CONSIDERATION

► Consideration is one of the essential elements to

support a contract. Subject to certain exceptions,
an agreement made without consideration is
“nudum pactum” (a nude contract) and is void.
► Justice Patterson defines consideration in the
following words: “Consideration means something
which is of some value in the eye of law…It may
be some benefit to the plaintiff or some
detriment to the defendant. ” [Thomas vs.
Thomas(1842)].There are two leading cases which
explain this point.
 Abdul Aziz vs. Masum Ali (1914)

► The secretary of a Masjid, Committee filed a suit to

enforce a promise which the promisor had made to
subscribe Rs.500 to the rebuilding of a Masjid.
► Held, “the promise was not enforceable
because there was no consideration in the
s e n s e o f b e n e f i t ” , as “the person who made
promise gained nothing in return for the promise
made ”, and the secretary of the Committee to whom
the p romise was made, suffered no damage as
nothing had been done to carry out the repairs.
Hence the suit was dismissed.
 Definition of Consideration
[Section 2(d) of Contract Act,1872]
► “When at the desire of the promisor, 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.”
 Analysis of
Definition of Consideration
► (1) An act, i.e., doing of something. In this sense consideration is in a
favorable form.
Example: A promises B to guarantee payment of price of the
goods which B sells on credit to C. Here selling of goods by B to C is
consideration for A’s promise.
(2) An abstinence or forbearance, i.e., abstaining or refraining
from doing something. In this sense consideration is in a negative
form.
Example :A promises B not to file a suit against him if he pays
him Rs.500.The abstinence of A is the consideration for B’s payment.
(3) A r eturn promise .
Example: A agrees to sell his horse to B for Rs 10,000. Here B’s
promise to pay the sum of Rs.10,000 is the consideration for A ’s
promise to sell the horse, and A’s promise to sell the horse is the
consideration for B’s promise to pay the sum of Rs.10,000.
 Legal Rules as to Consideration
1. It must move at the desire of the promisor.
2. It may move from the promisee or any other
person.
3. It may be an act, abstinence or a return
promise.
4. It may be past, present or future.
5. It need not be adequate.
6. It must be real and not illusory
7. It must be something which the promisor is
not already bound to do.
8. It must not be illegal, immoral or opposed to
public policy (Sec.23).
 Legal Rules as to Consideration……….

► 1.It must move at the desire of the

promisor:
An act constituting consideration must have been
done at the desire or request of the
promisor. If it is done at the instance of a thir
d party or without the desire of the
promisor, it will not be a good
consideration.
Example:A saves B’s goods from fire without
being asked to do so. A cannot demand payment for
his services.
 Legal Rules as to Consideration……….
► 2.It
may move from the promisee or any
other person.
Consideration may move from promisee or
any other person, i.e., even a stranger.
This means that as long as there is
consideration for a promise it is immaterial
who has furnished it.
But the stranger to consideration will be
able to sue only if he is a party to the
contract.
 Legal Rules as to Consideration……….

► 2.It may move from the promisee or any other person

Example: An old lady, by a deed of gift, made
over certain property to her daughter D, under the
direction that she should pay her aunt, P (sister of
the old lady), a certain sum of money annually.
The same day D entered in an agreement with P
to pay her the agreed amount. Later, D refused to
pay the amount on the plea that no consideration
had moved from P to D. Held, P was entitled to
maintain suit as consideration had moved from the
old lady, sister of P, to the daughter.
[Chinnayya vs.Ramayya(1882)]
 Legal Rules as to Consideration……….

► 3.It may be an act, abstinence or a a return promise .( The

following are good consideration for a contract)
(1)Forbearance to sue: If a person who could sue
another for the enforcement of a right agrees not
to pursue his claim, this constitutes a good
consideration for the promise by the other
person. This results in a benefit to the person not
sued and a detriment to the person who could
sue.
Example: A borrows from B Rs.100 at 20 percent
p.a., and fails to pay the amount. When B is about to file a
suit, A agrees to pay a higher rate of interest. B, as a
result, does not file the suit. This forbearance on the part of
B to file a suit is a sufficient consideration and B can
enforce the promise by A to pay the higher rate of interest.
 Legal Rules as to Consideration……….

3.It may be an act, abstinence or a return promise .

