Chapter 2

The Indian Contract Act, 1872

CONSIDERATION
Learning Objectives:
 Meaning and related aspects of Consideration
 Rules making consideration Lawful
 Provisions on validity with no consideration
 Exceptions to the rule Privity of Contract

CONSIDERATION
According to [Section 2(d)] of the Indian Contract Act 1872, When at the desire of the Promisor,
the Promisee or any other person [straight]
(a) Has done or abstained from doing, or [Past Consideration]
(b) Does or abstains from doing, or [Present Consideration]
(c) Promises to do or abstain from doing, something, such act, or abstinence, or promise is called
a Consideration for the Promise. [Future Consideration]
“A valuable consideration in the sense of the law, may consist either in some right, interest,
profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other”.
Illustration 1:
A agrees to sell his house to B for Rs. 50 Lakhs. The consideration for B’s promise to pay = A’s
promise to sell the house and Consideration for A’s promise to sell = B’s promise to pay Rs. 50
Lakhs. In short the House and Rs. 50 Lakhs will be the consideration in this case.
Illustration 2:
X promises to deliver his good to Y and Y promises to pay Rs. 1,000 on delivery. In this case, the
consideration for each of these promises is Rs. 1,000 and goods which will be delivered by X to
Y.
Illustration 3:
X owes Y Rs. 1,000. Y promises X not to file a suit against him for one year on X’s agreeing to pay
him Rs. 500 more. In this case, the consideration for each of the promise is to pay extra Rs. 500
and not filling the suit by the another party.

Analysis
Every promise and every set of promises, forming the consideration for each other, is an
Agreement. Hence, Consideration forms the essence of an Agreement.
Promise without consideration is gratuitous and even if such promise is binding, it does not create
legal obligation. A Contract without consideration is thus devoid of any legal obligation. “No
Consideration, No Contract” is the rule of law.
RULES OF CONSIDERATION
1. Consideration must be at the desire of the Promisor:
(a) Consideration must be move at the desire of the Promisor, a Voluntary act or an act
without any request does not constitute a valid consideration. However, it is not necessary
that the Promisor should benefit by the Consideration.
(b) When moving at the instance of a third party, it cannot constitute valid Consideration. But,
consideration for the benefit of a third party is valid.
Illustration:-
A agrees to sell his books to B for Rs. 100, B’s promise to pay Rs. 100 is the consideration for A’s
promise to sell his books and A’s promise to sell the books is the consideration for B’s promise to
pay Rs. 100.

CASE STUDY
Durga Prasad Vs. Baldeo, 1980
Durga Prasad built a market at the desire of the collector of the district. After such renovation, a
shopkeeper of the market promised to pay commission to Durga Prasad on the sales affected by
him. However, the shopkeeper refused to pay commission later on. It was held that the
shopkeeper is not liable to pay any amount to Durga Prasad as the market was not constructed at
the desire of shopkeeper but at the desire of collector.

CASE STUDY
National Bank of Upper India Vs. Bansidhar, 1929
A owed Rs. 20,000 to B, A persuaded C to sign a Pro Note in favour of B. C promised B that he
would pay the amount. On faith of promise by C, B Credited the amount to A’s account. Held, the
discharge of A’s account was consideration for C’s promise.

2. Consideration may be move from the Promiser or any other person:

(a) Act that constitutes consideration may be done by promise himself or by any other person.
(b) Any other person is referred to as stranger to Consideration. It means that, as long, as
there is a consideration for a promise, it is immaterial who has furnished it.
CASE STUDY
Chinnayya Vs. Ramayya, 1882
A lady by gift deed transferred certain property to her daughter with the direction that the
daughter should pay an annuity to her sister as done by her. Daughter executed in writing in
vafour of sister to pay the annuity. However, after the death of the lady, the daughter refused to
fulfill promise saying no consideration has moved from aunt. It was held that aunt (Lady’s sister)
was entitled to maintain a suit as promise to pay annuity was supported by consideration. It was
immaterial as who furnished it.

3. Consideration may be past, present or future:

(a) Past Consideration:
 Past Consideration refers to something wholly done, forborne or suffered before
making of agreement.

