Figure 6

UNDERSTANDING CONSIDERATION
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Without consideration contract is void
except in following cases:
 Love and affection but it must
be stated in writing.
 Pay time barred debt
 Compensate for past voluntary
service.
 No consideration necessary to
create an agency.

Consideration must be lawful.

Remember Air Deccan selling air tickets
at Rs 1/- . Why Rs 1/- ? Why not 0?
Because consideration is must for a
contract.

1. The price may be tangible such as money or goods or intangible. British courts have defined it as
“ rights, interest ,profit or benefit accruing to one party or some forbearance ,detriment, loss or
responsibility given ,suffered or undertaken by the other”. Therefore consideration received in
return for withdrawing from a lawsuit would be valid meaning that consideration could be either
negative or positive acts.
2. It may be very low as the Air Deccan ticket of Rs 1 but it must be there. For a practical example
the former Principal of St. Xavier’s School Fr. Kunnankal was appointed by the CBSE as
Chairman. Being a catholic priest he had devoted his life in the service of God and humanity.
Thus he could not take any consideration for the appointment. And yet the government could not
appoint him without giving him a proper consideration. The matter was resolved with the
government giving an appointment letter with a salary of Rs 1/- which was legal.
3. A student’s bank loan is returned with interest on completion of his studies(executory). Payment
of incentives to agents based on the past year’s performance (executed). Past consideration is not
permitted in English Law as per Anson. However according to Indian Law it is a contract. For an
example given in the Act itself:

“A finds B’s purse and gives it to him. B promises to give A Rs 50/-. This is a contract”

4. The consideration must be decided by the promissor himself and no other person. For example
the price of this book has to be decided by the publisher himself.
5. However the consideration may be fulfilled by any other person. For example the student’s fees is
paid by the bank directly to the institute in case the student avails a loan.
 LEGAL ISSUES IN CONSIDERATION

A stranger to a contract cannot sue.

Let’s begin with a simple situation: A person in Mumbai sued Indian Airlines in the Consumer Forum
for defect in service as the Airline had deliberately delayed a flight as it waited for a VIP passenger.
During the hearings the Forum enquired whether the complainant was a passenger in the aircraft or
related in any manner to any passenger. It transpired that the complainant had read about the delayed
flight in the newspaper and had filed a case. The Forum ruled that since the complainant was not a
party to the contract he could not sue.
In a famous English case Tweddle and Atkinson there was an agreement wherein one person say P
was to marry the daughter of G and G and P’s father entered into an agreement wherein each father
would pay P a sum of money. Subsequently G failed to pay and P filed a suit for recovery. It was held
that since he was not a party to the contract he could not sue.
Many courts in India did not follow the principle laid out in the above case. However the Supreme
Court in M.C.Chacko vs State Bank of Travancore(SBT) settled for the principle enunciated in the
Tweddle vs Atkinson case. The facts of the Chacko case briefly are as under: A person’s father had
given a guaranty of payment to the SBT against the overdraft taken by the person. Subsequently the
father gifted his property to his children which also provided that the dues to the bank should be paid
by his son(person) failing which it could be taken from the property gifted in favour of his son. The
bank held the son liable under this provision which was not agreed to by the SC as the bank was not a
party to the transfer of property by the father.
Consideration may be fulfilled by the promissee or any third party.
In Chinnaya vs Ramayya a woman gifted her property to her daughter which stipulated that her
daughter would pay a yearly sum to her aunt (mother’s sister). The daughter gave in writing the same
day that she would pay the yearly sum. Subsequently the daughter declined to pay on the grounds that
she was not bound to as there was no consideration from her aunt as required under Contract Law. It
was held that the property gifted to her was the consideration in return for giving the annual sum to
her aunt. Alternately it could also be stated that the consideration came from the sister of the aunt.
Section 2(d) which defines consideration states that the consideration may be done “by promisee or
any other person”
PAST CONSIDERATION AND EXECUTED CONSIDERATION
The situation 1.
“A saves B from drowning and later B promises a reward”
and the situation 2.
“C helps D to swim the river in return for a reward”.

