Consideration

Meaning of Consideration

• 2 (d): Consideration as ‘when at the desire

of the promisor, the promisee or any other
person has done or abstains from doing or
does or abstains from doing or promises to
do or abstains from doing something, such
act or abstinence or promise is called
consideration for that promise.
 Currie v. Misa (1875)

• A valuable consideration may consist of either in some

right, interest, profit, benefit, accruing to the one party, or
some forbearances, detriment, loss, or responsibility given,
suffered, or undertaken by the other.
• Meaning of benefit and detriment by the court:
• Act which has some value (white v. Bluett)
• Not already legally due on the party as duty.
 Supreme Court Opinion on Consideration
• In Chidambar Iyer V. Renga Iyer AIR 1966 SC 193 AT P 162, and in
Fazaluddin V. Panchanam Das case and pointed out that the definition is
almost similar to that contained in section 2(d) of the Indian Contract Act.
Thus consideration means a reasonable equivalent or other valuable benefit
passed on by the promisor to the promisee or by transferor to the transferee.
Again Supreme Court in Commissioner V. Shiv Kumar Joshi AIR 2000(1)
SC 98, states generally there can be sufficient consideration if there is any
benefit to the promisor or any loss or detriment to the promisee.
 Purpose of Doctrine of consideration

• The Purpose of the doctrine of consideration is to put some legal limits on

the enforceability of the agreement to establish legal enforceability to the
contract. It limits the freedom of the individual to make binding legal
promises; only those promises which are supported by consideration are
enforceable. Other than that, not although parties have legal intend.
• Sonia Bhatia v. State of UP, AIR 1981, SC 1274.
Essential Elements of Definition of Consideration

• (1) Consideration must be at the desire of the promisor.

• (2) Consideration may move from one person to any other
person.
• (3) Consideration may be past, present or future.
• (4) Consideration should be real though not adequate.
Consideration must be at the desire of the promisor.

• This implies that the consideration will only be valid when the
promisor has requested it. Effectively, any act done voluntarily does
not constitute valid consideration. For example, if you help a person
find his missing wallet and then ask for a reward, he is not bound to
pay you. The help you provided was voluntary and not asked for by
the person.
• Durga Prasad Vs. Baldeo (1881) ILR3ALL221

• The District Authority of Etawah approached the complainant with a plan to establish a market close by.

• The plaintiff established a two-grain market in Etawah, one known as Hume Ganj and the other as Ram Ganj, and he had extended a significant
amount of rupees for constructing shops and purchasing land for the same.

• This was done to satisfy the aforementioned request and win the defendant’s trust. Defendants hired the lookout shops, worked as commission
specialists, and even received some commission from the dealers in exchange.

• By agreement of both parties, the commission due to the plaintiff in 1875 was set at 6 annas, and the defendants signed a contract to that effect.
The plaintiff had requested that only commission payments be sent on a regular basis, thus this was done in accordance with his desires.

• After being advised by the Municipal Corporation that he should have the commission agreement registered, the plaintiff took the advice
seriously and made arrangements to have the agreement registered in order to make it legally binding and have it verified for the purposes of
their security with regard to receiving the commission that was promised to them.

• According to Indian law and the Indian Contract Act, 1872, both parties to an agreement must certify that they have entered into the agreement
and have given their complete approval for the agreement’s applicability in order for it to be registered.

• The problem started when the defendant refused to assent to the agreement’s registration upon the plaintiff’s request and denied that they were
required to sign the agreement in response, which is when the dispute first arose.

• Due to this, the plaintiff was required to file a lawsuit to establish the basis of his rights. As a result, he sued the Respondents in the lower court
to determine whether the understanding could be enforced. He then filed an appeal in the high court due to the lower court’s unsatisfactory
response.
• Issues
• In this case, there were two major issues such as
• If the aforementioned agreement is a contract that is enforceable by law,
• If the aforementioned contract can be enforced by the law
• Judgment
• The claims of the plaintiff were denied, and the case was dismissed by the judge.
According to section 2(d) of the Indian Contract Act, 1872, the arrangement was rejected
as a contract because there was no significant and well-known consideration involved in
this case. According to section 25 of the Act, the transaction was deemed defective
because there was no consideration. The judges also determined that there was no option
for an appeal because the Act stipulates the significance of consideration as a necessary
component for a contract, and the appeal was rejected by the court.
Kedarnath v. Gorie Mohammad

• 1. Request of Party will amount as consideration?

