CHAPTER:1

INTRODUCTION
A contract is a voluntary arrangement between two or more parties that is enforceable by law as
a binding legal agreement. Contract is a branch of the law of obligations in jurisdictions of
the civil law tradition. Contract law concerns the rights and duties that arise from agreements.

A contract arises when the parties agree that there is an agreement. Formation of a contract
generally requires an offer, acceptance, consideration, and a mutual intent to be bound. Each
party to a contract must have capacity to enter the agreement. Minors, intoxicated persons, and
those under a mental affliction may have insufficient capacity to enter a contract. Some types of
contracts may require formalities, such as a memorialization in writing. The Indian Contract Act,
1872 prescribes the law relating to contracts in India. The Act was passed by British India and is
based on the principles of English Common Law. It is applicable to all the states of India except
the state of Jammu and Kashmir. It determines the circumstances in which promises made by the
parties to a contract shall be legally binding and the enforcement of these rights and duties.

Contracts occur in every business. It might be as simple as the agreement with the milkman to
deliver the milk and your obligation to pay for it, or it might be an order you made with a major
supplier. There is one thing which you can be certain of, which is that you don’t want to find out
there is a problem with your contract when you are walking through the door of a courthouse
with a disgruntled person on the other side. This contract focuses on English contract law, which
shares many common features with other common law jurisdictions such as Australia, New
Zealand, Canada and the United States, although individuals from those countries should always
seek appropriate legal advice. A guarantee is an agreement where one party agrees to pay the
debt of another individual or company in the event that the third party defaults on the debt.
Contracts relating to the sale, transfer, option or lease of land should always be in writing.
Another common situation where writing is required is for contracts for the assignment or
exclusive licensing of certain intellectual property rights. English law and indian law have very
minute differencein their concept of contract law.

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 CHAPTER:2

WHAT IS CONTRACT
Law of contracts in India defines Contract as an agreement enforceable by law which offers
personal rights, and imposes personal obligations, which the law protects and enforces against
the parties to the agreement. The general law of contract is based on the conception, which the
parties have, by an agreement, created legal rights and obligations, which are purely personal in
their nature and are only enforceable by action against the party in default.

Section 2(h)1 defines a contract as "An agreement enforceable by law". The word 'agreement'
has been defined in Section 2(e)2 of the Act as ‘every promise and every set of promises, forming
consideration for each other’.

Contract is a branch of private law. It thus concerns private obligations that arise in respect of
symmetrical relations among natural and artificial persons rather than public obligations that
arise in respect of hierarchical relations between persons and the state. Contract, at least in its
orthodox expression, is distinctive for concerning chosen, or voluntary, obligations—that is,
obligations constituted by the intentions of the contracting parties. This entry describes doctrinal
and theoretical accounts of contract law with a special emphasis on the relationship between
contract law and two near-neighbors—tort law and fiduciary law.

A business contract is one of the most common legal transactions you will be involved in when
running a business. No matter what type of business you run, having an understanding of
contract law is a key to creating sound business agreements that will be legally enforceable in the
event that a dispute arises. The following is a discussion of the law of contracts.

 Law of Contract and Contribution of Lord Denning:

1
INDIAN CONTRACT ACT 1872
2
INDIAN CONTRACT ACT 1872

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Lord Denning was perhaps the greatest law-making judge of the century and the most
controversial. His achievement was to shape the common law according to his own highly
individual vision of society. Lord Denning was one of the most celebrated judges of his time. He
is popular as a dissenting judge. Lord Alfred Thompson Denning (1899-1999) was a Populist
English judge whose career spanned 37 years. He was known as a fighter for the underdog and a
protector of the little man's rights against big business. He served for 20 years as the head of the
Court of Appeals, one of the most influential positions in the English legal system. Denning was
a controversial judge who was often the dissenting voice on the bench. His decisions were based
more on his religious and moral beliefs than the letter of the law and he was often criticized for
his subjectivity. Denning retired from the bench in 1982 under a cloud of controversy regarding
some racially insensitive views that he published.

 Validity & formation of a Contract:

According to legal scholar Sir John William Salmond, a contract is "an agreement creating and
defining the obligations between two or more parties" For the formation of a contract the process
of proposal or offer by one party and the acceptance thereof by the other is necessary. This
generally involves the process of negotiation where the parties apply their minds make offer and
acceptance and create a contract.

A contract is a legally enforceable agreement between two or more parties that creates an
obligation to do or not do particular things. The term "party" can mean an individual person,
company, or corporation.

More on creation of a contract follows below. At its most basic level, a contract is:

 An agreement

 That is legally enforceable

 Laws that Govern Contracts

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Contracts are usually governed and enforced by the laws in the state where the agreement was
made. Depending upon the subject matter of the agreement (i.e. sale of goods, property lease), a
contract may be governed by one of two types of state law:

 The Common Law. 

The majority of contracts (i.e. employment agreements, leases, general business agreements) are
controlled by the state's common law -- a tradition-based but constantly evolving set of laws that
is mostly judge-made, from court decisions over the years.

 The Uniform Commercial Code (UCC).

The common law does not control contracts that are primarily for the sale of goods. Contracts for
the sale of goods are controlled by the Uniform Commercial Code (UCC), a standardized
collection of guidelines that govern the law of commercial transactions. Most states have adopted
the UCC in whole or in part, making the UCC's provisions part of the state's codified laws
pertaining to the sale of goods.

 Creation of a Contract

In the eyes of the law, a contract arises when there is an offer, acceptance of that offer, and
sufficient "consideration" to make the contract valid:

 An offer allows the person or business to whom the offer is made to reasonably expect
that the offering party is willing to be bound by the offer on the terms proposed. The
terms of an offer must be definite and certain.
 An acceptance is a clear expression of the accepting party's agreement to the terms of the
offer.
 Consideration is a legal term given to the bargained-for exchange between the parties to
the contract -- something of some value passing from one party to the other. Each party to
the contract will gain some benefit from the agreement, and will incur some obligation in
exchange for that benefit.
 Types of Contracts

The law recognizes contracts that arise in a number of different ways:

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  A bilateral contract is the type of agreement most people think of as a traditional
contract -- a mutual exchange of promises among the parties. In a bilateral contract, each
party may be considered as both making a promise, and being the beneficiary of a
promise.
 A unilateral contract is one in which the offer requests performance rather than a
promise from the person accepting the offer. A unilateral contract is formed when the
requested act is complete. A classic example of a unilateral contract is a "reward"
advertisement, offering payment of money in exchange for information or the return of
something of value.
 An express contract is formed by explicit written or spoken language, expressing the
agreement and its terms.
 An implied contract is formed by behavior of the parties that clearly shows an intent to
enter into an agreement, even if no obvious offer and/or acceptance were clearly
expressed in words or writing.

