CONSIDERATION

Relevant provisions are Sections 2(d), 10, 23, 25 of Indian Contract Act
Consideration is often expressed in the Latin term ‘QIUD PRO QUO’, which means in return
of something.
Sec 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 to do or to abstain from
doing, something, such act or abstinence or promise is called a consideration for the promise

Meaning of Consideration
Consideration is one of the essential elements of a valid contract. When a person promises to
do something, he must get ‘something’ in return. If he does not get ‘something’ in return, the
contract is, generally, not valid. This ‘something’ is known as consideration. In other words,
consideration is the price for which the promise of the other party is bought. The Act defines
consideration as “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 to do or to abstain from
doing, something, such act or abstinence or promise is called a consideration for the
promise.”27

llustration:
A agrees to sell his house to B for Rs. 5,00,000. Here A’s promise to sell his house is for B’s
consideration to pay Rs. 5,00,000. Similarly, B’s promise to pay Rs. 5,00,000 is for A’s
consideration to sell his house to B.

Thus the essential condition for the enforceability of the contract is consideration. The rule is
expressed by the Latin maxim “ex nudo-pacto non-oritur actio”, i.e. “out of a bare promise no
cause of action can arise.” Therefore, a gratuitous promise, such as a promise to make a gift or
charity for no return is not supported by consideration. Hence it is unenforceable by the
promisee.

The basis of consideration is that of reciprocity. A promisee would be able to enforce the
promise only if he has given or promised to give or unless the promisor has obtained or has
been promised something in exchange of it. The word ‘consideration’ implies something in
return for the promise or the price of promise or quid pro quo. According to Sir Frederick
Pollock, “an act or forbearance of one party of the promise thereof, is the price for which the
promise of the other is bought and the promise thus given for value is enforceable.” Blackstone
defines consideration as “the recompense given by the party contracting to the other.”
Essentials of a Valid Consideration
The essentials of consideration are as follows:

a) Consideration Must Move at the Desire of the Promisor: The act or abstinence forming the
Consideration must be done at the desire or request of the promisor. If it is done at the instance
of the third party or without the desire of the promisor it is not consideration.

Example - Amar sees Bhushan’s house on fire and helps in extinguishing it. Amar cannot
demand payment for his services because Bhushan never asked him to come for help.

Case: Durga Prasad v. Baldeo

Facts: 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. Since the plaintiff
had spent money for the construction of the market, the defendants, in consideration thereof,
made a promise to pay to the plaintiff commission on the articles sold through their
(defendants) 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.

Judgement: 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.

b) Consideration May Move from the Promisee or any other Person: The consideration need
not move from the promisee alone but may proceed from any third person. Thus, as long as
there is a consideration for a promise, it is immaterial who has furnished it. This means that
even a stranger to the consideration can sue on a contract, provided he is a party to the contract.
This is also called as ‘Doctrine of Constructive Consideration’. For example – X by a deed of
gift transferred certain property to her daughter Y with a direction that Y should pay Z an
annuity. Y executed a deed in writing in favour of Z and agreed thereby to pay the annuity.
Later Y refused to pay annuity on the plea that no consideration had moved from Z. It was held
that Z was entitled to maintain suit because a consideration need not necessarily move from
the promisee, it may move from any other person (i.e. X in the present case)

In the case of Chinmaya v Ramayya, [(1882)4 Mad.137], there was an old woman who gave
some immovable properties to her daughter through a registered deed. She also gave directions
to her daughter to pay some money annually to her uncle who is the brother of the old women
She also directed her daughter to pay an annuity to Y – the old woman’s brother. On the same
day, her daughter entered into an agreement with the uncle to pay her the amount. The Daughter
failed to pay the money annually and a case was filed by the uncle. The daughter took a plea
that the consideration did not move from the old lady to her Daughter and hence it is not a valid
contract. The court, in this case, held that the word ‘the promisee or any other person’ proves
that the consideration need not only move from the promisee and hence the uncle was entitled
to maintain a suit for recovery.
c) Consideration may be past, present or future.

Past Consideration : Past consideration is something wholly done, forborne or suffered before
the making of agreement
Present Consideration (also called Executed Consideration): Consideration which moves
simultaneously with the promise is called present consideration.

Future Consideration (also called Executory Consideration): When the consideration is to

move at a future date, it is called future or executory consideration. It takes the form of a
promise to be performed in the future.

d) Consideration may be inadequate and Must be ‘Something of Value’ (The consideration need
not be adequate to the promise but it must be of some value in the eye of the law).

e) Consideration must be legal/lawful/real.

Section 23 - What considerations and objects are lawful and what not-The consideration or
object of an agreement is lawful, unless

• It is forbidden by law; or

• is of such a nature that, if permitted, it would defeat the provisions of any law; or

• is fraudulent; or

• involves or implies injury to the person or property of another; or

• the Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement said to be unlawful. Every
agreement of which the object or consideration is unlawful is void

f) Consideration may be doing something, or abstaining from doing something (positive

or negative act) or a promise to do something(forbearance to sue).

