SEMESTER-II

2019-20

A research paper on:

CONSIDERATION
Submitted to:
Prof. Sunil George
Assistant Professor, NMIMS SCHOOL OF LAW

Submitted by:
Maarij Ahmad
D061
 ABSTRACT

This research paper addresses a topic under Law of Contracts, i.e., “consideration.” Instead of
defining consideration, which is largely tautological, the prime focus is on the normative
basis for its use for deciding which contracts are enforceable.

The paper compares enforceable contracts in which consideration is found with transactions
in other legal areas, that is, valid in gifts and Wills (Property and Trusts and Estates), to
determine what requirements are necessary to validate those transfers. With respect to both of
these transfers, functional formalities are needed that satisfy evidentiary, channelling,
ritualistic, and protective functions—the same functions that are satisfied by the consideration
doctrine in Contracts.

INTRODUCTION

Section 25 of the Indian Contract Act starts with the declaration that “an agreement made
without consideration is void….”1

Consideration has been defined variously. In the words of Blackstone:2 “Consideration is the
recompense given by the party contracting to the other.”

According to Pollock, “Consideration is the price for which the promise of the other is
bought, and the promise thus given for value is enforceable.”3 But the most commonly
accepted definition is that by LUSH J in Currie v Misa:4 “A valuable consideration is the
sense of the law , may consist either in some right, interest, profit or benefit accruing to the
party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by
the other.”

In Section 2(d) of the Indian Contract Act consideration is defined as: When, at the desire of
the promisor, the promisee or any other person has done or abstained from doing, or does or

1
Section 25 of the Contract Act reads- “Agreements without consideration, void unless it is writing and
registered or is a promise to compensate for something or is a promise to pay a debt barred by limitation law”.
This section after defining consideration in definition clause in Sec. 2(d) declares that “consideration is the vital
part of a valid contract”
2
COMMENTARIES
3
Sir Frederick Pollock, POLLOCK ON CONTRACTS (13th Edn) 133.
4
(1875) LR 10 Ex 153, 162.
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;5

Requirements of a Consideration: -

“At the desire of the promisor” (promissory estoppel),

As per the Indian Contract Act, 1872 the definition of consideration in Section 2(d) states,
consideration may be furnished by ‘the promisee or any other person’ as long as it is ‘at the
desire of promisor’. Thus, the consideration may move from promisee, or some other person,
if the promisor has no objection, from any other person. The definition under Section 2d
clearly states that an act or abstinence which is a consideration for the promise must be done
or promised to be done in accordance with the desire of the promisor. So, an act shall not be a
good consideration for a promise unless it is done at the desire of the promisor. Durga Prasad
v Baldeo6,the facts of this case were, the plaintiff on the order of the Collector of a town,
built at his own expense, some shops in a bazar. The shops being occupied by the defendants
who, in consideration of the plaintiff, spent money in the construction, promised to pay him a
commission on articles sold through their agency in the bazar. The plaintiff’ action to recover
the commission was rejected.

Acts done at request,

An act done at the desire of the promisor establishes a good consideration for his promise
even though it is of no significance or personal benefit to him. The decision of the Calcutta
High Court in Kedarnath Bhattacharji v Gorie Mahomed7, in this case, it was considered
advisable to build a town hall at Howrah provided sufficient subscriptions could be brought
together for the purpose. To this end the commissioners of Howrah municipality set out work
to obtain necessary funds by public subscription. The defendant was a subscriber to the fund
for Rs 100 having signed his name in the subscription book for that amount. On the faith of
the promised subscriptions the plaintiff entered into a contract with a contractor purposed at
building the hall. But, the defendant failed to pay the amount and asserted that there was no
consideration for his promise, he was however held liable.

5
https://indiankanoon.org/doc/877630/
6
ILR (1881) 3 ALL 221, OLDFIELD J at p. 228,
7
ILR (1886) 14 Cal 64.
Promise of charitable nature,

“a promise to pay a subscription becomes enforceable as soon as any definite steps have been
taken in furtherance of the object and on the faith of the promised subscription”.8

Unilateral Promises,

“a unilateral contract refers to a gratuitous promise where only one party makes a promise
without anu return promise.”9 The promisee is not bound to any act, for he gives no promise
from his side, but if carried out by him the act desired by the promisor, he can hold the
promisor to his promise. In the case of Aloka Bose v Parmatma Devi, the court added that the
observation in Mohammad Mohar Ali case, AIR 1998 Gau 92, that an agreement of sale is a
unilateral contract is not correct. Every sale presupposes somebody to sell and some other to
buy.

