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Consideration under Indian Contract Act

Consideration, in contract law, an inducement given to enter into a contract that is sufficient to render the promise enforceable in the courts. The technical requirement is either a detriment incurred by the person making the promise or a benefit received by the other person. Thus, the person seeking to enforce the promise must have paid, or bound himself to pay, money, parted with goods, spent time in labor, or foregone some profit, or legal right. In a contract, for the sale of goods, the money paid is the consideration, for the vendor, and the property sold is the consideration for the purchaser.

Section 2(d):
When at the the desire of the promisor the premise 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.'

Sec 2(d) clearly emphasizes that an act or abstinence which is to be a consideration for the promisee must be done by the desire of the promisor. If such consideration is made at the will of a 3rd party or without the desire of the promisor, it will not be a good consideration.

The concept of consideration in English law is some detriment to the promisee ( in that case he may suffer something or give something of value) or some benefit to the promisor.

Section 23: What considerations and objects are lawful, and what not
The consideration or object of an the agreement is lawful , unless:
It is forbidden by law;
Or is of such a nature that , if permitted , it would defeat the provisions of any, or is fraudulent ; or
Involves or implies, injury to the person or property of another ; or the Court regards it as immoral , or opposed to public policy.

In each of these cases , the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.'

Section 23 of the Indian Contract Act, 1872, clearly states that consideration and/or objects of an agreement are considered lawful unless they are:

Unlawful object: By S.10 an agreement is a contract (I.e enforceable) only if it's made for a lawful consideration and with a lawful object. The word object in this section refers to purpose or design.

In Fisher v. Bridges case, the defendant agreed to buy land from the plaintiff. According to the defendant, before the making of the deed, which was subject to a mortgage, the plaintiff was aware that the land would be exposed to sale and sold by way of lottery in an illegal manner contrary to the statute. Part of the purchase money was unpaid by the defendant and the defendant made a covenant for payment. The plaintiff sued for payment based on this covenant. It was found that the covenant was clearly given by the defendant to secure the payment of a part of the purchase or consideration money for the lands, the subject of the agreement. Accordingly, it was given as a security for payment of a debt that was tainted with illegality. Therefore, because the law would not enforce the payment of the debt, it would not enforce the payment of the security contained in the covenant because it sprung from, and was the creature of, an underlying illegal agreement.

Forbidden by law:
An act forbidden by law whether it violates a prohibitory enactment of the legislature or a principle of the unwritten law. But in India where the criminal law is codified, acts forbidden by law seem practically to consists of acts punishable under the Penal Code and acts which are prohibited by special legislation under the authority derived from the legislature.

The above decision was approved by the Supreme Court in Gherulal Parakh v. Mahadeodas (AIR 1959 SC 781) and the court held that:
The word immoral is very comprehensive. Ordinarily, it takes in every aspect of personal conduct deviating from the standard norms of life It may also be said that what is repugnant to good conscience is immoral. Its varying content depends upon time, place, and the stage of a civilization of a particular society. In short, no universal standard can be laid down and any law based on such a fluid concept defeats its own purpose.

The provisions of Section 23 of the Contract Act, indicates the legislative intention, to give it a restricted meaning. Its juxtaposition with an equally elusive concept, public policy, indicates, that it is used in a restricted sense; otherwise, there would be overlapping of the two concepts. In its wide sense what is immoral may be against public policy, covers the political, social, and economic ground of objection.

Decided cases and authoritative text-books writers, therefore, confined it, with every justification, only to sexual immorality. The other limitation imposed, on the word by the statute, namely, courts consider immoral brings out the idea, that it is also a branch of the common law, as the doctrine of public policy, and, therefore, should be confined, to the principles recognized and settled by Courts. Precedents confine the said concept only to sexual immorality, and no case has been brought to our notice, where it has been applied, to any head other than sexual immorality. In the circumstances, we cannot involve a new head, to bring in wagers, within its fold.

Defeat the provisions of any law: This branch of the subject is considered under three heads according to the object or consideration of an agreement.
  1. The provision of any legislative enactment
  2. Other rules of law for the time being in force in India

Agreements that consist of an unlawful object or fraudulent consideration is void by nature.

For example, A sells drugs to B and smuggles them into various states and countries. Now if A does not deliver the drugs at the mentioned location then B can not recover the money under law as the object is unlawful as well as the consideration.

Injury to the person or property of another:
Here in law injury means doing someone's loss or criminal or harmful wrong done to the other person. So in contract, if the object or consideration harms the other person or the property it leads to unlawful consideration. Say for example a contract to publish a book that is a violation of another person's copyright would be void. This is because the consideration here is unlawful and injures another person's property, i.e. her copyright.

According to the law if the objector consideration is immoral by the court i.e unethical then such objects and consideration are considered immoral. Say for example X lent money to Y to obtain a divorce from her husband D., It was agreed once Y obtains the divorce X would marry her. But the court passed the judgment that X cannot recover money from Y since the contract is void on account of unlawful consideration.