Illustration 1:-
 A renders some services to B at B’s request in November. In December, B promises to pay a sum
of Rs. 10,000 for his services. Services of A = Past Consideration
Illustration 2:-
X renders some service to Y at Y’s request in the month of May. In June, Y promises to pay X
Rs. 1,000 for his past services. Past services amount to past consideration X can recover Rs.
1,000 from Y.

Analysis
1. Past Consideration must move at previous request i.e. something has been done before
making the agreement.
2. Past Consideration is not valid in England.
(b) Present Consideration: This consideration which moves simultaneously with the promise is
known as Present Consideration.

Illustration:-
In a Cash Sale, goods and cash change hand to hand instantly.
(c) Future or Executory Consideration: This consideration is to move at a future date. It takes
the form of a promise to be performed in future.

Illustration:-
X promises to deliver certain goods to Y after 10 days and Y promises to pay after 10 days from
the date of delivery.

CASE STUDY
Sindha Vs. Abraham, 1895
A, a Minor, was given benefit of certain services by Plaintiff. Plaintiff rendered those, services, not
voluntarily but at A’s desire and continued even after majority at A’s request, who subsequently
promised to pay an annuity to Plaintiff. Held that the past consideration was a good
consideration.

4. It must be Real and not illusionary: The consideration must be real and not illusionary, (i.e.
existing only in name).
(a) Consideration must be real and not illusionary. Illusionary consideration renders the
transaction void.
(b) It must also be competent, i.e. it must be something to which law attaches some value.
(c) An agreement to do something which Promisor is already bound to do, is without
competent consideration.

Illustration 1:-
A promises to pay an existing debt punctually it, B the Creditor, gives him a discount. Agreement
is without consideration and discount cannot be enforced.
(d) Consideration is not valid if it is –
i. Physically impossible (e.g. to discover treasure by magic).
ii. Legally not permissible (e.g. to murder a person).
 iii. Uncertain (e.g. to pay a “reasonable” salary for services rendered), or
iv. Illusionary (e.g. fulfilment of a pre-existing obligation).

Illustration 2:-
X engages Y for doing a certain work and promises to pay reasonable remuneration. This promise
is not enforceable because the consideration is uncertain.
Illustration 3:
X promises to put life into Y’s dead wife and Y promises to pay Rs. 1,00,000. This agreement is
void because consideration is physically impossible to perform.

CASE STUDY
Collins Vs. Godfroy, 1831
Where a witness who has received summons to appear at a trial, a promise to pay him anything
beyond his expenses is void for want of consideration, because the witness was bound to appear
and give evidence.

5. The consideration must neither be unlawful nor opposed to public policy.

Illustration 1:-
X promises Y to pay Rs. 1,000 to beat, Z, Y beats 2 and claims Rs. 1,000 from X. X refuses to pay. Y
cannot recover because the agreement is void on the ground of unlawful consideration.

Illustration 2:-
X promises Y to obtain an employment in the public service and Y promises to pay Rs. 1,000 to X.
The agreement is void on the ground of unlawful consideration.

6. Consideration need not be adequate but must be have some value in the eyes of law.
(a) Adequate of consideration should be decided from the view-point of the Promisor.
(b) Explanation to Section 25 provides that an agreement to which consent of the party is
freely given is not void merely because consideration is inadequate.
(c) However, inadequacy of consideration may be taken into account by Court to determine
whether the Promisor’s consent was freely given.
Illustration 1:-
K promises to sell a house worth Rs. 8 Lakhs for Rs. 2 Lakhs only. The transaction is valid even if
the consideration is inadequate. But, where a party pleads coercion, undue influence or fraud to
avoid a transaction, inadequacy of consideration will also be taken as a piece of evidence.
Illustration 2:-
A agrees to sell a horse worth Rs. 1,000 for t 10. A denies that his consent to the agreement was
freely given. The inadequacy of the consideration is a fact which the Court should take into
account in consideration whether or not A’s consent was freely given

CASE STUDY
Subramanian Chetty Vs. Ramaswamy Chetty, 1925
A promised to pay B, who had received summon, to appear at a Trial in a civil suit, a certain sum
being a compensation for loss of time during his attendance. Held, the promise was without
consideration and hence void, because he was under a duty imposed by law to appear and give
evidence.