(2)Compromise of a disputed claim :
Compromise is a kind of forbearance. Originally ,
the claim should be reasonable and the person
claiming should honestly believe that it is a valid
claim. He should also act bona fide (in good
faith) .
(3) Composition with creditors: A debtor who is
financially embarrassed may call a meeting of his
creditors and request them to accept a lesser
amount in satisfaction of their debt. If the
creditors agree to it, the agreement is binding
both upon the debtor and the creditors and this
amounts to a compromise of the claims of the
creditors.
 Legal Rules as to Consideration……….

► 4.It may be past, present or future .

(1)Past Consideration:
When consideration by a partly for a present
promise was given in the past, i.e., before
the date of the promise, it is said to be
past consideration.
Example: A renders some service to B at
latter’s desire. After a month B promises to
compensate A for services rendered to him. It is
past consideration. A can recover promised
amount.
 Legal Rules as to Consideration……….

►4.It may be past, present or future.

(2) Present or Executed Consideration :
When consideration is given simultaneously with
promise, i.e., at the time of promise, it is said to
be present consideration. In case sale, for
example, consideration is present or executed .
Example: A receives Rs. 50 in return for which he
promises to deliver certain goods to B. The money A
receives which he promises to deliver certain goods to B.
The money A receives is the present consideration for the
promise he makes to deliver the goods.
 Legal Rules as to Consideration……….

► 4.It may be past, present or future.

(3) Future or executory consideration :
When consideration from one party to the
other is to pass subsequently to the making of the
contract, it is future or executory consideration.
Example:
D promises to deliver certain goods to P after a
week; P promises to pay the price after a fortnight.
The promise of D is supported by the promise of
P. Consideration in this case is future or
executory.
 Legal Rules as to Consideration……….
► 5 . It ne e d n o t be a d e q u a t e .
C o n s i d e r a ti o n , a s already explained ,means
“so me t h i n g i n r e t u r n ”.
This something i n r e t u r n n e e d n o t n e c e s sa r
i l y b e e q u a l to “so me t h i n g g i ve n ”.
Th e l a w s i m p l y p r o v i d e s th a t a c o n tr
a c t sh o u l d b e su p p o r t e d b y c o n si d e
ration.
S o l o n g a s c o n s i d e r a t i o n e xi s ts ,th e C o u r
t s has n o t c o n c e r n e d a s t o i t ’s a d e q u a c y , p
r o vi d e d it is o f so m e va l u e .
 Continued………
► Example
►A agrees to sell a horse worth rs.1,000 for
rs.10.
► A rejects that his consent to the agreement
was freely given.
► The in adequacy of the consideration is a
fact wh ich the Court should take into
account in considering whether or not A’s
con sent was freely given.
 Legal Rules as to Consideration……….

► 6.It must be real, and not illusory.

Although consideration need not be adequate, it must be real,
competent and of some value in the eyes of the law.
There is no real consideration in the following cases:
(1) Physical Impossibility: A promises to put life in to B’s dead
wife and B should pay him Rs.500.A’s promise is physically
impossible of performance.
(2) Legal Impossibility: A owes Rs 100 to B. He promises to pay
Rs.20 to C, the servant of B, who in return promises to
discharge A from the debt. This is legally impossible
because C cannot give discharge for a debt due to B, his
master [Harvey vs. Gibbons, (1675)].
 Legal Rules as to Consideration……….

► ………….6.It must be real, and not illusory

(3) Uncertain consideration:
A engages B for doing a certain work and promises to pay a
“reasonable” sum. There is no recognized method of
determining the “reasonable” remuneration. The promise is
unenforceable as consideration is uncertain.
 Legal Rules as to Consideration……….

► 7.It must be something which the promisor is not

already bound to do.
A promise to do what is already bound to do, either by
general law or under an existing contract, is not a
good consideration for a new promise, since it adds
nothing to the pre-existing legal or contractual
obligation.
Likewise a promise to perform a public duty by a
public servant is not a consideration.
 Continued……….
► Ex:
► (1) A promised to pay B, who had received
summons to appear at a trial in a civil suit, a
certain sum being a compensation for the loss of
time during his attendance.
► Held, th e promise was without consideration, for B
was under a duty imposed by law to appear and
give evidence.
► (Colli ns v. Godefroy,(1831))
 Continued……….
► Ex:
► (2) There was a promise to pay to a lawyer an
additional sum if the suit was successful. Held,
the promise was void for want of consideration.
► The lawyer was under a pre-existing contractual
obligation to render the best of his services
under the original contract.
► But where a person being already under a legal
or con tractual duty to do something undertakes
to do something than he is bound to do under
the or iginal contract, this will be a good
consideration for the promise.
 Legal Rules as to Consideration……….

