The Evolution of Consideration and the Requirement in the Indian Law

Vineeth Varma Penmetsa*

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Abstract

Consideration has been a subject of paramount importance in contract law. The evolution of modern-day consideration has taken various forms over the years and extended the scope to a viable position. This article argues that consideration requirement builds a unique relationship between parties to an agreement that justify its continued existence. Furthermore, it also analyses the requirement of consideration in the Indian contract law away from the common law conception of consideration and explains the substantive features of it under the Indian Contract Act, 1872.

Keywords

Consideration, Agreement, Evolution, Assumpsit, Moral Obligation, Indian Contract Act, Common Law, Substantive.

Evolution of Consideration

The doctrine of consideration, as known in English law, dates back from the fifteenth century; however, the roots are difficult to be traced and are said to have emerged in the remote past. Consideration is said to have been derived from multiple sources; some view it to be a generalization of quid pro quo to raise debt, some see it as a modification of the Roman principle of causa, and some others trace it back to the assumpsit, which is a form of action in Common law brought to recover damages in breach of a contract.

Various kinds of actions for trespass had existed in common law during the sixteenth century, called the covenant, case, and debt. However, in the common law system, a wrong could be remedied, or a right vindicated only if it fits within a form. But the common law had a general form called trespass on the case in which wrongs that were not covered by other forms could be alleged and remedied. The judiciary used this during the sixteenth century to enforce promises called assumpsit.

The chief elements of the modern doctrine of consideration emanated from the procedural requirements of the action of assumpsit. Assumpsit was a form of action in common law brought to recover damages from breach of a contract. This was later established as separate from the action in debt, and consideration was used by the courts in place of assumpsit and quid pro quo under the conditions of the action of debt. Since the expression ‘quid pro quo’ had obtained a technical meaning, the word ‘consideration; was used to express the acts or circumstances that led to a transaction. To the end of the sixteenth century, assumpsit became an alternative to debt, and the word ‘consideration’ was used to state the facts that were relied upon to make the promises enforceable by assumpsit, therefore, acquiring a technical meaning to indicate the facts and situations that must be proved to make a promise enforceable. Therefore, lawyers, to extend the scope of the action of assumpsit, have used ‘analogies’ taken from the action of debt, thereby creating an impact on the development of contract law. For example, our modern, accepted definition of consideration includes the views derived from the quid pro quo in the action of debt.

Over time, two new principles have surfaced concerning the requirement of the doctrine of consideration, i.e., “the idea of identifying consideration with moral obligation,” which meant that any moral obligation was sufficient for consideration as argued by Lord Mansfield[!], and the other is “seeing consideration as having a mere evidentiary value.” The courts have started initiating the enforcement of agreements under a moral obligation, unjust enrichment, and promissory estoppel. The notion that any moral obligation was sufficient for consideration has been decisively rejected during this period, whereas the viewpoint of the doctrine of consideration as trivial evidence was propounded in the case of Pillans v. Van Mierop[@] and had been overruled in Rann v. Hughes.[#]

Defining Consideration

English Law

In Currie v. Misa, Lush J. defined the term consideration as follows:

“A valuable consideration, in the sense of law, may consist either in some right, interest, profit or benefit accruing to the party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by other.”[1]

This definition divides itself as a benefit or detriment, which remains to be the necessary conditions of consideration. The law does not consider what the parties regard as a consideration but imposes a yardstick on what counts as consideration.

Indian Law

According to Pollock and Mulla,[2] the requirement of the doctrine of consideration in Indian law is substantially the same as in English common law. This has been further justified by the Supreme Court of India in Chidambara Iyer v Renga Iyer.[3] Consideration, in Indian contract law, is a necessity for an agreement to be enforceable as a contract, barring some exceptions, such as in the case of gratuitous promises where the law requires it in writing. Section 2 (d) of the Indian Contract Act, 1872[4] 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 or promise is called a consideration for the promise.”

According to Pollock and Mulla, which is considered as an authoritative work on the Indian Contract Act, consideration can be “an act, forbearance or promise done or given at the request of the promisor to any other person.”

Avtar Singh’s work on the Indian Contract Act avers that consideration requirement entails an element of ‘benefit’ and ‘detriment’ in India. The judiciary has also taken the same stance in several cases.[5] Vrindesh Patel of The Law Commission of India, in the 13th Law Commission Report, put forward the fact that consideration must be lawful and have some value in the eyes of the law. The Supreme Court, in Sonia Bhatia v The State of UP, has observed that “consideration means a reasonable equivalent or other valuable benefit passed on by the promisor to the promise or by the transferor to the transferee, whereas the other factors such as affection, love, and others might fall into the intention of the donor to make a gift which cannot be held to be legal consideration as understood by law.” The main purpose of making consideration a mandatory element in a contract is to put legal limits on the enforceability of promises.[6] Also, one of the main reasons in setting limits for the requirement of consideration in Common law is “freedom of individuals to make binding legal promises, thereby preventing them from accidentally binding themselves on impulse.”[7]

Consideration in the Context of Indian Law

Consideration has been defined in Section 2(d) of the ICA and has been mainly contained in Section 10 and Section 25 of the ICA. The wording of consideration in Section 2(d) has to be closely analysed to clearly understand the requirement of consideration in the Indian Law and substantive features involved in it. The definition reads as follows:

“When, at the desire of the promisor, the promise 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 of the promise.”

