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CONSIDERATION[1]

Table of Contents

INTRODUCTION:-

According to S. 10 of the Act (Indian Contract Act, 1872), consideration is essential for the formation of a valid contract. S. 25 of the Act declares that an agreement without consideration is void. In England also, a promise without consideration is treated as void and is not enforceable because it is treated as gratuitous[2]. Latin maxim ‘ex nudo pacto non oritio actio’ denotes that ‘no action lies from naked agreement[3]’. In other words, ‘agreement without consideration is null and void, hence cannot be enforced by law’.

II. Definition of ‘Consideration’:-

Consideration is the price of a promise, a return or quid pro quo[4], or something of a value received by the promisee as inducement of the promise. Consideration in ordinary parlance is called the “value of the agreement or the price of the promise5”. According to S. 2 (d) of the Act “When at the desire of the promisor, promisee or any other person

(i) has done or abstained from doing,

(ii) does or abstains from doing, or

(iii) promises to do or to abstain from doing something,-

such act or abstinence or promise is called a consideration for the promise[5]”

Illustrations[6]

(a) A agrees to sell his house to B for 10,000 rupees. Here B’s promise to pay the sum of 10,000 rupees is the consideration for A’s promise to sell the house, and A’s promise to sell the house is the consideration for B’s promise to pay 10,000 rupees

(b) A promises to pay B 1,000 rupees at the end of six months if C, who owes the sum

to B, fails to pay it. B promises to grant time to C accordingly. Here the promise

of each party is the consideration for the promise of the other party.

ship if it is wrecked on a certain voyage. Here, A’s promise is the consideration for

B’s payment and B’s payment is the consideration for A’s promise, and these are

lawful considerations.

(d) A promises to maintain B’s child, and H promises to pay 1,000 rupees yearly for

the purpose. Here, the promise of each party is the consideration for the promise of

the other party.

III. Essentials of Consideration:-

The most practical definition is given in S. 2 (d) of the Act. We will discuss the essentials of consideration from the above definition.

1) Consideration should be ‘at the Desire of the Promisor’[7]:-

The definition starts with the words “when at the desire of the promisor”, which means the act or forbearance of the promisee or any other person must be done at the desire or request of the promisor.

In Durgaprasad V/s Baldeo[8]

Facts:- The plaintiff constructed a market at the desire of the Collector of the District. The defendant occupied one of the shops. The defendant promised to pay a commission on the articles sold through his agency in that market. The defendant refused to pay a commission to the Plaintiff, who had constructed the market in his own place at his own expense. It was argued on behalf of the Plaintiff that the defendant was liable to pay the commission as the plaintiff had incurred expenses in constructing the market, which was a consideration for the promise of receiving a commission.

The Court held:- that there was no consideration for the promise since the shops were not constructed at the desire of the promisor (i.e. the defendant). The construction of the shops was made at the desire of the collector.

However, an act done at the desire of the promisor is a valid consideration, even though that act is of no benefit to the promisor.

In Kedar Nath V/s Corie Md[9]

Facts: The construction of a Town Hall at Howarah was proposed based on the public subscription. The Commissioner of Howarah Municipality, therefore, started to raise subscriptions. The defendant signed his name as a subscriber, promising to pay one hundred rupees. But the defendant subsequently refused to pay the same.

The Court held that he was held liable to pay it, as there was a contract between the person promising to subscribe (Defendant) and the person undertaking to start building (Plaintiff) the town hall. According to the Court, in consideration of the agreement to erect the building or to get it erected, the subscriber undertook to supply the money up to the amount (Rs. 100) for which he had promised. There was, therefore, consideration from the side of the plaintiff, and the defendant was bound by his promise.

2) It may move from “Promisee or any other Person.”[10]:-

In England:-

The following cases describe the English positions of ‘privity of consideration’ and ‘privity of contract’ well.

Dutton V/s Poole[11]

Facts:- A person had a daughter to marry, and in order to provide her with a ‘marriage portion’, he intended to sell a wood which he had possessed at the time. His son (the defendant) promised that if “the father would forbear to sell at his request, he would pay the daughter 1000 pounds. The father accordingly forbore, but the defendant did not pay. The daughter sued the defendant for the amount. The defendant argued that he gave this promise to his father, and it was the father alone who, by abstaining from selling the wood, had furnished consideration for the promise. The plaintiff was neither privy (party) to the contract “nor interested in the consideration”.