 Failure to Perform Under the Contract: "Breach"

When disputes arise over contracts, one party may accuse another of failing to perform under the
terms of the agreement. Under the law, a party's failure to fulfill an end of the bargain under a
contract is known as "breaching" the contract. When a breach of contract happens (or when a
breach is alleged), one or both of the parties may wish to have the contract "enforced" on its
terms, or may try to recover for any financial harm caused by the alleged breach.

 Enforcing Contracts Under the Law

If a dispute over a contract arises and informal attempts at resolution fail, the most common
method used to resolve contract disputes and enforce contracts is through lawsuits and the court
system. If the amount at issue is below a certain dollar figure (usually $3,000 to $7,500
depending on the state), the parties may be able to use "small claims" court to resolve the issue.

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Courts and formal lawsuits are not the only option for people and businesses involved in contract
disputes. The parties can agree to have a mediator review a contract dispute, or may agree to
binding arbitration of a contract dispute.

Does a contract have to be in writing? In a few situations, contracts must be in writing to be

valid. State laws often require written contracts for real estate transactions or agreements that
will last for more than one year. You'll need to check your state's laws to determine exactly
which contracts must be in writing. But even if it's not legally required, it's always a good idea to
put business agreements in writing, because oral contracts can be difficult or impossible to prove.

 Agreement Between the Parties

Although it may seem like stating the obvious, an essential element of a valid contract is that all
parties must agree on all major issues. In real life, there are plenty of situations that blur the line
between a full agreement and a preliminary discussion about the possibility of making an
agreement. To help clarify these borderline cases, the law has developed some rules defining
when an agreement legally exists.

 Offer and Acceptance

The most basic rule of contract law is that a legal contract exists when one party makes an offer
and the other party accepts it. For most types of contracts, this can be done either orally or in
writing.

Let's say, for instance, you're shopping around for a print shop to produce brochures for your
business. One printer says (or faxes, or emails) that he'll print 5,000 of your two-color flyers for
$300. This constitutes his offer.

If you tell the printer to go ahead with the job, you've accepted his offer. In the eyes of the law,
when you tell the printer to go ahead you create a contract, which means you're liable for your
side of the bargain (in this case, the payment of $300). But if you tell the printer you're not sure
and want to continue shopping around (or don't even respond, for that matter), you haven't
accepted the offer, and no agreement has been reached.

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But if you tell the printer the offer sounds great except that you want the printer to use three
colors instead of two, no contract has been made. This is because you have not accepted all of
the important terms of the offer. You have actually changed one term of the offer. (Depending on
your wording, you have probably made a counteroffer, which is discussed below.)

 When Acceptance Occurs

In day-to-day business, the seemingly simple steps of offer and acceptance can become quite
convoluted. For instance, sometimes an offer isn't quickly and unequivocally accepted; the other
party may want to think about it for a while, or try to get a better deal. And before the other party
accepts your offer, you might change your mind and want to withdraw or amend it. Delaying
acceptance of an offer and revoking an offer, as well as making a counteroffer, are common
situations that may lead to confusion and conflict. To minimize the potential for a dispute, here
are some general rules you should understand and follow.

 Standard Form Contracts:

The law of contract has in recent time to face a problem, which is assuming new dimensions.
The problem has arisen out of the modern large scale and widespread practice of concluding
contracts in standardized form. People upon whom such exemption clauses or standard form
contracts are imposed hardly have any choice or alternative but to adhere. This gives a unique
opportunity to the giant company to exploit the weakness of the individual by imposing upon
him terms, which may go to the extent of exempting the company from all liability under
contract. It is necessary and proper that their interests should be protected. The courts have
therefore devised some rules to protect the interest of such person.

 Post-Termination non-compete clauses in employment contracts:

Indian courts have consistently refused to enforce post-termination non-compete clauses in

employment contracts, viewing them as “restraint of trade” impermissible under Section 27 of

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the Indian Contract Act, 1872 (the Act), and as void and against public policy because of their
potential to deprive an individual of his or her fundamental right to earn a livelihood.

 Wagering Contracts

The contract Act does not define a wagering agreement. Cotton, L.J. (Thacker v. Hardy)3 said:
“The essence of gaming and wagering is that one party is to win and other to lose upon a future
event which at the time of contract is of an uncertain nature, i.e., that if the future event turns out
one way A will lose, but if it turns out the other way, he will win”. Hawkins, J. (Carlill v.
Carbolic smoke Ball Co.)4 Said: “It is essential to a wagering contract that each party may under
it either win or lose, whether he will win or lose being dependent on the issue of the event and
therefore remaining uncertain until, that issue is known. If either of the parties may win but
cannot lose, or may lose but cannot win, it is not a wagering contract”. In this case the
defendants promised to pay 100 pounds to anyone who caught influenza after using the smoke
ball manufactured by them. It was held not to be a wager because the user could not lose
anything if he failed to catch influenza. The important points to be noted here is that there should
be equal chances of gain or loss to the parties and it should be regarding an uncertain event. The
most striking feature of wager is that each party has the chance of winning or losing.

