DOCTRINE OF CONSIDERATION: A CRITICAL STUDY

3.5 - Law of Contract

Submitted By-

Ayush Gaur

SM0117012

Faculty in Charge

Prof. (Dr.) Yugal Kishore

NATIONAL LAW UNIVERSITY, ASSAM

GUWAHATI
 TABLE OF CONTENTS

1. INTRODUCTION

1.1.Research Questions

1.2.Literature Review

1.3.Scope and Objective

1.4.Research Methodology

2. DEFINITION OF CONSIDERATION

3. ESSENTIAL OF CONSIDERATION

4. TYPES OF CONSIDERATION

5. CONCLUSION

BIBLIOGRAPHY

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 CHAPTER – 1

INTRODUCTION

The doctrine of consideration as it is known in English law dates from the middle of the
fifteenth century. But the roots of this doctrine are to be traced in the remote past. The history of
the development of the doctrine of consideration shows that society has much advanced and that
law has given its sanction to the promise. The doctrine that a consideration is necessary if a
contract is to be enforceable has a number of functions in the law of contracts. In addition to
providing evidence that a contract exists, consideration also has the cautionary function of
guarding the promisor against ill-considered action; the deterrent function of discouraging
transactions of questionable utility; and a channelling function of enabling interested persons to
distinguish particular types of transactions. Consideration, in contract law, an inducement given
to enter into a contract that is sufficient to render the promise enforceable in the courts. The
technical requirement is either a detriment incurred by the person making the promise or a
benefit received by the other person. Thus, the person seeking to enforce the promise must have
paid, or bound himself to pay, money, parted with goods, spent time in labour, or foregone some
profit or legal right. In a contract for the sale of goods, the money paid is the consideration for
the vendor, and the property sold is the consideration for the purchaser.
This definition, however, leaves unanswered the question of what is sufficient
consideration. During certain periods of history, nominal consideration was held to be
sufficient—even a cent or seeds. Gradually, the courts came to require that the consideration be
valuable, although not necessarily equal in value to what is received. The courts have had to
decide specifically whether acts of forbearance on the faith of a promise, the giving of a counter
promise, money payments, pre-existing duties to the promisor, pre-existing duties to third
parties, moral obligations, love and affection, surrender of another legal claim, or performance of
a legal duty were sufficient, and the answer has varied considerably over time. Although the
doctrine of consideration is unique to common law, these functions are also performed in other
modern systems of law.

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1.1 Research Questions

 What is the meaning of consideration?

 What are the essentials of consideration?

 What are types of consideration?

 What does the term “quid pro quo” refer to?

1.2 Literature Review

 Avatar Singh; Textbook on Law Of Contract & Specific Relief; Eastern Book
Company, New Delhi
This book helped in understanding the basic principles of Contract law. It explains
consideration with help of commentaries and also the case laws. It also explains the
essentials of consideration with relevant cases.

 Sir Dinishah Fardunji Mulla; Mulla The Indian Contract Act; Lexis Nexis, Delhi
This book helped in understanding the types of consideration namely the past, present
and future consideration with help of the relevant cases. It gives a depth analysis and
commentaries on the provisions laid down in the Indian contract act, 1872.

1.3 Scope and Objectives

The scope of this project is to know about the doctrine of consideration and the definition of
consideration given in the Indian Contract Act 1872. Then to know about the essentials of
contract and also to know the past, present and future considerations.

The objectives of this project are as follows:-

 To research about the definition of consideration.

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  To know about the four essentials of the contract.
 To know about the types of contract.

1.4 Research Methodology

In this project, the researcher has adopted Doctrinal research. Doctrinal research is essentially
a library-based study, which means that the materials needed by a researcher may be available
in libraries, archives, and other data-bases. Various types of books were used to get the
adequate data essential for this project. The researcher also used computer laboratory to get
important data related to this topic. The researcher also found several good websites which
were very useful to better understand this topic.

