LEGAL ENVIRONMENT OF

BUSINESS
Chapter 3 Consideration
by
Barrister Shahrina R. Juhi
Barrister-at-Law, Honourable Society of Lincoln’s Inn, UK
PGDL, Northumbria University, UK
MBA, Bangladesh University of Professionals
LL.B, University of London, UK
Diploma in Law, University of London, UK
OBJECTIVES

AFTER STUDYING THIS CHAPTER,

YOU SHOULD BE ABLE TO LEARN:

1. Definition of consideration
2. Types of consideration
LEARNING

3. Good consideration vs Unreal, illegal or bad

consideration
4. Rules regarding consideration
5. No consideration no contract - exceptions of this
rules

1–2
SECTION 2 (D) OF THE CONTRACT ACT 1872.
DEFINITION OF CONSIDERATION:
 (d) 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:

1–3
DEFINITION OF CONSIDERATION
Consideration is defined in Section 2(d) of
the Contract Act 1872.

‘Something in return’ is called

consideration.
Consideration can be in the form of
goods, services, positive acts or
abstaining from doing something.
The person making the promise is called
the promisor. The person to whom he makes the 1–4
promise is a promisee.
 EXAMPLE OF CONSIDERATION
Example 1: P agrees to sell a house to Q
for tk. 80,000. For P’s promise, the
consideration is tk. 80,000. For Q’s
promise, the consideration is the house.
Example 2: H employs Q as a clerk in his
office for tk. 1,000 a month. The monthly
wage is the consideration received by Q;
the services constitute the consideration
received by H. 1–5
TYPES OF CONSIDERATION, CONTD.,
1. Past Consideration
When consideration of one party was given
at a prior date before receiving the other
party’s consideration to the contract, it is
said to be past.
Example: Paying for something at a future
date.

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TYPES OF CONSIDERATION, CONTD.,
2. Present Consideration
Consideration which moves simultaneously
with the promise is called present
consideration.
Example: B buys an article from a shop and
pays the price immediately. The
consideration moving from the parties is
present or executed consideration.
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TYPES OF CONSIDERATION, CONTD.,
Future Consideration
When consideration is to move at a future
date, it is called future consideration or
executory consideration.
Example: A promise to pay money at a
future date for goods to be delivered at a
future date is a valid contract.

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RULES REGARDING CONSIDERATION
1. Desire of the promisor is essential
2. Consideration may be past, present or future
3. Consideration must be something of value or must be
real
4. The Consideration must not be illegal, immoral, or
opposed to public policy
5. Consideration need not be adequate
6. Doctrine of Constructive Consideration
7. Promise to charities

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 1. DESIRE OF THE PROMISOR IS
ESSENTIAL
In order to constitute legal consideration, the act or
abstinence forming the consideration for the promise
must be done at the desire or request of the
promisor. Thus, acts done or services rendered
voluntarily, or at the desire of third party, will not
amount to valid consideration.
Example:
P sees Q drowning in a nearby river and dives and
saves him. Later, P cannot demand payment for his
services because is was not asked for, he did it
voluntarily.
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 2. CONSIDERATION MUST BE SOMETHING
OF VALUE OR MUST BE REAL
The consideration must have value in the eye of law.
The impossible act or non-existing goods cannot
support a contract.
Example:
(i) Physically impossible -A promises to make a dead
man alive or to run at a speed of 200 kilometers
per hour, does not form valid
consideration.(section 23)
(ii) Legally impossible – A promise for the payment of
money to be obtained by fraud, does not amount
to good consideration. (section 25)
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CONSIDERATION MUST BE SOMETHING
OF VALUE OR MUST BE REAL
(iii) Uncertain Consideration - A promise to such
remuneration “as shall be deemed right” is no
consideration in the eye of law.
(iv) Illusory Consideration – Consideration is illusory
(false) if it consists a promise to perform a
public duty (example abiding by traffic rules,
paying taxes cannot be valid consideration).

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 4. THE CONSIDERATION MUST NOT BE
ILLEGAL, IMMORAL, OR OPPOSED TO PUBLIC
POLICY

Example
A, B, and C entered into an
agreement for the division among
them of gains acquired or to be
acquired by them by fraud. The
agreement is void.

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5. CONSIDERATION NEED NOT BE
ADEQUATE

1) Consideration must be sufficient but need

not be adequate.
The benefit or detriment must be legally sufficient.
All that is required is some sort of economic
value. Courts are not concerned with whether the
consideration represents a “good deal” even if the
consideration holds economic value. If there is
some value to the agreement, it is legally
enforceable. “In Vijay Minerals Vs Bikash Deb, the
Court said it would not go into the question of
adequacy of consideration when considering
whether an agreement is binding or not”. 1–14
 CONSIDERATION NEED NOT BE
ADEQUATE
Example
P agrees to sell a horse at tk. 50 but
actually it is worth Taka 3 lacs. P’s
consent to the agreement was freely
given. The agreement is a contract
notwithstanding the inadequacy of
the contract.

