CONTRACTS

CONSIDERATION
 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION
 Is a statutory ingredient set out in Section 10 of the ICA.
 Based on the Latin Maxim: ‘EX NUDO PACTO NON ORITUR
ACTIO’ – out of a naked agreement no cause of action arises.
 This doctrine is to be studied in relation to Section 2 (d), Section 24 &
25 of ICA.
 Section 2 (d) explains the meaning of the term ‘Consideration’;
 Section 24 relates consideration to the Object of the contract and
Section 25 lays down the legal effect of an agreement without
consideration followed by Exceptions to that principle.
 Shortly called as ‘Nudum Pactum’ – Naked Agreement.
 Definitions of the term ‘Consideration’:
 SIR FREDERICK POLLOCK: “An act or forbearance of one party,
or the promise thereof, is the price for which the promise of the other is
bought and the promise thus given for value is enforceable”

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)
C2 – C3 : CONSIDERATION (Continued)
Definitions of the term ‘Consideration’ (Continued)
 BLACKSTONE: Consideration is the recompense given by one party to
another.
 LUSH.J in the case of CURIE v MISA:.: “ A valuable consideration in
the sense of the law may consist either in some right, interest, profit or
benefit according to one party. or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other”.
 Justice Patterson: “Consideration means something which is of some
value in the eyes of law. It may be some benefit to the plaintiff or some
detriment to the defendant”.
 FAZALADIN v PANCHANAN DAS: AIR 1957 Cal 92.
“Consideration is the price of a promise .return or QUID PRO QUO,
something of value received by the promisee as an inducement of the
promise”

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
Definitions of the term ‘Consideration’ (Continued)
 Statutory Definition: Section 2 (d): Ingredients of this section:
 Sec.2(d) of the Contract Act defines consideration as follows: ‘When at the desire of the
promiser, 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 a consideration for the promise’.

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

2. Consideration must be provided by the promisee or any other person.
3. Consideration may be past, present or future.
4. Consideration may be act or abstinence.
Explanation to the Statutory ingredients:
1, “At the desire of the promisor”: On the demand of the promisor
Case Laws:
 DURGA PRASAD v BALDEO AND OTHERS, 1880 3 All 221. – Held: consideration
not present at the desire of the promisor
 The collector of a district asked D to spend some money on the
improvement of a market and he did so. D cannot demand payment from
the shopkeepers using the market, for having improved the market.
(Durgaprasad Vs.Baldeo)
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• KEDAR NATH V GORIE MOHAMED, 1886
ILR 14 Cal. – Held: consideration was present
and based on the same the promisee altered his
position.
• The defendant had agreed to subscribe Rs 100 towards the construction of
a town hall at Howra.
• The vice chairman of the municipality had called for plans , entrusted the
works to contractors and had undertaken liability to pay them.
• The defendant not having paid the subscription , a suit was brought
against him.
• According to the decision, every promise of a subscription to a public or
charitable object becomes a legal promise and enforceable as soon as any
definite steps are taken.
 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)
C2 – C3 : CONSIDERATION (Continued)
2nd ingredient: Explanation: (Continued):
Doctrine of Stranger to Contract: Position In Indian Law:
 DUNLOP PNEUMATIC TYRE CO v SELFRIDGE & COMPANY 1915 AC
847. – Held that a stranger to contract cannot sue upon a contract.
A contract between P and Q cannot be enforced by R, The leading case in
the doctrine of privity of contract is Dunlop Pneumatic Tyre Co.ltd., Vs.
Selfridge Co. In this famous case, it was held that an action will not lie as
the parties the contract were Dew & Co. and selfridge & Co. The Dunlop
Co. could not sue on a contract to which they were not a party.
But a stranger to the consideration can sue to enforce it, provided he is a
party to the contract. A contract between P, Q, and R whereby P pays
money to Q for delivering goods to R can be enforced by R, although he
did not pay any part of the consideration.
The English case of Tweedle Vs. Atkinson laid down the rule that a
stranger to the consideration cannot sustain an action on the promise
made between two persons, unless he has in some way intervened in the
agreement

