CONSIDERATION SECTION 2D

NUDUM PACTUM : A NUDE OR BARE AGREEMENT IS VOID

Quid pro quo
According to Section 2(d) of the Indian Contract Act, 1872, consideration is defined as follows:
“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 abstain from doing something, such act or abstinence is called a consideration for the promisee.”
Consideration, in contract law, an inducement given to enter into a contract that is sufficient to render the promise enforceable in the courts. The
technical requirement is either a detriment incurred by the person making the promise or a benefit received by the other person. Thus, the person
seeking to enforce the promise must have paid, or bound himself to pay, money, parted with goods, spent time in labour, or foregone some profit
or legal right. In a contract for the sale of goods, the money paid is the consideration for the vendor, and the property sold is the consideration for
the purchaser
This definition, however, leaves unanswered the question of what is sufficient consideration. During certain periods of
history, nominal consideration was held to be sufficient—even a cent or a peppercorn. Gradually, the courts came to require that the
consideration be valuable, although not necessarily equal in value to what is received. The courts have had to decide specifically whether acts of
forbearance on the faith of a promise, the giving of a counter promise, money payments, preexisting duties to the promisor, preexisting duties to
third parties, moral obligations, love and affection, surrender of another legal claim, or performance of a legal duty were sufficient, and the
answer has varied considerably over time.
Example 1 – Doing something
Peter and John enter into a contract where Peter promises to deliver 15 curtains to John in one month’s time. Also, John promises to pay Peter an
amount of Rs 3,000 on delivery. In this contract, John’s promise to pay Rs 3,000, on delivery, is the consideration for Peter’s promise. Also,
Peter’s promise of delivering 15 curtains is the consideration of John’s promise to pay.
Example 2 – Not doing something
Peter has taken a loan from his friend John. However, he has not repaid the loan yet. John promises not to file a suit against Peter if he promises
to repay the loan within a week. In this case, abstinence on the part of John is due to the consideration of Peter’s promise of repayment of
the loan.

the most influential definition is given in

Currie v Misa (1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554
“consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given,
suffered, or undertaken by the other.”
Section 25 of the Indian Contract Act, 1872 openly declares “an agreement made without consideration is void…” and its
exceptions
In other words the presence of consideration is an essential for a contract to be valid.

Essentials
In accordance with Section 2(d), the essential features of a valid consideration are as follows:
1) It is given ‘at the desire of the promisor’;
2) It may move from any person;
3) It can be past, present or future consideration;
4) It must be real and possess value. It must not be illusory;
5) It must be something other than the Promisor’s existing obligation;
6) It must be lawful.

(i) Consideration must move at the desire of the promisor

Consideration can be offered by the promisee or a third-party only at the request or desire of the promisor. If an action is
initiated at the desire of the third-party, it is not a consideration.
Peter is going back home from work. On his way, he sees that his neighbor John’s house is on fire. He immediately arranges
for a water hose and manages to douse the fire. Peter cannot claim any reward for his effort because it was a voluntary act
and was not done at the desire of John (promisor).
The act voluntarily done must have been done for the promisor. An act done at the request of the promisor is directly covered
by the definition of consideration in sec 2d. The present provision ‘appears to cover cases where the person without the
knowledge of the promisor, or otherwise than at his request does the latter some service, and the promisor undertakes to
recompense for it”
(i) Consideration must move at the desire of the promisor
Durgaprasad v Baldeo, ILR 1881 3 All 221
On the order of the collector of a town Durga Prasad built some shops on his own expense in a market. The shopkeepers who occupied these
shops promised to pay to Durga Prasad commission on their sales. Durga Prasad sued the shopkeepers when he did not receive the
commission. The court held that the promise was not supported by any consideration as the shops were built on the collector’s order and not at
the request of the shopkeepers. Therefore there could not be a recovery