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 CHAPTER – 2
DEFINITION OF 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 parole 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.1

According to Blackstone
“Consideration is the recompense given by a party contracting to the other.” or the price of
the promise.
Sir Fredrik Pollock summarized the position of words adopted by the House of Lords in
1915: “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.”2
The definition given in Curre v Misa by Lush J is widely accepted : “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, determent, loss, or responsibility given, suffered
or undertaken by the other…

Definitions of Consideration under Section 2(d) OF Indian Contract Act

1
Consideration, Law notes
https://www.lawnotes.in/Consideration
2 th
Sir Dinishah Fardunji Mulla, Mulla The Indian Contract Act 6 (13 Ed. 2011)

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 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.”3

3 th
V.A. Ramateke, Doctine of Consideration, (October 26 , 2018 4.00PM)
http://14.139.60.114:8080/jspui/bitstream/123456789/849/1/009_The%20Doctrine%20of%20Consideration%20.
pdf

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 CHAPTER – 3
ESSENTIALS OF CONSIDERATION

The four component parts of the definition of consideration may well be described as the
essentials of valid consideration. We shall now discuss these essentials one by one in detail.

1. Consideration must move 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 Baldeo4
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.

2. Consideration may move from the 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. This can be further understood in the case of Chinnaya v

4
Durga Prasad v. Baldev, (1880) ILR3 All 221

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Ramaya5. 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 brothers (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 i.e. 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.

Exceptions:
The above rule that ‘a stranger to a contract cannot sue’ is subject to the following exceptions:

(i) Where an express or implied trust is created: In case of a trust, the beneficiary can sue in his
own right to enforce his rights under the trust, though he was not a party to the contract between
the settler and the trustees.

(ii) Family settlement: Where a provision is made in a partition or family arrangement for
maintenance or marriage expenses of female members; such members, though not parties to the
agreement, can sue on the footing of the arrangement.

(iii) When the defendant constitutes himself, as the agent of the third party: Thus if A receives
some money from B to be paid over to C and he admits of this receipt to C, then C can recover
this amount from A who shall be regarded as the agent of C (Surjan vs Nanat).

(iv) In case of agency: Where a contract is entered into by an agent, the principal can sue on it.

(v) In case of assignment of rights under a contract: In favour of a third party either voluntarily
or by operation of law, the assignee can enforce the benefits of the contract, e.g., the assignee of

5
Chinnayya v. Ramayya (1876-1882) ILR 1-4 Mad 930

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an insurance policy or the official assignee on the insolvency of a person can sue on the contract
even though originally they were not parties to it.

3. Consideration may be past, present or future:

The words, “has done or abstained from doing; or does or abstains from doing; or
promises to do or to abstain from doing,” used in the definition of consideration clearly indicate
that the consideration may consist of either something done or not done in the past, or done or
not done in the present or promised to be done or not done in the future. To put it briefly,
consideration may consist of a past, present or a future act or abstinence.

Consideration may consist of an act or abstinence: Consideration may consist of either a positive
act or abstinence i.e., a negative act. Thus, an agreement between B and A, under which B; on
failing to pay the debt amount on the due date to A; promises to raise the rate of interest from 9
per cent to 12 per cent in consideration of A promising not to file a suit against him for another
one year, is a valid contract; A’s abstinence being the consideration for B’s promise.6

4. Consideration must be ‘something of value’:

The fourth and last essential of valid consideration is that it must be ‘something’ to which
the law attaches a value. The consideration need not be adequate to the promise for the validity
of an agreement.

The Law only insists on the presence of consideration and not on the adequacy of it. It leaves the
people free to make their own bargains. Thus, where A agrees to sell his motorcar worth Rs
50,000 for Rs 1,000 only and his consent is free, the agreement is a valid contract,
notwithstanding the inadequacy of the consideration. However, if the consideration be grossly or
shockingly inadequate, and if one of the parties to the contract alleges that his consent was
obtained by fraud, coercion or undue influence, the court will treat inadequacy of consideration
as evidence in support of such allegation and will declare the contract void.7

6 th
S Avatar Singh, Textbook on Law Of Contract & Specific Relief, (6 Ed. 2017)
7
ibid

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 CHAPTER – 4
TYPES OF CONSIDERATION

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 in lost or found cases 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,
according to Pollock and Mulla8 “declare the law to be that an act done by A at B’s request,
without any contemporaneous promise from B, may be consideration for a subsequent promise
from B to A.”