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Exceptions to the Doctrine of Stranger to Contract:
 To the Rule of Stranger of Contract, in course of time
.the courts have introduced a number of exceptions in
which the rule of Privity of Contract does not prevent a
person from enforcing a contract which has been made
for his benefit but without his being a party to it.
 Many of these exceptions are connected with the special
branches of law of contract such as Negotiable
instruments, agency etc. The exceptions may be
considered under the following captions:
1) Trust or Charge
2) Marriage Settlement, Partition or other Family
arrangements.
 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)
C2 – C3 : CONSIDERATION (Continued)
2nd ingredient: Explanation: (Continued):
Exceptions to the Doctrine of Stranger to Contract: (Continued):
3) Acknowledgment or Estoppel
4) Covenants running with the land.
• Trust or Charge: Creation of trust :
• An agreement to create a trust can be enforced by the beneficiary. D agrees to transfer
certain properties to T, to be held by T, in trust for the benefit of C. C can enforce the
agreement though he was not a party to the agreement
• When a charge in favour of a person has been created on a specific immovable property, such charge is
enforceable at the instance of the person beneficially interested, though he is not a party to the contract.
• A person in whose favour a charge or other interest in some specific property has been
created may enforce it though he is not a party to the contract.
 Examples for Charge: KHWAJA MOHAMAED KHAN v HUSSAINI BEGUM, 1910
37 IA 152 the privy council applied the equitable doctrine. The father of a bridegroom
had contracted with the father of the bride to make the daughter an allowance called
kharch-i-pandon( beetal box exp) if she married the son of the former. After marriage
she sued her father in law to recover arrears of allowance. Though she is not a party the
contract , she can recover.
 Example for Trust: RANA UMA NATH BAKSH SINGH v JANG BAHADUR, AIR
1938 PC 245.
 Constructive Trust: CHANDHAN AMIR ULLAH v CENTRAL GOVT., 1959 All.L.J.
271.

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
 2nd ingredient: Explanation: (Continued):
 Exceptions to the Doctrine of Stranger to Contract: (Continued):
2. Marriage Settlement, Partition or other Family arrangements.
a) Marriage Settlements: ROSE FERNANDEZ v JOSEPH
GONSLAVES, AIR 1925 Bom. 97.
b) Partition Arrangement: SHUPPU AMMAL v SUBRAMANIAN,
IKLR 1910 37 Mad 233.
c) Family Arrangement: DAROPTI v JASPAT RAI, 1905 PR 171.
3. Acknowledgement or estoppel:
a) DEVARAJ URS v RAM KRISHNAIAH, AIR 1962 Mys.109.
b) GUJARAT STATE FINANCIAL CORPORATION v M/s., LOTUS
HOTELS (P) LIMITED, AIR 1983 S.C. 848: Promissory Estoppel.
4. Covenant running with the land: TULK v MOXHAY, 1919 88 LT
K.B. 861.

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
2nd ingredient: Explanation: (Continued):
Position of Stranger to Contract in English Law:
 A contract cannot be enforced by a person who is not a party to
contract to it even though it is made for his benefit . He is a stranger to
contract and can claim no rights under it. In this regard the position
is similar in English Law and Indian Law.
Stranger to consideration; Position in English Law:
 In English Law consideration must move from the promisee only.
This is because as LORD VISCOUNT HALDANE declared in
Dunlop’s Case that “in the Law of England certain principles are
fundamental. One is that only a person who is a party to a contract
can sue on it. Our Law knows nothing of a JUS QUAESITUM
TERTIO arising by way of a contract. Such a right may arise under
special laws. A second principle is that if a person enters in to a
contract under seal he must be able to enforce it by establishing
passing of consideration”

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
2nd ingredient: Explanation: (Continued):
Stranger to consideration; Position in English Law: (Continued):
 The position in English Law has been generally criticized. In 1937
the Law Revision Committee under the Chairmanship of Lord
Wright also criticized this doctrine and recommended its abolition.
The Committee stated ‘where a contract by the express terms
purports to confer a benefit directly on a third party, the third party
shall be entitled to enforce the promise in his own name provided that
the promisor shall be entitled to raise against 3rd party any defence
that would have been valid against him’. But no steps were taken by
the English Parliament till 1966.
 Therefore, in the case of BESWICK v BESWICK, 1966 3 All.E.R. 1 a
departure was made from the regular doctrine and a judgment was
given in favour of a third party to whom benefit enured through a
contract between two other persons.
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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
2nd ingredient: Explanation: (Continued):
Stranger to consideration; Position in English Law: (Continued):
Present Position:
 The Contracts (Rights of Third Parties) Act, 1999 has been enacted. As
per this law Contracts can be enforced by a Third party if it confers a
benefit to him. This means that, as on date, the Doctrine of Stranger to
Consideration, as was previously applied, is no longer a good law.
 However, this provision does not apply if on a proper construction of the
contract it appears that the parties did not intend the same to be
enforceable by the third party.
 This rule, therefore, raises a rebuttable presumption in favour of a third
party. But, benefit of doubt is given in favour of the third party.
 The onus of proof is on the person who contends that the contracting
party did not intend the contract to be enforceable by a third party.

