Lawful Consideration

Introduction:

Section 2(d) of the Indian Contract Act defines consideration as “When

at the desire of the promisor,
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 consideration for the promise.”

Consideration means ‘quid pro quo’ i.e. ‘something in return’. An

agreement is enforceable only when both the parties get something and give
something. Consideration can be in cash or kind.

E.g.
Selling House to
A B
Buying for Rs. 2 crores

In this example Mr. A is getting Rs. 2 crores as consideration against his house
which he is selling.
Similarly, Mr. B is getting house as consideration against his price paid.

Essential elements of Lawful Consideration:

1) It must move at desire of the promisor:

Consideration must move at desire of promisor either by promisee or by another
person. But it cannot be moved at desire of third person.

1|Page
 E.g. Durga Prasad Vs Balde (1880) 3 All 221 D
On the order of the collector of a town Durga Prasad built some shops on his
own expense in a market. The shopkeepers who occupied these shops promised
to pay to Durga Prasad commission on their sales. Durga Prasad sued the
shopkeepers when he did not receive the commission. The court held that the
promise was not supported by any consideration as the shops were built on the
collector’s order and not at the request of the shopkeepers. Therefore, there
could not be a recovery.
A voluntarily helps B to when fire caught to B’s house. In this case A cannot ask
anything against help done to B.
But if B asks for help and promises to give Rs. 5000/-, on that A helps Figure 2.2.1

B then he is entitled to receive consideration promised.

2) It must move from promisee or any other person:

When a promisor gives a promise, the promisee or any other person may provide
a valid consideration in return.
E.g. Chinnayya (Vs) Ramayya.
In this case F has a daughter namely D and a brother namely B. F makes an offer
to D according to which F will transfer certain property to D and D has to pay
annuity to B. Thus, a Contract gets formed in between them. There after D
promises to B to pay annuity. Afterwards D gets failed in paying annuity to B on
the ground that she (D) has no Consideration from B. Here Court decides that
consideration is obtained by D from F. Thus, it is held that D has to pay annuity
to B.

3) It may be Past, Present or Future:

Consideration are of three types namely Past, Present and Future consideration.
The consideration which is sent before formation of contract is called past
consideration. The consideration which gets passed at the time of formation of
contract is called Present Consideration. The Consideration which is to be passed
in future i.e. after the contract is called Future Consideration.

2|Page
4) It need not be Adequate:
Consideration means something in return. This may not be equal to the value of
the promise that is given. If there is some consideration the courts support, it and
are not concerned about its adequacy. The parties to the agreement should have
been satisfied with the consideration when they made the contract. The
consideration may not be adequate, but it should be lawful. The court does not
take the responsibility of repairing any bad bargains made between parties. If the
contract was agreed upon between people, the court will not interfere in the
agreement.
E.g. A agrees to sell his bike for Rs. 10000/- whose market price is Rs. 60000/-
about which A has knowledge. If he is selling with free consent, then its valid
consideration and valid contract even though consideration is not adequate.

5) It must not be unlawful, immoral or against to public policy:

Consideration should be lawful, otherwise the agreement becomes void.
According to section 23 of the Indian Contract Act consideration is not lawful in
the following situations.
• When it is made of an act forbidden by law
• When it causes injury to a person or property of another person
• When it is declared as immoral or opposed to public policy
E.g. A offers B Rs. 50000 to kill C. In this case consideration is unlawful as it
includes injury to another person and even it is forbidden by law. So, the
contract and consideration is void.

A offer B Rs. 50000 for working as house maid and as concubine. This is void
contract and consideration as it is immoral.

6) it must not be unreal or illusory:

Real consideration means that the consideration should not be physically or
legally impossible. Consideration is not real in the case of physical and legal
impossibility or uncertainty.

3|Page
 E.g. A promises to B give 5% of treasure which he will finds if B finance him.
The consideration involved in this is illusory.

Types of consideration

1. Past consideration
2. Present consideration
3. Future consideration
4. Unreal or illusory consideration
5. Unlawful consideration

Stranger to Consideration and Stranger to Contract:

Under the English Law, consideration must move from the

promisee. Any other person cannot move it.
Under Indian Law, even stranger to consideration can move consideration
instead of promisee. So, stranger to consideration can enforce it and even can
sue the party to contract. In India, a stranger to consideration can sue and
enforce an agreement if he is a party to the contract.

A person becomes a stranger to a contract when he is not a party

to the contract even though it is made for his benefit. He is a stranger to the
contract and cannot claim any rights under it. Only the parties to a contract can
sue or be sued in a contract. Third parties/ strangers do not have any rights or
obligations to a contract. They are not even permitted to sue in a court even if
the contract is for their benefit.

Exceptions to the Statement 'Stranger to Contract cannot sue upon the

Contract:
• Trust deeds:

4|Page
 In case of trust arrangements, the beneficiary, though he is a stranger to
the contract, can file suit in case where trustee comes across breach of
trust.

• Family Arrangements:
In case of family arrangements, the dependent person can file a suit,
though they are strangers.

• Agency Contract:
In case of agency contract, the principle, though he is a stranger can file
a suit. Here condition is the contract made by the agent should be in his
capacity as agent.

• Third Party Insurance:

In case of third-party insurance victim file case against accused’s
insurance company for compensation. Victim is a stranger to contract, as
parties to contract are accused and insurance company.

An Agreement without Consideration Is Void-

(Exceptions to the Rule)

The general rule is “no consideration no contract” or “an

agreement without consideration is void” but there are exceptions to the rule.
According to section 25 of the Indian Contract Act, in the following cases the
rule does not apply.

a) Agreement made out of Natural Love and Affection:

A written and registered contract without consideration, based on natural love
and affection by two parties related to each other is a valid contract. [Section
25(1)]

5|Page
 E.g. Rajlukhy Vs Bhootnath (1900) 4 Cal WN 408,
A husband agreed to pay a fixed sum and maintenance to his wife for living in
a separate residence due to frequent quarrels between them. He registered the
written document. Since he did not pay the amount the wife went to court. She
was unable to get any relief because the agreement was not made with natural
love and affection.

b) Promise to pay Compensation for past Voluntary Act:

A promise to compensate a person wholly or partly for services done
voluntarily, or for doing voluntary services that are legally compellable is a
valid contract even without consideration. [Section 25 (2)]
E.g. A thief snatched A’s gold necklace. B, and spectator, rushed to help, saved
the necklace, and gave it back to A. On receiving the necklace, A gave B Rs.
5000/-. This is a valid contract even without consideration.

c) Promise to pay Time Barred Debt:

A written and registered document by the debtor signing himself or his agent
with a promise to pay a time barred debt, is a valid contract and does not
require any fresh consideration. [Section 25(3)] The intention should be clearly
expressed. It may be the full amount or part of the amount of the debt that is to
be returned.
E.g. X took a loan of Rs 50000/- from Y. He could not pay it back in time and
it became time barred under the Limitation Act. He made a signed and written
promise to Y that he would return Rs 40000/- on account of the debt. This is a
valid contract. No new consideration is required.

c) Creation of Agency:
No Consideration is required to create an agency between the principal and
agent according to section 185. If a person volunteers to work on behalf of
another person as his agent without any remuneration, a relationship of agency
will be created even if there is no consideration. The agent can work on behalf

6|Page
of the principal and bind the principal to any contracts that are taken by the
agent on his behalf.

7|Page