Consideration-I

Anitta Jomy Thomas, PhD

Assistant Professor, Department of
Management
The Bhopal School of Social Sciences
 Consideration
• Consideration is the price for which
the promise of the other is bought.
• Consideration' means “something in
return”, i.e. quid pro quo that is an
essential for creating legal
relationship between the promisor
and the promisee.
• It is nothing but a price that the
promisee agrees to pay to the
promisor.
• For example, A sells the car to B for
Rs.2.5 Lakhs.
 Sec 2(d) of Indian Contact Act, 1872 defines
consideration as:

has done or
abstained
from doing
(PAST),
or
such act or
the does or
When at abstains from abstinence
promisee
the desire doing is called a
or any
of the (PRESENT), considerati
other
promisor, on for the
person or
promisee.
promises to
do or abstain
from doing
something
(FUTURE),
Essentials of Valid Consideration

Move at the desire of the promisor

Move from promisee or any other person

Can be Past, Present or future

Need not be adequate

Real and not illusory

Lawful
1. It must move at the desire of the promisor- Any act or abstinence
must have been done at the desire of the promisor.
Any gratuitous service rendered by the promisee without any request of the
promisor is not a consideration enforceable by the law.

2. It must move from the promisee or any other person

(stranger)- it is immaterial who pays the consideration.
Case : Chinnaya V/S Ramayya (1882)

3. Consideration can be past- a promise for a voluntary act done in

the past with a promise to pay or to do something subsequently,
present- the promisor receives consideration simultaneously with his
promise or future-
consideration is paid on future date.
 4. Consideration need not be adequate- It is nowhere
mentioned in the law that consideration for the promise must be
adequate.
Inadequacy of consideration is no ground for non-performance of
promise.

5. It must be real and not illusory- if it is vague and illegal

then law cannot be enforced.

6. Consideration must be lawful- unless it is forbidden by

law, or is of such a nature which defeats the provision of law or is
fradulent or causes any injury to a person or property of another
or the court considers it as immoral or opposed to public policy.
 Consideration -II

Anitta Jomy Thomas, PhD

Assistant Professor, Department of
Management
The Bhopal School of Social Sciences
 Stranger to a consideration and Stranger to a
contract

A stranger to contract is a person who cannot sue even

though the contract is made for his benefit while
a stranger to consideration is a party to
the contract but consideration is given by a third
person, thus can sue. Case: Chinnaya V/S Ramayya

Whereas a stranger to contract is not at all a party to

the contract and cannot sue. Unless there is a privity of
contract, a party cannot sue. Case: Dunlop Pneumatic
Tyre Co. V/S Selfridge & Co.
Exceptions to Stranger to a contract
Where
provisions are
made in case of
Bond of trust marriage or
partition or
family
settlements

In case, privity
of contact is Covenants
created with running with
the stranger can the land
sue
 Exceptions to Consideration-
• Without consideration a promise is null and void. It is known as
naked promise or NUDUM PACTUM.
• Natural love and affection Sec. 25(1)-
– written form,
– registered under the law for the time being in force
– must be made out of natural love and affection and
– must be between parties having near relation to each other
• Compensation for the service rendered voluntarily done
something for the promisor Sec. 25(2)
– says that somebody must have done something to
the promisor and the promisee must have received a benefit
from this act or omission. The promisor considers the act as
a compensation from the side of the promise and gives his part
of the compensation to the promise in return.
• Time barred debts Sec. 25(3)- It is open to a person against whom
a debt has become barred by time to make a promise in writing to
pay that debt, and such a promise would form a good
consideration for a sale.
 For example P owes Rs.1,00,000 to J and did not pay it. P signs a
written promise to pay Rs 50,000 to John as a final settlement of
the loan. In this case, 'the no consideration no contract' rule does
not apply
• Completed gifts-
– e.g. house or property given by a donor to donee according to
TP Act
• Agency- is an agreement creating a fiduciary relationship
between principal and agent. Section 185 specifically states that
no consideration is necessary to create an agency.
• Remission in law Sec 63-
– Agreement to receive less than what is due.