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UNIT-2: CONSIDERATION

WHAT IS CONSIDERATION?
Section 2(d) defines consideration 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 an act or abstinence or promise is called consideration for
the promise”.
(1) Consideration is an act- doing something.

Example 1: Ajay guarantees Bhuvan for payment of price of the goods which Bhuvan
wanted to sell on one month credit to Chaitanya. Here selling of goods on credit by
Bhuvan to Chaitanya is consideration for A’s promise.

(2) Example 2: A is
Consideration college promises
abstinence- students,
abstain fromwho willsomething.
doing score above 95% for the job in
MNC. Consideration need not to be monetary. Here the promise for recruitment of
Example 2: Abhishek promises Bharti not to file a suit against him if she (Bharti)
candidate will be considered as consideration for the act of students scoring above
would pay him (Abhishek) ` 1,00,000. Here abstinence on the part of Abhishek would
95%.
constitute consideration against Bharti’s payment of ` 1,00,000 in favor of Abhishek.
Example 4: ABC has a shop of electric items. XYZ wishes to open another electric
(3) Consideration must be at the desire of the promisor.
shop next to his shop. ABC offers Rs 2,00,000 to XYZ for shifting the same away from
(4) Consideration may move
1 km of ABC’s shop. Here, from promiseeis or
consideration anyfor
given other person.XYZ from opening his
abstaining
shop nearby.
LEGAL RULES REGARDING CONSIDERATION
(i) Consideration must move at the desire of the promisor: Consideration must be
offered by the promisee or the third party at the desire or request of the promisor.
This implies “return” element of consideration. Contract of marriage in consideration
of promise of settlement is enforceable.

Example 3: R saves S’s goods from fire without being asked to do so. R cannot
demand any reward for his services, as the act being done voluntary.
(ii) Consideration may move from promisee or any other person: In India, consideration may
proceed from the promisee or any other person who is not a party to the contract. The definition of
consideration as given in Section 2(d) makes that proposition clear. According to the definition, when
at the desire of the promisor, the promisee or any other person does something such an act is
consideration. In other words, there can be a stranger to a consideration but not stranger to a
contract

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Example 4: An old lady made a gift of her property to her daughter with a direction
to pay a certain sum of money to the maternal uncle by way of annuity. On the same
day, the daughter executed a writing in favour of the brother agreeing to pay
annuity. The daughter did not, however, pay the annuity and the uncle sued to
recover it. It was held that there was sufficient consideration for the uncle to recover
the money from the daughter. [Chinnayya vs. Ramayya (1882)]

(iii) .Executed and executory consideration: A consideration which consists in the

performance of an act is said to be executed. When it consists in a promise, it is said
to be executory. The promise by one party may be the consideration for an act by
some other party, and vice versa.

(iv) Consideration may be past, present or future: The doctrine of past consideration
requires a previous request to support a promise. This principle states that consideration
is given and accepted in exchange for the promise, and if services were rendered at the
promisor's request, the subsequent promise acknowledges the past consideration was
not gratuitous.
Example 5: ’A’ performed some services to ‘B’ at his desire. After a week, ‘B’
promises to compensate ‘A’ for the work done by him. It is said to be past
consideration and A can sue B for recovering the promised money.
(v) Consideration
Example 9: A need not of
cash sale be goods
adequate:
is an Consideration need not
example of present to be of The
consideration. any
particular value.
consideration It need not made
is immediately be approximately of equal
against delivery value with the promise for
of goods.
which it is exchanged but it must be something which the law would regard as
having some value. Something in return need not be equal to something given. It can
be considered a bad bargain of the party.
Example 6: X promises to sell a house worth `60 lacs for `10 lacs only, the
adequacy of the price in itself shall not render the transaction void, unless the party
pleads that transaction takes place under coercion, undue influence or fraud.

SUIT BY A THIRD PARTY TO A CONTRACT

Though under the Indian Contract Act, 1872, the consideration for an agreement may
proceed from a third party, the third party cannot sue on contract. Only a person who is
party to a contract can sue on it.
Thus, the concept of stranger to consideration is a valid and is different from stranger to a
contract.
Example 7: P who is indebted to Q, sells his property to R and R promises to pay off the
debt amount to Q. If R fails to pay, then in such situation Q has no right to sue, as R is a
stranger to contract.
The aforesaid rule, that stranger to a contract cannot sue is known as a “doctrine of
privity of contract”, is however, subject to certain exceptions. In other words, even a

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 THE INDIAN CONTRACT ACT, 1872 2.49

stranger to a contract may enforce a claim in the following cases:

(1) In the 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.
(2) In the case of a family settlement, if the terms of the settlement are reduced into
writing, the members of family who originally had not been parties to the settlement
may enforce the agreement.
Example 8: Two brothers X and Y agreed to pay an allowance of ` 20,000 to mother
on partition of joint properties. But later they denied to abide by it. Held their mother
although stranger to contract can require their sons for such allowance in the court
of law.

