BUSINESS LAW FOR

MANAGEMENT
Ch-1
Law of Contract
Topic-4 (Consideration)

Definition and Meaning

When at the desire of the promisor, the promisee or any other person (i)

has done, or abstained from doing or (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.

Essentials of a Valid Consideration

Consideration must move at the desire of the promisor.
Consideration may move from the promisee or any other person Stranger to a contract.
Consideration may be past, present and future.
Consideration may be an act of doing or abstaining from doing something or it may be an act or forbearance or
abstinence.

Consideration need not be adequate.

Consideration must be real and not illusory.
Consideration must not be unlawful, illegal, immoral or opposed to public policy.
Performance of existing obligation is no consideration.
Forbearance to sue is a good consideration.

1. Consideration must move at the desire of the

promisor.
The act must be done at the desire of the promisor.
If it is done at the instance of the third party or without the desire of the
promisor, it is not a consideration.

Eg.: A promised by a letter to pay B a certain sum of money. In that letter, C

promised to give her daughter for marriage with B. A failed to pay. B and C
filed a suit to recover the amount. Here, C cannot force A to pay the money
to B because Cs promise to marry her daughter to B did not move at the
desire of A, the promisor.

2. Consideration may move from the promisee

or any other person Stranger to a contract.
A consideration may move from promisee or any other person.
Consideration from a third party is a valid consideration.

Eg.: A gifted certain property to her daughter with the condition that the

daughter should pay an annuity to As brother B. However, the daughter

failed to keep her promise and the brother sued the daughter to claim the
annuity. It was held that the words in section 2(d) the promisee or any
other person indicate that a stranger to a consideration may maintain a suit.

There was no contract between As daughter and B, but as a result of the

agreement between A and his daughter, B was the beneficiary and was
entitled to the consideration though he was a stranger to contract.

Therefore, a stranger to a consideration may enforce a contract.

3. Consideration may be past, present or future:

Law as to past consideration
When a person has already done something or has already forborne
something; and then comes a promise , it is called a past consideration.

Eg.: A finds Bs son. B promise to pay A Rs. 10,000. (past consideration)

Past consideration is an example of voluntary service rendered by a person.
Therefore, a person who does an act voluntarily cannot compel the other
person to give a consideration.

Where the promisee does or abstains from doing something is present

consideration. In this case, one party has performed his promise.

Where the promisee promises to do or abstains form doing something is a

future consideration. It refers to something to be done in future.

Eg.: A promises to deliver goods to B when the ship arrives and B promises

to pay A Rs. 1,000 against the receipt of the goods. This is an illustration of
a future consideration which is to be performed by both the parties when the
ship arrives.

4. Consideration may be an act of doing or abstaining from

doing something or it may be an act or forbearance or
abstinence.
A person may promise to do something or not to do something, or refrain
from doing something for a promise.

An act, abstinence or promise is called a consideration for the promise.

5. Consideration need not be adequate

Consideration need not be adequate but must be of some value in the eyes
of the law.

Consideration shall be something which not only the parties regard but the
law can also regard as having some value.

6. Consideration must be real and not illusory

Consideration must be real and of some value in the eyes of law
It need not be adequate
Consideration is not real when it is uncertain, illusory or when it is physically
or legally impossible to perform.

7. Consideration must not be unlawful, illegal,

immoral or opposed to public policy.
Consideration must be lawful, legal, having moral binding and should not
oppose to public policy.

8. Performance of existing obligation is no

consideration
The performance of an act by a person who is already bound to perform the

same either as a public duty or under the existing contractual obligation

cannot be consideration for a contract.

9. Forbearance to sue is a good consideration

Forbearance to sue or a promise to forbear, where requested, will support a
promise by another.

It is abstinence within the meaning of section 2(d).

Eg.: a wife agrees not to sue her husband for maintenance when the latter

promises to pay her a monthly allowance by way of maintenance. Here the

contract is valid. The wifes forbearance to sue constitutes a good
consideration.

No Consideration, No Contract- When an agreement

without consideration is valid? (Exceptions)

Agreement made on account of natural love and affection

Promise to compensate for past voluntary service
Promise to pay time-barred debt
Others Agents, Gifts, deed under seal, Gratuitous Promise

Kinds of Consideration

Executed Consideration
Executory Consideration
Past Consideration
Unlawful Consideration
Unreal or Illusory Consideration

Unlawful Object
UNLAWFUL
OBJECT

AGREEMENTS
THAT
ARE UNLAWFUL

AGREEMENTS
THAT
ARE AGAINST
PUBLIC POLICY

AGREEMENTS
THAT
ARE ILLEGAL
IN NATURE

Unlawful Object / Consideration

It is forbidden by law; or
It is of such 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.

Agreements against Public Policy

1. Trading with an enemy
2. Marriage brokerage agreements
3. Agreements interfering with
administration of justice:

Interference with the course of

justice

Champerty and maintenance

contracts

Stifling prosecutions

4. Agreements tending to create interest

against duty
5. Agreements as regards sale of public
offices
6. Agreements tending to create
monopoly
7. Agreements in restraint of marriage

Agreements against Public Policy Contd

8. Agreements in restraint of tradeExceptions-

Sale of Goodwill
Partners agreements
Trade Combinations
Service Contracts

9. Agreements in restraint of legal proceeding

10. Agreement in restraint of Parental rights

11. Agreement restricting personal

liberty.
12.Agreements interfering with
marital duties.
13.Agreements to defraud creditors
or revenue authorities
14.Agreements not to bid
15.Non-compliance of Courts order

10