The first situation the act of saving a drowning man was done without any promise from B. So is
there any consideration for B because the act of saving had already been done. According to British
law consideration and promise must go together so there is no contract and B cannot be compelled to
pay.
In India however the language of Section 25 (2) which states that “ a promise to compensate, wholly
or in part , a person who has already voluntary done something for the promissor is enforceable
clarifies that in situation 1 B will be compelled to fulfill his promise.
Situation 2 is an example of executed consideration wherein helping to swim the river is the
consideration for the promise of the reward. It is executed.

Examples of past, present or future consideration:

P renders some service to Q at latter’s desire. After a month, Q promises to compensate P for the
services rendered to him. It is past consideration. P can recover the promised amount.
 P receives Rs. 4. 000 in return for which he promises to deliver certain goods to Q. The money P
receives is the present consideration for the promise he makes to deliver the goods.
P promises to deliver certain goods to Q after a week. Q promises to pay the price after a fortnight.
The promise of P is supported by the promise of Q. Consideration in this case is future or executory.

Promissory Estoppel
“The vital principle is that he who by his language or conduct leads another to do what he would not
otherwise have done ,shall not subject such person to loss or injury by disappointing the expectation
upon which he acted “
In other words if due to a promise made by a person another acts accordingly that is based on the
promise he acts then the promise must be fulfilled even if there is no consideration.
This principle could be applied in the Kedar Nath vs Gorie Mohammed case where a town hall was
being built and contributions were sought from the citizens. A register was moved wherein promised
amounts were entered and signed. Based on the promises the plan was approved and the contract of
construction was awarded. One of the citizens backed out stating that there was no consideration for
him. It was held that the town hall was his consideration. Alternately the principle of promissory
estoppel also could be applied meaning that based on the promise the go ahead for the construction
was given and which had already commenced and he thus is bound by his promise.

It must be real and not illusory : A promise to pay a certain sum of money to a friend in return
for not being bored is not a valid consideration. Some other examples:

I. Physical Impossibility: P promises to give life to Q’s dead wife, if Q pays him Rs. 1, 00,
000. P’s promise is physically impossible of performance.
II Legal Impossibility: P owes Rs. 200 to Q. He promises to pay Rs. 50 to R, the servant of Q,
who in return promises to discharge P from the debt. This is legally impossible because R
cannot give discharge for a debt due to Q, his master. [Harvey v. Gibbons, (1675) 2 Lev.
161].
III Stilk was contracted to work on a ship owned by Myrick for £5 a month, promising to do
anything needed in the voyage regardless of emergencies.  After the ship docked
at Cronstadt two men deserted, and after failing to find replacements the captain
promised the crew the wages of those two men divided between them if they fulfilled the
duties of the missing crewmen as well as their own. After arriving at their home port the
captain refused to pay the crew the money he had promised to them.

Lord Ellenborough's judgement read:

Here, I say, the agreement is void for want of consideration. There was no consideration for
the ulterior pay promised to the mariners who remained with the ship. Before they sailed
from London they had undertaken to do all that they could under all the emergencies of
the voyage. They had sold all their services till the voyage should be completed. If they
had been at liberty to quit the vessel at Cronstadt, the case would have been quite
different; or if the captain had capriciously discharged the two men who were wanting,
the others might not have been compellable to take the whole duty upon themselves, and
their agreeing to do so might have been a sufficient consideration for the promise of an
advance of wages. But the desertion of a part of the crew is to be considered an
emergency of the voyage as much as their death; and those who remain are bound by the
terms of their original contract to exert themselves to the utmost to bring the ship in
 safety to her destined port. Therefore, without looking to the policy of this agreement, I
think it is void for want of consideration, and that the plaintiff can only recover at the rate
of £5 a month.
IV. Uncertain Consideration: P engages Q for doing certain work and promises to pay a
reasonable sum. There is no recognized method of ascertaining the reasonable
remuneration. The promise is unenforceable as consideration is uncertain.