The court held that even though the daughter (plaintiff) was not a party to the whole contract, the agreement’s object was to provide a portion to the plaintiff. It would have been highly inequitable to allow the son to keep the wood and yet deprive his sister of her portion. He was accordingly held liable.

But the principle of the above case was overruled about 200 years later by the Queen’s Bench.

In Tweddle V/s Atkinson[12]

Facts: The theory of natural affection evolved in Dutton V/s Poole’s case was rejected. In this case, a boy was married to a girl, and at the time of their marriage, the father of the girl promised to pay a sum of money to the boy. After the fathers of both the boy and girl died, the boy sued the executors of the father of the girl.

The Court held:- that no action would lie. The court observed that no stranger to the consideration could take advantage of a contract, although the contract was made for his benefit.

This principle was affirmed by the House of Lords in

Dunlop Pneumatic Tyre Co. V/s Selfridge & Co[13]

Facts:- The Plaintiff (Dunlop & Co) sold certain goods to one Dew & Co. and secured an agreement from them not to sell the goods below the listed 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 tyres to the defendant (Selfridge & Co), who agreed not to sell the tyres to any private customer at less than the listed price. The plaintiff sued the defendant for breach of this contract. The defences of the defendants were two:-

1) Plaintiff had not furnished the consideration for the contract; hence, he cannot

enforce the contract.

2) The plaintiff was not privy (party) to the contract; hence, he cannot enforce the same.

The Court held:- that assuming that the Plaintiff was an undisclosed principal, no consideration moved from him to the defendant and that the contract was unenforceable by him.

Two fundamental principles of English law were referred to in that case.

(1) Consideration must move from the promisee and the promisee only (Privity of Consideration). In other words, if furnished by any other person, the promisee becomes a stranger to the consideration and, therefore, cannot enforce the promise.

(2) A contract cannot be enforced by a person who is not a party to it even though it is made for his benefit (Privity of Contract). He is a stranger to the contract and can claim no rights under it.

In India:-

a) ‘Privity of Consideration’[14]:-

The rule of ‘privity of consideration’ (i.e., only parties to the contract should move consideration and not a stranger), as stated above, is not applicable in India. The wording of S. 2 (d) clearly states that the ‘promisee or any other person’ may move consideration. This portion of the definition of consideration is based on the principle laid down in Dutton V/s Pool’s case. The controversy as to whether the principle of ‘privity of consideration’ is applicable in India like English law or not was set at rest by Madras High Court in Chinnaya V/s Ramayya[15]

Facts:- An old lady, by Deed, gifted certain landed property to the defendant (her daughter). By the terms of the Gift Deed (which was registered), it was stipulated that an annuity (annual payment) of Rs 653 should be paid every year to the plaintiff, who was the sister of the old woman (donor). On the same day, the defendant executed in the plaintiff’s favour an agreement promising to give effect to the stipulation. The annuity was, however, not paid, and the plaintiff sued to recover it. The defendant tried to defend herself on the ground that the promisee (the plaintiff) had furnished no consideration.

The Court held that the consideration given by Plaintiff’s sister was a good consideration for Plaintiff. In other words, consideration may move from the promisee or any other person.

b) ‘Privity of Contract[16]’:-

The second rule of English law, that a contract cannot be enforced by a person who is not a party to it even though it is made for his benefit (Privity of Contract), is very well applicable in India. In India, a stranger, i.e., a person who is not a party to a contract, cannot enforce the contract.

Exceptions to the Rule of ‘Privity of Contract’:-

The rule of ‘privity of contract’ applies in England and India. However, as the rule has changed over time, courts have introduced a number of exceptions. Viz.

(i) Beneficiaries under Trust or other Arrangements[17]:-

A person in whose favour a trust or charge of any specific property or interest is created may enforce it even though he is not a party to the contract.