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)
C2 – C3 : CONSIDERATION (Continued)
2nd ingredient: Explanation: (Continued):
Stranger to consideration; Position in Indian Law:
 In Indian Law consideration may be provided either by the promisee
or any other person.
 This has been substantiated by the decision in CHINNAYYA v
RAMAYYA, 1876-1882 ILR 1-4 Mad 930 – gift by mother to daughter
on her promise to pay annuity to aunt , claim by aunt to enforce
daughter’s promise.
3rd ingredient: Consideration may be past, present or future: Explanation:
a) Present consideration: In this kind of consideration promise and
payment of consideration are done simultaneously. In other words,
promise and consideration to be contemporaneous. There is no
difference between English Law and Indian Law in this regard.
b) Future consideration: This means that a promise may be at one point
of time and payment of consideration being made later. This is called
as EXECUTORY CONSIDERATION. Both the Indian Law and
English Law accept this principle.

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)
C2 – C3 : CONSIDERATION (Continued)
3rd ingredient: Consideration may be past, present or future: Explanation:
C) PAST CONSIDERATION: Position in English Law:
 It has been an accepted principle that Consideration should always be
present. Hence past consideration is no consideration.
 However, an exception has been made, which is as old as the rule
itself, and established as early as 1616 in LAMPLEIGH v
BRAITHWAIT 180 ER 255. - that a past act done at the request will
be good consideration for a subsequent promise.
PAST AND EXECUTED CONSIDERATION: DISTINCTION:
 Past consideration always consists of an act done without any promise.
 Executed consideration means an act which was done in response to a
positive promise.
PAST CONSIDERATION: Position in Indian Law:
 Indian Law recognizes, in Section 2 (d), Past consideration as the ICA
states that when a person ‘has done or abstained from doing’ an act
the same would amount to consideration.

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
4th ingredient: An act or abstinence promise:
 ICA recognizes an act or abstinence or promise as amounting to
consideration.
 But it is not every act or abstinence would amount to consideration.
 Such act or abstinence must be of some value in the eyes of law.
 In WHITE v BLUETT (1853) 23 LT C 36 – Held that there was no
consideration. This type of consideration is called as “ILLUSORY
CONSIDERATION”.
 In Indian Law also it has been laid down in the case of CHIDAMBARA
v RANGA, AIR 1965 SC 193 ‘that consideration shall be something
which not only the parties regard but the law also regard as having
SOME VALUE”.
 But the courts have been liberal in this regard and have always tried to
find some value. KULASEKHARA PERUMAL; v PATHAKUTTY, air
1961 Mad 405.

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
4th ingredient: An act or abstinence promise:
Adequacy of consideration:
 It is not necessary that consideration should be adequate.
 The courts hardly assume the job of setting what should be the
appropriate consideration for a promise. It is left entirely to the
parties.
 If a party gets what he has contracted for and if it is some value, which
may be great or small, the courts will not enquire whether it is an
equivalent to the promise which he gets in turn.
 The adequacy is for the parties to consider at the time of making the
agreement and not for the court when it was sought to be enforced.
 Therefore, parties are said to be the best judges to determine the
consideration.
 This principle has been followed both in English Law and in Indian
Law as per Explanation to Section 25.

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
4th ingredient: An act or abstinence promise:
Adequacy of consideration: (Continued):
 As part of the study of adequacy of consideration inadequacy of
consideration when being imposition of law is to be studied.
 Inadequacy of imposition of law will be accepted by the court of law
when a party alleges that the contract has arisen out of one of the
vitiating factors and not otherwise.
 In view of the above the courts have recognized the prevalence of
valuable consideration in the following cases:
1) Forbearance to sue.
2) Compromise good irrespective of merits.
3) Performance of existing duties.
4) Performance of contractual obligations.
5) Promise to pay less amount than due.
6) Doctrine of promissory estoppel.

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
4th ingredient: An act or abstinence promise:
Adequacy of consideration: Valuable consideration: (Continued):
1) Forbearance to sue: means that the plaintiff has a certain right of
action against the defendant or any other person and on the promise by
the defendant the plaintiff refrains from exercising his action. DEBI
RADHA RANI v PREM ADIB, AIR 1941 Patna 282.
2) Compromise good irrespective of merits: Compromise of pending
suit is a good consideration for the agreement of compromise.
3) Performance of existing duties: Existing legal obligations:
Performance of a legal duty is no consideration for the promise. This
principle of English Law has been adopted in Indian Law by the
Madras High Court in SASHANNA CHETTI v RAMASAMY
CHETTY, 1868 4 MHC 17.
Pre-existing contractual obligations: RAMACHANDRA
CHINTAMAN v KALU RAJU, 1877 2 Bom. 362.

