Consideration

Presence of consideration is one of the essentials of

a valid contract. Subject to certain exceptions, the
general rule in India is that an agreement without
consideration is void.
Consideration means something in return for the
promise. It may be either some benefit conferred on
one party or some detriment suffered by the other.
In the words of Lush J. In Curie Vs. Misa (1875)
A valuable consideration in the sense of the law
may consist either in some right, interest, profit or
benefit accruing to one party, or some forbearance,
detriment, loss or responsibility given, suffered or
undertaken by the other.
2

Definition under Section 2(d)

Section 2(d), Indian Contract Act, defines
consideration as under :
When at the desire of the promisor, the
promisee or any other person has done or
abstained from doing, or promises to do or
abstain from doing something, such act or
abstinence or promise is called a
consideration for that promise.
3

The definition mentions the following

requirements to be satisfied in order that there
is valid consideration :
1.
2.

3.

4.

Consideration must be given at the desire of the promisor.

Consideration must be given by the promisee or any other
person .
Consideration may be past, present or future in so far as the
definition says that the promisee :
(i) has done or abstained from doing, or
(ii) does or abstains from doing, or
(iii) promises to do or abstain from doing, something.
There should be some act, abstinence or promise by the
promisee, which constitutes consideration for the promise.

1.

CONSIDERATION ONLY AT THE

DESIRE OF THE PROMISOR

It is essential that the consideration must have been given at the desire of
the promisor, rather than voluntarily or at the instance of some third party.

In Durga Prasad Vs. Baldeo (1880) the consideration for the promise
had not moved at the desire of the promisor but some other person, and
that was held not to be sufficient consideration to support the promise.
The facts of the case are - The Plaintiff constructed certain shops in a
market at the instance of the collector of that place. Subsequently the
defendants occupied one of the shops in the market. The money for the
construction of the market having been spent by the plaintiff, the
defendants, in consideration thereof, made a promise to pay to the plaintiff
commission on the articles sold through their agency in that market. The
defendants failed to pay the promised commission. In an action by the
plaintiff to recover the commission it was observed that the consideration
for the promise to pay the commission was the construction of the market
by the Plaintiff. Such construction had not been done at the desire of the
defendants, but on the order of the collector. It was, therefore, held that
since the consideration did not move at the desire of the defendants
(promisors) in this case, this did not constitute valid consideration and
therefore the defendants were not liable in respect of the promise made by
them.
5

2. CONSIDERATION BY PROMISEE OR
ANY OTHER PERSON

According to Indian law consideration may be given by the

promisee or any other person. In India there is a possibility
that the consideration for the promise may move not from the
promisee but a third person, who is not a party to the contract.
The position can be explained by referring to the case of
Chinnaya Vs. Ramaya (1882) In this case A, an old lady,
granted an estate to her daughter (defendant) with a direction
that the daughter should pay an annuity of Rs. 653/- to As
brother (plaintiff). On the same day the defendant made a
promise to the plaintiff 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 plaintiff she contended that since the
plaintiff himself had furnished no consideration, he had no right of
action. The Madras High Court held that in this agreement
between the (defendant) and (the plaintiff), the consideration
has been furnished by the defendants mother and that is enough
consideration to enforce the promise between the plaintiff and
the defendant.
6

Privity Of Contract

The doctrine of privity of contract 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
entered into for his benefit. If in a contract between A
and B some benefit has been conferred upon X, X
cannot file a suit to enforce the contract because A and
B are the only parties to the contract whereas X is only
a stranger to the contract.
A person may not have himself given any consideration
but he can enforce the contract if he is a party to the
contract, because consideration may be given either by
the promisee or even a third party. That does not affect
the rule of privity of contract.
7

