CONSIDERATION Consideration, Intention to

create legal relations, Privity

 WHY IS CONSIDERATION
IMPORTANT?
 Purpose is to limit enforceability of agreements
 Hence, mere intention to be bound is not enough – consideration also needs to be
proved
 Consideration plays an important role to check whether parties had deliberated
and formed the relationship
 The requirement of consideration is found in countries modelled on the common
law tradition
 There are some significant differences between the English and Indian concept of
consideration
 HOW IS CONSIDERATION
DEFINED?
 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.
 Also, look at Section 25 – what does it tell you about consideration?
 Also, consideration is referred to in Sections 10 and 23
 ANALYSING SECTION 2(D)
 At the desire of the promisor – thus an act, abstinence or promise at the
desire of a third party is not covered
• Note that desire of the promisor is used in contradistinction to the word
‘voluntarily’ which appears in Section 25 (2)
• But the consideration from the promisee need not benefit the promisor
 Consideration must move from promisee or any other person
• Under English law, it must only move from promisee- note the departure
 AT THE DESIRE OF THE
PROMISOR
 What had the Court decided in the case of Kedarnath v Gorie Mohamed?
• Subscription money could be claimed – good consideration
 Was the same case upheld in the judgment of Doraswami Iyer v Ayyar?
I think it cannot now be accepted that the mere promise to subscribe a sum of money
or the entry of such promised sum in a subscription list furnishes consideration. There
must have been some request by the promisor to the promisee to do something in
consideration of the promised subscription.
 Which of the two cases do you agree with?
 PROMISE TO AGREEMENT;
RECIPROCAL PROMISES
Section 2(e)
Every promise and every set of promises, forming the consideration for each
other, is an agreement;

Section 2(f)
Promises which form the consideration or part of the consideration for each
other, are called reciprocal promises
 EXECUTORY
CONSIDERATION
 When consideration consists of promises to be fulfilled in the future, each
promise is the consideration for the other. These promises are called reciprocal
promises. Both sides have rights and obligations in such instance. Consideration is
termed as executory in nature.
 Consider this illustration:
Mr. Sharma agrees to sell his car to Mr. Gupta on April 15th, 2017. They negotiate the
price of the car and settle upon a purchase price of Rs.4,00,000. Mr. Sharma says he
will deliver the car to Mr. Gupta’s house on April 15th at 11 am and Mr. Gupta says
he will give him a cheque for Rs. 4,00,000 at such time.
 EXECUTED
CONSIDERATION
Executed consideration exists when an act is performed in return for a promise, the
promise is unilateral. The liability exists on one side and not on both sides.
Example:
Lost dog example – Say Mrs. Anand advertises that if any one is able to find her lost dog
she will give a reward of Rs.25,000. When Ram finds the dog and goes to Mrs. Anand
with the dog, the liability only remains on the part of Mrs. Anand.
The act of Ram in finding the dog and returning it to Mrs. Anand constitutes not only his
acceptance but also his consideration which he has already performed.
Hence, the liability to perform is only up on Mrs. Anand.
 ILLUSTRATION
You asked Mr. Jain to purchase certain books for you from Delhi. In return, you
agree to collect and pay for the books. Mr. Jain accepts your offer. You now have a
binding contract.
There are two promises:
 Mr. Jain (promisor) promises to purchase books for you (promisee) from Delhi,
and bring them on-campus.
 You (promisor) promise to collect and pay Mr. Jain (promisee) for the books.
In return for Mr. Jain’s promise, the consideration is your promise to collect and pay
for the books.
In return for your promise, the consideration is Mr. Jain’s promise to purchase and
deliver the books.
 ANALYSING SECTION 25
 What is a void agreement?
• Void since inception and not having passed the stage from agreement
to contract
 Do you see the definition of a void agreement in Section 2?
‘An agreement not enforceable by law is said to be void’
 Compare this with Section 2(h) – an agreement enforceable by law is a
contract
 Compare also with the definition of a void contract in Section 2(j)
 ANALYSING SECTION 25
 Section 25(1)
• natural love and affection between parties standing in a near relation to each other
• Near relation has not been judicially construed
• But once there is a near relation does it necessarily mean that an act was done out of love
and affection? What if the parties had quarreled with each other?
• Take the instance of two brothers (Ram and Shyam) who were fighting with each other
and Ram made a registered instrument agreeing to give half of certain property to his
brother Shyam nevertheless. There was no consideration between the parties.