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 WHAT IS GOOD CONSIDERATION?

If the contract fulfills necessary factors for

consideration mentioned above, the contract is
valid. A good consideration can be any of the
following:
1. Physical goods
2. Services
3. Any barter system of exchange

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6. CONSIDERATION MAY MOVE FROM THE PROMISEE OR ANY
OTHER PERSON (BENEFICIARY RULE)

1. Consideration need not move from the promisee

alone but may proceed from a third person.
2. Thus, as long as there is a consideration for a
promise, it is immaterial who has furnished it.
3. It may move from the promisee or from any
other person. This means that even a stranger to
the consideration can sue on a contract, provided
he is a party to the contract. This is sometimes
called as ‘Doctrine of Constructive Consideration’.
(Chinayya vs Ramayya) 1–17
 7. PROMISE TO CHARITIES
Promise to make a contribution to charity
is not enforceable because it is without
consideration.
Example
A person agreed to pay to a charitable
society a percentage of the value of the
goods imported by him. This is not a
contract as it has no consideration.
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 NO CONSIDERATION NO CONTRACT -
EXCEPTION TO THIS RULE
General rule is that “a promise without consideration is void”.
However, there are some exceptional cases where a contract is
enforceable even when there is no consideration.
1. Natural love and affection
2. Voluntary compensation for past services
3. Completed gift
4. Contribution to charity

1–19
 1. NATURAL LOVE AND AFFECTION
An agreement without consideration is valid under
section 25 (1) only if the following requirements
are complied with:
1. The agreement is made by a written document
2. The document is registered according to the law
relating to registration in force at the time
3. Made on account of natural love and affection
4. Between parties standing in a near relation to
each other.
1–20
 1. NATURAL LOVE AND AFFECTION,
CONTD.,
Example 1

Abdul, for natural love and

affection, promises to give his son
Ben TK 1,00,000. Abdul puts his
promise to Ben in writing and
registers it. This is a valid
contract.
1–21
Example 3
A registered agreement, whereby an elder brother,
on account of natural love and affection, promised
to pay the debts of his younger brother, was held
to be valid and binding and the younger brother
could sue the elder brother in the event of his not
carrying out the agreement (Venkatasamy vs
Rangasami).

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FOLLOWING RELATIONS ARE SAID TO BE
NEAR

 Husband and wife (Poonoo bibi vs Fayez Bukon)

 Relation between siblings

 Relation between in-laws and daughter-in-law or

son-in-law (Bhiva vs Shivaram)
 Parents-children

1–23
 2. VOLUNTARY COMPENSATION FOR
PAST SERVICES
A promise made without any 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
- Sec. 25 (2). It must be written.
Example
A thief snatched Leela’s gold chain. Meera, an onlooker, rushed to help,
retrieved the chain and gave it back to Leela. On receiving the chain
Leela promised to give Meera taka 2000/- and put it in writing. This is a
valid contract even though initially Meera did the act voluntarily but
1–24
later by promising to pay for this good deed, Leela has created a
contract.
 3. COMPLETED GIFT
A gift (which is not an agreement) does not
require consideration in order to be valid. “As
between the donor and the donee, any gift
actually made will be valid and binding even though
without consideration”.
In order to attract this exception there need not
be natural love and affection or nearness of
relationship between the donor and donee. The
gift must, however, be complete(for usual items),
written and registered in the receiving party’s
name (for items which require written name
transfer, like for cars, houses, etc.).
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 4. CONTRIBUTION TO CHARITY

A promise to contribute to charity, though gratuitous, would be

enforceable, if on the faith of the promised subscription, the
promisee takes definite steps in furtherance of the object and
undertakes a liability, to the extent of liability incurred, not
exceeding the promised amount of subscription. The promised
contribution must be in writing.

1–26
 4. CONTRIBUTION TO CHARITY
Example 1
In Kedarnath Bhattacharji v. Gorie Mahommed , the defendant had
agreed to subscribe Rs. 100 towards the construction of a Town
Hall at Howrah. The plaintiff (secretary of the Town Hall) on
the faith of the promise entrusted the work to a contractor and
undertook liability to pay him. The defendant was held liable.
But where the promisee had done nothing on the faith on the
promise, a promised subscription is not legally recoverable.
Example 2
In Abdul Aziz vs Masum Ali, the defendant promised to
subscribe Rs. 500 to a fund started for rebuilding a Mosque but
no steps had been taken to carry out the repairs. The defendant
was held not liable and the suit was dismissed. 1–27
The End

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