7. Consideration should not be something, for which the promisor is already bound to perform
his obligation.
It also means something other than the Promisor’s Existing Oblitagion. The act constituting
consideration must be something which the promisor is not already bound to do because a
promise to do what a promisor is already bound to do adds nothing to existing obligation.
Illustration:-
X had received summons to appear before a Court of law as witness on behalf of Y who promised
to pay some money for his trouble. It was held that the promises to pay money was void for want
of consideration because X was under a legal duty to appear as witness before Court of law.
[Collins Vs. Gpdefrey]

CASE STUDY
Ramachandra Chintamani Vs. Kalu Raju, 1877
A promised to pay B, who had received summons, to appear at a Trial in a civil suit a certain sum
being a compensation for loss of time during his attendance. Held, the promise was without
consideration and hence void, because he was under a duty imposed by law to appear and give
evidence.

CONTRACT WITHOUT CONSIDERATION

Ex Nudo pacto non oritur action, i.e., an agreement without consideration is void.

The following are the exceptions to The Rule “No Consideration – No Contract”.

1. No Consideration is required in case of written and registered agreements arising out of love
and affection [Section 25(1)]:
An Agreement made without Consideration is valid if it is –
 Expressed in writing and registered under law for the time being in force for registration of
documents.
 Made on account of natural love and affection.
 Between parties standing in a near relation to each other.
 For an agreement to be valid, agreement must be as a result of natural love and affection.

Analysis
Mere nearness of relation by itself does not necessarily imply natural love and affection.
Illustration 1:-
A Hindu husband by a registered document promised to pay his wife Rs. 1,000 per month as her
pin-pocket money. This agreement is valid.
Illustration 2:-
A Hindu husband by a registered document, after referring to quarrels and disagreements
between himself and his wife, promised to pay his wife Rs. 1,000 p.m. for her maintenance. It
was held that this agreement was void because these was no natural love and affection.
 [Rajlakshmi Devi Vs. Bhoot Nath Mookherjee]
Illustration 3:-
An elder brother on account of natural love and affection, promised to pay the debts of his
younger brother. Agreement was put to writing and registered. Held, agreement was valid.

2. No consideration is required of the promise to compensate for past voluntary services

[Section 25(2)]:
(a) Such promises made without consideration is valid if –
 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.

Illustration :-
(i) A finds B’s purse and gives it to him. B promises to give A Rs. 500. This is a valid contract.
(ii) X supports Y’s infant son. Y promises to pay X’s expenses. This is a valid Contracts.

3. A written promise to pay a time-barred debt need no consideration to make a valid contract.
[Section 25(3)]:
Illustration :-
A owes B Rs. 10,000 but the debt is barred by Limitation Act. A signs a written promise to pay B
Rs. 8,000 on account of debt. This is a valid contract.

Analysis
A debt is said to be time barred (expired) if it is not recovered within 3 years for movable goods
and 12 years for immovable goods.
4. No consideration is required in completed gifts [Explanation to Section 25]: ‘No Consideration
No Contract’ does not apply to completed gifts, which means gifts already handed over.
However, a promise to gift is not valid.
Illustration:-
X transferred some property to Y by a duly written and registered deed as a gift. This is a valid
contract even though no consideration moved.

5. In case of Bailment [Section 148]: Consideration is not necessary to effect a valid bailment of
goods. It is called Gratuitous Bailment.

6. In case of creation of agency [Section 185]:

(a) No consideration is required to create an agency.
(b) If no consideration has passed to agent, he is only a gratuitous agent and is not bound to
do the work entrusted to him, but if he begins the work, he must do it to the satisfaction of
his Principal.

Analysis
In case of creation of an agent (agency), the principle will be represented on behalf of the agent.
Hence. A Contract without consideration to create an agent is valid.

7. No consideration is required in case of Charity: If a person promises to contribute to charity

and on this faith, the Promise undertakes a liability to the extent not exceeding the promised
subscription, the Contract shall be valid.
Illustration:-
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 Agreement was void.

CASE STUDY
Kedarnath Vs. Gauri Mohammad, 1886
Gaurie Mohammad promised to pay Rs. 10,000 towards the construction of a Town Hall. The
secretary of the town hall, on the faith promise, started the construction. It was held that Gaurie
Mohammad is liable to make the payment.

DOCTRINE OF PRIVITY OF CONTRACT

PRIVITY OF CONTRACT
A STRANGER TO CONSIDERATION CAN SUE

A stranger to consideration can sue because the consideration can be furnished or supplied by any
person whether he is the promise or not.

