Consideration under Section 2(d) of the Indian Contract Act, 1872: Meaning, Essentials, Past Present and Future Consideration, Adequacy, and the Points on Which Indian Law Departs from English Law

Consideration is what distinguishes a bargain from a gift. The law will enforce a promise for which something was given or promised in return, and will not ordinarily enforce one for which nothing was. Section 2(d) defines it in language that is deliberately wider than the English definition, and the width produces three departures of real practical importance: past consideration is good in India, consideration may move from a person who is not the promisee, and adequacy is expressly irrelevant. This topic works through the definition clause by clause and then through the requirements the courts have added.

1. The Definition

The classical English formulation is that of Lush J in Currie v. Misa, (1875) LR 10 Ex 153: a valuable consideration may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. Section 2(d) does not use the language of benefit and detriment. It asks a narrower and more mechanical question: did something move at the desire of the promisor?

2. The Essentials

2.1 It must move at the desire of the promisor

This is the indispensable requirement and the one on which most Indian cases turn. An act done voluntarily, or at the instance of a third person, or in discharge of a legal duty, is not consideration however much it benefits the promisor. The promisor must have asked for it, expressly or by implication.

2.2 It may move from the promisee or any other person

Section 2(d) says the act or abstinence may be that of the promisee or any other person. Indian law therefore does not require privity of consideration, and a stranger to the consideration may enforce the promise provided he is a party to the contract. English law is to the opposite effect. The point is developed in the dedicated topic on privity of consideration.

2.3 It may be past, present or executed, or future or executory

The words 'has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing' cover all three tenses, and this is the second major departure from English law.

• Past consideration. Something already done at the promisor's desire, followed by a promise to pay for it. Good consideration in India under Section 2(d), and not good consideration in England, where the promise is treated as a mere expression of gratitude for a completed act.
• Present or executed consideration. The act is done simultaneously with the making of the promise, as in a cash sale.
• Future or executory consideration. A promise given in return for a promise, which is the form almost all commercial contracts take.

2.4 It must be something of value in the eye of the law

Consideration must be real, though it need not be adequate. Four kinds of purported consideration are treated as unreal and therefore insufficient.

1. Physically impossible. A promise to do something that cannot be done, which Section 56 in any event makes void.
2. Legally impossible or unlawful. A promise to do what the law forbids, which engages Section 23.
3. Uncertain or vague. A promise so indefinite that the court cannot say what was undertaken, which engages Section 29.
4. Illusory. A promise which leaves the promisor free to perform or not as he chooses, and so commits him to nothing at all.

Performance of a pre-existing legal duty is not consideration, because the promisor receives nothing he was not already entitled to. The rule applies to a public duty, as where a public servant claims a reward for doing what his office required, and to a duty already owed under a subsisting contract with the same promisor.

2.5 Adequacy is irrelevant

Explanation 2 to Section 25 states that an agreement is not void merely because the consideration is inadequate. The court does not reprice the bargain, and a promise to sell a valuable asset for a nominal sum is enforceable if consent was free. The second half of the Explanation must be read with the first: inadequacy may be taken into account in deciding whether consent was freely given. Gross inadequacy is therefore not a ground of invalidity, but it is evidence, and it becomes significant where the relationship between the parties engages Section 16(3) and shifts the burden of proving absence of undue influence onto the dominant party.

3. Forbearance and Compromise as Consideration

A promise to abstain is expressly covered by Section 2(d), and two commercially important instances follow. Forbearance to sue is good consideration: a creditor who agrees not to enforce a claim, or to give time for payment, has given something of value. Compromise of a disputed claim is likewise good consideration, and it is no answer that the claim, if litigated, might have failed, provided the claim was made honestly and was not known by the claimant to be baseless. The value of the forbearance lies in the giving up of the right to litigate, not in the eventual merits.

4. Where a Promise Fails for Want of Consideration

The three points at which Section 2(d) parts company with English law

5. The Indian Departures Summarised

6. When Consideration Is Not Required

Section 25 declares that an agreement made without consideration is void, and then states three exceptions: an agreement in writing and registered made on account of natural love and affection between parties standing in a near relation to each other; a promise to compensate a person who has voluntarily done something for the promisor or something the promisor was legally compellable to do; and a written and signed promise to pay a debt barred by limitation. Other statutory exceptions exist outside Section 25, notably the completed gift saved by Explanation 1 to Section 25, agency under Section 185, which requires no consideration to create an agency, and a contract of guarantee, where anything done for the benefit of the principal debtor is sufficient consideration for the surety's promise under Section 127. These are treated in the dedicated topic on Section 25.

7. The Position Stated Shortly

1. Section 2(d) requires that something move at the desire of the promisor; this is the indispensable element.
2. Durga Prasad v. Baldeo: an act done at the desire of a third party is not consideration, even though the promisor benefits.
3. Consideration may move from the promisee or any other person, so India does not require privity of consideration.
4. Past, present and future consideration are all good in India, and past consideration is the clearest departure from English law.
5. Consideration must be real: physically or legally impossible, uncertain and illusory promises are insufficient, as is performance of a pre-existing legal duty.
6. Adequacy is irrelevant under Explanation 2 to Section 25, but inadequacy is evidence on the question whether consent was free.
7. Forbearance to sue and the compromise of an honestly asserted claim are good consideration.
8. Abdul Aziz v. Masum Ali: a bare subscription promise is unenforceable; Kedar Nath shows that it becomes enforceable once the promisee incurs a liability on the faith of it.
9. Section 25 sets out the three exceptions to the requirement of consideration.

8. Related Topics and Provisions