Consideration

Consideration is the cause of the promise and its absence would make the promise a gratuitous
or bare promise (nudum pactum). Consideration shows that the parties contemplated the
creation of legal obligations.

Anson said that the offer and acceptance bring the parties together and constitute the outward
semblance of a contract;

Section 2 (d) of the Indian Contract defines consideration as “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 a consideration for the promise.”

Major points-

a) it must come at the desire of the promisor. If it is made at the will of the third person
or is not according to the promisor then it is not a good consideration.

b) can move from the promisee or another person- Unlike English law in which the
consideration must move at the desire of the promisor, in Indian law as long as there is
a consideration it is immaterial as to who has furnished it.

c) it can be an act, abstinence or a promise of an act or abstinence

d) it can be past, present and future consideration - in English law, past consideration
is no consideration but it would be by way of gratitude. In India however, there is no
compulsion to follow English Law and past consideration is regarded to be valid. If a
person renders voluntary services without any request or promise from another and the
person receiving the services makes a promise to pay for the services, then such a
promise is enforceable in India u/s 25(2).

e) it is not necessary that the consideration is adequate for the promise made. But
consideration should be something to which the law attaches some value. It is for the
parties to decide the consideration and the court is not empowered to decide the
adequacy of the consideration.

f) consideration must be real and not illusory. It should not be physically impossible,
legally not permissible or based on an uncertain event or condition.
 g) should not be something which the promisor is already bound to do- a consideration
to do something which the promisor is already required to do is not a good
consideration. For example, public duty is done by a public servant.

h) section 23 provides that consideration should not be illegal, immoral or against

public policy. The court will decide the legality, immorality and whether it is against
public policy.

Section 25 provides that “ex-nudopacto non oritur actio i.e., an agreement made without
consideration is void.” But an agreement is valid even without consideration if it is made

1) made on account of natural love and affection

a) It is expressed in writing.

b) It is registered under the law.

c) It is made on account of natural love and affection

d) It is between parties standing in near relation to each other.

2) to compensate for voluntary services without any request from the promisee and if the
following conditions are satisfied –

a) service should have been done for the promisor

b) promisor must have been in existence at the time when the service was done

c) intention of the promisor must have been to compensate the promisee

3) to pay a time-barred debt

4) creation of an agency

5) contract of guarantee

6) Remission - Remission means the lesser performance of the contract than what is actually
to be performed.

The doctrine of privity of contract

A contract can be enforced only at the behest of the parties to the contract. No third party could
enforce it. It arises from the contractual relationship between the two parties. However, Lord
Dennings has criticised this rule many times as this rule has never benefited the third party
whose roots go deeper in the contract. This rule has two consequences-
  No third party could enforce the contract.

 The contract between the parties cannot levy an obligation on any person other than
those parties to a contract.

Tweddle v. Atkinson, 124 RR 610

Dunlop Pneumatic Tyre Co. v. Selfridge Ltd.

Exceptions –

1. Beneficiary of a trust –beneficiary can enforce the provisions of the trust even though he is
a stranger to the contract.

2. Provision in marriage settlement or family arrangement - when an agreement is made

with regards to marriage, family settlement or partition and is made in such a way that it
benefits another person who is not a party to the contract then he may sue for the enforcement
of the contract.

3. Assignee of a contract – the assignee of a contract can enforce the benefits of a contract
though he is not a party to it.

4. Acknowledgement of liability – Where the promisor either by his conduct or

acknowledgement or by part payment or by estoppel creates privity of contract between himself
and the stranger, the stranger can sue.

5) Covenants running with the land- in cases of the contract of property the purchaser will
be bound by all the conditions and covenants of the land, even though he was not a party to the
original contract.

The definition of “consideration” is wider in Indian than in English law since common law is
applicable, therefore it is generally applied that the third party cannot enforce the contract.

Khawaja Muhammad Khan v. Hussaini Begum (1910)

This case is on consideration and Doctrine of Privity. In this case, it was held that if any clause
of the contract provides the status of the beneficiary to a third person, then he receives the right
to sue the contracting parties to enforce his legal rights and liabilities provided he is an intended
beneficiary and not the incidental beneficiary.
Khwaja Muhammad (defendant) entered into a contract on 25th October 1877 with the father
of Husaini Begum(plaintiff) for the marriage of his son Rustam Ali and the plaintiff. The
contract expressed that after the marriage, the defendant would pay rupees 500 per month on
perpetuity bases as kharch-i-padan, out of specific properties mentioned in the contract. The
marriage took place on 2nd November 1877 however both Rustam Ali and Husaini Begum
(plaintiff) were minors due to which the plaintiff was welcomed in her matrimonial home in
1883 and the couple lived together till 1893 after which due to differences plaintiff left her
matrimonial home and started residing at her pre-nuptial home. And during this time the
defendant discontinued the payment of rupees 500 as agreed earlier. The suit was bought in
this respect, the subordinate judge provided the decision in favour of Khwaja Muhammad
Khan(defendant) but the subsequent appeal was made to the High Court where the decision of
the subordinate court was reversed and the court pronounced the decision in favour of Hussaini
begum (plaintiff). This led Khwaja Muhammad Khan to appeal before Privy Council.

Issues

Whether the plaintiff is legally entitled to bring legal action against the defendant as she is not
the party to the contract?

Whether the right of the plaintiff to receive kharch-i-pandan is forfeited, as she has ceased to
reside with her husband in her matrimonial home?

Contention by defendant

The defendant relied on the precedent of Tweddle v. Atkinson, which propounded the doctrine
of privity which conveys that, a stranger or third party to the contract cannot file a suit for the
enforcement of the contract. Additionally, it was contented by the defendant that, as kharch-i-
padan is equivalent to English pin-money, therefore the plaintiff is not entitled to kharch-i-
padan as she has ceased to reside with her husband at her matrimonial home.

The court held that the principle laid down in Tweddle v. Atkinson was not applicable in this
case. The court held that the contract which was executed created a charge on the immovable
property and designated the plaintiff as the sole beneficiary under it, therefore even if she is
not a party to the contract, she was legally entitled to bring legal action for enforcement of her
claim.

Chinnaya v. Ramaiya (ILR (1876-82) 4 Mad 137)

A lady who was also the mother of the defendant, gifted certain property to her daughter
(defendant) by a gift deed. The deed was registered. It was agreed that the daughter had to pay
a sum of Rs.653 to her mother’s sister. When the mother died, the defendant refused to pay the
money to the sister of her mother. Hence the mother of her sister (plaintiff) brought this legal
action for the recovery of the same.

Issues: Whether the plaintiff can bring legal action for the amount promised in a contract where
the consideration has been furnished by a third party?

Appellant’s argument: The consideration for getting the property was a promise to pay the
amount annually to the plaintiff.

Respondent’s argument: The plaintiff was not a party to the contract, hence was had no right
to compel the respondent for paying the promised amount.

Judgement: Madras High Court held that the consideration has been furnished on behalf of
the plaintiff (sister) by her sister (respondent’s mother). Although the plaintiff was a stranger
to the consideration since she was a party to the contract she could enforce the promise to the
promisor since under law, Consideration may be given by the promise or anyone on her behalf
– vide section 2(d). Thus, consideration furnished by the old lady constitutes sufficient
consideration for the plaintiff to sue the defendant on her promise.

Held, the sister was entitled to a decree for payment of the annual sum of money.

In Indian Law, consideration may be given by the promise or any other person. In India, there
is a possibility that consideration for the promise may move not from the promise but from a
third person, who is not a party to the contract, different from the English Law in which the
consideration must move from only the promise.