“Stranger to Contract” must be distinguished from a Starnger to Consideration. Consideration

need not necessarily be provided by the Promiseee. It may flow from a third party also. Such a
person is “Stranger to Consideration”. (Chinnayya Vs. Ramayya).

A STRANGER TO CONTRACT CAN NOT SUE

A stranger to a contract cannot sue because of the absence of privity of contract (i.e. relationship
substituting between the parties to a contract).

Illustration:-
X bought tyres from Dunlop Rubber Co. and sold them to Y, a sub-dealer who agreed with X not
to sell below Dunlop’s list price and to pay to Dunlop Co. Rs. 150 as damages on every tyre he
undersold. Y sold two tyres at less than the list price and thereupon, Dunlop Co. sued him for the
breach. It was held that the Dunlop Co. could not maintain the suit because it was a stranger to
the contract. [Dunlop R Tyre Co. Limited Vs. Selfridge & Co. Limited].

Illustration:-
X owes VRs. 1,00,000 and sells his poverty to Z, Z promises to pay off X’s debt to Y. Z fails to pay.
Y cannot sue Z. because he is a stranger to a contract.
 EXCEPTIONS TO RULE ‘A’ STRANGER TO A CONTRACT CAN NOT SUE

The rule that a stranger to a contract cannot sue, is subject to the following exceptions:

1. In case of Trusts the beneficiary (i.e. the person for whose benefit the trust has been created)
may enforce the contract.
Illustration:-
X transferred certain properties to be held by Y for the benefit of Z. Z can enforce the agreement
even though he is not a party to the agreement. [M.K. Rapai Vs. John]
Illustration:-
X sent an insured parcel to Y. On loss of such parcel, Y sued the post office. It was held that Y was
entitled to sue though he was stranger to the contract because on receipt of such article, the
post office becomes a trustee for the addressee. [Amit Ullah Vs. Central Govt.]

2. In case of Family Settlement. The person for whose benefit the provision is made under family
arrangements may enforce the contract.
Illustration:-
A provision of marriage expenses of a female member was made in a joint Hindu Family. On
partition, the female member sued for such expenses. It was held that she was entitled to sue.
[Rakhmanbai Vs. Govind]

3. Acknowledgement by the person who becomes an agent of third party by acknowledgement

or otherwise, can be sued by such third party.
Illustration 1:-
X receives Rs. 1,000 from Y for paying the same to Z, X acknowledges this receipt to Z. Z can
recover the amount from X because X will be regarded as Z’s agent. [Surjan Vs. Nanat[.
Illustration 2:-
Assignment of a Contract where a benefit under a contract has been assigned, the assignee can
enforce the contract subject to all equities between the original parties to the contract e.g. the
assignee of an insurance policy.

4. Assignment of a Contract where a benefit under a contract has been assigned, the assignee
can enforce the contract subject to all equities between the original parties to the contract.
Illustration:-
The assignee (Nominee) under an insurance policy can get the benefits by filing the suit against
the insurance company.

5. In case of Covenants running with land, the beneficiary can get the benefits by filing the suit.
Illustration:-
In case of transfer of immovable property, the purchaser of land who has notice that the owner
of the land is bound by certain conditions or covenants created by an agreement affecting the
land, shall be bound by such conditions, even though he is not a party to the original agreement
containing those conditions or covenants.
PRACTICAL PROBLEMS

PRACTICAL PROBLEM – 1 Hint / Answer

X transferred his house to his daughter M by way of gift. The M is liable to pay the annuity to N
Gift Deed, executed by X, contained a direction that M shall [Facts same as Chinnayya Vs.
pay a sum of Rs. 5,000 per month to N (the sister of the Ramayya case]
executant). Consequently M executed an instrument in
favour of N agreeing to pay the said sum. Afterwards, M
refused to pay the sum to N saying that she is not liable to N
because no consideration had moved from her. Decide with
reasons whether M is liable to pay the said sum to N.

