Consideration has been defined under Section 2(d) of the Indian Contract Act,
“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 doing something, such act or abstinence or promise is called
a consideration for promise.”
Essentials Of A Valid Consideration
Consideration only at the desire of the promisorIt is necessary for a consideration to be given at the desire of the promisor
and not voluntarily or at the instance of some third party.
In Durga Prasad VS Baldeo Singh two issue were raised.
First, if the contract was a valid one or not and second, if it was a proper
contract or not. In this case, the district collector of the town was requested
by the plaintiff (Durga Prasad) to build some shops which were rented to the
defendant (Baldeo Singh) for doing business.
The defendant had promised the
plaintiff a commission of 5% on all the articles that he would sell in
consideration for the construction of the building on which the plaintiff had
spent a huge amount of money. When the defendant failed to pay the amount, the
plaintiff filed a suit against him.
However, due to absence of a proper contract
rather a proper consideration between the plaintiff and the defendant, the court
rejected the plaintiff’s claim and declared it as a void contract because the
promissory had no personal benefit about the contract and was done without the
intention of the promissory.
Consideration by Promisee or any other person (Privity of Consideration)In accordance with the Indian Law, consideration might be given by “the promisee
or any other person.” There is a possibility of the consideration for promise to
move from a third party, who is not a part of the contract, and not from the promisee himself, in India. However, in England the position being different,
the rule states that a consideration cannot be moved by anyone other than the
For example, if X promises his watch to Y and a consideration of Rs.
2,000, for the same purpose, is given by A to X and not Y , then it will
constitute as an invalid contract in England as the consideration for X’s
promise to Y was not provided by Y himself. On the other hand, it will
constitute as a valid contract in India as it is clearly mention under Section
2(d) of the Indian Contract Act, 1872 that “…at the desire of the promisor, the
promisee or any other person” may provide consideration.
Privity Of Contract
The Doctrine of Privity of Contract mentions that only people belonging to any
of the two parties of the contract can enforce the same, that is, no stranger to
the contract can enforce it even if the contract has been entered into for his
benefit. For example, if a contract has been entered into by X and Y, some
benefit of which confers upon A, A, not being a party to the contract, cannot
file a suit to enforce the same. In this case, A is a complete stranger to the
The rule of Privity of Contract was reconfirmed by
the House of Lords in Dunlop Pneumatic Tyre Co. Ltd. VS Selfridge & Co. Ltd.
Exceptions To The Rule That A Stranger To Contract Cannot Sue
- Trust of contractual rights or beneficiary under a contract: Lord Haldane
in Dunlop Pneumatic Tyre Co. Ltd. VS Selfridge & Co. Ltd. had recognized one of
the few exceptions to the Doctrine of Privity of Contract. In this case the
question, whether it was lawful for Dunlop Pneumatic Tyre Co. Ltd. to sue
Selfridge & Co. Ltd. even though there existed no contractual relationship
between them or not, was raised.
A tyre manufacturing company, Dunlop Pneumatic
Tyre Co. Ltd. had entered into a contract with a trade purchaser, Dew for
selling tyres at a discounted price under conditions that they would not re-sell
the tyres at a price less than the listed price and that whichever re-seller
wanted to buy them from Dew would have to agree on the same. Now, Selfridge &
Co. Ltd. bought tyres from Dew and agreed on Dunlop’s condition and also that
he would pay an amount of £5, if the above condition is violated. When Selfridge
sold the tyres at a price lower than the promised price, Dunlop brought action
and was successful at the trial but it was overturned by the Court of Appeal.
This exception has been recognized by Indian Law as
well through Khwaja Muhammad Khan Vs Husaini Begum’s case. The father of a boy (Khwaja
Muhammad Khan, the defendant) and a girl (Husaini Begum, the plaintiff) had
entered into contract which stated that if the girl married a particular boy,
the the defendant would give her a certain personal allowance called Kharchi-i-pandan (betel-box
expenses) or pin money out of the income of a property set aside by the
defendant. Although the agreement was entered into at the time of the marriage,
it was supposed to be initiated after her reception of conjugal domicile which
started after 6 years of their marriage. When the defendant failed to pay the
allowance, the plaintiff took necessary action. The defendant, in his defence,
now said that the he had entered into the contract with the plaintiff’s father
and the plaintiff herself. Thus, she being a stranger to the contract, cannot
sue. Further the court said that the rule of Privity of Contract is not
applicable in this case due to the uniqueness of the facts and circumstances of
the case. Thus, she, being a beneficiary to the contract, was entitled to
enforce her claim.
