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Introduction to Consideration

The section 25 of the Indian Contract Act, 1872 openly declares that “an agreement made
without consideration is void…”1 In other words the presence of consideration is an
essential for a contract to be valid.2 In England too “promises without consideration are
not enforced, because they are gratuitous”.3 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.4

Definitions of Consideration
According to Blackstone5:
“Consideration is the recompense given by a party contracting to the other.”
Or the price of the promise.

Sir Fredrik Pollock summarized the position of words adopted by the House of Lords in
1915: “An act of forbearance of one party or the promise thereof is the price for which
the promise of the other is bought, and the promise thus given for value is enforceable.”6

The definition given in Curre v Misa7 by Lush J is widely accepter and stated on
the next page:
“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,
determent, loss, or responsibility given, suffered or undertaken by the other…”

Definitions of Consideration under Section 2(d)


Section 2 (d), The Indian Contract Act, 1872 defines consideration as given under:
“When, at the desire of the promisor, the promise or any other person has done or
abstained from doing, or does or abstains from doing or promises to do or abstain from
doing something, such act or abstinence or promise is called a consideration for the
promise.”

1
The section also provides some exceptions to the rule.
2
Section 10
3
See HEATH J in Lee v Muggeridge, (1813) 128 ER 559
4
Sunitibala Devi v Manindra Chandra Roy, A.I.R. 1930 P.C. 217
5
Commentaries.
6
Pollock On Contracts (13th Ed.) p. 133
7
(1875) LR 10 Ex 153, 162

1
Essentials of Consideration
The definition of consideration highlights the following essentials to be fulfilled for the
presence of a valid consideration:

1) Consideration to be given “at the desire of the promisor”


2) Consideration to be given “by the promise or an other person”
3) Consideration may be past, present or future, in so far as definition says that the
promisee:
a) Has done or abstained from doing, or
b) Does or abstains from doing, or
c) Promises to do or to abstain from doing, something.
4) There should be some act, abstinence or promise by the promisee, which constitutes
consideration for the promise.

These essentials have been discussed in detail in the project.

Consideration at the Desire of the Promisor


The definition of consideration under section 2(d) clearly emphasizes that the
consideration must be given at the desire of the promisor, rather than merely voluntary or
at the instance of some third party.
In the case Durga Parsad v Baldeo:8
The plaintiff, on the order of the Collector of the town, built at his own expense,
certain shops in a bazaar. The shops came to be occupied by the defendants who,
in consideration of the plaintiff having expended money in the construction,
promised to pay him a commission on his articles sold through their agency in the
bazaar. The plaintiff’s action to recover the commission was rejected. It was held
because as the construction had not been done as per the desire of the defendants,
but the order of the collector. Hence, the consideration was not valid and the
defendants not liable for the same.

Consideration by Promisee or any other Person


(Privity of Consideration)
According to the Indian Law9, consideration may be given by ‘the promisee or any other
person’. It means that as long as there is a consideration for a promise, it is immaterial
who has furnished it. It may move from the promisee, or, if the promisor has no
objection, from any other person. But in English Law the position is different, here the
consideration must move from the promisee himself.10 For example, A promises to give
his watch to B and a consideration of Rs.5000 for the same is given to A by C and not B
himself. This will not be a valid contract in England but in India it will be valid as the
8
(1880) 3 All. 221, Oilfield J at p. 228
9
Section 2(d); Indian Contract Act, 1872
10
Thomas v. Thomas, (1842) 2 Q.B. 851; Tweedle v Atkinson, (1816) 1 B.&S. 393