At the request and promises of charitable nature

Kedarnath bhattacharji V. Gorie mahomed, (1887) ilr 14 cal Summary
The town planners of Howrah, thought it was advisable to erect a town hall at Howrah, provided sufficient subscription were collected. With
the object in view the commissioner of Howrah municipality started to raise necessary fund by public subscription. The defendants one of the
subscriber’s of this fund for Rs 100 signed his name in the subscription book at that amount. On the faith of the promised subscription the
plaintiff (commissioner of the Howrah municipality) entered into a contract with a contractor for the purpose of the building the town hall.
Later the defendant subscriber refused to pay the amount upon the promise to pay. He contended that there would be no personal benefit by
the construction of the hall. He was held liable. It was observed that in this case that the persons were asked to knowingly subscribe the
purpose to which the money was to be applied or used. They also knew, that on the faith of their subscription an obligation was to be incurred
to pay the contactor for the work. The Act of plaintiff, that is, entering into contract with the contractor was done at the desire of the promisor,
constituting a good consideration within the meaning of the section 2(d
Unilateral promises
Masum Ali And Ors. vs Abdul Aziz And Ors. on 11 March, 1914 (1914) ILR 36 All 268
A movement having been set on foot for re-constructing a mosque, Mr. Abdul Karim & Mr. Jan Mohammed promised to subscribe Rs. 500
each. Mr. Abdul Karim was appointed treasurer of the committee for collecting subscriptions. Mr. Jan Mohammed gave a cheque for his
promised subscription of Rs. 500, but owing, first, to some defect in the endorsement, and later onto its having become out of date, it was
never cashed. The mosque also was never re-constructed. Mr. Abdul Karim having died, his heirs were sued by the members of the
committee for the amount of the unpaid subscriptions
∙ A ----promiser….at the request of the promiser--------B
∙ a market yard for the benefit of C, the traders
∙ B ---- C for allowing them into market and asked commission as
consideration

