ALIGARH MUSLIM

UNIVERSITY
FACULTY OF LAW
SESSION: 2019-20

TUTORIAL ASSIGNMENT
SUBJECT: LAW OF CONTRACT- I

TOPIC: CONSIDERATION

SUBMITTED BY,

NAME: RUPESH KUMAR SINGH

CLASS: B.A. L.L.B (2nd SEM) SECTION: ‘A’
ROLL NO. :19 BALLB 004
ENROLLMENT NO. : GJ9731

SUBMITTED TO,

NAME: DR. GAURAV VARSHNEY

(ASSISTANT PROFESSOR)
DEPARTMENT OF LAW
 CONTENTS

1) INTRODUCTION TO CONSIDERATION
 ESSENTIALS OF CONSIDERATION
2) AT THE DESIRE OF THE PROMISOR
3) DONE BY THE PROMISEE OR ANY OTHER PERSON
 PRIVITY OF CONTRACT
 POSITION IN INDIA
 EXCEPTIONS TO THE RULE
4) “…HAS DONE OR ABSTAINED FROM DOING…”
 PAST CONSIDERATION
 PRESENT CONSIDERATION
 FUTURE CONSIDERATION
5) EXCEPTIONS TO CONSIDERATION
6) CONCLUSION
7) BIBLIOGRAPHY
INTRODUCTION
Consideration is a very important element of a contract. In its absence a contract can’t be
made. It has been defined by various people. According to Blackstone, “Consideration is the
recompense given by the party contracting to the other.” Section 2(d) of the Indian Contract
Act, 1872 defines consideration in the following manner:
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 consideration for the
promise.
It is quite clear from the above definition that consideration is some act/abstinence, done or
promised to be done, at the desire of the promisor. Any kind of act or abstinence which is
done or undertaken to be done at the desire of the promisor is a sufficient consideration.

ESSENTIALS OF CONSIDERATION
According to the above mentioned definition consideration has the following essentials:
1. The act/abstinence, which is to be a consideration for the promise, should be done at
the desire of the promisor.
2. The act/abstinence, which is to be a consideration for the promise, should be done by
promisee or any other person.
3. The act/abstinence, which is to be a consideration for the promise, may have been
already executed or may be in the process of being done or may be still executory,
i.e., promised to be done.

AT THE DESIRE OF THE PROMISOR

It is clearly mentioned in the definition of consideration given in Section 2(d) that the act or
abstinence, which is to be a consideration for the promise, should be done or promised to be
done in accordance with the desire of the promisor. Thus, it is clear that an act or abstinence
will not be a good consideration for a promise if it is not done or promised to be done at the
desire of the promisor. In Durga Prasad v. Baldeo:1
 The plaintiff, on the order of the Collector of a 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 articles sold through his agency in the bazaar. The
plaintiff’s action to recover the commission was rejected. The act was the result not of
the promise but of the Collector’s order.
On the other hand an act or abstinence done at the promisor’s desire furnishes a good
consideration for his promise even though it is of no personal significance or benefit to him.

1
ILR (1881) 3 All 221.
In England also an act or abstinence done at the request of another, either express or implied,
is sufficient consideration to support a promise.
In case of unilateral promises (it is a promise from one side only and is intended to induce
some action by other party), the promisee is not bound to act, for he gives no promise from
his side. But if he carries out the act desired by the promisor, he can hold the promisor to his
promise. As his act is at the same time an acceptance of and a consideration for the promise.
But where the promisee has done nothing, there is no consideration.