- Conduct, Acknowledgement, or Admission: Sometimes even if in the absence
of Privity of Contract between the two parties, one of them recognizes the right of
the other to sue him by this conduct, acknowledgement or admission , then he
might be liable on the basis of the Law of Estoppel.
In Narayani Devi VS Tagore Commercial Corporation
Ltd. , no contract was entered into by the plaintiff and the defendants.
However, the defendants had agreed to pay the plaintiff’s husband a certain
amount of money, during his entire life and after him, to the plaintiff herself.
Here rose the question of the plaintiff to sue the defendants. Later, it was
found that the plaintiff was paid a certain amount of the money by the
defendants, after er husband’s death, and was further asked for extension in the
time of payment.
It was also found that the defendants had earlier called upon
the plaintiff to execute certain documents regarding this matter. This implied
that they considered the plaintiff to be entitled to certain rights. Thus, it is
to be taken that the defendants had created such privity with the plaintiff by
their conduct, acknowledgement and admission, that the plaintiff was held
entitled to her action even though there was no contract between her and the two
- Provision for marriage expenses or maintenance under family arrangement:
Under a family arrangement, if a contract intends to secure the benefit to a
third party, he may be entitled, being a beneficiary, to sue. Many cases in
which partition of joint family property has taken place between the male
members of the family and the female members have been given a provision for
maintenance, have witnessed such an action. The rule that was laid down in Khwaja Muhammad
Khan Vs Husaini Begum’s case is the basis of recognition of such an action.
Consideration may be Past, Present (Executed) or Future (Executory)
According to Section 2(d) of the Indian Contract Act, 1872, consideration is of
three kinds, which are Past, Executed and Executory. The definition of
consideration says when, at the desire of the promisor, the promisee or any
- has done or abstained from doing, (the consideration is Past)
- does or abstains from doing, (the consideration is Executed or Present)
- promises to do or to abstain from doing, (the consideration is Executory or
Something , i.e., an Act, Abstinence or Promise by the promisee constitutes
Past ConsiderationWhen consideration for any promise is given earlier and the promise is made
later on, then that consideration is called Past Consideration. It is also
necessary for the act constituting the consideration to be done at the desire of
Executed Or Present ConsiderationExecuted or Present Consideration is defined as the consideration in which the
promisor demands something in exchange for the promise made by him to which the
promisee provides consideration by giving him what he had requested for.
There is a distinction between Executed
Consideration and Past Consideration. On one hand, in Executed Consideration the
considered is provided at the time of making the contract whereas in Past
Consideration the consideration is given before the promise is made.
Executorty Or Future ConsiderationExecutory consideration is a type of consideration for promise in which the
consideration is yet to be performed or the the party supposed to perform it is
either bound by the contract to do so or not. It is also know as something that
is either given or accepted in exchange of a promise which is to be performed in
Consideration, according to the definition under Section 2(d) of the Indian
Contract Act, 1872, states that will be no act, abstinence or promise if there
will be no consideration.
Consideration Received By One Of The Joint Promisors
When consideration is received by only one promisor even though many joint
promisors are present, it is considered as a sufficient consideration in order
to bind other joint promisors as well.
Subscription For A Charitable Purpose
A consideration is needed in return for every promise. Due to this, a small
promise towards contributing some amount for a charitable purpose may not be
Consideration Need Not Be Adequate
Even if a consideration is inadequate, a contract that is supported by
consideration is considered to be a valid contract. Explanation 2 of Section 25
of the Indian Contract Act, 1872 states that:
“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 maybe taken into account by the court in determining the question
whether the consent of the promisor was freely given.”
The two parties involved in the contract have the freedom of making their any
contract of their choice. If, with free consent, the two parties come to this
conclusion that the consideration either too high or too little, the the court
will not get into questioning the adequacy or inadequacy of the consideration.
Even if inadequacy of contract is not considered to be a ground for invalidity
of the contract, the court might take it into consideration to judge if the
consent of a party was free or not.
Consideration Must Be Real
Even though adequacy of consideration is not necessary, the consideration being
real and substantial is one of the most important necessities.
Performance Of An Existing Legal Duty Is No Consideration
When it comes to constituting the proper consideration, we should always keep in
mind that there needs to be a presence of a promise to do something more than
what a person is already bound to do.
Promise To Perform An Already Existing Contractual Duty
B's promise towards paying something additional for the same is not a
consideration, if A is bound before hand to perform a particular contractual
duty owed to B.
Promise To Pay Less Amount Than Due- The Rule In Pinnel's Case
As per the English law which was laid down in Pinnel's case- an agreement in
which a smaller sum in lieu of a larger sum, is not called binding. This is
because the agreement is without any consideration. It means, that in spite of a
promise in which there was supposed to be payment and hence a smaller amount was
received, the promisor can claim the whole of the due amount.
