Consideration

Meaning, Definition, Essentials, Kinds and Exceptions

 Meaning of Consideration
◼ Presence of consideration is one of the essentials of a valid contract. Subject to certain

exceptions, the general rule in India is that “an agreement without consideration is void.”

◼ Consideration has been defined by Blackstone as, “Consideration is the recompense given

by the party contracting to the other.”

◼ According to Pollock, “Consideration is the price for which the promise of the other is

brought, and the promise thus given for value is enforceable.”

◼ Case – Fazalaldin Mandal vs. Panchanan Sas (1957)

The Calcutta High Court has observed in this case that “consideration is the price of a

promise, a return or quid pro quo, something of value received by the promisee as

inducement of the promise.”

• The requirement of consideration stems from the policy of extending the
arm of the law to the enforcement of mutual promises of parties. A mere
promise is not enforceable at law. For example, if A promises to make a
gift of Rs. 500 to B, and subsequently changes his mind, B cannot
succeed against A for breach of promise, as B has not given anything in
return.

• It is only when a promise is made for something in return from the

promisee, that such promise can be enforced by law against the
promisor. This something in return is the consideration for the promise.

• Consideration means something in return for the promise. It may be

either some benefit conferred on one party or some detriment suffered by
the other. It is the price of the promise for each party.
 Definition
◼ Sec.2(d) defines consideration as under –
“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 or promise is called a
consideration for the promise”.
◼ The definition of consideration requires, in the first place, that the act or
abstinence, which is to be a consideration for the promise, should be done at the
desire of the promisor; secondly, that it should be done by promisee or any other
person, and, lastly that the act or abstinence may have been already executed or
is in the process of being done or may be still executory, that is to say, it is
promised to be done.
 Essentials of Consideration
◼ The definition requires the following essentials to be satisfied in order there is valid consideration
1. Consideration to be given ‘at the desire of the promisor’.
2. Consideration to be given ‘by the promisee or any other person’.
3. Consideration may be past, present, future, in so far as the definition says that the promise:
(i) Has done or abstained from doing, or (Past Consideration)
(ii) Does or abstains from doing, or (Present Consideration)
(iii) Promises to do or to abstain from doing, something. (Future Consideration)
4. There should be some act, abstinence or promise by the promise, which constitutes consideration for the
promise.
◼ Eg., (i) ‘P’ agrees to sell his car to ‘Q’ for Rs.50,000 Here ‘Q’s Promise to pay Rs.50,000 is the
consideration for P’s promise and ‘P’s promise to sell the car is the consideration for ‘Q’s promise to
pay Rs.50,000.
(ii) ‘A’ promises his debtor ‘B’ not to file a suit against him for one year on ‘B’s agreeing to pay him
Rs.10,000 more. Here the abstinence of ‘A’ is the consideration for ‘B’s Promise to pay.
5. Every simple contract must be supported by valuable consideration otherwise it is
formally void subject to some exceptions.
6. There must be mutuality i.e., each party must do or agree to do something.
7. Consideration must be real, and not vague, indefinite, or illusory.
8. Although consideration must have some value, it need not be adequate i.e., a full
return for the promise. Section 25 (Exp. II) clearly provides that “an agreement to
which the consent of the promisor is freely given is not void merely because the
consideration is inadequate.”
9. Consideration must be lawful, e.g., it must not be some illegal act such as paying
someone to commit a crime. If the consideration is forbidden by the law, the
agreement is void.
10. Consideration must be something more than the promisee is already bound to do
for the promisor. Thus, an agreement to perform an existing obligation made with
the person to whom the obligation is already owed, is not made for consideration.
 At the desire of the Promisor
⚫ The definition of consideration in Sec.2(d) clearly emphasizes that an act or abstinence which is to be a

consideration for the promise must be done or promised to be done in accordance with the desire of the promisor.

⚫ In other words, an act shall not be a good consideration for a promise unless it is done at the desire of the

promisor. This means that whatever is done must have been done at the desire of the promisor and not voluntarily

or not at the desire of a third party. If A rushes to B’s help whose house is on fire, there is no consideration but a

voluntary act. But if A goes to B’s help at B’s request, there is good consideration as B did not wish to do the act

gratuitously.

⚫ Case – Durga Prasad vs. Baldeo (1880)

Brief facts - Plaintiff constructed few shops in a market at the instance of the collector of that place. Defendant

occupied one of the shops in the market. Money for the construction of the market was spent by the plaintiff, the

defendants, in consideration thereof, made a promise to pay to the plaintiff commission on the articles sold in that

market. Defendant (promisor) failed to pay the promised commission.

Judgment – It was held that since the consideration did not move at the desire of the defendants (promisor),

this did not constitute valid consideration and therefore the defendants were not liable in respect of the promise

made by them.
⚫ An act done at the promisor’s desire furnishes a good consideration for his promise even

though it is of no personal significance or benefit to him. Eg., If a man promises a

charitable institution that he will pay Rs.100 into its funds if it procures nine other persons
to do the same, justice requires that his promise should be held binding on him as soon as it
has procured the nine others to pay Rs.100 each, but the act done by the institution is not a
benefit to him or detriment to the institution.

⚫ A promise to contribute an amount for a charitable purpose may not be enforceable because

against this promise there may be no consideration. But a promise to pay subscription
becomes enforceable when definite steps have been taken on the faith of the promised
subscription.

