CONSIDERATION

As per s.25 an agreement not supported by consideration is void.

Anson1 said that the offer and acceptance bring the parties together
and constitute the outward semblance of a contract; but most systems
of law require some further evidence of the intention of the parties,
which provided by consideration and form.
In India, this further evidence is provided by consideration only. As per
s.25, consideration is a cardinal necessity of the formation of a
contract, but no consideration is necessary for the discharge or
modification of a contract.
According to Salmond, a promise without consideration is a gift; one
made for consideration is a bargain.
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, sufferer or
undertaken by the other [Currie v Misa 1875].
For eg: A agrees to sell his immovable property (A’s Promise to sell-
consideration) to B for Rs. 1 lakh (B’s promise to pay – consideration).
s.2(d) defines consideration as :
1. An act or abstinence, done at the desire of the promisor;
2. done by promisee or any other person,
3. Such act or abstinence may have been already executed or is
in the process of being done or may still be executory i.e. it is
promised to be done.

1
Comment and discuss the nature of evidence required to be supplied under the Indian Contract Act.
At the Desire of the Promisor (Promissory Estoppel)2
As per 2(d) an act shall not be a good consideration for a promise
unless it is done at the desire of the promisor.
In Durga Prasad v Baldeo 1880 – the plaintiff built a shopping complex
-based on the collector’s order. - Defendants occupied the shopping
complex, - promised to pay compensation, - But refused to pay. Held,
plaintiffs act was not at the desire of the defendant.
Kedarnath v. Gorie Mahomed 1886 – on the faith of the promised
subscription by the defendant, plaintiff entered into a contract with a
contractor to build the town hall - but defendant failed to pay –
Held – act of pl – at the desire of df – so as to constitute consideration
within s. 2 (d) – here money was raised for a specific purpose unlike
donation.
Doraswami Iyer v. Arunachala Iyer 1936- plaintiff invited subscription
- while repair of the temple was in progress - Held, the action was not
induced by the promise to subscribe but was independent of it and
therefore, defendant not liable for not paying the sum.

Consideration must be real and not illusory3

Where consideration is physically impossible, illegal, uncertain or
illusory, it is not real. English common law has always insisted that
must be of some value in the eyes of the law.”
Where A promises to give his new car to B, provided B will fetch it from
the garage, there is no legal consideration. Here, to fetch car is not the
price of the car, but a condition precedent to the operation of A’s
generosity.
White v. Bluett (1853)

2
“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”. Discuss.

3
‘Consideration need not be adequate, but it must be real or valuable’. Explain
“inadequacy of consideration is immaterial, but an agreement without consideration is void.” comment
Son used to complaint to the father that he was not treated equally
with his brothers. – father promised to discharge him from a debt –
provided he stopped complaining – he stopped – question whether
sufficient consideration for promise  Held – insufficient –
consideration must hold some economic value not just emotional or
sentimental.
This case highlights the fact that a consideration must be real and not
unsubstantial.
Kulasekaraperumal v pathakutty 1961, Chidambara v Renga, 1965 –
Same reiterated
Consideration need not be adequate
Explanation 2 to s.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.
Eg: if A agrees to sell a horse worth Rs. 1000 for Rs. 10. A’s consent to
the agreement was freely given, the agreement is a contract
notwithstanding the inadequacy of the consideration
Law is NOT bothered about, whether the consideration is excess or
less. It is for the parties to decide how much value they want to attach
– at the time of the agreement.
Thus, the transfer of the goodwill and the whole of the assets of a
business for only 1K has been upheld in Devji Shivji v Karsandas Ramji
1954
Thus, consideration need not be quantitatively equal to the thing
promised (Lakshmana Swami v LIC 1963)
De La Bere v Pearson 1908 – the defendants, the newspaper
proprietors, offered financial advice to the plaintiff which lead to the
misappropriation of his sums. Held, offer has a tendency to increase
the sale of the paper. When it was accepted, resulted in a contract for
good consideration.
Forbearance to sue has always been regarded as valuable
consideration. Thus, in Kastoori Devi v Chiranji Lal 1960 – the
withdrawal of a pending suit by a wife against her husband was held
to be a good consideration for his promise to pay her maintenance.

EXCEPTIONS TO CONSIDERATION4
As per s.25, An agreement made without consideration is void unless
a. it is expressed in writing and registered, and is made on account
of natural love and affection b/w parti3s standing in near
relation to each other, or unless
b. it is promise to compensate, wholly or in part, a person, who has
already voluntarily done something for the promisor, or
something which the promisor, or something which the
promisor was legally compellable to do, or unless
c. it is a promise, made in writing and signed by the person to be
charged therewith, or by his authorised agent, to pay a debt of
which the creditor might have enforce d payment but for the law
of the limitation of suits.
An of these cases, such an agreement is a contract.
Explanation 1 makes it clear that s.25 does not apply to the cases of
gifts. A gift (which is not an agreement) does not requires
consideration in order to be valid. There need not be natural love and
affection or nearness of relationship b/w the donor and donee. The
gift must, however, be ‘complete i.e. it has been delivered; a promise
of gift, being without consideration, is void.
Explanation 2 makes it clear that the consideration must have some
value in the eyes of law, even though it need not be adequate.

