6.

CONSIDERATION
Introduction
The section 25 of the Indian Contract Act, 1872 openly declares that an
agreement made without consideration is void In other words the presence of
consideration is an essential for a contract to be valid.
In England too promises without consideration are not enforced, because
they are gratuitous. In England the contracts are divided into two categories:
1. Contracts under seal, or contracts in the form of a deed. Such
contracts are valid even without consideration.
2. Simple contracts or parol contracts. For validity of such contracts
the presence of consideration is needed.
Consideration in simple words means something in return of a promise
which may either be benefit gained by one party or something lost by the other.
So generally there can be no doubt that for a valid contract, there must be
consideration, and also free consent.
Definitions of Consideration
Blackstone defined consideration as the recompense given by the party
contracting to the other.
Pollock took consideration to be the price for which the promise of the
other is bought, and the promise thus given for value is enforceable.
The definition given in Curre v Misa by Lush J is widely accepted and stated as
follows:
A valuable consideration in the sense of the law may consist either
in
someright,interest, profit or benefit accruing to the one party, or so
me forbearance,determent, loss, or responsibility given, suffered or
undertaken by the other

According to Section 2(d) of Indian Contract Act, consideration means when

at the desire of the promisor the promisee or any other person
a) has done or abstained from doing, or [Past consideration]
b) does or abstains from doing, or [Present consideration]
c) promises to do or abstain from doing something [Future
consideration] such act or abstinence or promise is called a
consideration for the promise.
Promisor pays
Promisee performs
Illustration: X promises to deliver 10 kgs of basmati rice to Y and Y
promises to pay Rs. 500 upon delivery. In this contract, Ys promise to Rs. 500

upon delivery is the consideration for Xs promise. Similarly, Xs promise to

deliver 10 kgs of basmati rice is the consideration for the promise Y made.
Essentials and legal rules for valid consideration:
In accordance with Section
consideration are as follows:

2(d),

the

essential

features

of

valid

1) Consideration must move at the desire of the promisor.

2) Consideration may move from the promisee or any other person who is
not a party to the contract.
3) It can be past, present or future consideration
4) It must be real and possess value. It must not be illusory;
5) It must be something other than the Promisors existing obligation;
6) It must be lawful.

Consideration must move at the desire of the promisor.

The action or abstinence from action must be done at the desire of the
promisor. If the promisee has does something or abstains from doing something
at the desire of a third party or voluntarily, it is not valid consideration. The
consideration has to be done at the instance of the promisor or the promise will
not be able to enforce the same.
At the request of the collector of the District, X spent money and
constructed some shops. Y, a shopkeeper who occupied one of those shops,
promised to pay to X commission on the sale of goods made by him as
consideration for the money X spent on the construction. X sued Y to recover the
promised commission. Since, X had not constructed the shops at the desire of
the Y (the promisor here); there was no valid consideration as required by
Section 2 (d). Thus, the agreement was void and Y was held not liable to pay the
promised amount.
Durga Prasad vs. Baldeo

Consideration may move from the promisee or any other person

who is not a party to the contract
It does not matter who furnishes the consideration. The consideration may
be moved by the promise himself or any other person including.
X an old woman, gave away certain immovable property to her daughter
through by a registered deed. She also directed her daughter to pay an annuity
to Y the old womans sister. The same day, the daughter executed a deed in
writing and undertook to pay annuity to Y. Subsequently, the daughter failed to
pay annuity and Y brought a suit for its recovery. The daughter pleaded that she
was not liable because no consideration had moved from Y. The Court held that
the words the promisee or any other person in Section 2(d) made it clear that
consideration need not move from the promise only and Y was entitled to
maintain the suit for recovery.Chinnaya v Ramaya
A owed Rs.20,000 to B. A persuaded C to sign a Pro Note in favour of B. C
promised B that he would pay the amount. On faith of promise by C, B credited
the amount to As account. Held, the discharge of As account was consideration

for Cs promise.
Bansidhar

National Bank of Upper India v.