 Government Contracts:

The subject of government contracts has assumed great importance in the modern times. Today
the state is a source of wealth. In the modern era of a welfare state, government's economic
activities are expanding and the government is increasingly assuming the role of the dispenser of
a large number of benefits. Today a large number of individuals and business organizations
enjoy largess in the form of government contracts, licenses, quotas, mineral rights, jobs, etc. This
raises the possibility of exercise of power by a government to dispense largess in an arbitrary
manner. It is axiomatic that the government or any of its agencies ought not to be allowed to act
arbitrarily and confer benefits on whomsoever they want. Therefore there is a necessity to

3
4 Q.B.D. 685
4
EWCA CIV 1

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develop some norms to regulate and protect individual interest in such wealth and thus structure
and discipline the government discretion to confer such benefits.

 Contract- II: Bailment:

Contracts of Bailment are a special class of contract. These are dealt within Chap. IX from S.148
to 181 of the Indian Contract Act, 1872. Bailment implies a sort of one person temporarily goes
into the possession of another. The circumstance in which this happens are numerous. Delivering
a cycle, watch or any other article for repair, delivering gold to a goldsmith for making
ornaments, delivering garments to a drycleaner, delivering goods for carriage, etc. are all familiar
situations which create the relationship of ‘Bailment’.

 E-Contracts:

It’s an undisputed fact that E-Commerce has become a part of our daily life. One such
justification for the popularization of E-Commerce would be immoderate technological
advancement. E-Commerce, as the name suggests, is the practice of buying and selling goods
and services through online consumer services on the internet. The ‘e’ used before the word
‘commerce’ is a shortened form of ‘electronic’. The effectiveness of E-Commerce is based on
electronically made contracts known as E-Contracts. Although E-Contracts are legalized by
Information Technology Act but still majority feels insecure while dealing online. The reason
being lack of transparency in the terms & conditions attached to the contract and the jurisdiction
in case of a dispute that may arise during the pendency of a transaction with an offshore site

 Specific performance of Contracts:

Specific performance is equitable relief, given by the court to enforce against a defendant, the
duty of doing what he agreed by contract to do. Thus, the remedy of specific performance is in
contrast with the remedy by way of damages for breach of contract, which gives pecuniary
compensation for failure to carry out the terms of the contract. Damages and specific
performance are both, remedies available upon breach of obligations by a party to the contract;

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the former is a ‘substitutional’ remedy, and the latter a ‘specific’ remedy. The remedy of specific
performance is granted by way of exception.

 Liquidated Damages:

The Indian Contract Act, 1872, provides a basic structure of the law of contract in India, its
enforcement, various provisions regarding non-performance and the breach of contract. This
report is aimed to highlight provisions regarding liquidated damages in case of the breach of the
contract and to bring about a comparative study between India and England regarding it. Thus,
before knowing what exactly liquidated damages are, it is important to understand the
consequences of breach of contract and the damages awarded in case of breach. A party who is
injured by the breach of a contract may bring an action for damages and Damages means
compensation in terms of money for the loss suffered by the injured party. Thus, in contract
when these damages are awarded it is known as liquidated damages.

 Privity of contract and third party beneficiary in a contract

The doctrine of privity of contract means that only those involved in striking a bargain would
have standing to enforce it. In general this is still the case, only parties to a contract may sue for
the breach of a contract, although in recent years the rule of privity has eroded somewhat and
third party beneficiaries have been allowed to recover damages for breaches of contracts they
were not party to. There are two times where third party beneficiaries are allowed to fall under
the contract. The duty owed test looks to see if the third party was agreeing to pay a debt for the
original party. The intent to benefit test looks to see if circumstances indicate that the promisee
intends to give the beneficiary the benefit of the promised performance. Any defense allowed to
parties of the original contract extend to third party beneficiaries. A recent example is in
England, where the Contract (Rights of Third Parties) Act 1999 was introduced.

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  Contract Ratification:

Ratification is in law equivalent to previous authority it may be expressed or it may be affected

impliedly by conduct. Section 196 and 197 of the act show that an act done by person who is not
authorized to do it, but who purports to act as an agent for another person, can retrospectively
ratified by such other person. From this it follows logically, that such an act on the part of the
person purporting to act as agent is not void but voidable. If it is not ratified it becomes void but
if it is ratified it will be validated.

 Relevance of Quasi-Contracts:

There are certain situations wherein certain persons are required to perform an obligation despite
the fact that he hasn’t broken any contract nor committed any tort. For instance, a person is
obligated to restore the goods left at his home, by mistake, and keep it in good condition. Such
obligations are called quasi-contracts.

 Choice of law by the parties to the contract:

In this era of globalization where a contract contains one or more foreign elements, the difficult
and complicated question in proceeding that arises is that of ascertaining its applicable law. Such
difficulty stems from the multiplicity and diversity of connecting factors and each of them may
arise in a different jurisdiction for instance the place where the contract was made; the place of
performance; the place of business of the parties; the place of payment; the currency of payment;
domicile or nationality o the parties and so on. So to avoid this situation parties are granted with
the freedom to select the law to govern their contract under the provisions of Rome convention.
The inclusion of a choice of law clause is such an everyday matter in international contracts that
its absence would be to ignore commercial realities

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  Gifts vs. Contracts

The main importance of requiring things of value to be exchanged is to differentiate a contract

from a generous statement or a one-sided promise, neither of which are enforceable by law. If a
friend offers you a gift without asking anything in return -- for instance, offering to stop by to
help you move a pile of rocks -- the arrangement wouldn't count as a contract because you didn't
give or promise your friend anything of value. If your friend never followed through with her
gift, you would not be able to enforce her promise. However, if you promise your friend you'll
help her weed her vegetable garden on Sunday in exchange for her helping you move rocks on
Saturday, a contract exists.

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 CHAPTER:3

WHAT IS 'CONSIDERATION AND HOW MUCH IS

REQUIRED

A legally binding contract needs three main elements: an offer, consideration, and acceptance.
While the terms "offer" and "acceptance" are fairly straightforward -- an offer is made, and either
rejected or accepted -- "consideration" refers to something of value that is being gained through
the contract. If there is no consideration for one or more parties, then it casts a shadow over
the legitimacy of the contract.

In other words, each party should be able to answer the question of why they entered into the
agreement. Those who are unable to answer this question may not have been given proper
consideration. This article provides a general overview of contractual consideration and how
much of it is required for a contract to be valid.