PRIVITY OF CONSIDERATION

Fundamental propositions of English Law: -

1) Consideration must move from the promise and the promisee only. If it is furnished by any
other person, the promisee becomes a stranger to the consideration and, therefore cannot
enforce the promise.10

2) A contract cannot be enforced by a person who is not a party to it even though it is made
for his benefit, he is a stranger to the contract and can claim no rights under it.11

Both of these two propositions are not applicable in India. It is not necessary that
consideration should be furnished by the promisee. A promise is enforceable if there is some
consideration for it and it is quite immaterial whether it moves from the promisee or any
other person. The leading authority is the decision of the Madras High Court in Chinnaya v
Ramayya.12, here an old lady, by deed of gift, made over certain landed to defendant, her

8
Perumal Mudaliar v Sendanatha Mudaliar, AIR 1918 Mad 311.
9
Aloka Bose v Parmatma Devi, (2009) 2 SCC 582: AIR 2009 SC 1527.
10
PRINCIPLES OF THE ENGLISH LAW OF CONTRACT (23 rd Edn by A.G. Guest, 1971)
11
Arthur L. Corbin, Contracts for the benefit of third persons, (930) 46 LQR 12.
12
ILR (1876-82) 4 Mad 137.
daughter. By the terms of the deed, registered under law, it was stipulated that an annuit of Rs
653 should be paid every year to the plaintiff, who was the sister of the old woman. The
defendant on the same day executed an Iqrarnama (agreement) promising to give effect ot the
aforesaid stipulation. The annuity was not paid and the plaintiff sued to recover it. It was
clear that the only consideration for the promise of the defendant to pay the annuity was the
gift of lands by the old woman to the defendant.

Exceptions to Privity Rule: -

1) Beneficiaries under trust or charge or other requirements

A person who is favoured a charge or interest in some property has been created may
enforce it although not being a party to the contract. The decision of this privy council is
Nawab Khwaja Muhammad Khan v Nawab Hussaini Begum13 is illustrative of this principle,
where the appellant executed an agreement with the respondent’s father that in consideration
of the respondent’s marriage with his son, he would pay to the respondent Rs500 per month
in the payment, with power towards respondent to enforce it. The husband and wife separated
on account of a quarrel and the suit was brought by the plaintiff-respondent for the recovery
of the arrears of annuity, also it was held that the respondent, although not a party to the
agreement, was clearly entitled to proceed in equity to enforce her claim.

2)Marriage settlement, partition or other family arrangements

Where an agreement is made in connection to marriage, partition or other family

arrangement or, and a provision is made for the benefit of a person, he may take advantage of
that agreement, although he is no party to the agreement. In Rose Fernandes v Joseph
Gonsalves14, a girl’s father entered in an agreement for her marriage with the defendant, it
was held that the girl after attaining majority could sue the defendant for damages for breach
of promise of marriage and the defendant could not take the plea that she was not a party to
the agreement.

3) Acknowledgement or estoppel

Where by the terms of any contract, a party is required to make a payment to a third person
and he acknowledges it to the third person, a binding obligation is thereby incurred towards

13
(1909-10) 37 IA 152.
14
ILR (1924) 48 Bom 673: AIR 1925 Bom 97.
him, acknowledgement may be express or implied. In N. Devaraja Urs v Ramakrishniah15,
where A sold his house to B under a registered sales deed and left a part of the sale price in
his hands desiring him to pay the amount to C, his creditor. Subsequently, B made part-
payments to C informing him that they were short of the sale price left with him and that the
balance would be remitted immediately. B, however failed to remit the short balance and C
sued him.

