The purpose of doctrine of consideration is to put some legal limits on enforceability of agreements and to establish which promise should be legally enforceable. It limits the freedom of individuals to make binding legal promises, only those promises which are supported by consideration are enforceable, others are not binding, even if the promisor intends to bind himself by the promise. The requirement of consideration is considered as the most fundamental. It ensures that the parties have decided to contract after deliberation and not on impulse.
Blackstone has defined Consideration as “the recompense given by the party contracting to the other”. In other words, it is a price of a promise.
In the words of Pollock, “Consideration is the price for which the promise of the other is bought and the promise thus given for value is enforceable.” Justice Patterson in Thomas vs. Thomas(1842) 2 QB 851 at 859. Consideration means something which is of some value in the eye of law. It may be some benefit to the plaintiff or some detriment to the defendant.
In Currie vs. Misa (9175) LR 10. It was held that “ A valuable consideration in the sense of law, may consists either some right, interest, profit or benefit accruing to ne party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other”.
Section 2(d) of the Indian Contract Act defines consideration as follows:
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 abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.
DIFFERENCE BETWEEN ENGLISH LAW AND INDIAN LAW
English Law: The contracts which are oral they must be supported by consideration. In England, law is that express contract, which is oral one, must have consideration. The contract is writing is called contract under seal and do not require consideration.
Indian Law: All types of agreement except a few require consideration. Consideration is must in India. Section 10 of the Indian Contract Act, says that the consideration is an essential ingredient for enforceability of contract, at the desire of the promisor (Promissory Estoppel)
In Durga Prasad v Baldeo (1880) 3 AII 221. The plaintiff, on the order of the collector of a town, built at his own expense, certain shops in a bazar. The shops came to be occupied by the defendants who, in consideration of the plaintiff having spent money in consideration, promised to pay him a commission on articles sold through their agency in the bazaar. The plaintiff’s action to recover the commission was rejected. In this case shop was constructed at the desire of collector and not at the desire of defendant.
The decision of the Calcutta High Court in Kedar Nath vs. Gorie Mohd ILR (1886) 14 Cal 64 has become well known in this connection. It was held that the act of the plaintiff in entering into contract with the contractor was done at the desire of the defendant so as to constitute consideration within the meaning of Section 2(d).
Where there is promise from one side and the other party performs the condition of promise. In a unilateral promise if one side carries out the act desired by the promisor, he can hold the promisor to his promise. His act is at the same time an acceptance of and a consideration for the promise. Consideration in its essence is nothing else but response to such a request.
Where the promisee has done nothing, there is no consideration. Accordingly, in Abdul Aziz vs. Masum Ali AIR 1914 AII 22 the defendant promised Rs 500 to a fund, started to rebuild a mosque but nothing had been done to carry out the repairs and reconstruction. The subscriber was held not liable.
DOCTRINE OF PRIVITY OF CONSIDERATION:
Promisee or any other person
The act which is to constitute a consideration may be done by “the promise or any other person”.
There are two fundamental propositions of English Law:
- Consideration must move from the promisee and the promisee only. If it be furnished by any other person, the promisee becomes a stranger to the consideration and, therefore, cannot enforce the promise.
- A contract cannot be enforced by a person who is not party to it even though it is made for his benefit. He is a stranger to the contract and claim no rights under it.
The First Principle i.e. the doctrine of privity of consideration is not applicable in India. The first principle i.e. 2 (d) says that, it is not necessary that consideration should be furnished by the promise. A promise is enforceable if there is some consideration for it and it is quite immaterial whether it moves from the promisee or any other person.
In Chinnaya vs. Ramaya (1882) 4 Mad 137. The defendant’s promise was given to the plaintiff, but consideration was furnished by the plaintiff’s sister. The court allowed the plaintiff to recover the annuity as consideration given by “any other person” is equally effective.
DOCTRINE OF PRIVITY OF CONTRACT
The Second Rule i.e. Privity to contract. The second rule i.e. rule of “privity of contract”, which means that a stranger to contract cannot sue, has taken firm roots in the English Common Law but the principle has been generally criticized.
In 1861 in Tweddle vs. Atkinson 123 ER 762: 1 B & S 393 the court of Queen’s Bench refused to follow this principle. The case laid the foundation of what subsequently came to be known as the doctrine of “privity of contract”, which means that a contract is a contract between the parties only and no third person can sue upon it even if it allowedly made for his benefit.