2
section 2(h) clearly states that “…at the desire of the promisor, the promisee or any other
person” may provide consideration. This can be further understood in the case of
Chinnaya v Ramaya11. In this case A, an old lady granted her estate to her daughter (the
defendant) with a direction that the daughter should pay an annuity of Rs.653, to A’s
brothers (the plaintiffs). On the same day, the defendants made a promise with the
plaintiffs that she would pay the annuity as directed by A. The defendant failed to pay the
stipulated sum. In an action against her by the plaintiffs she contended that since the
plaintiffs themselves had furnished no consideration, they had no right of action. The
Madras High Court held that in this agreement the consideration had been furnished by
the defendant’s mother and that it was enough consideration to enforce the promise
between the plaintiff and the defendant.
In the above case it can be seen that A enters in a contract with B, but A himself has not
given any consideration to B, but the consideration has been provided by third party i.e. C
to B. Although A is a stranger to consideration, he can still enforce the contract against B.
One has to remember that this is only true under Indian Law and the situation is different
under English Law where the consideration can only move from the promisee and a
stranger to the consideration in no condition can maintain any action.

Privity to 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 the contract cannot enforce
a contract even though the contract may have been for his benefit. To explain it with an
example, if there is a contract between A and B whose benefit has been conferred upon
C, C cannot file a suit to enforce the contract because only A and B are the parties to the
contract and C is a stranger to the same.
This rule has to be differentiated from the rule stated earlier according to which in
India a person who is a stranger to the consideration can sue. This does not affect the rule
of Privity of Contract.

English Law

In Tweedle v Atkinson12 the plaintiff was to be married o the daughter of one X and in
consideration of this intended marriage X and the plaintiff’s father entered into a written
agreement by which it was agreed that each would pay the plaintiff a sum of money. X
failed to do so and the plaintiff sued his executors. Whitman J considered it to be an
established principle “that no stranger to the consideration can take advantage of a
contract, although made for his benefit.” Thus, although the sole object of the contract
was to secure a benefit to the plaintiff, he was not allowed to sue as the contract was
made with his father and not with him.

This rule was further affirmed in the case of Dunlop Pneumatic Tyre Co. Ltd. v
Selfridge & Co. Ltd.13 by the House of Lords in the following words:
11
(1882) 4 Mad. 137
12
(1861) 1 B.&S. 393
13
(1915) A.C. 847, at 853, per Lord Haldane

3
“In the law of England certain principles are fundamental. One is that only a
person who is a party to a contract can sue on it. Our law knows nothing of a Jus
quaesitum tertio arising by way of contract. Such a right may be enforced by way
of contract. Such a right may be enforced by way of property, as for example,
under a trust, but cannot be conferred on a stranger to a contract as a right to
enforce the contract in personam.”
In this case Plaintiffs (Dunlop & Co.) sold certain goods to Dew & Co. and secured an
agreement from them not to sell the goods below the list price and that if they sold the
goods to another trader they would obtain from him a similar undertaking to maintain the
price list. Dew & Co. sold the motor to the defendants (Selfridge & Co.) and promised
that they will pay to them the sum of £5 for every tyre sold below the list price. The
Plaintiffs sued the defendants for breach of contract for selling below the list price and
not paying the money. The House of Lords held that Dunlop & Co. could not bring an
action against Selfridge and Co. because there was no contract between the two parties. It
was further observed even if it is taken that Dew & Co. were acting as agents for Dunlop
& Co., the latter still cannot maintain an action as there was no consideration between
Dunlop Co., and Selfridge & Co., since the whole of the purchase was paid b Selfridge &
Co. to Dew & Co.

Indian Law

The rule of “Privity of Contract” is applicable in India as it is applicable in England.


Even though under the Indian Contract Act, 1872 the definition of consideration is wider
than the English law, yet the common law principle of Privity of contract is generally
applicable in India, with the effect that only a party to the contract is entitled to enforce
the same.14
In the case of Jamna Das v Ram Avtar15 here A borrowed Rs.40,000 by executing a
mortgage of her zamindari in favor of B. subsequently she sold the property to C for
Rs.44,000 and allowed C, the purchaser, to retain Rs.40,000 of the price in order to
redeem the mortgage if he thought fit. B sued C for the recovery of the mortgage money,
but could not succeed because he was not a party to the agreement between A and B.