Something with monetary value, voluntarily exchanged for an act, benefit, forbearance, interest,
promise, right, or goods or services. In banking, the loan-amount is a consideration, in exchange
for the borrower's promise to repay the principal and to pay interest and other charges. In
insurance, the insurance company's offer to make a loss good is a consideration in exchange for
payment of premium. Essential element of all enforceable commercial-contracts, it does not have
to be 'adequate' or equal in value to the exchanged item but must be legal (not in violation of any
law). Any commercial contract without a valid (valuable and legal) consideration is invalid and
is called 'nudum pactum' (Latin for, naked contract) governed by the legal maxim 'ex nudo pacto
non oritur actio' (Latin for, a right of action does not arise from a naked contract).5
There is legal maxim called QUID PRO QUE which means Something for something.
Reciprocal mutual consideration whereby one party gives a concession to another in exchange
for an equally valuable concession. Latin for, what for what.

Consideration, as we learned, is simply something of value exchanged between the parties to a

contract. To qualify consideration, it must be:
5
http://www.businessdictionary.com/definition/consideration.html

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  Legally sufficient, and

 Bargained-for

That is to say, the value the promisor places on the consideration must be of the same value the
promisee places on performance of the contract terms. In other words, both parties want to know,
'What's in it for me?'

To illustrate this, if John (promisor) offers Jamal (promisee) $200.00 to repair his car, and Jamal
accepts, the $200.00 is consideration (the value) for the repair (performance).

There are conditions consideration has to meet to have legally sufficient value. A party cannot
promise to do something where there is already a legal obligation to do so. A police officer
cannot collect a reward for the capture and arrest of an outlaw. The promisee must perform an
act not ordinarily obligated to perform. A police officer cannot contract independent security
services for his neighborhood while he is on duty at his regular job. He has a pre-existing
obligation to secure the neighborhood.

Finally, for consideration to be of legally sufficient value, a party may refrain from exercising a
right that the party is entitled to, like giving up the right to sue someone in exchange for
restitution. For instance, let's say that in fixing the car, Jamal dented John's fender. Jamal
apologizes and tells John that he will fix the dent for free and also give him a 10% discount on
the original repair. If John accepts the deal, he cannot later sue Jamal for denting the car.

Consideration must also be bargained-for, meaning there is an exchange of promise and

something of value where both parties gain a reward and receive a detriment in the contract. It's
real simple! Let's say John and Jamal are now negotiating the sale of a bicycle that was displayed
in the auto repair shop. John wants to take up biking, so he offers $50 to Jamal in exchange for
the product. Jamal will give the bike to John upon receipt of the cash. So both parties bargain and
receive a detriment. John's bank account is reduced by $50.00, but he received some new wheels.
Jamal no longer has his bike, but has an extra $50.00.

 How is Consideration Determined?

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Basically, a consideration is determined when the two or more parties to a contract change their
positions, such as promising something you are not legally required to do or promosing not to do
something you are legally free to pursue. For instance, a company may promise to take down a
website that is confusingly similar to your company's website, which is not legally required to
do, in exchange for you dropping your trademark infringement lawsuit against them (which you
have a right to do). In this scenario, each side gains something of value -- or consideration --
from the agreement.

 The Importance of Consideration

Generally, the courts will not reform a contract because one party made a bad bargain; but if the
contract appears to be entered into under duress, there may be questions about whether there is
adequate consideration. Consideration is the value bargained for by the parties, and most
decisions indicate there is no reason to inquire into a party's motivation for giving another party
an incredible deal. 

Having said that, consideration must meet other requirements. The consideration must be an
exchange for the bargain in question; past consideration is no good.

Example: Suppose XYZ Corp. employs Dave under a contract for one year for $100,000. Six
months later the president notes that Dave does not seem happy in his job. The president offers
Dave $20,000 more to stay for the full term of the contract. At the end of the year, Dave asks for
the extra $20,000. There is no enforceable contract for the extra incentive pay. Under the original
contract, Dave was already obligated to work for XYZ Corp. for a full year. The extra pay is not
supported by new consideration; Dave is not giving anything that he did not previously agree to.

But: If the $20,000 was offered to Dave to take on extra responsibilities or to work Friday nights,
and he did, there would be additional consideration that would support the change to the
contract.

 When a Contract Lacks Consideration

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The court may, at times, declare that a contract lacks consideration for one or more of the parties
involved, rendering it unenforceable. A contract may lack consideration if any of the following is
true:

 The promise cannot legally (or practically) be offered

 Offer is made for something that already has been done ("past consideration") and

therefore cannot be bargained for.

 One or more of the parties agreed to something he or she already was obligated to

do.

 A promise was actually a gift, not something bargained.

 Consideration Defined

The "thing of value" being exchanged -- which every law student who ever lived has been taught
to call "consideration" -- is most often a promise to do something in the future, such as a promise
to perform a certain job, or a promise to pay a fee for a job. For instance, let's return to the
example of the print job. Once you and the printer agree on terms, there is an exchange of things
of value (consideration): The printer has promised to print the 5,000 brochures, and you have
promised to pay $250 for them.

 Why Is Consideration Needed in a Contract?

When forming a contract, consideration is needed in order to make the agreement a formal, valid
contract. This is one of the three main requirements besides mutual assent and a valid offer and
acceptance. Consideration basically refers to the exchange of items or services of value. For
instance, for a contract for a sale of goods such as apples, the party receiving the apples needs to
exchange something of value for the apples. This usually comes in the form of monetary
payment. The consideration can also be other products or even services. The point is that the
parties must exchange something of value.

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Consideration is needed so that both parties incur some sort of burden or obligation in the
agreement. Without consideration, the exchange would likely be classified as a gift. Gifts are
treated differently than contract agreements, legally speaking.6

 How Is Consideration Measured?

In most cases, courts require there to be "adequate consideration." This means that the
consideration must closely approximate the value of the goods or services provided. The values
are generally measured by the market value of the goods or services at the time of contract
formation.

Note that the contract consideration does not have to be an exactly equal match in terms of
pricing. Courts will usually measure the adequacy of consideration according to what is
reasonable in terms of the average consumer or citizen.