(3) In the case of certain marriage contracts/arrangements, a provision may be made

for the benefit of a person, he may file the suit though he is not a party to the
agreement.
Example 9: Mr. X’s wife deserted him for ill-treating her. Mr. X promised his wife’s father
Mr. Puri that he will treat her properly or else pay her monthly allowance. But she
was again ill-treated by her husband. Held, she has all right to sue Mr. X against the
contract made between Mr. X and Mr. Puri even though she was stranger to contract.

(4) In the case of assignment of a contract, when the benefit under a contract has
been assigned, the assignee can enforce the contract but such assignment should
not involve any personal skill.
Example 10: Mr. Ankit Sharma has assigned his insurance policy to his son. Now son
can claim even if he was not a party to contract.

(5) Acknowledgement or estoppel – where the promisor by his conduct acknowledges

himself as an agent of the third party, it would result into a binding obligation
towards third party.
Example 11: If L gives to M `20,000 to be given to N, and M informs N that he is
holding the money for him, but afterwards M refuses to pay the money. N will be
entitled to recover the same from the former i.e. M.

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VALIDITY OF AN AGREEMENT WITHOUT

CONSIDERATION
The general rule is that an agreement made without consideration is void (Section 25). In
every valid contract, consideration is very important. A contract may only be enforceable
when consideration is there. However, the Indian Contract Act contains certain exceptions to
this rule. In the following cases, the agreement though made without consideration, will be
valid and enforceable.
1. Natural Love and Affection: Conditions to be fulfilled under section 25(1)

(i) It must be made out of natural love and affection between the parties.

(ii) Parties must stand in near relationship to each other.

(iii) It must be in writing.
(iv) It must also be registered under the law.
Example 12: A husband, by a registered agreement promised to pay his earnings to
his wife. Held the agreement though without consideration, was valid.

2. Example 22: A for

Compensation out past
of natural love and
voluntary affection
services: promises
A promise to to give his newly
compensate, wedded
wholly or in
part, a person who has already voluntarily done something for the promisor, in
daughter- in -law a golden necklace worth ` 5,00,000. ‘A’ made the promise is
writing and signed it and registered. The agreement is valid.
enforceable under Section 25(2). In order that a promise to pay for the past voluntary
services be binding, the following essential factors must exist:
(i) The services should have been rendered voluntarily.
(ii) The services must have been rendered for the promisor.
Example 13: P finds R’s wallet and gives it to him. R promises to give P `10,000. This
is a valid contract.
Example 24: Mr. X had helped his nephew Mr. Y to fight a case in the court of law
3. Promise to pay time barred debt: Where a promise in writing signed by the person
using his knowledge and intellect. After Mr. Y won the case, he promised Mr. X to pay
making it or by his authorised agent, is made to pay a debt barred by limitation it is
Rs. 10,000. Held, this is a valid contract as it is compensation to past services.
valid without consideration [Section 25(3)].
Example 14: A is indebted to C for `60,000 but the debt is barred by the Limitation
Act. A sign a written promise now to pay `50,000 in final settlement of the debt. This
is a contract without consideration, but enforceable for `50,000 only.

4. Agency: According to Section 185 of the Indian Contract Act, 1872, no consideration
is necessary to create an agency.

5. Completed gift: In case of completed gifts, the rule no consideration no contract

does not apply. Explanation (1) to Section 25 states “nothing in this section shall
affect the validity as between the donor and donee, of any gift actually made.” Thus,
gifts do not require any consideration.

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SUMMARY
The students may note that:

(a) Consideration is a price for the promise of the other party and it may either be in the
form of ‘benefit’ or some ‘detriment’ to the parties.

(b) Consideration must move at the desire of the promisor.

(c) It may be executed or executory.

(d) Past consideration is valid provided it moved at the previous request of the promisor.

(e) It must not be something which the promisor is already legally bound to do.

(f) It may move from the promisee or any third party.

(g) Inadequacy of consideration is not relevant.

(h) Consideration must be legal.

(i) The general rule of law is “No Consideration, No Contract” but there are a few
exceptional cases where a contract, even though without consideration is valid.

(j) “Stranger to a contract can’t sue but in some exceptional cases the contract may be
enforced by a person who is not a party to the contract.

CONSIDERATION Sec.2(d)

“When at the desire of the promisor, the promise or any other person has done or abstained from
doing, something, such act or abstinence or promise is called a consideration for the promise.”

Legal Rules Suit by a Third Contract is Valid even

(i) move at the desire of the Party to any without Consideration in
promisor. Agreement following situations:
(ii) move from the promise or (i) A written and registered
any other person. (i) Trust agreement based on
(ii) Family
(iii) may be executed and natural love and
executor. Settlement
affection between near
(iii) Marriage
(iv) May be past, present or relatives
contracts
future. (ii) A promise to pay for a
(v) need not be adequate. (iv) Assignment of
past voluntary service is
contract
(vi) must be something which the binding
promisor is not already (v) Acknowledgeme
(iii) A written promise to pay
bound to do. nt or estoppel
time-time barred debt.
(vii) must be real, not illusory. (vi) Covenants
(iv) Agency.
(viii) must not be unlawful, running with
(v) Completed gifts
land
immoral or opposed to public (vi)Bailment(sec.148).
(viii) Agency
policy. (vii)Charity

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