4
Whether an agreement without consideration is void? Discuss the rule with exceptions, if any
A, for natural love and affection, promises to give his son, B, 1K. A puts
his promise to B into writing and registers it. this is a contract.
Exception 1. Natural Love and Affection
A written and registered agreement based on natural love and
affection b/w near relatives is enforceable without consideration. The
expression ‘near relative’ will include parties relates by blood or
marriage.
In Rajlucky Dabee v Bhootnath Mookerjee 1900 – held, near relation
b/w the two parties does not necessarily imply natural love and
affection b/w them.
Here, the defendant promises to pay his wife a fixed sum of money
every month. The agreement mentioned certain quarrels and
disagreements b/w them. Held, there is no trace of love and affection
b/w them and therefore, void for lack of consideration.
Exception 2 Past voluntary service
A promise to compensate a person, who has already voluntarily done
something for the promisor, or something which the promisor was
legally compellable to do, is enforceable without consideration. A
promise to pay for a past voluntary service is binding.
A finds B’s purse and gives it to him and B promises to give A, Rs 50,
this is a contract.
However, such service should have been rendered voluntarily [and not
at request, which is covered by past consideration under s.2(d)] and
without promisor’s knowledge, and for the promisor only. This implies
that the act must have been done for a person who is in existence at
the time of the doing of the act, and therefore, it does not cover
expenses incurred by the promoter of a company before company
came into existence. [Ahmedabad jubilee v Chhotalal 1908]
In Karam Chand v Basant kumar 1911 – a promise made after
attaining majority to pay for goods supplied to the promisor during
minority was held to be within exception. However, it was reversed in
Suraj Narain v Suraj Ahir 1928 [Allahabad High Court]
Exception 3 – Time Barred Debt
A promise to pay a time-barred debt is enforceable. For eg: A owes B
2K, but the debt is barred by the Limitation Act. A signs a written
promise to pay B 1K on account of the det. This promise is enforceable
under this exception.
A mere acknowledgement is not enough. There must be a promise to
pay the debt.
In Suresh Chandra v Dadnese Chemical works 1991, Bombay HC held,
a statement in the balance sheet of the defendant showing that the
firm was indebted to the plaintiff, is an implied promise to pay.
Other Instances – when consideration is not required
- a Contract of Agency;
- Remission by the promisee of performance of the promise;
- An agreement to extend time for performance of a contract;
- A promise to contribute to charity in certain circumstances.

PRIVITY OF CONTRACT5
The doctrine of privity of contract means that a contract is a contract
b/w the parties only and not third party (i.e. stranger to contract) can
sue upon it even if it is avowedly made for his benefit. Similarly, the
third person is not bound by the contract as there is no mutuality
(doctrine of mutuality). The doctrine is rooted from Tweddle V
Atkinson 1861 and Dunlop Pneumatic Tyre Ltd v Selfridge. 1915