It can be past, present or future consideration.

Section 2(d) of the Indian Contract Act, 1872, recognizes three types of
consideration,namely, Past, Executed and Executory. It says that when at the
desire of the promisor, the promisee or any other person:
1. Has done or abstained from doing, (the consideration is Past.)
2. Does or abstains from doing, (the consideration is Executed or
present.)
3. Promises to do or abstain from doing, (the consideration is
Executory or future.)
a) Past Consideration. Past consideration means that the consideration for
the promise had been given earlier and the promise has been made afterwards.
It is, of course, necessary that at the time the act constituting consideration was
done, must have been done at the desire of the promisor.
For example in lost or found cases if A loses his watch and puts out a
notice that whoever finds it will get Rs.500 as reward. The person who finds it
has already done the consideration. This amounts to valid (past) consideration
under Section 2(d), and the promise is enforceable. The words has done and
abstained from doing, in Section 2(d) of the Indian Contract Act, 1872,
according to Pollock and Mulla declare the law to bethat an act done by A at Bs
request, without any contemporaneous promise from B, may be consideration for
a subsequent promise from B to A.
Past consideration as good consideration under Indian Law as long as it
was given at the desire of the promisor.
English law does not recognise past consideration. However, the English
law treats an act done at request to be good consideration for a subsequent
promise.
X guilty of committing murder, requested Y to try and get him a pardon
from the King. Y travelled at his own expense and put in effort to secure a
pardon. X promised to pay him a certain sum of money but refused subsequently.
It was held that Y had a right to enforce the promise
Lampleigh vs. Brathwait
Past voluntary services. A person may render voluntary services to
another without any request or promise. In some cases, the receiving party may
subsequently make a promise to pay for the services rendered. Such a promise
in enforceable in India under Section 25(2) that provides that a promise to
compensate, wholly or in part, a person who has already voluntarily done
something for the promisor is enforceable.

Illustration: X found Ys purse on the road. He returns the same to Y who

promises to give Rs 100 to X for his services. This is a valid contract.
Section 25(2) also covers acts done at request and for which a promise to
pay is given later. Every request for an act carries an implied promise to pay.
In Sindha Shri Ganpatsingji vs Abraham, it was held that services
rendered to a minor at his request and also continued after his majority at the
same request were good consideration for the minors promise to pay
b) Present Consideration. When consideration and promise take place
simultaneously, it is called present or executed consideration. For example, in
cash sales, the promise to pay the price and promise to deliver the goods are
performed at the same time. Executed consideration is good consideration.
Illustration: X goes to a shop and buys a bottle of water from there. He
also pays the price on the spot.
c) Future Consideration. If the consideration for a promise moves after the
formation of the contract, it is called future or executory consideration.
Illustration: X promises to deliver 10 bags of rice to Y after 10 days and Y
promises to pay for the rice 10 days after the delivery by X.
It is a promise to do, abstain or suffer which is made by one party in return
for a similar promise from the other party. Even is the promise given for a
promise is dependent on a condition, it serves as valid consideration.
Illustration: X promises to landscape the garden of Y and Y agrees to pay X
as long as the landscape plans are approved by Z, a third party. Ys promise is
valid consideration for Xs promise.

It must be real and possess value. It must not be illusory

Consideration must have some value in the eyes of law. A worthless act
cannot satisfy the spirit of the definition.
Illustration: While the consideration must be real, it does not need to be
adequate for the promise. It is for the parties to consider what is adequate
consideration for them? This principle of English Law is also enforced in India.
Explanation 2 to Section 25 provides that a contract which is supported by
consideration is valid irrespective of the fact that the consideration is in
adequate.
A contract is not invalid merely due to inadequacy of consideration.
However, the Courts may look into inadequacy of consideration to ascertain
whether the consent of a party was free or not. Consideration need not be
adequate but it must be sufficient in the eyes of law.
Forbearance to sue refers to a scenario where a party has a right of
action against the other party or a third person and he refrains from bringing
action in consideration of promise by the other or third party. Forbearance to sue

is valuable consideration provided such action does not give rise to an illegal
contract.
In Kasturi Devi v Chiranji Lal, X the wife of Y, withdrew her suit
against Y in return for his promise to pay her maintenance. It was held that it was
good consideration.

