Consideration

Section 25 an agreement made without consideration is void subject to certain exceptions.

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

1.Definition of Consideration
Section 2(d) of Indian Contract Act, 1872 defines consideration as “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”.

2.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
(ii) Does or abstains from doing, or
(iii) Promises to do or to abstain from doing, something.
4. There should be some act, abstinence or promise by the promise, which constitutes
consideration for the promise.

➢ Blackstone – “consideration is the recompense given by the party contracting to the other”

3.Ingredients-
1.Consideration at the desire of the promisor
Consideration must have been given at the desire of the promisor, rather than voluntarily or at
the instance of some third party. Example: A saves B’s goods from a fire without being asked to
do so. A cannot demand payment for his service. In Durga Prasad vs. Baldeo, 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 failed to pay the promised
commission. Held: Consideration for promise to pay the commission for construction of the
market was not at the desire of the defendant but on the order of collector. Therefore, held that
since the consideration did not move at the desire of the defendant they were not liable in
respect of the promise made by them.

2.Consideration by promisee or any other person

According to Indian law consideration may be given by the promisee or any other person. In
India there is a possibility that the consideration for the promise may move not from the
promisee but a third person, who is not a party to the contract. Thus, as long as there is a
consideration for a promise, it is immaterial who has furnished it. It may move from the
promisee or from any other person. In English law, consideration should move from promisee
only. In Chinnaya vs. Ramaya, 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, The
Madras High Court held that in this agreement between the defendant and plaintiff, the
consideration has been furnished by the defendant mother and that is enough consideration to
enforce the promise between the plaintiff and the defendant.

3.Consideration may be of past, present or future:

a) Past Consideration: A consideration for the act done in past or which has already moved
before the formation of the agreement is a past consideration. Past consideration is valid in
Indian Contract Act, but past consideration is no consideration in English Law.
b) Present Consideration: When both the parties are ready to give consideration at the same
time or the consideration which moves simultaneously with the promise is a present
consideration.
Future Consideration: When a party promises to do or to abstain from doing something in
future, it is a future consideration. The consideration which is to be moved after the
formation of agreement is called future consideration.

4. Consideration need not to be adequate: As per the definition of consideration it simply

indicates
that "something in return" is consideration which must actually be of some value in the eyes of
law, that ‘something’ can be adequate or grossly inadequate. Law only requires the presence of
some consideration in a valid contract; its adequacy is not required in law.
According to Explanation 2 of Sec. 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.
5. Consideration must be real: It should not be uncertain, illusory or impossible.
6. Consideration must be lawful: For a valid contract it is necessary that the consideration
should be
lawful as according to Sec.23 of the Indian Contract Act, otherwise it will become void and
unenforceable i.e. it must not be illegal, immoral or opposed to public policy.
7. Must be something other than the promisor’s existing obligation: 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.

4.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. Example: 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 only a stranger to the contract. 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.

English Law
• Dutton Vs. Poole, A intended to sell his wood to make a provision for the marriage expenses
of his daughter. The defendant, A’s son requested A not to sell the wood and in return made a
promise to his father that he would pay 1,000 pounds to A’s daughter, The father forebore to sell
the wood but the defendant did not pay the promised amount to the plaintiff. Held: It is true that
the defendant, promised to father and father furnished consideration for the promise. The
plaintiff, was neither privy to the contract nor to the consideration. But it was equally clear that
the whole object of the agreement was to provide a portion to the plaintiff. It would have been
highly inequitable to allow the son to keep the wood and yet to deprive his sister of her portion.
He was accordingly liable. A person, who is not a party to the contract but is intended to be the
beneficiary under the contract and is nearly related to the promisee, has a right of action.
• Tweddle Vs. Atkinson, After the marriage of the plaintiff, there was a contract in writing
between the plaintiff’s father and the girl’s father that each would pay a certain sum of money to
the plaintiff and the plaintiff would have a right to sue for such sums. Plaintiff brought an action
against girl’s father to recover the promised amount. Held: Plaintiff could not sue for the same.
As the plaintiff was both a stranger to the contract as well as stranger to consideration and he
could not enforce the claim. It laid foundation for doctrine of “privity of contract” which means
that a contract is a contract between the parties only and no third person can sue upon it even if
it is made for his benefit.