  1. Seema agrees to sell his house to Siya for 50,000 rupees. Here Siya's promise to pay the sum of 50,000 rupees is the consideration for Seema's promise to sell the house, and Seema's promise to sell the house is the consideration for Siya's promise to pay the 50,000 rupees. These are lawful considerations.
  2. X, Y, and Z agree on the division among them of gains acquired or to be acquired, by them by fraud. The agreement is void, as its object is unlawful.
  3. Zoya promises Farhin to drop a prosecution which he has instituted against Farhin for robbery, and Farhin promises to restore the value of the things taken. The agreement is void, as its object is unlawful.

Section 24:
Agreement void, if considerations and objects are unlawful in part:
If any part of a single consideration for one or more objects, or anyone or any part of any one of several considerations for a single object is unlawful, the agreement is void.'

Consideration can be given for one object or more than one object. Consideration is entirely void if one part of the object is unlawful and the other part of the object is lawful.

Rajiv promises to superintend, on behalf of Akash, a legal manufacturer of indigo, and illegal traffic in other articles. B promises to pay A a salary of 10,000 rupees a year. The agreement is void, the object of A's promise, and the consideration for B's promise, being in part unlawful.

In the case of Alice Mary Hill v. William Clarke, (1905) 27 ALL 266, a woman agreed to live with a man, in adultery in lieu, of a monthly consideration of Rs.50. The agreement was declared void, as the lawful part can't be separated from the unlawful one.

Section 25:
Agreement without consideration, void, unless it is in writing and registered or is a promise to compensate for something is done or is it a promise to pay a debt barred by limitation law.�An agreement made without consideration is void, unless:
  1. it is expressed in writing and registered under the law for the time being in force for the registration of 1 [documents], and is made on account of natural love and affection between parties standing in a near relation to each other; or unless
  2. it is 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;
  3. it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract.

Explanation 1.�Nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made.

Explanation 2.�An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.'

The general rule is that agreement without consideration is void.

  1. Written and registered:
    An agreement must be in written form and it has to be registered within the time mentioned for registration. An agreement should be made out of love and affection and not out of coercion.

    Example: Ravi, for natural love and affection, promises to give his son, Surya, Rs. 1,000. Ravi puts his promise to Surya into writing and registers it. This is a contract.

    In the case of, Venkatswamy (vs) Rangaswamy (1903),
    by a registered agreement, 'A', on account of nature, love, and affection for his brother, 'B', promises to discharge a debt to 'B'. If 'A' does not discharge the debt.
    The court held that 'B' may discharge it and then sue 'A' to recover the amount. Therefore it is a valid agreement.
  2. It is a promise to compensate for something done:
    A promisor is bound to compensate either wholly or in part to a person who voluntarily did something for the promisor or something which promisor was legally bound to do.

    Siya finds Sreeja's purse and gives it to him. B promises to give A Rs. 50. This is a contract.

    Raja of Venkatagiri v Krishnayya In a Privy Council case D agreed to give his son in adoption if C agreed to advance money to defend any litigation challenging the adoption. There were litigation and D advanced money towards it. Thereafter D died and D's son advanced money to the adopted son. While the adoption suit was pending before the Privy Council, the adopted son passed a promissory note in favor of D's son, who agreed that if the adopted son was unsuccessful before the Privy Council, the promissory note would not be enforced. The adopted son was successful, and D's son filed a suit on the promissory note. It was held that Section25(2) was not applicable because to invoke the aid of that provision it had to be proved that the payments had been made voluntarily. As the money was not advanced voluntarily but because of the undertaking given by D, the section did not apply.
  3. Debt barred by limitation law:
    A promise made by the promisor to the promisee to pay the debt which is barred by the limitation of law either wholly or in part. The promise has to be written and registered by the person who may be charged with or by his agent.

    Example- Sayan owes Rishi Rs. 1,000, but the debt is barred by the Limitation Act. Sayan signs a written promise to pay Rishi Rs. 500 on account of the debt. This is a contract.

    The Privy Council in Maniram v. Seth Rupchand has said that an unconditional acknowledgment implies a promise to pay. But this implied promise is not a promise under this section. A promise under this section to pay a time-barred debt must be an express promise. Therefore, if there is no express promise, a promise implied from an acknowledgment cannot be the basis of a suit under Section 25 of this particular act.

In any of these cases, such an agreement is a contract.

A gift actually made : If the gift is movable then it is accompanied by its delivery and if a gift is immovable then it should be along with registration. This section explains that if conditions of gifts are fulfilled then lack of consideration will not affect the validity of the gift. If the gift of the is registered and attested by two witnesses then it will not allow questioning the person as a fraud.

Inadequacy of consideration: Inadequate consideration means the amount of consideration is less than what was promised. Inadequate consideration will be enforced by the court to determine whether consent was freely taken or not.

Suppose, X agrees to sell a horse worth Rs. 1,000 for Rs. 10. X denies that his consent to the agreement was freely given. The inadequacy of the consideration is a fact which the Court should take into account in considering whether or not X?s consent was freely given.

Under section 2d of the Indian Contract Act, 1872, the word Consideration is defined. Consideration could be present, past, or future. And it should only concern parties to the contract and not third parties. But there is a certain exception present under section 25. It has 3 sub-sections present and is made keeping in mind various situations so that the interest of the parties to the contract or even the third party to the contract should get compromised. Further, the consideration need not be adequate, however, it should be valuable, according to the parties of the contract.

Written By:
  1. Shreyashee Mitra and
  2. Trushitaa Saha

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