Business Law

Consideration

Unit I
CONSIDERATION
 INTRODUCTION

• Consideration is one of the essential elements

of a valid contract.
• No Consideration = No Contract
• A consideration of some sort or other is so
necessary to the forming of the contract,
that is nandum pactum
• This mean agreement to do or pay something
on one side without any consideration is not
supported by law.
 Definition of
Consideration
• Section 2(A) defines Consideration as
• When at the desire of the promisor,
• the promisee or any other person has done or
abstained from doing, something
• or promises to do or to abstain from doing
something
• such act or promise is called a consideration
for the promise.
 Component of
Consideration
On the basis of above definition a Consideration
have 4 components:-
1. At the desire of the promisor
2. It must be done by promisee or any other person.
3. For the act already completed or still in
execution or may be still executory.

4. Something to which law attaches value.

Essential of Valid Consideration.

1.1. Consideration
Considerationshould
shouldmove
moveat
atthe
thedesire
desire
of
ofthe
thepromisor
promisor

2.
2. Consideration
ConsiderationMay
Maymove
movefrom
fromthe
the
promisee
promiseeor
orany
anyother
otherperson.
person.

3.
3. Consideration
Considerationmay
maybe
bepast,
past,present,
present,
future.
future.

4.
4. Consideation
Consideationmay
maybe
besomething
somethingof
ofvalue
value
 Essential of Valid Consideration

1. Consideration should move at the

desire of the promisor:-

In order to constitute legal consideration,

the act or abstinence forming the
consideration for the promise must be done
at the desire or request of the promisor.
 Essential of Valid Consideration

• Thus acts done or services rendered

voluntarily at the desire of any third party
will not amount to the valid consideration.
 Essential of Valid Consideration

• Durga Prasad v/s Baldeo

• D had built, at his own expense, a market at the request

of the collector of the District. The shopkeeper in
market promise to pay commission on the sale of goods
to D.
• The D can not sue the shop –keepers as the promise to
pay contract is not consider as contract.
 Essential of Valid Consideration

• Because D ( the promisee) had constructed

the market not at the desire of the
shopkeepers ( the promisor) but at the desire
of the collector to please him.
 Essential of Valid Consideration

2. Consideration may move from the promisee or

any other person:-

The second essential of valid consideration, as mentioned

in the definition is that consideration need not move from
the promissee alone but may proceed from the third
person. Thus, as long as there is consideration for a
promise it is immaterial who has furnished it.
 Essential of Valid Consideration

• Thus, a stranger can also sue on a contract

provided he is a party to contract.

• This is called “Doctrine of Constructive

Consideration.”
 Essential of Valid Consideration

• Chinnayya VS Ramayya

• ‘A’ an old lady by a deed gift made over certain

property to her daughter R.
• With a direction that ‘R’ will pay an annuity to
‘A’ brother ‘C’ as done by ‘A’.
• On the same day ‘R’ wrote a letter to ‘C’ to
inform that she is agree to pay annuity.
• Afterward she declined to fulfill the contract.
 Essential of Valid Consideration

• It was held the words “ the promisee or any

other person’ in section 2(d) clearly shows
that the stranger or third part may maintain
suit.

• Hence the maternal uncle has he was aware of

the contract and the consideration can
maintain suit.
• Thus, A strange can sue in case if he is aware
of the contract but not the consideration.
 Essential of Valid Consideration

• In this case as the maternal uncle was the

third party but still as a right to maintain suit
as he was aware about the contract.

• In case of just gift deed from “A” it can not

sue the ‘R’ as he was not the party to ‘R”.
 Essential of Valid Consideration

 Exception to the Stranger to a

contract can not sue:-

Where an express or implied trust is created.

Family settlement
As the agent
In the case of agency
 Essential of Valid Consideration

 Where an express or implied trust is

created:-

In case of trust the beneficiary can sue on his

own right to enforce his rights under the
trust though he was not a party to the
contract between the settler and the trustee.
 Essential of Valid Consideration

• Amir Ullah vs Central Govt:-

An addressee of an insured article is entitled

to sue the Post office in case of loss, as on
receipt of such article, the post office
becomes in law a constructive trustee for the
addressee.
 Essential of Valid Consideration

 Family settlement:-

Where a provision is made in a partition or

family arrangement for maintenance or on
other things allows the third person of the
family to sue,
 Essential of Valid Consideration

• Veeramma vs Appayya:-

A daughter along with her husband entered

into the contract with her father to look after
the mother and property of father will be
conveyed to him.
Later on she refused to look after mother.
here the mother being stranger to contract
but as she knew abt the contract can sue her
daughter.
 Essential of Valid Consideration

 When the defendant constitutes

himself, as the agent of the third
party:-

Thus if A receives some money from B to be

paid over to C and he admits of this receipt to
C, than C can recover this amount from A who
shall be regarded as the agent of C.
 Essential of Valid Consideration

 In case of Agency:-
Where a contract is entered into by an agent
the principle can sue on it.
 Essential of Valid Consideration

3. Consideration may be Past, Present,

or Future:-

The consideration for the contract can be of

past , future or present depending upon
execution of the contract.
 Essential of Valid Consideration

PAST CONSIDERATION:-
When the consideration was given before the
date of the promise it is said to be past
consideration, but it must be at the request of
the promisor.