In Pinnel's Case
the issues that were raised
were that whether the plaintiff has accepted partial payment of debt as a
satisfaction of the whole or not and that it was a general rule to pay an amount
less than the one which was owed in satisfaction of a debt and payment will not
be able to discharge the obligation to repay the whole amount. Pinnel, who was
supposed to receive a sum of £8 10s from Cole (the defendant, in this case),
sued him for recovery of the debt when he didn't received the promised amount
Prior to this when Pinnel had requested Cole, he had paid £5 2s 6d.
This he had done one month prior to the actual date when he supposed to pay and
later put a statement that the agreement was such that a part payment would
discharge the entire debt. When taken to the court, the general rule that part
payment is not satisfactory for the whole was confirmed. Thus, the defendant had
not repaid the money which he already owed to the plaintiff but provided Pinnel
with more benefit by making a prior payment to him.
The rule in Pinnel's case does not appear
logical. While promise to pay smaller amount in cash is void, the promise to
deliver chattel is valid even if the same is of smaller value. In 1937, the Law
Revision Committee recommendation has not found any place in the statute book.
The exceptions to the rule laid down in Pinnel's Case have been recognized as
follows, in England:
- Payment in kind:
It was held in Pinnel's case itself that the gift of a
horse, hawk or robe, etc. in satisfaction (of a claim for amount) is good. For
it shall be deliberate that a horse, hawk or robe, etc. may be more beneficial
to the plaintiff than the money in respect of some circumstance, or otherwise
the plaintiff would not have accepted it in satisfaction.
When the promise is made to deliver some chattel in lieu of a sum due, the
promise is declared to be valid even if the chattel is worthy of a smaller sum
than the due amount.
- Payment before due date:
Another exception, which has been recognized in the Pinnel's case is the payment and acceptance of the smaller sum of money
than originally due in satisfaction of the whole, before the payment is due,
“for peradventure parcel for it before the day would be more beneficial to him
than the whole at the day. It means that the payment on an earlier date
constitutes sufficient consideration to discharge a part of the debt.
- Part Payment by a third party:
Payment of a part of the sum due, by a third party, has been recognized to
be enough to discharge the whole of the debt. If one party has accepted
amount from a third party, he cannot subsequently sue for the balance of the
In Hirachand Punamchand v. Temple and Welby v. Drake,3 it has been held that
when the father pays smaller amount than that due by his son to a creditor, and
the creditor accepts that in satisfaction of the whole debt, the son thereby
gets discharged from his liability and the creditor cannot thereafter sue the
son to claim.
- Composition with the creditors:
A compromise between a debtor and his creditors, according to which the
creditors agree to be satisfied ,with a percentage of the amount due in
satisfaction of the whole debt, has also been recognized to, be a valid
contract. The reason behind this exception appears to be that no creditor
will be allowed to go beyond the promise , to the prejudice either of the
other creditors or of the debtor himself because this would be a coercion
upon all the parties concerned.
Thus, a promise between a debtor and a single creditor for payment of lesser
amount than due will come under the ban in Pinnel’s case, but an agreement
between a debtor and his creditors will fall under this exception.
- Doctrine of Promissory Estoppel:
This is an equitable estoppel preventing a
person from denying what he asserted earlier. The person making the
representation or promise becomes bound by the same, on the basis of the law of
estoppel if another person has acted on the faith of such promise or
representation. The promise is enforceable at the instance of the promisee not
withstanding that there is no consideration for the agreement.
For instance, if
the State announces some tax concession for certain new industries for a certain
specified period. with a view to giving incentives to the industries, and some
industry is establish on the faith of the promise of tax concession announced by
the State, the State is bound by estoppel and cannot be allowed to withdraw the
concession earlier than promised by it.
Exceptions When Agreement Without Consideration Is Valid
Along with the general rule that an agreement without consideration is
considered void, Section 25 of the Indian Contract Act, 1872 provides some
25. An agreement without consideration is void unless:
- It is expressed in writing and registered under the law for the time
being in which force for the registration of documents and is made on
account of natural love and affection between parties standing in a near
relation to each other, or unless
- It is 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; or unless
- It is a promise, made in writing and signed by the person to be charged
therewith, or by his agent generally or specially authorized in that behalf,
to pay wholly or in part a debt of which the creditor might have enforced
but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract.
- Promise due to natural love and affection [ Section 25(1)]
When promise to consideration is made due to natural love and affection,
that kind of a promise will will be considered valid even though there was
no existence of the consideration for such a promise.
Essentials of this exception are:
- The parties involved in the contract must be of near relationship.