• 2. Charity Contract? 106 pg. no.
• 3. Applicability of promissory esttopple?
• 4. Mere gratuitous promises?
• FACTS OF THE CASE

• In the case discussed, Kedarnath Bhattacharji, a Municipal Commissioner and trustee of the Howrah Town Hall Fund, had been involved
in efforts to construct a town hall in Howrah. After raising sufficient funds, the commissioners entered into a contract with a contractor
for the construction. However, as the subscription list grew and the plans expanded, the cost increased beyond the agreed amount.
Despite the variation in the contract terms, the commissioners were held liable for the increased cost as they had authorized and
approved the changes.
• The defendants, Gorie Mahomed, had made a subscription towards the construction but later refused to pay. The commissioners sued
Gorie Mahomed to recover the amount subscribed. Initially, the lawsuit was filed in the Howrah Court of Small Causes, with the power
to sue granted by the Registrar of the Court under Section 30 of the Code of Civil Procedure of 1908. However, the defendant argued
that the plaintiff lacked the right to sue, and the Small Cause Court judge agreed, stating that the Registrar did not possess the authority
to grant leave to sue. The court also classified the Town Hall as trust property and deemed the plaintiff’s suit invalid from the beginning.
• Additionally, it was brought to the court’s attention that the defendant had limited education, suggesting that he may not have been fully
aware of the implications of subscribing. It was argued that the defendant had no legal obligation to pay the amount for which he was
initially sued. As a result, the Small Cause Court dismissed the suit, prompting the plaintiff to bring the case before the Calcutta High
• ISSUES

• In the High Court of Calcutta, the following issues were raised:

• Whether or not the suit the plaintiff brought is legally maintainable?

• Whether or not the defendant could be held liable and made to pay the amount for the subscription which he failed to pay
• ARGUMENTS
• Plaintiff’s Argument: Kedarnath Bhattacharji, the plaintiff, argued that the defendant, Gorie Mahomed, had subscribed to pay one hundred rupees towards
the construction of the Town Hall. As a subscriber, Mahomed had a contractual obligation to fulfill his financial commitment.
• Defendant’s Argument: Gorie Mahomed contended that he was not under any legal obligation to pay the amount because he lacked the necessary
knowledge and understanding of the subscription he had made. He argued that due to his limited education, he could not be expected to be fully aware of
the implications of his subscription.
• JUDGEMENT
• The case was initially heard in the Howrah Court of Small Causes, where the judge ruled in favor of the defendant. The court held that the Registrar, who
granted the power to sue to the plaintiff under Section 30 of the Code of Civil Procedure of 1908, did not possess the authority to grant such leave. The
court further classified the Town Hall as trust property, implying that it fell within the ambit of a trust. Consequently, the court deemed the plaintiff’s
lawsuit as invalid from the beginning (bad ab initio).
• The defendant’s argument regarding limited education and lack of awareness of the implications of his subscription played a significant role in the court’s
decision. The Small Cause Court dismissed the suit, suggesting that Gorie Mahomed was not legally obligated to pay the subscribed amount. .Following the
dismissal, the plaintiff appealed the decision to the Calcutta High Court for further review and judgment.
• In a typical scenario, when a person subscribes to a charitable cause, their subscription cannot be considered as consideration. As a result, the subscribed
amount is not usually recoverable. However, in the present case, it was observed that the subscribers were fully aware of the purpose for which their money
would be utilized. They were also cognizant that the plaintiff and other commissioners had entered into a contract based on their subscriptions. Considering
these circumstances, the Calcutta High Court deemed the formed contract to be valid, with a good consideration.
• The court held that the defendant, Gorie Mahomed, is liable to honor the promise he made in the contract, even if it is not entirely to his benefit. The
defendant cannot retract or refuse to fulfill his commitment after the commencement of the contract. The court emphasized that the defendant, as a
subscriber, has a responsibility towards the promise he originally made, and he cannot evade it. Furthermore, the Calcutta High Court determined that the
plaintiff’s suit is legally maintainable, indicating that the plaintiff had the right to file the lawsuit to recover the amount owed to them by the defendant.
Law settled in this case was???

