Asst. Prof.

Amrita Singh
Introduction
 Consideration constitutes the very foundation of the
contract. An agreement not supported by
consideration is void (Sec. 25). Consideration is the
cause of the promise and its absence would make the
promise a gratuitous or bare promise (nudum pactum).
The fact that a promise has been made for
consideration goes to show that parties contemplated
the creation of a legal obligation.
 Anson said that the offer and acceptance bring the
parties together and constitute the outward semblance
of a contract; but most systems of law require some
further evidence of the intention of the parties, which is
provided by consideration and form.
 NOTE: Consideration is a cardinal necessity of the
formation of a contract, but no consideration is
necessary for the discharge or modification of a
contract.
 Blackstone defined consideration as the
recompense given by the party contracting to the
other. In other words, it is a price of the promise
(Pollock).
 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.
Contd…
 Consideration is a return or quid pro quo (something for
something), something of value received by the promisee
as inducement of the promise.
 Sec. 2 (d) of the Indian Contract Act defines consideration
as follows:
1. that the act or abstinence, which is to be a
consideration for the promise, should be done at the
desire of the promisor,
2. that it should be done by promisee or any other person,
3. that the act or abstinence may have been already
executed or is in the process of being done or may still
be executory i.e. it is promised to be done.
Legal rules related to the consideration
1. Consideration must move at the desire
of the promisor
2. Consideration may move from the
promisor or any other person
3. Consideration may be past, present or
future
4. Consideration must be ‘something of
value’.
A. At the desire of the promisor
(promissory estoppel)
 An act shall not be a good consideration for a
promise unless it is done at the desire of the
promisor.
 In Durga Prasad v Baldev (1880), the plaintiff built
a shopping complex on the order of the collector.
The shops came to be occupied by the defendant
who, in consideration of the plaintiff having
expended money in the construction, promised to
pay him commission on articles sold by them. The
plaintiff’s action to recover the commission was
rejected on the ground that plaintiff’s act was the
result not of the promise but of the collector’s order.
Contd….
 In Kedar Nath v. Gorie Mohd. (1886), on
the faith of the promised subscription the
plaintiff entered into a contract with a
contractor for the purpose of building a
town hall. Held that the plaintiff’s act in
entering into a contract with the contractor
was done ‘at the desire of the defendant (the
promisor)’ so as to constitute consideration.
B. Promisee or any other person
 A promise is enforceable if there is some
consideration for it and it is quite immaterial that
it moves from the promisee or any other person.
This is sometimes called as “Doctrine of
Constructive Consideration”. Under English law,
however, there is a Privity of consideration i.e.
consideration must move from the Promisee &
Promisor only, a stranger or third person cannot
furnish consideration. [Tweedle v Atkinson
(1861)].
 Chinnaya v Ramayya (1882)
 Dutton v Poole (1677)
Exceptions
1. Natural Love & Affection
I. Written
II. Registered
III. Voluntary
IV. Close relation between parties
2. Contract of Agency (Sec-185)
3. Gratuitous bailment
4. Time- Barred debt
5. Completed gifts
6. Post-voluntary services.
Privity of Contract
 The doctrine of privity of contract means that a
contract is a contract between the parties only
and no third party (i.e. stranger to contract) can
sue upon it even if it is avowedly made for his
benefit. Similarly, the third person is not bound
by the contract as there is no mutuality
(doctrine of mutuality). The doctrine is rooted
in the English common law especially in the case
of Twidle v Atkinson (1861) and Dunlop
Pnuematic Tyre Co. Ltd. v Selfridge & Co.
(1915).
Criticism of Privity of Contract
 The rule of Privity of Contract has been generally
criticized. One of the criticism is that the general
rule that ‘no third person can sue’ is only a rule of
procedure. It goes to the form of remedy, not to the
underlying right. Indian law expressly negatives the
English doctrine of ‘Privity of Consideration’.
However, there is no provision in the Indian Contract
Act either for or against the rule of ‘Privity of
Contract’. But the common law doctrine of privity of
contract is generally applicable in India.
 Jamna das v Ram Avtar
 M.C. Chacko v State Bank of Travancore
Exceptions to Privity Rule
 In the case of Beswick v Beswick (1966),
the rule of privity of contract does not
prevent a person from enforcing a contract,
which has been made for his benefit but
without his being a party to it.
1. Trust or Charge- a trust is the property
held and managed by one or more
persons for another’s benefit.
 Khwaja md khan v Hussaini Begum
 Chinnaya v Ramaiya
Contd…
2. Marriage Settlement, Partition or other
Family arrangements- Where a girls father
entered into an agreement for her
marriage with the defendant, it was held
that the girl could sue the defendant for
damages for the breach of the promise of
marriage even though she was not a party
to the agreement (Rose v Joseph 1925).
Agreement between two brothers to
maintain their mother has been upheld.
Contd…
3. Acknowledgement or Estoppel- whereby a terms
of a contract a party is required to make a payment
to a third person and he acknowledges it to that third
person (viz. while making a part-payment), a binding
obligation is thereby incurred towards him.
Acknowledgement can be express or implied.
4. Covenants running with land- A person who
purchases a land with notice that the owner of the
land is bound by certain duties created by an
agreement or covenant affecting the land, shall be
bound by them although he was not a party to that
agreement [Tulk v Moxhay (1919)].
C. Has done or Abstained from Doing
 Under Sec. 2 (d), consideration is an act,
which has already been done at the desire of
the promisor (past consideration), or is in
progress (executed or present consideration
i.e. consideration is provided simultaneously
with the making of the contract) or is
promised to be done in future (executory or
future consideration i.e. a simple exchange
of promises). Thus, consideration may
consist of a past, present or a future act.
Past Consideration
 If the act has been done before any promise is
made, it is called past consideration. Under
English law, a past consideration is no
consideration; the consideration and the
promise ought to go together. However, a past
act done at request will be good consideration
for a subsequent promise. Further, a promise
to pay time-barred debt and a negotiable
instrument issued for a past consideration are
both valid.
(D). Such Act, Abstinence or Promise is
called consideration
 Consideration must be real and not illusory
– Where consideration is physically impossible,
illegal, uncertain or illusory, it is not real.
English common law has always insisted that
“Consideration must be of some value in the
eyes of the law.”
 Consideration need not be adequate-
Explanation 2 to Sec. 25 lays down that “an
agreement to which the consent of the
promisor is freely given is not void merely
because the consideration is inadequate.”
Contd…
 Thus, if A agrees to sell a horse worth Rs. 1000 for
Rs. 10 and A’s consent to the agreement was
freely given, the agreement is a contract
notwithstanding the inadequacy of the
consideration.
 Explanation 2 to sec. 25 further lays down that
“inadequacy of consideration may be taken into
account by the court in determining the question
whether the consent of the promisor was freely
given”. For “inadequacy of consideration, may in
circumstances suggest fraud, coercion, mistake,
etc.
Contd…
 Abstinence, etc- Forbearance to sue (or
compromise of a pending suit) has always
been regarded as valuable consideration. It
is a kind of abstinence. Thus, in Kasturi
Devi v Chiranji Lal (1960), the
withdrawal of a pending suit by a wife
against her husband was held to be a good
consideration for his promise to pay her
maintenance.
THANK YOU