- Any one of the two parties should make the promise out of natural love
and affection, for the other.
- The promise should either be in black and white or be registered.
Neither the Act nor any judicial pronouncement defines near relationship.
However, through the various decided cases it has been concluded that near
relationship includes either blood relations or relations through marriage but
not the ones which are only remotely entitled to inherit and are not near.
Presence of natural love and affection between parties on your only related is
very important. For example, if a brother who is not legally bound to transfer
his properties to another brother of his, does so in order to maintain good
relations with him, it is held as done out of natural love and affection.
Such agreement is legally binding.
- Compensation for past voluntary services [Section 25(2)]
Something which is done at the desire of the promisor constitutes good
consideration for a subsequent promise in order to compensate for something that
has already been done. The following deviation of Section 25 of the Indian
Contract Act, 1872 includes cases where a person not aware of the promisor, or
otherwise than at his request, it provides some service, and the promisor
manages to recompense for it. The promise to make up, though without
consideration, binds because of this deviation. This exception covers situations
where the promise serves a voluntary cause “which the promisor was legally
compellable to do.”
Suppose if B looses his wallet which finds and B
promises A a reward of Rs. 100 or if B promises to pay all of A’s expenses, who
supports his infant son, the such a contract is valid even though all of A’s
acts were done voluntarily.
There can be another case scenario where the work cab be provided on one’s own
wish and without the promisor having to know about it. Also the service provided
should be to the promisor itself. Therefore, the work must be done for the
person who is present at the time of the work performed so that the expenses by
the promoter of the company is not included before the company started to run.
An act performed for the company before its establishment is not capable of
formal approval by the company after its establishment. The promise should be
fit to have been contacted at the time of doing the act. So, at the time of
taking a loan if the person is a minor he is not applicable to give a formal
consent to that act and bind himself by making a fresh promise to pay after
attaining majority for the same criteria.
- Promise to pay a time barred debt [Section 25 (3)]
A promise to pay a time barred debt is another situation where contract without
consideration is considered to be valid.
Essentials of this exception are:
- The promise should be to pay a tame barred debt, wholly or partially
- The promise should be written and signed either by the person who is to
be charged or his authorized agent.
Limitation Period For Non-Repayment Of Loan Amount
According to Section 25 of the Indian Contract Act, 1872, if the borrower
acknowledges his debt, then the period in which the suit can be filed is saved
and commences from the day the acknowledgement is made.
Promise To Pay Time Barred Debt- Not “Express” Promise
Liability to pay debt is contained under pro-note. The debtors acknowledge
liability qua endorsement in pen and paper, makes partial payment and extends
the time duration for payment. Whether such an endorsement is a “promise” or not
can be determined only after all the evidences are pointed out or adduced by the
parties at the trial session. An accusation, specifically a plaint, is not
liable for rejection at threshold under Order 7, Rule 11 of C.P.C., as time
barred as “promise” to pay need not be an “express” promise.
Debt Due By Whom
In Pestonji Manekji Mody VS Bai Meherbai
, the Bombay High Court had made it
clear that the promise under this exception should be to pay time barred debt
that is due from the promisor and not from anyone else.
However, a different view was expressed by the Madras High
Court in Puliyath Govinda Nair VS Parekalathil Achutan Nair,
in regard of this
exception. The the court held that the words “by the person to be charged
are enough to cover a case of a person agreeing to take the liability
for payment of a debt that is due by another person and it need not be limited
to a person who is indebted from the very beginning. In comparison to this view,
the one expressed by the Bombay High Court seems to be better since the
intention of the legislation appears to be to permit enforcement of a certain
agreement even though time barred if the the promisor prefers to revive the same
by fresh promise in writing.
Wholly Or In Part
Section 25(3) of the Indian Contract Act, 1872 allows the promisee to pay a time
barred debt, wholly or in part. A person who promises to pay a portion of a time
barred debt can be sued only for that particular portion and not the entire
debt. However, if the promise is made to pay the whole, then the entire amount
can be claimed for.
There Should Be Express Promise
The promise to pay a time barred debt should be an express promise and that
cannot be held to be sufficient if the intention to make the payment is left
unexpressed and is to be gathered from a number of circumstances.
Admission To Pay In Court Proceedings
It was held in State Bank of India VS Dilip Chandra Singh Deo
that if a legal
heir of the deceased makes an appeal to the court showing his willingness to
make a payment of the principal sum that was borrowed by the deceased, he might
be liable to pay based on his admission, even though the recovery of the amount
has been barred by the limitations.
Award Winning Article Is Written By: Ms.Anusmita Das
Authentication No: MA114788377370-27-0521