INDIAN CONTRCAT ACT, 1872

UNIT 1: PART 4

CONSIDERATION

Prepared By:
Ambar Srivastava

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WHAT IS CONSIDERATION?
1. Consideration is one of the essential elements of a valid
contract.
2. The term 'consideration' means something in return, i.e. quid-
pro-quo. What is
'something' has been explained by Justice Lush J. in a leading
English case Currie v. Misa as under:
"A valuable consideration in the sense of the law, may consist
either in some right, interest, profit or benefit accruing to the
one party or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other."
3. Thus, consideration must result in a benefit to the promisor,
and a detriment or loss to the promisee or a detriment to both.
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4. Section 2(d) of the Indian Contract Act, 1872 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."
Example I: X promises to deliver his good to Y and Y
promises to pay Rs. 1,000 on delivery. In this case, the
consideration for each of these promises is as under:
Promise Consideration
For X’s promise Y’s promise to pay Rs. 1000 on delivery.
For Y’s promise X’s promise to deliver his goods.

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Example II: X owes Y Rs. 10,000. Y promises X not to file a

suit against him for one year on X's agreeing to pay him Rs. 500
more. In this case, the consideration for each of the promise is as
under:
Promise Consideration
For X’s promise Forbearance on the part of Y to file a suit.
For Y’s promise X’s promise to pay Rs 500 more.

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ESSENTIAL ELEMENTS OF VALID CONSIDERATION

On the basis of definition of consideration as per Section 2(d),
the essential elements of valid consideration are discussed below:
1. It must be given only at the Desire of the Promisor An act
constituting consideration must have been done at the desire or
request of the promisor. Thus, an act done at the desire of a third
party or without the desire of the promisor cannot constitute a
valid consideration.
Example I: A's son is lost and B goes in search for him. Can B
claim remuneration from A, (a) if B does this act voluntarily, (b)
if B does this act at the request of A, (c) if B does this act at the
request of C?

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Case Decision and reason

(a) If B does this act B cannot claim remuneration from A
voluntarily because he has not done at A's request.
(b) If B does this act at B can claim remuneration from A because
the request of A he has done at A's request.
(c) If B does this act at B cannot claim remuneration from A
the request of C because he has not done at A's request.
Example II: X spent Rs. 1,00,000 on the construction of shops
at the request of the collector of the District. In consideration of
this Y a shopkeeper promised to pay some money to X. It was
held that this agreement was void being without consideration
because X had constructed the shops at the request of collector
and not at the desire of Y. [Durga Prasad v. Baldeo]
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2. It may move from any Person An act constituting

consideration may be done by the promisee himself or any other
person (i.e. stranger to consideration). Thus, it is immaterial who
furnishes the consideration and therefore, may move from the
promisee or any other person who may be stranger to the
contract. Thus, privity of consideration is not required.

Example X, by a deed of gift transferred certain property to her

daughter Y with a direction that Y should pay Z an annuity. On
the same day, Y executed a deed in writing in favour of Z and
agreed thereby to pay the annuity.

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Later, Y refused to pay the annuity on the plea that no

consideration had moved from Z. It was held that Z was
entitled to maintain suit because a consideration need not
necessarily move from the promisee, it may move from any
other person (i.e. X in the present case). [Chinnayya v.
Ramayya]
3. It may be Past or Present or Future The consideration may
be past, present or future.
Past Consideration The consideration which has already moved before the
formation of agreement.
Example: X renders some service to Y at Y's request in the
month of May. In June, Y promises to pay Rs. 1,000 for his
past services. Past services amount to past consideration.
X can recover Rs. 1,000 from Y.
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Present The consideration which moves

Consideration simultaneously with the promise, is called
present consideration.
Example In case of cash sale, promise to pay
the price and promise to deliver the goods
are performed simultaneously.
Future The consideration which is to be moved after
Consideration or the formation of agreement is called future
Executory consideration.
consideration The liability is outstanding against both the
parties.
Example X promises to deliver certain goods
to Y after 10 days and Y promises to pay after
10 days from the date of delivery.