It must be
obligation;

something

other

than

the

Promisors

existing

Performance of an existing obligation or legal duty is no consideration for

a promise.
Illustration: X receives summons to appear before court of law as a
witness for Y. He is promised certain amount of money by Y for appearing in
Court. The promise to pay X is void because of lack of consideration for Y as X
was already under a legal duty to appear as a witness before the Court. (Collins
vs. Godefroa)

It must be lawful.
The consideration must not be unlawful or opposed to public policy.
Illustration: X offers Rs 1000 to Y for beating up Z, his enemy. Y beats up Z
but X refuses to pay him. Y cannot recover the money promised to him because
the consideration is unlawful.
Section 24. Agreement void, if considerations and objects unlawful
in part.-If any part of a single consideration for one or more objects, or any one
or any part of any one of several considerations for a single object, is unlawful,
the agreement is void.
Illustration :A promises to superintend, on behalf of B, a legal manufacture
of indigo, and an illegal traffic in other articles. B promises to pay to A a salary of
10,000 rupees a year. The agreement is void, the object of As promise, and the
consideration for Bs promise, being in part unlawful.

Promise to pay less amount than due (The Rule of Pinnels Case)
The rule laid down in Pinnels Case in English law laid down that in an
agreement payment of a smaller amount in lieu of a valid consideration is not
binding as the agreement is without consideration. This means in spite of the
promise to pay the smaller amount the promisor can claim the whole due
amount. In the case a sum of 8-10 sh. was due to be paid on 11 th November,
1600 on the basis of a bond executed by Cole in favor of Pinnel. On October 1,
1600 Cole paid 5-2 sh. 6d. to Pinnel, and he accepted the same as the full
payment of the original debt.
Later Pinnel moved action against Cole to claim the whole amount on the
basis of the bond. It was held the Pinnel could succeed in recovering as mere
partial performance of contract would not discharge the contract. It was also
stated that the original debt could be discharged only by the introduction of a

new element in the contract upon the request of the creditor, e.g., tender of
movable property in lieu of cash, or payment at fresh place. This rule doesnt
appear to be logical. In 1937, the Law Revision Committee recommended the
abolition of the rule but so far the recommendation has not found the place in
the statute book.
Exception to the Rule in Pinnels Case
The various recognized exceptions to the rule, which are as given on the below:
1. Payment in kind When the promise to deliver some movable property or
assets in lieu of a due sum, the promise is valid is these assets are of
smaller value than the amount due.
2. Payment before due date Payment of a lesser sum before time, or
different mode or at a different place than appointed in the original
contract.
3. Part payment by third party A part payment made by a third party may
be a good consideration for the discharge of the whole of the debt. In
other words if one party has already accepted a part payment from the
third party then he cannot sue for the balance of the amount.
4. Composition with the creditors Payment of a lesser amount in
satisfaction of a larger sum where this is done in pursuance of an
agreement of compromise entered into by the debtor with his creditors.
5. Promissory Estoppel This is an equitable estoppel preventing a person
from
denying whathe asserted earlier. The person making the representation or
promise becomes bound by the same, on the basis of promissory becomes
bound by the same, on the basis of the law of estoppel if another person
acted in faith of the representation. The promise is enforceable at the
instance of the instance of the promisee not withstanding that there is no
consideration for the promise.
Indian Law
In India such confusion is not likely to arise, for the Contract Act in Section
63
clearly provides that every promise may dispense with or remit, wholly or in par
t, the performance of the promise made to him, or may extend the time for such
performance, or may accept instead of any satisfaction which he thinks fit. The
section also provides the following illustrations:
1. 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 5,000
rupees were payable. The whole debt is discharged.
2. A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them
in satisfaction of claim on A. this payment is a discharge of the whole
claim.
3. 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.

