CONSIDERATION

A valid and enforceable contract must be supported by consideration. The term consideration is used in the
sense of quid pro quo (i.e. something for something or something in return). Consideration must be either a
benefit to the promisor or a detriment to the promisee or both. Section 25 of the Indian Contract Act
specifically states, " An agreement without consideration is void ".

Definition:
1. When a party to an agreement promises to do something, he must get something in return - this something
is defined as consideration.

2. Pollock: "Consideration is the price for which the promise of other is bought, and the promise thus given
for value is enforceable".

3. Section 2 (d) 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 abstains from doing
something, such act or abstinence or promise is called a consideration for the promise".

Eg. 1: A agrees to sell his car to B for Rs. 50,000. In this example, Rs.50,000 is the consideration for A's
promise. Similarly, the car is the consideration for B's promise.

Eg. 2: Mr. A promised to go to Delhi if B paid him Rs. 2,000. Here the consideration for A's promise is the
payment of Rs. 2,000. It is the benefit to A and a detriment to B. (Detriment - the act of giving up something
of legal value, or suffering a loss or harm)

Eg. 3: Abdul Aziz v/s Masum Ali: Masum Ali promised to pay Rs. 500 for the reconstruction or rebuilding
of a mosque. Later he failed to pay. Thus, the secretary of the mosque (Abdul Aziz) filed a suit for the recovery
of the amount. It was held that the promise was not enforceable as there was no consideration. Here there was
no benefit to the promisor or detriment to the promisee.

ESSENTIAL ELEMENTS OF CONSIDERATION:

1). Consideration must move at the desire of the promisor:
Consideration must move at the desire of the promisor. Hence an act done at the desire of a third party is not
a consideration.
Eg. 1: Durgaprasad v/s Baldeo (already explained)

Eg. 2: Mr. A saves B's goods from fire without being asked to do so. A cannot demand payment for his service.

2). Consideration may move from the promisee or any other person:
Under Indian law, consideration may move from promisee or any other person. But under English law,
consideration must move from the promisee only. A stranger to the consideration cannot sue. Privity of
contract is essential for a right of action.

Eg: Chinnayya v/s Ramayya: A Madrasi woman (A) gave her property to her daughter (C) through a gift
deed. As part of this arrangement, A directed C to pay Rs. 650 every year to A's brother (R). On the same day,
C signed an agreement promising to follow A's direction and pay the annuity to R. After some time, C stopped
paying the Rs. 650, and R filed a lawsuit against her.
The court ruled in R's favor, stating that the gift deed and the agreement to pay the annuity were part of the
same transaction. Since there was consideration involved in this arrangement, the contract was valid, and C
was legally bound to pay R.

3. Consideration may be past, present or future:

a. Past consideration: Consideration by a party for a present promise was given before the date of the promise.
Under the English law, past consideration is not valid.
b. Present or executed consideration: Consideration given simultaneously with the promise.
c. Future or executory consideration: Here consideration from one party to the other is to pass subsequently.

Eg. 1: X renders some service to Y at the latter's desire. After a month, Y promises to pay some compensation
for his service. It is a past consideration and X can recover it.

Eg. 2: A sells goods to B and delivers them to B who promises to pay the amount at a future date. It is a case
of present or executed consideration. Here A has done his act of delivering goods against the promise of B to
pay the amount in future.

Eg. 3: X promises to deliver to Y certain electric appliances as soon as he receives them from the wholesaler
at Mumbai and Y promises to pay Rs. 5,000 against the delivery of the articles. It is an instance of future
consideration, which is to be performed by both the parties when supplies are received from Mumbai.

4. Consideration need not be adequate:

Consideration means 'something in return'. Consideration need not be adequate means 'something in return'
need not be equal to 'something given'. The adequacy of the consideration is for the party to consider at the
time of making an agreement. It has been held by the court: "The adequacy of consideration is for the parties
to consider at the time of making the agreement, not for the court when it is sought to be enforced."

Eg.: Mr. A purchased from B an old table for Rs. 250. It would be difficult task for the court to ascertain
whether the price paid was adequate or not. Therefore, they have agreed that Rs. 250 is the consideration.