Exception to the rule that a stranger to

contract cannot sue
(1)
Trust of contractual rights

One of the exceptions to the doctrine of privity of contract was

recognised by the Privy Council in the case of Khwaja Muhammad
Khan Vs. Husaini Begum (1910) has recognised this exception. In
this case there was an agreement between the fathers of a boy and a
girl that if the girl (plaintiff in this case) married a particular boy, the
boys father (defendant in this case) would pay certain personal
allowance known as Kharch-i-pandan (betel-box expense) 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 that property. The plaintiff married the defendants son but
the defendant failed to pay the allowance agreed to by him. The plaintiff
therefore brought an action against the defendant. It was held that in
this case the basis of the plaintiffs claim being a specific charge on the
immovable property in her favour she is entitled to claim the same as a
beneficiary.
8

(2)

Conduct, Acknowledgement, or Admission

Sometimes there may be no privity of contract between the two parties,

but if one of them by his conduct, acknowledgement, or admission
recognises the right of the other to sue him, he may be liable on the
basis of the law of estoppel against him. In the case of Narayani Devi
Vs. Tagore Commercial Corporation Ltd. (1973) where there was no
contract between the plaintiff and the defendants but the defendants in
their agreement with the plaintiffs husband had agreed to pay certain
amounts to the plaintiffs husband during his life time and thereafter to
the plaintiff, the question of the right of the plaintiff to sue to defendants
had arisen. It was established that the defendants had made certain
payments to the plaintiff, in pursuance of the agreement, after her
husbands death, and had thereafter asked for the extension of time to
pay. Apart from that it was found that the defendants, by their
admission, had earlier called upon the plaintiff to execute certain
documents in this connection, which implies that they considered the
plaintiff to be entitled to certain rights. It was, therefore held that the
defendants have created such privity with the plaintiff by their conduct
and by acknowledgement and by admission, that the plaintiff is entitled
to her action even though there was no privity of contract between the
plaintiff and the two defendants, when the said contract was entered
into.
9

(3)

Provision for marriage expenses or partition,

maintenance under a family arrangement

Where, under a family arrangement, the contract is

intended to secure a benefit to a third party he may
sue in his own right as a beneficiary. Such an
action has been allowed in many cases where, on
the partition of joint family property between the
male members, a provision is made for the
maintenance of the female members of the family.
The basis of the recognition of such an action is the
application of the rule laid down in
Khwaja
Muhammad Khan Vs. Husaini Begam to such
situations.
10

In Veeramma Vs. Appayya ( 1957) under a family

arrangement the father conveyed his house to his
daughter and the daughter undertook to maintain him
in his life time. The daughter being a beneficiary under
the compromise agreement, it was held that she was
entitled to sue for the specific performance in her
favour.
In Shuppu Ammal V. Subramaniyam (1910) two
brothers, on partition of joint properties, agreed to
invest in equal shares a certain sum of money for the
manintainnace of their mother. It was held that, she
was entitled to require her sons to make the
investment.
11

(3)

1.

2.
3.

CONSIDERATION MAY BE PAST,

EXECUTED OR EXECUTORY

Indian Contract Act recognises three kinds of

consideration, viz., Past, Executed and Executory.
When, in return for the promise, the promisee or
other person :
Has done or abstained from doing, then
consideration is past.
Does or abstain from doing, the consideration is
Executed, or present.
Promises to do or abstains from doing, the
consideration is Executory or future.
Whether the consideration is past, Executed or
Executory, it is essential that it must have been
given at the desire of the promisor
12

(1) Past Consideration

As noted above, Indian Contract Act recognises past
consideration. It means that the consideration for any promise
was given earlier and the promise is made thereafter. It is, of
course, necessary that at the time the consideration was given
that must have been done at the desire of the promisor. For
example, I request you to find out my lost dog. When you have
done the same, I promise to pay you Rs. 100/- for that, it is a
case of past consideration. For my promise to pay you Rs.100/the consideration is your efforts in finding my lost dog and the
same, had been done before I promised to pay the amount. This
constitutes valid (past) consideration under Section 2(d), and
therefore the promise is enforceable.