∙ 2nd example:
∙ A ----- B.A gave all properties to B. asked to provide maintenance to
C.
∙ B-----C, promised to pay the same. Rejected to pay and claimed for
consideration
(ii) Consideration may move from the promisee to any other person
If you look at the definition of consideration according to section 2 (d) of the Indian Contract Act. 1872, it explicitly states the
phrase ‘promisee or any other person…’ This essentially means that in India, consideration may move from the promise to any
other person. However, it is important to note that there can be a stranger to consideration but not a stranger to the contract.
Chinnaya v Ramayya (1882)
When a promisor gives a promise, the promisee or any other person may provide a valid consideration in return.
Summary
An old lady, made an agreement with her daughter that she would gift her some landed property but the condition was that the
daughter would pay her aunt some amount regularly as maintenance allowance. The daughter promised her aunt (mother’s
sister), the maintenance money. However, later she stopped paying the money to her aunt. The aunt filed a case against her
niece for not paying the money. The decision was in favour as this was a perfectly valid consideration.
Note: Under the English Law consideration must move from the promisee. The Indian Law states that consideration may
move from the promisee or any other person. It may even move through a stranger. However the stranger to a contract can
only sue if he/she is party to the contract. This means that it is important to have some valid consideration to an agreement to
make it a valid contrac
(iii) It can be in the past, present or future
a. Past
Since consideration is the price of a promise, it is normally given to induce the promise. However,it can be given before the
promise is made by the promisor. This is past consideration. It is important to note that past consideration is not considered for
a new promise since it is not been given in lieu of the promise. According to Indian law, ‘past considerations’ is ‘good
consideration’ if it was given at the desire of the promisor.
Deepu employs Dallu to work on his field during the months of agricultural harvesting. He promises to pay dallu an amount of
Rs 5,000 for his services when he sows the new crop in the fields. The services of John in the past constitute a valid
consideration.
a.1. Past Voluntary services
At times, a person might render voluntary services without any request or promise from another. If the person receiving the services makes a
subsequent promise to pay for the services, then such a promise is enforceable in India under Section 25(2) of the Indian Contract Act, 1872
which states:
‘An agreement made without consideration is void, unless it’s 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; or unless.’
Peter finds John’s wallet on the road. He returns it to him and John promises to pay Peter Rs 500 for his services. This is a valid contract.
b. Present
If the promise and consideration take place simultaneously then it is present or executed consideration. An example is Peter goes to a shop, buys
a bag of chips and pays for the same on-spot.
c.Future; When the consideration for a promise moves after the contract is formed, it is a future or executory. It is also valid if it depends on the
condition.
X promises to deliver 10 bags of rice to Y after 10 days and Y promises to pay for the rice 10 days after the delivery by X.
(iv) Need not be adequate but It must have value in the eyes of the law
While the law allows the parties to decide an ‘adequate’ consideration for them, it must be real and have value in the eyes of law. While the
Court will not consider inadequacy, it will look at it to determine if the consent was given by the party with free-will or not.
Peter’s wife agrees to withdraw the suit she has filed against him in return for his promise to pay her a monthly maintenance amount. This is a
good consideration and holds value in the eyes of law.
Thomas v Thomas,(1842) 2 QB 851; 114 ER 330
(v) It should be over and above the Promisors’ existing obligations
If the promisor is already obligated either by his promise or law to perform or abstain from a certain act, then it is not a good consideration for a
promise.
Peter receives a summons from the Court to appear before it as a witness for John. John promises to pay him Rs 10,000 to appear in the Court.
This contract is not valid because Peter is obligated by law to appear in the Court on receiving a summons.
(vi) It cannot be Unlawful
A consideration that is against the law or public policies is not valid.
As per section 23 [3] , the consideration or object of an agreement is lawful, unless –
It was held in this case that the promise was not enforceable because “there was no consideration in the sense of benefit”, as “the person who made the promise gained
nothing in return for the promise made”, and the secretary of the Committee to whom the promise was made, “suffered no detriment as nothing had been done to carry
out the repairs.”
Promissory estoppel
Section 115 of the Indian Evidence Act, 1872 incorporates the meaning of estoppel as when one person either by his act or omission, or by declaration, has made
another person believe something to be true and persuaded that person to act upon it, then in no case can he or his representative deny the truth of that thing later in the
suit or in the proceedings. Although a promise must be supported by a legal consideration or a legal agreement to be enforced, the doctrine of promissory estoppel
allows the promise to be enforced even though the requirements of a valid contract are not present. Example of Promissory Estoppel
An example of promissory estoppel might be applied in a case where an employer makes an oral promise to an employee to pay the employee a specified monthly or
annual amount of money throughout the full duration of the employee's retirement. If the employee then subsequently retires based on a reliance on the employer's
promise, the employer could be legally estopped from not delivering on his promise to make the specified retirement payments
Promissory Estoppel in Contract Law
For a contract to be enforceable under contract law, there needs to be a legal consideration for entering into the agreement. The consideration is the exchange of
