Consideration

J J Maini, MIMIT Malout 1

CONSIDERATIONChapter 3


Consideration

Foundation of every contract In the absence of consideration a

promise or undertaking is purely gratuitous- creates no legal binding


Consideration

Section 2(d) 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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.


Consideration

Pollock “ Consideration is the price for which the promise of the other is bought and the promise thus given for value is enforceable”.

It is something which is of some value in the eyes of law.

It may be some benefit to the plaintiff or some detriment to the defendant.

Also called Quid- pro-quo i.e. something in return


Consideration

Section 2(d) of the Indian Contract Act defines consideration as –

A) when at the desire of the promisorB) the promisee or any other personC) has done or abstained from doing ,

does or abstains from doing, or promises to do or abstain from doing,

D) something, such act or abstinence or promise is called a consideration for the promise.


Essentials of a Valid Consideration

1. It must move at the desire of the promisor Case Durga Prasad vs. Baldeo

An act constituting consideration must have been done at the desire or request of the promisor ,if it is done at the desire of the third party or without the desire of the promisor it will not be a good consideration.

E.g., A saves B goods from fire without being asked to do so. A cannot demand consideration for his services.


It must move at the desire of the promisor

Durga Prasad Vs. Baldeo ,(1880) The Plaintiff on the order of collector constructed a Ganj, def. promised to pay commission on items sold in lieu his construction of the shop.

B spent some money on the improvement of a market at the desire of the Collector of the district. In consideration of this D who was using the market promised to pay some money to B.Held: The agreement was void being without consideration as it had not moved at the desire of D.

Kedar NathVs.Gouri Mohamed Commissioners of Howrah sought charitable subscription to construct Town Hall at Howrah . Charitable subscription Rs.100.Work started. Promissory Estoppel?. Held liable.

Abdul Aziz Vs. Masum Ali Charitable subscription Rs.500 for Mosque repair. Repairs not started as yet. Held not liable.


1 .Abdul Aziz vs. Masum Ali, (1914).The secretary of a Mosque Committee filed a suit to enforce a promise which the promisor had made to subscribe Rs. 500 to the re-building of a mosque.Held: “the promise was not enforceable because there was no consideration in the sense of benefit”, as “the person who made the promise gained nothing in return for the promise made”, and the secretary of the Committee to whom the promise was made, suffered no detriment as nothing had been done to carry out the repairs. Hence the suit was dismissed.

2.Kedar Nath vs. Gauri Mohamed, (1886)The facts of this case were almost similar to those of the above case, but the secretary in this case incurred a liability on the strength of the promise.Held: The amount could be recovered, as the promise resulted in a sufficient detriment to the secretary. The promise could, however, be enforced only to the extent of the liability (detriment) incurred by the secretary. In this case, the promise, even though it was gratuitous, became enforceable because on the faith of the promise secretary had incurred a detriment.


Essentials of a Valid Consideration2.It may move from the Promisee or any other Person:

consideration may move from the Promisee or any other Person, i.e., even a stranger. This means that as long as there is a consideration for a promise it is immaterial who has furnished it. But a stranger to the consideration will be able to sue only if he is a party to the contract.

Case law: 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, S (Sister of old lady), a certain some of money annually. The same day D entered into an agreement with her aunt S to pay her the agreed amount. Later, D refused to pay the amount on the plea that no consideration has moved from S to D.

Held, S was entitled to maintain suit as consideration had moved from the old lady, sister of S, to the daughter, D. (Chinnaya v/s Ramayya)



Tweddle Vs. Atkinson (1861) 123 ER 762The plaintiff was to be married to the daughter

of one G and in consideration of this intended marriage G and the plaintiff ‘s father entered in to a written agreement by which it was agreed that each would pay the Plaintiff a some of money. G failed to do so and the plaintiff sued his executors. Whitman J considered it to be an established principle that a person can not take advantage of a contract, who is stranger to the contract.



3. It may be Past, Present or Future: the word used in Section 2(d) are”… has done or abstained from doing (Past), or does or abstains from doing (Present), or promises to do or to abstain from doing (Future), something,”

Past consideration: when the consideration by the party for the present promise was given in the past, i.e., before the date of promise, it is said to be past consideration.

Present consideration: when consideration is given

simultaneously with promise, i.e., at the time of the promise, it is said to be present consideration. E.g., cash sale.

Future consideration: when consideration for one party to the other is to pass subsequently to the making of the contract, it is future consideration.



4. It need not be adequate: consideration as said “some thing in return” and something this some thing in return need not be equal in value to “Something given”. The law requires that the contract must be supported by consideration and not the adequate consideration. The adequacy of the consideration is to be determined by the parties to the contract at the time of entering into it, but the court has no right to determine the adequacy of the consideration.