DONE BY PROMISEE OR ANY OTHER PERSON

Another important essential of consideration is that the act/abstinence, which is to be a
consideration for the promise, should be done by promisee or any other person. This means
that, consideration may move from the promisee or, if he has no objection, from any other
person. Thus according to it as long as there is a consideration for a promise it is immaterial
who has furnished it. Though, in contradiction to the abovementioned essential of
consideration a new rule known as the rule of ‘privity of contract’ was laid in the case
Tweddle v. Atkinson(1861)2 by the court of Queen’s Bench. In that case:
 The plaintiff was married to the daughter of one G in consideration of this intended
marriage G and the plaintiff’s father entered into a written agreement by which it was
agreed that each would pay the plaintiff a sum of the money. G failed to do so and the
plaintiff sued his executors.
WHITMAN J. considered it to be an established principle ‘that no stranger to the
consideration can take an advantage of a contract made for his benefit.’ Thus, although the
sole object of the contract was to secure a benefit to the plaintiff, he was not allowed to sue as
the contract was made with his father and not with him.
The case laid the foundation of the doctrine of ‘privity of contract’, which means that a
contract is a contract between the contracting parties only and no third person (who is not a
party to the contract) can sue upon it even if it is made for his benefit. The doctrine was
affirmed by the House of Lords in Dunlop Pneumatic Tyre Co. v. Selfridge & Co. Ltd. 3
In English Law certain principles are fundamental. Two of them are as follows:
1) Consideration must move from the promisee only. If it is furnished by any other
person, then the promisee becomes a stranger to the consideration and therefore he
cannot enforce the promise (privity of consideration). This principle is not at all
applicable in India. Sec 2(d) of the Indian Contract Act clearly mentions that it is not
necessary that consideration should be furnished by the promisee only. A promise is
enforceable if there is some consideration for it and it is immaterial whether it moves
from the promisee or any other person.
2) A contract cannot be enforced by a person who is not a party to it even though it is
made for his benefit (privity of contract). There is no provision in Indian Contract Act
regarding it but it has been applied in many cases.

2
123 ER 762: 1 B&S 23, 393: 30 LJ QB 218: 4 LT 468.
3
1915 AC 847.
PRIVITY OF CONTRACT
According to the rule of privity of contract, a contract cannot be enforced by a person who is
not a party to it even though it is made for his benefit. He is a stranger to the contract and can
claim no rights under it. Thus, in short it means that a stranger to contract cannot sue. This
rule has taken firm roots in England. Though, it has been generally criticized. Courts have
had diversified views regarding the rule of privity of contract.

o POSITION IN INDIA
In India also there has been a great divergence of opinion in the courts as to how far a
stranger to a contract can enforce it. There are many decided cases which declare that a
contract cannot be enforced by a person who is not a party to it and that the rule of privity of
contract is as much applicable in India as in England. Though there is no provision in the
Indian Contract Act either for or against the rule. The Privy Council extended the rule to
India in its decision in Jamuna Das v. Pandit Ram Autar Pande. 4 Facts of the case are as
follows:
 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 he could not succeed because C
was no party to the agreement between A and B.
Some Cases where the rule of privity of contract has been followed are as follows:
Subbu Chetti v. Arunachalam Chettiar5
Mangal Sen v. Mohd. Husain6
Some High Courts have observed that the Indian Courts are not bound to follow the rule of
privity of contract. In a case the Calcutta High Court had observed that: 7 “Nor is there
anything in the Indian Contract Act, which prevents the recognition of a right in a third party
to enforce a contract made by others, which contains a provision for his benefit.”

o EXCEPTIONS TO THE RULE

A number of exceptions in which the rule of privity of contract does not prevent a person
from enforcing a contract which has been made for his benefit but without him being a party
to it have been introduced by different courts over the course of time. Some of the most
commonly known exceptions are as follows:
1. Beneficiaries under trust or charge or other arrangements
A person in whose favour a charge or other interest in some specific property has been
created may enforce it eventhough he is not a party to the contract. For instance, if a contract
is made between a trustee of a trust and another party, then the beneficiary of that trust can
enforce his right to sue under the trust, even though he is a stranger to the contract. The