5. Consideration must be real and not illusory:

Consideration must be real, competent and of some value in the eyes of law.

Eg.: A promises to put life into B's dead wife, for which B should pay Rs. 5000. A's promise is impossible of
performance. It is not a real consideration. Thus, it is a void agreement.

6. Consideration must be something, which the promisor is not already bound to do:
Eg.: A lawyer was promised extra money or a commission if a lawsuit was successful. However, the court
ruled that this promise was void. The reason was that the lawyer was already legally obligated to provide the
best possible service as part of their duty.

7. Consideration must not be illegal, immoral or opposed to public policy:

Consideration must not be unlawful. It must be legal. Section 23 of the Indian Contract Act says, "Every
agreement of which the consideration is unlawful, is void". It means that an agreement must be supported by
lawful consideration.

Eg.: A promised to pay Rs. 5,000 to B if he (B) beats C. The agreement is void as the consideration is unlawful.
'NO CONSIDERATION, NO CONTRACT’ (OR)
'A CONTRACT WITHOUT CONSIDERATION IS VOID':
Exception to the above rule (Section 25):
The following agreements are enforceable even though they are made without consideration.

1. Love and affection [Sec. 25(1)]:

A written and registered agreement based on natural love and affection is enforceable even without
consideration.

Eg: Aamir out of natural love and affection agrees to gift her newlywed daughter a flat worth ₹1 crore. Aamir
made this promise in writing and the same was registered. Even though the promise is without any
consideration the same shall be valid as it is made out of natural love and affection.

In the context of this exception, it may be noted that an agreement entered into, between a husband and his
wife during quarrels and disagreement, whereby the husband promises to give some property to the wife is
void, even if the agreement is in writing and is registered. Because under such circumstances, i.e. during
quarrels, there cannot be natural love and affection between husband and wife, though they stand in near
relations to each other. This point was upheld in Rajalakshmi Devi v/s Bhoothnath.

2. Compensation for past voluntary service [Sec 25(2)]:

A promise to pay for a past voluntary service is binding.

Eg 1: Akshay left for Canada for a year, and Kapil a neighbor of Akshay voluntarily agrees to take care of the
garden of Akshay. Akshay subsequently promises to pay a sum of money as compensation to Kapil for taking
care of the garden. The promise was made in writing and registered by law. Although no consideration exists
at the time of rendering services, the contract is valid as there is a promise to pay for past service.

Eg. 2: A finds B's lost purse and gives it to him. B promises to give Rs. 100. This is a valid contract.

Eg. 3: Mr. A supports B's infant son. B promises to pay A's expenses in doing so. This is a valid contract.

Raja of Venkatagiri v/s Krishnayya: In a train accident, X saved the life of Y out of his own impulse. Later
on, Y promises to pay Rs. 5,000 to him as reward for his past efforts. It is a valid promise and constitutes a
contract, though there is no consideration (because services of X were rendered voluntarily).

3. Promises to pay time-barred debt [Sec 25(3)]:

A promise by a debtor to pay a time-barred debt is enforceable provided it is made in writing.

Eg: Kangana purchased a flat from Hrithik at a price of ₹1 crore, however, 10 years have passed and she didn't
make any payment towards the flat to Hrithik. The debt became time-barred and cannot be brought to legal
action. However, after 10 years Kangana writes a promise to pay ₹20 lakh for the flat in the final settlement
of the debt. Even though the contract is made without consideration it shall be enforceable and valid but only
to the extent of ₹20 lakh.

Eg.: Mr. B owes C Rs. 1000. The debt is barred by the Limitation Act. D signs a written promise to pay Rs.
500 to 'C' in full settlement of the debt. This is a valid contract.
4. Completed gift:
The rule "No consideration, no contract" does not apply to a completed gift.
Eg: Phil gifts his wife Clair, a car worth ₹10 lakh on her birthday. Although the transfer of property is made
without consideration, however, this will be enforceable as it is gifted voluntarily by the donor to donee as a
gift.

5. Agency [Sec 185]:

No consideration is necessary to create an agency.
Eg: Salman; the principal, appoints Arbaaz; the agent, to sell his property. Even though there is no
consideration when the agency agreement is made, the contract is still binding because the agent is authorized
to act on behalf of the principal, and the principal is bound by the actions of the agent taken on behalf of the
principal.