• The Court held that Ram had given his property to Shyam for being able to reconcile the
relationship – therefore, it was out of love and affection for his brother and was thus,
enforceable.
 PAST CONSIDERATION
 English law contemplates that in the formation of a contract, the consideration is
given and accepted in exchange for the promise. Hence, offer, acceptance and
consideration all occur simultaneously. It therefore does not contemplate past
consideration.
 If a service is rendered without any immediate promise or understanding that it is to
be recompensed, it is a mere gratuitous act having no legal effect.
 In determining whether the consideration is past – Courts look to the chronology of
events.
 Are there exceptions to this rule? – Yes, when the act was done at the request of the
promisor
 PAST CONSIDERATION -
ANALYSING SECTION 25(2)
 An agreement without consideration is void unless:
It is a promise to compensate, wholly or in part, a person who has already voluntarily done
something for the promisor, or something which the promisor was legally compellable to
do;
• voluntarily done something
• for the promisor
 Does the English law requirement that the act must have been done at the request of the
promisor apply in the Indian context?
 Contrast ‘for the promisor’ with ‘on the request of the promisor’
 MILL V. WYMAN , 3 PICK. 207
(MASS. 1825)
 Was there any promise of a consideration when the act was performed?
 Do you think this constitutes past consideration?
 What was the conclusion on the facts of the case based on American principles?
 What do you think would be the Indian position on this?
 RAJA OF VENKATAGIRI V.
KRISHANAYYA, AIR 1948 PC 150
 B agreed to give his son in adoption if A agreed to take care of expenses involved in any
suit challenging the adoption. There was some litigation for years and A, and after A’s
death, A’s son continued to give money to B and later to the adopted son.
 Adopted son later on gave a promissory note saying he will pay A’s son if the suit is
successful. Suit was successful but adopted son refused to pay the amount under the note.
 ‘At the desire of the promisor’ – was the act of taking care of expense done at the desire of
the adopted son?
 Was it done for the promisor, being the adopted son?
 Was the act of taking care of the expense done voluntarily by A and A’s son?
 WEBB V. MCGOWIN, 27 ALA.
APP. 82 (1935)
 The appellant saved the life of McGowin by preventing a block from falling on his head.
In trying to save McGowin he ended up injuring himself and was crippled.
 After the incident and learning about what happened, McGowin agreed to provide for the
maintenance of the appellant. The maintenance money was paid for some years after
McGowin’s death but was discontinued in January 1934.
 The appellant now filed a claim seeking the maintenance money.
 Moral obligation is a sufficient consideration to support a subsequent promise to pay
where the promisor received a material benefit, although there was no original duty to pay on
the promisor.
 But here, there was a subsequent promise to pay which is an affirmation of the service
rendered raising the presumption that the services had been rendered at McGowin’s
request.
 TIME BARRED DEBT -
ANALYSING SECTION 25(3)
A debtor can enter into an agreement in writing to pay the whole or part of a debt
which the creditor might have enforced but for the law of limitation
Limitation does not extinguish the debt but only bars the remedy because of lapse of
time mentioned under the law of limitation
If the debt was not payable for reasons other than belonging to the law of limitation,
Section 25(3) would not apply
The debt is one of the promisor – there must be an undertaking to pay signed by the
debtor or his agent
The promise can for whole or only part of the debt owed
 EXPLANATIONS TO
SECTION 25
 Explanation 1:
• Unilateral agreement in the nature of a gift not affected by this section as it only talks of transactions
which are in the nature of contracts.
• The validity of a gift is regulated by the Transfer of Property Act, 1882 which permits transfer of
property without consideration
• A company donating some money to a charitable trust does not constitute a contract. There is no
consideration. Willingness to accept donation is not covered in 2(d).
 Explanation 2:
• Inadequacy of consideration does not by itself make a contract void
• It may be brought in as evidence to prove that consent had not been freely obtained
 ADEQUACY OF
CONSIDERATION
Devji Shivji v. Karsandas Ramji, AIR 1954 Pat 280
Was there natural love and affection between the parties?
Was there some consideration? Was it adequate?
What were the primary issues then?
Why was the Court trying to ascertain whether the plaintiff had given free consent for the
deed of assignment of the business?
 Look at Section 25 (1), Explanation 1 and Explanation 2.
