Indian Contract Act Consideration

CONSIDERATION
INTRODUCTION

Consideration is the price of the contract and it can be a right, interest or

responsibility etc. ‘Consideration’ means “something in return”, i.e. quid pro
quo that is an essential element to find out the genuine intention of the parties
of the promise to create a legal relationship.

Consideration is an essential component of a valid contract. An agreement without

consideration is void and thus not enforceable by law except under certain
circumstances.

According to section 2(d) of the Indian Contract Act

“when at the desire of the promisor, 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.”

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 consideration for that promise.

ESSENTIALS ELEMENTS OF A VALID CONSIDERATION

The definition requires the following essentials to be satisfied in order that there is
valid consideration:

1. Consideration to be given at the desire of the promisor.

2. Consideration to be given by the promisee or any other person.

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3. Consideration may be past, present or future, in so far as definition says that the
promisee:

(i) has done or abstained from doing, or

(ii) does or abstains from doing, or

(iii) promises to do or to abstain from doing, something.

4. There should be some act, abstinence or promise by the promisee, which

constitutes consideration for the promise.

1. Consideration only at the desire of the promisor

It is essential that the consideration must have been given at the desire of the
promisor, rather than merely voluntarily or at the instance of some third party.

Durga Prasad v. Baldeo

The plaintiff constructed certain shops in a market at the instance of the Collector of
that place. Subsequently, the defendants occupied one of the shops in the market.
Since the plaintiff had spent money for the construction of the market, the defendants,
in consideration thereof, made a promise to pay to the plaintiff commission on the
articles sold through their (defendant's) agency in that market. The defendants failed
to pay the promised commission. In an action by the plaintiff to recover the
commission, it was observed that the consideration for the promise to pay the
commission was the construction of the market by the plaintiff. Such construction had
not been done at the desire of the defendants, but on the order of the Collector. It was,
therefore, held that since the consideration did not move at the desire of the
defendants (promisors in this case), this did not constitute valid consideration
and therefore the defendants were not liable in respect of the promise made by
them.

2. Consideration by Promisee or any other person (Privity of

Consideration)

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According to the Indian law, consideration may be given by the promisee or any
other person. In England, the position is different. There the rule is that
consideration must move from the promisee and nobody else.

Chinnaya v. Ramaya

In that case A, an old lady, granted an estate to her daughter (the defendant) with a
direction that the daughter should pay an annuity of Rs. 653, to A's brother (the
plaintiffs). On the same day, the defendants made a promise with the plaintiffs that she
would pay the annuity as directed by A.

Later the defendant refused to pay on the ground that her uncle has not given any
consideration. Court held consideration furnished by the old lady constitutes sufficient
consideration for the plaintiff to sue the defendant on her promise. Held, the uncle was
entitled to a decree for payment of the annual sum of money.

3. Consideration may be Past, Present (Executed) or Future (Executory)

Section 2(d) of the Indian Contract Act, 1872, recognizes three kinds of
consideration, viz., Past, Present (Executed) and Future (Executory).

It says that when at the desire of the promisor, the promisee or any other person:
(a) has done or abstained from doing, (the consideration is Past).

(b) Does or abstains from doing, (the consideration is Executed or present).

(c) Promises to do or to abstain from doing, (the consideration is Executory or

Future).

(a) Past Consideration

Past consideration means that the consideration for any promise was given earlier
and the promise is made thereafter.

For example, I request you to find my lost dog. After you have done the same, if I
promise to pay you Rs. 100 for that, it is a case of past consideration.

This constitutes valid (Past) consideration under Section 2(d), and therefore the
promise is enforceable.

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Past services voluntarily rendered [Section 25(2)]

Indian Contract Act recognizes only such consideration which has been given at the
desire of the promisor, rather than voluntarily. If consideration has been given
voluntarily, it is no consideration.

For example, if my dog has been lost and without any request from me to find the
same, you voluntarily find the dog and deliver the same to me. This is a case of past
services rendered voluntarily. In case I promise to pay Rs. 100 to you after you have
rendered these services, it does not constitute valid consideration.

However, a valid contract is created in such a case also because the situation is
covered by Section 25(2) of the Indian Contract Act, 1872, which is an exception to
the rule that an agreement without consideration is void.

Sec 25: An agreement made without consideration is void 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.