4) Covenants running with land

Rule of privity can also be modified by the principles relating to transfer of immovable
property. The principle of the famous case of Tulk v Moxhay16 is that a person who
purchases a land with notice that the owner of the land is bound by certain duties created
through an agreement or covenant affecting the land, shall be bound by them, though he was
not a party to the agreement.

PAST CONSIDERATION

Consideration, being the price for the promise should be given in response to and as an
inducement for the promise. If the act has been done before any promise being made, it is
called past consideration, and a past consideration is no consideration at all. If, for example,
A has lost his purse and B, a finder, delivers to him. A, in recognition of this service promises
to pay B, a sum of money. The promise is to pay wholly for a past act and is, therefore, no
more than an expression of gratitude.

Past act at request good consideration

An important exception is almost as old as the rule itself. It was established in Lampleigh v
Brathwait17that a past act done at request will be consideration for a promise, here the case
was that, the defendant having committed a murder, requested the plaintiff to get pardon from
the king by labouring and doing his endeavour. The plaintiff gave the best to obtain pardon,
where afterwards it was promised by the defendant that he would give me 100euro and then
refused to pay. He was however held liable.

15
AIR 1952Mys 109.
16
(1919) 88 LJKB 861 (HIL).
17
Hob 106: 80ER 255.
 CONSIDERATION MUST BE OF SOME VALUE

Consideration, as defined in the act, means an act, abstinence or promise on the part of the
promisee or any other person which has been done at the desire of the promisor.18 Does it
therefore adhere that even a worthless act will be satisfactory to make a good consideration if
it is only done at the promisor’s desire. English common law has always on the side of
insisting that “consideration must be of some value in the eyes of law”19. White v Bluett20,
here the defendant owed a sum of money under a promissory note to his father. The
defendant perpetually, complained to his father that he had not been treated equally with
other children with the distribution of his property. Thereupon, the father promised to
discharge him from all liability in respect of the loan and the note, provided he would stop
complaining, which the defendant’s promise to cease his complaints was a valid
consideration to sustain his father’s promise.

Value need not be adequate

It is not necessary for a consideration to be adequate to the promise. If a party gets what was
contracted for and if it is of some value, which may be great or small, the courts “will not
enquire whether it was equivalent to the promise which was given in return”.21 “The
adequacy of the consideration is for the parties to consider at the time of agreement, not for
the court when it is sought to be enforced.”22

Section 25 lays down that, “an agreement to which the consent of the promisor is freely given
is not void merely because the consideration is inadequate”.

It’s further cleared by an illustration, here A agrees to sell a horse worth Rs10000 for Rs10.
A’s consent to the agreement was freely given. The agreement is a contract not being affected
with the inadequacy of the consideration.

18
Manna Lal v Bank of Bengal, ILR (1875-80) 1 All 309, 311.
19
Principle of the English Law of Contract (22 nd edn by A.G. Guest 1964) 91.
20
(1853) 23 LJ Ex 36.
21
Anson, Principle of the Law of Contract (22nd edn, by guest, 1964) 91.
22
Blackburn J in Bolton v Madden, 1873 LR 9QB 55, 57.
 EXCEPTIONS TO CONSIDERATION

As per section 25 of the Indian Contract Act, it does not specify any exception similar to
common law but lays down a few exceptions. It states that an agreement without any
consideration is void, unless

(i.) it is written and registered,

(ii.) or is a promise for compensating past services,
(iii.) or is a promise to pay a time debt barred.

Thus, the exceptions to the Doctrine of Consideration according to The Indian Contract Act
are:

1.) Natural love and Affection

A registered and written agreement which is based on natural love and affection between kins
is enforceable without consideration. In Rajkukhy Dabee v Bhootnath Mookerjee23, here the
defendant promised to pay his wife a sum of money which is fixed, every month for her
separate residence and maintenance. The agreement was registered as a document in which
certain quarrels and disagreement between the two were mentioned. The Calcutta High Court
refused to gratitude the agreement as one falling under this exception. The court could find no
trace of love and affection between the parties among whom quarrels had compelled them to
separate. In this exception, it is necessary for the parties, that the agreement is entered into
with love and affection.