6. Contribution to charity:
A promise to donate to charity is legally enforceable if the charity, relying on the promise, takes specific
actions and incurs expenses to achieve its goal. The promisee (the charity) can enforce the promise to cover
the expenses incurred, but only up to the amount promised by the donor.
Eg: Aishwarya promises to donate an amount of ₹1 lakh to an organization named 'Being Good Human'. While
relying on the promise of Aishwarya, the organization incurs expenses on manufacturing new shirts for people
in need. Although the promise was made without consideration it will be considered as a valid contract.

7. Remission of Contract:
Eg: Rachel took an interior contract from Ross. Rachel agrees to accept ₹50,000 from Ross in satisfaction of
the debt of ₹1,00,000. Rachel subsequently cannot claim the amount of ₹50,000 which she has rescinded.

PRIVITY OF CONTRACT: STRANGER TO A CONTRACT CANNOT SUE:

Only persons who are parties to a contract can sue and be sued on that contract. It is known as the doctrine of
'privity of contract'

Privity of contract: Privity of contract means relationship subsisting between the parties who have entered
into contractual obligations or subject knowledge of the contract.

Privity of contract is a common law principle that states that only parties to a contract can have rights or
obligations imposed on them. This means that a person who is not a party to a contract cannot enforce its
terms, even if the contract was created to benefit them.

Eg 1: If there is a contract between A and B, C cannot enforce it.

Eg. 2: Dunlop Pneumatic Tyre Co. Ltd v/s Selfridge & Co. Ltd: 'Dunlop & Co', a tyre company, sold certain
tyres to D, a wholesaler and secured an agreement from D not to sell the tyres to other traders below the
Dunlop's price list. A further condition was also imposed that any retailer to whom D re-supplied the tyres
should also promise D not to sell the tyres to the public below Dunlop's price list. D sold the tyres to 'Selfridge
& Co" who agreed not to sell the tyres to the public below the Dunlop's price list. But 'Selfridge & Co' sold
the tyres below the Dunlop's price list. 'Dunlop & Co' sued 'Selfridge & Co' for damages for breach of the
contract. 'Dunlop & Co's action to recover damages from 'Selfridge & Co' failed as 'Dunlop & Co' was a
stranger to contract between D and 'Selfridge & Co'

Under Indian law there are certain exceptions to the rule that a stranger to a contract cannot sue.
Exceptions:

1. A trust or charge: A person in whose favour a charge in some specific immovable property has been created
may enforce it even though he is not a party to the contract.

Eg.: 'Mr. O agrees to transfer certain properties to X, to be held by Mr. X in trust for the benefit of Mr. B. B
can enforce the agreement even though he is not party to it. (Madhav Trading Co. v/s Union of India)

2. Contracts entered into through an agent: The principal can enforce contracts entered into through his
agent. However, the agent must act within the scope of his authority and also in the name of his principal.

3. Marriage settlement, partition or other family arrangements: If a provision is made for the benefit of a
person, he may sue although he is not a party to the agreement.

Eg.: Two brothers, on a partition of joint properties, agreed to invest certain sum of money in favour of their
mother. The court held that she (mother) could claim the same even though she was a stranger or third party
to the contract. (Shuppa Ammal v/s Subramanyam)

4. Assignment of a contract: In the case of assignment of rights under a contract in favour of a third party
either voluntarily or by the operation of law, the assignee can enforce the rights and benefits of the contract.

Eg.: The assignee of an insurance policy or the official receiver of an insolvent person has a right to sue on
the contract; even though he is a stranger to it.

5. Estoppel or Acknowledgement: If a party to a contract had already admitted his liability to a third party
or had already per- formed part of the promise, he shall be estopped from denying his liability to the third
party. Thus, in such cases, the third party can enforce his right arising from the contract.

Eg.: X gives Y Rs. 5,000 again to be given to Z. Y informs Z that he is holding the money for him. Later on,
Y refuses to pay the money. Z is entitled to recover the money from Y(Lily v/s Hays).