Syllabus Revision Program by Islami Jamiat Talba,

For Batch 19-24,

Punjab University Law College.

Subject: Contract Law (LL.B Part III)

LAWFUL CONSIDERATION

Introduction:

Consideration is one of the essentials of a valid contract. The term consideration means
something in return. An agreement without consideration is void. The consideration is the benefit
received by a party to the contract in return for the promise made by him.

Definition:

Pollock: "The consideration is the price for which the promise of the other is bought and the
promise thus given for value is enforceable."

Lush J: "A valuable consideration may consist of some right, interest, profit or benefit accruing
to one party and some forbearance, detriment, loss or responsibility given, suffered or undertaken
by other."

P a g e 1 | 14
Session 2021 - 22
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 to do or abstain from doing
something, such act or abstinence or promise is called a consideration for the promise."

EXAMPLES:

a. C agrees to sell his house to B for Rs. 50 Lac. For C, the consideration is Rs.50 Lac. For
B, the consideration is the house.
b. C promises to repair B's car and B promises to pay Rs. 500. The promise of one party is
the consideration of the other party.
c. C promises to paint a picture for B and B promises to teach him for a month. The promise
of one party is the consideration of the other party.

Essentials of Valid Consideration

The essentials or rules of a valid consideration are as under:

1. Desire of Promisor

For a valid consideration, the act or abstinence that creates a consideration must be done at
the desire of the promisor. It means that any act performed at the desire of a third party or an
act done voluntarily does not create a valid consideration.

EXAMPLES

a. C saved B's house from fire. B did not ask for help. C cannot demand payment for his
services because he acted voluntarily.
b. B promised to pay a commission if D built a market. Later, D built the market at the
request of a district collector. D demanded commission from B. Held, the promise was
not enforceable because the market was not built at the desire of B. (Durga Prasad vs.
Baldeo)
2. Promisee or other Person:

P a g e 2 | 14
Session 2021 - 22
 An act creating the consideration may be done by the promisee or any other person. It does
not matter who provides the consideration. It may move from the promisee or any other
person. It means a person can sue on a contract even if the consideration for the promise is
moved from a third party.

EXAMPLES:

a. A contracts to pay Rs. 500 to B if B repairs C's car. B agrees. Later, B refuses due to
lack of consideration from C. C can sue B to enforce the contract.

b. A gifted property to her daughter R on the condition that she would pay a certain
amount to A's sister C. R agreed to pay to C. Later, R refused to pay. C sued. Held, C
could recover the amount as the consideration had moved from A. (Chinnaya vs.
Ramayya)
3. Act or Abstinence
Consideration may be an act or abstinence. An act means doing something. When
consideration is an act, it is called positive consideration. Abstinence means not doing
something. When consideration is abstinence, it is called negative consideration.
EXAMPLES
a. P agrees to construct Q's house for Rs. 10 Lac. Q's promise to pay Rs. 10 Lac is the
consideration for P's promise to construct the house.
b. C promises not to sue his debtor B if B pays him an additional Rs. 5,000. The
abstinence of C is the consideration for B's payment.
4. Past, Present or Future

The consideration may be past, present or future.

a. Past Consideration
When the benefit is received before the formation of an agreement, it is called past
consideration. When the services are provided voluntarily without any promise for
compensation, the past consideration is not valid and the person cannot get any

P a g e 3 | 14
Session 2021 - 22
 compensation. However, if the promise is made to compensate a person who has
already provided some services, then past consideration is a valid consideration.
EXAMPLES
• B found C's lost purse and gave it to him. B cannot demand money because past
consideration is not valid.
• C teaches B at his request in January. In February, B promises to pay C, Rs. 2,000
for his services. C can recover because past consideration is valid.
• A lawyer gave up his practice to serve as a manager at the request of a landlord.
The landlord promised to pay him a pension. It was held that past consideration
was valid. (Shiv Saran vs. Kesho Prasad)
b. Present Consideration
When the consideration is given immediately by one party to another at the time of a
contract, it is called present consideration. The act creating the consideration is
completely performed.
EXAMPLE
• C sells a book to B and B pays the price. It is a present consideration.

c. Future Consideration
When the consideration on both sides is to move at a future date after the formation of
a contract, it is called future consideration. In future consideration, the liability is
outstanding on both sides.
EXAMPLE
• X promises to deliver a car to Y after a week, Y promises to pay the price at
the time of delivery: It is a future consideration.
5. Adequacy of Consideration

It is not necessary that the consideration must be adequate. The parties are free to decide the
value of consideration. However, inadequate consideration may create doubt about the free

P a g e 4 | 14
Session 2021 - 22
 consent of the parties. Inadequate consideration is considered by the court in deciding cases.
If the consent is proved to be free, inadequate consideration is valid.