When this definition is read along with Section 10 of the Indian Contract Act, consideration can be seen as a necessary prerequisite to enter into a contract. A few exceptions to the rule that claim considered to be an essential requirement for a valid contract have been stated in Section 25 of the Act.

Further, few substantive features of the requirement of consideration that have been mentioned by Ashwary Sharma in his article titled “Considering Consideration in the Indian Law” are discussed below:

1. Reciprocity: The requirement that consideration is given “at the desire of the promisor” conforms that consideration is the basis for a promise and vice versa.

“Consideration and promise must purport to be mutually inducing”, which means that whatever might be the motive for promise, consideration and promise must be found to be motive of each other.

2. Value in the eyes of the law: As stated in Sonia Bhatia v State of UP, “Consideration must be something that is recognized to have some value in the eyes of the law,” which might be in terms of money or something that is valuable.[8] Though this has been the viewpoint of the Indian judiciary, nowhere has it been mentioned in Section 2(d) of the ICA[9] that the consideration must have some value in the eyes of the law. Shivprasad Swaminathan, a professor who works primarily on legal philosophy and Contract law, in his article “Eclipsed by Orthodoxy: The Vanishing Point of Consideration and the Forgotten Ingenuity of the Indian Contract Act 1872”, argued that the draftsmen of the Indian Contract Act had taken a novel approach towards consideration, whereas it is just a step behind the common law conception of consideration. But then arises the question, would there be a meeting of minds when both the parties evaluate their individual subjective notion of consideration. As stated above, that consideration is given at the desire of the promisor clearly indicates that there are two sides to the same coin, and hence, there must be a meeting of minds.

3. Normative Basis: The Indian Contract Act requires an offer, acceptance, and consideration for an agreement to be enforceable. These requirements interweaved with the reciprocity and objective notion of consideration, while gratuitous promises being enforced only when expressed in writing and registered indicate the bargain paradigm of consideration. However, the judiciary has never applied the requirement of consideration uniformly across the courts.

4. “Eclipsed by Orthodoxy?”: If closely looked at the Act, it is evident that the draftsmen have not aspired to reform the requirement of consideration in the Indian Law. The subjective notion of consideration has not been discussed in any illustration with respect to sections 23, 24, and 25. These illustrations, when read closely, boil down to the worth of money, clearly showcasing that the drafters have cherished the ‘traditional notion of consideration’ that it must have something that is seen to have a value in the eyes of the law.

Conclusion

We have looked at the evolution of consideration from the concept of assumpsit, which has been influenced by various forms of actions, leaving an impact on the concept of consideration to date. With the evolution of time, the traditional notions of consideration were disregarded due to the inconsistencies and had advanced into a more feasible form of consideration. During the same period, many attempts were made to explain a normative conception of contract law and ways to explain its principles and doctrines.

Then, substantive features of the consideration required in the Indian Contract Act have been analysed, and I have argued that to let go of consideration was not the intent of the legislators of the ICA. Further, the language of the Act has been scrutinized to look at consideration as one of the determinants of enforceability and to understand the unique relationship that can be established between the parties.

[!] Lord Mansfield argues that the ties of conscience upon an upright mind a sufficient consideration. [@] (1765) 3 Burr 1663. [#] (1778), 7 T.R. 350 n. [1] Currie v Misa LR 10 Ex 153; LR 1 App Cas 554 [2] POLLOCK & SIR DINSHAW FARDUNJI MULLA, THE INDIAN CONTRACT AND SPECIFIC RELIEF ACTS 46 (Lexis India 14 ed. 2012). [3] Chidambara Iyer v Renga Iyer [1965] AIR SC 193, 197. [4] Indian Contract Act, 1872, No. 9, Acts of Parliament, 1872 (India). [5] Sonia Bhatia v State of UP, AIR 1981 SC 1274. [6] POLLOCK & SIR DINSHAW FARDUNJI MULLA, THE INDIAN CONTRACT AND SPECIFIC RELIEF ACTS 46 (Lexis India 14 ed. 2012). [7] Beatson, J, J Beatson, A S. Burrows, and John Cartwright. Anson's Law of Contract. Oxford: Oxford University Press, 2010. Print. [8] 1981 SCR (3) 239, 1981 SCC (2) 585.

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[*] Vineeth Varma Penmetsa is a second-year undergraduate student from Jindal Global Law School, Sonepat. For any discussion related to the article, he can be contacted via mail: vineethvarmap@gmail.com.

Preferred Citation – Vineeth Varma Penmetsa, “The Evolution of Consideration and the Requirement in the Indian Law", Syin & Sern Law Review, Published on 26th April 2021.