For instance, suppose that one party promises to provide a television that is worth $200. If the
other party agrees to pay them $180, courts might consider this adequate consideration.
However, if they only agreed on a payment of $30, this might not be considered adequate
consideration. Of course, each case will be different and will be subject to independent analysis.

 What If Consideration Is Not Offered in a Contract?

If there is no consideration offered in a contract, courts will likely call the contract unenforceable
in a court of law. This generally means that one neither party can sue the other if there is a
dispute over contract terms. This is because a contract generally is not valid from the beginning
if there is no consideration exchanged. Thus, it’s important for both parties to be aware of
consideration in a contract, especially at the beginning during contract drafting.

In other cases, if there has been an exchange of services, the courts may alternatively treat the
exchange as if it were a gift.

6
https://www.legalmatch.com/law-library/article/why-is-consideration-needed-in-a-contract.html

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  Element Of Consideration

The question addresses the element of consideration. Firstly, consideration is a vital component
of a binding contract. Good consideration as decided in Currie v Misa 7 is usually valuable in the
eyes of law, by means of profit or benefit to one party, or some loss or detriment suffered by the
other party.

The main focus is on performance of existing duty. Good consideration in relation to

performance within a contract is generally based on the idea of exchange. This is usually the
exchange of promises often referred to as ‘quid pro quo', translated to the meaning of ‘something
for something'. Where the exchange element is lost, it subsequently does not constitute good
consideration.

It is a general rule that performance of existing duty does not constitute good consideration. In
order for it to be measured as good consideration, fresh consideration should be provided on
behalf of the promisee. As displayed in the case of Tweddle v Atkinson8 , it is a general rule that
consideration must move from the promisee. Where consideration is not provided, the contract
would become unenforceable.

A promise to perform a duty that you are already bound to do under general law does not
constitute good consideration, as exercised in Collins v Godefroy9. Here the plaintiff promised to
pay Collins, the witness for his attendance to give evidence in court. However, Collins was
already bound to give evidence by the court. Collins had therefore not provided any
consideration for Godefroy's promise. However, a promise to perform more than you are already
bound to go under general law will constitute good consideration, as proven in Glasbrook Bros v
Glamorgan County Council10 .

A promise to perform something you are already bound to do under an existing contract also
does not constitute good consideration. In Stilk v Myrick11 a voyage was scheduled to sail from
London to the Baltic and back, during which, two seamen deserted. The captain agreed to divide

7
LR 1 APP CAS 554
8
 EWHC J57 (QB)
9
1 B & Ad 950
10
AC 270
11
EWHC KB J58

18 | P a g e
their pay between the remaining members of the crew if they helped sail the ship back to London
without the two seamen who deserted. On return the captain refused to pay Stilk and the other
seamen. It was held that the seamen had not provided fresh consideration for the captain's
promise. As they had only agreed to do what they were already bound to, no consideration was
provided on behalf of the promisee (the seamen).

The courts later found that development of the principle of economic duress provided an
alternative to such a decision. Economic duress was established in Pao On v Lau Yiu Long12 ,
where Lord Scarman outlined the essential elements of the doctrine economic duress, by
deciding whether true consent was provided. His Lordship referred to economic duress as being
“coercion of the will” where there is no true consent.

Such development has allowed the decision in Stilk v Myrick 13 to now be distinguished in latter
cases, as the application of the doctrine of consideration has become increasingly flexible.

Williams v Roffey Brothers & Nicholls (Contractors) Ltd 14 , is a significant case within Law of
Contract, and specifically in relation to the case of Stilk v Myrick . The defendants sub-
contracted carpentry work to the plaintiffs in flats they were building. The plaintiffs got into
financial difficulty due to underestimation of the job costs. The defendants promised to pay an
additional sum to the plaintiffs, if they were able to complete the flats on time, ensuring that they
would avoid having to pay a penalty for late completion. On completion of eight further flats, the
defendants refused to pay the promised sum. The plaintiffs brought an action against the
defendants for the outstanding payment. The defendants claimed that no consideration was
provided, as they did not receive any benefit. The defendants claim was dismissed, as the court
held that there were practical benefits from the contract, as completion of the flats would result
in the defendant avoiding the penalty for delay. Therefore, in this circumstance performance of
existing duty, where practical benefit is provided, constitutes good consideration.

The judgement was seen as an anomaly in the law, as it distinguished the previous case of Stilk v
Myrick. It changed the application of consideration as it allowed the enforcement of a promise
for an existing duty. Glidewell L.J. believed that Williams v Roffey Bros 15 refined the

12
AC 614
13
EWHC KB J58
14
1 All ER 512
15
1 All ER 512

19 | P a g e
application of the doctrine of consideration, rather than contravened with the original principle
established in Stilk v Myrick.

In conclusion, Williams v Roffey Bros has caused many departures within the Law, by resulting
in a more flexible application of the consideration doctrine.

However, the case of Williams v Roffey Bros has many implications in the area of part-payment
of debt. The previous case of Foakes v Beer16 asserted that payment of a lesser sum by the debtor
does not constitute consideration for the whole sum. Williams v Roffey Bros was distinguished
in Re Selectmove Ltd, as it was seen to only be applicable to a contract for the supply of goods
and services.

The principle established in Williams v Roffey Bros is often criticised for disregarding the rule
that consideration must move from the promisee. Although it was held that practical benefit
constituted sufficient consideration, the benefits did not move from the promisee. Instead, the
practical benefits arose from the promise to pay more money, ensuring that the flats were
completed before the penalty. The principle behind the case was seen to be “inconsistent”
according to Colman J. obiter, in South Carribean Trading v Trafigura Beheer BV 17. Though the
decision was criticised, the case decision was followed.

 The Essential Of Lawful Consideration

All the agreements are not enforceable by law and, therefore, all agreements are not contracts.
Some agreements are enforceable by law and others not. For example, an agreement to rent
house may be a contract but an agreement to play football may be a mere agreement not
enforceable by law. Thus, all agreements are not contracts. Only those agreements which satisfy
the essentials mentioned in section 10 becomes contracts. But, all contracts are agreements.18

Thus, an agreement becomes a contract when the following essentials are satisfied:

 There is some consideration for it.