Past services voluntarily rendered [Section 25(2)]

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:
8 th
Indian Contract and Specific Relief Acts, 41 (9 Ed. 1972)

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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.
English Law Regarding to Past Consideration
According to English law if the act has been done before any promise is made, it is called past
consideration and a past consideration is no consideration. The past act may explain why the
promise was given and may, thus, be a motive for the promise, but it furnishes no legal
consideration. “The consideration and the promise ought to go together.” An example is
McArdle, In re.
A effect certain improvements to certain property. The ultimate beneficiaries of the
property signed a document declaring that: “In consideration of your carrying out certain
alterations and improvements, we the beneficiaries shall repay to you the sum of £488 in
settlement of the amount spent on such improvements.” An action to enforce this promise was
rejected.

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 9 that a
past act done at request will be good consideration for a subsequent promise. The facts were: the
defendant, having committed a murder, requested the plaintiff to labor 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, however, 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.

9 th
Lampleigh v Barthwait (1615) Hob 105; Smith L.C. 11 Ed. 141

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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 (i.e. the lost object) 10 . The
consideration in this case is “executed”. In Alliance bank v. Broom11 the defendant owed to the
plaintiffs who pressed him to give security. The defendant promised him to do so but he did not
expressely ask for the forbearance nor did the plaintiffs promise it. It was held that the defendant
was bound by his promise to give security as the plaintiff did in effect give and defendant
received, the benefit of some degree of forbearance.
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 good sat 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, i.e., where there is no act, abstinence or promise, there is no
consideration.

10
Carlill v Carbolic Smoke Ball Co. (1893) 1Q.B. 256
11
Alliance bank v. Broom (1864)2 Dr. & S289

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 CHAPTER– 5
CONCLUSION

Consideration is a benefit which must be bargained for between the parties, and is the
essential reason for a party entering into a contract. Consideration must be of value and is
exchanged for the performance or promise of performance by the other party (such performance
itself is consideration). In a contract, one consideration (thing given) is exchanged for another
consideration. Acts which are illegal or so immoral that they are against established public policy
cannot serve as consideration for enforceable contracts.

Contracts may become unenforceable or rescindable for failure of consideration when the
intended consideration is found to be worth less than expected, is damaged or destroyed, or
performance is not made properly. Acts which are illegal or so immoral that they are against
established public policy cannot serve as consideration for enforceable contracts.

Without lawful consideration is not meaningful for any valid contract. Contract considered many
essential elements and lawful consideration is integral part or element of a valid contract. Which
Lawful consideration follows some rule then we called good consideration. But some exceptions
to the rule – No consideration, No contract. In English law a contract under seal is enforceable
without consideration

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 BIBLIOGRAPHY

Books:

 S Avatar Singh; Textbook on Law Of Contract & Specific Relief; Eastern Book Company,
New Delhi

 Sir Dinishah Fardunji Mulla; Mulla The Indian Contract Act; Lexis Nexis, Delhi

Internet sources:

 https://www.lawnotes.in/Consideration
 http://14.139.60.114:8080/jspui/bitstream/123456789/849/1/009_The%20Doctrine%20of%2
0Consideration%20.pdf

CASES:

 Carlill v Carbolic Smoke Ball Co. (1893) 1Q.B. 256

 Alliance bank v. Broom (1864)2 Dr. & S289
 Lampleigh v Barthwait (1615) Hob 105; Smith L.C. 11th Ed. 141
 Chinnayya v. Ramayya (1876-1882) ILR 1-4 Mad 930
 Durga Prasad v. Baldev, (1880) ILR3 All 221

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