 ADEQUACY OF
CONSIDERATION
Ramchandra Chintaman v. Kalu Raju (1878) ILR 2 Bom 362

 Lawyer had already accepted vakalatnama pursuant to which client had agreed to
pay him agreed fees
 Subsequent agreement between parties for payment of an additional sum of
Rs.61 is not supported by consideration
 Court thinks that the agreement is nudum pactum (without consideration)
 Principle: Consideration must be something more than what the promisee is
already bound to do by law or contract (pre-existing duty).
 PRE-EXISTING DUTY
Stilk v Myrick (1809)2 Camp 317
 In the course of voyage, two seamen had deserted the ship. The captain said if
he is unable to replace the two missing men, the wages of the two missing men
would be divided amongst the remaining crew.
 The captain was unable to replace the two missing men but refused to pay extra
wages to the remaining crew members.
 The Court held here that the remaining crew members were not entitled to the
extra wages as the promise was not supported by consideration. Even if they had
to do more than their ordinary share of duty, they could not bring a claim as they
were bound by their original duty to bring the ship back to the port; the
desertion of the crew men was like an emergency situation.
 PRE-EXISTING DUTY

Lalman Shukla v. Gauri Dutt, (1913) 11 ALJ 489

The nephew of the defendant went missing so he sent his servants (including the plaintiff
who was a munim) to find the nephew. Later he made an announcement that any one who
found his nephew would be entitled to a reward of Rs.501. The plaintiff found the nephew
and brought him back to the defendant.
The defendant gave him a reward of Rs.2. The plaintiff did not ask for any more money
and continued in service with the defendant. The plaintiff was dismissed after 6 months
when he sought to recover Rs.499 from the defendant.
Two things were said here: knowledge of the reward having been announced was missing
No consideration was present as servant was already under an obligation to work for the
master even though it was not within the ordinary scope of his duties.
 PRE-EXISTING DUTY
Williams V Roffey Brothers [1991] 1 QB 1

Benefits to parties – practical benefits

 The consent was not obtained in any unfair manner – no economic duress
 Public policy considerations in Stilk v Myrick
 Argument of promissory estoppel not taken before lower Courts or instant Court
Justice Glidwell: It is not in my view surprising that a principle enunciated in relation to the rigours of
a seafaring life during the Napolenoic wars should be subjected during the succeeding 180 years to a
process of refinement and limitation in its application in the present day.
Justice Purchas: Modern approach to the question of consideration would be that where there were
benefits derived by each party to a contract of variation even though one party did not suffer a
detriment this would not be fatal to establishing sufficient consideration.
INTENTION TO CREATE LEGAL
RELATIONS
Balfour v Balfour [1919] 2 KB 571
 What was the reasoning of the Court in arriving at its conclusion?
 What was the consequence that Courts feared would have followed if it was held
otherwise?
 The ordinary example is where two parties agree to take a walk together, or where there
is an offer and an acceptance of hospitality. Nobody would suggest in ordinary
circumstances that those agreements result in what we know as a contract, and one of the
most usual forms of agreement which does not constitute a contract appears to me to be the
arrangements which are made between husband and wife…. they are not contracts because
the parties did not intend that they should be attended by legal consequences.
 INTENTION TO CREATE
LEGAL RELATIONS
CWT v Abdul Hussain (1988) 3 SCC 562
Facts: Abdul Hussain gave some money to Faizullabhai. Initially, Abdul Hussain
included this in his wealth tax returns. Later he said that the money was not a loan
but was given on goodwill and good faith and thus, should not be considered part
of his wealth.
 There was an argument that the debt was known in Muslim law as being one for
goodwill and good faith. There was no conclusive proof to be able to support this
contention though. Supreme Court did not find favour with this argument.
 The second argument was that there was no intention to create legal relations
here.
 CWT V ABDUL HUSSAIN
(1988) 3 SCC 562
 Court felt that this was a commercial transaction as the money that was given to
Faizullabhai was invested in a partnership firm. Presumption is that the agreement
was to create legal relations. The burden is on Abdul Hussain to prove to the
contrary. The burden had not been discharged in this case and hence, the amount
was taxable.
 An objective test is to be used to infer the intention of the parties.
 Lord Atkin said in Balfour v Balfour – the intention can be negatived depending on
the nature of the agreed promise or promises like in the case of an offer and
acceptance of hospitality, agreements made in the course of family life, etc.
 Is there a separate element on ‘intention to create legal relations’? Court quotes
Cheshire to say that this test is only useful in countries where there is no test of
consideration.