PRACTICAL PROBLEM – 2 Hint / Answer

Vijay gifted the whole of his property to his Daughter on that Vijay’s daughter is liable to pay the
she should pay Rs. 200 per month to her uncle (Father’s monthly sum to her uncle. [Facts
Brother). Later, she refused to pay her uncle on the ground same as [Chinnayya Vs. Ramayya
that she did not receive any consideration from her uncle. Is case]
she justified

PRACTICAL PROBLEM – 3 Hint / Answer

Mr. X was in need of money & offered to sell his casio to Z for Consideration may or may not be
Rs. 6,000. Z refused to buy the same at the stated price. X adequate. Thus inadequacy of the
gradually reduced the quoted price until Rs. 2,000 was consideration has no effect on the
reached, which Z accepted. Before the casio was delivered, X validity of the contract. Mr. X is
received an offer from Mr. A for the purchase of his casio for liable under the Contract to Mr. Z.
Rs. 4,000 and X refused to carry out his contract with Z on the
grounds that the consideration was inadequates. Is Mr. X
liable to pay damages to Mr. Z for the failure to perform the
contract.

PRACTICAL PROBLEM – 4 Hint / Answer

R & S two brothers entered into a contract for the division of Generally stranger to contract
the family properly between them and agreed to contribute cannot sue. However, in certain
Rs. 20,000 each, per month towards the maintenance of their exceptional cases such as in case
mother. Can the mother enforce the contribution under the of contract for marriage
contract? settlement, partition of property
of family arrangements, the
beneficiaries under the contract
are entitled to use and enforce the
contract. Thus the mother is
entitled to sue on the contract and
enforce her rights against R & S.
PRACTICAL PROBLEM – 5 Hint / Answer
A received certain goods from B promising to pay Rs. Consideration can even proceed
1,00,000. Later on A, expressed his inability to make from a stranger to contract. When
payment. C, who is known to A, makes payment of Rs. 60,000 the promise for consideration
to B on behalf of A. However, A was not aware of the receives & accepts the same, from
payment. Now B is intending to sue A for the amount of Rs. a third party i.e. a person other
1,00,000. Discuss whether the contention of B is right? than the promisor, then it shall
discharge the promisor from his
obligation to furnish the
consideration irrespective of the
fact whether the promisor has
authorised or ratified the act of
the third party or not. Thus, A is
discharged from his obligation to
pay Rs. 60,000 and is now liable to
B only for Rs. 40,000. A shall
however be bound to compensate
C for hispast voluntary payment
which was the legal obligation of
A.

PRACTICAL PROBLEM – 6 Hint / Answer

Mr. Ramesh promised to pay Rs. 50,000 to his wife Mrs. Lali One of the exceptional cases,
so that she can spend the sum on her 30th birthday. Mrs. Lali where a contract / agreement
insisted her husband to make a written agreement if he really though made without
loved her. Mr. Ramesh made a written agreement and the consideration is valid and
agreement was registered under the law. Mr. Ramesh failed enforceable, is when an
to pay the specified amount to his wife Mrs. Lali, Mrs. Lali agreement is made out of natural
wants to file a suit against Mr. Ramesh and recover the love affection. The act expressly
promised amount. Referring to the applicable provisions of provides that an agreement
the Indian Contract Act, 1872, advise whether Mrs., Lali will without consideration shall be
succeed legally enforceable provided the
following conditions are duly
complied.
(i) The agreement must be made
on grounds of natural love and
affection.
(ii) Parties must be standing in
near relation to each other.
(iii) It must in writing &
(iv) It must be registered under
the law.

EXAM ORIENTATION
Ques 1: What is Consideration? Discuss briefly the legal requirements of valid
consideration.
OR
What do you understand by the term ‘consideration’?
Answer:
Meaning of consideration: Consideration is an essential element of a valid contract. It is the
price agreed to be paid by the promise for the obligation of the promisor.
Thus, if A agrees to sell his books to B for Rs. 100, B’s promise to pay Rs. 100 is the consideration
for A’s promise to sell his books and A’s promise to sell the books is the consideration for B’s
promise to pay Rs. 100.
For every valid contract consideration is very essential. But there are certain exceptions to this
rule which have been incorporated Under Section 25 of the Indian Contract Act.