16
UKHL 1
17
EWHC 2676 
18
https://www.lawteacher.net/free-law-essays/contract-law/the-essential-of-lawful-consideration-contract-law-
essay.php#ftn1

20 | P a g e
  The parties are competent to contract.

 Their consent is free.

 Their object is lawful.

 Lawful Consideration

As per 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 to abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise "19

As per section 2320 , the consideration or object of an agreement is lawful, unless –

“It is forbidden by law; or is of such nature that, if permitted it would defeat the provisions of
any law or is fraudulent; of involves or implies, injury to the person or property of another; or the
Court regards it as immoral, or opposed to public policy."

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every
agreement of which the object or consideration is unlawful is void."

The definition of consideration given in section 2(d) of the Indian Contract Act, 1872 is rather a
practical definition. The purpose is to emphasize the simple fact that consideration is some act,
done or promised to be done, at the desire of the promisor. It also avoids the practical difficulties
caused by the theory of consideration as consisting of some act which is beneficial to one party
or detrimental to the other. This antithesis has been described to be not altogether happy. The Act
simplifies the matter by saying that any kind of act or abstinence which is done or undertaken to
be done at the desire of the promisor is a sufficient consideration. 

 At The Desire Of The Promisor

19
INDIAN CONTRACT ACT 1872
20
INDIAN CONTRACT ACT 1872

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The definition of consideration in Section 2(d) clearly emphasizes that an act shall not be good
consideration for a promise unless it is done at the desire of the promisor.

“In Durga Prasad v. Baldeo21, the plaintiff, on the order of the collector of a 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
commission on articles sold through their agency in the bazaar. The plaintiff’s action to recover
the commission was rejected." 

The only ground for making of the promise is the expense incurred by the plaintiff in
establishing the Ganj(market) but it is clear than anything done in that way was not ‘at the
desire’ of the defendants so as to constitute consideration. The act was the result of not the
promise but of the collector’s order.

 Acts Done at Request

On the other hand, an act done at the promisor’s desire is good consideration for his promise
even if it is of no personal significance or benefit to him. The decision of the Calcutta High court
in KedarNath v. Gorie Mohamed22 has become well known in this connection.

It was thought advisable to erect a town hall at Howrah provided sufficient subscription could be
got together for the purpose. To this end, the Commissioners of Howrah municipality set out to
work to obtain necessary funds by public subscription. The defendant was a subscriber to this
fund for Rs.100 having signed his name in the subscription book for that amount. On the faith of
the promised subscription, the plaintiff entered into a contract with a contractor for the purpose
of building the hall. But the defendant failed to pay the amount necessary for the purpose of
building the hall. But the defendant failed to pay the amount and contended that there was no
consideration for his promise.

He was, however, held liable: persons were asked to subscribe knowing the purpose for which
the money was to be applied; they knew that on faith of their subscription, an obligation was to
be incurred to pay the contractor for the work. The promise is: ‘in consideration of your agreeing
to enter into a contract to erect, I undertake to supply money for it.’ The act of the plaintiff in

21
ILR 3A LL 221
22
ILR 14 Cal 64

22 | P a g e
entering into contract with the contractor was done at the desire of the defendant (the promisor)
so as to constitute consideration within the meaning of Section 2(d).

It was indeed a promise to pay for the performance of an act and it could not have been revoked
once the promise entered performance. In England, also the ‘law for centuries has been that an
act done at the request of another, express or implied, is sufficient consideration to support a
promise’.23

 Promisee or any other person

The second notable feature of the definition in section 2(d) is that the act which is done is to
constitute a consideration may be done by the “promise or any other person". It means therefore,
that as long as there is a consideration for a promise, it is immaterial who has furnished it. It may
move from the promise or if the promisor has no objection, from any other person. This principle
has it genesis in the English common law, having been adopted by the Court of King’s Bench as
early as 1677 in Dutton v. Poole :

A person had a daughter to marry and in order to provide her a marriage portion he intended to
sell a wood of which he was possessed at the time. His son (the defendant) promised that if “the
father would forebear to sell at his request, he would pay the daughter £ 1,000." The father
accordingly forbore but the defendant did not pay. The daughter and her husband sued the
defendant for the amount.

It is clear that the defendant gave his promise to his father and it was the father alone who, by
abstaining from selling the wood, had furnished consideration for the promise. The plaintiff was
neither privy to the contract nor interested in the consideration. But it is equally clear that the
whole object of the agreement was to provide a portion to the plaintiff. It would have been highly
inequitable to allow the son to keep the wood and yet to deprive his sister of her portion. He was
accordingly held liable.

 Position of Beneficiary who is not a Party

Fundamental propositions of English law referred to by his Lordship Viscount Haldane are:

23
Avatar singh

23 | P a g e
 A. Consideration must move from the promisee and the promisee only. If it be furnished by
any other person, the promisee becomes a stranger to the consideration and therefore,
cannot enforce the promise.
B. A contract cannot be enforced by a person who is not a party to it even though it is made
for his benefit. He is a stranger to the contract and can claim no rights under it.

These propositions were formed as a result of the Tweedle v. Atkinson24 case, which laid the
foundation of what subsequently came to be known as ‘privity of contract’, which means that a
contract is a contract between the parties only and no third person can sue upon it even when
avowedly he is benefited. Whitman J. considered it to be an established principle “that no
stranger to the consideration can take advantage of a contract, although made for his benefit".

Thus, although the sole object of the contract was to secure a benefit to the plaintiff, he was not
allowed to sue as the contract was made with his father and not with him. This principle was
affirmed by the House of Lords in Dunlop Pneumatic Tyre Co. v Selfridge & Co25

Plaintiffs (Dunlop & Co.) sold certain goods to one Dew & Co. and secured an agreement from
them not to sell the goods below the list price and that if they sold the goods to another trader,
they would obtain a similar undertaking to maintain the price list. Dew & Co. sold the motor
tyres to the defendants (Selfridge & Co.) who agreed not to sell the tyres to any private customer
at less than the list prices. The plaintiffs sued the defendants for breach of contract. It was held
that assuming the plaintiffs were undisclosed principals, no consideration moved from them to
the defendants and that the contract was unenforceable by them.

