Consideration & Objects in Law

A Presentation By:
Deepanwita Banerjee (412)
Manoj Bisht (413)
Praful Gaikwad (417)
Amogh Joshi (423)
Sudarshan Kashikar (426)
Hiral Saraiya (445)
 Agenda
• What is Consideration?
• Essentials of Consideration
• Valid Contracts without Consideration
• Kinds and Types of Considerations
• Legal Objects
• Unlawful Consideration
• Agreements against Public Policy
• Void Agreements
 Executive Summary
 Definition of Consideration/Quid Pro Quo
 Requirements of a Valid Consideration
 Stranger to a Contract – Exceptions
 Importance of a Contract
 Exceptions to “No Consideration, No Contract”
 Kinds/Types of Consideration
 Legal Detriment
 Lawful Object
 Unlawful Consideration
 Public Policy
 Contracts expressly declared Void
 Definition
• Section 2(d) of the Indian Contract Act defines
‘Consideration’ as –

“When, at the desire of the promisor, the promisee or

any other person
(i) has done or abstained from doing,
(ii) does or abstains from doing,
(iii) promises to do or to abstain from doing,
something, such act or abstinence or promise is called a
consideration for the promise”
 Quid Pro Quo and Consideration
• A promise cannot be legally enforced

• This answer subsumed under the Heading

‘Consideration’

• The phrase “Quid Pro Quo” is a Latin term that is

translated as “Something for Something”

• Quid pro quo is a general term; Consideration is a

specific, Legal term.
 Essentials of a valid consideration
• Consideration must move at the desire of the
promisor
- Case – A’s Son
- Durgaprasad vs. Baldeo (Builder,Collector,Shopkeeper)

• Consideration may move from the promisee

or any other person (Stranger)
- Case – Chinayya vs. Ramayya ( old lady, Daughter, Propertry,Relative)
Essentials of a valid consideration
• Consideration may be past, present or future

• Consideration may be an act of doing or

abstaining from doing something or it may be
an act of forbearance or abstinence

• Consideration need not be adequate

Essentials of a valid consideration (contd…)

• Consideration must be real and not illusory

Case – Reasonable remuneration
– Life into dead wife

• Consideration must not be unlawful, illegal, immoral or

opposed to public policy

• Performance of existing obligation is no consideration

Case – Ramchandra Chintamanya vs. Kalu Raju ( services of lawyer)
• Forbearance to sue is a good consideration
 Importance of Consideration
• Nudum–Pactum – Bare Promise

• Ex-nudo-pacto non-oritur actio – From a bare promise

no action can arise

• General Rule – ‘No Consideration, No Contract’

“An Agreement WITHOUT Consideration is VOID”

- A Promise WITHOUT Consideration is Void and purely
gratuitous
Exceptions to the Doctrine of Consideration

• Exception 1 :
Section 25(1) - Agreement made on account of
Natural Love and Affection

• Essentials –
1) Agreement must be in Writing and Registered
Unregistered Agreement VOID
Father Son
Oral Arrangement CONTRACT
 Exceptions to the Doctrine of Consideration

2) Agreement must be for Natural Love and

Affection
Rs.500/- VALID
Father Son
Promise in Writing & Registered CONTRACT

Contract - Promote Goodwill Family

Family VALID
Member
Member 1 Promise in Writing & Registered CONTRACT
2

Contract VOID
X Consideration Immoral Y CONTRACT
 Exceptions to the Doctrine of Consideration

3) Parties to the Agreement must stand in near relation to each other

Valid Valid
Father Son Husband Wife
Contract Contract

Brother Valid
Sister
Contract

Real Life Example-

Rajlukhi Devi v. Nath Mookherjee
 Exceptions to the Doctrine of Consideration

• Exception 2 :
Section 25(2) - Promise to compensate for past voluntary
services

Essentials –

1) There must be promise to reward for past voluntary services

2) Act must be done for the Promisor
3) The Promisor must be in existence when the act was done
4) The Promisor must be competent to contract at the time of
contract
Exceptions to the Doctrine of Consideration

ts
Suppor Y’s Son
VALID
X CONTRACT

X’s Expense Y
s

Rs. 1000/- Teach

A B P VOID
CONTRACT

Actual Scenario
Q
 Exceptions to the Doctrine of Consideration

• Example 1:

Mr. Lended Rs.500/- Mr.

Ahuja Jan 1, 1993 Somnath
VALID
CONTRACT
Mr. Signs written promise to pay back Mr.
Somnath Jan 1, 1996 Ahuja

• Example 2:
A owes B Rs 1000/- but the debt is barred by the Limitations Act. A signs a
written promise to pay B Rs 500/- on account of debt. This is a valid contract.
 Exceptions to the Doctrine of Consideration

• Exception 4:
• Explanation to Act 25 – Gifts do not require Consideration

Gift - Property VALID

Mr. P Mr. Q
Promise in Writing & Registered CONTRACT

Donation VALID
Mr. A
Institute CONTRACT

Real Life Example-

Kedarnath v. Gorie Mohamed
 Exceptions to the Doctrine of Consideration

• Exception 5 :
Section 185 - No Consideration is necessary in case of an
agreement to create an agency

Example: To appoint a person as an agent without

consideration is a valid contract

Authorizes On behalf VALID

Mr. P Mr. Q Mr. R
Agent of Mr. P CONTRACT
 Kinds of Consideration
1) Executed Consideration – A consideration which is done, foreborne
or suffered with in the making of the contract.