Ques 2: What are the “Legal requirements of valid consider”

Answer:
Legal requirements of valid consideration may be enumerated as under:
(i) Section 2(d) of the Indian Contract Act emphasis that consideration must move at the desire
of the promisor. Any act done at the desire or request of the third party or voluntary’ acts
would not constitute a valid consideration.
(ii) Consideration must be lawful and should not be forbidden by law.
(iii) Consideration must be real and not illusory. If it is physically impossible, vague or legally
impossible, the consideration shall be something which not only the parties regard but the
law can also regards having some value.
(iv) Consideration must be of some value in the eyes of law. The Supreme Court has laid down
this consideration shall be something which not only the parties regard but the law can also
regard as having some value.
(v) The consideration must not be performance of existing duties e.g. (i) legal obligations or (ii)
contractual obligations.
(vi) The consideration need not be adequate. In other words an inadequate consideration does
not render a contract void.
(vii) The consideration may be furnished by the promises or any other person. So long as there is
consideration for a promise, it is immaterial who has furnished it.
(viii) The consideration must be either positive or negative (see the definition)
(ix) Consideration may be forbearance to sue.
(x) The consideration may be past, present or future.

Ques 3: Distinguish between Executed and Executory Consideration.

Answer:
Distinction between Executed and Executory Consideration: Executed and Executory
Consideration: A consideration which consists in the performance of an act, is said to be
executed. When it consists in a promise to do something, it is said to be executory. The
promise by one party may be the consideration for an act by some other party and vice versa
For example, in a contract of fire insurance, the policy holder pays the premium and the insurance
company in return promises to make good the value of the insured property, if it is damaged.
Here the promise of the insurance company is made in Exchange of the consideration of the
payment of premium by the policy holder and vice-versa. To give another example, A pays Rs.
5,000/- to B and B promises to deliver to him a certain quantity of sugar within a month. In this
case, A pays the amount whereas B merely makes a promise. Therefore, the consideration paid by
A is executed, whereas the consideration promised by B is executory. An actual forbearance to
exercise a right may be a good executed consideration, provided the forbearance is suffered at
the request of the promisor.

Ques 4: Comment on: Consideration may be present of fugure.

Answer:
Consideration may be past, present or future: According to the words used in Section 2(d)
consideration may be pasts, present or future. These words are”… has done or abstained from
doing (i.e. past) or does or abstains from doing (i.e. present) or promises to do or to abstain
from doing (i.e. future) something”.
When the consideration by a party for a present promise was given in the past i.e. before the date
of the promise, it is said to be the past consideration.
When the consideration is given simultaneously with the promise, i.e. at the time of die promise,
it is said to be the present consideration. In a cash sale, for example, the consideration is present
or executed.
When the consideration from one party to the other is to pass subsequently to the making of the
contract, the consideration is future or executory.
Ques 5: Comment on: To form a valid contract consideration must be adequate.
Answer:
Adequacy of consideration: The law provides that a contract should be supported by
consideration. So long as consideration exists, the Court are not concerned as to its adequacy,
provided it is of some value. The adequacy of the consideration is for the parties to consider
at the time of making the agreement, not for the Court when it is sought to be enforced.
(Bolton Vs. Madden). Consideration must however, be something to which the law attaches
value though it need not be equivalent in value of to the promise made.
According to Explanation 2 to Section 25 of the Indian Contract Act, 1872, an agreement to
which the consent of the promisor is freely given is not void merely because the consideration
is inadequate but the inadequacy of the consideration may be taken into account by the Court
in determining the question whether the consent of the promisor was freely given.

Ques 6: State the exceptions to the rule that “a stranger to a contract cannot sue:.
Answer:
Doctrine of privity of contract: It is general rule of law that only parties to a contract may
sue and be sued on that contract. This rule is known as the “doctrine of privity”. Privity of
contract means relationship subsisting between the parties who have entered into
contractual obligations. It implies a mutually of will and creates a legal bond or tie between
the parties. There are two Consequence of doctrine”.
1. A person who is not a party to a contract cannot sue upon it even though the contract is for his
benefit and he provided consideration.
2. A contract cannot confer rights or impose obligation arising under it on any person other than
the parties to it (Dunlop Pneumatic Tyres Limited Vs. Selfridge Co. Limited).
The following are the exceptions to the general rule that a stranger to a contract cannot sue:
1. A trust or charge.
2. Marriage settlement, partition or other family arrangements.
3. Acknowledgement or estopped.
4. Assignment of a contract.
5. Contracts entered into through an agent.
6. Convenants running with the land.

Ques 7: Comment on: An agreement without consideration is void.

Answer:
Circumstances under which a contract without consideration is valid: Consideration is
an essential element of a valid contract. It is a price of the promise and hence the general rule
is that “an agreement without consideration is void”. But this rule is not absolute because
Section 25 itself prescribes certain exceptions where under an agreement without
consideration becomes enforceable by law.

