2 Learning Objectives Meaning of consideration Importance of consideration Types of consideration Rules for consideration Privity of Contract or Stranger to Contract Contract without consideration
Elements of Consideration Consideration is legal value bargained for and given in exchange for an act or a promise Purely gratuitous promises are not enforceable because not supported by consideration
Consideration……… Consideration must flow from both sides of the contract It can be: A promise to do something A promise not to do something A benefit for the promisee A benefit for a third person at the promisee’s direction Anything of real value to the promisee
Thought Question Your Aunt agrees to buy you a new car when you complete MBA and you earn straight “A” grades during your senior year. You earn those grades. Have you provided legally sufficient consideration?
No consideration no Contract
Contract without consideration are purely gratuitous in nature
Absence of legal binding
[Case: Abdul Aziz v. Mazum Ali ] A person verbally promised the secretary of the Mosque Committee to subscribe Rs. 500 for rebuilding of a mosque. Later, he declined to pay the said amount.
Held : There was no consideration and hence the agreement was void Exception: A promise to subscribe to some charitable object is enforceable if the promisee has undertaken some liability on the faith of the promise made by the promisor
Case: Kedarnath v/s Gauri Mohammed In this case the defendant had agreed to subscribe Rs. 100 towards the construction of a Town Hall at Howrah. The Secretary, on the faith of the promise, called for plans and entrusted the work to contractors and undertook liability to pay them. D refused to pay the promised amount
Decision It was held though the promise was for a charitable purpose and there was no benefit to D, yet he is liable for the promise made by him
11 Types of Consideration Executed or present Consideration Executory or future Consideration Past Consideration Forbearance
12 Rules for consideration It must move at the desire of the promisor [Case: Durga Prasad Vs Baldeo case], Facts of the case: D constructed a market at the instance of the Collector of a District. The occupants of the shops in the said market promised to pay D a commission on articles sold through their shops. Later on they failed to pay commission and D filed a suit for the recovery of same
Held There was no consideration because the money was not spent by the plaintiff at the request of the defendants, but voluntarily for a third person and thus the contract was void
2. It may move from the promisee or any other person [ Case :Chinnayyav.Ramayya ] A, a lady, by a deed of gift transferred certain property to her daughter, with a direction that the daughter should pay an annuity to A’s brother. On the same day the daughter executed a writing in favour of her uncle, agreeing to pay the annuity. Afterwards, she declined to fulfil her promise saying that no consideration had moved from her uncle.
Decision The Court, however, held that the words ‘the promisee or any other person’ in Section 2(d) clearly show that the consideration need not necessarily move from the promisee, it may move from any other person. Hence, A’s brother was entitled to maintain the suit.
3. It must be an act, abstinence or a return promise Case: Debi RadhaRani v/s Ram Das A husband in consideration of his wife’s promise to forbear from filing a suit, agreed to pay her maintenance allowance . It is a valid contract
4. It may be past, present or future [Sindhav. Abraham] ‘A’, a minor was given the benefit of certain services by the plaintiff, who rendered those services, not voluntarily but at the desire of ‘A’ These services were continued even after majority at the request of ‘A’ Subsequently A promised to pay an annuity to the plaintiff Decision : It was held that the past consideration was a good consideration 17
5. It need not be adequate Courts Don’t Care!! If a party bargains poorly, courts usually won’t interfere Those who bargain take on the risk of their own errors There are exceptions such as fraud, undue influence, coercion etc. Example: I agree to sell my 2006 BMW 525 to Alex for Rs 200000. The consideration is Rs 200000 in exchange for the BMW The court will not look at whether the value is enough; and the consideration is sufficient 18
19 6. It must be real and not Illusory consideration Uncertain consideration : Any promise to pay reasonable amount
Case: Stilk v/s Myrick Facts of the case
Two of the crew of a ship deserted it half way through the voyage.
The captain of the ship agreed with the remaining seamen to divide the wages of the deserters among them
Decision Held the rest of the crew cannot recover this amount as they were already under an obligation to bring the vessel home 7. It must not be illegal, immoral or opposed to public policy. Example: A promises to obtain employment for B in the public service and in return B promises to pay Rs 50000
Exceptions to the Rule “No Consideration No Contract” Natural love and affection: [Case: Venkatswamy v. Rangaswamy ] An elder brother, on account of natural love and affection, promised to pay the debts of his younger brother. The agreement was put to writing and was registered. Held : The agreement was valid
[Case: RaihikhyDohee v. Bhootnath] A Hindu husband by a registered document, after referring to quarrels and disagreements between himself and his wife, promised to pay his wife a sum of money for her maintenance and separate residence. it was held that the promise was unenforceable
2. Compensation for services rendered voluntarily Act must have been done voluntarily For the benefit of the promisor The promisor must now agree to compensate the promisee
3. Time barred debt: In written Must be signed by debtor 4. Completed gifts 5. Agency
Stranger to Contract or Privity of contract [Case: Jamna Das v. Ram Avtar] A mortgaged some property to X. A sold his property to B, B having agreed with A to pay off the mortgage debt to X X brought an action to recover the mortgage money against B. Held: No contract between X and B so X could not enforce the contract to recover the amount from B
Exceptions : Stranger to contract can sue in the following cases Trust [Case: RanaUmaNathBaksh Singh v. Jang Bahadur]
A father appointed his son as his successor
He gave him possession of entire estate
In consideration, the son agreed to give a part of the estate to illegitimate son of his father.
Held: illegitimate son can sue.
2. In case where a charge has been created: [Case: Khwaja Muhammad v. Hussaini Begum] An immovable property was charged in favor of Hussaini Begum for payment of her kharchane-e-paandaan by her father. Held: Hussaini Begum though stranger to contract between mortgagor and mortgagee, can sue.
3. Provision made in partition or family settlement: [ Case: Shuppuammal v. Subramaniyam] 2 brothers on the partition of joint property, agreed to invest in equal shares a certain sum of money for the maintenance of their mother. Held: She can compel her sons to make investment.
4. In case of acknowledgement of payment Example: A receives some money from B to be payable to C and A acknowledges this fact to C. Held C can recover amount from B. 5. Contract entered into by the agent