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4. It must be of Some Value The consideration need not be

adequate to the promise but it must be of some value in the eye of
the law. It is understood in the sense of something in return and that
something can be anything, adequate or grossly inadequate.
According to Explanation 2 of Section 25, 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.
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Example: 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 As consent was
freely given.
5. It must be Real and not Illusory The consideration must be
real and not illusory. (i.e., existing only in name)
Example I X engages Y for doing a certain work and promises to
pay reasonable remuneration. This promise is not enforceable
because the consideration is uncertain.
Example II X promises to put life into Y's dead wife and Y
promises to pay Rs. 1,00,000. This agreement is void because
consideration is physically impossible to perform.
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6. Something other than the Promisor's Existing Obligation

The act constituting consideration must be something which the
promisor is not already bound to do because a promise to do
what a promisor is already bound to do adds nothing to the
existing obligation.
Example I: X promises Y, his advocate, to pay an additional sum
if the suit was successful. The suit was declared in favour of X
but X refused to pay additional sum. It was held that Y could not
recover additional sum because the promise to pay additional
sum was void for want of consideration as Y was already bound
to render his best services under the original agreement.
[Ramchandra Chintamana v. Kalu Raju]

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Example II: X had received summons to appear before a court

of law as witness on behalf of Y who promised to pay some
money for his trouble. It was held that the promises to pay
money was void for want of consideration because X was under
a legal duty to appear as witness before court of law. [Collins v.
Godfrey]
7. Lawful The consideration must neither be unlawful nor
opposed to public policy.
Example I: X promises Y to pay Rs. 1,000 to beat Z, Y beats Z
and claims Rs. 1,000 from X, X refuses to pay. Y cannot recover
because the agreement is void on the ground of unlawful
consideration.

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Example II: X promises Y to obtain an employment in the

public service and Y promises to pay Rs. 1,000 to X. The
agreement is void on the ground of unlawful consideration.

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STRANGER TO CONSIDERATION CAN SUE BUT A

STRANGER TO A CONTRACT CAN NOT SUE
A Stranger to Consideration can sue
A stranger to consideration can sue because the consideration can
be furnished or supplied by any person whether he is the
promisee or not.
A Stranger to contract can not sue
A stranger to a contract cannot sue because of the absence of
privity of contract (i.e. relationship subsisting between the parties
to a contract).

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Example II: X owes Y Rs. 1,00,000 and sells his property to Z.

Z promises to pay off X's debt to Y. Z fails to pay. Y cannot sue Z
because he is a stranger to a contract.
Example II: X bought tyres from Dunlop Rubber Co. and sold
them to Y, a sub-dealer who agreed with X not to sell below
Dunlop's list price and to pay to Dunlop Co. Rs. 150 as damages
on every tyre he undersold. Y sold two tyres at less than the list
price and thereupon, Dunlop Co. sued him for the breach. It was
held that the Dunlop Co. could not maintain the suit because it
was a stranger to the contract. [Dunlop P. Tyre Co. Ltd. v.
Selfridge & Co. Ltd.]

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Exceptions to Rule 'A stranger to a contract can not sue'
The rule that a stranger to a contract cannot sue, is subject to the
following exceptions:
1. In case of Trusts The beneficiary (i.e. the person for whose
benefit the trust has been created) may enforce the contract.
Example I: X transferred certain properties to be held by Y for
the benefit of Z. Z can enforce the agreement even though he is
not a party to the agreement. [M.K. Rapai v. John]
Example II: X sent an insured parcel to Y. On loss of such
parcel, Y sued the post office. It was held that Y was entitled to
sue though he was stranger to the contract because on receipt of
such article, the post office becomes a trustee for the addressee.
[Amir Ullah v. Central Govt.]
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Example III: X, the father of a minor daughter D, and Y, the father

of a minor son S, entered into an agreement of marriage for D and
S on the condition that after the marriage, Y would pay his
daughter-in-law D, Rs. 500 as kharch-e-paan daan (betel box
money). After the marriage took place, X died. On Y's refusal to
pay the agreed amount to D, the Court held that D was entitled to
recover the amount as a beneficiary of trust even if she was a
stranger to the contract between X and Y. [Khwaja Mohd. v.
Hussaini Begum (1910)]

