INTRODUCTION TO BUSINESS LAW

COURSE CODE: ALD 2202

LECTURE 4: CONSIDERATION OF CONTRACTS

PRIMARY SOURCE: CHAPTER 4 COMMERCIAL LAW AND INDUSTRIAL LAW, 27TH EDITION BY
ARUN KUMAR SEN AND JITENDRA KUMAR MITRA

Course Instructor: Farzana Tazin

 What is consideration?
2

Subject to certain exceptions, an agreement is not

enforceable unless each party to the agreement
gets ‘something’. This ‘something’ is called
consideration.
Points to remember:
❑ The exchange of money and the receipt of the item
is mutual consideration for the transaction. To put it
simply, consideration constitutes the benefit that you
receive from making the contract.
 What is consideration?
3

 Consideration was defined as, 'some right,

interest, profit or benefit accumulate to one
party, or some tolerance, detriment, loss or
responsibly given, suffered or undertaken by
the other.”
 Example: P agrees to sell a house to Q for Rs.
80.000. For P’s promise, the consideration is Rs.
80000, For Q's promise, the consideration is the
house.
 What is consideration?
4

Example: How does consideration work in the real

world? Let's say you backed into your neighbor's car
and damaged it. Your neighbor is legally permitted to
take legal action you for the damage but instead
agrees not to take legal action you if you pay him 1.5
lac taka. This agreement provides adequate
consideration for the contract, because each party is
giving up something in the exchange . you're giving up
some of your money while your neighbor is giving up
the right to take legal action.
 Types of consideration (with examples)
5

 Past consideration: When the consideration of one

party was given before the date of the promise, it is
said to be past.
Example: Fahad did some graphics designing work for
Tasmia in the month of January (without expecting any
money). In February, Tasmia promises to pay him a
certain amount of money for his work. The
consideration of Fahad is ‘past consideration’
 Types of consideration (with examples)
6

 2. Present consideration: Consideration which moves

simultaneously with the promise is called Present
Consideration or Executed Consideration.
Example: Imran buys a computer from a store and pays the
price immediately.
 3. Future consideration: When the consideration is to

move at a future date, it is called Future Consideration or

Executory Consideration.
Example: Today is 16th of May. Haiyan promises Saddam
to pay 75,000 taka on 20th June for a television set to
be delivered on 20th June.
 Rules/Essential Factors of Consideration
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1. Desire or request of the offeree/promisor is

essential: an act done without any request is
a voluntary act and does not come within the
definition of consideration
Example: A sees B’s house on fire and helps in
extinguishing it. A cannot demand for
payment for his services because B did not
ask for his help.
Rules/Essential Factors of Consideration cntd.
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2. The consideration must be real:

Example: X promises Y to supply a bar of gold
brought from the sun. It is not a real
consideration.
 Rules/Essential Factors of Consideration cntd.
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3. Promise to a Stranger: A promise to a stranger to

perform an existing contract is enforceable
because the promisor undertakes a new obligation
upon himself which can be enforced by the
stranger.
Example: X wrote to his nephew B, promising to pay
him 150 pounds in consideration of his marrying C.
B was already engaged to marry C. Held, the
fulfillment of B’s contract with C was consideration
to support X’s promise to pay the amount.
(Shadwell v. Shadwell)
 Rules/Essential Factors of Consideration cntd.
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4.Consideration need not be adequate: an agreement

is not void merely because the consideration is
inadequate as long as there is free consent of the
parties involved.
Example: D promises to B to sell land in Calcutta al
1000tk per Cottah. The agreement is valid provided
the consent of D was freely given.
Rules/Essential Factors of Consideration
cntd.
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 5. The consideration must not be illegal, immoral

or opposed to public policy.
If either the consideration of the object of the
agreement is illegal, the agreement cannot be
enforced. The same principle applies if the
consideration is immoral or opposed to public policy.
6. The consideration may be present, past or future.
 Factors of Consideration
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The rules or the necessary factors for

consideration can be summed up as follows:
 There must be desire of the promisor

 It must be real

 It must be reasonable

 Not illegal, immoral or opposed to public

policy
 Present, past or future and

 From the promise or any person .

 What is Good Consideration?
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 Subject to the above essential factors, a good

consideration can be any of the following:
 physical good

 services

 Forbearance (for example not to sue)

 Arbitration or the compromise of disputed

claims and
 Settlement or composition with creditors.
 Assignment
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 English law vs Indian Law Regarding Consideration

 Exceptions
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 Consideration is essential for the validity of a

contract. "A promise without consideration· is a
gift; one made for a consideration is a
bargain".-Salmond and Windfield, Law of
Contracts.
 A promise without consideration is a gratuitous

undertaking and cannot create a legal

obligation.
 Exceptions
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 There are exceptional cases where a contract is

enforceable even though there is no consideration.
They are as follows :
1. Natural love and affection: An agreement made
without consideration is valid if, it is expressed in
writing and registered under the law for the time being
in force for the registration of documents, and is made
on account of natural love and affection between
parties standing in a near relation to each other."-Sec
25( I) .
 Exceptions
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 An agreement without consideration is valid under

Section 25 (1) only if the following requirements are
complied with:
 The agreement is made by a written document.

 The document is registered according to the law relating

to registration in force at the time.

 The agreement is made on account of natural love and

affection.
 The parties· to the agreement stand in a near relation to

each other.
 Exceptions
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Example: A for natural love and affection, promises to

give his son B. Rs. 1,000. A puts his promise to B in
writing and registers it. This is a contract.
 Voluntary Compensation: A promise made without
any consideration is valid if, it is a promise to
compensate wholly or in part. a person who has
already voluntarily done something for the promisor,
or something which the promisor was legally
compellable to do-Sec. 25(2).
 Exceptions
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 Examples: D finds B's purse and gives

it to him. B promises to give D Rs.
50.This is a contract.
 Examples: D supports B's infant son. B

promises to pay D's expenses in so

doing. This is a contract.
 Exceptions
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 Completed Gift: The rule "no consideration, no

contract "does not apply to completed gifts.
Explanation I, to Section 25states that, "Nothing
in this section shall affect the validity as
between the donor and the done. of any gift
actually made.“