EXAMPLES

• C agrees to sell his car worth Rs. 2 Lac for Rs. 50,000 with free consent. The
contract is valid.
• Before dying. T wished for his wife to live in the house for the rest of her life.
The executors of T's will agreed that the wife could have the house for £1 per
year rent but later refused on the grounds of inadequate consideration. The
Court held that the consideration was valid. (Thomas vs. Thomas)
6. Legal and Certain
The consideration must be legal and certain. The consideration is not valid in the following
circumstances:
a. A promise to do something which is physically impossible.
b. A promise to do something which is illegal.
c. A promise to do something which is uncertain.
d. A promise to perform a duty that a person is already responsible to perform under law

EXAMPLES

• C promises to put life in B's dead cat and B promises to pay him Rs. 1 Lac The
consideration is not valid.
• D promises to pay Rs. 1 Lac to B if B promises to beat up C. The c. C employs B for
some work and promises to pay a reasonable amount. The consideration is not valid.
• G promised to pay C if he gave evidence in the Court for G. C gave evidence on the
Court order. C sued for payment. It was held that C could not recover the amount
because it was his legal duty to attend the Court. (Collins vs. Godefroy)
7. Exceptions to Consideration

An agreement without consideration is void. However, the following agreements are valid
even without consideration:

P a g e 5 | 14
Session 2021 - 22
 1. Natural Love and Affection
An agreement made on account of natural love and affection between the parties is valid
even without consideration if the following conditions are satisfied: [Sec. 25(1)]
a. The contract must be in writing.
b. The contract must be registered according to law.
c. The contract must be based on natural love and affection.
d. There must be a near relation between the parties to the contract.

EXAMPLE

K sued M arguing that she never gifted her property or land to M. It was held that the gift
was not valid and the gift deed was canceled (Mehmood Khatoon vs. Mohammad Khan)

2. Voluntary Compensation

If the promise is made to compensate a person who has voluntarily done something for
the promisor, it is enforceable even without consideration. In other words, a promise to
pay for past voluntary service is binding. The following points must be noted: [Sec.
25(2)]

a. The services must be rendered voluntarily for the promisor.

b. The promisor must be in existence when the services were rendered.
c. The intention of the promisor must be to compensate the promisee.
d. The services rendered must be legal.

EXAMPLES

• C finds B's purse and returns it to him. B promises to give Rs. 500 to C. It is a
contract.

P a g e 6 | 14
Session 2021 - 22
 • C saves B from drowning in the river. B promises to pay Rs. 10,000 to C. It is a
valid contract.
3. Time-Barred Debt

A debt becomes time-barred if it is not paid or claimed for a period of 3 years from the
date it becomes due. A time-barred debt is not recoverable. An agreement to pay a time-
barred debt is valid even without consideration if the following conditions are fulfilled.
[Sec. 25 (3)]

a. The debt must be time-barred.

b. The promisor himself must be liable for the debt.
c. There must be a promise to pay the time-barred debt.
d. The promise must be in writing and signed by the debtor or his agent.

EXAMPLE

Cowes Rs. 10,000 to B. The debt becomes time-barred. C signs a written promise to pay
Rs. 10,000 to B on account of the debt. It is a valid contract.

4. Completed Gift

An agreement to make a gift is not enforceable by law. However, any gift given by the
donor to donee is valid even without consideration. The gift is completed when the
possession is transferred to the donee by the donor. [Sec. 25 Explanation 1]

EXAMPLE

C transferred some property to B by a registered deed as a gift. It is a valid contract even

without consideration.

