STUDENT NAME: - DASHANG SAMEER DOSHI

ROLL NUMBER AND DIVISION: - D-190

TOPIC: - CONSIDERATION

SUBJECT: - CONTRACT – I

COLLEGE NAME: - JITENDRA CHAUHAN COLLEGE OF LAW

FACULTY TO WHOM THE PROJECT IS SUBMITTED: - PROF. S.V. RAJADHAYAX

Page 1 of 19
 ACKNOWLEDGEMENT

I would like to take this opportunity to express my gratitude to one and all without whom it
would not be possible to complete the project. Firstly, I would like to express my gratitude
towards Prof. S.V. Rajadhayax sir for guiding me throughout the project. I also feel thankful
and express my gratitude towards our Principal Dr. Priya J. Shah for giving me this opportunity.
All the respected teachers provided me with their vital support and guidance because of which
I could make this project. This project helped me in finding my capabilities and also enhanced
my research skills.

I would also like to express my sincere thanks to my family; it would not have been possible
to finish this project without their support and coordination. Lastly, I would like to thank my
friends who have been upfront whenever I needed help from them for making this project
within the stipulated time frame.

Dashang Sameer Doshi

FYLLB D - 190

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 Table of Contents

SR. NO TOPIC PAGE

NUMBER
1. Introduction 4
2. Meaning & Definition 5
3. Essentials of Valid Consideration 7
4. Exceptions provided for consideration 12
5. Privity of Contract & Privity of Consideration 14
6. Exception to the Doctrine that the Stranger to Contract cannot sue 17
7. Conclusion 18
8. Bibliography 19

Page 3 of 19
INTRODUCTION

The Indian Contract Act was enacted in 1872 and came into force on 1st September 1872. The
word ‘contract’ has been derived from the Latin word ‘contructus’ which means ‘to work on
contract’. The law of contract is based on the principle of ‘pacta sunt servanda’ which means
‘agreements must be kept’. Section 2(h) of the Indian Contract Act 1872 defines the term
‘contract’ as an ‘agreement enforceable by law’. As per section 2(e) every promise and every
set of promises forming consideration for each other is called an agreement. A promise is an
accepted proposal1

This Act describes different stages in the formation of a contract, its performance, essential
elements, breach of contract and remedies for the breach of contract. The Act deals with a
number of limiting principles subject to which the parties to the contract may create certain
rights or duties for themselves. Consideration is one of the sixth essential element for the
formation of a valid contract. It is simply the exchange of one thing of value for another. It
must be legally sufficient and bargained for by the receiving party.2

It is an ancient and well-established rule of the common law prevailing in this country, that no
promise can be enforced at law, unless it rests upon a sufficient consideration; by which word
is meant a cause or reason for the promise. If it does not, it is called a naked bargain, and the
promisor, even if he admits his promise, is under no legal obligation to perform a promise that
he made without a consideration.3

1
Harshita Gulati, Introduction to Indian Contract Act, (May. 1, 2021, 8:00 PM),
https://lawctopus.com/clatalogue/indian-contract-act-introduction/
2
Lawnn.com, The Law of Contract 1872: Consideration in a Contract, (May. 1, 2021, 8: 12 PM),
https://www.lawnn.com/law-contract-consideration-contract/
3
Book Third: The Property Rights of a Citizen of the United States: Chapter XI

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MEANING & DEFINITION

Consideration is the price of the contract and it can be right, interest or responsibility
etc. According to section 2(d) of the Indian Contract Act “when at the desire of the
promisor, 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 .”4

Analysing the above definition, Consideration can be: -

1. An act of doing something – In this case, the consideration is in affirmative or

positive form. Example: A promises to B to guarantee payment of the price of
goods which B sells on credit to C. Here selling of goods by B to C is Consideration
for A’s promise.
2. An Abstinence or forbearance means abstaining or refraining from doing
something – In this case, the consideration is in negative form. Example: A
promises to B not to file a suit against him if he pays him Rs 500. The abstinence
of A is the consideration for B’s payment.
3. A return promise – Example: A agrees to sell his horse to B for Rs 10,000. Here
B’s promise to pay the sum of Rs 10,000 is the consideration for A’s promise to
sell the horse, and A’s promise to sell the horse is the consideration for B’s promise
to pay the sum of Rs 10,000 5.