There are also certain exceptions to this rule of a stranger to contract cannot sue which
are stated on the below:

Trust of Contractual rights or beneficiary under a contract


One of the exceptions of the doctrine of Privity of contract was recognized by Lord
Haldane in Dunlop Pneumatic Tyre Co. v. Selfridge & Co.16, itself. While it is
mentioned that only a party to a contract can sue on it, no such right is conferred on the
third party, it was also stated that “such a right may be conferred by way of property, as,
for example, under a trust.”17 For example, in a contract between A and B, beneficial
right in respect of some property may be created in favor of C. In such a case C can
14
Narayani Devi v. Tagore Commercial Corporation Ltd., A.I.R. 1973 Cal. 401 at 405
15
(1911) 30 I.A. 7
16
(1915) A.C. 847
17
(1915) A.C. 847, at 853

4
enforce his claim on the basis of the right conferred upon him depending upon the
particular case there is an obligation in the nature of trust in favor of the third party, C,
arising out of a contract will depend on the facts of the case. 18 The Indian Law also
recognizes this exception in the case of Khwaja Muhammad Khan v. Husaini Begum19,
there was an agreement between the father of the boy and a girl that if the girl (plaintiff in
this case) married a particular boy, the boy’s father (here the defendant in this case)
would pay certain personal allowance known as Kharchi-i-pandan (bettle-box expenses)
or pin money to the plaintiff. It was also mentioned that a certain property had been set
aside by the defendant and this allowance would be paid out of the income of the
property. The plaintiff married the son but defendant failed to pay the allowance paid to
him. In an action by the plaintiff to claim this allowance, the defendant contended that his
contract to pay the allowance had been made only with the plaintiff’s father and not with
the plaintiff; she being a stranger to the contract cannot sue. But it was held that since, the
basis of the plaintiff’s claim being a specific charge on immovable property in her favor,
she was entitled to claim the same as a beneficiary, and as such, the Common Law rule
was not applicable to the facts and circumstances of the present case. It was observed
that:
“Here the agreement executed by the defendant specifically charges immovable
property for the allowance which he binds himself to pay to the plaintiff. She is
the only person beneficially entitled under it … although (she is) not a party to the
document, she is clearly entitled to proceed in equity to enforce her claim.”
In the case of Narayani Devi v. Tagore Commercial Corporation Ltd.20 A held various
shares of value of Rs. 40,500. It was agreed that A would sell his shared to B and in
return B will pay A Rs.500/month and after his death Rs.250/month to his A’s widow
during her life. C stood a surety for B. some payments were made by C to A and after his
death to A’s widow. Thereafter the payments were stopped. A’s widow brought action
against B and C to recover the amount. One of the defendants pleaded that the plaintiff
was not a party to the contract and it was entered into by his husband and the defendants,
she was not legally entitled to sue in respect of this agreement being a stranger to the
contract. The Calcutta High Court rejected this and held that from the facts and
circumstances of the case the obligation the obligation in the nature of trust was in favor
of the plaintiff, and equity was created in her favor and she was entitled to it even if she
was not the party to the contract. A decree was passed in her favor for the arrears of the
amount due.

Conduct, Acknowledgment, or Admission


Sometimes there may be no Privity of contract between the two parties, but if one of
them by his conduct, acknowledgment, or admission recognizes the right of the other to
sue him, he may be liable on the basis of the law of estoppel.
In the case Narayani Devi v Tagore Commercial Corporation Ltd.21 discussed
earlier had no contract between the plaintiff and the defendants but the defendants in their
agreement had agreed to pay some money to them even after her husband’s death. Here

18
Malda v. Raj Bahadur, A.I.R. 1937 Cal. 625, at 630
19
(1910) 37 IA 152: 12 Bom LR 638
20
A.I.R. 1973 Cal. 401
21
Ibid.

