MEANING OF CONSIDERATION (Sec.
2 (d)
When, at the desire of the promisor, The promisee or any other person
Has done/abstained from doing, or does/abstains from doing, or promises
to do/to abstain from doing, something, Such act/abstinence/promise is
called a consideration for the promise.
ESSENTIALS OF A VALID CONSIDERATION
Consideration must An act or abstinence shall constitute a good
move at the desire of consideration only if it is done at the desire of the
the promisor. promisor.
Consideration may So long as there is consideration for promise,
move from promisee or it is immaterial as to who has furnished it.
any other person. If a party receives consideration, the contract
is valid, even though the person furnishing the
consideration is not a party to the contract.
Where a third party furnishes the
consideration, it is valid consideration.
As long as there is consideration in a contract,
it is immaterial as to who has given this
consideration. This rule is generally stated as
‘Privity of consideration is not required’.
No adequacy of The law requires that there must be
consideration required. consideration in every contract.
However, adequacy of consideration is not
required. Even if it is proved that such
consideration is inadequate, the contract is not
void.
The fact of inadequacy of consideration shall
be given due weightage while determining
whether the consent of the promisor was
freely given or not.
It must be different Consideration received by a party must be
from promisor’s something more than the other party’s contractual
existing obligation and legal obligation.
Consideration must be An agreement is void if the consideration furnished
lawful by any of the parties is unlawful.
It must be real, and not Consideration received by a party must be of
illusory some value.
Consideration must not be illusionary
(i.e., existing in name)
EXCEPTIONS TO THE RULE: NO CONSIDERATION (Sec. 25)
NO CONTRACT
Agreements The agreement is made in writing.
made on account The agreement must be registered.
of natural love The agreement must be made between the parties standing in
and affection. immediate relation to each other.
(Conditions) There must be natural love and affection between the parties.
However, mere nearness of relationship does not imply natural
love and affection.
Compensation A party renders some services to the other party or performs the
for past legal obligation of the other party.
voluntary The services are rendered without any desire of the other party,
services – i.e., the services are rendered voluntarily.
(conditions) The other party afterwards promises to compensate the former
party for the services rendered to him.
Promise to pay a Meaning A creditor can sue the debtor for recovery of his money
time-barred debt of time by going to the Court of law. However, if the creditor
barred fails to institute the suit within 3 years of debt becoming
debt due for payment, the debt is said to be time barred debt,
i.e., the creditor cannot institute the suit after the expiry of
said period of 3 years.
General The general rule is that an agreement to pay a time
rule barred debt is void.
Exception An agreement to pay a time barred debt is enforceable if
the following conditions are satisfied:
The debt is a time barred debt.
The debtor promises to pay the time barred debt.
The promise is made in writing.
The promise is signed by the debtor.
Completed gift Agreement to make a gift is not enforceable.
However, once a gift has actually been made, the donor cannot
demand it back on the ground that there was no consideration.
Agency No consideration is necessary to create an agency.
Remission No consideration is necessary for an agreement to receive less than
what is due.
Guarantee In a contract of guarantee, consideration received by the principal
debtor shall be sufficient consideration for the surety.
PRIVITY OF CONTRACT (Sec. 25)
Privity of It is well established that privity of consideration is not
consideration required.
Consideration may move from promisee or any other
person.
So long as there is consideration for promise, it is
immaterial who has furnished it.
Privity of The general rule is that only the parties to a contract can
contract – sue.
Meaning In other words, if a person is not a party to the contract
(i.e., a stranger to contract), he cannot sue.
Privity of Dunlop Pneumatic Tyre Co. V Selfridge and Co.
contract – D entered into a contract of sale of certain tyres to P.
Example The contract provided that P shall not sell the tyres below
the list price. Also, the contract provided that P shall, at
time of resale, impose a condition on the retailer that sale
by retailer shall not be made below the list price.
P sold certain tyres to S.S. resold certain tyres below the
list price.
In a suit instituted by D against S, the Court held that such
suit was not maintainable since there was no privity of
contract between S and D.
Privity of Creation of a trust. Beneficiary is not a party to the agreement
contract creating a trust. However, the beneficiary
Exceptions is allowed to sue the trustee for
enforcement of trustee‘s duties.
Marriage / Family Where a marriage or family settlement is
arrangements made, the person who is a beneficiary
under such settlement is entitled to sue
even though he may not be a party to sue
settlement.
Acknowledgement The person, who becomes an agent of a
third party by acknowledgement, can be
sued by such third party.
Assignment of a An assignee is entitled to exercise all the
contract. rights which could have been exercised by
the assignor previously,
even though the assignee was not a party
to the contract as originally made.