► 8.It
must not be illegal, immoral or
opposed to public policy .
The consideration given for an agreement must
not be unlawful.
Where it is unlawful, the Court do not allow an
action on the agreement.
 Stranger to the contract

It is a general rule of law that only parties to

a contract may sue and be sued on that
contract. This rule is known as the “Doctrine
of privity of contract . ”
Privity of contract means relationship subsisting
between the parties who have entered in to contractual
obligation.
It implies a mutuality of will and creates a legal
bond or tie between the parties to contract.
 Two Consequences of the
“Doctrine of Privity of Contract ”
► (1) A person who is not a party to a
contract cannot sue upon it even
though the contract is for his benefit
and he provided consideration.
► (2) A contract cannot confer rights
o r i m p o s e o b l i g a t i o n a r i s i n g u nder i t
on any person other than the parties
to it.
Thus, if there is a contract between A and B, C
cannot enforce.
[Dunlop Pneumatic Tyre Co.Ltd. Vs. Selfridge & Co.Ltd.,( 1915)]
 Dunlop Pneumatic Tyre Co.Ltd.
Vs.
Selfridge & Co.Ltd.,(1915)
►S bought tyres from the Dunlop Rubber Co.
and sold them to P , a sub-dealer, who agreed
with S not to sell below Dunlop’s list price
and to pay the Dunlop Co., 5 pounds as
damages on every tyre P undersold.
► P sold two tyres at less than the list price
and there upon the Dunlop Co. sued him
for the breach.
► Held, the Dunlop Co. could not maintain
the suit as it was a stranger to the contract.
Exceptions to the rule “Stranger to a contract
cannot sue.”
► 1.A trust or charge: A person (called beneficiary) in
whose favor a trust or other interest is created can
enforce it even though he is not a party to the
contract.
Example: A agrees to transfer certain properties to
be held by T in trust for the benefit of B. B can
enforce the agreement
(i.e., the trust) even though he is not a party to the
agreement
[M.K. Rapai vs. John(1965)]
 Exceptions to the rule
“stranger to a contract cannot sue. ”

► 2.Marriage settlement, partition or other

family arrangements.
Example: Two brothers, on a partition of joint
properties, agreed to invest in equal shares a
certain sum of money for the maintenance of
their mother.
Held, she was entitled to require her sons
to make the investment.
[Shuppu Ammal vs. Subramaniam (1910) Madras High
Court.]
Exceptions to the rule “stranger to a contract cannot
sue.”

► 4.Assignment of 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.Contracts entered into through an agent:
The principal can enforce the contracts
entered in to by his agent provided the agent
acts within the scope of his authority and in the
name of the principal.
 “A contract without consideration is void ”
-Exceptions

► The general rule is an agreement made

without consideration is void.
Sec.25 and 185 dealt with the exceptions to
this rule.
In such cases agreements are enforceable
even though they are made without
consideration. These cases are---
 “A contract without consideration is void ”
-Exceptions……….

1.Love and Affection [Sec.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.
 Examples:
(a) F ,for natural love and affection, promises to
give his son, S, Rs.1,000.F puts his promise to
S in writing and registers it . There is a contract.
(b) By a registered agreement, V on account of
natural love and affection for his brother, R,
promises to discharge his debt to B. If V does
not discharge the debt, R may discharge it and
then sue V to recover the amount.
[Venkataswamy vs. Ramaswamy, (1903)
 A contract without consideration is void
-Exceptions
► 2.Compensation for voluntary services.[ Sec.25(2)]
A promise to compensate, wholly or in part, a person who
has already voluntarily done something for the promisor, is
enforceable, even though without consideration. In simple
words, a promise to pay for a past voluntary service is
binding.
Examples:
1. A finds B’s purse and gives it to him. B promises to give
rs. 50 .There is a contract.