5
the question to sue the defendants arose. After the death of the husband same payments
were received. Apart from this the defendants had also called the plaintiff to administer
some documents in the same respect recognizing her rights. It was, therefore, held that
the had created Privity with the plaintiff by their conduct and by acknowledgment and
admission of her rights hence the plaintiff was entitled to the action even though at the
time of the contract there was no Privity.

Provision for marriage expenses or maintenance under family


agreement
Where, under a family agreement, the contract is intended to secure a benefit to a third
party, he may sue in his own right as a beneficiary.22 In the case of Sundara Aiyangar v.
Lakshmiammal23, under a family agreement, the male members of the family made a
provision for the expenses of her marriage to be contributed by the defendants, i.e., her
father and brothers. She brought an action to enforce the agreement between the
defendants. It was held that even though the plaintiff was not a party to the contract, yet
the contract constituted a situation like trust in her favor and therefore, she was entitled to
the amount.

Consideration may be Past, Present or Future (Executory)


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.)

These have been discussed in detail as under:

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.24 For example in lost or found cases if A looses 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 Mulla25 “declare the law to be
that an act done by A at B’s request, without any contemporaneous promise from B, may
be consideration for a subsequent promise from B to A.”

22
Mst. Dan Kuer v. Sarla Devi, A.I.R. 1947 P.C. 8: I.L.R. (1946) All.756: (1947) 49 Bom. L.R. 123
23
A.I.R. 1957 A.P. 965
24
See Section 2(d)
25
Indian Contract and Specific Relief Acts, 9th Ed. (1972) p.41

6
Past services voluntarily rendered [Section 25(2)]
A voluntary service means a service rendered without any request and there is no
subsequent promise for the same. For example if a person A has lost his watch and
another person B finds it and returns it to A and now asks A to give him a reward for the
same, A is not liable for the same as A has not made any prior promise for the reward and
this is not a contract. The following illustrations also show the difference:
1. A finds B’s purse and gives it to him. B promises to give A Rs.50. This is a
contract.26
2. A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a
contract.27

English Law Regarding to Past Consideration


According to English law if the act has been done before any promise is made, it is called
past consideration and a past consideration is no consideration. 28 The past act may
explain why the promise was given and may, thus, be a motive for the promise, but it
furnishes no legal consideration.29 “The consideration and the promise ought to go
together.”30 An example is McArdle, In re:31
A effect certain improvements to certain property. The ultimate beneficiaries of
the property signed a document declaring that: “In consideration of your carrying
out certain alterations and improvements, we the beneficiaries shall repay to you
the sum of £488 in settlement of the amount spent on such improvements.” An
action to enforce this promise was rejected.

Past consideration at the Promisor’s Request


Past consideration in lieu of a prior request by the promisor is deemed to be a good
consideration. It was established as early as 1616 as in the case of Lampleigh v
Barthwait32 that a past act done at request will be good consideration for a subsequent
promise. The facts were as given on the next page:
The defendant, having committed a murder, requested the plaintiff to labour and
to do obtain pardon from the King. The plaintiff did his best to obtain the King’s
pardon, riding and journeying at his own expense. Afterwards the defendant
promised the plaintiff to give him £100 and then refused to pay. He was, however,
held liable.

On this context there is not much difference between the Indian and English laws. Indian
law recognizes past consideration, when the same is given “at the desire of the promisor.”
Past act done voluntarily is no consideration either in India or England. In India,
however, a voluntarily done consideration can render an agreement valid if it is declared
26
Illustration (c) to Section 25
27
Illustration (d) to Section 25
28
See Anson, Principles of the English Law of Contract, 23rd Ed., (1972), p. 85
29
See Roscoral v. Thomas, (1842) 3 QB 234: 11 LJ QB 214: 114 ER 496, where a horse having been sold,
a subsequent warranty for its soundness was held to be based upon past consideration.
30
Street, Foundations of Legal Liability, 281
31
(1591) 1 Ch 669: (1951) 1 All ER 905
32
(1616) Hob 105: 80ER 255

7
valid under exception mentioned in Section 25(2). There is no such provision under
English law.