• ”Any act done at the will of the promisor’s wish is taken as

the fulfillment of consideration of a contract”
The Municipal Corporation of…v. The Secretary of State
for India (1932),
• it was established that the subscriber had full knowledge of
the purpose of the subscription and had a duty to pay the
contractor for their work based on the subscription. Hence, in
the current scenario, the promisor’s act of entering into a
contract with the contractor can be deemed to be made at the
promisor’s desire.
 Promissory estoppels on government agencies

• Amrit Banspati v. State of Punjab 1992 AIR 1075, 1992 SCR (2) 13,
Promisee or any There must be consideration to the promisor by the
other person person enforcing the contract or by the Promisee
(Consideration may move or any other person.
from one person to
Dutton v. Poole (1688)
any other person.)

Tweddle v. Atkinson (1861)

Chinnaya v. Rammaya (1881 )4 Mad 137.

 Dunlop Pneumatic Tyre Co Ltd v Selfridge Ltd [1915] AC 847

• Facts

• Dunlop was a tire manufacturer who agreed with their dealer to not sell the tires below a recommended retail price (RRP). As part of the
agreement, Dunlop also required their dealers to gain the same agreement with their retailers, who in this instance was Selfridge. The
agreement held that if tires were sold below the RRP, they would be required to pay £5 per tire in damages to Dunlop. This was agreed
between the dealer and Selfridges, which effectively made Dunlop a third-party to that agreement. Sometime after this, Selfridge sold the
tires below the agreed price and Dunlop sued for damages and an injunction to prevent them from continuing this activity. At the initial
trial, the decision was given to Dunlop. This was appealed by Selfridge and the decision was reversed. Dunlop appealed.

• Issue

• Selfridge argued that Dunlop could not enforce the contract as Dunlop was not part of the agreement between the dealer and Selfridges. On
this basis, the question for the court was whether Dunlop had the right to access damages without a contractual relationship.

• Decision/Outcome

• The court held in a unanimous decision that Dunlop could not claim for damages in the circumstances. The court found that firstly, only a
party to a contract can claim upon it. Secondly, Dunlop had not given any consideration to Selfridge and therefore there could be no
binding contract between the parties. Lastly, Dunlop was not listed as an agent within the contract and could therefore not be included as a
valid third-party who had rights to claim on the contract.
Privity of Consideration
• Privity of consideration states that only a person who has provided consideration can enforce the contract and
act against it. Consideration should be done at the promisor's desire. This is called Promissory Estoppel.
Consideration should always be of some value in the eyes of law.
• Consideration must move from the promisee alone. If it is furnished by any other person and not by the
promisee himself, the promisee becomes a "stranger to consideration", therefore, cannot enforce the promise.
This is known as the doctrine of 'Privity of Consideration'. It means that the act or abstinence or promise
constituting the consideration must be done or made by the promisee himself at the request of the promisor
(English Law).
But the words promisee or any other person given in the definition of consideration under Section 2[d] of
the Indian Contract Act indicate that consideration need not move from the promisee alone but may proceed
from a 3rd person on behalf of the promisee. To that extent, the Indian Contract Act has departed from the
rule of English Law. The definition of 'Consideration' under the Indian Law is, therefore, wider than that in
the English Law.
"Under the English Law a "stranger to consideration" cannot sue the promisor. But in India, the Law is
otherwise and here even a "stranger to the consideration" can sue on a contract provided of course that he
was a party to the contract."
 Privity of Contract