5. Contract of Agency

The consideration is not necessary to create an agency. Usually, an agent gets a

commission for his services. If an agent promises to perform any act for his principal

P a g e 7 | 14
Session 2021 - 22
 without charging any commission, the agreement is valid even without consideration.
[Sec. 185]

EXAMPLE

C promises to sell B's house on his behalf. An agreement between C and B is valid even
without consideration.

6. CONTRACT OF GUARANTEE:

Section 127 of the Contract Act 1872, deals with the sufficiency of consideration for a
contract of guarantee. Here a promise or any thing done for the benefit of the principal
debtor may be sufficient consideration to surety for giving the contract.

Case Law; LJR 1979 Pat122.

Held; Letter of guarantee is to be deemed to have been executed for consideration.

7. CONTRIBUTION TO CHARITY:

A promise to contribute to charity, though gratuitous would be enforceable, if on the faith

of promised subscription, the promisee undertakes a liability, to the extent of liability
incurred, but not exceeding the promised amount of subscription.

8. CONTRACT UNDER SEAL:

In English law, the contract made in the form of a deed under seal is valid even without
consideration.
9. AGREEMENT TO REMIT A PART OF THE CLAIM:

When a creditor agrees to remit or give up a part of his claim, then there is no need for
consideration for such an agreement.

10. AGREEMENT TO EXTEND THE TIME OF PERFORMANCE OF THE

CONTRACT:

P a g e 8 | 14
Session 2021 - 22
 An agreement also needs no consideration from any of the contracting parties.

11. OTHER INSTANCE:

The rule of "no consideration, no contract does not apply to complete gifts.

12. Remission by Promisee

When a person agrees to receive less than what is due, it is called remission. If a creditor
agrees to give up a part of his claim, there is no need for consideration in such an
agreement. Similarly, an agreement to extend the time for the performance of a contract
need not have a consideration. [Sec. 63]

EXAMPLE

• A owes Rs. 5,000 to B. A pays Rs. 2,000 and B accepts in full satisfaction of the
whole debt. The whole debt is discharged.

Stranger to Contract

Any person other than the parties to a contract is called a stranger to the contract. A person may
be a stranger to the consideration but must not be a stranger to the contract. A contract cannot
give rights or impose obligations on a person who is not a party to the contract. Only the parties
to the contract can sue to enforce their rights arising from the contract. This principle is also
called privity of contract.

EXAMPLES

a. X owes Rs. 1 Lac to Y. X sells his house to B for Rs. 1 Lac and asks B to pay to Y. B fails
to pay. Y cannot sue B because he is not a party to the contract.
b. Dunlop sold tyres to D, on the condition that he will not sell them below Dunlop's list price.
D sold the tyres to S on the same condition. S sold tyres below Dunlop's list price. It was
held that Dunlop could not sue S as he was a stranger to the contract. (Dunlop Tyres Co. vs.
Selfridges Ltd.)

P a g e 9 | 14
Session 2021 - 22
❖ Exceptions:

The following are the exceptions to this rule:

1. Trust

In the case of a trust, the person for whose benefit the trust is created can sue to enforce
his rights under the trust even though he is not a party to the contract.

Example

A transfers some property to B under a trust for the benefit of M. M can enforce the
agreement. (M. K. Ropai vs John)

2. Immovable Property
The owner of a property may be entitled to certain rights and obligations created by a
contract affecting the property. When a person purchases such property with the notice of
rights and obligations of the owner, he is bound by those rights and obligations although
he is not a party to the original contract.
EXAMPLE
Y buys a house by taking a loan from a bank. Y sells the house to X without returning the
loan to the bank. The bank can recover the loan from X.
3. Family Settlement
Where provision is made in a contract for the benefit of any member of a family, such a
member, though not a party to the contract, can enforce the contract. Such a contract must
be in writing.
EXAMPLE
• On the partition of joint property, two brothers agreed to pay Rs. 300 to their
mother for maintenance. Held, she was entitled to recover the amount. (Shuppu vs.
Ammal)
4. Agent

P a g e 10 | 14
Session 2021 - 22
 When a person acts as an agent for his principal, the principal can sue on a contract
although he is not a party to a contract. The agent must act in the name of his principal.
EXAMPLE
• A appoints B as his agent to buy goods. B buys goods from C. The goods are
defective. A can sue C for the defective goods although there is no contract between
A and C.
5. Assignment
Where the benefit under a contract is assigned to a third party, the assignee can enforce
the contract though he is not a party to the contract.
EXAMPLE
• X assigned his insurance policy in favor of his wife. The wife can enforce the
contract although she is not a party to the contract.