4. 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 compensation of eight annas in a rupee (i.e. 50%) upon
their respective demands. Payment to B of 1,000rupees is a discharge
of Bs demand.
In the Pinnel case, it was held that a promise to pay less than what is due
under a contract cannot be regarded as consideration. This rule was affirmed in
Foakes v Beer.
X, a doctor, was ordered to pay 2000 pounds to Y, a lady, by a judgment
decree. He was unable to pay the entire amount together, so he entered into an
agreement with her that he would 200 pounds immediately and the rest 1800
pounds in installments. After the last installment was paid, she sued for recovery
of interest on judgment debt. It was held that Y was entitled to the payment of
judgment debt as well as the interest till the date of final payment because there
was no consideration for her promise to accept anything less than the sum to
which she was entitled.

Validity of an agreement without consideration

English Law
In the English law a contact under seal is enforceable without
consideration while the simple contracts need the presence of consideration. In
the words of Anson: English law recognizes only two kinds of contract, the
contract made by deed that is under seal, which is called deed or specialty, and
the simple contract.
A contract under seal means which is in writing and which id signed,
sealed and delivered. The English law says that there is no liability upon a
contract, unless the contract fulfils one of the two conditions, namely, either that
it should be without consideration or that it is a deed under seal.
Indian Law
Section 25 of the Indian Contract Act, 1872, generally declares that an
agreement without consideration is void. The Section, however, provides
exceptions to the rule stated as under:
25. 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.
Explanation 1.-Nothing in this section shall affect the validity, as between
the donor and donee, of any gift actually made.
Explanation 2.-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.
Illustrations
a) A promises, for no consideration, to give to B Rs. 1,000. This is a void
agreement.
b) A, for natural love and affection, promises to give his son, B, Rs. 1,000. A
puts his promise to B into writing and registers it. This is a contract.
c) A finds Bs purse and gives it to him. B promises to give A Rs. 50. This is a
contract.
d) A supports Bs infant son. B promises to pay As expenses in so doing. This
is a contract.
e) A owes B Rs. 1,000, but the debt is barred by the Limitation Act. A signs a
written promise to pay B Rs. 500 on account of the debt. This is a
contract.
f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. As consent to the
agreement was freely given. The agreement is a contract notwithstanding
the inadequacy of the consideration.
g) 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.
Section 25 also lists the exceptions to the rule that an agreement without
consideration is void as given below:
1)
2)
3)
4)
5)

Natural Love and Affection

Promise to Compensate or Past Voluntary Debts
Time Barred Debts
Gifts
Agency

Promise due to natural love and affection [Section 25(1)]

If a promise is made in favor of a person of a near relation on account of
nearness,
love
or affection, the same is valid eventhough there is no consideration. The followin
g conditions need to be satisfied in order to cover this exception:

1. The parties to the agreement must be standing in a near relationship

to each other.
2. The promise should be made to one party out of natural love and
affection for the other.
3. The promise should be in writing and registered.
The near relationship has not been defined by act or any judicial
pronouncement. But, from the various decisions we can see that it covers blood
relations and relations made through matrimony, but would not include such
relations which are not near, but remotely entitled to inherit. But in a relation
where there is no love and affection the exception does not apply.
Like in Rajlucky Dabee v Boothnath Mookerjee, after a lot of quarrels
and disagreements between the parties who were Hindu husband and wife
decided to live apart. Later the husband executed a document giving the wife
separate residence and maintenance. The agreement also included mention of
the quarrels and disagreements between the two. It was held that the document
was not executed because of love and affection but the absence of the same,
therefore, the wife could not recover the sums mentioned in the document. It is
also necessary for the document to be in writing and the writing be registered
under the law relating to registration of documents.

