Consideration: What It Is, and the Rules It Obeys

In one line

Consideration is the price of a promise: the something that the promisee, or somebody else, gives or does or promises at the promisor's request in return for it.

In the words a student can write in an exam: section 2(d) of the Indian Contract Act 1872 provides that "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." Section 10 makes a lawful consideration a condition of a contract, and section 25 declares that an agreement made without consideration is void save in the cases it names.

Why the law insists on it

The law does not enforce every promise. It has to sort the promises it will back with the machinery of the state from the promises it will leave to conscience.

Consideration is the sorting device English law arrived at and India adopted. Its logic is that a promise which is part of a bargain deserves enforcement in a way that a bare promise does not. Where each side has given something up, the promise was made in a commercial setting, both parties have thought about it, and neither can say the arrangement came out of nowhere.

There is a second and more practical function. Consideration is evidence of seriousness. A person who has taken money for a promise plainly meant it. A person who said something generous at a family lunch may not have.

India departs from English law in one important respect, and it flows directly from the wording of section 2(d): "the promisee or any other person". In India consideration may move from a third person. This is taken up in [Privity of Contract and Privity of Consideration].

The provision itself

"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."

Broken down: the four elements

Read the definition slowly and it separates into four parts, and each is a place where problems are set.

(a) It must move at the desire of the promisor

The act or abstinence must be done at the promisor's request. An act done voluntarily, or at the desire of a third party, is not consideration for the promise, however much it benefits the promisor.

So a person who puts out a fire in his neighbour's shop, and is then promised a reward, has no contract: he did not act at the promisor's desire. His claim, if any, lies elsewhere, and the Act's answer to exactly this problem is section 25(2), dealt with in the next chapter, and section 70, dealt with in [Quasi Contracts: Obligations Resembling Those Created by Contract].