In Khwaja Muhammad Khan V/s Hussaini Begum[18]

Facts:- The appellant (father-in-law) executed an agreement with the respondent’s father (father of daughter-in-law) that in consideration of the respondent’s (daughter-in-law) marriage with his son (both being minors at the time), he would pay the respondent’s (daughter-in-law) Rs 500 a month in perpetuity for the betel-leaf expenses (i.e. for chewing pan) and charged certain properties with the payment, with power to the respondent to enforce it. The husband and wife separated on account of a quarrel, and the suit was brought by the respondent (original Plaintiff) for the recovery of the arrears of this annuity.

The Court held:- that the respondent, although not party to the agreement, was clearly entitled to proceed in equity to enforce her claim. Here, the agreement executed by the defendant (appellant) specifically charges immovable property for the allowance, which he binds himself to pay to the plaintiff (respondent); she is the only beneficiary entitled to it.

(ii) Marriage settlement, partition or other family arrangements[19]:-

Where an agreement is made in connection with marriage, partition or other family arrangements and a provision is made for the benefit of a person, he can enforce the agreement even though he was not a party to it.20.

(iii) Acknowledgement or Estoppel[20]:-

Whereby, in the terms of a contract, a party is required to make a payment to a third person (and he acknowledges it to that third person), a binding obligation is thereby incurred towards him. This exception covers cases where the promisor, by his conduct, acknowledgement or otherwise, constitutes himself as an agent of the third party.22.

(iv) Covenants (contracts) Running with Land[21]

The principle relating to the transfer of immovable property is borrowed from the famous case Tulk V/s Moxhay[22]According to this principle, a person who purchases land with a notice that the owner of the land is bound by certain duties created by an agreement or covenants relating to the land shall be bound by them although he was not a party to them.

3) Consideration may be Past, Present or Future[23]:-

The sentence in the definition ‘has done or abstained from doing (past), or does or abstains from doing (present or executed), or promises to do or to abstain from doing (future or executory)’ denotes that the consideration may be past, present or future.

a) Past Consideration[24]:-

‘Past consideration’ means that the consideration for any promise (contract) is given earlier and the promise (contract) is made thereafter, e.g. I request you to find out my lost horse. After you have found out my horse, if 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 horse; the same was done before I promised to pay the amount. In this case, the consideration is paid at my request because it was only when I requested that “you find out the horse”. This constitutes valid (Past) consideration under S. 2(d); therefore, the promise is enforceable. The word ‘has done or abstained from doing”, denotes past consideration.

b) Executed or Present Consideration[25]:-

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, it is known as executed consideration. Performance of the promise by the other side is the only thing now to be done. E.g. A makes an offer of a reward of Rs 100 to anyone who finds out about his lost horse and brings the same to him. B finds out about the lost horse and delivers it to A. When B does so, that amounts 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 consideration, in this case, is “executed[26]”.

c) 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 in such a case is known as executory or future consideration. For example, if A agrees to supply certain goods to B and B agrees to pay for them on a future date, this is a case of executory consideration.

4) “Such Act or Abstinence or Promise” is called a Consideration:-

Consideration should be of some Value:-

Consideration means some act, abstinence or promise on the part of the promisee or any other person, which has been done at the desire of the promisor. It denotes that even a worthless act, at the desire of the promisor, is a consideration30. But it is not so. Consideration should be of some value in the eyes of the law.

Value Need not be Adequate:-

It is not necessary that consideration should be adequate to the promise. It is not the court’s job to assess the appropriateness of the consideration of promising. It is up to the parties to decide the adequacy of consideration.

However, inadequate consideration is to be taken into consideration for deciding the issue of whether the consent of the party was freely given or not31.

IV] Exceptions to Consideration:-

25 of the Act starts with the general rule about the consideration that an agreement without consideration is void. However, the same section proceeds further with some exceptions to the general rule. Viz.

1) Natural Love and Affection32:-

A written and registered agreement based on natural love and affection between near relatives is enforceable without consideration. Near relatives may be relations by blood or marriage.33.