something of value between the parties at the time of entering into an agreement or making a promise. In the absence of consideration, a contract would ordinarily be
unenforceable.
However, there are exemptions to this scenario, and the court may enforce a promise made between two parties, even in the absence of consideration. Promissory
estoppel prevents a party from going back on a promise he/she made to another party who relied on the promise and acted upon it.
Applicable to government agencies
Pournami oil mills v State of Kerala, 1986 supp scc 728 Section 10 of the Kerala General Sales Tax Act, 1963 empowers the Government in public interest to make
an exemption or reduction in rates either prospectively or retrospectively in respect of any tax payable under the Act.
The State Government with a view to boost industrialization, by an order dated 11th April, 1979 offered incentive to Small Scale industries, to be set up thereafter, in
form of exemption from sales tax and purchase tax for a period of five years from the date of commencement of production. By a second order dated 29th September,
1980, published in the Gazette on 21st October, 1980 purported to be made under s. 10 of the Act, the Government withdrew the exemption relating to purchase tax
and confined the exemption from sales tax to the limit specified.
The appellants who set up their industries after April 11, 1979, including those who did it after 21st October, 1980, claimed benefit of exemption from purchase tax
and sales tax in terms of the first order. They pleaded the rule of estoppel against the State Government in making the second order. The High Court in dismissing their
Writ Petitions proceeded on the footing that the first order was not made in exercise of statutory power while the second order was issued under I0 of the Act.
It is not disputed that the first Order namely, the one dated 11.4. 1979 gave more of tax exemption than the second one. The second notification withdrew the
exemption relating to purchase tax and confined the exemption from sales tax to the limit specified in the proviso of the Notification. All parties before us who in
response to the Order of April 11, 1979 set up their industries prior to 21.10.1980 within the State of Kerala would thus-be entitled to the exemption extended and/or
promised under that Order. Such exemption would continue for the full period of five years from the date they started production. New industries set up after 21.10.
1980 obviously would not be ,entitled to that benefit as they had noticed of the curtailment in the exemption before they came to set up their industries
Past consideration is no consideration
Eastwood v Kenyon, the guardian of a young girl raised a loan to educate the girl and to improve her marriage prospects. After her marriage, her
husband promised to pay off the boat it was held that the guardian could not enforce the promise as taking out the loan to raise and educate the
girl was past consideration because it was completed before the husband promised to repay i
Rosecarla v Thomas
Roscorla and Thomas contracted to buy a horse for $30. After the sale, Thomas promised Roscorla that the horse was sound; the horse turned
out to be vicious. It was held that Roscorla could not enforce the promise, as the consideration given for entering into the contract to buy the
horse had been completed by the time the promise was made; in a sense, the consideration was “used up”
Exceptions
Services rendered at the request of the promiser
Lampleigh v Braithwaite(1615) Hob 105
When past consideration may be good consideration.
Facts:
The defendant, Braithwaite, killed a man. He asked the plaintiff, Lampleigh to secure him a pardon from the king. The plaintiff spent many days doing this, riding
and journeying at his own cost across the country to where the King was and back again. Afterwards, the defendant promised to pay the plaintiff £100 in gratitude.
He later failed to pay the money. The plaintiff sued.
Issues:
The defendant argued that the plaintiff had acted before any promise to pay was given by the defendant. Therefore, he had only provided past consideration for a
promise given in the future. The court considered whether this past consideration was sufficient to create a valid contract.
Held:
The court found in favour of the plaintiff. The promise was indeed given after the plaintiff had acted. However, the plaintiff had acted upon a request made by the
defendant. The court considered that the original request by the defendant contained an implied promise to pay the plaintiff for his efforts. Bowen LJ said:
‘A mere voluntary courtesie will not have a consideration to uphold an assumpsit. But if that courtiesie were moved by a suit or request of the party that gives the
assumpsit, it will bind’.
Consequently, the court held that if A does something for B at their request and afterward B promises to pay A for their trouble, then that promise is good
consideration. The later promise was considered to be part of the same single transaction and was, therefore, enforceable.
Promise to pay Time barred debt
Negotiable instrument
Indian law
Past consideration is a good consideration
Sindha Shri Ganpatsingji vs Abraham the plaintiff rendered services to the defendants at the desire of the defendant during defendant’s
minority and continued those services after the majority. The defendant after attaining majority, promised to pay an annuity to the plaintiff for
the service. it was held that services rendered to a minor at his request and also continued after his majority at the same request were good
consideration for the minor’s promise to pay. The agreement was held to be enforceable.
(iv) Need not be adequate but It must have value in the eyes of the law
While the law allows the parties to decide an ‘adequate’ consideration for them, it must be real and have value in the eyes of law. Court will
not consider inadequacy, it will look at it to determine if the consent was given by the party with free-will or not.
Peter’s wife agrees to withdraw the suit she has filed against him in return for his promise to pay her a monthly maintenance amount. This is a
good consideration and holds value in the eyes of law.
Thomas v Thomas,(1842) 2 QB 851; 114 ER 330

