BUSINESS LAW (Spring Term ‘20)

Instructor: Misha Zaheer

CONSIDERATION
Relevant Law: The Contract Act, 1872
WHAT IS CONSIDERATION?
Section 2 (d) of the Contract Act, 1872 defines consideration as under:
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.
The leading English case of Currie v. Misa (1875) reads:
A valuable consideration, in the sense of the law, may consist either in some right,
interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss of
responsibility given, suffered or undertaken by the other.
Basically the doctrine of consideration moves around the concept of a benefit to the promisor
and/or a detriment to the promisee. Either of the two will make a promise enforceable, although
in many cases both will be present. However, in some instances it may not be so easy to place
acts within the categories or benefits/detriment e.g. where one party promises to do something in
the future. Therefore, in such instances we think of consideration in terms of ‘mutuality’ in the
agreement i.e. something being offered by each side.
E.g. I buy a car for Rs. 20 lakhs from X. My consideration to X is the 20 lakhs and X’s
consideration to me is the car itself.
OR X owes Y some money. Y promises not to file a suit against him if X agrees to pay him Rs.
1000 immediately. The consideration for X’s promise is Y’s forbearance to file a suit and the
consideration for Y’s promise is X’s promise to pay Rs. 1000 immediately.
ESSENTIALS OF CONSIDERATION

1. Consideration must be given at the desire of the promisor

So where another party does something voluntarily, it does not count as valid consideration. For
e.g. X loses his dog. Y goes in search of him and later claims remuneration from X. Y cannot
claim remuneration unless he had gone in search of the dog on X’s request. If Y goes in search of
the dog voluntarily or, even at the request of Z (X’s wife), Y will not be able to claim
remuneration.

2. Consideration may move from any person

It is not necessary that the act constituting consideration will be performed by the promisee. It
may be done by any other person, even a stranger to the consideration. So e.g. X makes a
promise to Y to give him his car in exchange for Y convincing Z to return X’s debt.

1
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

3. Consideration may be past, present or future

Past Consideration: consideration that has already passed, before the formation of the
agreement. E.g. X cleans Y’s windows in June. In August, Y promises to pay X Rs.600 for his
past services. Past services amount to past consideration and X will be entitled to recover the Rs.
600 from Y.

Present Consideration: consideration that moves simultaneously with the promise. E.g. in case
of a cash sale, where the promisee pays the for the sale as soon as the promisor hands over the
goods.

Future Consideration: consideration that is to be moved after the formation of the agreement.
E.g. X promises to deliver certain goods to Y 10 days from the execution of the agreement. Y in
turn promises to pay for the goods 10 days after the date of delivery.

4. Consideration must be ‘sufficient’ not ‘adequate’

Explanation 2 of Section 25 reads:

An agreement to which the consent of the promisor is freely given is not void merely
because the consideration is inadequate…

What is being offered as consideration must be ‘sufficient’ i.e. it must be recognizable by the
courts as something capable of constituting consideration. Courts will not be interested in
whether there is a match in values between what is being offered by each party. For instance, if
you agree to give up your house for rent for an annual rent of Rs. 1, the courts will treat this as
sufficient (Thomas v. Thomas 1842). The payment of or the promise to pay money is always
going to be treated as valid consideration. The courts will not concern themselves with what will
count as adequate commercial rent.

Therefore, contracting parties can stipulate for what consideration they choose. The courts will
not interfere just because it appears that a person has made a bad bargain (See: Chappell v.
Nestle (1960)).

5. Consideration must be real, not illusory

E.g. X promises to put life into Y’s dead wife and Y promises to pay him Rs. 10 lakhs for it. This
agreement is void for want of consideration because the consideration is illusory – physically
impossible.

6. Consideration must be something other than the Promisor’s existing obligation

The act constituting consideration must be something which the promisor is not already bound to
do because a promise to do what the promisor is already bound to do adds nothing to the existing
obligation. E.g. X promises to pay his lawyer an additional fee if their case is decided in their
favour. Later, X refuses to pay the lawyer the additional fee. Y was unable to recover this sum as

2
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

his agreement was held to be void for want of consideration because Y was already bound to
render his best services under the original agreement (Ramchandra Chintamana v. Kalu Raju).

