What is Consideration?

Consideration is the price of a promise, a return or Quid Pro Quo, something which is of some value received by promisee as inducement of the promise. It is an essential element ordinarily required in a contract. Generally, if an agreement lacks consideration, neither party can enforce it, even if it is in writing.

Section 2(d) of the Indian Contract Act defines consideration as: '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 promise is called a consideration for the promise.'

As per this definition, consideration is something in return of a promise which consists of:

1. an act, abstinence or forbearance,
2. done at the desire of the promisor,
3. by the promisee or any other person,
4. which can be either already executed or is in the process of execution or may still be executory.

Essential elements of consideration:
The above elements of consideration can be elaborated as follows

1. Consideration must move at the desire of the promisor:
   An act or abstinence without any request from the promisor is a voluntary act and does not come within the definition of consideration. Similarly an act or abstinence done at the request of any person other than the promisor does not constitute consideration. In other words an act shall not be a good consideration unless it is done at the desire of the promisor.
   
   Examples:
   A sees B drowning and saves his life. A cannot demand payment for his services as it is a voluntary act on his part and B never asked him to do so.
   
   Case Law:- Durgaprasad v. Baldeo [1880]
   
   The collector of a district asked D to spend some money on the improvement of a market and he did so. The shopkeepers of the market promised to pay commission to D on their sale. Later on they refused to pay the commission. D cannot demand payment from the shopkeepers who are using the market for having improved the market as he had done so at the desire of the collector and not at the request of shopkeepers.
    
2. Consideration may move from the promisee or any other person:
   • Doctrine Of Constructive Consideration
     It means that so long as there is consideration for promise, it is immaterial who has furnished it. It may move from the promisee, or from any other person (near relatives or stranger) if the promisor has no objection. This Principle is known as doctrine of constructive consideration.
     
     Doctrine of constructive consideration is only applicable in India. It is Not Applicable In England.
      
   • Doctrine Of Privity Of Consideration
     The doctrine of privity of consideration states that the consideration must move from the promisee and the promisee only. If it is furnished by any other person, the promisee becomes a stranger to the consideration and, therefore, cannot enforce the promise.
     
     A contract cannot be enforced by a person who is not a party to it even though it is made for his benefit. He is stranger to the contract and can claim no right under it.
      
   • Position in English Law
     The principle Under English Law, the consideration must move from the promisee only. If the consideration is furnished by any other person, then the promisee becomes a stranger to consideration and, therefore, cannot enforce the promise.
     
     Hence, Doctrine Of Privity Of Consideration is Applicable in England.Development of Privity of Consideration
     • Dutton vs. Poole (1688)
       The facts of this case were that for the marriage of the daughter, the father was about to sell timber from a part of his estate. But his son (brother of the soon to be bride) promised to bear the marriage expenses and suggested the father not to sell the timber. The father on this promise did not sell the timber and relied on the son to fulfil his promise. Later on the occasion of the marriage the son refused to pay the amount to the daughter. She filed a suit claiming the same.
       
       The son contended that the agreement was between the father and the son, the daughter was neither a party to the suit nor she was paying any consideration to the son. Hence her suit cannot be maintained.
       
       It was held that the daughter could maintain an action against the son on his promise to the father, though she was neither a party to the contract nor was she paying any consideration to the son. The consideration and promise to father could be extended to her. This judgement did not acknowledge the rule of privity of consideration.
       
       However, in 1861 another judgement came which gave the principle of privity of consideration.
        
     • Tweedle vs. Atkinson (1861)
       The facts of this case were that the fathers of the husband and wife contracted that both will pay a certain amount of money to the husband. And after the death of the parties the executors will pay the sum of money. In the terms of contract they added that the husband will have the power to sue for the amount if unpaid. During the lifetime of both the fathers no issue arose as to non payment of the decided sum. After the death of both the fathers the executors refused to pay the sum on grounds of privity of consideration. The husband sued the executors for payment.
       
       The court said that the husband's contentions are not maintainable and gave the rule of privity of consideration which means that consideration cannot be moved by a third person who is a stranger to the contract. It was held that there must be privity of contract as well as privity of consideration.
       
       The decision in Dutton vs. Poole(1688) was overruled in this landmark judgement. It was vehemently said that there is privity of consideration as well as privity of contract.
     
