The document discusses the definition and types of consideration required for a valid contract under Indian contract law, noting that consideration means both parties receive something of value in exchange for their promises. It provides examples of valid consideration and outlines rules like consideration must be something of value and move at the desire of the promisor rather than a third party for a contract to be enforceable.

1. LAW
• It is a rule of external human action enforced by the
sovereign political authority
• Law is the body of principles recognized and applied by
the state in administration of justice
• Democracy can remain in a society of equals. The
concept of equality of all persons in the eye of law is
the basis of what is called Rule of Law

2. Business Manager
• A Business Manager is always under Legal
obligations
• A practicing manager must know the Business
laws
• A manager is effective in managing the affairs
of business, only if, he is aware about the laws
to which he is subject to

3. • Business laws to which you are subject to as
managers are :
– Indian Contract Act, 1872
– Sale of Goods Act, 1930
– Negotiable Instruments Act, 1881
– Companies Act, 1956
– FEMA, Imports & Exports Laws
– Tax Laws
– Labour & Social Security Laws
– Patents & Trade Mark Laws
– Transfer of Properties Act
– Environmental Laws etc….

4. THE INDIAN CONTRACT
ACT, 1872

5. Contract: Inseparable Part of One’s Life
You………….
Buy groceries
Board a train
Hire a cab
Consult a doctor or solicitor
Give your any household gadget for repair
Ever realised!
In each of the above and numerous such situations
you enter into a contractual obligation.

6. Contract Defined Under The Act
An agreement enforceable by law is a contract.
Section 2(h)
Agreement: Every promise and every set of
promises, forming the consideration for each other.
A proposal (offer) when accepted becomes a promise.
Mutuality is the very base of an agreement.
Legal obligation: To become a contract , an agreement
must be enforceable by law.

7. Contract Distinguished From Agreement
Elements. An agreement consists of an offer and its
subsequent acceptance, whereas a contract is composed
of an agreement and its legal enforceability.
Essence of a legal relationship. An agreement may not
create legal relationship. Parties entering into a contract
essentially have a common intention of entering into
legal obligation.
Scope. All agreements may not be contracts but all
contracts are primarily agreements.
Enforceability by law. A contract is legally
enforceable, whereas an agreement is not necessarily so.

8. Essentials of Contract
(Sec. 10,29,56)
• Offer & Acceptance
• Intention to create legal relation
• Lawful consideration
• Capacities of parties or competence
• Free consent
• Lawful object
• Not expressly declared to be void
• Writing & Registration – Legal formalities
• Certainty & Possibility of performance

9. Types of Contracts
voidable and void contracts, contracts
Executed contracts and executory contracts
Express contracts and implied contracts
Unilateral contracts and bilateral contracts
Quasi contracts

10. Difference Between Void and Voidable Contracts
S. Point of Void contract Voidable contract
No. difference
1 Definition A contract, which ceases to be enforceable A voidable contract is an agreement which is
by law, becomes void when it ceases to be enforceable by law at the option of one or more of
enforceable [Section 2 (j)]. the parties thereto, but not at the option of the
other(s) [Section 2 (i)].
2 Nature & A void contract is valid and binding upon the A voidable contract is repudiate at the option of the
validity parties when entered into, but subsequent aggrieved party. It remains a valid contract until it is
to its formation, it becomes unenforceable set aside or rescinded by the party entitled to do so.
due to certain reasons.
3. Factors A valid contract may become void due to Coercion, undue influence, error, fraud,
responsible supervening impossibility; change of law; a misrepresentation are the main factors responsible
contingent contract due to emergence of an for rendering a contract voidable.
uncertain event etc.
4 Enforceability It cannot be enforced by It may be enforced or set aside at the option of the
either party. aggrieved party.

11. Difference Between Void and Voidable Contracts
5. Relationship A void contract under no When a voidable contract is rejected by the
circumstances results in a aggrieved party it results in a void contract.
voidable contract.
6. Rights of third A void contract confers no rights or Rights acquired under voidable contract by an
party legal remedies to the third party. innocent third party are not wiped out by such
subsequent avoidance of the contract.
7. Compensation In case of void contract question of In case of voidable contract, the party
compensation or damages does not rescinding the contract can also claim
arise on the non-performance of such damages.
contract.
8. Effect of lapse Lapse of reasonable time does not If a voidable contract is not rescinded by the
of time render a void contract enforceable. It aggrieved party within reasonable time it may
always remains void i.e., become enforceable at the option of the other
unenforceable. party (i.e, who induced the contract).

