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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…”
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:
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
There are also certain exceptions to this rule of a stranger to contract cannot sue which
are stated on the below:
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.
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.
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
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.
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.
33
See Carlill v Carbolic Smoke Ball Co., (1893) 1 Q.B. 256
34
A.I.R. 1991 A.P. 245 (D.B.)
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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.
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
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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.
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.
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.
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:
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
12
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.
13
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
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.)
14
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/
16