13

Past services voluntarily rendered

Indian Contract Act recognises only such consideration which

has been given at the desire of the promisor, rather than
voluntarily. If consideration has been given voluntarily, it is no
consideration. For example, if my dog has been lost and without
any request from me to find the same, you find that of your own
and deliver the dog to me. This is a case of past services
rendered voluntarily. In case I promise to pay Rs. 100 to you
after you have rendered these services, the question which
arises in such a case is , can such an agreement be enforced ?

A valid contract is created in such a case because the situation is

covered by sec. 25 (2) of the Indian Contract Act, which contains
an exception to the rule that an agreement without consideration
is void.

The provision is as under :

14

Sec 25 An agreement made without consideration

is void 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
The point may be further explained by the following
illustrations.
(i) A finds Bs purse and gives it to him. B
promises to give A Rs.50. This is a contract.
(ii) A supports Bs infant son. B promises to pay
As expenses in so doing. This is a contract.

15

(2) Executed Or Present Consideration

Executed consideration is there when one of the parties to the

contract has performed his part of the promise, which constitutes
the consideration for the promise by the other side. Performance
of the promise by the other side is the only thing now to be done.
For example, a advertises an offer of reward of Rs. 100/- to any
one who finds out his lost dog and brings the same to him. B
finds out the lost dog and brings the same to him. When B did
his part of the job that amounted to both the acceptance of the
offer, which results in a binding contract under which A is bound
to pay Rs. 100/- to
B, and also simultaneously giving
consideration for the contract. The contract is case is said to be
executed
Executed consideration may be distinguished from past
consideration. In case of executed consideration, the
consideration is provided simultaneously along with the making
of the contract. For example, in the above illustration when B
finds the lost dog that constitutes not only the acceptance of the
offer but also providing of the consideration in respect of the
contract between A and B.
16

(3) Executory or future

consideration

When one person makes a promise in exchange for

the promise by the other side, the performance of
the obligation by each side to be made subsequent
to the making of the contract, the consideration is
known as Executory.
For example, A agrees to supply certain goods to
B after a week, and B agrees to pay for them at a
future date, this is a case of Executory
consideration.
17

4. Consideration need not be

adequate

A contract which is supported by consideration is

valid irrespective of the fact that the consideration is
inadequate. According to Explanation 2 section 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
Court in determining the question whether the
consent of the promisor was freely given.

18

The parties are free to make any contract of their choice. If, with
their free consent, they strike a bargain where the consideration
is too high or too little, the courts will not go into the question of
adequacy or inadequacy of consideration. 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.
For example, 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.
Although inadequacy of consideration by itself is not a ground for
treating the contract as invalid but it may be a factor which the
court may take into consideration to know whether the consent of
a party was free or not. For example, 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 adequacy of the consideration
is a fact which the Court should take into account in considering
whether or not As consent was freely given.
19

5.Consideration must be real

Although it is not necessary that consideration should be

adequate, it is, however, necessary that it should be real and
should not be unsubstantial. Promise not to bore the promisor is
not enough to constitute consideration. In White Vs. Bluett
(1853) a son used to complain to his father that his brothers had
been given more property than him. The father promised that
he would release the son from a debt if the latter promised
stopped complaining. After the fathers death an action was
brought by the executors to recover the debt. It was held that the
promise by the son not to bore his father with complaints in future
did not constitute good consideration for the fathers promise to
release him, and, therefore, the son continued to be liable for the
debt.

20

Exceptions when agreement without

consideration is valid.
Section 25, as a general rule declares, that an agreement without
consideration is void. The section, however, mentions three exceptions,
when there is no need of any consideration for the validity of the contract.
The provision is 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 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
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 specifically authorised 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 limitations of suits.
In any of these cases, such an agreement is a contract.
21

(1)

1.
2.
3.
4.

