CONSIDERATION

 Introduction to Consideration

The section 25 of the Indian Contract Act, 1872 openly declares that an
agreement made without consideration is void. In other words the presence of
consideration is an essential for a contract to be valid. In England too promises
without consideration are not enforced, because they are gratuitous. In England
the contracts are divided into two

Categories:

1. Contracts under seal, or contracts in the form of a deed. Such contracts are
valid even without consideration.
2. Simple contracts or parol contracts. For validity of such contracts the presence
of consideration is needed.
Consideration in simple words means something in return of a promise which may
either be benefit gained by one party or something lost by the other. So generally
there can be no doubt that for a valid contract, there must be consideration, and
also free consent.

 Definitions of Consideration:

According to Blackstone:
“Consideration is the recompense given by a party contracting to the other
Or the price of the promise.”
Sir Fredrik Pollock ,“An act of forbearance of one party or the promise thereof is
the price for which the promise of the other is bought, and the promise thus given
for value is enforceable.”
 Definitions of Consideration under Section 2(d):

Section 2 (d), The Indian Contract Act, 1872 defines consideration as given under:
When, at the desire of the promisor the promise or any other person has done or
abstained from doing, or does or abstains from doing or promises to do or abstain
from doing something such act or abstinence or promise is called a consideration
for the promise.

 Essentials of Consideration:

The definition of consideration highlights the following essentials to be fulfilled

for the presence of a valid consideration:
1) Consideration to be given “at the desire of the promisor”
2) Consideration to be given “by the promise or an other person”
3) Consideration may be past, present or future, in so far as definition says that
the promisee:
a) Has done or abstained from doing, or
b) Does or abstains from doing, or
c) Promises to do or to abstain from doing, something.
4) There should be some act, abstinence or promise by the promisee, which
constitutes consideration for the promise.
  Consideration at the Desire of the Promisor

The definition of consideration under section 2(d) clearly emphasizes that the
consideration must be given at the desire of the promisor, rather than merely
voluntary or at the instance of some third party.
In the case Durga Parsad v Baldeo:
The plaintiff on the order of the Collector of the town, built at his own expense,
certain shops in a bazaar. The shops came to be occupied by the defendants who
in consideration of the plaintiff having expended money in the construction
promised to pay him a commission on his articles sold through their agency in the
bazaar. The plaintiff’s action to recover the commission was rejected. It was held
because as the construction had not been done as per the desire of the
defendants but the order of the collector. Hence, the consideration was not valid
and the defendants not liable for the same.

 Consideration by Promisee or any other Person

According to the Indian Law, consideration may be given by the promisee or any
other person. It means that as long as there is a consideration for a promise it is
immaterial who has furnished it. It may move from the promisee or, if the
promisor has no objection from any other person. But in English Law the position
is different, here the consideration must move from the promisee himself.
For example, A promises to give his watch to B and a consideration of Rs.5000 for
the same is given to A by C and not B himself. This will not be a valid contract in
England but in India it will be valid as the section 2(h) clearly states that at the
desire of the promisor, the promisee or any other person may provide
consideration.in the case of Chinnaya v Rammaya. In this case A, an old lady
granted her estate to her daughter (the defendant) with a direction that the
daughter should pay an annuity of Rs.653, to A’s sister (the plaintiffs). On the
same day, the defendants made a promise with the plaintiffs that she would pay
the annuity as directed by A. The defendant failed to pay the stipulated sum. In an
action against her by the plaintiffs she contended that since the plaintiffs
themselves had furnished no consideration, they had no right of action. The
Madras High Court held that in this agreement the consideration had been
furnished by the defendant’s mother and that it was enough consideration to
enforce the promise between the plaintiff and the defendant. In the above case it
can be seen that A enters in a contract with B, but A himself has not given any
consideration to B, but the consideration has been provided by third party that is
C to B. Although A is a stranger to consideration, he can still enforce the contract
against B. One has to remember that this is only true under Indian Law and the
situation is different under English Law where the consideration can only move
from the promisee and a stranger to the consideration in no condition can
maintain any action.

 Consideration may be Past, Present or Future (Executory)

Section 2(d) of the Indian Contract Act, 1872, recognizes three types of
consideration namely Past, Executed and Executory. It says that when at the
desire of the promisor, the promisee or any other person:

1. Has done or abstained from doing (the consideration is Past.)

2. Does or abstains from doing (the consideration is Executed or present.)
3. Promises to do or abstain from doing (the consideration is Executory or future.)

 Past Consideration

Past consideration means that the consideration for the promise had been given
earlier and the promise has been made afterwards. It is of course necessary that
at the time the act constituting consideration was done must have been done at
the desire of the promisor.