In short, the term consideration means ‘something in return’ i.e., ‘QUID PRO QUO’.
There are certain definitions given by some well-known authors which can be
described as under:

Blackstone: According to Blackstone “Consideration is the recompense given by the party

contracting to other”

Pollock: In the words of Pollock, “Consideration is the price for which the promise of the other
is bought, and the promise thus given for value is enforceable”

4
Indian Contract Act, 1872
5
Souvik Chattrejee, Consideration under Indian Contract Act 1872, (May. 1, 2021, 8:32 PM)
https://www.legalbites.in/consideration/

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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”

There are certain case laws in which court has defined consideration. Below mentioned are
the case laws:

In Fazalaldin Mnadal v. Panchanan Das6, the Calcutta High Court held that “Consideration
is the price of the promise, a return or quid pro quo, something of value received by the promise
as inducement of the promise.”

In Currie v. Misa 7, it was defined, “A valuable consideration in the sense of the law
may consist either in some right, interest, forbearance, detriment, loss or responsibility,
given, suffered or undertaken by the other.”

The legal maxim “Ex nudo pacto non oritur action” means “Agreement without
consideration is void”. This principle is embodied in Section 25 of Contract Act.

Consideration must be clear, specific and not illusory. The rule is “no consideration,
no contract”. The consideration may be inadequate if parties agree. Consideration
should not be illegal, immoral or opposed to public policy.

6
AIR 1957 Cal 92.
7
LR 1 App Cas 554.

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ESSENTIALS OF VALID CONSIDERATION

In accordance with Section 2(d), the essential features of a valid consideration are as
follows:

1. It is given ‘at the desire of the promisor’;

2. It may move from any person;
3. It can be past, present or future consideration;
4. It must be real and possess value. It must not be illusory;
5. It must be something other than the Promisor’s existing obligation;
6. It must be lawful.

1. It is given ‘at the desire of the promisor’:

The definition in Section 2 (d) clearly emphasizes that an act or abstinence which is to be a
consideration for the promise must be done or promised to be done in accordance with the
desire of the promisor. If such consideration is made at the will of a third party or without the
desire of the promisor, it will not be the good consideration.8

Illustration: At the request of the collector of the District, X spent money and constructed
some shops. Y, a shopkeeper who occupied one of those shops, promised to pay to X
commission on the sale of goods made by him as consideration for the money X spent on the
construction. X sued Y to recover the promised commission. Since, X had not constructed the
shops at the desire of Y (the promisor here); there was no valid consideration as required by
Section 2 (d). Thus, the agreement was void and Y was held not liable to pay the promised
amount. The facts are similar to the case of Durga Prasad v. Baldeo9

It is not necessary that the promisor himself should be benefited by consideration. It is enough
if the act or forbearance constituting consideration was done or given at the request of the
promisor.

2. It may move from any person:10

8
Souvik Chattrejee Supra note 5.
9
ILR (1880) 3 All 221.
10
Shikha Singh, Consideration: Meaning, Definition and Essential Elements-Contract Act, (May. 1, 2021, 9:30
PM),https://www.ourlegalworld.com/consideration-meaning-definition-and-essential-elements-contract-act/

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The second most important essential feature according to the consideration definition give in
the Section 2 (d) is that it may pass on to Promisor from Promisee or any other third person.

In the case of Dutton v. Poole11, a person had a daughter to marry and his son promised him
that, in return he would pay 1000 pounds to his sister if his father not selling a wood. The father
accordingly forbore but the son (defendant) did not pay. It was held that due to tie of blood
between them the sister could sue, on the ground that the consideration and promise to the
father may well have extended to her.

In Chinnaya v. Ramayya12, a promise by a daughter to her mother’s sister to pay maintenance

in consideration of the mother (an old lady) making a gift of certain landed property to her, was
sought to be enforced by the sister of the mother. The decision was in favor as this was a
perfectly valid consideration.