2. A says to B, “ At the risk of your life you saved me from

a serious accident. I promise to pay you
Rs.1,000.”There is a contract between A and B.
 Continued………
► (c) X, a neighbor helped putting down the
fire in Y’s house. Afterwards , Y promised X
to give Rs.1000. This is a valid contract
even though the consideration did not move
at the desire of the promisor.
► (d) 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.
 A contract without consideration is void
-Exceptions

► 3.Promise to pay a time barred debt :

► Such promise without consideration is valid if:
► (1) It is made in writing
► (2) It is signed by the debtor or his agent, and
► (3) It relates to a debt which could not be enforced by a
creditor because of limitation.
Note: According to the Law of limitation, a debt which
remains unpaid or unclaimed for a period of 3 years
becomes a time barred debt which is legally not
recoverable.
 A contract without consideration is void
-Exceptions

Example: D owes C Rs.1,000 but the debt is

barred by the Limitation Act. D signs a
written promise to pay C Rs.500 on account
of the debt. This is a contract.
 A contract without consideration is void
-Exceptions

4.Completed Gift:
The rule “ No consideration, no
contract” does not apply to
completed gifts..
e.g., 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.
5.Agency[Sec.185]
 Consideration: Practical Problems

► 1. A
promises a subscription of
Rs.10,000 to the National Defense
Fund. He does not pay.
Is there any legal remedy against
him?
 Answer: Case.1
A promise to donate or contribution to a fund like the
National Defense Fund is generally considered a moral or
voluntary commitment rather than a legally enforceable
contract. Therefore, if A promises to contribute Rs. 10,000
to the National Defense Fund and then fails to do so, there
are usually no legal remedies available to compel A to
make the payment.
 Case.2
► Can A recover in the following cases?
(a) B gets in to difficulties while swimming in
the river and cries for help. A hears the cry,
removes his coat and dives into water and
rescues B. B, who is full of gratitude,
promises to pay A Rs.200 but fails to do so.
 Case.2
►(b) B writes to A, “At the risk of
your own life, you saved me from
a serious motor accident. I promise
to pay you Rs.100,000.”
 Case.2
► (c) While B is away on holiday, a storm
damages the roof of B’s house, and his
neighbor, A, carries out the necessary repairs.
On his return, B promises to pay A Rs.20,000
for the work done and materials supplied.
 Case.2
►(d) A F inds B’s purse and gives it
to him. B promises A to give him
Rs.1,000
 Case.2
► (e)A, who is B ’s friend, seeks the
help of a few persons in putting
down a fire in B ’s house. B promises
to give A Rs. 10,000 for his timely help.
 Answers to case.2
►Yes. A can recover the amount
from B in all the cases. [Sec.25(2)]
 Case.3
►A owes B Rs.1,000 but the debt is
barred by limitation. A gives a letter
to B agreeing to pay him Rs 500 on
account of the debt.Is this a valid
agreement?
 Answer to Case.3
►Yes. [Sec.25(3)]
 Case.4
► A,being a dire need of money, sells his new
car purchased two months ago at a cost of
Rs.1,72,000 for Rs.11,000. Afterwards A
seeks to set aside the contract on the
ground of inadequacy of consideration.
Will he succeed?
 Answer to Case.4

Based on these considerations, A is unlikely to

succeed in setting aside the contract solely on the
grounds of inadequacy of consideration. The fact that
the sale price was significantly lower than the
purchase price does not typically provide sufficient
grounds for invalidating the contract under standard
legal principles.
 Case.5
► A,B,and C enter into a contract under
which A promises both B and C that if B will
dig A’s garden, he (A) will give Rs.5000 to
C. Can C compel A to pay the money on
B’s digging A’s garden according to the
terms of the contract? Give reasons.
 Answer to Case.5
► Yes.

Reason
Because in this case C is also the party of that
contract.
 Case.6
► A’s Uncle in a sudden display of generosity
promises him a watch as a gift on his next
birthday.
If the uncle fails to give the watch, can ‘A’
do anything about it legally?
 Answer to Case.6
► No.
 Case.7
►H who was badly in need of money offered to sell
his piano worth rs.5,000 to C for rs.4,000. C
refused to buy . H gradually lowered his price until
rs.1000 was reached, which C accepted. Before
the piano was delivered, H received an offer of a
larger sum from T, and he refused to carry out the
contract with C, claiming that the consideration
was inadequate. Is H liable to pay damages to C
for failure to carry out his part of the contract?
 Case.7
H is indeed liable to pay damages to C for failing
to carry out his part of the contract. The
consideration being inadequate does not provide
a valid legal excuse for H to breach the contract.
C can pursue legal remedies for the breach,
including damages for any losses suffered as a
result of H’s refusal to perform.