The doctrine of Consideration is one of the most fundamental principles of the Indian Contract Act. It is often described as the “price” of the contract. Without consideration, a promise is usually just a social obligation, not a legal one.
1. Meaning of Consideration
Section 2(d) of the Indian Contract Act, 1872 defines consideration as follows:
“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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”
Breakdown of the Definition:
- At the desire of the Promisor: The act must be done because the promisor asked for it. If you do something voluntarily, it is not consideration.
- By the Promisee or any other person: Consideration can be given by the person receiving the promise or even by a stranger (Third Party).
- Act or Abstinence: It can be positive (doing something) or negative (not doing something, e.g., promising not to sue).
2. “Quid Pro Quo” Explained
The term Consideration is derived from the Latin maxim “Quid Pro Quo,” which literally means “Something for Something.”
- Pollock’s Definition: “Consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”
- Simple Logic: If A gives B a car, B must give A money (or something else) in return. That “return” is the Quid Pro Quo.
- Need not be adequate: The “something” given in return need not be equal in value. Selling a house worth ₹1 Crore for ₹10 Lakhs is valid consideration, provided the consent is free.
3. Types of Consideration
Based on “Time” (when the act is performed), consideration is classified into three types:
A. Past Consideration
- Definition: When the act was performed before the promise was made.
- Rule: Under English Law, past consideration is generally no consideration. However, under Indian Law, Past Consideration is VALID.
- Example: A finds B’s lost dog. A month later, B promises to pay A ₹500 for his help. This is valid past consideration.
B. Present (Executed) Consideration
- Definition: When the consideration moves simultaneously with the promise.
- Rule: This is the most common form in cash sales.
- Example: You buy an apple and pay cash immediately. You get the apple (act), the shopkeeper gets cash (act). Both happen at the same time.
C. Future (Executory) Consideration
- Definition: When the consideration is a promise to do something in the future.
- Rule: It is a promise for a promise.
- Example: A promises to deliver goods next week, and B promises to pay on delivery. Both parties have yet to perform their part.
4. Importance of Consideration
The importance of consideration is summarized in the legal maxim: “Ex nudo pacto non oritur actio” (Out of a naked pact, no cause of action arises).
- Section 25: This section clearly states that “An agreement made without consideration is void.”
- Legal Binding: Consideration is what transforms a casual promise (like “I will give you a gift”) into a binding contract. It serves as evidence that the parties intended to be legally bound.
5. Landmark Case Law
Here is the most important case regarding the rule that consideration must move “at the desire of the promisor.”
Case: Durga Prasad v. Baldeo (1880)
- Section: 2(d) (Desire of the Promisor)
- Facts: The District Collector of a town asked the plaintiff (Durga Prasad) to build some shops in the market. The plaintiff built the shops. Later, the defendants (shopkeepers who occupied these shops) promised to pay a commission to the plaintiff on all articles sold by them. When they failed to pay, the plaintiff sued them.
- Issue: Was there a valid consideration for the shopkeepers’ promise to pay the commission?
- Ratio Decidendi: The definition of consideration in Section 2(d) specifically uses the phrase “at the desire of the promisor.” In this case, the market was built at the desire of the Collector, not at the desire of the shopkeepers (promisors).
- Judgement: The court held that the contract was Void. Since the act (building the market) was not done at the desire of the promisors (shopkeepers), it did not constitute valid consideration. The plaintiff could not recover the commission.