3. Consideration may be past, present or future:

• Past Consideration:

Past consideration is a promise for a voluntary act done in the past to help the party
who is making promise to pay or to do something subsequently. It means consideration
is promised to pay later for an act done without any promise from the other party. A
promise is said to be given for past consideration when the promisor’s motivation for
making the promise is a past benefit, he received that gave rise to an obligation to make
compensation. Earlier past consideration was no consideration but now it is a good and
valid consideration

Example: B house is on fire. A rush to B’s help and saved his life. In a show of
gratitude, B promises to pay A ` 5,00,000 for the help provided by A. In this case , B’s
motivation for making this promise is the past benefit that provided which gave rise to
the moral obligation to compensate A. 13

A person may render voluntary services to another without any request or promise. In
some cases, the receiving party may subsequently make a promise to pay for the
services rendered. Such a promise is enforceable in India under Section 25(2) that

11
(1678) 2 Lev 210.
12
(1882) 4 Mad 137.
13
Consideration under the Indian Contract Act, 1872, (May. 1, 2021, 10:00 PM),
https://www.taxmann.com/post/blog/5040/consideration-under-the-indian-contract-act-1872/

Page 8 of 19
provides that “a promise to compensate, wholly or in part, a person who has already
voluntary done something for the promisor” is enforceable.

Illustration: X found Y’s purse on the road. He returns the same to Y who promises
to give Rs 100 to X for his services. This is a valid contract.

Section 25(2) also covers acts done at request and for which a promise to pay is gi ven
later. Every request for an act carries an implied promise to pay. 14

In Sindha Shri Ganpatsingji v. Abraham 15, it was held that services rendered to a
minor at his request and also continued after his majority at the same request were good
consideration for the minor’s promise to pay.

• Present or Executed Consideration: 16

When the promisor receives consideration simultaneously with his promise, the
consideration is termed as Present Consideration.

Example: A purchased goods from a shopkeeper of the worth of Rs 10,000. A pays

money to the shopkeeper immediately. The Consideration present over here is Present.

The difference between Past Consideration and Executed consideration is that Past
consideration always consists of an act done without any promise, but an Executed
Consideration means an act which has been done in response to a promise.

• Future or Executory Consideration:

When a promise is to be executed on a future date it is called executory consideration

or future consideration. In this, the promisor makes an offer for a future date and the
promisee promises to accept and execute the contract after that date this is future
consideration. In this case, both parties move the consideration to a future date. The
liability becomes outstanding on both parties on a future date .

14
K, Consideration – Definition & Essentials, (May. 1, 2021, 10:08 PM),
https://kanwarn.wordpress.com/2014/02/21/consideration-part-1-of-3-definition-and-essentials/
15
[1896] 20 Bom. 755.
16
Supra Note 13.

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Example: Ruhi Promises to sell and deliver a new wristwatch to Rekha after a week.
Rekha accepts the offer and promises to pay after one month of receiving the watch.
This is executory or future consideration. 17

4. It must be real and possess value. It must not be illusory: 18

Consideration must have some value in the eyes of law. A worthless act cannot satisfy
the spirit of definition.

While the consideration must be real, it does not need to be adequate for the promise.
It is for the parties to consider what is adequate consideration for them. This principle
of English law is also enforced in India.

Explanation to Section 25 provides that a contract which is supported by consideration

is valid irrespective of the fact that the consideration is inadequate.

A contract is not invalid merely due to inadequacy of consideration. However, the

Courts may look into adequacy of consideration to ascertain wh ether the consent of a
party was free or not. Consideration need not be adequate but it must be sufficient in
the eyes of law.

‘Forbearance to sue’ refers to the scenario where the party has a right to action against
the other party or a third person and he refrains from bringing action in consideration
of promise by the other or third party. Forbearance to sue is valuable consideration
provided such action does not give rise to an illegal contract.

In Kasturi Devi v. Chiranji Lal 19, X-the wife of Y, withdrew her suit against Y in
return for his promise to pay her maintenance. It was held that it was good
consideration.

In the case of White v. Bluett 20, X-the son of Y, used to constantly complain to his
father that his brothers had received more property than X. Y promised to release him
from an outstanding debt if X promised to stop complaining. It was held that the

17
Ibid.
18
K, Supra Note 14.
19
AIR 1960 All 446.
20
1853 23 LJ Ex 36.

Page 10 of 19
promise by X to not bore Y in the future did not constitute good consideration for Y’s
promise to release him from a debt.