‘Forbearance to sue’ refers to a scenario where a party has a right of action against the other party or a third person and he refrains from bringing action in consideration of promise
by the other or third party. Forbearance to sue is valuable consideration provided such action does not give rise to an illegal contract.
In Kasturi Devi v Chiranji Lal X – the wife of Y, withdrew her suit against Y in return for his promise to pay her maintenance. It was held that it was good consideration.
English common law insists on real and valuable consideration.
In the case of White v Bluett, X – the son of Y, used to constantly complain to his father that his brothers had received more property than X. Y promised to release him from an
outstanding debt if X promised to stop complaining. It was held that the promise by X to not bore Y in the future did not constitute good consideration for Y’s promise to release him from a
debt.
v)It should be over and above the Promisors’ existing obligations
If the promisor is already obligated either by his promise or law to perform or abstain from a certain act, then it is not a good consideration for
a promise.
Collins v Godefroy, (1831) 1 B & Ad 950; 109 ER 1040
Godefroy, the defendant, brought an action against an attorney for negligence and caused Collins, the plaintiff, to be subpoenaed to attend and
give evidence. Godefroy was keen to ensure that Collins attended as this would help his case, so he promised to pay him one guinea per day
he was at court as compensation for the loss of his time. Collins attended court for six days but was not called to give evidence. At the end of
this Collins demanded payment of six guineas as per the agreement. When this was not paid, he brought an action against the defendant for
the sun owing.
Issues:
The question for the court was whether the agreement between the plaintiff and the defendant was supported by valuable consideration.
Held:
The court held that the agreement that the plaintiff’s should attend court was not supported by consideration. This was because the plaintiff
was under a public duty to attend court anyway having been subpoenaed. The law would not allow someone to recover expenses incurred
in the performance of a duty that they were merely obliged to do anyway by law. Lord Tenterden said (at 956):
‘If it be a duty imposed by law upon a party regularly subpoenaed, to attend from time to time to give his evidence, then a promise to give
him any remuneration for loss of time incurred in such attendance is a promise without consideration. We think that such a duty is imposed
by law’.
Consequently, the agreement was unenforceable.