Executed or Present Consideration


When one of the parties to the contract performs his part of the promise which constitutes
the consideration for the promise by the other side is called executed consideration and
the performance of the promise by the other side is the only thing now to be done. For
example, A makes an offer to reward Rs. 100 to anyone who his lost phone and brings
the same back to him. B finds the lost item and delivers it to A. When B does so it
amounts to acceptance of the offer which results into a binding contract under which A
will have to pay Rs.100 to B, and also simultaneously giving consideration for the
contract (i.e. the lost object).33 The consideration in this case is “executed”.
Executed consideration is different from past consideration as executed
consideration is provided simultaneously along with the making of the contract while past
consideration is provided prior to the making of the contract.

Executory or Future Consideration


When a person makes a promise in exchange of the promise made from the other side,
the performance of this promise is to be done after making the contract. This is called
Executory consideration. For example, A agrees to sell and B to buy a quantity of goods
at a stated price. In other words, A has promised to sell and B has promised to buy.

Some Act, Abstinence or Promise by the Promisee Constitutes Consideration

According to 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 not
to do or abstain from doing something, such
“act or abstinence or promise” is called consideration for promise. It means that if
nothing is done in exchange for the promise, i.e., where there is no act, abstinence or
promise, there is no consideration.

Consideration Received by one of the Joint Promisors.


In case there are joint promisors but consideration has been received by any one of them,
then it is held that the consideration is sufficient and binding on others also. In Andhra
Bank v Anantnath Goel,34 the father received a loan from the bank by the deposit of title-
deeds of his immovable property, but the promissory note, to repay the loan with interest,
was signed by the father and his son jointly, in favor of the bank. It was held that the son
was equally liable with his father on the said promissory note, even though he himself
had received no direct consideration.

33
See Carlill v Carbolic Smoke Ball Co., (1893) 1 Q.B. 256
34
A.I.R. 1991 A.P. 245 (D.B.)

8
Subscription for a Charitable Purpose
Consideration is needed in exchange in every promise in order to make it enforceable. A
mere promise to make contribution to a charitable purpose may not make it enforceable.
In Abdul Aziz v Mausam Ali35 the defendant promised to pay a sum of Rs.500 as
donation for the purpose of repair and reconstruction of a mosque. Nothing was done and
the defendant refused to pay the amount. It was held that nothing could be done to
enforce the same as nothing was done in faith of the promise and no consideration was
given. Therefore, the defendant was not liable for breaking his promise.
Although, a promise to contribute is not enforceable only till then the promise has
caused something done in faith of the promise.
The English decisions on this point are similar to the Indian ones.

In Re Soames,36 one Soames made a promise to the plaintiffs that he would leave a sum
of £300 by his will for the maintenance of a school which was to be established by the
plaintiffs. On the faith of this promise the plaintiffs established a school. But there was no
such provision in the will of Soames. It was held that the executors of the promisors will
be liable for the same.

Consideration Need Not be Adequate


It is not necessary for the consideration to be adequate to the promise. The courts can
hardly assume the task of setting what is the appropriate consideration for the promise.
According to Explanation 2 to Section 25 of the Contract Act, 1872:
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.

The parties are free to make the consideration of their choice. The adequacy of the
consideration is for the parties to consider at the time of making the agreement, not for
the court when it is sought to be enforced.37 For example, A agrees to sell his house worth
Rs.1,00,00,000 for Rs.1,00,000. A’s consent to the agreement was freely given. The
agreement is a contract notwithstanding the inadequacy of the consideration.38

Consideration must be real


It is necessary for consideration to be real and should not be unsubstantial. In White v
Bluett,39 a son used to complain to his father that his brothers had been given more
property then him. The father promised that he would release the son from his debt if he
stopped complaining. After the death of the father an action was brought by the executors
35
A.I.R. 1914 All. 22
36
(1897) 15 T.L.R. 430
37
Bolton v Madden, L.R. (1873) 9 Q.B. 55, at 57, per Blackburn J.
38
Illustration (f) to Section 25
39
(1853) 23 L.J. Ex. 36

9
to recover the debt. It was held that the promise of not facing the father with the
complaints in future was not a good consideration for the father’s promise to release him
from the debt. Therefore the son continued to be liable for the debt.