⚫ Case – District Board of Ramnad vs. D.K. Mahommed Ibrahim Sahib (1933)

A sum of Rs.500 was promised by the defendant (promisor) as a personal contribution for
the purpose of constructing a bridge. He was held liable to pay the amount on the
completion of the bridge.
⚫ Case - Kedarnath vs. Gorie Mohammed (1886)

Brief facts - There was a proposal to construct a Town Hall at Howrah provided sufficient funds

would be available by way of subscription. The defendant was one of the subscribers, having promised

to pay Rs.100 by signing his name in the subscription book for the purpose. On the faith of the

promised subscriptions, the plaintiff engaged a contractor for the purpose of the construction and

started a construction work. The defendant refused to pay his subscription on the ground that he was

not legally bound by his promise because there was no consideration for the same.

Judgment - The engaging of a contractor and starting the construction on the faith of the promise

was sufficient consideration to enforce the promise and, therefore, the defendant was bound to pay the

amount promised by him.

⚫ A unilateral promise is a promise from one side only and is intended to induce some action by the other

party. The promisee is not bound to act, for he gives no promise from his side. But if he carries out the

act desired by the promisor, he can hold the promisor to his promise.

⚫ An act done at the request of the offeror in response to his promise is consideration, and consideration

in its essence is nothing else but response to such request.

 Consideration by Promisee or any other person
⚫ The second notable feature of the definition of consideration is that the act which is to constitute a

consideration may be done by ‘the promisee or any other person’.

⚫ In the law of England certain principles are fundamental. Two fundamental propositions of English

Law are:

i) Consideration must move from the promisee and the promisee only. If it be furnished by any other
person, the promisee becomes stranger to the consideration and, therefore, cannot enforce the
promise. (Privity of Consideration)

ii) A contract cannot be enforced by a person who is not a party to it even though it is made for his
benefit. He is a stranger to the contract and can claim no rights under it. (Privity of Contract)

⚫ Privity of Consideration – The former of the two propositions is not applicable in India, as Sec.
2(d) states that it is not necessary that consideration should be furnished by the promisee only.

⚫ It means that as long as there is a consideration for a promise, it is immaterial who has furnished it.
It may move from the promisee, or if the promisor has no objection, from any other person.
⚫ Eg., A promises to give his watch to B and a consideration of Rs.2000 for the same is given by X

and not be B. This will not be considered a valid contract in England as consideration for A’s
promise in favour of B was not provided by the promisee B himself but by somebody else. Such
a contract will be valid in India as Sec.2(d) clearly provides that “….at the desire of the
promisor, the promisee or any other person” may provide consideration.

⚫ Case – Chinnaya vs. Ramayya (1882)

Brief facts - A, an old lady, granted an estate to her daughter (defendant) with a direction that
the daughter should pay an annuity of Rs. 653/- to A’s brother (plaintiff). On the same day the
defendant made a promise to the plaintiff that she would pay the annuity as directed by A. The
defendant failed to pay the stipulated sum. In an action against her by the plaintiff she contended
that since the plaintiff himself had furnished no consideration, he had no right of action.

Judgment – The Madras HC held that in this agreement (between the defendant and the
plaintiff), the consideration has been furnished by the defendant’s mother and that is enough
consideration to enforce the promise between the plaintiff and the defendant.
⚫ Privity of Contract – The doctrine of privity of contract means that only those persons who are parties to

the contract can enforce the same. A stranger to the contract cannot enforce a contract even though the

contract may have been entered into for his benefit.

⚫ Eg., If in a contract between A and B some benefit has been conferred upon X, X cannot file a suit to

enforce the contract because A and B are the only parties to the contract, whereas X is a stranger to the

contract.

⚫ The rule that a stranger to contract cannot sue has to be distinguished from the rule that in India a person

who is a stranger to consideration can sue. In India a person may not have himself given any consideration

but he can enforce the contract if he is a party to the contract, because according to the Indian Law

consideration may be given either by the promisee or even a third party. That does not affect the rule of

privity of contract.

⚫ Case - Tweddle Vs. Atkinson (1861)

A married a girl B. After marriage there was a contract in writing between A’s father and B’s father that

each would pay a certain sum to A. After the death of the two fathers, A brought an action against the

executors of B’s father to recover the promised amount. It was held that A could not sue for the same as

he was a stranger to the contract though it was entered into for his benefit.
⚫ Case – Dunlop Pneumatic Tyre Co.Ltd. Vs. Selfridge & Co. Ltd. (1915)

The appellants (Dunlop & Co.), who were manufacturers of motor car
tyres, sold some tyres to one Dew & Co. with an agreement that these tyres
will not be sold below D’s list price. Dew & Co. in their turn sold some of
these tyres to the respondents (Selfridge & Co.), with an agreement between
Dew & Co. and the respondents that the respondents shall observe
conditions as to price and shall not sell any tyre below D’s list price. The
respondents sold some tyres below the list price, and the appellants brought
an action against the respondents to recover the damages.
The House of Lords held that Dunlop & Co. could not bring an action
against Selfridge & Co., because there was no contract between the two
parties.
⚫ The rule that “privity of contract” is needed and a stranger to the contract cannot bring an action is

equally applicable in India as in England. Even though under the Indian Contract Act the definition of

consideration is wider than in English Law, yet the common law principle is generally applicable in

India, with the effect, that only a party to the contract is entitled to enforce the same.

⚫ Case – Jamna Das vs. Ram Avtar (1911)

A had mortgaged some property to X. A sold this property to B. B having agreed with A to pay off

the mortgage debt. 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.

⚫ Case – Advertising Bureau vs. C.T. Devaraj (1995)

The circus owner placed order with the Advertising Bureau for making advertisements for circus.