Two fundamental principles

• Consideration must move from promisee and promisee only. If consideration moved from any
person other than promisee then promisee becomes stranger to the contract as such he cannot
enforce the contract
• A contract cannot be enforced by a person who is not a party to contract even though it is
made for his benefit. He is a stranger to contract and hence can claim no rights under it.

Exceptions under Section 25, Indian Contract Act

In English law, a contract which is under the seal is enforceable without consideration. In Indian law,
there are no such provisions but still, The general rule is the ex nudo pacto non-oritur action, which
means that no right of action arises from the contract which is entered into without any consideration.
Still, under Section 25 of the Indian Contract Act,1872.it provides certain exceptions under Section 25
of the Indian Contract Act.

Fiduciary relation

In case of a contract entered into between the relatives or on account of natural love and affection is
enforceable without consideration. The meaning of love and affection is not judicially construed but
parties who are nearly related would have instinctive love and affection. However, this could be
overruled with regards to some external circumstances, like between the wife and husband who are
compelled to live separately because of quarrelling. But a settlement to be given to a man by the wife
by way of maintenance could be enforced without any consideration because it will result in peace and
family harmony.

The term “family” (in this context) should be understood as a group of people living together and
possessing a right of succession, inheritance etc., but the family could be construed as a people who are
bonded by natural love and affection.

Past voluntary services

A promise to compensate the person who has done something voluntary in the past for the promisor is
enforceable. This exception is attracted in the cases when the services are rendered voluntarily. Thus
where a service is rendered on behalf of a company which is not in existence, a subsequent promise to
pay would not attract this provision. Even where the promisee has done something for the promisor,
which he had to do legally, then it will also be covered under this exception.
In case of a Minor

In Karam Chand vs Basant Kaur, the court held that even where the promisor after attaining majority,
promises to pay for the goods attained in minority will also fall under this provision. The court said that
although the promise made by a minority is void but if the promise is made by a person of full age to
the promisee who has done something for him voluntarily when the promisor was a minor, then it will
also attract this exception.

Time barred debt

A promise to pay a time-barred debt is enforceable and it should be signed by the person or his agent. It
could be to pay for the whole debt or in part. The debt to be enforced could be paid except for the law
of limitation. However, the person who is under no obligation to pay to another person is under no
obligation under this clause.

The promise to pay the debt must be expressed, it is not sufficient if the intention to pay could not be
gathered from the circumstances.

Acknowledgement of the debt is different from the promise to pay the debt. The acknowledgement of
the person should be done before the period of limitation. Promise to pay a time-barred debt is a new
contract. It is not just merely an acknowledgement of the existing liability.

Gift actually made

The provisions of “Consideration” do not affect the gift actually made. Under this Section, gift is
defined as:

● The gift is of movables then it should be accompanied by its delivery.

● The gift is of immovables then should be along with registration.

If the above conditions of gifts are fulfilled then lack of consideration would not affect the validity of
these gifts. However, apart from the consideration, they could be questioned otherwise.

Where the gift of the property was made by a registered deed and is attested by two witnesses, it was
not allowed to be questioned on the ground that she was the victim of fraud, moreover, she was not able
to establish it.

Inadequacy of consideration
Adequacy of the consideration means that the consideration which is paid is equal in value to the value
for which it is paid. Consideration can be terms of money, property etc. inadequate consideration is not
void but it renders the contract unenforceable because of the improper bargaining or by itself.

Inadequate consideration must be distinguished from nominal consideration. Nominal consideration is

deliberately given to make the contract effective but inadequate consideration is less than the amount
promised. Although the act does not make any distinction between the nominal and inadequate
consideration but it was made in the case of Midland Bank trust vs Green.