     Position in Indian Law
     Consideration is governed under Section 2(d) of the ICA, 1872. Section 2(d) of ICA, 1872 uses the phrase "promisee or any other person". This clearly indicates that under Indian law, the consideration can either move from promisee or any stranger to consideration. Therefore, a person may be a party to a contract but he may be a stranger to the consideration.
     
     Hence Doctrine Of Privity Of Consideration Is Not Applicable In India.
     This principle was settled by the Court in Chinnaya vs. Ramayya (1882) and the brief facts of the case are as follows:
     
     • In this case, an old woman, by gift deed, gave certain properties to her daughter.
     • It was provided in the gift deed that an annuity of Rs. 653 was to be paid to the plaintiff, who was the sister of the old woman.
     • The defendant executed an agreement in favour of the plaintiff, promising to give effect to the stipulation in the deed, but the annuity was not paid.
     • The contentions of the daughter were that the plaintiff was a stranger to the consideration. Hence she cannot sue.
     • The Hon'ble Court observed in this case that since the original contract was between the old lady and her daughter and the plaintiff is a stranger to this contract. But in this case the consideration was indirectly paid by the mother to the daughter through the gift of the property, the daughter is liable to pay the agreed annual sum of money to the sister of her mother. The Court followed the old English case Dutton vs. Poole (1688) and held that since in India there is no privity of consideration, strangers to the consideration can sue for the enforcement of contracts. The Court also interpreted the Section 2(d) of the Indian Contract Act,1872 which expressly declares that the consideration can be paid by the promisee or any other person. Hence, the defendant was directed to pay the annual sum to the plaintiff. The case was decided in favour of the plaintiff.
        
3. Consideration can be past, present or future
   (a) Past consideration: When something is done or suffered before the date of the agreement, at the desire of the promisor, it is called 'past consideration'. It must be noted that past consideration is good considering only if it is given by the promisee, at the desire of the promisor.

Example:

• A teaches the son of B at B's request in the month of January, and in February B promises to pay A a sum of Rs. 200 for his services. The services of A will be past consideration.
• "A" provided extra services to B (his master), after which B promised him a bonus for the same. Later on B refused to pay the bonus. Held that, if the servants put forth extra work in consideration whereof a bonus is subsequently promised to them by the masters, it is in law a promise for past services which is good under Indian Law.
  
  Under the Indian Law past consideration is good consideration because of the use of the words "has done or abstained from doing" in the definition of "consideration".

Past consideration in English law
The English law does not recognize a past consideration. Past consideration is no consideration at all in English Law. A promise in place of a past act is deemed to be only expression of gratitude for the benefit already received, rather than any consideration motivating the other side to make the promise. Hence an agreement based on past consideration is void. Consideration may be executory but it must not be passed.

Case law:- In Re McArdle, a father in his will gave his house to his five sons after their mother's death to share equally. During the mother's lifetime, one of the testator's sons and his wife lived in that house. At that time the wife incurred an expense of £ 488 to make some improvements in the house.

Subsequently, all the five sons signed a document to share the amount spent on such improvements. On the mother's death, they refused to pay expenses except for her husband. It was held by the Court of Appeal that since the consumption had been brought about before the report was signed, that was past consideration and thus the promise could not be authorized.

Exceptions to the rule that past consideration is no consideration

1. Service is done by request
   Services delivered in line with the promisor when the consideration comprises services delivered in accordance with the promisor, it is a good consideration. The request may be either expressed or implied.
   
   In Lampleigh v Braithwait, the respondent killed somebody and asked the petitioner to try and acquire an apology for him from the King. The claimant rode about the country on horseback to try and find the King which took a long time and a lot of expense. The claimant found the king and obtained the pardon. The claimant gave the pardon to the defendant who promised him £100.00 for his work. The defendant didn't pay up.
   
   The defendant argued that past consideration was no consideration but the court held that it had been implied at the time. The past benefit had been conferred at the defendant's request and the claimant could reasonably expect to be paid for it. Both parties would have understood at the time that payment would be due. Thus, the agreement to pay was held enforceable.
    
2. Present (Executed) Consideration: The consideration which moves simultaneously with the promise is present consideration. It consists in "doing" or "abstaining from doing something". The best example of present consideration is cash sale where performance by both the parties (seller and buyer) is simultaneous.
   
   The present consideration is also known as executed consideration because it emphasizes on the execution part of performance.
   