Ques 8: Write short notes on “Exceptions to the rule ‘no consideration, no contract’”.
OR
What do you understand by the term ‘Consideration’? Are there any circumstances
under which a contract, under the provisions of the Indian Contract Act, 1872, without
consideration is valid? Explain.
Answer:
Exceptions to the rule “No Consideration, No Contract”:
1. Natural love and affection: A written and registered agreement based on natural love and
affection between near relative is enforceable without consideration.
2. Compensation for past Voluntary Service: A promise to compensate wholly or in part, a
person who has already voluntarily done something for the promisor, is enforceable.
3. Time-Barred Debt: An agreement made in writing and signed by the person to be charged
therewith to pay wholly or in part a debt of which creditor might have enforced payment but
for the law for the limitation of suits.
4. Completed Gift: An agreement in respect of a gift that has been made and accepted.
5. Agency: An agreement containing agency may be without consideration.
6. Bailment: No consideration is required to effect the contract of bailment (Section 148).
7. Charity: If a promise undertakes the liability on the promise of the person to contribute to
charity, there the contract shall be valid. (Kadarnath Vs. Gorie Mohammed).
Ques 9: All consideration or objects of an agreement are not lawful. – Justify
Answer:
Yes, the consideration or object of an agreement is lawful unless it is forbidden by law, or (2)
is of such a nature that if permitted it would defeat the provisions of any law or (3) is
fraudulent or implies injury to the person or (4) property of another or (5) the Court regards
it as immoral or as opposed to public policy.

Ques 10: Comment on the following statement based on legal provision:

“A” saved life of “B”, who was drowning Later “A” demanded remuneration from “B” for
saving him since saving of life was valid consideration. “A” would succed.
Answer:
Consideration should be at the desire of promisor. ‘A’ cannot demand payment for his service
to save ‘B’s life because (i) It was voluntary gratuitous act and not at the desire of ‘B’.
Where, however, a ‘Person’ lawfully does anything for “another person” not intending to do so
gratuitously and such other persons enjoys the benefit thereof the “another person” bound to
make compensation to the “person” in respect of the thing so done.

Ques 11: Referring to a quarrel and disagreement between husband and wife, the
husband agreed to execute and register a document in favour of his wife to transfer
one of his properties to his wife. Later on husband refused. Whether wife can enforce?
Answer:
Wife cannot succeed. Section 25(1) of the Indian Contract Act provides that a contract
without consideration shall be valid if made out of natural love and affection between parties
standing in a near relation to each other through a written and registered document. Mere
nearness of relation or relationship does not impart natural love and affection. In this case
since the promise to transfer property is made after reference to quarrels & disagreements,
the contract shall not be enforceable as natural love and affection was absent.

Ques 12: State whether the following statement is correct or incorrect:

A promise to pay a time barred debt is not enforceable.
Answer:
Incorrect: A promise to pay a time barred debt is enforceable, if it is in writing and signed by
the promisor or by his agent authorised to do so. The promise may be to pay the whole or any
part of the debt [Section 25(3)] Indian Contract Act, 1872].

Ques 13: State whether the following statement is correct or incorrect:

Consideration may be present or future but not past.
Answer:
According to the words used in Section 2(d) consideration may be past, present or future.
These words are “has done or abstained from doing (i.e. past) or does or abstains from doing
(i.e. present), or promises to do or to abstain from doing (i.e. future) something.
When the consideration by a party for a present promise was given in the past i.e. before the
date of the promise. It is said to be the past consideration.
When the consideration is given simultaneously with the promise, i.e. at the time of the
promise, it is said to be the present consideration. In a cash sale, for example, the
consideration is present or executed.
When the consideration from one party to the other is to pass subsequently to the making of
the contract, the consideration is future or executory.

Ques 14: State whether the following statement is correct or incorrect:

In order to constitute a valid contract, consideration between two parties must be
adequate.
Answer:
Incorrect: The law simply provides that a contract should be supported by consideration. So
long as consideration exists, the Courts are not concerned as to its adequacy, provided it is of
some value. The adequacy of the consideration is for the parties to consider at the time of
malting the agreement, not for the Court when it is sought to be enforced. (Bolton Vs.
Madden).