Promise due to natural love and

affection :-

When the promise is made in favour of a near relation on account of

natural love and affection, the same is valid even though there was no
consideration for such a promise. The following requirements have got
to be satisfied in order that the case is covered under this exception.
The parties to the agreement must be standing in a near relationship to
each other.
The promise should be made by one party out of natural love and
affection for the other.
The promise should be in writing, and
The agreement is registered.
The parties should be nearly related to one another in such an
agreement. What is near relationship has neither been defined in the
Act, nor in any judicial pronouncement. But from the various decided
cases it appears that it will cover blood relations or those related
through marriage, but would not include those relations which are not
near, but only remotely entitled to inherit.
22

Natural love and affection between the parties so nearly related

is also needed. If one brother, although not legally bound to do
so, transfers half of his property in favour of another brother, so
that they have cordial relations, that is deemed to have been
done out of natural love and affection, and such an agreement is
binding. (Bhiva Vs. Shivaram) 1899
In Rajlucky Dabee Vs. Bhootnath Mookerjee (1900) it has
been held that relations between the two parties does not
necessarily imply natural love and affection between them. In
this case after lot of disagreements and quarrels between a
Hindu husband and his wife they decided to live apart. At this
stage the husband executed a registered document in favour of
the wife whereby he agreed to pay for her separate residence
and maintenance. In that agreement mention was also made
about quarrels and disagreements between the two. It was held
that from the recitals in the document it was apparent that the
document had been executed not because of natural love and
affection between the parties but because of the absence of it,
and therefore the wife was not entitled to recover the sums
mentioned in the document.
It is further necessary that the agreement should be in writing
and registered under the law relating to registration of documents
23

(2)

Compensation for past voluntary

services :-

When something has been done at the desire of

the promisor, that constitutes a good consideration
in respect of a subsequent promise to compensate
for what has already been done. The second
exception to Section 25 covers cases where a
person without the knowledge of the promisor, or
otherwise than at his request does the latter some
service, and the promisor undertakes to
recompense him for it. The promise to compensate,
though without consideration, is binding because of
this exception.
The exception also covers a
situation where the promise is for doing something
voluntarily which the promisor was legally
compellable to do.
24

Thus, when A finds Bs purse and gives it to him

and then B promises to pay A Rs. 50, or, A
supports Bs infant son and B promises to pay
As expenses in so doing, there is valid contract in
each case although the promisors act was a
voluntary one.
The exception covers situations where the service is
rendered voluntarily and without promisors
knowledge. It is also necessary that the service
must have rendered to the promisor and nobody
else. It is further necessary that at the time of doing
of the act the promisor must have been competent
to contract..

25

(3)

Promise to pay a time barred

debt

Another situation when an agreement is a valid

contract even without any consideration is a promise
to pay a time-barred debt. Section 25 (3) requires
the following essentials to be satisfied in such a
case.
1. The promise must be to pay wholly or in part a timebarred debt, i.e. a debt of which the creditor might
have enforced payment but for the law for the
limitation of suits.
2. The promise must be in writing and signed by the
person to be charged therewith, or his duly
authorised agent.

26

Debt due by whom ?

In Pestonji Vs. Bai Meherbai (1928) the Bombay High Court

has expressed the view that under this exception that the
promise should be to pay time-barred debt due from the
promisor, and not a promise to pay time-barred debts due from
other persons.

Section 25 (3), it may be further noted, permits a promise to pay

wholly or in part a time barred debt. If a person promises to pay
a portion of a barred debt, he can only be sued for that portion
alone and not for the whole debt. If, however, the promise to pay
the whole debt is there then the whole of the amount can be
claimed. A owes B Rs. 1,000, but the debt is barred by
limitation Act. A signs a written promise to pay B Rs. 500 on
account of the debt. Under this contract A is bound to pay
Rs. 500.
27

There should be express promise

The promise to pay the time-barred debt must be an

express one and cannot be held to be sufficient if the
intention to pay is unexpressed and has to be
gathered from a number of circumstances.
In Appa Rao Vs. Suryaprakasa Rao (1900) the
defendant wrote a letter duly signed by him to the
plaintiff after the debt had become time-barred
mentioning the periods for which the rents were due
and also stating I shall send by the end of Vyaskha
month. It was held that the document contained the
ingredients mentioned in Section 25 (3) and the
defendant was entitled to enforce his claim.
28