Ramachandra Chintaman v Kalu Raju(1878) ILR 2 Bom 362

In this particular case, the plaintiff accepted a vakalatnama representing the defendant in a certain suit on his usual fees. The defendant
promised him an extra payment if he won the case. The defendant won the case; however, he did not pay the extra amount to the plaintiff.
The plaintiff initiated action against him. The Bombay High Court held that the plaintiff having accepted the vakalatnama was already
under a contractual obligation to render his services in the best interests of the client. There was thus no fresh consideration from the
plaintiff for this promise by the defendant.
However, if the situation so arises that a party can refuse to go ahead with his original contract a promise to pay him an additional award to
do so is valid. For example, if a plumber refuses to visit a customer's house for repairs due to the current coronavirus situation, a promise
by the customer to the plumber to pay him an extra commission would be valid.

(vi) It cannot be Unlawful

A consideration that is against the law or public policies is not valid.
Privity of consideration the doctrine of privity of consideration states that the consideration must only move from the promisee and the stranger to
the contract, although a beneficiary can enforce the terms of the agreement.
Twiddle v AtkinsonWHC J57 (QB), (1861) 1 B&S 393
The son and daughter of the parties involved in this dispute were getting married. As such, the father of the groom and father of the bride entered
into an agreement that they would both pay sums of money to the couple. Unfortunately, the father of the bride died before he paid the money to
the couple and the father of the son died before he could sue on the agreement between the parties. As a result of this, the groom brought a claim
against the executor of the will for the payment that was previously agreed between the fathers.
Issue;The primary issue for the court was whether or not the son could, as a third party to the agreement, enforce the contract between the fathers,
which was ultimately for the benefit of him and his wife. It was argued that the intention of the agreement between the fathers was for the couple
to derive a benefit from the payment of the money. Moreover, it was argued that preventing the son from being able to enforce the contract would
effectively ignore the intention of the fathers.
Held;The groom’s claim was rejected by the court. It was held that the groom was not a part of the agreement between the fathers and he did not
provide any consideration for the promise made by the father of the bride. Also, as a stranger to the contract, the son could not enforce it. On this
basis, the court found in favour for the executor of the will
Chinnayya v Ramayya
Privity of contract
The Indian Contract Act. 1872, allows the ‘Consideration‘ for an agreement to proceed from a third-party. However, a stranger (third-party) to
consideration is different from a stranger to a contract. The law does not allow a stranger to file a suit on the contract. This right is available only
to a person who is a party to the contract and is called Doctrine of Privity of Contract.
Dutton v poole, 1677 A person had a daughter to marry and in order to provide her a marriage portion he intended to sell a wood of which he was
possessed at the time. His son (the defendant) promised that if “the father would forebear to sell at his request, he would pay the daughter £
1,000.” The father accordingly forbore but the defendant did not pay. The daughter and her husband sued the defendant for the amount.
It is clear that the defendant gave his promise to his father and it was the father alone who, by abstaining from selling the wood, had furnished
consideration for the promise. The plaintiff was neither privy to the contract nor interested in the consideration. But it is equally clear that the
whole object of the agreement was to provide a portion to the plaintiff. It would have been highly inequitable to allow the son to keep the wood
and yet to deprive his sister of her portion. He was accordingly held liable.
Dunlop Pneumatic Tyre co v Selfridge & co Ltd, 1915 AC 847 laintiffs (Dunlop & Co.) sold certain goods to one Dew & Co. and secured an
agreement from them not to sell the goods below the listed price and that if they sold the goods to another trader, they would obtain a similar
undertaking to maintain the price list. Dew & Co. sold the motor tyres to the defendants (Selfridge & Co.) who agreed not to sell the tyres to any
private customer at less than the list prices. The plaintiffs sued the defendants for breach of contract. It was held that assuming the plaintiffs were
undisclosed principals, no consideration moved from them to the defendants and that the contract was unenforceable by them
Beswick v Beswick, 1968PB was in poor health and agreed with the defendant, his nephew, that he would transfer the trade and good will of his
coal business to him on the basis that the nephew employed him as a consultant for the rest of his life and paid him for this. The nephew also
agreed to pay PBs wife after PB died for the rest of her life. She was not a party to the agreement. Upon the death of PB, the nephew paid PB’s
wife once but then not again. PBs widow brought an action as administrator of PB’s estate and also in her personal capacity claiming for specific
performance.
Issue
PB’s widow raised two interesting questions for the court to consider. The first was whether the widow, as an administrator to PB’s estate, could
claim for an order of specific performance for PB’s nephew to honour his agreement. It was also important to see how the court weighed this
claim alongside her claim on a personal level, which that she could claim as a party to the contract between her late husband and nephew.
Held
The court granted the widow an order of specific performance for the payment owed by PB’s nephew as an administrator to her husband’s estate.
The court held that the damages would also not be limited due to the loss that had been caused to PB’s estate. However, the court found that PB’s
widow could not claim under her personal capacity as she was a third party to the contract and was not a party to the original agreement .