• The doctrine of privity of contract is a fundamental principle in contract law that

governs the rights and obligations of parties to a contract. It means that only the
parties to a contract can enforce the terms of that contract.
• This principle ensures that the contract remains a private agreement between the
parties and cannot be enforced by anyone else who is not a party to the contract.
Therefore, a third party who has not entered into a contract cannot enforce the terms
of that contract. (law can not impose burdon on someone whoes not aware about it or
party to it).
• Jamana Das v. Ram Avtar Pandey
• Nawab Khawaja v. Nawab
Hussaini Begum.
Status of Privity of Contract under the Indian Contract Act
(MC Chacko v State Bank of Travancore) (Krishna Lal Sadhu
v. Promila Bala Dasi)
• Privity of contracts is an essential concept under the Indian Contract Act, 1872. Section 2(d) of
the Act defines a contract as an agreement that is enforceable by law. This means that only parties
to a contract have the right to enforce it, and no third party can claim a right under it.
• Under Indian law, the doctrine of privity of contract is a well-established principle. The Act
recognizes that only parties to a contract are bound by its terms and are entitled to its benefits. The
principle of privity of contract means that no person can acquire any rights under a contract to
which he is not a party.
• This means that a third party who is not a party to a contract cannot sue for its breach, nor can he
enforce any rights or obligations under the contract.
 Essentials of Privity to Contract
• Agreement: Privity of contract requires that there is an agreement between two or more parties. This
agreement must be supported by consideration, which means that each party must give something of value to
the other party.
• Intention to create legal relations: There must be an intention on the part of the parties to create legal
relations. This means that the parties must intend that the agreement be legally binding and enforceable.
• Capacity: The parties to the contract must have the capacity to enter into a contract. This means that they
must be of legal age, of sound mind, and not under any duress or undue influence.
• Identification of parties: The parties to the contract must be clearly identified. This means that there must be
a clear indication of who the parties are, and what their respective roles and obligations are under the contract.
• Privity: The principle of privity of contract requires that only parties to a contract have rights and obligations
under the contract. This means that no third party can claim a right under the contract, nor can they sue for its
breach.
•
Uttair Aviation v. Jagson Airlines Ltd./
Chimney v. Rammaya (1881 )4 Mad 137.

• The Doctrine of privity of contract is applicable in India but there are many exceptions.
• The beneficiary under a contract, (Trust)
• If a contract is made for the benefit of a third party who is not a party to the contract, that
third party can enforce their right against the contracting parties if there is a failure to
perform.
• For example, if a contract is made between Alex and James and it creates a beneficial
right for Robin over some property, Robin can enforce their claim based on this right. This
exception has been established in the case of Muhammad Khan v. Husaini Begum.
 Conduct, acknowledgement or admission

• In situations where there is no privity of contract between two parties, but one of them
acknowledges the other’s right or recognizes it through their conduct, they may be
liable under the law of estoppel. (Narayani Devi v. Tagore Commercial Corporation
Ltd).
• For instance, if A enters into a contract with B to pay Rs. 5000 every month during
their lifetime, and after that to A’s son C, and A acknowledges this in C’s presence,
then C can sue A if they default, despite not being a party to the contract.
 Provision for maintenance or marriage under family
arrangement
• Such provisions are treated as exceptions to the doctrine of privity of
contract to safeguard the rights of family members who may not
receive a specific share and to give effect to the testator’s will.
• For example, if A bequeaths their property in equal portions to their
three sons with the condition that after A’s death, each son gives Rs.
10,000 to C, A’s daughter, then C can sue if any one of them fails to
comply with this provision.
 • Consideration may be past, present or future.

• Meaning of Past Consideration: "has done or abstained from doing"

• Executed and executory promises and Past consideration.
• Differences has been given in Union of India vs. Chaman Lal Loona and
co. (Past consideration is always act done without promises)
• Sindha v. Abraham : Rendered services to the promisor at his desire.
• Executed: A lost his dog and B found the dog and returned it to A, then A
promised to pay Rs. 100 and in that case, it will be a past consideration as the
act of finding the dog happened.
• Both Party : Executory.
 Past consideration