The advertiser did not make any agreement with the financer of circus. The advertiser was not a party

to the contract between the financer and the circus owner. There being no privity of contract between

the advertiser and the financer, the suit by the advertiser against the financer was, therefore, dismissed.
⚫ Exceptions to the rule that a stranger to contract cannot sue- In the 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 party to it. Some of the most commonly known exceptions are as
follows –

i) Beneficiaries under trust or charge or other arrangements:

⚫ While only a party to a contract who can sue on it and no such right is conferred on a
third party, it was also stated that “such a right may be conferred by way of property,
as, for example, under a trust.”

⚫ The basis of an action by the third party is actually not enforcing the contract but the
right conferred by a particular contract in favour of a third party in the form of trust etc.
For example, in a contract between A and B, beneficial right in respect of some
property may be created in favour of C. In such a case C can enforce his claim on the
basis of the right conferred upon him.
⚫ Case – Nawab Khwaja Muhammad Khan vs. Nawab Hussaini Begum (1910)

Brief facts - An agreement between the fathers of a boy and a girl that if the girl married a particular boy, the

boy’s father (defendant) would pay certain personal allowance known as Kharch-i-pandan (betel-box expense) or

pin money to the girl. It was also mentioned that a certain property had been set aside by the defendant and this

allowance would be paid out of the income of that property. The girl (plaintiff) married the defendant’s son but

the defendant failed to pay the allowance agreed to by him. Plaintiff brought an action against the defendant.

Judgment - The basis of the plaintiff’s claim being a specific charge on the immovable property in her favour

she is entitled to claim the same as a beneficiary, and as such, the common law rule of privity is not applicable.

⚫ Case – Klaus Mittelbachert vs. East India Hotels Ltd. (1997)

There was a contract between Lufthansa, a German Airline and Hotel Oberoi Inter-continental, New Delhi that

crew of Lufthansa will stay in the latter’s hotel. The plaintiff, a co-pilot of the Airline, who stayed in the said

5-star hotel got serious head injuries when he dived in a hotel swimming pool. The plaintiff suffered paralysis and

after an agony of 13 years, he dies. His action against the hotel management succeeded although he himself did

not make any contract for stay on the hotel. He was held to be the beneficiary to the contract and was awarded

compensation for the damage caused to him due to the defective structure of the swimming pool.
ii) Conduct , Acknowledgment or estoppel – Sometimes, there may be no privity of contract between

the parties, but if one of them by his conduct, acknowledge, or admission recognizes the right of the

other to sue him, he may be liable on the basis of the law of estoppel.

⚫ Case – Narayani Devi vs. Tagore Commercial Corporation Ltd. (1973)

There was no contract between the plaintiff (wife) and the defendants (Tagore Corp.), but the

defendants in their agreement between the plaintiff’s husband had agreed to pay a certain amount to

the plaintiff’s husband during his lifetime and thereafter to the plaintiff, the question of the right of the

plaintiff to sue the defendants had arisen. It was established that the defendants had made certain

payments to the plaintiff after her husband’s death, in pursuance of the agreement, and had thereafter

asked for the extension of time to pay. Apart from that it was found the defendants by their admission

had earlier called upon the plaintiff to execute certain documents in this connection, which implies that

they have considered the plaintiff to be entitled to certain rights. It was therefore held that the

defendants had created such privity with the plaintiff by their conduct and by acknowledgment and by

their admission, that the plaintiff was entitled to her action even though there was no privity of contract

between the plaintiff and defendant when the said contract was entered into.
⚫ Case – N. Devaraja Urs vs. Ramakrishniah (1952)

A sold his house to B under a registered sale deed and left a part of the sale
price in his hands desiring him to pay this amount to C, his creditor.
Subsequently, B made part-payments to C informing him that they were out of
the sale price left with him and that the balance would be remitted immediately.
B, however, failed to remit the balance and C sued him for the same. The suit
was held to be maintainable. “Though originally there was no privity of contract
between B and C, B subsequently acknowledged his liability, C was entitled to
sue him for recovery of the amount.”
iii) Provision for marriage expenses or maintenance under family arrangement – Where an
agreement is made in connection with marriage, partition or other family arrangement and a provision
is made for the benefit of a person, he may take advantage of that agreement although he is no party to
it.

⚫ Case – Rose Fernandez vs. Joseph Gonsalves (1924)

A girl’s father entered into an agreement for her marriage with the boy (defendant), it was held that
the girl after attaining majority could sue the defendant for damages for breach of the promise of
marriage and the defendant could not take the plea that she was not a party to the agreement.

⚫ Case – Shappu Ammal vs. Subramaniyam (1910)

Two brother, on a partition of joint properties, agreed to invest in equal shares a certain sum of
money for the maintenance of their mother, she was held entitled to require them to make the
investment.

⚫ Case – Daropti vs. Jaspat Rai (1905)

The defendant’s wife left him because of his cruelty. He then executed an agreement with her father,
promising to treat her properly, and if he failed to do so, to pay her monthly maintenance and to
provide her with a dwelling. Subsequently she was again ill-treated by the defendant and also driven
out. She was held entitled to enforce the promise made by the defendant to her father.
iv) Covenants running with land – The rule of privity may also be modified by the
principles relating to transfer of immovable property.

⚫ Case – Tulk vs. Moxhay (1919)

A person who purchases a land with notice that the owner of the land is bound by certain
duties created by an agreement or covenant affecting the land, shall be bound by them
although he was not a party to the agreement.