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

(b) Executed or Present Consideration

When one of the parties to the contract has performed his part of the promise,
which constitutes the consideration for the promise by the other side, it is known as
executed consideration. Performance of the promise by the other side is the only
thing now to be done.

For example, A makes an offer of reward of Rs. 100 to anyone who finds his lost dog
and brings the same to him. B finds the lost dog and delivers the same to A. When B
does so, that amounts to both the acceptance of the offer, and also simultaneously
giving consideration for the contract. The consideration in this case is "executed".

(c) Executory or Future Consideration

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When one person makes a promise in exchange for the promise by the other side,
the performance of the obligation by each side to be made subsequent to the
making of the contract, the consideration is known as executory.

For example, A agrees to supply certain goods to B and B agrees to pay for them on a
future date, this is a case of executory consideration.

4. Something, i.e., An Act, Abstinence or Promise by the promisee

According to Section 2(d), 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 consideration for the promise.

It means that if nothing is done in exchange for the promise, i.e., when there is no
act, abstinence or promise, there is no consideration.

Consideration need not be adequate

A contract involving consideration is valid irrespective of the fact that the

consideration is inadequate.

Explanation 2 of Section 25:

“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 parties are free to make any contract of their choice. If, with their free consent,
they strike a bargain where the consideration is too high or too little, the courts will
not go into the question of adequacy or inadequacy of consideration.

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For example, A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A's consent to the
agreement was freely given. The agreement is a contract notwithstanding the
inadequacy of the consideration.

Chappell & co. Ltd. V. Nestle Co. Ltd. (1960)

Nestle was giving out Music records in exchange of wrappers, issue of wrappers as
consideration was raised. Court said that the consideration needs to be there it
does not need to be adequate.

Consideration must be real

Although it is not necessary that the consideration should be adequate, it is,
however, necessary that it should be real.
White v. Bluett
 A son used to complain to his father that his brothers had been given more
property than him.

 The father promised that he would release the son from a debt if the latter
stopped complaining.

 After the father's death an action was brought by the executors to recover the
debt.

 The son contended that the father had made a contract to release him from the
debt in consideration for his promise not to bore his father.

 It was held that the promise by the son not to bore his father with complaints in
future did not constitute good consideration for the father's promise to release
him, and, therefore, the son continued to be liable for the debt.

Performance of an existing legal duty is no consideration

In order to constitute proper consideration there should be a promise to do

something more than what a person is already bound to do. Doing something which
a person is already bound to do is no consideration.

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Collins v. Godefroy
 A received a subpoena(summon) to give evidence in a case.
 Thereafter B promised to pay to A some money for the trouble which was to be
taken by him in appearing in that case.
 A sued B to recover the amount promised by B.
 It was held that A having received the subpoena was already under a public duty
to give evidence, and therefore, the promise by B to pay did not constitute
consideration for the promise.
It has also been held that doing something more than what may have been done
under a statutory duty is also good consideration for the promise.

Promise to perform an already existing contractual duty

If A is already bound to perform a particular contractual duty owed to B, B's

promise to pay something additional for the same promise is no consideration.

Forbearance to sue is consideration

Forbearing to sue or abstaining from enforcing a claim is good consideration for a

promise to pay, or does some other act. Forbearance to sue constitutes consideration
in so far as the delay in the proceedings is a benefit to the person intended to be
sued.
In order that the promise to forbear from suing is valid, it is necessary that the claim
in respect of which the promise is made must be a subsisting right which could be
enforced.

PRIVITY OF CONTRACT (STRANGER TO A CONTRACT

CANNOT SUE)

It is a common law principle which provides that a contract cannot confer rights or
impose obligations upon any person who is not a party to the contract.

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The doctrine of privity of contract means that only those persons who are parties to
the contract can enforce the same. A stranger to the contract cannot enforce a
contract even though the contract may have been entered into for his benefit.

Stranger to contract is different from the stranger to consideration.

Tweddle v. Atkinson

 Contract between John Tweddle and William Guy to pay sums of money to
Tweddle’s son.
 William Guy died before paying, Tweddle’s son sued Mr. Atkinson (executor to
Guy’s estate) to enforce the promise.
 Court held that only the parties to contract can enforce the contract, in this case,
John Tweddle.
 So, under Doctrine of Privity to contract the suit would not succeed.