Unlawful Consideration and Object

The object and consideration of an agreement must be lawful. If the consideration or object of an
agreement is unlawful, the agreement is illegal. The consideration or object of an agreement is
unlawful in the following cases: [Sec. 23]

1. Forbidden by Law

If the consideration or object of an agreement is the doing of an act forbidden by law, the
agreement is unlawful. An act is forbidden by law:

a. When it is punishable by the criminal law of the country.

b. When it is prohibited by a special Act of the legislature.

EXAMPLES
a. B and C agree to divide the goods obtained by theft. The agreement is unlawful.
b. The sale of alcohol without a license is illegal in Pakistan.

2. Defeats Provisions of Law

P a g e 11 | 14
Session 2021 - 22
 If the object or consideration of an agreement is of such a nature that if permitted, it
would defeat the provisions of any l: w, it is unlawful. Such objects or considerations
may indirectly violate the law.

EXAMPLE
a. C fails to pay a loan he borrowed from bank. C's house is put on sale for recovery of
the loan. According to law, C cannot purchase his house. C asks B to purchase the
house and transfer it to him. The agreement is void.
3. Fraudulent
If the object or consideration of an agreement is to defraud others, it is unlawful and void.
EXAMPLES
a. A promises to pay Rs. 20,000 to B, on Bs' promise to commit fraud on C. The
agreement is illegal and void. b. A is the agent of X. A agrees to sell land to B at a
lesser price without telling X. The agreement between A and B is void.
4. Injury to Person or Property

If the object or consideration of the agreement is to cause injury to a person or damage

his property, it is illegal and void.

EXAMPLE

• Y agrees with X to put a certain property on fire. The agreement is unlawful.

• An agreement to beat up a man was held unlawful and void. (Allen vs. Rescous)
5. Immoral
If the consideration or object of an agreement is such that the court regards it as immoral,
the consideration is void. Immoral means an act that is against the moral values of
society.
EXAMPLE

P a g e 12 | 14
Session 2021 - 22
 • A woman was given money to obtain a divorce from her husband and marry the
lender. The woman refused to take the divorce. Held, the agreement was immoral
and the lender could not recover the money. (Bai Vijli vs. Hamda Nagar)
6. Against Public Policy

An agreement that is harmful to the welfare of society is against public policy. If the
court considers the object or consideration of an agreement as opposed to public policy,
then the agreement is unlawful. An agreement that leads to corruption, injustice or
immorality is considered to be against public policy.

EXAMPLES

• B promises to provide a government job to C. C promises to pay him Rs. 10,000.

The agreement is void.
• The daughter claimed her right in her father's inheritance. Her brothers argued that
she had earlier agreed to give up her right in inheritance. The Court held that the
agreement was void because it was against public policy. (Ghulam Ali vs. Ghulam
Sarwar Naqvi)

CONCLUSION:

To conclude that consideration is one of the essential elements to support a valid contract. When
a party to an agreement promises to do something, he must yet "something" in return. If he does
not yet "something" in return, the contract is not valid. This something is defined as
consideration.

References and further reading:

P a g e 13 | 14
Session 2021 - 22
 • https://www.hg.org/legal-articles/what-is-contractual-consideration--
34632#:~:text=Lawful%20consideration%20is%20anything%20of,promise%20to%20pa
y%20you%20%2425.
• http://bdlaws.minlaw.gov.bd/act-26/section-186.html (Bengali Edition)
• https://www.ma-law.org.pk/pdflaw/Contract%20Act,%201872.pdf (Contract Act)

Prepared by: Laiba Shahzad

Team Head: Khadija tul Kubra

Project by Islami Jamiat Talaba, Punjab University Law College

BEST OF LUCK … !!

P a g e 14 | 14
Session 2021 - 22