⚫ Case – Smith & Snipes Hall Farm Ltd. vs. River Douglas Catchment Board (1949)

The defendants (the Board) agreed with certain landowners adjoining a stream to
improve the banks of the stream and maintain them in good condition. The landlords on
their part paid proportionate costs. Subsequently one of the landlords sold his land to the
first plaintiff and he to the second plaintiff. There was negligence on the part of the Board
maintaining the banks, which burst and the land was flooded. Both the plaintiffs were
strangers to the agreement with the Board, but even so the Court of Appeal allowed them
to sue the Board for breach of the contract, for the whole arrangement was for the benefit
of the landowners whoever they might be and not merely the parties to the agreement.
Consideration may be Past, Present or Future
⚫ Section 2(d) of the Indian Contract Act, recognizes three kinds of consideration which are
Past, Present(executed) and Future (excutory).
i) Past consideration –
⚫ If the act has been done before any promise is made, it is called past consideration. It is
necessary that at the time of the act constituting consideration was done, must have
been done at the desire of the promisor.
For eg., A lost his dog and asked B to find it. A told to B that, “I promise to pay Rs.100
for that”. It is a case of past consideration. For the promise of A to pay Rs.100 the
consideration is B’s efforts in finding A’s lost dog and the same had been done before
A promised to pay the amount. In this case the consideration has been at the request of
A, because it is only when A requested B found the dog. This constitutes valid (past)
consideration under Sec.2(d), and therefore the promise is enforceable.
English law regarding past consideration –
⚫ According to English law, past consideration is no consideration.
 Case – In re MdArdle (1951)

A effected certain improvements to property. The ultimate beneficiaries of the property signed a document

declaring that: “In consideration of your carrying out the certain alterations and improvements, we the

beneficiaries shall pay you the sum of £488 in settlement of the amount spent on such improvements.”The Court

of Appeal held that since the expenditure had been incurred before the document was signed, the consideration

was past and therefore the promise could not be enforced.

⚫ Past consideration at the promisor’s request – This is an exception to the above rule that past consideration

though given prior to the promise, but at the request of the promisor, is deemed to be a good consideration for the

promise.

⚫ Case – Lampleigh vs. Brathwait (1615)

Thomas Barthwait, the defendant, who was held guilty of having committed a murder, request Lampleigh, the

plaintiff, to make efforts to obtain pardon for him from the King. The plaintiff made efforts to secure pardon,

going from one place to another at his own expense. In consideration of these efforts, the defendant promised to

pay £100 to the plaintiff. It was held that the plaintiff had a right to enforce the promise and recover the said

amount because for this promise the consideration, in the form of efforts by the plaintiff to obtain the pardon had

been there at the earlier request of the defendant.

Indian Position regarding past consideration –
⚫ Indian Contract Act recognizes only such consideration which has been given at
the desire of the promisor, rather than voluntarily. If consideration has been given
voluntarily it is not consideration.
⚫ It is noted that rendering of voluntary services do not constitute a valid
consideration to support the promise in terms of Sec.2(d) which requires
consideration to be given at the promisor’s request. A valid contract, is however,
created in such a case also because the situation is covered by Section 25(2) of
the ICA, which is an exception to the rule that an agreement without
consideration is void. It reads as follows –
“An agreement without consideration is void unless –
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.”
⚫ The point may be further explained by the following illustrations –

i) A finds B’s purse and gives it to him. B promises to give A Rs.50. This is a
contract.
ii) A supports B’s infant son. B promises to pay A’s expenses in doing so. This is
a contract.

⚫ India recognizes past consideration, when the same has been given “at the
desire of the promisor”. Past act done voluntary is no consideration either in
India or England. In India, however, such a promise in lieu of the past
voluntary services is enforceable because of the exception mentioned in
Sec.25(2), which declares such an agreement valid even if it is without any
consideration. There is no such provision in English law.
ii) Presented or Executed consideration –

⚫ A past consideration always consists of an act done without any promise. But executed consideration

means an act which has been done in response to a positive promise. When one of the parties to the

contract has performed his part of promise, which constitutes the consideration for the promise by the

other side, it is known as executed consideration.

For eg., A makes an offer to reward Rs.100 to anyone who finds his lost dog and brings the same to

him. B finds the lost dog and delivers the same to A. When B does so, that amounts to the acceptance

of the offer, which results in a binding contract under which A is bound to pay Rs.100 to B, and also

simultaneously giving consideration for the contract. This consideration is executed.

⚫ Executed consideration may be distinguished past consideration. In case of executed consideration, the

consideration is provided simultaneously along with the making of the contract. For eg., when B finds

the lost dog that constitutes not only the acceptance of the offer but that also provides the consideration

in respect of the contract between A and B.

⚫ In case of past consideration, consideration is provided prior to the making of the contract. Promise is

non-existent.
iii) Future or Executory Consideration –

⚫ Consideration may also consist of an act which is only promised to be done at

some future time.
⚫ There may be a simple exchange of promises and each promise is a consideration
for the other.