No Consideration No Contract
The general rule is that “an agreement made without consideration is void”. But there are a few
exceptions to this rule. These exceptions are as follows: (Sec.25)

a) Agreement Made on Account of Natural Love and Affection: An agreement made

without consideration is enforceable if, it is

i. Made on account of natural love and affection.

ii. Between parties standing in a near relation to each other.

iii. Expressed in writing.
iv. Registered as per law.

Illustrations:

i. A promises, for no consideration, to give to B Rs. 1,000. This is a void agreement.

ii. A, for natural love and affection, promises to give his son, B, Rs. 1,000. A puts his
promise to B into writing and registers it. This is a contract.
iii. A finds B's purse and gives it to him. B promises to give A Rs. 50. This is a contract
iv. A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A's consent to the agreement was
freely given. The agreement is a contract notwithstanding the inadequacy of the
consideration.
v. A supports B's infant son. B promises to pay A's expenses in so doing. This is a contract.
vi. A owes B Rs. 1,000, but the debt is barred by the Limitation Act. A signs a written
promise to pay B Rs. 500 on account of the debt. This is a contract.

b) Agreement to Compensate for past Voluntary Service: Example - A finds B’s purse and
gives it to B. B promises to give A Rs. 100/-. This is a Contract.
c) Agreement to Pay a Time Barred Debt: Where there is an agreement, made in writing and
signed by the debtor or his authorised agent, to pay wholly or in part a debt barred by the law
of limitation, the agreement is valid even though it is not supported by any consideration.

d) Completed Gift: A completed gift does not require consideration in order to be valid.

e) Contract of Agency: No consideration is necessary to create an agency.

f) Remission by the Promisee, of Performance of the Promise: For compromising a due

debt, i.e. agreeing to accept less than what is due, no consideration is necessary.

g) Contribution to Charity: A promise to contribute to charity, though gratuitous, would be

enforceable, if on the faith of the promised subscription, the promisee takes definite steps in
furtherance of the object and undertakes a liability, to the extent of liability incurred, not
exceeding the promised amount of subscription.

Doctrine of Privity of Contract

The doctrine of privity of contract means that a contract is a contract between the parties only
and third parties are stranger to the contract and as such no third party can sue upon it or enforce
the contract.

This doctrine of privity of contract is rooted in the English common law especially in two
famous case of Tweddle v Atkinson, and Dunlop Pneumatic Tyre Company Limited v
Selfndge & Co
Tweddle v Atkinson [1861] EWHC QB J5
After the marriage of the plaintiff, there was a contract in writing between the plaintiff’s father
and the girl’s father that each would pay a certain sum of money to the plaintiff and the plaintiff
would have a right to sue for such sums. Plaintiff brought an action against girl’s father to
recover the promised amount.

Held: Plaintiff could not sue for the same. As the plaintiff was both a stranger to the contract
as well as stranger to consideration and he could not enforce the claim. It laid foundation for
doctrine of “privity of contract” which means that a contract is a contract between the parties
only and no third person can sue upon it even if it is made for his benefit.

Dunlop Pneumatic Tyre Company Limited v Selfndge & Co [1915] AC 847

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.

Held: 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.

Exceptions to Privity of Contract

1. Trust or Charge – Where trust or charge on property is created, in such case any beneficially
under such contract can institute suit enforcing rights on contract though beneficiary is not
party to the contract.

In Khwaja Muhammad Khan v Hussaini Begum, there was an agreement between the lady's
father-in-law and her father that in consideration of her marriage with his son, he would pay to
her Rupees five hundred per month in perpetuity for the betel-leaf expenses (Kharch-i-Pandari).
Some immovable property was specifically charged for the payment of these expenses. A suit
was brought by the wife for the recovery of arrears of annuity. Held that the wife, although not
a party to the agreement, was entitled to enforce her claim as the contract had been entered into
for her benefit and certain immovable properties had been specifically charged for the
allowance.

2. Marriage settlement, Partition or other Family arrangements- A person who is

beneficiary under an agreement for Marriage settlement, Partition or other Family
arrangements can enforce such agreement, even if he is not party to an agreement.
Daropti v Jaspat Rai (1905) PR 171

Facts: ‘J’s wife deserted him because of his ill treatment. ‘J’ entered into an agreement with his
father-in-law to treat her properly (or) else pay her monthly maintenance. Subsequently, she
was again ill-treated and also driven out.

Judgment: she was entitled to enforce the promise made by ‘J’ to her father.

3. Acknowledgement or Estoppel - Whereby 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, by such
acknowledgement a binding obligation is thereby incurred towards him

4. Covenants running with land - Where a person purchase a land with the notice that the
owner of the land is bound by certain duties created by an agreement affecting the land,
purchaser shall be bound by them, although he was not a party to it.