2.) Past voluntary service

A promise to pay for a past voluntary service is binding and so such agreements don’t require
an exception. It is necessary that services are rendered voluntarily. For instance, If D supports
E’s infant son and E promises to pay D’s expenses in so doing. This is a contract. Noting that
E was legally bound to support his infant son. As per this exception, the promise must be to
compensate a person who himself has done something for the promisor and not towards a
person who has done nothing for the promisor. Thus, where E treated D during his illness but
refused to accept payment from D; being friends D out of gratitude promises to pay ₹ 1,000

23
RajkukhyDabee v. BhootnathMookerjee (1900) 4 Cal.WN 488.
to E’s son F, the agreement between D and F is void for want of consideration as it is not
covered under this exception.

3.) Time-barred debt

A written promise for paying a debt barred by the Limitation Act is enforceable even without
consideration. The agreement is to be signed by the promisor or by his agent or any other
person authorized by him.24 For example, D owes E Rs 1,000. The debt is time-barred by the
Limitation Act. D signs a written promise to pay E the sum of Rs 1,000. This is a valid
contract, thus no consideration is required. A cheque issued for a time-barred debt falls under
section 138 of the Negotiable Instruments Act25 in the view of Sec 25(3)26.

4.) Completed gift

The gift presented by a donor and donee to the receiver will be a valid agreement even
without consideration. Thus, in agreements, made by way of gift, consideration is not
necessary. In Vasant Rajaram Narvekar v Ankusha Rajaram Narvekar27 gift by mother to her
minor son under gift deed with the right to property up to her lifetime. The son kept it with
his father and did not refuse it on attaining majority. Thus, accepted and irrevocable.

5.) Contract of agency

Section 185 specifically states that there is no need for consideration to necessarily create a
contract of agency. Thus, when a person being appointed as an agent, his appointment
agreement is valid without consideration. The agent gets the commission as remuneration, but
no consideration is necessary at the time of appointment agreement.

CONCLUSION

To avoid legal issues in future, parties must adhere to an agreement by setting up value to
specific goods, services, or job performance. Consideration legally binds up a contract,
protecting both parties from potential or possible lawsuits or misunderstandings. In addition,
consideration mostly includes a section that determines loss responsibility. Having contracts

24
A.V. Murthy v. B.S. Nagabasavanna, Appeal (crl.) 206 of 2002.
25
The Negotiable Instruments Act§ 138.
26
The Indian Contract Act, 1872 § 25(3).
27
Vasant Rajaram Narvekar v Ankusha Rajaram Narvekar1995 (3) BomCR 196
that clearly states this information helps in a court to determine where the failure happened,
who is at fault, and what penalty to award.

Consideration is needed in order to make the agreement a formal agreement, valid contract.
Thus consideration is among the three main requirements of mutual assent and a valid offer
and acceptance. It is basically the exchange of items or services of value; it is needed so that
both parties have some sort of burden or obligation in the relating agreement. Without
consideration, the exchange would most likely be classified as a gift. Hence for a contract to
be of legally valid and have some value, consideration of some sort must be there, otherwise
the contract wouldn’t be valid.

REFERENCES

● http://www.preservearticles.com/2012012621491/exceptions-to-consideration-no-
consideration-and-no-contract.html
● https://kanwarn.wordpress.com/2014/03/20/consideration-part-2-of-3-contracts-
without-consideration/
● http://lawmantra.co.in/case-brief-a-v-murthy-v-b-s-nagabasavanna-appeal-crl-206-of-
2002/
● http://www.lawyerservices.in/Vasant-Rajaram-Narvekar-since-deceased-by-his-legal-
heirs-Versus-Ankusha-Rajaram-Narvekar-and-others-1994-10-24
● https://indiankanoon.org
● https://lawtimesjournal.in/agreements-without-consideration/
● The Indian Contract Act
● Singh Avtar, Law of Contract and Specific Relief
● Principle of the English Law of Contract (22nd edn by A.G.Guest 1964) 91
● PRINCIPLES OF THE ENGLISH LAW OF CONTRACT (23rd Edn by A.G. Guest,
1971)
● Arthur L. Corbin, Contracts for the benefit of third persons, (930) 46 LQR 12.
PLAGIARISM REPORT