For eg., A agrees to sell and B to buy a quantity of goods at a stated price. Until
the goods are actually delivered to B under the contract, the consideration is
executory.
 Consideration is an act, abstinence or promise
⚫ Consideration as defined in the Act, means some act, abstinence, promise on the part of the
promisee or any other person which has been done at the desire of the promisor.
i) Consideration must be of some value -

⚫ Case – White vs. Bluett (1853)

The defendant owed a sum of money under a promissory note to his father. The defendant
perpetually, day and night, complained to his father that he had not been treated equally with
the other children in the distribution of his property. Thereupon, the father promised to
discharge him from all liability, in respect of the loan and the note, provided he would stop
complaining, which the defendant accordingly did. The question was whether the defendant’s
promise to cease his complaints was a sufficient consideration to sustain his father’s promise.
It was held that such promises could not be binding and termed as consideration. A contract
founded on illusionary consideration appears to be as invalid.
⚫ Case – Chidambara Iyer vs. P.S. Renga Iyer (1966)
The SC held that consideration shall be something which not only the parties
regard but the law can also regard as having some value. It must be something
real and not illusionary, whether adequate or not. So long as the consideration is
not unreal it is sufficient if it be of slight value only.
⚫ Courts have been very liberal in this respect and have always tried to find value
in something to which parties attach value.
⚫ Case – Kulasekaraperumal vs. Pathakutty Thalavanar (1961)
A promise was made by the wife to pay off her husband’s debts and to take
care of his mother in consideration of enjoying certain properties, were held to
be a valid consideration.
ii) Consideration need not be adequate –
⚫ A contract which is supported by consideration is valid irrespective of the fact
that the consideration is inadequate.
⚫ According to Explanation 2 of Section 25 of the Contract Act states –

“An agreement to which the consent of the promisor is freely given is not void merely because
the consideration is inadequate; but the inadequacy of the consideration may be taken into
account by the Court in determining the question whether the consent of the promisor was freely
given.”

⚫ It is followed by illustration (f) which reads as “A agrees to sell a horse worth Rs. 1,000 for Rs.

10. A‟s consent to the agreement was freely given. The agreement is a contract notwithstanding
the inadequacy of the consideration.”

⚫ The courts can hardly assume the job of settling what should be the appropriate consideration for

a promise. It is entirely for the parties to decide. If the parties gets what he has contracted for and
if it is of some value, which may be great or small, the courts “will not enquire whether it was
equivalent to the promise he gave in return”.

⚫ Case – Devji Shivji vs. Karsandas Ramji (1954)

The transfer of the goodwill and the whole of the assets of a business for a bare Rs.1000 has
been upheld.
Exceptions –

⚫ Although inadequacy of consideration by itself is not a ground for treating the

contract as invalid but it may be a factor which the court may take into
consideration to know whether the consent of a party was free or not.
⚫ A party seeking to set aside a transaction on the ground of inadequacy of
consideration, must show such inadequacy as will involve the conclusion that he
either did not understand what it was about, or was the victim of some imposition.
For once the court is satisfied that a person has entered into an agreement freely
and with knowledge of its purport and effect, the agreement will be valid
notwithstanding the inadequacy of the consideration.
⚫ Illustration (g) to Sec.25 reads as, “A agrees to sell a horse worth Rs. 1,000 for Rs.
10. A denies that his consent to the agreement was freely given. The inadequacy
of the consideration is a fact which the Court should take into account in
considering whether or not A‟s consent was freely given.”
iii) Forbearance to sue –

⚫ Forbearance to sue has always been regarded as valuable consideration. It is

indeed, a kind of abstinence, which is so clearly recognized as a good

consideration in the definition itself.

⚫ “Forbearance to sue” means that the plaintiff has a certain right of action against

the defendant or any other person and on a promise by the defendant he refrains

from bringing the action.

⚫ Case – Debi Radha Rani vs. Ram Dass (1941)

A wife who was ready to sue her husband for maintenance allowance forborne

to sue on husband agreeing to pay her monthly allowance by way of maintenance,

the contract is supported by consideration as wife’s forbearance to sue amounts to

consideration for husband’s agreement for payment of maintenance allowance.

iv) Compromise good irrespective of merits -

⚫ Compromise of a pending suit is a good consideration for the agreement of

compromise.

⚫ A compromise is a good consideration “irrespective of merits of the claim of

either side”, and even “where there is some doubt in the minds of the parties as to

their respective rights”.

⚫ Case – CWT vs. Her Highness Vijayaba (1979)

Two brothers were quarrelling over the over the division of their late father’s

property. Their mother persuaded the junior to give up the struggle on the promise

that if the elder one did not provide him a sum of money she would subside him.

The promise was held to be enforceable. It was given to purchase family peace

and that was sufficient consideration.

 Performance of Existing Duties
⚫ Consideration it is generally said, must be something more than what the promisee is already bound
to do. A person may be bound to do something by law or by contract.
i) Performance of legal obligations –
⚫ Performance of a legal duty is no consideration for a promise.
⚫ Case – Collins vs. Godefroy (1831)
A received a subpeona (summons) to give evidence in a case. Thereafter B promised to pay to A
some amount of money for the trouble which was to be taken by him in appearing in that case. A sued
B to recover the amount promised by B. It was held that A having received the subpeona (summons)
was already under a public duty to give evidence, and therefore, the promise by B to pay did not
constitute consideration for the promise.
⚫ It should be noted that doing something more than what may have been done under a statutory duty is
also good consideration for the promise.
⚫ Case – Glasbrook Bros Ltd. Vs. Glamorgan Country Council (1925)
It was held in this case that, although the police authority is bound to provide sufficient protection to
life and property without payment, if in particular circumstances, at the request of an individual, they
provide a special form of protection outside of their public duty, they may demand payment for it.
⚫ Case – Ward vs. Byham (1956)

The father of an illegitimate child promised to pay to the child’s mother, who
lived separately along with the child £1 per week if she proved that the child was
looked after and happy. The mother married another person and then the father
stopped making the payment. In an action by the mother to recover the promised
amount, it was held that the mother had promised to do something more than mere
statutory duty to maintain the child, i.e., prove that the child was well looked after
and happy, and that constituted consideration for the promise and therefore, the
mother was entitled to succeed in her action.

ii) Performance of contractual obligations – Under this two main points are
covered:
A. Pre-existing contract with promisor
B. Pre-existing contract with third party
A. Pre – existing contract with promisor –

⚫ If A is already bound to perform a particular contractual duty owed to B, B’s promise to

pay something additional for the same promise is no consideration.