2) Promise to Compensate for past Voluntary Services[27]:-

Where a person without the knowledge of the promisor (or otherwise than his request) does for the latter some service, and the promisor subsequently undertakes to recompense him for it, such past voluntary service is a good consideration for the subsequent promise of the promisor to recompense. E.g. if A finds B’s purse and gives it to him, and then B promises to pay A Rs. 50. It is a valid contract. This exception covers the situation where the service is rendered voluntarily and without the promisor’s knowledge.[28].

3) Promise to Pay Time-Barred Debt[29]:-

Where a promise is made in writing under the signature of the promisor to pay a time-barred debt, no fresh consideration is required. Such a promise is enforceable even without consideration. In Nepal Air Lines Corporation v. Girish Kumar Singh, Decided on 16 Dec 2014[30] Delhi High Court observed that “under S. 25 (3), a debtor can enter into an agreement in writing to pay the whole or part of a debt, which the creditor might have enforced but for the law of limitation. Such promise constitutes novation of original contract (i.e. legalizes time-barred)”.

4) Contract of Agency:-

105 of the Act provides that the contract of agency is valid even without consideration.

*****

[1] Ekkscnyk

[2] In Lee V. Muggeridge [1833] 128 E.R. 599]. मुफ्त /कोणत्याही मोबदल्याशिवाय केलेले

[3] मोबदल्याशिवायाच्या ठरावातून कोणतीही जबाबदारी निमण होत नाही [मुफ्त के करारको सहमति से कोई कार्रवाई नहीं होती है।]

[4] something for something. something for something.

5 Consideration has been variously defined. We will discuss some of them-

(a) According to Blackstone: “Consideration is the recompense given by the party contracting to the other”.

(b) According to Pollock, “consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”

(c) According to Justice Patterson- “Consideration means something which is of some value in the eyes of the law …, It may be some benefit to the plaintiff or some detriment to the defendant”. Thus consideration need not be a benefit to the promisor if the promisee suffered some loss or detriment, it will be taken as a sufficient consideration for the promisor to fulfill his promise”.

(d) Most accepted definition is made by Lush J in the case of Currie v Misa (1875)

“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, detriment, loss, or responsibility given, suffered or undertaken by the other”.

(e) According to Cheshire and Filfoot– “consideration is price of the promise”.

(f) The Calcutta High Court has observed in a case that “consideration is the price of a promise, a return or quid pro quo, something of value received by the promisee as inducement of the promise”.

[5] ज्या वेळी वचन देणाराच्या इच्छ् प्रमाणे वचन घेणारा अथव त्यच्या वतीने कोनीही (१ )काहीतरी केलेले असते अथवा करणायापासून पुरवर्त राहिलेला असतो,अथव (२)काहीतरी करीत असतोअथव करणायापासून परावृत्त्त राहत असतो ,अथवा (३)काहेतरी करण्याचे अथवा कारणापासून परावृत्त्त राहण्याने वचन देतो –अशा करण्याला अथवा परावृत्त्त राहणायाला मोबदला म्हणतात [जब वचनदाता, वचनगृहीता या किसी अन्य व्यक्ति की इच्छा से

(i) कुछ किया है या करने से परहेज किया है,

(ii) करता है या करने से परहेज करता है, या

(iii) कुछ करने या करने से परहेज करने का वादा करता है, –

इस तरह के कार्य या संयम या वादे को वादे के लिए प्रतिफल कहा जाता है]

[6] These illustrations are borrowed from S. 23 of the Act; they are not there originally in S. 2 (d).

[7] मोबदला हा वचन देणाराच्या इच्छे प्रमाणे असला पाहेजे [प्रतीफल ‘वादाकर्ता की इच्छा पर’ होना चाहिए।]

[8] (1880) 3, All 221.

[9] 1886 ILR 14 Cal 64.

[10] मोबदला हा वचन देणाराकडून मिळाला तरी चालेल [प्रतीफल वादा करने वाला या कोई अन्य व्यक्ति से मिला तो भी चालता है।]

[11] Court of King’s Bench, (1672) 2 Levinz 210: 83 ER 523.

[12] (1861) 1 B & S 393 : 123 ER 762.

[13] (1915) AC 847.

[14] मोबदल्याची गुप्तता [प्रतीफल की गोपनीयता]

[15] (1882) 4 Mad. 137.