5. It must be something other than the Promisor’s existing obligation:

Performance of an existing obligation or legal duty is no consideration for a promise.

Illustration: X receives summons to appear before the court of law as a witness for Y.
He is promised certain amount of money by Y for appearing in Court. The promise to
pay X is void because of lack of consideration for Y as X was already under a legal
duty to appear as witness before the court.

6. It must be lawful:

A consideration which is against the law or public policy is not valid i.e., it will become void
and unenforceable. Therefore, it is necessary that consideration should be lawful one. A
husband offered reward to anyone who would rescue his wife dead or alive from a burning
building and a fireman was allowed to receive it as he accomplished the rescue of her dead
body and it was like a great peril to his health and life, the court held that as a fireman of the
city he was not legally bound to risk his life in that rescue21

Illustration: X offers Rs 10,000 to Y for beating up Z, his enemy. Y beats up Z but X refuses
to pay him. Y cannot recover the money promised to him because the consideration is unlawful.

21
Costigan, CASES ON CONTRACT (3rd Edn) 309.

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EXCEPTIONS PROVIDED FOR CONSIDERATION 22

The presence of consideration is not universal. The reason arises from the very
statutory provision of having exceptions to this general principle of having a
consideration. An agreement made without consideration is void, unless the agreement
is made on account of: -

1. Promise made on account of Natural Love and Affection.

2. Promise to Compensate for Voluntary services.
3. Promise to pay time barred debt.
4. Agency.
5. Complete Gift.

1. Promise made on account of natural love and affection

When a contract is made on account of natural love and affection between the parties.
The parties are standing in a near relation to each other, and the contract is in writing
and registered under the law for the time being in force for the registration of
documents.

Example: A out of his love and affection, promises to give his wife Rs. 10,000. This
promise is put into writing and is registered. It will be a valid contract without
consideration.

After persistent quarrels and disagreement between husband and his wife, the husband
promised in writing to pay his wife, a sum of money for her maintenance and separate
residence. The agreement was also registered. It was held that the promise was not
enforceable because it was not entered out of natural love and affection. (Rajlusmi
Dabee v. Bhootnath)23.

2. Promise to compensate for voluntary services:

22
Supra Note 3.
23
4 CAL WN 488.

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When a contract is made to compensate a person, who has already done something
voluntarily for the promisor, or done something which the promisor was legally
compellable to do.

Here two conditions must be fulfilled. First, the act must have been done voluntarily
and for the benefit of the promisor, secondly, the intention of promisor must have been
to compensate the promisee.

This contract may be oral or written. Thus, services voluntarily rendered but not with
gratuitous intention can form valid consideration for a promise given to compensate
him.

3. Promise to pay a time barred debt:

According to section 25(3), a promise by a debtor to pay a time barred debt is

enforceable it is made in writing and is signed by the debtor or by his agent generally
or specially authorised in that behalf. The promise may be to pay the whole or any part
of the debt. The debt must be such, of which the creditor might have enforced payment
but for the limitation of suits.

For example: A owes B Rs 2,000 but the debt is barred by the Law of Limitation. A
sign written promise to pay B Rs 1,000 on account of the debt. This is a contract.

4. Agency:

Consideration is not necessary to create an agency.

5. Complete gift:

The rule ‘no consideration, no contract’ does not apply to completed gifts. According
to Explanation to section 25, nothing shall affect the validity, as between the donor and
donee of any gift actually made.

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PRIVITY OF CONTRACT AND PRIVITY OF CONSIDERATION 24

Only the parties of the suit are bound by the terms and conditions as well as by the
consequences of the contract. A stranger to contract, cannot file a suit to enforce any
of the right or liability arising out of the contract. It means that a person who stands to
obtain a benefit from the contract (a third-party beneficiary) is not entitled to take any
enforcement action even if he or she is denied the promised benefit.

In Tweddle v. Atkinson 25, the father of the groom and the father of the bride, agreed
that each of them shall pay a sum of money to the boy, and after marriage the husband
should have full power to sue for such sums. After the death of both the contracting
parties the husband sued the executors of the wife’s father upon th e above agreement,
but the action was held not to be maintainable because the husband was not a party to
the contract.