⚫ Case – Stilk vs. Meyrick (1809)

In this case, two sailors having deserted in the course of a voyage, the captain of the ship

promised to distribute the wages of those two sailors amongst the other members of the

crew if they would work the ship home. It was held that, it was the contractual duty of

the members of the crew to work the ship home, there was no consideration to pay the

additional amount and hence the promise to pay that amount could not been enforced.

⚫ Case – Liston vs. Owners Carpathian (1915)

In this case, the sailors refused to complete a voyage because of war risks, not originally

contemplated, but remained on duty on the promise of extra pay, they were allowed to

recover it. a
⚫ Case – Ramchandra Chintaman vs. Kalu Raju (1877)
The plaintiff accepted a Vakalatnama from the defendant to act for him in a certain suit
on receiving his usual fee. Subsequently the defendant agreed to pay him a certain sum
as a special reward (inam), if the suit was decided in his favour. The suit was in favour
of the defendant who, however, did not pay the amount. The plaintiff, therefore, brought
a suit against him.
The Court rejected the suit brought against the defendant by the plaintiff stating that the
plaintiff having accepted a Vakalatnama was already bound to render his best service as
a pleader. There was no fresh consideration proceeding from the plaintiff when he
obtained the agreement.
B. Pre – existing contract with third party -
⚫ Where a person has contracted to do an act, and a third person promises to pay him a sum
of money if he would go ahead with the performance, is there a consideration for the
promise was discussed in the case of Shadwell vs. Shadwell (1860)
⚫ Case – Shadwell vs. Shadwell (1860)

The plaintiff was already engaged to be married to a girl named Ellen Nicholl. His uncle, the

defendant, sent him the following letter: ‘I am glad to hear of your intended marriage with Ellen

Nicholl; and, as I promised to assist you at starting, I am happy to tell you that I will pay to you

£150 yearly during my life, and until your annual income derived from your profession of a

Chancery barrister shall amount to 600 guineas.’ Thereafter the plaintiff married Miss Nicholl.

He could not earn 600 guineas from his profession but no annuity was paid by his uncle to him.

After his uncle’s death he brought an action against his executors to recover the amount

promised to be paid by his uncle to him.

It was decided by a majority that the promise was enforceable as it was supported by

consideration. Consideration in this case being a benefit to the uncle as marriage of a near

relative could be of interest to him, and also detriment to the plaintiff as he might have incurred

pecuniary liabilities on the faith of the promise.

⚫ In India the same principle is followed as in the previous English case law.

⚫ Case – Firm Gopal Co. Ltd. vs. Firm Hazarilal Co. (1963)

The plaintiff entered into a contract with a Textile Mill to purchase some bales of cotton, part

of which were to be lifted in May, 1948 and the remaining in June 1948. The plaintiff lifted only

part of the bales to be lifted in May, 1948 but refused to take any further delivery on the ground

that the price of cloth has fallen and lifting rest of the cotton at the contract price will result in

huge loss to him. The defendants, who were the sole selling agents of the Mill and had

guaranteed to the Mill that the plaintiff would perform the contract, approached the plaintiff to

request him to take delivery of the remaining bales of the May quota, assuring that thereupon the

defendants will get the contract for the June quota cancelled. The defendants also assured the

plaintiff that they would purchase a part of the bales taken by the plaintiff for the May quota or

pay the plaintiff Rs.25,000 instead, at the option of the plaintiff. The plaintiff took the further

delivery of the cotton bales and, exercising an option, brought an action against the defendants to

recover Rs.25,000. The defendants contended that their promise was void for want of

consideration as the plaintiff was already bound to take the cotton.

 The High Court of Madhya Pradesh reviewed the English authorities and held
that from a second agreement there comes into existence a new contract (between
plaintiff and defendant) and there was sufficient consideration for this new
contract in the way of performance of the existing contractual duty by the plaintiff
to the Textile Mill by lifting the remaining bales. Though there are two contracts
but consideration is the same for both.
 Rule in Pinnel’s Case (Promise to pay less than amount due)
⚫ A promise to pay less than what is due under a contract cannot be regarded as a consideration. This rule,

having been laid down in an early case, was thus formulated in Pinnel’s Case.

⚫ Pinnel’s Case (1602)

Brief facts – A sum of £8-10 was due to be paid on November 1600 on the basis of a bond executed by

Cole (defendant) in favour of Pinnel(plaintiff). On October 1, 1600 Cole paid £5 to Pinnel, and Pinnel

accepted this smaller amount in full payment of the original debt. Subsequently, Pinnel brought an action

against Cole to enforce the payment of the full amount on the basis of the bond.

Judgment – It was held that Pinnel was entitled to succeed on the ground that mere partial performance

of the original contract would not discharge the original contract. It was stated that payment of a lesser

sum on the day in satisfaction of a greater cannot be of any satisfaction for the whole, because it appears

to the judges that by no possibility can a lesser sum be a satisfaction to the plaintiff for a greater sum. But

the gift of a horse, hawk or robe, etc., in satisfaction is good for it shall be intended that a horse, hawk or

robe, etc., might be more beneficial to the plaintiff than the money in respect of some circumstances; or

otherwise, plaintiff would not accepted it in satisfaction.”