Decisions following English Law in India

Jamnadas v Pandit ram Avtar Pande, 1911-12 In this case, A had mortgaged some property to X. A then sold this property to B, B having agreed
to A to pay off the mortgage debt X. X brought an action against B to recover the mortgage money. It was held by the Privy Council that since
there was no contract between X and B, X could not enforce the contract to recover the amount from B.
M.C. Chacko v State Bank of Travencore, 1969 H bank had an overdraft account with State Bank. MC Chacko was the manager of H
bank and his father K had guaranteed the repayment of debt. K gifted his properties to members of his family. The gift deed provided
that liability if any under the said guarantee should be met either by MC personally or through property gifted to him under the said
deed. State Bank sued all the heirs under the deed along with MC; albeit limitation period to sue on letter of guarantee had already
passed.
ISSUES:
1) Whether a ‘charge’ was created in favor of State Bank under the said deed to satisfy the debt under the letter of guarantee?
2) Whether the charge, assuming that a charge exists, is enforceable by bank when it is not a party to the deed?
HELD:
A ‘charge’ may be created on immovable property when either through express words or implied from deed, it is clear that party
intended to make a specified property or fund, belonging to him, liable for debt due by him.
In present case, no such charge was created in favor of State Bank—the deed merely set out an internal arrangement between the
donor and members of family which conferred a right of indemnity upon them against M.C. Chacko and his inherited
property—however, no intention to convert a personal debt into a secured debt in favor of the bank could not be inferred. Since it was a
debt of K such that he was personally liable under the debt; after his death all his inheritors were liable to satisfy the debt out of his
estate, inherited by them. However, in such a case, other members would have been indemnified by M.C. Chacko for any share of debt
paid by them.
By the definition of promisor and promisee as contained in S.2 along with constructive interpretation of ICA in light of similar
provisions in English Law, the notion that ‘a stranger to a contract could enforce the obligations there under’ is completely excluded. A
person not a party to contract cannot enforce the terms of the contract unless he is a beneficiary under the contract or the contract is
one of family arrangement (which confers upon him equitable rights, albeit not contractual)
Even if charge would have been created in favour of State Bank, it wouldn’t have been able to enforce it since it is not a party to the
deed and, was a complete stranger to it: it wasn’t a beneficiary under the contract.
Since limitation period has passed, State Bank couldn’t claim anything under the letter of guarantee either from MC Chacko (who
personally never guaranteed payment) and or from any other heir of K
 Exceptions to the Doctrine of Privity of Contract
A stranger or a person who is not a party to a contract can sue on a contract in
the following cases:
1.Trust
2.Family Settlement
3.Assignment of a Contract
4.Acknowledgement or Estoppel
5.A covenant running with the land
6.Contract through an agent

Beneficiaries under Trust

If a contract is made between the trustee of a trust and another party, then the
beneficiary of the trust can sue by enforcing his right under the trust, even if he
is a stranger to the contract.
Nawab Khwaja Muhammad Khan vs Nawab Husaini Begam on 7 June, 1910
(1910) 12 BOMLR 638
Rana Uma Nath Bakhsh Singh vs Jang Bahadur on 8 July, 1938 (1939) 41
BOMLR 659
Family settlement for marriage partition or other
settlement
If a contract is made under a family arrangement to
benefit a stranger (person not a party to the
contract), then the stranger can sue in his own right
as a beneficiary of the contract.
Rose Fernandez v joseph Gonsalves
Shappu Ammal v Subrahmaniyam, ILR 1910 33
mad 238 Shuppu Ammal v. Subramaniam
Veeramma v Appayya, 1957
Daropati v Jaspat rai, 1905
Assignment of a Contract
If a contract is made for the benefit of a person, then he
can sue upon the contract even though he is not a party
to the agreement. It is important to note here that
nominees of a life insurance policy do not have this
right.
Acknowledgment or Estoppel
If a contract requires that a party pays a certain amount
to a third-party and he/she acknowledges it, then it
becomes a binding obligation for the party to pay the
third-party. The acknowledgment can also be implied.
N. Devaraju Urs v ramakrishniah, 1952
Kshirodebihari Datta v Mangobinda Panda, 1943

sui
t
A Covenant Running with the Land
When a person purchases a piece of land with the
notice that the owner of the land will be bound by
all duties and liabilities affecting the land, then he
can sue upon a contract between the previous
land-owner and a settler even if he was not a party
to the contract.
Smith & snipes Hall Farm Ltd v River Douglas
Catchment Board, 1949
Section 25: exceptions to consideration
1)Gift must be in writing and registered
Rajlukhy dabee v Bhootnath Mookerji, 1899In this, Defendant has promised to give his wife a certain amount as
maintenance every month and it was also in writing. Wife filed a case for recovering the entire amount. The
court gave the decision in favour of defendant stating that there was no natural love and affection between them
so the defendant is not liable to pay
Biswa v Shivram, 1899

2) Past voluntary services

Sindha v Abraham. 1896 Plaintiff rendered services to defendant when he was a minor. When defendant became major, he
asked plaintiff to continue services and promised to compensate him. it was held that services rendered to a minor at his
request and also continued after his majority at the same request were good consideration for the minor’s promise to pay

3)Time barred debt

It must be real OR consideration
Unreal considerations
• Physical impossibility
• Legal impossibility
• Uncertain considerations
• Pre-existing legal duties