Dunlop Pneumatic Tyre Co. Ltd. V. Selfridge & Co. Ltd. (1915)

 Contract between Dunlop Pneumatic Tyre Co. and Dew & Co. (Dealers of tyres)
not to sell their tyres below a certain price.
 Dew & Co. had a contract with Selfridge(Retailer) about the same.
 Now Selfridge sold the tyres at a lower price and Dunlop Sued them.
 Court held that there was no privity to contract between Dunlop and Selfridge. So,
Selfridge won’t pay the fines asked by Dunlop

Exceptions to the rule that a stranger to contract cannot sue

(i) Trust or Charge

For example, in a contract between A and B, beneficial right in respect of some

property may be created in favour of C. In such a case C can enforce his claim on
the basis of the right conferred upon him.

Khwaja Muhammad Khan v. Husaini Begum

 There was an agreement between the father of a boy and a girl that if the girl

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(plaintiff) married a particular boy, the boy's father (defendant) would pay certain
personal allowance known as Kharchi-i-pandan to the plaintiff.
 It was also mentioned that a certain property had been set aside by the defendant
and this allowance would be paid out of the income of that property.
 The plaintiff married the defendant's son but the defendant failed to pay the
allowance agreed to by him.
 In an action by the plaintiff to claim this allowance, the defendant contended that
his contract to pay the allowance had been made only with the plaintiff's father and
not with the plaintiff, she being a stranger to the contract cannot sue. The
defendant's contention was that Tweddle v. Atkinson, which debarred an action by
a stranger to the contract, should be applicable in this case.
 It was held that since, the basis of the plaintiff's claim being a specific charge on
immovable property in her favour, she was entitled to claim the same as a
beneficiary, and as such, the Common Law rule was not applicable to the facts and
circumstances of the present case.

(ii) Conduct, Acknowledgment, or Admission

Sometimes there may be no privity of contract between the two parties, but if one of
them by his conduct, acknowledgment, or admission recognizes the right of the other,
he may be liable on the basis of the law of estoppel.

(iii) Provision for marriage expenses or maintenance under family

arrangement

Where, under a family arrangement, the contract is intended to secure a benefit to a

third party, he may sue in his own right as a beneficiary.

(iv) Covenant running with the land

A person purchasing a land with the notice that the owner of the land is bound by
certain duties created by an agreement affecting the land shall be bound by them,
although he was not a party to it.

NUDUM PACTUM
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An agreement without consideration is void and thus not enforceable by law

except undercertain circumstances.

Section 25 - Agreement without consideration, void, unless

1. It is expressed in writing and registered under the law for the time being
in force for registration of 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

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 specifically authorised 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 limitations of suits.

(1) Promise due to natural love and affection [Section 25(1)]

When the promise is made in favour of a near relation on account of natural love
and affection, the same is valid even though there was no consideration for such a
promise. The following requirements have got to be satisfied in order that the case
is covered under this exception-

 The parties to the agreement must be standing in a near relationship to each

other.
 The promise should be made by one party out of natural love and affection
for the other.
 The promise should be in writing and registered.

What is near relationship has neither been defined in the Act, nor in any judicial
pronouncement. But, from the various decided cases it appears that it will cover

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blood relations' or those related through marriage, but would not include those
relations which are not "near", but only remotely entitled to inherit.

(2) Compensation for past voluntary services [Section 25(2)]

The second exception of Section 25 covers cases where a person without the
knowledge of the promisor, or otherwise than at his request, does the latter some
service, and the promisor undertakes to recompense him for it. The promise to
compensate, though without consideration, will be valid and thus, binding because
of this exception.

This exception also covers a situation where the promise is for doing something
voluntarily "which the promisor was legally compellable to do."

Thus, when A finds B's purse and gives it to him and then B promises to pay A Rs. 50,
there is a valid contract in such cases although A's act was a voluntary one.

(3) Promise to pay a time barred debt

Section 25(3) requires the following essentials to be satisfied in such a case:

 The promise must be to pay wholly or in part a time barred debt, ie., a debt of
which the creditor might have enforced payment but for the law for the
limitation of suits.
 The promise must be in writing and signed by the person to be charged
therewith, or his duly authorized agent.

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