1. At request of Promissor
2. Voluntary act but promises to pay

3. English Law : Lampleigh v Brathwait

4. The defendant had been convicted of murder. He requested the claimant’s help in obtaining a pardon from the King. The claimant
expended considerable effort and expense in doing so. A pardon was granted. Afterwards, the defendant promised to pay the claimant
a sum of money as a reward. The defendant never paid, and the claimant sued.
• The claimant argued that the defendant was bound by contract to pay for his services. The defendant responded that consideration had
not been given for his promise to pay – the claimant’s services did not count as they were past acts.
• Issue(s)
• Could the claimant’s past services be relied on as consideration for the defendant’s promise to pay?
• Decision
• The Court held in favour of the claimant. The past services were valid consideration because they were requested by the defendant.
• This Case is Authority For…
• Where a defendant’s promise is prompted by acts done by the claimant at the defendant’s request, those acts may be consideration
even though they occurred in the past.
 Indian Scenario

• At request has not been covered under 25 (b)

• Voluntarily services has been covered in 25 (b).
• At request has not been covered under 25 (b)
• Courts Opinion: Upton-on-Severn RDC v. Powell (1942) :
• “Every request for act has implied and inbuilt promises to pay and
compensate”.
 Present and Future consideration

• Future Consideration: A company promises to pay an employee a bonus at the end of

the year if they meet certain performance goals. The bonus is an example of future
consideration because it will be given at a later time, after the employee has met the
goals.
• Present Consideration: For example, you buy fruits from a vendor and immediately
pay him the price.
Performance of Legal obligations
• Consideration, it is generally said, must be something more than what the
promises is already bound to do. A person may be bound to do something.
• Performance of Legal duty is no consideration for a promises.
• Sashannath Chetti V. P. Ramasamy Chetti (1868) 4 MHC 7.
• Performance of duty imposed by law no require consideration. (witness
case)
• Pre-existing Contract: Ramchandra Chintaman v. Kalu Raju (vakalatnama
case)
Time barred debt

• Time-barred debt is money that you borrowed and didn't

repay but which is no longer legally collectable because a
certain number of years have passed. Time-barred debt is
also known as debt that is beyond the statute of limitations.
Exception to the contract where consideration is
not there still contract is valid
 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 1[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 already 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
specially authorized 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 limitation of suits.
• In any of these cases, such an agreement is a contract.
• Explanation 1.—Nothing in this section shall affect the validity, as between the donor and donee, of any gift
actually made.
• Explanation 2.—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.
Consideration must be sufficient but need not be adequate (25- explanation 2)
• Thomas v Thomas (1842) 2 QB 851; 114 ER 330

• Facts

• Before he died, Mr Thomas said he wished for his wife to have the house they lived in for the rest of her life. However, this was not written
into his will. After he died, his executors, ‘in consideration of such promise’, agreed with Mrs Thomas that she would pay a peppercorn rent
of £1 per year in return for being allowed to live in the house. They later tied to dispossess her.
• Issues

• A valid contract must be supported by consideration. That is, the promisee must promise to do something in return for the promise of the
other party. It was argued that there was no contract because Mrs Thomas, the promise, provided inadequate consideration as the rent was
nothing like a commercial rent for the property. Mrs Thomas argued that her promise to pay rent and keep the house in repair was good
consideration.
• Decision/Outcome

• The executors statement did not create a contract as it only expressed their motive for entering into the agreement. However, the £1 rent was
recognized as good consideration. Patteson J said (at 859):
• Motive is not the same thing as consideration. Considerataion means something which is of some value in the eye of the law, moving from
the plaintiff:
• Without consideration the transaction was merely a voluntary gift. However, by agreeing to pay rent in return for being allowed to stay in the
property, Mrs Thomas had provided consideration, even though it was not economically adequate or anything like a commercial rent for the
building. Therefore, the contract was enforceable.
 Consideration must not be vague

• While it is not necessary to be specify the exact value of consideration, but

it must be something tangible, or discriminable or having values in the
eyes of laws.
• It cannot be vague, uncertain, or impossible. The transaction is rendered
void in such a case. As an example, if A promises to find a treasure by
magic if B pays him Rs. 10,000, then this is an illusory consideration and
not considered valid.