Another instance may be where a public official agrees to carry out one or more of their duties in
return for a promise of payment from a member of the public. Will such a promise be
enforceable?

7. Consideration must be lawful

If X promises to kill Z in exchange for Y paying him Rs. 1 lakh, X will be unable to retrieve the
1 lakh from Y as their agreement will be void for want of lawful consideration.

NO CONSIDERATION NO CONTRACT

According to Section 10 of the Act, consideration is one of the essential elements of a contract.
Section 25 of the Act states that an agreement made without consideration is void. E.g. in Abdul
Aziz v. Mazum Ali (1914), a promise to donate Rs. 500 towards the construction of a mosque
was held unenforceable, as it was a gratuitous promise lacking consideration (note: in such
situations of a charitable nature liability will only arise where the promisee had by doing some
act, on the faith of the promise, altered his position).

There are 3 exceptions to this general rule:

1. Agreements made on account of natural love and affection (Section 25(1));

2. A promise to compensate (Section 25(2)); and,

3. A promise to pay a time barred debt (Section 25(3)).

DOCTRINE OF PROMISSORY ESTOPPEL

What happens where two parties want to bring about a minor/major modification in their
contract? Generally, law would require that a consideration be made/given in exchange for the
new promise. However, the doctrine of promissory estoppel allows promises to accept a
modified performance of a contract to be binding, even in the absence of consideration i.e. in
some instances, where the courts are unable to find the existence of consideration, they may still
give limited/temporary effect to a promise under the doctrine of estoppel.

Central London Property Ltd. v. High Trees House Ltd (1947) defines promissory estoppel as
follows:

Where, by words or conduct, a person makes an unambiguous representation as to his

future conduct, intending the representation to be relied on and to affect the legal relations
between the parties, and the respresentee alters his position in reliance on it, the representor
will be unable to act inconsistently with the representation if by so doing the representee would
be prejudiced.’

3
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

In the High Trees case, it was held that ‘a promise intended to be binding, intended to be acted
upon, and in fact acted on is binding so far as its terms properly apply’ and therefore the
landlords promise to accept a lower rent during the war years was binding on him, despite the
fact that the tenant had supplied no consideration for it.

There are 6 elements:

1. Promissory estoppel operates to modify existing relationships rather than creating new ones

This is the general rule, there have been deviations from this.

2. There must be a promise or a representation as to future conduct which is intended to affect

the legal relations between the parties and which indicates that the promisor will not insist on his
strict legal rights against the promisee.

3. The promise or representation must have been relied upon by the promisee

E.g. the lessees of the property in the High Trees case had paid the reduced rent in reliance of the
promise from the landlord that this would be acceptable and had probably organized the rest of
their business on the basis that they would not be expected to pay the full rent. Hence, it would
be unfair to force them to comply with the original terms of their contract

Delhi Cloth and General Mills Ltd. v. Union of India (1988):

All that is now required is that the party asserting the estoppel must have acted upon the
assurance given to him. Must have relied upon the representation made to him. It means that the
party has changed or altered his position by relying on the assurance or representation. The
alteration of his position by the party is the only indispensable requirement of the doctrine. It is
not necessary to prove further any damage, detriment or prejudice to the party asserting
estoppel.

4. It must be inequitable for the promisor to go back on his promise

This is sufficiently established where the promisee acts in reliance of the promise. Inequitable
will cover instances where the promisee has extracted the promise by taking advantage of the
promisor.

5. The effect of promissory estoppel is suspensory

Promissory estoppel does not extinguish the rights of the promisor e.g. in High Trees it was
accepted that the promise to take the reduced rent was only applicable up to the time that the War
continued, once it came to an end the original terms of the contract revived.

6. Promissory estoppel cannot be used to create a cause of action,

4
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

It may only be raised to defend a claim i.e. the principal use of this doctrine is to provide
protection for the promisee. It is meant to be used as a shield not a sword.

(See: Hughes v. Metropolitan Railway Co (1877) & Central London Property Ltd. v. High Trees
House Ltd (1947)).