Consideration

(c) Consideration

Section 2(d) defines consideration: "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 abstain from doing something, such act, abstinence or promise is called a consideration

for the promise." In everyday terms, consideration is "something in return" — the price for

which the promise of the other party is bought.

Types of consideration:

• Executed consideration — the act constituting the consideration has already been completely performed (e.g. goods delivered, payment already made).
• Executory consideration — the consideration is a promise to do or abstain from doing something in the future; both parties' obligations remain outstanding.
• Past consideration — an act done, or abstinence, BEFORE the promise is made. Note the Indian position differs from English common law here: under the Indian Contract Act, past voluntary acts done at the (implied) desire of the promisor can validly support a later promise (see Section 25(2) below), whereas classical English law generally does not recognise past consideration at all.

Rules regarding consideration:

• It must move at the desire of the promisor — an act done voluntarily, without any request from the promisor, is not consideration (though see Section 25(2)'s exception for a promise to compensate such an act).
• It may move from the promisee or from any other person — Indian law permits "consideration from a stranger," unlike English law, so long as it moves at the promisor's desire.
• It may be past, present (executed), or future (executory).
• It need not be adequate, but it must be real — the law does not weigh whether the bargain was a "good deal," only whether something of value (however small) genuinely passed.
• It must be lawful (Section 23 — see sub-topic (g)).

"No consideration, no contract" and its exceptions — Section 25: the general rule is that an

agreement made without consideration is void. The Act carves out specific, exhaustively listed exceptions:

1. Natural love and affection — a written and registered agreement, made on account of natural love and affection between parties standing in a near relation to each other (e.g. a father promising, in a registered document, to gift a sum to his son out of love and affection).
2. Compensation for a past voluntary act — a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something the promisor was legally compellable to do.
3. Promise to pay a time-barred debt — a promise, made in writing and signed by the debtor or their authorised agent, to pay a debt that could no longer be recovered because the limitation period had expired. Beyond these three, the Act also recognises that a completed gift does not need consideration to be valid (Explanation 1 to Section 25), and that no consideration is needed to create an agency (Section 185).

Rights and liabilities of a stranger to a contract — the doctrine of privity of contract: as

a general rule, a person who is not a party to a contract cannot sue upon it, even where the

contract was made for that person's benefit — this is the doctrine of privity of contract.

(Note this is distinct from — and a step further than — the "consideration from a stranger" rule

above: Indian law allows a stranger to consideration, but still does not, as a rule, allow a …