For example if A looses his watch and puts out a notice that whoever finds it will
get Rs.500 as reward. The person who finds it has already done the consideration.
This amounts to valid (past) consideration under Section 2(d), and the promise is
enforceable. The words “has done and abstained from doing” in Section 2(d) of
the Indian Contract Act, 1872

 Past services voluntarily rendered

A voluntary service means a service rendered without any request and there is no
subsequent promise for the same. For example if a person A has lost his watch
and another person B finds it and returns it to A and now asks A to give him a
reward for the same, A is not liable for the same as A has not made any prior
promise for the reward and this is not a contract.
The following illustrations also show the difference:
1. A finds B’s purse and gives it to him. B promises to give A Rs.50. This is a
contract.
2. A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a
contract.

 Past consideration at the Promisor’s Request

Past consideration in lieu of a prior request by the promisor is deemed to be a

good consideration. It was established as early as 1616 as in the case of
Lampleigh v Barthwait, The defendant, having committed a murder,
requested the plaintiff to labour and to do obtain pardon from the King. The
plaintiff did his best to obtain the King’s pardon, riding and journeying at his own
expense. Afterwards the defendant promised the plaintiff to give him £100 and
then refused to pay. He was held liable.

On this context there is not much difference between the Indian and English laws.
Indian law recognizes past consideration, when the same is given “at the desire of
the promisor.” Past act done voluntarily is no consideration either in India or
England. In India however a voluntarily done consideration can render an
agreement valid if it is declared valid under exception mentioned in Section 25(2).
There is no such provision under English law.
  Executed or Present Consideration

When one of the parties to the contract performs his part of the promise which
constitutes the consideration for the promise by the other side is called executed
consideration and the performance of the promise by the other side is the only
thing now to be done.
For example, A makes an offer to reward Rs. 100 to anyone who his lost phone
and brings the same back to him. B finds the lost item and delivers it to A. When B
does so it amounts to acceptance of the offer which results into a binding
contract under which A will have to pay Rs.100 to B, and also simultaneously
giving consideration for the contract The consideration in this case is “executed”.

Executed consideration is different from past consideration as executed

consideration is provided simultaneously along with the making of the contract
while past consideration is provided prior to the making of the contract.

 Executory or Future Consideration

When a person makes a promise in exchange of the promise made from the other
side, the performance of this promise is to be done after making the contract.
This is called Executory consideration.
For example, A agrees to sell and B to buy a quantity of goods at a stated price. In
other words, A has promised to sell and B has promised to buy. Some Act,
Abstinence or Promise by the Promisee Constitutes Consideration.
According to Section 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 not to do or abstain from doing something, such “act or
abstinence or promise” is called consideration for promise. It means that if
nothing is done in exchange for the promise, that is where there is no act,
abstinence or promise, there is no consideration.

 Consideration Received by one of the Joint Promisors.

In case there are joint promisors but consideration has been received by any one
of them, then it is held that the consideration is sufficient and binding on others
also.
In Andhra Bank v Anantnath Goel, the father received a loan from the bank
by the deposit of titledeeds of his immovable property, but the promissory note
to repay the loan with interest, was signed by the father and his son jointly, in
favor of the bank. It was held that the son was equally liable with his father on the
said promissory note even though he himself had received no direct
consideration.

 Subscription for a Charitable Purpose

Consideration is needed in exchange in every promise in order to make it

enforceable. A mere promise to make contribution to a charitable purpose may
not make it enforceable.
In Abdul Aziz v Mausam Ali, the defendant promised to pay a sum of Rs.500
as donation for the purpose of repair and reconstruction of a mosque. Nothing
was done and the defendant refused to pay the amount. It was held that nothing
could be done to enforce the same as nothing was done in faith of the promise
and no consideration was given. Therefore, the defendant was not liable for
breaking his promise.
Although, a promise to contribute is not enforceable only till then the promise has
caused something done in faith of the promise.

In Re Soames, one Soames made a promise to the plaintiffs that he would leave
a sum of £300 by his will for the maintenance of a school which was to be
established by the plaintiffs. On the faith of this promise the plaintiffs established
a school. But there was no such provision in the will of Soames. It was held that
the executors of the promisors will be liable for the same.

 Consideration Need Not be Adequate

It is not necessary for the consideration to be adequate to the promise. The

courts can hardly assume the task of setting what is the appropriate consideration
for the promise. According to Explanation 2 to Section 25 of the Contract Act,
1872:
An agreement to which the consent of the promisor is freely given is not void
merely because the consideration is inadequate; but the inadequacy of the
consideration may be taken into account by the Court in determining the
question whether the consent of the promisor was freely given.
The parties are free to make the consideration of their choice. The adequacy of
the consideration is for the parties to consider at the time of making the
agreement, not for the court when it is sought to be enforced.
For example, A agrees to sell his house worth Rs.1,00,00,000 for Rs.1,00,000. A’s
consent to the agreement was freely given. The agreement is a contract
notwithstanding the inadequacy of the consideration.

 Consideration must be real

It is necessary for consideration to be real and should not be unsubstantial.