   For example:
   A may offer B for 10 thousand rupees if B runs from Phagwara to Jalandhar. Even though B says that he will accept A's offer, yet until he has run from Phagwara to Jalandhar, (i.e. B has performed his part of contract), there is no consideration for A's promise. B accepts the offer and by running from Phagwara to Jalandhar simultaneously executes the consideration which makes A's promise a binding contract.
   
   Note: Past consideration must be distinguished from the executed consideration. The consideration (running from Phagwara to Jalandhar) in the above case is executed after the offer or request and simultaneously with the acceptance. But, if A promises B for 10 thousand rupees in consideration of having run from Phagwara to Jalandhar last week, the consideration is past. It is something wholly done before the offer or request and before acceptance of the offer.
    
3. Future (Executory) Consideration: A promise to do something in future is legal consideration. When the consideration from one party to another is to move at some future date, it is called future consideration. The consideration for A's promise to B may be a promise by B to A. The consideration is then said to be executory. If A promises to marry B in consideration of B promising to marry A, the promise made by each is the consideration for the promise made by the other.
   
   Examples:
   A and B enter into a contract in April under the terms of which A agrees to build a swimming pool for B in June, B promising to pay Rs. 2,500 in return. A later refuses to perform, and B sues him to recover damages for breach of contract. M is liable; that is, his promise is enforceable.
    
4. Consideration is an act, abstinence, forbearance or detriment:
   At times consideration is taken as misnomer of money form of exchange. The legal term consideration does not mean payment of money only. The Contract Act says that the consideration can be in the form of an act, abstinence, forbearance or detriment.
   
   1. Consideration as an act: An act done by a person can constitute consideration.
   2. Consideration as an abstinence: To constitute abstinence as consideration, one must refrain or promise to refrain from doing something that he or she is privileged to do.
      
      Example: X promised to pay his nephew Y, a sum of Rs. 50,000 if he would refrain from drinking, using tobacco, swearing and playing cards for money until he becomes 21 years of age. The nephew refrained from all the specified activities as he was requested to do but his uncle died without making the payment.
      
      He claimed the money out of the uncle's estate as his legal right. Held that, he abandoned his legal right and restricted his lawful freedom of action upon the faith of his uncle's agreement although it may seem that such performance actually did not prove to be a benefit to the promisor. Such detriment however amounted to consideration and he was granted the promised sum of Rs. 50,000.
       
   3. Consideration as forbearance: Forbearance means foregoing one's legal right or claim.
      Creditor forbearing to enforce execution and allowing time to pay at the request of the debtor is a good consideration.
      Examples:
      1. An agreement to accept a decree and not to appeal against it when parties to it would have appealed is one which is supported by good consideration
      2. A promises to pay C, his law partner, Rs. 750 if C will give up his part-time job in a dance band for the next nine months. C lives up to the terms of the offer, but A refuses to pay. If C brings suit to recover Rs.750, A is liable. Here again we have a unilateral contract, promise in exchange for a negative act (or a forbearance) - the act of not playing in the band. C's refraining constituted both an acceptance of the offer and a legal detriment to him; thus we can see that A's promise was supported by consideration.
       
   4. Consideration as detriment:
      A detriment suffered by the promisee or any other person, whether actual or prospective, can constitute a good consideration.
      
      The ordinary contract of guarantee is good example of detriment form of consideration. In consideration of A's lending B Rs.1000, C promises to repay the loan if B does not. Here C derives no benefit, but A suffers detriment by parting with his money, and this is enough consideration to support C's promise provided A lends the money at C's request.
      
      Example: X, a publisher, promises Y: "If you will loan Rs. 5,000 to my nephew for one year, I will run all your advertisements during that time at half the regular rate." Y makes the loan, but X refuses to provide advertising space at the reduced rate. If Y sues X to recover damages for breach of contract - that is, Y seeks to enforce X's promise - X is liable. Y's act of making the loan to the nephew constituted not only an acceptance of X's offer but a detriment to Y - the parting with something of value where he was not otherwise legally obligated to do so. Thus X's promise, supported by consideration, is enforceable against him.
      
      Note: That it is not necessary for the promisor to receive any benefit as long as the promisee or someone else suffers a detriment.

References:

• Law of contract Rk bangia
• Pollock and Mulla Indian Contract Act, 1872
• Avtar Singh Law of Contract