⚫ The rule was criticized in the case of ‘Couldery vs. Bartrum’ (1881), where the Lordship stated

that while promise to pay smaller amount in cash is void, but the promise to deliver a chattel is

valid even if the same is of smaller value. In 1937, the Law Revision Committee recommended

the abolition of the rule in England but so far the recommendation has not found any place in the

statute book.

⚫ Case – Weston Foakes vs. Julia Beer (1887)

Brief facts – Dr. Foakes was ordered by a judgment decree to pay £2000 to Mrs. Beer. The

doctor, not being able to pay up at once, made an agreement with her under which he paid £200

immediately and agreed to pay the balance by installments and she in turn promised to not

enforce the judgment. When the balance was fully paid, she sued the doctor to recover interest

on the judgment-debt.

Judgment – The House of Lords held that she was entitled to the payment of the

judgment-debt and to interest to the date of final payment as she accepted less in satisfaction of

the whole and there was no consideration for her promise to accept anything less than the sum to

which she was entitled.

 Exceptions to the rule in ‘Pinnel case’
⚫ After the Law Revision Committee in its report in 1937 recommended abolition of the
rule, the courts have tried to avoid the awkward results of the rule by admitting exceptions
to it.

(i) Part – Payment by third party - Payment of a part of the sum due, by a third party,
has been recognized to be enough to discharge the whole of the debt. If one party has
accepted part payment from a third party, he cannot subsequently sue for the balance of
the amount.

⚫ Case – Hirachand Punamchand vs. Temple (1911)

The father of a debtor wrote to the creditor, offering an amount less than that of the debt
in full settlement of the debt, and enclosing a draft for that amount, and the creditor
cashed and retained the proceeds of the draft, and afterwards brought an action against
the debtor for the balance of the debt. It was held that the creditor must be taken to
have accepted the amount received by him on the terms upon which it was offered, and
therefore, he could not maintain the action.
(ii) Composition – Secondly, payment of a lesser sum is a good consideration for a larger
sum where this is done in pursuance of an agreement of compromise entered into by the
debtor with his creditor.

(iii) Payment before time – Thirdly, payment of a lesser sum before time, or in a different
mode or at a different place than appointed in the original contract or “the gift of a horse,
hawk or robe, etc., in satisfaction is good.” It means that the payment on an earlier date
constitutes sufficient consideration to discharge a part of the debt. Eg. If the full amount is
due in June and the creditor request the debtor to pay him part of it in March in return of
his promise to forego the balance, the payment at earlier date in March constitutes a new
element and satisfy the requirements for consideration.

(iv) Promissory estoppel - This is an equitable estoppel preventing a person from denying
what he asserted earlier. The person making the representation or promise becomes bound
by the same, on the basis of the law of estoppel if another person has acted on the faith of
such promise or representation. The promise is enforceable at the instance of the promisee
notwithstanding that there is no consideration for the promise.
⚫ Case - Central London Property Trust Ltd v High Trees House Ltd. (1947)
Brief facts - Party A leased some properties from Party B, at the cost of £2,500
a year. This lease was signed in September 1937. Following the outbreak of
World War 2, Party B agreed to reduce the rental cost to £1,250 due to the
difficulty in letting all of the flats out. Following the end of World War 2, Party B
attempted to re-assert the £2,500 year cost, not only for the future payments, but
for the rent in arrears.
Unsurprisingly, the £2,500 a year cost could now be re-asserted, even though
the difficulties of the war were over as promissory estoppel becomes relevant. In
this judgment, the Lordship explained that where a promise is made which is
intended to be binding, intending to be acted upon, and is also acted upon, it
comes binding, notwithstanding any limitations of consideration. Therefore, in
the case, as Party A had been paying £1,250 rent instead of £2,500, they had
acted upon that promise, and therefore Party B would be estopped from going
back on the promise.
 Position under Indian Contract Act
⚫ In India, the promisee may accept in satisfaction of the whole debt an amount smaller than that.

⚫ Section 63 clearly provides that “Every promisee may dispense with or remit, wholly or in part, the
performance of the promisee made to him, or may extend the time for such performance ,or may
accept instead of it any satisfaction which he thinks fit.” The section has the following illustrations:
(b) A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2,000 rupees
paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged.
(c) A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them, in satisfaction of his claim on
A. This payment is a discharge of the whole claim.
(d) A owes B, under. a contract, a sum of money, the amount of which has not been ascertained. A,
without ascertaining the amount, gives to B, and B, in satisfaction thereof, accepts, the sum of 2,000
rupees. This is a discharge of the whole debt, whatever may be its amount.
(e) A owes B 2,000 rupees, and is also indebted to other creditors. A makes an arrangement with his
creditors, including B, to pay them a composition of eight annas in the rupee upon their respective
demands. Payment to B of 1,000 rupees is a discharge of B’s demand.
 Exceptions to Consideration
⚫ Section 25 of the Indian Contract Act as a general rule declares that an agreement without consideration is

void. The section lays down a few exceptions –

“Agreement without consideration, void, unless it is in writing and registered, or is a promise to

compensate for something done or is a promise to pay a debt barred by limitation law - An agreement

made without consideration is void, unless –

(1) it is expressed in writing and registered under the law for the time being in force for the registration of

documents, and is made on account of natural love and affection between parties standing in a near

relation to each other ; or unless

(2) 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; or unless;

(3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally

or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have

enforced payment but for the law for the limitation of suits. In any of these cases, such an agreement is a

contract.”
 i) Natural love and affection:

⚫ The essence of the first exception is that a written and registered agreement based on
natural love and affection between near relatives is enforceable without consideration.