 PROMISSORY ESTOPPEL
Principle:
Where one party has by his words or conduct made to the other a clear and unequivocal
promise, which is intended to create legal relations or affect a legal relationship to arise in
the future, knowing or intending that it would be acted upon by the other party to whom
the promise is made and it is in fact acted upon by the other party, the promise would be
binding on the party making it and he would not be entitled to go back upon it, if it
would be inequitable to allow him to do so having regard to the dealings which have taken
place between the parties, and this would be so irrespective of whether there is any pre-
existing relationship between the parties or not.
 PROMISSORY ESTOPPEL
 Promissory estoppel is a departure from consideration
 It is protects reliance and not bargains
 Promise must be unambiguous and unequivocal
 Promisee need not have suffered a detriment – he should have altered his position in
reliance of the promise
 Estoppel – representation as to an existing fact where as Promissory Estoppel relates
to a promise as to the future conduct of the promisor
 BANWARI LAL V SUKHDARSHAN
DAYAL (1973) 1 SCC 294
 Plaintiffs claimed that a particular plot in a colony was to be constructed as a dharamshala
but was sold to the defendant. Defendant made a boundary wall and thus, the plot was not
available for public benefit. Plaintiffs prayed for an injunction restraining the defendant
from interfering with the construction of the dharamshala.
 Plaintiffs claimed that when the housing scheme was advertised announcements were
made on loudspeakers that a plot would be reserved for a dharamshala.
 If the plot had been earmarked for use for dharamshala, it should have been mentioned in
the sale deeds.
 Argument was about estoppel. But here, the representation was vague and thus, could not
form the basis of any estoppel claim.
 CENTRAL LONDON PROPERTY
TRUST V HIGH TREES HOUSE LTD
[1957] 1 KB 130
 Principle laid down by the Court here:
Promises intended to create legal relations and which, in the knowledge of the person
making the promise were going to be acted upon by the party to whom the promise was
made, and have in fact so been acted on. In such instances promises must be honoured.
Such promises are to be enforced even though there is no consideration from the
promisee.
 D & C BUILDERS V REES [1966] 2
QB 617
Facts: The plaintiffs (who are decorators and plumbers) worked for the defendants and
raised a bill of GBP 750. The defendant paid £250 on account. The plaintiff was owed a
sum of £500 which the defendant did not pay despite several reminders.
Eventually the wife of the defendant called and said: “My husband will offer you £300 in
settlement. That is all you'll get. It is to be in satisfaction.” Their company was in desperate
financial straits. If they did not have the £300, they would be in a state of bankruptcy. So
they decided to accept the £300 and see what they could do about the rest afterwards.
“£300 Will not even clear our commitments on the job. We will accept £300 and give you a
year to find the balance.” She said: “No, we will never have enough money to pay the
balance. £300 is better than nothing.” He said: “We have no choice but to accept.”
When the money was paid, Mrs. Rees insisted that the plaintiffs added language to suggest
there was a final settlement: “Received the sum of £300 from Mr. Rees in completion of
the account. Paid, M. Casey.”
 D & C BUILDERS V REES [1966] 2
QB 617
 Exception to the rule under Central London Property Trust v. High Trees
House:
Where there has been a true accord, under which the creditor voluntarily agrees to
accept a lesser sum in satisfaction, and the debtor acts upon that accord by paying the
lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to
insist on the balance. But he is not bound unless there has been truly an accord between
them.
 The debtor’s wife held the creditor to ransom. The creditor was in need of money to
meet his own commitments, and she knew it. She was making a threat to break the
contract (by paying nothing) and she was doing it so as to compel the creditor to do
what he was unwilling to do (to accept £300 in settlement): and she succeeded.
 SECTION 63
Every promisee may dispense with or remit, wholly or in part, the performance of the promise
made to him, or may extend the time for such performance, or may accept instead of it any
satisfaction which he thinks fit.
Illustrations:
(b) A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2,000
rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is
discharged.
(c) A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them, in satisfaction of his
claim on A. This payment is a discharge of the whole claim.
(d) A owes B, under a contract, a sum of money, the amount of which has not been ascertained. A,
without ascertaining the amount, gives to B, and B, in satisfaction thereof, accepts, the sum of 2,000
rupees. This is a discharge of the whole debt, whatever may be its amount.
 M.P. SUGAR MILLS V. STATE
OF U.P., AIR 1979 SC 621
Facts:
News item advertised that the State of UP was going to grant exemption from sales tax for
a period of three years. Appellant sent a letter to seek confirmation of the same; response
received from the Director of Industries. Pursuant to this appellant contacted financiers,
started looking for manufacturers to purchase machinery, etc.