Consideration for Past Voluntary Services [Section25 (2)]

Section 25 (2) lays down that a promise to pay whether wholly or in part
for the past voluntary service is binding as long as the following requirements
are met:
a) the act was done or service was performed voluntarily
b) that act or service was to promisor
c) the promisor was in existence at the time when the act or service was
done
d) the promisor agreed to compensate the promisees voluntary service.
Illustration: X helps put out a fire in the house of Y. Later, Y promises to
give him Rs. 1000. This is a valid contract even if the consideration did not move
at the desire of the Promisor.
For example, work done by a promoter of a company before its formation
cannot be claimed as work done for the company
Ahmedabad Jubilee, S&W Co. vs. Chottalal
Chaganlal
Promise to Pay Time Barred Debt [Section 25(3)]
In another condition if a party agrees to pay a time barred debt it is
considered to be valid contract. Section 25(3) required the following essentials to
be satisfied in such a case:

1. The promise must be to pay wholly or in part a time barred debt, i.e.,
a debt which the creditor might have enforced payment but for the
law the limitation of suits.
2. The promise must be in writing and signed by the person to be
charged there with, or his duly authorized agent.
The English law on the point is also same. It was established in England as
way back as that a precedent debt is good consideration for a subsequent
promise. This also includes time barred debts.
Agency
No consideration is needed to create a valid agency. English Law: A
contract under seal (a signed, written contract that is sealed and delivered) can
be enforceable without consideration.
Bailment (148)- consideration is not necessary to effect a valid bailment of
goods. It is Called Gratuitous Bailment.
Charity - If a person promises to contribute to charity and on this faith the
promises undertakes a liability to the extent not exceeding the promised
subscription, the contract shall be valid

2. PRIVITY OF CONTRACT
The Doctrine of Privity of Contract in simple words means that only those
persons who are parties to the contract can enforce the same. A stranger to
consideration can sue because Section says that consideration can be furnished
by the promise or any other person. However, a stranger to a contract cannot
sue because there is no relationship between him and the parities to a contract
privity of contract.
Under Indian law, the consideration can be furnished by the promisee or
any other person as given in Section 2(d)
Illustration: X owes Y Rs 1000 and sells his property to Z who promises
to pay his debts. But Z does not pay Y. Because he is a stranger to the contract, Y
cannot sue Z.
Illustration: X bought tyres from Y under the condition that the tyres will
not be resold below the listed price. X sold the tyres to Z, a sub dealer who
agreed to the conditions and also to pay Y some amount for every tyre he
undersold. Z sold tyres at lower rates than list price and Y sued him for breach of
conditions. The action will fail for Y is a stranger to the contract between X and Z.
Dunlop Pneumatic Tyre Co. vs. Selfridge &
Co.

English Law
Under English law, there privity of consideration is well recognised
consideration must move from the promisee and the promisee only.
In Dutton vs. Poole, X was prepared to cut down timber on his estate to
provide a marriage portion to his daughter, Y. His son, Z, promised to give a
certain sum to his sister on her marriage if X did not cut down the timber. When
Z failed to pay the amount, Y sued him for the amount. The suit was held
maintainable on grounds of the close relationship between X and Y as father and
child; the relationship made Y a party to the consideration though if she was a
stranger to the contract.
English law recognizes the rule of privity of contract. Thus, a contract
cannot be enforced by a person who is not a party to it even if the contract is
made for his benefit. A stranger to the contract cannot claim any rights under it.
The doctrine was introduced in 1861 though Tweddle vs. Atkinson. The
father and father-in-law of a groom agreed in writing to pay the groom a certain
sum of money. However, the contracting parties died without having made their
share of the specified payment. The groom sued the executors of his father-inlaw for the payment of the amount due. The principle of near relationship of the
contracting parties (as in Dutton vs. Poole case) was held not applicable. The
groom was not allowed to sue because he was a stranger to the contract though
the contract sought to benefit him.
In Beswick vs. Beswick, a man transferred his business to his nephew on
the condition that the latter maintain the man till his death and his widow
thereafter. After the death of the man, the nephew did not keep up his end of the
bargain and the widow sued him. It was held that the widow was suing not only
as beneficiary under the contract but also as the heir of her deceased husband
who was a party to the contract.