E.g:- A render some service to B today, and

after a month B promises to compensate him
for the services rendered to him it will be a
past consideration.
 Essential of Valid Consideration

PRESENT CONSIDERATION:-

When the consideration was given

simultaneously with the promise it is
said to be present consideration.

E.g:- A promise to give time to a debtor

is good consideration. The best
example of present consideration is
cash sale.
 Essential of Valid Consideration

FUTURE CONSIDERATION:-

When the consideration from one party to

another is to move at some future date, it is
called future consideration.
e.g.:- A promises to deliver ten bags of rice
to B after a fortnight and B promises to
make the payment one week after the
delivery. In this case the consideration is
future.
 Essential of Valid Consideration

4. Consideration must be ‘ something of

Value’:-

The law only insist upon the presence of free

consent consideration and do not bother
about its adequacy or inadequacy. It leaves
upon people to decide the consideration but it
emphasis that the consideration must be real.
 Essential of Valid Consideration

• Consideration must be real:-

Though the consideration need not be

adequate, it must be of some value in the
eye of law, i.e. it must be real and
competent. Where consideration is

a. Physically impossible:-A promise to do

something which is physically impossible
e.g, to make a dead man alive.
 Essential of Valid Consideration

b. Legally impossible:-A promise to do

something which is illegal e.g, to beat
someone as consideration.

c. Uncertain Consideration:-A promise to do

something too vague and uncertain e.g, a
promise to pay amt which will be
appropriate is not correct as it do not
have a specific amount.
 Essential of Valid Consideration

d. Illusory Consideration:-

Consideration is illusory if it consists

in a promise to perform a public
duty, or to perform a contract
already made with the promisor.
 Essential of Valid Consideration

COLLINS vs GADEFROY

C (the plaintiff) received a subpoena ( a kind of

summon) to appear at a trial as a witness on behalf
of G (the defendant). G promised him a sum of
money for his trouble. On default by G, C filed the
suit for the recovery of the promised sum. It was
held C being under a public duty to attend and give
evidence, there was no consideration for the promise
and hence the promise is enforceable.
 Essential of Valid Consideration

Exception to the Rule

“ No Consideration, No Contract”

1. Agreement made on account of natural love and

affection: An
agreement made without consideration is enforceable
if, it is

(i) Expressed in writing

(ii) Registered under the law for the time being in force for
the registration of documents.
(iii) Made on account of natural love & affection.
(iv) Between parties standing in a near relation to each other.
 Essential of Valid Consideration

2. Agreement to compensate for past voluntary service:

A promise made without consideration is also valid if it is a

promise to compensate, wholly or in part, a person who has
already voluntarily done something for the promisor or done
something which the promisor was legally compellable to do.
 Essential of Valid Consideration

In order to attract this exception, the

following points should be taken in notice:-

a) The service should have rendered voluntarily

for the promisor.
b) The promisor must be in existence at the
time when service was rendered.
c) The promise must be to compensate a person
who has himself done something for the
promisor and not to a person who has done
nothing for the promisor.
 Essential of Valid Consideration

d) The only intention of the promisor shall to

compensate the promisee. Any other
intention will not be consider under this
exception.
e) The promisor to whom the service has been
rendered need not be competent to
contract at the time the service was
rendered.
f) The service rendered must be legal.
 Essential of Valid Consideration

3. Agreement to pay time barred debt:

Where there is an agreement, made in writing and

signed by the debtor or by his authorized agent, to
pay wholly or in part a debt barred by the law of
limitation, the agreement is valid even though it is
not supported by any consideration.

4. Completed gift :

A gift does not require consideration in order to be

valid between the donor or donee.
 Essential of Valid Consideration

5. Contract of Agency:-
No consideration is required for forming a contract.

6. Contribution To charity:-
A promise to contribute to charity though
gratuitous, would be enforceable if on the
faith of the promised subscription the
promisee takes definite steps in
furtherance of the objects and undertakes
a liability incurred, not exceeding the
promised amount of subscription.