Real considerations
• Forbearance to sue
Debi Radha Rani v Ramdass, 1941
• Compromise of a disputed claim
• Composition with creditors
Promise to pay less than the amount due
Accord and Satisfaction
The subsequent agreement by which a party is discharged from his obligation under the old contract
Attempt to satisfy is accord. Execution of accord is satisfaction
Accord executed is valid but not accord executory
Rule in pinnel’s case
Foakes v Beer, 1884 case established the rule that prevents parties from discharging an obligation by part performance
The respondent, Beer, loaned the appellant, Dr Foakes, £2090 19s. When he was unable to repay this loan she received a judgment in her favour
to recover this amount. The parties then entered into an agreement whereby ‘in consideration’ of an initial payment of £500 and ‘on condition’
of six-monthly payments of £250 until the whole amount was repaid, she would not enforce her judgment against him. Foakes made these
regular payments until the entire amount was repaid. However, he had not paid any interest on the judgement debt, which Beer was entitled to
under statute. This interest totalled £302 19s 6d.
Issues:
The respondent’s case was that the promise not to enforce the judgement was not supported by good consideration because the appellant had
only done what he was already contractually bound to do. The respondent relied on the rule in Pinnel’s Case (1602) 5 Co Rep 117 that part
payment of a debt could not be satisfaction of the whole.
Held:
The House of Lords held that the respondent’s promise not to enforce the judgment was not binding as Dr Foakes had not provided any
consideration. Their Lordships approved the rule in Pinnel’s Case. Lord Selborne said that there had to be
‘some independent benefit, actual of contingent, of a kind which might in law be a good and valuable consideration’.
However, Lord Blackburn expressed some dissatisfaction with this, noting that by accepting less a creditor could in some cases gain a practical
benefit

sec63. Promisee may dispense with or remit performance of promise.—Every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for such performance,1or may accept instead of it any satisfaction which he
thinks fit. —Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time
for such performance,1or may accept instead of it any satisfaction which he thinks fit."
Section 25of this act opens with the declaration that an agreement made without consideration is void…

the most influential definition is given in

Currie v Misa (1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554
A company named Lizardi & Co, then in good credit in the City, sold four bills of exchange to Mr. Misa, drawn from a bank in Cadiz. Mr. Currie was the owner of
the banking firm and the plaintiff bringing the action. The bills of exchange were sold on the 11th of February, and by the custom of bill, brokers were to be paid for
on the first foreign post-day following the day of the sale. That first day was the 14th of February. Lizardi & Co. was much in debt to his banking firm, and being
pressed to reduce his balance, gave to the banker a draft or order on Mr Misa for the amount of the four bills. This draft or order was dated on the 14th, though it was,
in fact, written on the 13th, and then delivered to the banker. On the morning of the 14th the manager of Misa's business gave a cheque for the amount of the order,
which was then given up to him. Lizardi failed, and on the afternoon of the 14th the manager, learning that fact, stopped payment of the cheque
Issue
The question arose as to whether the existing debt constituted sufficient consideration for the security so as to constitute a legally-enforceable contract for the
creditor.
Held
The Court held that consideration must “consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or
responsibility, given, suffered, or undertaken by the other.” . Thus, there can be no legal contract unless there is consideration in the form of a benefit gained, or
detriment suffered arrangement by the parties. On the facts, the Court held that the title of a creditor to a negotiable security on account of a pre-existing debt and
transferred to him, bona fide, without any notice of infirmity of title by the debtor is indefeasible. The pre-existing debt did not in and of itself form a sufficient
consideration for the negotiable security. Accordingly, there was an absence of any consideration or the making or payment of the cheque by Mr. Misa.

A valuable consideration may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility,
given, suffered, or undertaken by the other.

At the desire of the promisor if the promisee either

•Does something (in the past, present or future) OR
•Abstains from doing something (in the past, present or future)
Then, this act of doing or abstinence is called Consideration. Now, it has two aspects, either doing some act or abstaining from doing something