 Privity Of Consideration

In India, the two propositions mentioned above are not at all applicable. Here, in view of the
clear language used in Section 2(d), it is not necessary that consideration should be furnished by
the promise. A promise is not enforceable if there is some consideration for it and it is quite
immaterial whether it moves from the promise or any other person. The leading authority in the
decision of the Madras High Court in CHINNAYA V. RAMAYYA26

24
EWHC J57 (QB)
25
UKHL 1 AC 847
26
ILR 4 MAD 137

24 | P a g e
An old lady, by deed of gift, made over certain landed property to the defendant, her daughter.
By the terms of the deed, which was registered, it was stipulated that an annuity of Rs. 653
should be paid every year to the plaintiff, who was the sister of the old woman. The defendant on
the same day executed in plaintiff’s favour an Iqrarnama (agreement) promising to give effect to
the stipulation. The annuity was, however, not paid and the plaintiff sued to recover it. It was
clear that the only consideration for the defendant’s promise to pay the annuity was the gift of
certain lands by the old woman to the defendant, the defendant, therefore, tried to defend herself
on the ground that the promise (the plaintiff) had furnished no consideration for the same.
Briefly, the whole situation was: the defendant’s promise was given to the plaintiff, but
consideration was furnished by the plaintiff’s sister. The court could have easily allowed the
plaintiff to recover the annuity, as consideration can be given by “any other person" and is
equally effective. The court reached the same result but on a somewhat different ground. Innes J.
tried to equate the situation with the facts of Dutton v. Poole. In that case, the defendants sister
would have gotten the marriage portion but for the defendant’s promise. In this present case also
it appeared that the plaintiff was already receiving from her sister an annuity of like amount out
of the estate and when the estate was handed over to the defendant, it was stipulated that the
payment to the plaintiff should be continued and she promised accordingly. That means that the
failure to keep the promise would have deprived the plaintiff of an amount which she was
already receiving and it is a legal commonplace that if a promise causes some loss to the
promise, that is sufficient consideration for the promise. Thus, the plaintiff had given
consideration.

CHAPTER:4

PRIVITY OF CONSIDERATION
25 | P a g e
A stranger to consideration can sue because Section says that consideration can be furnished by
the promise or any other person. However, a stranger to a contract cannot sue because there is no
relationship between him and the parities to a contract – privity of contract.

Under Indian law, the consideration can be furnished by the ‘promisee or any other person’ as
given in Section 2(d)

Illustration: X owes Y Rs 1000 and sells his property to Z who promises to pay his debts. But Z
does not pay Y. Because he is a stranger to the contract, Y cannot sue Z.

Illustration: X bought tyres from Y under the condition that the tyres will not be resold below
the listed price. X sold the tyres to Z, a sub dealer who agreed to the conditions and also to pay Y
some amount for every tyre he undersold. Z sold tyres at lower rates than list price and Y sued
him for breach of conditions. The action will fail for Y is a stranger to the contract between X
and Z. The facts are similar to that of Dunlop Pneumatic Tyre Co. vs. Selfridge & Co27.

 English Law

Under English law, there privity of consideration is well recognised – consideration must move
from the promisee and the promisee only.

In Dutton vs. Poole28, X was prepared to cut down timber on his estate to provide a marriage
portion to his daughter, Y. His son, Z, promised to give a certain sum to his sister on her
marriage if X did not cut down the timber. When Z failed to pay the amount, Y sued him for the
amount. The suit was held maintainable on grounds of the close relationship between X and Y as
father and child; the relationship made Y a party to the consideration though if she was a stranger
to the contract.

27
1915 AC 847

28
(1677) 83 LR523

26 | P a g e
English law recognizes the rule of ‘privity of contract’. Thus, a contract cannot be enforced by a
person who is not a party to it even if the contract is made for his benefit. A stranger to the
contract cannot claim any rights under it.

The doctrine was introduced in 1861 though Tweddle vs. Atkinson 29. The father and father-in-
law of a groom agreed in writing to pay the groom a certain sum of money. However, the
contracting parties died without having made their share of the specified payment. The groom
sued the executors of his father-in-law for the payment of the amount due. The principle of near
relationship of the contracting parties (as in Dutton vs. Poole case) was held not applicable. The
groom was not allowed to sue because he was a stranger to the contract though the contract
sought to benefit him.

In Beswick vs. Beswick30, a man transferred his business to his nephew on the condition that the
latter maintain the man till his death and his widow thereafter. After the death of the man, the
nephew did not keep up his end of the bargain and the widow sued him. It was held that the
widow was suing not only as beneficiary under the contract but also as the heir of her deceased
husband who was a party to the contract.

 Indian Law

There is no provision in the Indian Contract Act, 1872 either for or against the rule of ‘privity of
contract’. In the case of Jamna Das vs. Ram Avtar31, X mortgaged some property to Y and then
sold it to Z who agreed with X to pay the mortgage debt to Y. Y sued Z for the recovery of the
mortgage money. It was held that Y could not succeed as he was not party to the agreement
between X and Z.

In M.S. Chacko vs. State Bank Of Travancore32, X Bank was indebted to the State Bank of
Travancore under an overdraft. A was the manager of the said X Bank and his father –B, had
guaranteed the repayment of the overdraft. B gifted his properties to the members of his family.

29
(1861) 1 B&S 393
30
(1960) 3 All ER 1 CA

31
(1911) 30 IA 7
32
(1969) 2 SCC 343

27 | P a g e
The gift deed provided that any liability under the guarantee should be met by A either from the
bank or from the share of the property gifted to him. The State Bank of Travencore sought to
hold A liable on the basis of the gift deed. It was held that the State was not a party to the deed
and could not enforce it.

 Exceptions to the ‘Privity Rule’:

A person who is not a party to a contract may sue upon it in the following cases:

A. Trust or charge

B. Family arrangement

C. Estoppels

D. Assignment

E. Covenant running with the land

 Trust or charge

Where a trust is created for the benefit of a person, he can sue upon the agreement to create the
trust even if he is not a party to it.

