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LUCKNOW
SUBMITTED TO:
SUBMITTED BY:
ASSOCIATE PROFESSOR
DEPARTMENT OF LAW
SEMESTER 2nd
ROLL NO.: 75
ACKNOWLEDGEMENT
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First and the foremost, I would like to thank my Law of Contracts teacher, Dr. Visalakshi
Vegesna, who gave me the topic to research upon. Without her this project would not have
even started.
I must also thank Dr. Madhu Limya Library at Dr. Ram Manohar Lohiya National Law
University, Lucknow for providing me with enough books and study materials, for the
making of this project.
Also one cannot do without acknowledging the contribution of the web resources for the
purpose of research.
I have given this project a fair bit of effort. I hope it is worth reading.
RESEARCH QUESTION
What is consideration with reference to Indian Law?
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What is the position of past & present consideration in Indian Contract laws?
INTRODUCTION
The section 25 of the Indian Contract Act, 1872 openly declares that an agreement made
without consideration is void. In other w ords the pres ence of cons idera tion is
an essential for a contract to be valid.
Consideration in simple words means something in return of a promise which may either be
benefit gained by one party or something lost by the other. So generally there
can be no doubt that for a valid contract, there must be consideration, and also free consent.
It has been variously defined:
The simplest definition is by Blackstone1: Consideration is the recompense given by the
party contracting to other. In other words, it is a price of the promise.
In the words of Pollock, Consideration is the price for which the promise of the other is
bought, and the promise thus given for value is enforceable.2
Another simple definition is by Justice Patterson3: Consideration means something which is
of some value in the eyes of the law It may be some benefit to the plaintiff or some
detriment to the defendant.
But the most commonly accepted definition is that which was attempted by Lush J in
Currie v Misa:4 A valuable consideration in the sense of the law, may consist either in some
right, interest, profit or benefit accuring to the one part, or some forbearance, detriment, loss,
or responsibility given, suffered or undertaken by the other.
The definition of consideration as a price of the promise has been commended by
Cheshire and Fifoot. According to the learned writers, it is easier to understand, it
1 Commentaries.
2 Sir Fredrick Pollock, Pollock on Contracts, ed. 13, p.133.
3 In Thomas v Thomas, (1842) 2 QB 851, 859.
4 (1875) 10 Ex 153,162.
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corresponds more happily to the normal exchange of promises and it emphasises the
commercial character the English contract. It reveals the essential simplicity of the concept.
The Calcutta High Court has observed in a case that consideration is the price of a promise,
a return or quid pro quo, something of value received by the promise as inducement of the
promise.5
In Section 2(d) of the Indian Contract Act consideration is defined as follows:
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, something, such act or abstinence or
promise is called a consideration for the promise.
ESSENTIALS OF CONSIDERATION
The definition of consideration highlights the following essentials to be fulfilled for
the presence of a valid consideration:
1. Consideration to be given at the desire of the promisor.
2. Consideration to be given by the promise or any other person.
3. Consideration may be past, present or future, in so far as definition says that
the promisee:
a) has done or abstained from doing, or
b) does or abstains from doing, or
c) promises to do or to abstain from doing, something.
4. There should be some act, abstinence or promise by the promisee, which constitutes
consideration for the promise.
CONSIDERATION AT THE DESIRE OF THE PROMISOR
The definition of consideration under section 2(d) clearly emphasizes that the
consideration must be given at the desire of the promisor, rather than merely voluntary or at
the instance of some third party. In the case Durga Parsad v Baldeo:6 The plaintiff, on
the order of the Collector of the 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 a commission on his articles sold through their agency in the bazaar. The plaintiffs
5 Fazalaldin Mandal v Panchanan Das, AIR 1957 Cal 92.
6 (1880) 3 All. 221, Oilfield J at p. 228.
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action to recover the commission was rejected. It was held because as the construction had
not been done as per the desire of the defendants, but the order of the collector. Hence, the
consideration was not valid and the defendants not liable for the same.
According to the Indian Law7, consideration may be given by the promisee or any
other person. It means that as long as there is a consideration for a promise, it is immaterial
who has furnished it. It may move from the promisee, or, if the promisor has no objection,
from any other person.
PRIVITY TO CONTRACT
The Doctrine of Privity of Contract in simple words means that only those persons
who are parties to the contract can enforce the same. A stranger to the contract cannot enforce
a contract even though the contract may have been for his benefit. To explain it with an
example, if there is a contract between A and B whose benefit has been conferred upon C, C
cannot file a suit to enforce the contract because only A and B are the parties to the contract
and C is a stranger to the same. This rule has to be differentiated from the rule stated earlier
according to which in India a person who is a stranger to the consideration can sue. This does
not affect the rule of Privity of Contract.
The rule of Privity of Contract is applicable in India as it is applicable in England. Even
though under the Indian Contract Act, 1872 the definition of consideration is wider than the
English law, yet the common law principle of Privity of contract is generally applicable
in India, with the effect that only a party to the contract is entitled to enforce the same.8
In the case of Jamna Das v Ram Avtar9, A borrowed Rs.40,000 by executing a mortgage of
her zamindari in favour of B. subsequently she sold the property to C for Rs.44,000 and
allowed C, the purchaser, to retain Rs.40,000 of the price in order to redeem the mortgage if
he thought fit. B sued C for the recovery of the mortgage money, but could not succeed
because he was not a party to the agreement between A and B.
will pay A Rs.500/month and after his death Rs.250/month to his As widow during her life. C
stood a surety for B. some payments were made by C to A and after his death to As widow.
