CLASSES BY CA RUCHIKA AGRAWAL
BUSINESS LAW :: INDIAN CONTRACT ACT, 1872 :: UNIT 2 :: CONSIDERATION
Introduction:
• Consideration is an essential element of a valid contract without which no single promise will be enforceable. It is a term used in
the sense of quid pro quo, i.e., ’something in return’. Having a double aspect of a benefit to the promisor and a detriment to the
promise.
• As per Section 2(d) of the Act, consideration means: “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 an act or
abstinence or promise is called consideration for the promise”.
• Important points to be noted:
• Consideration may be an act - doing something (it may be monetary or non monetary)
• Consideration may be abstinence- abstain from doing something.
• Consideration must be at the desire / request of the promisor. Acts done voluntarily do not form consideration.
• Consideration may move from promisee or any other person. The other person may not be a party to the contact.
• There can be stranger to consideration but not stranger to a contract. (Also known as Doctrine of Privity of Contract)
• Consideration may executed and executory. It is executed when the act has been performed, it is executory when there is a
promise for performing an act.
• Consideration may be past, present or future. Doctrine of past consideration states that when services are rendered in the past at
the request or the desire of the promisor, the subsequent promise is regarded as an admission that the past consideration was
not gratuitous (without consideration).
• Consideration may not be adequate. Something in return need not be equal to something given.
• Explanation 2 to Section 25 of the Act states that an agreement to which the consent of the promisor is freely given is not
void merely because the consideration is inadequate.
• Aan exception if the consideration is shockingly less and the other party alleges that his consent was not free then this
inadequate consideration can be taken as an evidence in support of this allegation.
• The performance of an act by a person who is legally bound to perform the same cannot be consideration for a contract.
• Consideration must be real and must not be illusory. It should not be physically or legally impossible.’
• Consideration must not be unlawful, immoral, or opposed to public policy.
Consideration = Promise / Performance that parties exchange with each other.
Form of consideration = Some benefit, right or profit to one party / some detriment, loss, or forbearance to the other.
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Doctrine of Privity of Contract:
• Consideration for an agreement may proceed from a third party, but the third party cannot sue on contract. Only a person who is
party to a contract can sue upon it.
Exceptions to the Doctrine of Privity of Contract:
• In case of TRUST, a BENEFICIARY can enforce his right under the trust, though he was not a party to the contract between the
settler and the trustee
• In the case of a FAMILY SETTLEMENT.
• In the case of certain MARRIAGE CONTRACTS/arrangements
• In the case where the BENEFIT UNDER A CONTRACT HAS BEEN ASSIGNED
• ACKNOWLEDGEMENT OR ESTOPPEL
• In the case of COVENANT RUNNING WITH THE LAND
Classes by CA Ruchika Agrawal I HNo 1212, Sector 6, Jhajjar I Contact 92157-56300
• The principal can enforce the CONTRACTS ENTERED INTO BY HIS AGENT
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Validity of an agreement without consideration:
• The general rule is that an agreement made without consideration is void (Section 25).
• Following are the EXCEPTIONS to this rule, where an agreement without consideration, will be considered valid and enforceable:
• Written and Registered Agreement based on natural love and affection between parties who stand in near relation to each
other. (Section 25(1))
• Compensation for past voluntary services rendered to the promisor. (Section 25(2))
• Written promise to pay a time barred debt. (Section 25(3))
• No consideration is required to create an agency. (Section 185)
• Completed gifts (Explanation 1 to Section 25)
• Bailment of goods (Section 148)
• In the case where the promisee undertakes a liability based on the promise of the person to contribute to charity.
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Classes by CA Ruchika Agrawal I HNo 1212, Sector 6, Jhajjar I Contact 92157-56300