In case of Khwaja Md. Khan vs. Husaini Begum33, the father and father-in-law of X, entered into
an agreement where for the consideration of X marrying Y, the father in law would pay her Rs
500 per month for perpetuity as betel leaf expenses. Certain immovable property was specifically
charged for the payment of these expenses. After marriage, X and Y separated. X bought a suit
for the recovery of arrears of annuity. It was held that X could enforce the promise in her favour
and that she was claiming as beneficiary under such settlement to provide for her.

In the case of Baksh Singh vs. Jang Bahadur34, X was appointed successor by his father and put
in possession of his estate. In consideration, X agreed with the father to pay a certain sum of
money and property A – illegitimate son of his father upon on his attaining majority. When A

33
(1910) 37 IA 152
34
AIR 1938 PC 245

28 | P a g e
asked for his share upon attaining majority, X refused. It was held that a trust was created in
favour of A for a specific amount and property and the suit was maintainable.

 Family arrangement

If a contract under a family arrangement is intended to secure a benefit to third party, he may sue
in his own right as a beneficiary.

In Rose Fernandez vs. Joseph Gonsalves35, X entered into an agreement for his daughter’s
marriage to A. It was held that the girl could sue A for damages for breach of the promise of
marriage. A’s plea that she was not a party to the agreement did not hold ground. Similarly, in
the case of Rakhmanbai, there was provision made for the marriage expenses of a female
member of a Joint Hindu Family. When partition of the family property took place, the woman
sued for her marriage expenses. It was held that she was entitled to sue for the same.

 Acknowledgement or estoppel

If a contract requires a party to pay a third party and he acknowledges it to the third party, he will
incur a binging obligation. The acknowledgement may be express or implied

Illustration: X receives Rs 1000 from Y for paying Z. X acknowledges the receipt of funds to
pay him. Now, Z can sue X for the recovery of the sum.

In Devaraja Urs vs. Ram Krishniah36 X sold his house to Y and a specific sum was to be paid to
A out of the sale price due from Y. Y made a few payments to A but not the whole amount. It
was held that A could recover the balance because Y had acknowledged his liability by conduct.

 Assignment of a Contract

A benefit under a contract may be assigned either by an act of the parties or by operation of law
(in cases of death and insolvency) and the assignee can sue upon the contract for the enforcement

35
ILR (1924) 48 Bom 673
36
AIR 1952 Mys. 109

29 | P a g e
of his rights. However, in another case37 it was held that a mere nominee, the person for whose
benefit the deceased insured his or her life, cannot sue on the policy because such person is not
an assignee.

 Covenants running with the land

In Tulk vs. Moxhay38 it was held that a person is bound by obligations attached to a land via a
contract when he purchases the said land with the notice that the agreements affecting the land
bind him though he was not a party to such contract or agreement.

CHAPTER:5

CASE DISCUSSION

37
Krishna vs. Pramila (1928) 55 Cal 1315
38
(1919) 88 LJKB861

30 | P a g e
  CHINNAYYA VS RAMMAYYA 1881 ILR 4 MAD 137

FACTS: A, an old lady, granted / gifted an estate to her daughter the defendant, with the
direction /condition that the daughter should pay an annuity ( annual payment ) of Rs 653 to A’s
brother, the plaintiff. On the same day the defendant, daughter (promisor), made a promise vis a
vis an agreement with her uncle that she would pay the annuity as directed by her mother, the old
lady.

Later  the defendant refused to pay on the ground that her uncle (promisee, plaintiff) has not
given any consideration. She contended that her uncle was stranger to this consideration and
hence he cannot claim the money as a matter of right.

HELD: The Madras HC held that in this agreement between the defendant and plaintiff the
consideration has been furnished on behalf of the plaintiff (uncle ) by his own sister (defendant’s
mother). Although  the plaintiff was stranger to the consideration but since he was a party to the
contract he could enforce the promise of the promisor, since under Indian law, consideration may
be given by the promisee or anyone on his behalf – vide Section 2 (d) of ICA.

Thus, consideration furnished by the old lady constitutes sufficient consideration for the plaintiff
to sue the defendant on her promise. Held, the brother / uncle was entitled to a decree for
payment of the annual sum of money.

 English law: The English law is , however, opposed to the Indian law on this point. In
England, the law is entirely different. Under the English contract Act, consideration must
move from promisee to promisor and no one else.  This means that a promisee must
furnish the consideration himself only to enforce the promise of the promisor. In essence,
the rule in England is “stranger to the consideration ” cannot sue.

31 | P a g e
Illustration: A promises to give his watch to B at a consideration of Rs 1000. The consideration
was however, given to A by X and not B. this will not constitute a valid contract in England as
consideration for A’s promise was not provided by the promisee, B not X. Such a contract can be
valid in India under Section 2(d).

32 | P a g e
 CONCLUSION
Section 25 of indian contract act opens with the declaration that “an agreement made without
consideration is void ” in England also “promise without consideration are not enforced, because
they are gratuitous”. In section 2(d) of the indian contract act consideration is defined :

”when at the desire of the promisor the promise or any other person has done or abstained from
doing or does or abstains from from doing or promises to do or to abstain from doing something
such act or abstinence or promise is called a consideration for the promise”.

This is rather practical definition. The purpose is to emphasis the simple fact that consideration is
some act done or promised to be done at the desire of promisor. It also avoids the practical
difficulties caused by the theory of consideration as consisting of some act which beneficial to
one party or detrimental to the other. The definition of consideration in section 2(d) requires in
the 1st place that the act or abstinence which is to be a consideration for the promise should be
done at the desire of the promisor secondly that it should be done by promise or any other person
and lastly that the act or abstinence may have been already executed or is in the process of being
done or may be still executory that is to promised to be done.

There is some different concept in English law. In Indian law 3rd person can be able to sue for the
consideration whereas in English law 3rd person will not entertain himself as a party to sue for
the consideration. In English law 3rd can not be consider as a party to a contract.

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