12. DEFINING AN OFFER
An offer is a medium through which a person
expresses his intention to enter into a
contractual obligation against a promise.
Section 2(a)

13. Characteristics of a Valid Offer
1. Offer can be expressed or implied
2. Offer can be made to an individual or group
of individuals or public at large.
3. It must be to create a legal relationship
4. It must be communicated to Offeree
5. It can be conditional
6. Bargaining gives rise to Counter Offer
7. It must be made to create a legal relationship

14. Firm Offer Vs Invitation to Treat
Examples of Invitations to Treat
Auctions
Display of goods for sale
in shelf
An invitation for tenders
Red herring prospectus
General advertisement of
goods

15. Acceptance
An acceptance is a expression of assent to the
terms of the offer.
When the person to whom the proposal is
made signifies his assent thereto, the proposal
is said to be accepted. A proposal, when
accepted, becomes a promise. Section 2(b)
Acceptance to an offer is what a lighted match
to is to a train of gunpowder.
Thus, an offer becomes irrevocable upon its
acceptance.

16. Legal Rules Governing a Valid Acceptance
• Must be made by the offeree
• Must be unconditional
• Must be communicated to the offeror
• May be in any form, oral or written
• Must be in the mode prescribed by the offeror
• Must be given within a reasonable time, if no
time limit is set
• Must be given while the offer is in force

17. Termination of Offer & Acceptance
Revocation/withdrawal/cancellation of offer before the
offeree accepts it
Failure to fulfil a condition precedent to acceptance
Death or insanity of either party
Refusal or counter-offer
Acceptance differs from the prescribed one
Subsequent illegality or destruction of subject matter
Acceptance can be revoked at any time before it is
communicated to Offeror

18. • Gourav owned a house at Calcutta. Nibedita offered
to buy that house for Rs.2 lacs and Gourav’s agent
Debendra to whom the offer was given cabled to
Gourav: “Have had offer for the house for Rs.2 lacs”.
Then the agent got the reply from Gourav: “Will not
accept less than Rs.3 lacs” Then Nibedita accepted
Gourav’s price of Rs.3 lacs and confirmed the
acceptance by a letter to the agent. But Gourav sold
the the house for a higher price to Purnendu.
Nibedita then sued Gourav for damages for breach of
contract. Decide the case
• There was no offer, but an invitation to an offer;

19. • The Managing Committee of a college in response to
Prof. Ravi Ranjan”s application for the post of
principal passed a resolution appointing Prof. Ravi to
the post. But this decision was not communicated to
Prof. Ravi. However Prof. Ravi came to know about
this decision from one of the member of the
Managing Committee. After waiting for six
months, Prof. Ravi filed a case against the Managing
Committee for breach of contract. Decide the case
• Prof. Ravi will not succeed since there were no communication
of the acceptance to him

20. • Dinesh agrees to pay Rs.5000 if Jagmohan marries
Aishariya. But Aishariya marries Abhisek. Subsequently
Abhisek divorced Aishariya and Jagmohan married
Aishariya. Now Jagmohan claims Rs.5000 from Dinesh
which he refuses. Decide
• Jagmohan will fail. Contract became void on the
ground of impossibility as soon as Aishariya married
Abhisek.

21. • Priyanka promised to repay a loan of Rs.5000 to
Manasi by 5 equal installments. She further
agreed that if she defaults to pay any one
installment then the whole amount of Rs.5000
will become due. Decide?
• It is a void contract since the sum mentioned
amounts to penalty which is not allowed under
contract Act

22. Chandramuli agrees to buy a certain horse
from Biswajit. It turns out that the horse was
dead at the time of bargain, though neither
party was aware of the fact. Is the agreement
valid?
• No the agreement is void . sec. 20(Mistake)

23. Prashant promises to obtain for Pritam an
employment in the public service and Pritam
promises to pay Rs. 1 lac to Prashant. Is this a
valid contract?
• No, it is void as the consideration is unlawful.
Sec. 24(unlawful consideration)

24. A agrees to pay B a sum of money if B marries
C. C married D. B is still willing to marry C
when D dies. What is the consequence?
• Now marriage of B to C shall be considered
impossible vide sec. 34. Hence the contract
is void

25. A promise to deliver 50 rice bags at B’s
warehouse on 1st January. A brings the
goods as promised but after the usual
business hours. Decide
• A has not performed his part of the promise. It is
voidable at the option of B

26. P promised to marry L and L only. P
further promised to pay L a sum of Rs. 2
lac in case P broke the promise. P broke
promise and married X. Can L recover
the sum promised?
No. Agreements in restraint of
marriage is opposed to public policy.