⚫ Three ingredients –

i) Expressed in writing and registered under law for the time being in force for
registration of document

ii) Natural love and affection.

iii) Between parties standing in a near relation to each other.

⚫ Case – Rajlukhy Dabee vs. Bhootnath Mookerjee (1899)

The defendant promised to pay his wife a fixed sum of money every month for her separate
residence and maintenance. The agreement was contained in a registered document
which mentioned certain quarrels and disagreements between the two. The Calcutta HC
refused to regard the agreement between the parties whose quarrel has compelled them to
separate.
⚫ Case – Bhiwa vs. Shivaram (1899)

A sued B, his brother, for a share in certain lands. But the suit was dismissed as B solemnly affirmed that

the property was not ancestral; B then agreed by registered writing to give A one-half of the same property.

The present suit was brought to obtain that share. The plaintiff admitted that he and his brother has long been

on bad terms. But in spite of the earlier property dispute, the court held that “this is just the case to which

Sec.25(1) should apply. The defendant had such natural love and affection for his brother that in order to be

reconciled to him, he was willing to give him his property.”

⚫ The term near relation in this context is not to be understood in the narrow sense of being a group of persons

who are recognized in law as having the right of succession or having claim to share in the property in dispute

but relations which are formed as a result establishing or ensuring goodwill among persons.

⚫ Case – Ranganyakamma vs. K S Prakash (2008)

A power of attorney was executed by a sister, relinquishing her right to share in a joint family properties in

favour of her brother on toke of Re.1 but out of love and affection for the brother also authorizing him to

enter into partition agreement on her behalf. The document was in writing and registered. She was held to be

bound by her promise, it being wholly covered by the exception.

 ii) Past voluntary service:
⚫ A promise to compensate wholly or in part, a person who has already voluntarily
done something for the promisor is enforceable.
Example, Peter finds Johns wallet on the road and returns it to him. John is
happy to find his lost wallet and promises to pay Peter Rs 2,000. In this case, the
no consideration no contract rule does not apply. This contract is a valid contract.
⚫ Three ingredients –

i) Promise to compensate wholly or in part .

ii) Who has already voluntarily done something for the promisor
iii) Something which the promisor was legally compellable to do.
⚫ Case – Karam Chand vs. Basant Kumar (1911)
A promise made after attaining majority to pay for goods supplied to the
promisor during minority has been held to be within the exception.
iii) Promise to pay time barred debt:
⚫ A promise to pay a time-barred debt is enforceable.

⚫ Ingredients –

i) The promise should be in writing.

ii) It should be signed by the promisor or by his agent generally or specially authorized in that
behalf.
iii) The promise to pay the whole or any part of the debt of which the creditor might have
enforced payment but for the law for the limitation of suits.
Example, Peter owes Rs 100,000 to John. He had borrowed the money 5 years ago.
However, he never paid a single rupee back. He then signs a written promise to pay Rs
50,000 to John as a final settlement of the loan. In this case, ‘the no consideration no
contract’ rule does not apply either. This is a valid contract.
⚫ Case – Arumugan vs.Duraisinga (1914)

It has been held that a promissory note to pay the sum received during minority is not
enforceable.
⚫ Case – Pestonji Manekji Mody vs. Bai Meherebai (1928)

The Bombay HC has held that a promise made by a person who is under no obligation to pay the
debt of another does not fall within this clause.

⚫ However, the Madras HC stated in ‘Puliyath Govinda Nair vs. Parekatalthi Achutan Nair’ (1940)
that the words ‘by the person to be charged therewith’ in the clause are wide enough to include the
case of a person who agrees to become liable for the payment of a debt of another and need not be
limited to the person who was indebted from the beginning.’

⚫ Case – SBI vs. Dilip Chandra Singh Deo (1998)

The Orissa HC held that an admission by the legal heir of a deceased debtor in his desposition in the
court to the effect that he was willing to pay the principal time-barred amount was held to be a
promise to pay making him liable.

⚫ There should be express promise – The promise to pay the time-barred debt must be an express one
and cannot be held to be sufficient of the intention to pay is unexpressed and has to be gathered from a
number of circumstances. Sec. 25(3) requires an express promise to pay the time-barred debt rather
than a mere acknowledgement of a debt.
⚫ Case – Debi Prasad vs. Bhagwati Prasad (1943)

When the acknowledgment (of the time-barred debt) is coupled with an agreement to pay the

interest, it cannot be regarded as a mere acknowledgment and it should be regarded as an agreement

with a promise to pay (the debt) within the meaning of Sec.25(3).

Gift actually made [Sec.25 (Expln.I)]

⚫ The provisions as to consideration do not affect, as between the donor and donee, the validity of any

gift which was actually made.

⚫ A gift of movables which has been contemplated by delivery and gift of immovables which has been

perfected by registration cannot be questioned as to their validity only on the ground of lack of

consideration.

Inadequacy of consideration [Sec.25 (Expln.II)]

⚫ An agreement to which the consent of the promisor is freely given is not void merely because the

consideration is inadequate; but the inadequacy of the consideration may be taken into account by the

Court in determining the question whether the consent of the promisor was freely given.
Q&A