In White v Bluett, a son used to complain to his father that his brothers had
been given more property then him. The father promised that he would release
the son from his debt if he stopped complaining. After the death of the father an
action was brought by the executors to recover the debt. It was held that the
promise of not facing the father with the complaints in future was not a good
consideration for the father’s promise to release him from the debt. Therefore
the son continued to be liable for the debt.

 The consideration must have some value in the eye of taw.

 It must not be sham or illusory.
 The impossible acts and illusory or non-existing goods cannot support a
contract. Therefore, real consideration comes from good consideration.
 A contribution to charity is without consideration. Therefore, it is not real
consideration.

Examples:
(i) Illusory consideration: G promises for no consideration, to give H Rs 1,000. This
is a void agreement. No consideration, no contract.

(ii) Impossible act: X promises to supply Y one total of gold brought from the sun.
The consideration is sham and illusory and there is no contract.

(iii) No consideration : V owed 1208 to E who told V that if the money was not
paid by 7th July he would file a bankruptcy petition against V Thereupon V
promised to pay the money before 12 o’clock on 8th July and E agreed not to file
the petition before that time. Held, there was no consideration for E’s promise.
‘Vanburgen v. St. Edmunds Properties Ltd

 Performance of an Existing Legal Duty in no Consideration

Doing something what a person is already legally bound to do is not a

consideration. But for a proper consideration there should be a promise to do
something more than what a person is already bound to do.
In Collins v Godefroy, A received a subpoena, presence of a witness to testify, in
a case. Thereafter B promised to pay A some money for the trouble caused to him
in appearing in that case. A sued to recover B for the amount promised. It was
held that A was already under a public duty to give evidence and that the
consideration to pay by B did not constitute a good consideration.

 Promise to Perform an Already Existing Contractual Duty

If a person is already contractually bound to perform a certain task for B then B’s
promise to pay something additional in return is no consideration. In other words
compliance to a legal obligation imposed by a contract is no consideration for
promise.
In the case of Ramchandra Chintaman v Kalu Ram: The plaintiff accepted a
vakalatnama from the defendant to act for him in a certain suit on receiving his
usual fee. Subsequently the defendant agreed to pay him a certain sum as special
reward if the suit is decided in his favor. The suit was decided in favor of the
defendant, who, however did not pay the amount. The plaintiff therefore,
brought the present suit action against him. Rejecting the action, The plaintiff
having accepted a Vakalatnama was already bound to render his best service as a
pleader.There was no fresh consideration proceeding from the plaintiff when he
obtained the agreement.”

 Exceptions

English Law:-In the English law a contract under seal is enforceable without
consideration while the simple contracts need the presence of consideration. In
the words of Anson:English law recognizes only two kinds of contract the contract
made by deed that is under seal which is called deed or specialty and the simple
contract. A contract under seal means which is in writing and which id signed,
sealed and delivered.

Indian Law:-Section 25 of the Indian Contract Act, 1872, generally declares that
an agreement without consideration is void. The Section, however, provides
exceptions to the rule stated as under:
  Promise due to natural love and affection

If a promise is made in favor of a person of a near relation on account of

nearness, love or affection, the same is valid even though there is no
consideration.
The following conditions need to be satisfied in order to cover this exception:
1. The parties to the agreement must be standing in a near relationship to each
other.
2. The promise should be made to one party out of natural love and affection for
the other.
3. The promise should be in writing and registered.The near relationship has not
been defined by act or any judicial pronouncement. But, from the various
decisions we can see that it covers blood relations and relations made through
matrimony, but would not include such relations which are not near, but
remotely entitled to inherit. But in a relation where there is no love and affection
the exception does not apply. in Rajlucky Dabee v Boothnath Mookerjee
after a lot of quarrels and disagreements between the parties who were Hindu
husband and wife decided to live apart. Later the husband executed a document
giving the wife separate residence and maintenance. The agreement also included
mention of the quarrels and disagreements between the two. It was held that the
document was not executed because of love and affection but the absence of the
same, therefore, the wife could not recover the sums mentioned in the
document. It is also necessary for the document to be in writing and the writing
be registered under the law relating to registration of documents.
  Consideration for Past Voluntary Services

When something done at the desire of the promisor it constitutes a valid

consideration in the same respect a subsequent promise to compensate for
whatever has already been done is also good. In other words promise to pay for a
past voluntary service is binding.
In Sindha v Abraham the Bombay High Court said that “services rendered at
the desire of the minor expressed during majority and continued at the same
request after his majority form a good consideration for a subsequent express
promise by him in favor of the person who rendered the services.”

 Promise to Pay Time Barred Debt

In another condition if a party agrees to pay a time barred debt it is considered to

be valid contract. Section 25(3) required the following essentials to be satisfied in
such a case:
1. The promise must be to pay wholly or in part a time barred debt, that is a debt
which the creditor might have enforced payment but for the law the limitation of
suits.
2. The promise must be in writing and signed by the person to be charged
therewith, or his duly authorized agent
.
The English law on the point is also same. It was established in England as way
back as that a precedent debt is good consideration for a subsequent promise.
This also includes time barred debts.