CH 3 - 241013 - 003227

Topic 3: CONSIDERATION
The definition of 'agreement' itself states that the mutual promises should form consideration
of each other. Thus, 'consideration' is essential for an agreement.
Definition of consideration:
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. [Section
2(d)].
Consideration' means quid pro quo i.e. 'something in return'. It is an advantage

moving from one to another. The consideration can be a positive act or abstinence from act
(i.e. negative act). It can be in form of cash, goods or services. It can be past, present or
future.
Consideration should be at the desire of promisor - A cannot demand payment
for his services when he saved life of B when he was drowning, as it was voluntary
act and not at the desire of B.
Consideration can be given to/by third person – It may move from promise or
any other person.
Consideration must be lawful
Past consideration valid, if given at desire of promisor
Consideration should not be impossible
Consideration should be certain - Promising to pay a 'reasonable sum' or 'as may
be mutually agreed upon' is not a consideration as it is uncertain. Agreement
containing such clause is not a valid contract.
Act which promisor is anyway bound to do is not a 'consideration' - If the
promisor is any way legally bound to do something, and he agrees to do it, it is not
'consideration' as any way he was bound to do it - e.g. agreeing to pay an amount to
witness to attend Court as per summons received by him is not a 'consideration' as
he was anyway bound to attend as per Court orders. - - A promise to pay Advocate
additional sum if he wins the case is not a valid consideration as the advocate
was even otherwise bound to render best of his services.
Agreements void, if consideration or objects unlawful in part (Section 24)

If any part of a single consideration for one or more objects, or any one or any part of
any one of several consideration of a single object, is unlawful, the agreement is
void.
EXAMPLE
Determine In The Following Case Whether The Agreement Is Valid Or Void?
Sr. Void / Valid

Case
No Agreement
1 A borrows from B to Rs.1000 for lending to C a minor
2 A borrows Rs.1000 from B to buy a pistol to shoot C.
3 A promises to indemnify B in consideration of his beating C.
A promised to obtain an employment to B in a public office
4
and B promises to pay A Rs.1000.
1. 15 | P a g e
A promises to drop a prosecution which he has instituted
5 against B for robbery and B promises to restore the stolen
property
Rule: Contract without consideration is void
EXCEPTIONS to the above rule Section 25: Means Contract without

consideration will be valid.
Exception 1If agreement is made on account of natural love and affection between
parties standing in a near relation to each other if it is made it in writing and must be
registered.
Exception 2: promise to compensate for past voluntary service.
Exception 3: A Promise to pay time barred debt (law of limitation) is valid if it is made in
writing + signed by debtor.
Exception 4: Completed Gifts i.e. gift is completed when it is accepted by done.

However, agreement to make gift is not enforceable.
Exception 5: Creation of Agency or Partnership
EXAMPLE:
Determine in the following cases the validity of the contract
Sr. Valid/ Invalid

Case
No Contract
1 A promises, for no consideration, to give to B Rs. 1,000.
A, for natural love and affection, promises to give his son, B,
2
Rs. 1,000. A puts his promise to B into writing and registers it.
A owes B Rs. 1,000, but the debt is barred by the Limitation
3 Act. A signs a written promise to pay B Rs. 500 on account of
the debt.
A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A's consent
4
to the agreement was freely given.
A finds B's purse and gives it to him. B promises to give A Rs.
5
50.
A supports B's infant son. B promises to pay A's expenses in so
6
doing.
1. 16 | P a g e
PRIVITY OF CONTRACT
As a general rule, stranger to contract cannot sue or be sued.
Rule: Stranger to contract cannot sue parties to contract
EXCEPTIONS to the above rule: Means EVEN stranger to contract can sue parties
to contract
Exception 1: Beneficiary can sue -Beneficiary of contract can sue if contract was for his
benefit. Beneficiary trust can enforce the contract. e.g. - A agrees to transfer certain property
to B to be held in to benefit of C. Here, C, being beneficiary, can enforce the agreement even
if he was not pa agreement - If airline books rooms for its crew in a hotel, the crew member
who is injured can sue hotel for injury suffered by him, as he was beneficiary of the contract
Exception 2: Assignee of contract – When benefits under a contract is assigned, the