2. In Case of Family Settlement The person for whose benefit the

provision is made under family arrangements may enforce the
contract.
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Example A provision of marriage expenses of a female member

was made in a Joint Hindu Family. On partition, the female
member sued for such expenses. It was held that she was entitled
to sue. [Rakhmanbai v. Govind]
3. Acknowledgment The person who becomes an agent of third
party by acknowledgment or otherwise, can be sued by such
third party.
Example X receives 7 1,000 from Y for paying the same to Z. X
acknowledges this receipt to Z. Z can recover the amount from X
because X will be regarded as Z's agent. [Surjan v. Nanat]

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4. Assignment of a Contract Where a benefit under a contract

has been assigned, the assignee can enforce the contract subject
to all equities between the original parties to the contract e.g.
the assignee of an insurance policy.
5. Agency A principal may enforce the contracts entered into
by his duty authorised agent.

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CONTRACTS WITHOUT CONSIDERATION

General Rule 'No Consideration, No Contract
According to Section 25, an agreement made without
consideration is void.
1. Example Abdul Aziz v. Mazum Ali, a promise to donate Rs.
500 towards construction of a mosque was held unenforceable
as it was a gratuitous promise lacking consideration.
2. But gratuitous promise shall be enforceable by law if the
promisee on the faith of such promise suffered a liability as
suffering of detriment forms a valid consideration [Kedarnath
v. Gorie Mohd.]

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Exceptions to the General Rule “No Consideration, No

Contract”
The following are the exceptions to the general rule No
Consideration, No Contract:
1. Agreements made on Account of Natural Love and
Affection [Section 25(1)]
Such agreement made without consideration is valid if:
(i) it is expressed in writing,
(ii)it is registered under the law,
(iii) it is made on account of love and affection, and
(iv) it is between parties standing in a near relation to each other.
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Note: Mere Nearness of relation by itself does not necessarily

imply natural love and affection.
Example I: A Hindu husband by a registered document
promised to pay his wife Rs. 1,000 per month as her pin-pocket
money. This agreement is valid.
2. Promise to Compensate for Past Voluntary Services
[Section 25(2)] Such promise made without consideration is
valid if:
(i) it is a promise to compensate (wholly or in part); and
(ii) the person who is to be compensated has already done
something voluntarily or has done something which the
promisor was legally bound to do.
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Example I: X finds Y's purse and gives it to him. Y promises to

give Rs. 500 to X. This is a valid contract even though the
consideration did not move at the desire of , the promisor.
Example II: X, a neighbour helped putting down the fire in Y's
house. Afterwards, Y promised X to give Rs. 1,000. This is a
valid contract even though the consideration did not move at the
desire of the promisor.
Example III: X, supported Y's infant son. Y promised to pay X's
expenses in so doing. This is a valid contract. Here, X has done
that act which Y was legally bound to do.

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Example IV: X writes to Y, "at the risk of your own life, you
saved me from a serious motor accident. I promise to pay you
Rs. 1 lakh." X does not pay. Advise Y. This is a valid contract
since a promise to compensate for voluntary acts done in the past
is valid even though without consideration. Y is advised to file a
suit to recover Rs. 1 lakh.
3. Promise to Pay Time Barred Debt [Section 25(3)] Such
promise without consideration is valid if:
(i) it is made in writing,
(ii) it is signed by the debtor or his agent, and
iii) it relates to a debt which could not be enforced by a creditor
because of the Law of Limitation Act.
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Note: According to The Law of Limitation Act, a debt which

remains unpaid or unclaimed for a period of 3 years becomes a
time barred debt which is legally not recoverable. But a
promissory note issued in personal capacity by the wife of a to
pay his time barred debt of her husband is not enforceable
[Pestonjee v.Bai Meharbai]
4. Completed Gifts [Explanation to Section 25] The gifts
actually made by a donor and accepted by the done are valid
even without consideration. Thus, a completed gift needs no
consideration.
Example X transferred some property to Y by a duly written and
registered deed as a gift. This is a valid contract even though no
consideration moved.
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5. Agency [Section 185] No consideration is necessary to create

an agency.
6. Gratuitous Bailment No Consideration is necessary for
gratuitous bailment.

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