Thereafter the payments were stopped. As widow brought action against B and C to recover
the amount. One of the defendants pleaded that the plaintiff was not a party to the contract
and it was entered into by his husband and the defendants, she was not legally entitled to sue
in
respect
of
this
agreement
being
a
stranger
to
thecontract. The Calcutta High Court rejected this and held that from the facts and
circumstances of the case the obligation the obligation in the nature of trust was in favour of
the plaintiff, and equity was created in her favour and she was entitled to it even if she was
not the party to the contract. A decree was passed in her favour for the arrears of the amount
due.
PAST CONSIDERATION
Past consideration means that the consideration for the promise had been given
earlier and the promise has been made afterwards. It is, of course, necessary that at the time
of
the
act constituting consideration was
done, must have
been done at the desire
14
of the promisor . For example in lost or found cases if A looses his watch and puts out a
notice that whoever finds it will get Rs.500 as reward. The person who finds it has already
done the consideration. This amounts to valid (past) consideration under Section 2(d), and
the promise is enforceable. The words has done and abstained from doing, in Section 2(d)
of the Indian Contract Act, 1872, according to Pollock and Mulla15 declare the law to bethat
an act done by A at Bs request, without any contemporaneous promise from B, may be
consideration for a subsequent promise from B to A.
however, a voluntarily done consideration can render an agreement valid if it is declared valid
under exception mentioned in Section 25(2). There is no such provision under English law.
It is not necessary for the consideration to be adequate to the promise. The courts can
hardly assume the task of setting what is the appropriate consideration for the promise.
According to Explanation 2 to Section 25 of the Contract Act, 1872:
An agreement to which the consent of the promisor is freely given is not void
merely because the consideration is inadequate; but the inadequacy of the consideration may
be taken into account by the Court in determining the question whether the consent of the
promisor was freely given.
The parties are free to make the consideration of their choice. The adequacy of the
consideration is for the parties to consider at the time of making the agreement, not for the
court when it is sought to be enforced. 26 For example, A agrees to sell his house
worthRs.1,00,00,000 for Rs.1,00,000. As consent to the agreement was freely given. The
agreement is a contract notwithstanding the inadequacy of the consideration.27
held that A was already under a public duty to give evidence and that the consideration to pay
by B did not constitute a good consideration.
INDIAN LAW
In India such confusion is not likely to arise, for the Contract Act in Section 63
clearly provides that every promise may dispense with or remit, wholly or in part, the perfor
mance of the promise made to him, or may extend the time for such performance, or may
accept instead of any satisfaction which he thinks fit. The section also provides the
following illustrations:31
1. 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 5,000 rupees were payable. The
whole debt is discharged.
2. A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them in satisfaction
of claim on A. this payment is a discharge of the whole claim.
3. 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.
4. A
owes
B 2,000
rupees,
and
is
also
indebted to
other
creditors. A makes anarrangement with his creditors, including B, to pay them a
30 (1877) 2 Bom. 362
31 Illustrations (b), (c), (d) & (e) respectively, to Section 63
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the sum borrowed by the deceased, he can be held liable on the basis of his admission, even
though the recovery for the same is barred by limitation. Promise to Pay must be
Unconditional Promise to pay time barred debt within the meaning of clause (3) of Section 25
must be expressed and unconditional. In K. Jeyaraman v M/s Sundaram Industries Ltd.39, the
appellant made a formal recognition of the fact that in a document he had agreed to pay the
amount only after receiving the amount from the State Electricity Board. It was held by the
Madras High Court that the document conveyed a conditional promise and was not covered
by Section 23(3) as the cause of action of filing suit would only arise after amount was
received from the State Electricity Board.
CRITICAL EVALUATION
Consideration in simple words means something in return of a promise which may either be
benefit gained by one party or something lost by the other. So generally there
can be no doubt that for a valid contract, there must be consideration, and also free consent.
Past consideration in lieu of a prior request by the promisor is deemed to be a good
consideration. On this context there is not much difference between the Indian and English
laws. Indian law recognizes past consideration, when the same is given at the desire of the
promisor. Past act done voluntarily is no consideration either in India or England. In India,
however, a voluntarily done consideration can render an agreement valid if it is declared valid
under exception mentioned in Section 25(2). There is no such provision under English law.
When one of the parties to the contract performs his part of the promise which constitutes the
consideration for the promise by the other side is called executed consideration and the
performance of the promise by the other side is the only thing now to be done.
Executed consideration is different from past consideration as executed consideration is
provided simultaneously along with the making of the contract while past consideration is
provided prior to the making of the contract.
BIBLIOGRAPHY
1. Singh, Avtar, Contract & Specific Relief, 10th ed. Eastern Book Company (Lucknow),
2008.
2. Bangia, R.K.,Law of Contract Part I, 6th ed. Allahabad Law Agency (Faridabad),
2009.
3. Furmston, MichaelCheshire, Fifoot & Furmstons Law of Contract, 14th ed.Lexis Nexis
Butterwoths, 2006.
4. Kumar, P.N., Sanjiva Rows Commentary on The Indian Contract Act, 1872 and
Tenders, 10th ed. Delhi Law House, 2007.
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