5
“The general rule undoubtedly is that no third person can sue or be sued on a contract to which he is not a
party; but as bottom that is only a rule of procedure. It goes to the form of remedy, not to the underlying
right.” Critically comment – whether you agree with the statement
What are the exceptions to the principle that the contractual benefits or obligations are confined to the
parties to the contract?
“privity of contract is no longer a rule but only an exception.” Explain in the context of modern transactions.
“A contract cannot be enforced by a person who is not a party to it though it is made for his benefit. He is a
stranger to the contract and can claim no rights under it.” Examine the above statement
In latter, the plaintiff sold goods to retailer and secured an agreement
from them not to sell goods below the list price and if they sold goods
to another trader thy would obtain from him a similar undertaking to
maintain the price list. The retailer sold goods the defendants, who
agreed not to sell goods at less than list price. Held, assuming that the
plaintiffs were undisclosed principals, no consideration moved from
them to the defendants and the contract was unenforceable by them.
Position in India
There is no provision in the Indian Contract Act, either for or against
the rule of privity of contract.
The authority for the application of the rule in India, privy council in
jamna Das v Ram Avtar 1911 – a had mortgaged some property to X.
A then sold this property to B, B having agreed with A to pay off the
mortgaged debt to X. X brought an action against B to recover. Held,
since there is no contract b/w X & B, X could not enforce the contract
with mortgagee and the purchaser is not personally bound to pay the
mortgage debt.
Iswaram Pillai v Sonivaveru 1913 – A mortgaged his lands to B and
part of the consideration was B’s promise to discharge A’s debt to C.
C sued B but C was held to be a stranger to the contract.
In Subbu Chetti v Arunachalam 1930 – in a sale deed b/w A & B, the
stipulation to pay certain sum to C cannot be enforced by C.
SC supported the rule of privity in MC Chacko v SBT 1970,
Where Highland Bank was indebted to SBT. M was the Manager of the
bank and his father K had guaranteed the repayment of the overdraft.
The gift deed of K provided that liability under the guarantee should
be met by M either from the property gifted to him. Held, SBT not
being a party to the deed, could not enforce its covenants.
EXCEPTIONS TO RULE OF PRIVITY
1. Trust or Charge – if a charge or other interest has been created in
favour of a person(beneficiary) in the form of some specific
property, then the beneficiary can enforce it.
Kwaja Muhammad v Hussaini Begum 1910 – there was an agreement
b/w plaintiff’s father in law and her father that in consideration of her
marriage with his son, he would pay her 500 per month for betel-leaf
expenses.
A suit was brought by the wife for the recovery. Held, wife, although
not a party to the contract, is entitled to enforce her claim, as separate
immovable properties had been specifically charged for the
allowance.
2. Marriage Settlement, Partition or other family arrangements –
where a girls father entered into an agreement for her marriage
with the defendant, it was held that the girl could sue the
defendant for damages for the breach of the promise of marriage
even though she was not a party to the agreement – Rose v
Joseph 1925
3. Acknowledgement or Estoppel – whereby the terms of a contract
a party is required to make a payment to a third person and he
acknowledge it to that 3rd person (viz. while making a part-
payment), a binding obligation is thereby incurred towards him. –
Devaraja v Ram Krishniah 1952
4. Covenants running with land – the new owner of the land is
bound by duties created by an agreement or covenant affecting
the land, although he was not a party to the agreement – Tult v
Moxhay 1919
5. Assignee in insurance policy – the assignee of an insurance policy
is entitled to sue on the contract made b/w the insure and the
insurer

PERFORMANCE OF EXISTING DUTIES6

1. Performance of legal obligation
Inorder to constitute proper consideration there should be a
promise to do something more than what a person is already

6
Discuss how far the performance of something which promisee is already under a legal obligation to perform
can form consideration for a promise.
bound to do. Doing of something, which a person is already legally
bound to do, is no consideration. For instance, where a person
having received summons to give evidence in a case; a promise to
pay to such person for appearing in case is not consideration
[Collins v Godefroy 1831].
Similarly, a promise to pay a sum of money to a police officer for
investigating into a crime will be without consideration.
However, where the police authority provides a special form of
protection outside the scope of their public duty (eg. Performing
an extraordinary act) they may demand payment of it [Glassbrook
Brothers Ltd v Galmorgan County Council 1925].

2. Performance of contractual obligation

a. Pre-existing contract with promisor
If A is already bound to perform a particular duty owed to B,
B’s promise to pay something additional for the same
promise is no consideration. In Ramchandra v Kalu Raju
1877, it was held that a promise to pay a special
reward(“inam”) to a pleader (apart from usual fee) if the suit
decided in the promisor’s favour, does not constitute
consideration. Held, that the plaintiff was already bound to
render his best service as a pleader, thus no fresh
consideration proceeded from the plaintiff. Similarly, held in
Lalman Shuklas’s case.
On the same principle, a promise to pay less than what is due
under a contract cannot be regarded as a consideration
(Pinnel’s case 1602). It means that inspite of a promise to pay
and receive a smaller amount than due; the promisor can
claim the whole of the amount due. However, there are
certain exceptions to the Pinnel’s rule. Thus, part-payment by
a 3rd party may be good consideration for the discharge of the
whole debt.
In India, the promisee may accept in satisfaction of the whole
debt, an amount smaller than that. No consideration is
needed for such a promise (s.63, Contract Act).
b. Pre-existing contract with 3rd Party
Where a person has contracted to do an act, and a 3rd
person promises to pay him a sum of money if he would go
ahead with the performance, is there a consideration for
the promise?
Gopal v Hazarilal 1963, the plaintiff contracted to purchase
from a textile mill certain bales of cloth in instalments. The
plaintiff, after taking 1st delivery, refused to take delivery
of the rest of the bales as the price of cloth had fallen. After
the refusal, the defendants (sole selling agents of the Mill)
who had guaranteed the performance of the contract,
proposed to the plaintiff to take delivery of remaining bales
by offering to pay 25K. the plaintiff lifted the remaining
bales but the defendants did not pay the sum. Held, as per
s.2(d), all that is necessary is that the desire of one party
and direct benefit from the act. The benefits may go to a
3rd party or not at all to anyone. Here, the defendant
promised to pay 25k as sum and the plaintiff acted
accordingly as per the desire of the defendant. This was
sufficient benefit.
Indermal v Ram Prasad 1970 – where a person who had
agreed to execute a sale-deed did so only when a 3rd
person promised to give him a promissory note for 30k, it
was held that the promise was for consideration.