When financiers were not happy with the letter from the UP Government which said they
would ‘consider the request for exemption’, the appellants went back and asked for a fresh
letter which stated appellants would be entitled to the exemption.
Eventually, UP Government said they would not be able to give an exemption for 3 years
but that they would reduce sales tax rates. Hence, the case by the appellants.
 M.P. SUGAR MILLS V. STATE
OF U.P., AIR 1979 SC 621
 It must be remembered that law is not a maulsoleum. It is not an antique to be taken
down, dusted, admired and put back on the shelf. It is rather like an old vigorous tree,
having its roots in history, yet continuously taking new grafts and putting out new sprouts
and occasionally dropping dead wood. It is essentially a social process, the end product of
which is justice and hence it must keep on growing and developing with changing social
concepts and values.
 No need for a contractual relationship or a pre-existing legal relationship – promise must
be with a view to enter into legal relations
 Does the promisee need to suffer a detriment? No, he / she should have merely relied on
the promise and altered his / her behavior
 M.P. SUGAR MILLS V. STATE
OF U.P., AIR 1979 SC 621
 To invoke doctrine of promissory estoppel, there is no need to show consideration
 Can promissory estoppel be the basis of a cause of action? Position in UK is that it is
a shield and not a sword but in India it is both a sword and a shield
 Government is equally bound by the doctrine of promissory estoppel – here the State
government has been empowered to grant exemptions
 If it is inequitable for the promise to be enforced, doctrine of promissory estoppel
cannot be invoked
 PRIVITY OF
CONSIDERATION
 English position: Consideration must move from the promisee only.
• If it is furnished by any other person, the promisee becomes a stranger to the
consideration and therefore, cannot enforce the promise.
 Indian position: Clear departure as can be seen from Section 2(d) –
consideration can be furnished by ‘promisee or any other person’
 What is the practical utility of the clear departure in the Indian law?
 PRIVITY OF CONTRACT
Two rules within the rule of privity of contract:
 Two parties to a contract cannot impose obligations on a person who is a stranger to the
contract – this principle is non-controversial and has remained unchanged
 A stranger to the contract cannot enforce the contract / claim rights under it even though it is
made for his benefit
• This principle has been quite controversial and has been the subject of many judicial
precedents.
• Now, England has enacted the The Contracts (Rights of Third Parties) Act, 1999 which has
incorporated a substantial exception to the doctrine of privity of contract which marks a major
departure from the earlier position.
 POSITION PRIOR TO 1861
 Dutton v Poole (1677) 2 Levinz 210
A father was intending to sell some wood to provide for his daughter’s (plaintiff ’s) wedding. His
son (defendant) promised the father that if the father did not sell the wood he would pay the
daughter GBP 1000. The father accordingly forbore, gave the timber to the defendant but the
defendant did not pay.
The plaintiff thus sued the defendant for the GBP 1000. She was neither a party to the contract
nor did she furnish any consideration but was still entitled to sue. If she could not have sued, she
would have lost her right to claim GBP 1000 and the defendant had already benefitted from the
timber
 POSITION POST 1861
 Tweddle v Atkinson 1861 B&S 393, Court of Queen’s Bench
The plaintiff was to be married to the daughter of William Guy and in consideration of
this intended marriage William Guy and the plaintiffs’ father (John Tweedle) entered
into a written agreement by which it was agreed that each would pay the plaintiff a sum
of the money.
William Guy failed to do so and the plaintiff sued for the sum of money.
The claim of the plaintiff was refused on account of the principle ‘that no stranger to the
consideration can take advantage of a contract, although made for his benefit’.
Is that an alternative way of saying that the plaintiff could not sue because he was not a
party to the contract?
 DUNLOP PNUEMATIC TYRE
COMPANY V SELFRIDGE CO
[1915] AC 79
 Did Dew need the specific consent of Dunlop while selling the tyres to Selfridge? No
(Dew was only under an obligation to obtain an undertaking which it had done)
 What did Dunlop furnish as consideration to Selfridge? – nothing
 Could Dunlop have argued that they exercised control on Dew with respect to further
sales? – No
 DUNLOP PNUEMATIC TYRE
COMPANY V SELFRIDGE CO
[1915] AC 79
Lord Sumner:
It was contended that consideration might be found in the fact that the appellants, who
could sell or not sell their own proprietary products, as they chose, only enabled the
respondents to get the tyres by agreeing to supply Messrs. Dew & Co., and only agreed
to supply them on the restrictive terms in question.