Performance of an Existing Legal Duty in no Consideration


Doing something what a person is already legally bound to do is not a consideration. But
for a proper consideration there should be a promise to do something more than what a
person is already bound to do. In Collins v Godefroy,40 A received a subpoena, i.e.
presence of a witness to testify, in a case. Thereafter B promised to pay A some money
for the trouble caused to him in appearing in that case. A sued to recover B for the
amount promised. It was held that A was already under a public duty to give evidence
and that the consideration to pay by B did not constitute a good consideration.

Promise to Perform an Already Existing Contractual Duty


If a person is already contractually bound to perform a certain task for B then B’s
promise to pay something additional in return is no consideration. In other words
compliance to a legal obligation imposed by a contract is no consideration for promise. In
the case of Ramchandra Chintaman v Kalu Ram:41
The plaintiff accepted a vakalatnama from the defendant to act for him in a
certain suit on receiving his usual fee. Subsequently the defendant agreed to pay him a
certain sum as special reward (inam), if the suit is decided in his favor. The suit was
decided in favor of the defendant, who, however, did not pay the amount. The plaintiff,
therefore, brought the present suit action against him.
Rejecting the action, Westroppe CJ said: “The plaintiff, having accepted a
Vakalatnama was already bound to render his best service as a pleader. There was no
fresh consideration proceeding from the plaintiff when he obtained the agreement.”

Promise to Pay Less Amount than Due


The Rule of Pinnel’s Case
The rule laid down in Pinnel’s Case42 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 11th 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
40
(1831) 1 B. & Ad. 950
41
(1877) 2 Bom. 362
42
(1602) 5 Co. Rep. 117a

10
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 doesn’t appear to be logical. In 1937, the Law Revision Committee43
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 Pinnel’s 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 what he 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 notwithstanding that there is no consideration for the promise.44

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 part, 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 illustrations45:
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
43
6th Interim Report, paras 35, 40
44
Moti Lal, etc. Sugar Mills v State of U.P., A.I.R. 1979 S.C. 621, at 643
45
Illustrations (b), (c), (d) & (e) respectively, to Section 63

11
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 1,000
rupees is a discharge of B’s demand.

Forbearance to Sue is Consideration


Forbearing i.e. abstaining from enforcing the claim is a good consideration for a promise
to pay or do some other act.46 Forbearance to sue only constitutes consideration only so
far as the delay in the proceedings is a benefit to the person intended to be sued. Promise
to forbear may be implied and it may be forbearance only for unspecified time.

Exceptions when the Agreement is Valid 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.”47 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 on of the two conditions, namely,
either that it should be without “consideration’ or that it is a deed under seal.48

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 near relation to each other, or unless
2. 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
who 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 but for the law for the
limitation of suits.
In any case of these cases, such an agreement is a contract.”

46
See Morton v Burn, (1837) 7 A.&E. 19; Coles v Pack (1869) L.R. 5 C.P. 65
47
A.G. Guest, Principles of the Law of Contract, 22nd Ed. (1964), p. 65
48
Markby’s Elements of Law, 5th Ed., 1896, p. 311

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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 even though there is no consideration. The following
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 relations49 and relations made
through matrimony50, but would not include such relations which are not near, but
remotely entitled to inherit.51 But in a relation where there is no love and affection the
exception does not apply. Like in Rajlucky Dabee v Boothnath Mookerjee,52 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)]
When something’s done at the desire of the promisor it constitutes a valid consideration
in the same respect a subsequent promise to compensate for whatever has already been
done is also good. In other words promise to pay for a past voluntary service is binding.
In Sindha v Abraham53 the Bombay High Court said that “services rendered at the desire
of the minor expressed during majority and continued at the same request after his
majority form a good consideration for a subsequent express promise by him in favor of
the person who rendered the services.”