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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)
C2 – C3 : CONSIDERATION (Continued)
4th ingredient: An act or abstinence promise:
Adequacy of consideration: Valuable consideration: (Continued):
Position in English Law:
5) Promise to pay less amount than due: A promise to pay less amount
than due cannot be regarded as a consideration for a higher sum.
PINNEL’S CASE, 1602, 77 ER 237.
The decision in this case is known RULE IN PINNEL’S case. Part
payment of a debt cannot operate as satisfaction of the liability of the
entire debt.
In English Common Law a creditor might accept anything in
satisfaction of the debt except less amount of money.
The Rule in Pinnel’s case has also been followed in England 3 centuries
later in FOAKES v BEER, 1884 9 AC 605. (Payment of the Principal
by instalments in full discharge of the judgment –debt).
In D&C BUILDERS v REES, 1966 2 QB 607 the above principle was
applied. ( receipt of a Cheque for a lower sum from the debtor in full
payment of a higher sum) 19
 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
4th ingredient: An act or abstinence promise:
Adequacy of consideration: Valuable consideration: (Continued):
Position in English Law: Exceptions to the Rule in Pinnel’s case.
 In England the Law Revision Committee 1937 has recommended
abolition of the Rule in Pinnel’s Case.\; but the recommendation, so far,
find no place in the Statute Book. But vario9us exceptions have been
recognized in England.
1) Payment in Kind.
2) Payment before due date.
3) Part payment by a third party.
4) Composition with Creditors.
5) Doctrine of Promissory Estoppel. – CENTRAL LONDON
PROPERTIES Trusts Limited V HIGH TREES HOUSE LTD, 1947
KB 130. (Known as ‘High Tree’s case)
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 The Indian Contract, 1872 & The Specific Relief Act, 1963 (Contd)

C2 – C3 : CONSIDERATION (Continued)
Exceptions to the Doctrine of Consideration:
 Section 25 of ICA, as a general rule, declares that an agreement made
without consideration is void. This section, however, mentions
exceptions to this rule. They are:
1. Promise due to love and affection.
2. Compensation for past voluntary services.
3. Promise to pay a time-barred debt.
 Section 24:
Agreements void, if considerations and objects unlawful in part:
If any part of a single consideration for one or more objects, or any
one any part of any one of several considerations for a single object, is
unlawful, the agreement is void.
****************

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NO CONSIDERATION – NO CONTRACT:

• Consideration is essential for the validity of a

contract.

• Under the Indian Law, the presence of

consideration is, as a rule, essential to the
validity of contracts
 Natural love and affection
• Natural love and affection:
• An agreement made without consideration
is valid if, it is expressed in writing, and
registered under the law in force for the
registration of documents, and is made on
account of natural love and affection between
parties standing in a near relation of each
other [Sec.25(1)]
• An agreement without consideration is valid under
Sec.25(1) only if, the following requirements are compared
with
•
• The agreement is made by a written document.
• The document is registered according to the law relating to
registration in force at the time.
• The agreement is made on account of natural love and
affection.
• The parties to the agreement stand in a near relation to
each other.
• In Rajlukhy Devi Vs.Bhothnath, an agreement
was entered into by a husband with his wife.
During quarrels and disagreement, he
promised to give some property to his wife. It
was held that the agreements is void because,
under the circumstances, there is no natural
love and affection between the parties
• Voluntary compensation
• A promise made without any consideration is
valid if, 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 [Sec.25(2)]
• Sec.25(2) applies when there is voluntary
act by one party and there is a subsequent
promise (by the party benefited) to pay
compensation to the former. The term
‘voluntarily’ signifies that the act was done, ‘
otherwise than at the desire of the promisor’
• Example
• D finds B’s purse and gives it to him. B
promises to give D Rs.50 This is a contract.
 Time-barred debt
• Time-barred debt
• A promise to pay, wholly or in part, a debt
which is barred by the law of limitation can be
enforced if the promise is in writing and is signed
by the debtor or his authorized agent [Sec.25(3)].
• A debt barred by limitation cannot be
recovered. Therefore, a promise to repay such a
debt is, strictly speaking, without any
consideration
• The debt must be a liquidated or ascertained
sum of money, and there must be a definite
promise to pay. A mere acknowledgement of the
debt is not enough.

• Example
• D owes B Rs.1000, but the debt is barred by
the Limitation Act. D signs a written promise to
pay B Rs.500 on account of the debt. This is a
contract.
 Agency
• Agency Under Sec. 185 of the Indian Contract
Act, no consideration is required to create an
agency.
 Completed gift
• Completed gift: The rule ‘no consideration, no
contract’ does not apply to a completed gift.
• Sec. 1 to Sec.25 state that ‘Nothing in this section
shall affect the validity, between the donor and
the donee, of any gift actually made’.
• Thus, if a person gives certain properties to
another according to the provisions of the
Transfer of Property Act, (i.e. by a written and
registered document) he cannot subsequently
demand the property back on the ground that
there was no consideration.