In Dunlop Tyre Co. v. Selfridge Ltd 26, D supplied tyres to a wholesaler X, on the
condition that any retailer to whom X resupplied the tyre should promise X, not to sell
to the public below D’s list price. X supplied the tyres to S, a sub -dealer, S sold two
tyres at less than the list price, and thereupon, the Dunlop Co., sued him for breach of
the contract. Held, Dunlop Co., could not claim the benefit of the contract as against
S, a sub-dealer, there was no privity of contract between the two.

PRIVITY OF CONSIDERTION: -

It means that although the party is stranger to consideration as he or she has not paid
the consideration, but someone has paid consideration for the benefit of the beneficiary.
So, the beneficiary may file a suit to execute the contract.

In Chinaya v. Ramayya 27, A, by a deed of gift, made over certain property to her
daughter, with a direction that the daughter should pay an annuity to A’s brother, as
had been done by A. On the same day the daughter executed a writing in favour of the
brother agreeing to pay the annuity. The daughter declined to fulfil her promise and

24
Supra note 3.
25
(1861) 1 B&S 393.
26
[1915] AC 847.
27
Supra Note 12.

Page 14 of 19
the brother sued to recover the amount. The defendant (sister) contended that no
consideration from the brother, and that he being the stranger to the consideration had
no right to sue. Held, it is not necessary that consideration must move from the
promised himself. A contract can be supported can be supported even by a
consideration from a person other than the promised. Therefore, the brother was
entitled to maintain the suit.

In Dutton v. Poole 28, the court observed that the stranger was having very close
relations to the promise. He could, therefore, maintain an action on a contract as a
beneficiary. In this case the father of the defendant wanted to sell some timber trees.
The defendant promised (in consideration that his father would refrain from cutting
down the trees) to pay to his sister Grizil pounds 1000 Grizil (as Mrs. Dutton) with her
husband sued from breach of the promise. It was held that the action was maintainable.

EXCEPTIONS TO DOCTRINE OF PRIVITY OF CONTRACT: 29

1. Beneficiaries in case of trust:

A beneficiary under an agreement to create a trust can sue upon the agreement, though
he was not a party to the contract between the settler and the trustees.

Example: A creates a trust for the benefit of B, and appoints X, Y and Z as trustees. B
can sue for benefits available to him under the trust though he is not a party to the
contract.

2. In case of provision in marriage settlement of minors:

A child in a contract of marriage is treated as a party who has given consideration, and
he is entitled to enforce any contract to settle property, which a marriage settlement
may contain

3. In case provision is made for the marriage or maintenance of a female member

of the family on partition of Hindu Undivided family:

28
Supra Note 11.
29
Supra Note 3.

Page 15 of 19
The female members though not parties to the contract, possess an actual beneficial
right which places them in the position of beneficiaries under the contract, and can,
therefore, enforce the promise.

4. Assignee of a contract:

An assignee under an assignment made by the parties, or by the operation of law, e .g.,
in case of death or insolvency, can sue upon the contract for the enforcement of his
rights and interests. A debt can be assigned by a creditor to a third person without the
consent of the debtor. But a mere nominee cannot sue e.g., the person for who se benefit
another has insured his own life cannot sue.

5. Where a charge is created on certain specific immovable property in favour of

certain person:

Such charge is enforceable at the instance of the beneficiary entitled, though he may
be a stranger to the document creating the charge.

6. Estoppel:

Where one party has by his words or conduct made to the other a promise or assurance
which was intended to affect the legal relations between them, then once the other party
has taken him on his words and acted upon them, the party who gave the promise shall
be estopped from denying his liability arising from the promise .

7. Contracts which are entered into through an agent, can be enforced by the
principal.

Page 16 of 19
EXCEPTIONS TO THE DOCTRINE THAT STRANGER TO CONTRACT
CANNOT SUE 30

According to general rule of law only parties to a contract my sue and may be sued on
the contract. This rule is based on the doctrine of the privity of contract. This means
relationship subsisting between the parties to a contract. It means mutually of will and
creates a legal bond or tie between the parties to a contract

The consequences of the doctrine of privity of contract are:

1. Any person who is not a party to a contract cannot sue upon it even though the
contract is for his benefit and he supplied consideration.
2. A contract cannot give rights or impose obligations arising under the contract on
any person other than the parties to it

But there are certain exceptions to the rule that a stranger can sue, i.e., a stranger can
sue in certain cases.