5. It must be real: although consideration need not be adequate, it must be real and of some value in the eye of law. There is no real consideration in the following cases:

Physical impossibility: A promises to put life into B’s dead wife on the consideration of Rs.999. A’s promise is physically impossible to perform.

Legal impossibility: A owes Rs.500 to B. he promises to pay Rs.50 to, C the servant of B, who in return promise to discharge A from the liability. This is legally impossible, because C cannot discharge A from the debt due to B.

Uncertain consideration: A engages B for doing a certain work and promises to pay a “Reasonable some”. There is no recognized method of ascertaining the “Reasonable Some”. The promise is unenforceable due to uncertainty.



6. It must be lawful: the consideration given for an agreement must not be unlawful. A consideration to the contract must not be against Public Policy, Immoral and illegal

7.It must be something which the promisor is not already bound to do: a promise to do what one is already bound to do, either by general law or under an existing contract, is not a good consideration for the new promise, since it adds nothing to the pre-existing legal or contractual obligation.

CL: There was a promise to pay to the vakil an additional sum if the suit was successful. Held, the promise was void for the want of consideration. The vakil was under a pre-existing contractual obligation to render the best of his services under the original contract. (Ramachandra Chintaman vs. Kalu Raju)


Case

Ramchandra Chintaman vs. Kalu Raju, (1877)There was a promise to pay to the Vakil an additional sum if the suit was successful.

Held: The promise was void for want of consideration. The Vakil was under a pre-existing contractual obligation to render the best of his services under the original contract.


Stranger to consideration Under the English law the consideration

must move from the promisee and not from the stranger, and a stranger to a consideration cannot enforce it.

The Indian law is different from the English law and the definition of consideration under the Indian Contract Act clearly provides that consideration may move from the promisee or any other person. So consideration may flow from a stranger.


Stranger to contract

It is a general law of contract that a person who is not a party to the contract can’t sue on it.

A stranger to a contract can’t sue in England as well as in India though it may be for his benefit.

It means that unless there is privity of contract a party can’t sue on a contract.


Stranger to contract

Privity of contract means the relationship subsisting between the parties to a contract.

It means that no one but the parties to a contract can be bound by it or be entitled under it.

Only parties to a contract can sue each other or be sued upon.


Stranger to a contract can’t sue except in the following case-

1. Trust

2. Provision is made in a marriage settlement

3. Where provision is made in a partition or family arrangement for maintenance or marriage expenses of female members

4. Where a charge is created in favour of a stranger on specific immovable property


Stranger to a contract can’t sue except in the following case-

5. Where the promisor by his conduct has created privity of contract with the stranger

6. Where it is conducive to justice7. Contract entered into by an agent

can be enforced by the principal8. Covenants running with the land


CONTRACT WITHOUT CONSIDERATION IS VOID -EXCEPTIONs Agreement without consideration, void, unless it is in

writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law

An agreement made without consideration is void, unless – Love and Affection: where an agreement is expressed in writing and registered under the law for the time being in force for the registration of the documents and is made on account of natural law and affection between parties standing to the near relation to each other, it is enforceable even is there is no consideration (Ram Dass vs. Krishan Dev)


Case

A Hindu husband, after referring to quarrels and disagreement between him and his wife executed a registered document in favour of his wife agreeing to pay her maintenance. But no consideration moved from the wife. Held, the agreement was void for want of consideration (Rajlukhy vs. Bhoothnath)


CONTRACT WITHOUT CONSIDERATION IS VOID -EXCEPTIONs

Promise to pay a time-bared debt: A promise to pay a time-bared debt by the debtor is enforceable provided it is made in writing and signed by the person to be charged therewith or by his agent generally or specially

authorised in that behalf, to pay wholly or in part debt. The debt must be such “of which the creditor

might have enforced payment but for the law for the

limitation of suits”



Completed gift: that nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made.Explanation 2 to Section 25 provides that 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.



Agency: Section 185 of the contract Act provides that no consideration is necessary for

creation of agency.

Charitable Subscription


Case

Debi Radha Rani vs. Ram Dass, (1941)D is ready to sue her husband for maintenance allowance. On husband’s agreeing to pay her a monthly allowance by way of maintenance, she forbears to sue.

Held: The wife’s forbearance to sue amount to consideration for the husband’s agreement for payment of maintenance allowance.


Case

Dunlop Pneumatic Tyres Co. Ltd. Vs. Selfridge & Co. Ltd., (1915)S bought tyres from the Dunlop Rubber Co. & sold them to D, a sub-dealer, who agreed with S not to sell these tyres below Dunlop’s list price and to pay the Dunlop Co. £5 as damages on every tyre D undersold, D sold two tyres at less than the list price and thereupon the Dunlop Co. Sued him for the breach.

Held: The Dunlop Co. Could not maintain the suit as it was stranger to the contract.

Documents

Consideration