account of the promise given by the
uncle and if the payment is withheld then the plaintiff could face a lot of
embarrassment. 

Under these provisions, the person should be safeguarded from any further
payment which is not enforceable as per the contract. Like in the case of Syros
Shipping vs Elaghil Trading co. a vessel which was prepaid had to deliver
tractors to Yemen. The charters defaulted their payment to the shipowner
because of the congestion in the ports. During this period the shipowner asked
for extra payment, the consignees agreed to pay but later refused. The court
held that since there was no consideration for the promise, moreover no
estoppel was created hence the contract is not enforceable.

Consideration and motive

Consideration is not the same thing as motive or a mere desire. The

requirement of consideration is vital and the contract could not be satisfied with
just a moral obligation. Consideration for a promise is always a motive for the
promise, unless it is nominal or invented, while a motive for a promise may not
always be a consideration for it. Motive induces a promise to be given. Similar
holding was given in the case of Dwarampudi Nagarathnamma vs Kuruku
Ramayya, where the Karta of a Hindu Undivided Family gifted his concubine a
portion of the property beyond the cohabitation was a motive and not a
consideration, and it should be considered as invalid because it was motivated
by the desire to compensate for his past services.

Absence of consideration

If the promissory note is neither genuine nor fraud then it is recoverable under
the provision of this code, with interest. The court said that mere denial of the
passing of consideration does not make any defence. Something which is
probable has to be brought on record.

Exceptions under Section 25, Indian Contract Act

In English law, a contract which is under the seal is enforceable without

consideration. In Indian law, there are no such provisions but still, The general
rule is the ex nudo pacto non-oritur action, which means that no right of action
arises from the contract which is entered into without any consideration. Still,
under Section 25 of the Indian Contract Act,1872.it provides certain exceptions
under Section 25 of the Indian Contract Act.
Fiduciary relation
In case of a contract entered into between the relatives or on account of natural
love and affection is enforceable without consideration. The meaning of love and
affection is not judicially construed but parties who are nearly related would
have instinctive love and affection. However, this could be overruled with
regards to some external circumstances, like between the wife and husband
who are compelled to live separately because of quarrelling. But a settlement to
be given to a man by the wife by way of maintenance could be enforced without
any consideration because it will result in peace and family harmony.

The term “family” (in this context) should be understood as a group of people
living together and possessing a right of succession, inheritance etc., but the
family could be construed as a people who are bonded by natural love and
affection.

Past voluntary services 

A promise to compensate the person who has done something voluntary in the
past for the promisor is enforceable. This exception is attracted in the cases
when the services are rendered voluntarily. Thus where a service is rendered on
behalf of a company which is not in existence, a subsequent promise to pay
would not attract this provision. Even where the promisee has done something
for the promisor, which he had to do legally, then it will also be covered under
this exception.

In Case of a Minor

In Karam Chand vs Basant Kaur, the court held that even where the promisor
after attaining majority, promises to pay for the goods attained in minority will
also fall under this provision. The court said that although the promise made by
a minority is void but is the promise is made by a person of full age to the
promisee who has done something for him voluntarily when the promisor was a
minor, then it will also attract this exception.

Time barred debt

A promise to pay a time-barred debt is enforceable and it should be signed by
the person or his agent. It could be to pay for the whole debt or in part. The
debt to be enforced could be paid except for the law of limitation. However, the
person who is under no obligation to pay to another person is under no
obligation under this clause. 

The promise to pay the debt must be expressed, it is not sufficient if the
intention to pay could not be gathered from the circumstances. 

Acknowledgement of the debt is different from the promise to pay the debt. The
acknowledgement of the person should be done before the period of limitation.
Promise to pay a time-barred debt is a new contract. It is not just merely an
acknowledgement of the existing liability.

Gift actually made

The provisions of “Consideration” do not affect the gift actually made. Under
this Section, gift is defined as: 

 The gift is of movables then it should be accompanied by its delivery.

 The gift is of immovables then should be along with registration. 

If the above conditions of gifts are fulfilled then lack of consideration would not
affect the validity of these gifts. However, apart from the consideration, they
could be questioned otherwise. 
Where the gift of the property was made by a registered deed and is attested
by two witnesses, it was not allowed to be questioned on the ground that she
was the victim of fraud, moreover, she was not able to establish it.

Inadequacy of consideration

Adequacy of the consideration means that the consideration which is paid is

equal in value to the value for which it is paid. Consideration can be terms of
money, property etc. inadequate consideration is not void but it renders the
contract unenforceable because of the improper bargaining or by itself.

Inadequate consideration must be distinguished from nominal consideration.

Nominal consideration is deliberately given to make the contract effective but
inadequate consideration is less than the amount promised. Although the act
does not make any distinction between the nominal and inadequate
consideration but it was made in the case of Midland Bank trust vs Green. 

Conclusion

Consideration is defined under Section 2d of the Indian Contract Act,1872. It

could be past, present or future, and must only concern the parties to the
contract and not any third party. But there are various exceptions present under
Section 25 of the Act, these exceptions are made keeping in view various
circumstances, so that the interest of the parties of the contract or even the
third party is not compromised. Moreover the consideration need not be
adequate, however it should be valuable according to the parties of the
contract. 
References

 https://www.toppr.com/guides/business-laws/indian-contract-act-
1872-part-i/legal-rules-regarding-consideration/
 https://www.legalbites.in/consideration/
 Pollock and Mulla Indian Contract Act, 1872
 Avtar Singh Law of Contract