4
(1911-12) 39 IA 7: ILR (1911-12) 34 All 63.
5
ILR(1930) 53 Mad 270: AIR 1930 MAD. 382.
6
ILR (1915) 37 All 115.
7
Kshirodebihari Dutta v. Mangobinda Panda, ILR (1934) 61 Cal 841: AIR 1934 Cal 682, Per Lord William J
at p. 857.
decision of the Privy Council in Nawab Khwaja Muhammad Khan v. Nawab Hussaini
Begum8 is illustrative of this principle. Facts of the case are as follows:
 The appellant executed an agreement with the respondent’s father that in
consideration of the respondent’s marriage with his son (both being minor at that
time) he would pay to the respondent Rs. 500 a month in perpetuity for the betel-leaf
expenses and charged certain properties with the payment, with power to the
respondent to enforce it. The husband and wife separated on account of a quarrel and
the suit was brought by the plaintiff-respondent for the recovery of the arrears of this
annuity.
It was held that the respondent, although no party to the agreement, was clearly entitled to
proceed in equity to enforce her claim.
Some Cases:
Rana Uma Nath Baksh Singh v. Jang Bahadur9
Touche v. Metropolitan Railway Warehousing Co.10
2. Marriage settlement, partition or other family arrangements
When a contract is made in connection with marriage, partition or other family arrangements
and a provision is made for the benefit of a person, he/she may take advantage of that
contract although he is not a party to it.
Some Cases:
Veeramma v. Appayya11
Rose Fernandez v. Joseph Gonsalves12
3. Acknowledgement or estoppel
Where by the terms of a contract a party is required to make a payment to a third person and
he/she acknowledges it to that third person, a binding obligation is thereby incurred towards
him. Acknowledgement may be express or implied. Cases where the promisor by his conduct,
acknowledgement or otherwise, constitutes himself an agent to the third party are covered
under this exception.
Some Cases:
Kshirodebihari Datta v. Mangobinda Panda13
N. Devaraja Urs v. Ramakrishniah14
4. Covenants running with land
The rule of privity of contract may also be modified by the principles relating to transfer of
immovable property. A person who purchases a land with notice that owner of the land is
bound by certain duties created by a contract or covenant affecting the land, shall be bound
by them although he was not a party to the contract.
Some Cases:
SAIL v. State of M.P.15
8
(1909-10) 37 IA 152.
9
AIR 1938 PC 245.
10
(1871) 6 Ch. App. 671.
11
AIR 1957 AP 965.
12
ILR (1924) 48 Bom. 673:AIR 1925 Bom. 97.
13
ILR (1934) 61 Cal. 841: AIR 134 Cal. 682.
14
AIR 1952 Mys. 109.
SAIL v. State of M.P.15
Smith & Snipes Hall Farm Ltd. v. River Douglas Catchment Boards16

“…HAS DONE OR ABSTAINED FROM DOING…”

Last essential of consideration is that the act/abstinence, which is to be a consideration for the
promise, may have been already done or may be in the process of being done or may be still
executory ,i.e., promised to be done. Thus, it means that consideration is an act/abstinence
which has been already done at the desire of the promisor, or is in progress of being done or
is promised to be done in future. In short, consideration may consist of a past, present or
future act.

 PAST CONSIDERATION
If the act/abstinence has been done before any promise is made, it is called past
consideration. Past consideration is no consideration, as consideration being the price for the
promise, should be given in response to and as an inducement for the promise. For example,
A has lost his purse and B, a finder, delivers it to him. A, in recognition of this service,
promises to pay B, a certain sum of money. This promise is given for an act which was done
before any promise existed, and, therefore, cannot be said to have been done as a price for the
promise. The promise is to pay for a wholly past act and is, therefore, no more than an
expression of gratitude. The past act may explain why the promise was given and may, thus,
be a motive for the promise, but it furnishes no legal consideration. Thus, it means that the
consideration and the promise ought to go together.

 PRESENT CONSIDERATION
An act/ abstinence which has been done in response to a positive promise is called present or
executed consideration. Thus, it consists of an act for a promise. It is the act which forms the
consideration. No contract is formed unless and until the act is performed. Where, for
example, a reward is offered for finding a lost article the offer can be accepted only by
producing the article to the offreor and that is also consideration for the promise. Thus, an
executed (present) consideration consists of an act/abstinence for a promise.