This breaks down as soon as it is examined. To this transaction the respondents were
strangers. It happened before they received or gave any order. The delivery of the tyres
by the appellants was in performance of an obligation unknown to the respondents and
prior to their appearance on the scene. In this transaction nothing moved from the
appellants to the respondents. It would have been the same if the other firm had not
existed. The appellants have sued on a nudum pactum.
 DUNLOP PNUEMATIC TYRE
COMPANY V SELFRIDGE CO
[1915] AC 79
Viscount Haldane:
My Lords, in the law of England certain principles are fundamental. One is that only a person
who is a party to a contract can sue on it.
Atkinson:
Even if that were so, and the appellants were to be treated as parties to the contract contained in
this letter, it does not get over the difficulty. The contract is as to them a nudum pactum, since no
consideration moves from them to the respondents, or to any other person or body at the
respondents' request.
Dunedin:
That there are methods of framing a contract which will cause persons in the position of
Selfridge to become bound, I do not doubt. But that has not been done in this instance; and as
Dunlop's advisers must have known of the law of consideration, it is their affair that they have
not so drawn the contract.
 EXCEPTIONS TO THE RULE
OF PRIVITY OF CONTRACT
 Agency (Undisclosed principal)
• General rule is that contract is entered into, between principal and customer. But, what if
agent does not disclose the principal’s identity? Principal and agent, can both sue the
customer. This situation thus, is an exception to the privity of contract doctrine.
 Trust
The parents of A create a trust in respect of all their properties to be managed by his uncle
X for the benefit of A. Under the terms of the trust deed, X was supposed to pay Rs.35000
on a monthly basis to A. If X fails to do so, A can sue as a beneficiary under a trust.
 M.C.CHACKO V. THE STATE
BANK OF TRAVANCORE (1969) 2
SCC 343
Highland Bank had availed of an overdraft facility from the Bank of Kottayam. MC Chacko
was the manager of Highland Bank and his father KC Chacko had given letters of guarantee
for amounts, if they fell overdue.
In the meantime, KC Chacko had made a deed of partition in respect of his properties.
Clause 17 in the partition deed said the following:
If in pursuance of the letter given by me to the Kottayam Bank at the request of my eldest
son, Chacko ….any amount is due and payable to the Kottayam Bank, that amount is to be
paid by my son, Chacko. If the same is not so done and any amount becomes payable (by
me) as per my letter, for that my eldest son, Chacko and the properties in Schedule A alone
will be answerable for that amount.
 M.C.CHACKO V. THE STATE
BANK OF TRAVANCORE (1969) 2
SCC 343
 The question before the Court is whether the Kottayam Bank which was not a party to
the partition deed could sue on the basis of the same?
 One of the other questions that the Court had to consider was whether there was a
charge created in favour of Kottayam Bank by virtue of Clause 17? – dwells more on
property law aspects of when a charge is said to come into being
 Coming to the contract law question, Court says :
The Kottayam Bank not being party to the deal was not bound by the covenants in
the deed, nor could it enforce the covenants. It is settled law that a person not a
party to a contract cannot subject to certain well recognised exceptions, enforce the
terms of the contract
 EXCEPTIONS TO PRIVITY OF
CONTRACT RULE
 Marriage settlement, partition or other family arrangements
Two brothers agree as part of partition of father’s properties that they will jointly invest
a certain money for the benefit of their mother. If one of the son does not do this, the
mother will be able to sue for breach of contract, even though she is a stranger to the
contract.
 CONSIDERATION: CONTRAST
ENGLISH AND INDIAN
POSITION
 English position: A valuable consideration in the sense of the law may consist either in some
right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss
or responsibility given, suffered or undertaken by the other – Currie v Misa (1875) 10 Ex 153, 162
The requirement of benefit and detriment is not required as per Section 2(d).
 English position: Consideration should have value in the eyes of law. There is a departure in
Indian law as it provides that consideration should be “at the desire of the promisor”
(subjective intent of the party)
 English position: A party cannot accept less in discharge of a larger amount (Pinnel’s rule).
Indian position is different, as can be seen from Section 63.
 Past consideration rule – English position: act should have been done “at the request of the
promisor” while Indian position under Section 25(2) contemplates an act done voluntarily.