Indian Law
There is no provision in the Indian Contract Act, 1872 either for or against
the rule of privity of contract. In the case of Jamna Das vs. Ram Avtar, X
mortgaged some property to Y and then sold it to Z who agreed with X to pay the
mortgage debt to Y. Y sued Z for the recovery of the mortgage money. It was held
that Y could not succeed as he was not party to the agreement between X and Z.
In M.S. Chacko vs. State Bank Of Travancore, X Bank was indebted to
the State Bank of Travancore under an overdraft. A was the manager of the said
X Bank and his father B, had guaranteed the repayment of the overdraft. B
gifted his properties to the members of his family. The gift deed provided that
any liability under the guarantee should be met by A either from the bank or
from the share of the property gifted to him. The State Bank of Travencore
sought to hold A liable on the basis of the gift deed. It was held that the State
was not a party to the deed and could not enforce it.

Exceptions to the Privity Rule:

A person who is not a party to a contract may sue upon it in the following cases:
a)
b)
c)
d)
e)

Trust or charge
Family arrangement
Estoppels
Assignment
Covenant running with the land

a) Trust or charge
Where a trust is created for the benefit of a person, he can sue upon the
agreement to create the trust even if he is not a party to it.
In case of Khwaja Md. Khan vs. Husaini Begum, the father and father-in-law
of X, entered into an agreement where for the consideration of X marrying Y, the
father in law would pay her Rs 500 per month for perpetuity as betel leaf
expenses. Certain immovable property was specifically charged for the payment
of these expenses. After marriage, X and Y separated. X bought a suit for the
recovery of arrears of annuity. It was held that X could enforce the promise in her
favour and that she was claiming as beneficiary under such settlement to
provide for her.
In the case of Baksh Singh vs. Jang Bahadur, X was appointed
successor by his father and put in possession of his estate. In consideration, X
agreed with the father to pay a certain sum of money and property A
illegitimate son of his father upon on his attaining majority. When A asked for his
share upon attaining majority, X refused. It was held that a trust was created in
favour of A for a specific amount and property and the suit was maintainable.

b) Family arrangement
If a contract under a family arrangement is intended to secure a benefit to
third party, he may sue in his own right as a beneficiary.
In Rose Fernandez vs. Joseph Gonsalves, X entered into an agreement
for his daughters marriage to A. It was held that the girl could sue A for
damages for breach of the promise of marriage. As plea that she was not a party
to the agreement did not hold ground. Similarly, in the case of Rakhmanbai,
there was provision made for the marriage expenses of a female member of a
Joint Hindu Family. When partition of the family property took place, the woman
sued for her marriage expenses. It was held that she was entitled to sue for the
same.
c) Acknowledgement or estoppel
If a contract requires a party to pay a third party and he acknowledges it
to the third party, he will incur a binging obligation. The acknowledgement may
be express or implied

Illustration: X receives Rs 1000 from Y for paying Z. X acknowledges the

receipt of funds to pay him. Now, Z can sue X for the recovery of the sum.
In Devaraja Urs vs. Ram Krishniah, X sold his house to Y and a specific
sum was to be paid to A out of the sale price due from Y. Y made a few payments
to A but not the whole amount. It was held that A could recover the balance
because Y had acknowledged his liability by conduct.
d) Assignment of a Contract
A benefit under a contract may be assigned either by an act of the parties
or by operation of law (in cases of death and insolvency) and the assignee can
sue upon the contract for the enforcement of his rights. However, in another
case,[11] it was held that a mere nominee, the person for whose benefit the
deceased insured his or her life, cannot sue on the policy because such person is
not an assignee.
e) Covenants running with the land
In Tulk vs. Moxhay, it was held that a person is bound by obligations
attached to a land via a contract when he purchases the said land with the notice
that the agreements affecting the land bind him though he was not a party to
such contract or agreement.