Introduction

• The definition of consideration has been provided under Section 2(d) of the Indian Contract Act, 1872.
• A contract will not be recognized as valid and enforceable unless it includes an exchange of consideration between the parties which can be defined as a right, interest, or benefit that one party in the contract gives to the other party.
• This is sometimes referred to as the quid pro quo. The exchange of consideration induces or motivates each party to enter into the contract. Without an exchange of consideration, a promise may not be enforceable.
• Section 10 of the Indian Contract Act, 1872, describes lawful consideration as one of the essential ingredients to constitute a valid contract which means that an agreement without consideration is void.
• For example, X promises to install a home-air conditioning unit for Y, and Y promises to pay X Rs. 1,100 for the job. Here the price X has received (in return for his obligation to install the unit) is the right to a payment of Rs. 1,100 from Y when the job is done; similarly, the price Y has received (for her promise to pay the Rs. 1,100) is her right to have the unit installed.

Past Consideration

• About:
  • In terms of a contract, past consideration is used to mean a promise or an act that was made or performed prior to a contract.
  • Section 2(d) of the Indian Contract Act, 1872 clearly lays down that consideration may be past, present or future. Hence an agreement based on past consideration is perfectly valid in India.
  • Past consideration is one which took place and is complete before the promise is made.
  • For example, A's bike on his way to the office is stopped due to lack of petrol. A requested B who was petrol seller, B gave petrol to him. Later A promised B to pay Rs. 500/- in consideration of his past consideration.
• Past Consideration in Indian Law:
  • In India, past consideration is a good consideration. It is sufficient to support a promise. Section 2(d) of the Contract Act clearly lays down that consideration may be past, present or future. Hence, an agreement based on past consideration is perfectly valid in India.
• Past Consideration in English Law:
  • The English law does not recognize a past consideration. In English, law consideration may be present or future but not past. Hence, an agreement based on past consideration is void. Consideration may be executory, but it must not be passed.

Exceptions to the Rule that Past Consideration is No Consideration

• 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.
• Promise to pay a Time-Barred Debt:
  • When a debt is barred by limitation, the debtor can waive the benefit of that plea and promise to discharge the debt. Such a promise is enforceable. A time-barred debt can be taken as valid consideration for a subsequent promise.
• Negotiable Instrument:
  • Where a negotiable instrument is given in consideration of some past act, the last act will form as a good consideration for the issue of the negotiable instrument, and the party who gets the instrument can legitimately authorize it.