 FUTURE CONSIDERATION
If the act/abstinence ,that forms the consideration for a promise, instead of being done
immediately after the promise is received is promised to be done at some future time, then it
is known as future consideration or executory consideration. There may be a simple exchange
of promises and each promise is a consideration for the other. For example, A agrees to sell
and B to buy certain goods at a stated price. Until the goods are delivered to B under the
contract the consideration is executory.

EXCEPTIONS TO CONSIDERATION
Section 25 of Indian Contract Act lays down certain exceptions to consideration.

15
(1999) 4 SCC 76: AIR 1999 SC 1630.
16
(1949) 2 KB 500 (CA).
Section 25: Agreement without consideration, void, unless it is in writing and registered
or is a promise to compensate for something done or is a promise to pay a debt barred by
limitation law - An agreement made without consideration is void, unless –
(1) it is expressed in writing and registered under the law for the time being in 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
(2) 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; or unless.
(3) 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 payment but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract.

1) NATURAL LOVE AND AFFECTION

According to the first exception, a written and registered agreement based on natural love and
affection between near relatives is enforceable without consideration. Though with regards to
who is a near relative? the Indian Contract Act provides no guidance, nor has the expression
judicially constructed. The expression ‘near relative’ will undoubtedly include parties related
by blood or marriage. The act also does not provide the meaning of natural love & affection.
But it is well established that there is always some degree of love and affection between
parties nearly related.
Some Cases
Bhiwa v. Shivaram17
Rajlukhy Dabee v. Bhootnath Mookerjee18
2) PAST VOLUNTARY SERVICE
According to the second exception, a promise to pay wholly or in part, a person who has
voluntarily done something for the promisor, is enforceable. It means that, a promise to pay
for a past voluntary service is binding. For the application of this exception, the service
should have been rendered voluntarily and also for the promisor. Another situation covered
by this exception is where the promisee has done something for the promisor ‘which the
promisor was legally compellable to do’. A subsequent promise to pay for the act is
enforceable.
Some Cases
T.V. Krishna Iyer v. Official Liquiator of Cape Comorin General Traffic Co. 19
Raja of Venkatagiri v. Rao Bahadur Krishnayya20

17
(1899) 1 Bom. LR 495.
18
(1899) 4 CWN 488.
19
AIR 1952 TC 99.
20
(1948) 61 LW 545: AIR 1948 PC 150.
3) TIME-BARRED DEBT
According to the third exception, a promise to pay a time-barred debt is enforceable without
any consideration. The promise should be in writing and signed by the promisor or by his
agent generally or specially authorized in that behalf. The promise may be to pay the whole
or any part of the det. The debt must be such ‘of which the creditor might have enforced
payment but for the law for the imitation of suits’. The promise must be an express one and
cannot be held to be sufficient if the intention to pay is unexpressed and has to be gathered
from a number of circumstances. There must be a distinct promise to pay before the
document can be said to fall within the provisions of the section.
Some Cases
Daulat Ram v. Som Nath21
Debi Prasad v. Bhagwati Prasad22

Condition in England

In English Law a contract under seal is enforceable without consideration. A contract under
seal means a contract which is in writing and which is ‘signed, sealed and delivered.’

21
AIR 1981 Del. 354.
22
AIR 1943 All. 63.
CONCLUSION
Consideration which is defined in Section 2(d) of the Indian Contract Act, 1872 is a
necessary component of a contract, in its absence a contract cannot be made. It may be past,
present or future. The Act also recognizes some exceptions to consideration which are
mentioned in Section 25. These exceptions make sure that the interest of the parties to the
contract or even third party are protected. Thus, all this shows that the Indian Contract Act
provides detailed and comprehensive provisions regarding consideration.
 BIBLIOGRAPHY

Avtar Singh, CONTRACT & SPECIFIC RELIEF (Eastern Book

Company, Lucknow, 12th Edition, 2017).
INDIAN CONTRACT ACT (ACT 9 OF 1872).
“Fundamentals of Indian Contract Law”, available at,
https://shodhganga.inflibnet.ac.in/bitstream/10603/38507/12/12_
chapter%205.pdf, (last viewed on May 16, 2020).