27. Aditya, a merchant of Agra, made a contract to despatch 100
quintals of gur to Akhil at Delhi at a certain price and Akhil paid
Rs.5000 as earnest money. None of the parties had knowledge
that gur transport from state to state is prohibited by Govt.
Aditya owing to such prohibition could not transport the goods.
Akhil claims damages for non performance as well as refund of
earnest money. Is he entitled to these remedies?
• The agreement is void ab initio. Akhil can claim
refund of earnest money but not damages

28. Chapter 3: Consideration
Consideration is elemental to a contract. A
promise is not binding unless made for
something in return - consideration. For
instance the seller of goods undertakes to
transfer ownership in the goods for a price to
be paid by the buyer for acquiring the
ownership.

29. Consideration simply means that both the
contracting parties are bound to give something (of
value) to each other.
Thus, the term ‘consideration’ is used in the sense of
quid pro quo, meaning thereby something in return.
It may involve a positive act (i.e., doing something) or
an abstinence (i.e., something given up).
Consideration may be in the form of some
right, interest, profit, or benefit accruing to one
party, or some forbearance, detriment, loss, or
responsibility given, suffered or undertaken by the
other.

30. 1. A offers to sell his plasma TV set to B for Rs 50,000. B accepts the offer.
Here, B’s promise to pay Rs 50,000 is the consideration for A’s promise to sell
the TV and A’s promise to sell the TV is the consideration for B’s promise to pay
Rs 50,000.
2. X applies for a loan from Y, who is unwilling to advance the amount, unless S
guarantees the repayment of the loan if X defaults and thereupon Y advances
money to X. In this case, the benefit conferred on X by Y at the surety of S is a
sufficient consideration on the part of Y as against the promise of S to repay the
loan. In other words, the detriment which Y may not suffer by advancing loan to
X due the guarantee of S is sufficient consideration on the part of Y in respect of
the promise of S to repay the loan.
3. A promises to maintain B’s child, and B promises to pay A Rs 1,000 annually
for the purpose. Here, the promise of each party is the consideration for the
promise of the other party. (Illustration appended to Section 23)
4. A promises Y, his debtor, not to file a recovery suit against him on B’s
agreeing to repay the amount of loan along with a compound interest @ 12%
p.a. within a year. A’s abstinence is the consideration for Y based on B’s
promise to pay.

31. RULES GOVERNING CONSIDERATION
1. Simple Contracts must be supported by Consideration
In the absence of a valid consideration passing between the parties the general
rule is that the agreement they have made will be of no legal effect.
The existence of a consideration implies that the parties have devoted some
reflection to the matter, and seriously desire their promises to have legal
consequences.
2. Consideration Must Move at the Desire of the Promisor (Promissory Estoppels)
Whatever is done must be done at the desire or request of the promisor and not
voluntarily or at the desire of a third party.
For instance, if A rushes to the rescue of B whose house has been trapped in fire, it
is not a consideration but a voluntary act on the part of A. He cannot ask B to
compensate him for the services rendered by him as B had never requested him to
help. However, if A goes to B’s rescue at the latter’s express request, this will be
regarded as consideration as A did not wish to do the act voluntarily.
•

32. Consideration At Desire Of Third Person Not Valid
In Durga Prasad vs Baldeo, ‘D’ the claimant had
constructed, at his own expense, a market at the instance
of the Collector of the District. The occupants of the
shops i.e., shopkeepers in the market promised to pay
the plaintiff a commission on the articles sold through
their shops. Subsequently the shopkeepers refused to
pay any commission. ‘D’ sued the shopkeepers against
their alleged default. It was held that there was no
consideration because the plaintiff (the promisee) had
constructed market not at the desire or request of the
defendants (the promisors), but at the desire of a third
person (i.e., the Collector) to oblige him and thus, the
contract between D and the shopkeepers was void.

33. Rules Governing Consideration
3. Consideration May Move From the Promisee or Any Other
Person
This means that as long as there is a consideration for the
promise, it is immaterial who has furnished it. This is
sometimes referred to as Doctrine of Constructive
Consideration. It may proceed from the promisee, or if the
promisor has no objection, from any other person who is
not a party to the contract. But the English Law on this
point is different. In the United Kingdom a person to whom
a promise was made can enforce it only if he himself
provided the consideration for it. He cannot sue of the
consideration for the promise moved from a third party.

34. Rules Governing Consideration
• Consideration must have some Value
• ‘Something of value’ must be given for a promise
in order to make it enforceable as a contract.
• An informal unnecessary promise therefore does
not amount to a contract. A person or body to
whom a promise of gift is made from purely
charitable or sentimental motive gives nothing
for the promise.
• Consideration means something which is of some
value in the eyes of the law. It may be some
benefit to the plaintiff or some detriment to the
defendant.