Example - A receives $200 in return for which he promises to deliver

goods to B. The money A receives is the executed consideration for the
promise he makes to deliver the goods.

2) Executory Consideration – An executory consideration is a promise to do,

forebear or suffer in the future.

Example - A promises to deliver car to B after a week. B promises to pay

the price after a month. The promise of A is supported by the promise of
B. the consideration in this case is future.
 Kinds of Consideration
3) Past Consideration – Is a consideration which is wholly
done, foreborne or suffered before making the contract.

Examples:
a) A renders some services to B in the month of June. In
July, B promises to pay A $100. The consideration of A is
past consideration.

b) A teaches the son of B in the month of January

and in February B promises to pay A $200 for his
services. The services of A will be past consideration.
 Kinds of Consideration
4) Unlawful Consideration
A consideration is unlawful if -
1) It is forbidden by law

2) It is of such nature that, if permitted, it would

defeat the provisions of any law

3) It is fraudulent

4) It involves or implies injury to the person or

property of another
5) The Court regards it as immoral or opposed to
public policy
 Kinds of Consideration
5) Unreal/Illusory Consideration – Any consideration for a promise is unreal if it -
1) Subsists merely in words
2) Has no legal value
3) Is Physically/Legally impossible to perform the promise

Examples –

a) Putting life back into a dead body cannot be enforced as promise because of
impossibility

b) A engages B for doing a certain work and promises to pay a “Reasonable

Sum”. There is no recognized method of ascertaining the “Reasonable”
remuneration. The promise is not enforceable as it is uncertain
 Stranger to a Contract
• Who is beneficiary under the contract?

• When allowed by certain statutes e.g. Insurance Act

• When on partition of Hindu Joint Family

– provision made for maintenance of female members
– provision made for marriage expense of female members
 Stranger to a Contract
• Stranger to a Contract can sue because the
Consideration can be furnished or supplied by
anyone

• However a stranger cannot sue because of

privity of contract
 A Stranger can Enforce the Contract

• The nominee of insurance policy

• Beneficiary of trust property
• Third party of Insurance contracts
• Endorsee of negotiable instruments
• Holder of a document in title
• Legal representatives
• Undisclosed principles
• An assignee
Exceptions to the ‘Stranger Can Sue’ Rule

• The rule that a Stranger to a contract can sue

is subject to the following exceptions -

– In case of trust
– In case of family settlement
– Acknowledgement
– Assignment of a contract
 Kinds of Consideration
• Executed Consideration

• Executory Consideration

• Past Consideration

• Unlawful Consideration

• Unreal/Illusory Consideration
 Types of Consideration
• A Right

• A Profit

• An Interest

• A Physical Object

• A Responsibility Undertaken

• A Legal Detriment
 Legal Detriment
• Detriment - The “bargained for exchange" in a
contract, where the parties take on some
responsibility that they are not legally obligated to
undertake

• Consideration can also be satisfied through actions

• When a person assumes a legal detriment, this can

also satisfy the requirement of a consideration
 PepperCorn Theory
• The Peppercorn Theory states that something as insignificant as a
little peppercorn can be sufficient consideration when given in
exchange for a promise

• No matter how little the consideration is, whether it's a peppercorn

or a penny, it is still sufficient consideration

• A peppercorn does not cease to be good consideration if it is

established that the promisee does not like pepper and will throw
away the corn

• E.g Chappell & Co Ltd v Nestle Co Ltd

 Object
• Section 10 states that agreements are contract if made
for lawful consideration and with lawful object

• Consideration and Object are different from each other

• Though Consideration and Objects are Different, certain

difficulties are faced in practice in distinguishing the two

• Object means Purpose or Design

 Lawful Object
• The Object for which an agreement is entered into
should be lawful in order to enable the agreement to
be enforceable by law

• A Lawful Object, in short, is one that is permitted by

law, is definite and is possible of performance

• The agreement is void if the Object and the

Consideration are not lawful
 Unlawful Object
• Object is unlawful if –

- It is forbidden by Law

- It is of such nature that, if permitted, it would defeat the

provisions of any law

- It is fraudulent

- It involves or implies injury to the person or property of another

- If the Court regards it as immoral or opposed to public policy

 Public Policy
• Course of action taken by a State

• Nature is Not Precisely defined

• Agreement that conflicts morals of time

• Contravenes established Interest of Society

• Injurious to Public welfare

 Agreement against Public Policy
• Trading with an Enemy

• Stifling Prosecutions

• Waiver of Illegality

• Marriage brokerage contracts

 Agreement against Public Policy
• Contracts interfering with course of justice

• Contracts tending to create interest against duty

• Contracts tending to create monopolies

• Agreements not to bid against each other

• Contract between pleader and client

Contracts Expressly Declared Void
• Under Section 10 of Contract Act, 5
agreements are expressly declared Void:
– Agreement in Restraint of marriage
– Agreement in Restraint of Trade
– Agreement in Restraint of judicial proceedings
– Ambiguous agreements
– Agreements by way of wager
Wagering Contract: Contract to give money’s
worth upon determination of an uncertain event
 Exceptions : Contracts Expressly Declared
Void
• Agreement in Restraint of Trade
– Contract of Service
– Sale of Good Will

• Agreement in Restraint of judicial proceedings

– Arbitration

• Agreements by way of wager

– Winning from horse race are not rendered unlawful