assignee can enforce the contract.
Exception 3: Devolution by operation of law - Sometimes, contract may devolve on third

person by operation of law (e.g, purchase or lease of interest in land, death, bankruptcy,
insolvency). In such case, the successor (in case of death), official receiver (in case of
insolvency) etc. can sue though they were not parties to contract.
Exception 4: Insurance company can sue - Insurance Company can sue as it enters into
shoe of person to whom compensation was paid by it as per insurance contract.
Exception 5: Principal can enforce contract entered into by Agent - Principal can enforce
contract entered into by Agent on behalf of Principal, if Agent is acting within his authority.
THERE CAN BE STRANGER TO CONSIDERATION

(STRANGER CAN PERFORM CONTRACT)
BUT
THERE CANNOT BE STRANGER TO CONTRACT
ILLUSTRATIONS
5. Mrs. Sonam made a deed of gift over certain property to her daughter,
directing her to pay an annuity to Mrs. Sonam’s brother as had been done
by Sonam herself before she gifted the property. On the same day
Sonam’s daughter executed in writing in favour of Sonam’s brother
agreeing to pay the annuity. Afterwards daughter declined to fulfill her
promise to pay her uncle saying no consideration had moved from him
(Sonam’s brother). State whether daughter’s contention is valid for want of
consideration?
Ans. Consideration is one of the essential elements of a valid contract. In
English law, consideration must move from promisee, so that stranger to the
contract cannot sue on contract. In Indian Law, however, consideration may
move from promisee or any other any person, so that the stranger to the
contract may maintain a suit. [Chiinnaya v. Ramaya, (1882) 4 Mad.137]
Thus in the instant case uncle (Sonam’s brother) could sue even though no part
of the consideration received by his niece moved from him. The consideration
from Sonam was sufficient consideration.
6. Tillu supplied tyres to a wholesaler Nillu on condition that any retailer to

whom Nillu re-supplied the tyre should promise Nillu, not to sell them to
public below Tillu’s list price. Nillu supplied tyres to Bablu upon this
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condition but nevertheless Bablu sold the tyres below list price. Can Tillu
obtain damages from Bablu?
Ans. The doctrine of privity of contract states that stranger to a contract
cannot sue the parties to the contract. In the given case there was a contract
between Tillu & Nillu and Nillu & Bablu. Therefore, Tillu could not obtain
damages from Bablu as Tillu had not given any consideration for Bablu’s
promise to Nillu, nor was Bablu a party to the contract between Tillu and
Nillu.[DUNLOP PNEUMATIC TYRE CO. V. SELFRIDGE & CO. (1915) A.C.
847]
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Topic 3: CONSIDERATION

Consideration' means quid pro quo i.e. 'something in return'. It is an advantage

Agreements void, if consideration or objects unlawful in part (Section 24)

Sr. Void / Valid

Rule: Contract without consideration is void

EXCEPTIONS to the above rule Section 25: Means Contract without

Exception 2: promise to compensate for past voluntary service.

Exception 4: Completed Gifts i.e. gift is completed when it is accepted by done.

Exception 5: Creation of Agency or Partnership

Sr. Valid/ Invalid

As a general rule, stranger to contract cannot sue or be sued.

Rule: Stranger to contract cannot sue parties to contract

Exception 2: Assignee of contract – When benefits under a contract is assigned, the

Exception 3: Devolution by operation of law - Sometimes, contract may devolve on third

THERE CAN BE STRANGER TO CONSIDERATION

6. Tillu supplied tyres to a wholesaler Nillu on condition that any retailer to

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