35. Rules Governing Consideration
Past, Present or Future Consideration
Depending upon the circumstances and facts of
each case in India consideration may be in the
past, present or future.
• Past Consideration
Past consideration means a past act or
forbearance which took place and is complete
(wholly executed) before the agreement is made.
Past consideration may consist of services
rendered at request but without any promise at
the time or it may consist of voluntary services

36. Rules Governing Consideration
Consideration Need not be Adequate But It
Must Be Sufficient
Sufficiency of consideration is not the same thing
as adequacy of consideration, at least in law.
The word adequate in this context refers to fairly
equal to the promise given. On the
contrary, sufficiency is used here as a legal
term, and it means that what is promised must
be real, tangible and have some actual value.
Adequacy will be decided by the parties
themselves.

37. Rules Governing Consideration
Present or Executed Consideration
A consideration, which consists in the performance of an act or
forbearance, is said to be executed at present.
For instance A pays Rs 1000 to B, and B promises to deliver a certain
quantity of wheat the following day. In this case, A pays the amount
but B has merely made a promise. Therefore, the consideration
paid by A is executed, whereas the consideration promised by B is
executory. If A pays the price and B delivers the goods at the same
time, consideration is said to be executed by both the parties
Future or Executory Consideration
An example is an agreement in which the seller promises to deliver
goods next week, and the buyer agrees to pay for them on delivery.
However, consideration on part of one party may be executed and
in respect of the other executory.

38. Rules Governing Consideration
Consideration must be Legal
It must not involve an illegal act. For
example, promising to pay money to a witness to turn
hostile. An illegal consideration makes the whole
contract invalid. It should be noted that attempting to
enter into an illegal contract might itself give rise to
criminal liability.
Moreover, consideration should not be physically
impossible or illusory. For example, promise to double
the money by magic or to make a dead man alive, are
impossible acts and therefore such promises constitute
no consideration.

39. STRANGER TO A CONTRACT AND STRANGER TO CONSIDERATION
A stranger to a contract is one who is not a party to the contract.
The rule that consideration ‘may move from the promisee or any
other person’ implies that the consideration is permitted to be
supplied by a third person (i.e., stranger) as well, thereby need not
necessarily be supplied by the promisee himself.
In other words, as long as there is a consideration in exchange of a
promise, it is immaterial who has furnished it. Thus, a stranger to
the consideration may maintain a suit. But the English Law on this
point is different. Nonetheless, a stranger to a contract cannot sue
upon a contract both under the British Law as well as the Indian
Law. From this arises the doctrine of privity of contract, discussed
below.

40. Examples on Strangers to Contracts
1. A is indebted to B. A sells his property to C
who undertakes to discharge his debt vis-à-vis
B. In case C fails to keep his promise, B has no
right to sue C because of privity of contract
between B and C. C is a stranger to the contract
(between A and B) the example is based on
Jamna Das vs Ram Autar.

41. VALIDITY OF AGREEMENTS WITHOUT CONSIDERATION
The Indian Contract Act contains certain exceptions, which make a promise
without consideration valid and binding, stated as under.
Natural Love and Affection
• An agreement without consideration is valid if it is
• made in writing,
• registered,
• made out of natural love and affection, and
• between the parties standing in near relation to each other [Section 25 (1)]
• In Rangaswamy an elder brother, on account of natural love and
affection, promised to pay off the debts of his younger brother. The agreement
was put into writing and was registered. The court held the agreement as valid and
binding.
Promise to Compensate for Past Voluntary Services
As per Section 25 (2) a promise to compensate, wholly or in part, a person who
has already done something voluntarily for the promisor, or something, which the
promisor was legally compellable to do, is enforceable.

42. VALIDITY OF AGREEMENTS WITHOUT
CONSIDERATION
Illustrations: Compensation for Past Voluntary Services
Example 1
A finds B’s purse and, gives it to him. B promises to give A Rs 50.
This is a valid contract.
Example 2
A supports B’s infant son. B promises to pay A’s expenses in doing
so. This is a valid contract.
Promise to Pay Time-barred Debt
A promise made in writing and signed by the person to be charged
therewith, or by his agent to pay a debt (wholly or in part) barred
by the law of limitation is valid without consideration [S 25 (3)].

43. VALIDITY OF AGREEMENTS WITHOUT CONSIDERATION
Completed Gift
In case of completed gifts (i.e., gifts actually made), the
rule no consideration no contract does not apply. Here
nearness of relation between the parties is immaterial
and even if it, there may not be any natural love and
affection between them.
Agency
As per Section 185 of the Indian Contract Act, no
consideration is required to create an agency.
Guarantee
In a contract of guarantee there is no consideration
between the creditor and the surety [Section 127].