Promise to Pay Time Barred Debt


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.
49
Bhiva v Shivram, (1899) 1 Bom. L.R. 495
50
Gopal Saran v Sita Devi, (1932) 36 C.W.N. 392
51
Jafar Ali v Amhad Ali, (1868) 5 B.H.C. 37
52
(1900) 4 C.W.N. 488
53
(1895) 20 Bom. 755

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2. The promise must be in writing and signed by the person to be charged therewith,
or his duly authorized agent.
The English law on the point is also same. It was established in England as way back as
160154 that a precedent debt is good consideration for a subsequent promise. This also
includes time barred debts.55

Wholly or in Part
Section 25(3) permits a promisee to pay the time barred debt wholly or in part. If the
person promises to pay only a part of the time barred debt then he cone only be made
liable for the part promised and not the whole amount.56

There should be Express Promise


The promise to pay a time barred debt must be an express one57 and cannot be held
sufficient if the intention has to be gathered from large number of circumstances. 58 In
Tulsi Ram v Same Singh59 after three years of expiry period of a promissory note the
defendant made the statement “I accept this pronote and it is valid for the next three
years” (translated to English). Here the Delhi High Court held that the mere
acknowledgment of presence of debt did not give the promise of payment and the
defendant could not be made liable.

Admission to Pay in Court Proceedings


In State Bank of India v Dilip Chandra Singh Deo60 it has been held that if the legal heir
of deceased makes an admission in court indicting his willingness to pay the sum
borrowed by the deceased, he can be held liable on the basis of his admission, even
though the recovery for the same is barred by limitation.

Promise to Pay must be Unconditional


Promise to pay time barred debt within the meaning of clause (3) of Section 25must be
expressed and unconditional. In K. Jeyaraman v M/s Sundaram Industries Ltd.,61 the
appellant made a formal recognition of the fact that in a document he had agreed to pay
the amount only after receiving the amount from the State Electricity Board. It was held
by the Madras High Court that the document conveyed a conditional promise and was not
covered by Section 23(3) as the cause of action of filing suit would only arise after
amount was received from the State Electricity Board.

54
Slad’s case, (1602) 2 Co. Rep. 91a.
55
Hyelling v Hastings, (1699) 1 Ld. Ray. 389, Also see Section 23(4) (English) Limitation Act, 1939
56
Govinda Niar v Achutan Niar, A.I.R. 1940 Mad. 678 at p. 679
57
Bachu Kamalamma v Srinivasa Oil Mill, A.I.R. 1980 N.O.C. 41 (A.P.)
58
Govinda Niar v Achutan Niar, A.I.R. 1940 Mad. 678 at p. 679
59
A.I.R. 1981 Delhi 165
60
A.I.R. 1998 Orissa 129
61
A.I.R. 2008 (NOC) 2532 (Mad.)

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Bibliography
Books referred

Singh, Avtar
Contract & Specific Relief, 10th Ed.
Eastern Book Company (Lucknow), 2008

Bangia, R.K.

15
Law of Contract Part I, 6th Ed.
Allahabad Law Agency (Faridabad), 2009

Furmston, Michael
Cheshire, Fifoot & Furmston’s Law of Contract, 14th Ed.
Lexis Nexis Butterwoths, 2006

Kumar, P.N.
Sanjiva Row’s Commentary on The Indian Contract Act, 1872 and Tenders, 10th Ed.
Delhi Law House, 2007

Websites referred

http://en.wikipedia.org/wiki/Currie_v_Misa

http://www.thefreedictionary.com/

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