This is possible in cases of trust or charge. Similarly, a stranger may sue in case of
marriage settlement, partition or other family arrangements. A stranger can also be
sued in case of acknowledgement or estoppel.

Where the promisor by his conduct, acknowledge or otherwise constitutes himself as

an agent of the Third party, a binding obligation is thereby incurred towards him.
Similarly, in case of assignment of a contract, the assignee of rights and benefits under
a contract not involving personal skill can enforce the contract subject to the equities
between the original parties.

30
Supra Note 3.

Page 17 of 19
CONCLUSION

Consideration legally binds a contract and it also protect both the parties from lawsuits and
misunderstanding. It is not necessary that consideration nature should always be tangible, even
an intangible consideration is equally valid consideration. Contract considered many essential
elements and lawful consideration is integral part or element of valid contract

Though the doctrine of consideration has been there for long, it has experienced in the common
law a lot of uncontroversial history. This has been through the existence of lack of unjust results
and lack of imbedded status by the doctrine in the courts. This feature has been attributed by
the increasing flexible approaches of judges.

Consideration must, therefore, have some real value and should represent detriment to the
individual who contributes it. Though it does not need to be sufficient, it must be enough to be
recognized by courts as a valid consideration (“has value in the eyes of the law”).

On the other hand, consideration has unwanted consequences. This happens due to the
unenforceability of unjustified promises unless in deed form. By doing so, it brings down the
legitimate meanings of parties who wish to undertake binding obligations legally.

Consideration should not be removed, and the current courts should find its existence to reflect
the intention to the parties of the contract. True intentions of the contract considerations should
be captured in the findings of the consideration.

Page 18 of 19
BIBLIOGRAPHY:

1. Indian Contract Act, 1872.

2. Costigan, CASES ON CONTRACT (3rd Edition) 309.
3. Book Third: The Property Rights of a Citizen of the United States: Chapter XI.
4. Lawnn.com, The Law of Contract 1872: Consideration in a Contract,
https://www.lawnn.com/law-contract-consideration-contract/
5. Harshita Gulati, Introduction to Indian Contract Act,
https://lawctopus.com/clatalogue/indian-contract-act-introduction/
6. Consideration under the Indian Contract Act, 1872,
https://www.taxmann.com/post/blog/5040/consideration-under-the-indian-contract-
act-1872/
7. Shikha Singh, Consideration: Meaning, Definition and Essential Elements-Contract
Act, https://www.ourlegalworld.com/consideration-meaning-definition-and-essential-
elements-contract-act/
8. K, Consideration – Definition & Essentials,
https://kanwarn.wordpress.com/2014/02/21/consideration-part-1-of-3-definition-and-
essentials/
9. Souvik Chattrejee, Consideration under Indian Contract Act 1872,
https://www.legalbites.in/consideration/
10. Sakshi Agarwal, Agreements without consideration,
https://lawtimesjournal.in/agreements-without-consideration/
11. https://thesisleader.com/essays/consideration/
12. Fazalaldin Mnadal v. Panchanan Das AIR 1957 Cal 92.
13. Currie v. Misa LR 1 App Cas 554.
14. Durga Prasad v. Baldeo ILR (1880) 3 All 221.
15. Dutton v. Poole (1678) 2 Lev 210.
16. Chinnaya v. Ramayya (1882) 4 Mad 137.
17. Sindha Shri Ganpatsingji v. Abraham [1896] 20 Bom. 755.
18. Kasturi Devi v. Chiranji Lal AIR 1960 All 446.
19. White v. Bluett 1853 23 LJ Ex 36.
20. Rajlusmi Dabee v. Bhootnath 4 CAL WN 488.
21. Tweddle v. Atkinson (1861) 1 B&S 393.
22. Dunlop Tyre Co. v. Selfridge Ltd [1915] AC 847.

Page 19 of 19