[16] करारात सहभगी व्यक्ती फक्त कराराची अंमलबजावनी करून मागु शकतात/ करारासाठीचा खाजगीपना [एक अनुबंध को उस व्यक्ति द्वारा लागू नहीं किया जा सकता है जो इसका पक्ष नहीं है, भले ही यह उसके लाभ के लिए किया गया हो] Privity of contract means only parties to the contract can enforce contract and not stranger.

[17] स्वतःच्या फायदयासाठी विश्वस्थ संस्था अथवा इतर व्यवस्था केलेली आहे असा व्यक्ती, [विश्वस्थk या अन्य व्यवस्थाओं के तहत लाभार्थी]

[18] 1910.

[19] वैवाहीक तडजोड, वाटप किंवा कौटुंबिक व्यवस्था [विवाह समझौता, विभाजन या अन्य पारिवारिक व्यवस्थाएं]

20 Refer Hussani Begum’s case.

[20] स्विकृती अथवा प्रतिबंध, [अभिस्वीकृति/प्रतिबंध]

22 The case of Devaraja Urs v Ram Krishnaiah (AIR 1957 Mys 109).

Facts– A sold his house to B under a registered sale deed and left a part of the sale price in his hands desiring him to pay this amount to C, his creditor. Subsequently, B made part-payments to C informing him that they were out of the sale price left with him and that the balance would be remitted immediately. B, however, failed to remit the balance and C sued him for the same.

Held– Though originally there was no privity of contract between B and C, B having subsequently acknowledged his liability, C was entitled to sue him for recovery of the amount.

[21] जमिनी बरोबरचे करार [भूमि के साथ चलने वाले करार],

[22] 1919.

[23] बदला हा भुतकाळात, वर्तमानकाळात किंवा भविष्यकाळात दिलेला असु शकतो, [प्रतिफल अतीत, वर्तमान या भविष्य मे हो सकता है।]

[24] पूर्वीचा किंवा भुतकाळात दिलेला मोबदला, [पिछला या भूतकाल मे किया भुगतान]

[25] वर्तमानकाळात दिला जात असलेला किंवा चालु मोबदला, [वर्तमान मे दिया जानेवाला मोबदला]

[26] Executed consideration may be distinguished from past consideration. In case of executed consideration, the consideration is provided simultaneously with the making of the contract. Whereas, in past consideration, consideration is provided first and then promise is made. E.g. in the above illustration, when B finds the lost horse that constitutes not only the acceptance of the offer but that also provides the consideration in respect of the contract between A and B

30 A promises to give his new Rolls-Royce car to B, provided B will fetch it from the garage. But if fetching of the car out of garage cannot by any stretch of imagination called as consideration, although it is done at the desire of the promisor.

31 In Inder Singh V. Parmeshwardhari Singh (1957 Pat. 491)

Facts: – A property worth about Rs. 25000/- was agreed to be sold by a person for Rs. 7000/- only. His mother proved that he was idiot incapable of understanding the transaction.

Court Held: – that in this case the person was incapable of exercising his own judgment.

32 नैसर्गीक प्रेम व ममतेपोटी केलेला करार, [प्राकृतिक प्रेम और स्नेह]

33 In Rajlukhy Dabee v. Rhootnath Mookerjee (1900)

Facts- The defendant promised to pay his wife a fixed sum of money every month for her separate residence and maintenance. The agreement was contained in a registered document, which mentioned certain quarrels and disagreements between the two.

Held- The Court could find no trace of love and affection between the parties whose quarrels had compelled them to separate. Hence it is not an agreement effected out of love and affection.

[27] भूतकाळात स्वइच्छेने दिलेल्या सेवेसाठी मोबदला [पिछली स्वैच्छिक सेवाओं के लिए क्षतिपूर्ति करने का वादा।,]

[28] The difference between past consideration and a promise given under S. 25(2) is that in past consideration the act is done at the request of the promisor and after the act is done promise is made, whereas under Section 25(2) the promise is made for an act already done voluntarily by the promisee.

[29] मुदतबाहय कर्ज देण्याचे वचन, [कालातीत कर्ज चुकाने का वादा]

[30] Laws (DLH) 2014-14-159