There is no provision of privity of contract in Contact Act 1872. The Privy Council extended the rule to India in its decision in Jamna Das vs. Ram Autar (1911) 30 IA 7. The effect of the decision is that only parties to the contract can sue on the basis of contract. The Supreme Court of India has favored the rule in MC Chacko vs. State Bank of Travancore (1969) 2 SCC 343.
EXCEPTIONS TO DOCTRINE OF PRIVITY TO CONTRACT:
The courts have introduced a number of exceptions in which the rule of privity of contract does not prevent a person from enforcing a contract which has been made for is benefit but without his being a party to it.
- Marriage settlement, partition or other family arrangements
- Acknowledgement or Estoppel
- Convenants running with land.
KINDS OF CONSIDERATION
Under the Indian Contract Act there are three kinds of consideration
When in return for the promise, the promise or any other person
- Has done or abstained from doing; (past Consideration)
- Does or abstains from doing; (present consideration)
- Promises to do or abstain from doing (future consideration)
Past consideration: The Indian Contract Act recognizes past consideration, which means that the consideration for any promise given earlier and the promise is made thereafter. But it is, necessary that at the time the consideration was given that must have been done at the desire of the promisor.
Voluntarily: The Indian Contract Act recognizes only such consideration which has been given at the desire of the promisor. If consideration has been given voluntarily, it is no consideration. Rendering of such voluntarily services does not constitute valid consideration to support promise. However section 25(2) of the act is an exception to the rule that agreement without consideration is void.
Past Consideration: When one of the parties to the contract has performed his part of the promise, which constitutes the consideration for the promise by the other side it is known as executed consideration. Performance of the promise by the other side is the only thing now to be done. In executed consideration, the consideration is provided simultaneously along with the making of the contract. Executed consideration means an act which has been done in response to a positive promise.
Executory Consideration: Consideration may consist of an act which is only promised to be done at some future time. There may be simple exchange of promises and each promise is a consideration for the other.
CONSIDERATION MUST BE OF SOME VALUE
“Consideration must be of some value in the eyes of law”. In Chidambara vs. P. S Renga AIR 1965 SC 193 it was said that consideration “shall be ‘something’ which not only the parties regard but the law can also regard as having some value”. It must be real not illusory, whether adequate or not”
Need not be Adequate:
It is not necessary that consideration should be adequate to the promise. 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”. This is English rule and is applicable in India also, explanation 2 of section 25 lays down that “an agreement to which consent of the promisor is freely given is not void merely because the consideration is inadequate”.
Consideration must be something more than what the promise is already bound to do. A person may be bound to do something by the law or by contract. “Performance of a legal duty is no consideration for a promise”.
EXCEPTION TO CONSIDERATION
Agreement without consideration is void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law. An agreement made without consideration is void.
Section 25 – An agreement made without consideration is void, unless
- It is expressed in writing and registered under the law for the time being in force for registration of [ documents], and is made on account of natural love and affection between parties standing in a near relation to each other, or unless
- 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 or unless
- It is a promise, made in writing and signed by the person to be charged therewith or by his agent generally or specifically authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforcement payment but for the law for the limitation of suits.
- Nothing in this section shall affect the validity, as between the donor and done, of any gift actually made.
- 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 to the promise was freely given.
- Natural Love and Affection:
A written and registered agreement based on natural love and affection between near relatives is enforceable without consideration. In Rajlukhy Dabee vs. BhoothnathMookherjee (1900) 4 Cal WN 488. The defendant promised to pay his wife a fixed sum of money every month for her separate residence and maintenance. The agreement was contained in a registered document which mentioned certain quarrels and dis agreements between the two. The Calcutta High Court refused to regard the agreement a one covered no trace of love and affection between the parties whose quarrels has compelled them to separate.
- Past Voluntary Service:
A promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor, is enforceable. In other words, a promise to pay for a past voluntary service is binding. It is necessary to attract this exception that the service should have been rendered voluntarily and also for the promisor.
- Time – barred debt
A promise to pay a time- barred debt is enforceable. The promise should be writing. It should also be signed by the promisor or “by his agent generally or specially authorized in that behalf. The promise may be to pay the whole or part of the debt. The debt must be such “of which the creditor might have enforced payment but for the law for the limitation of suits”.
- Wholly or in part
Section 25(3) permits the promisor to pay wholly or in part a time barred debt. If a person promises to pay a portion of a time- barred debt, he can be sued for that portion alone and not for the whole debt. If however, the promisor to pay the whole debt is there then then the whole of the amount can be claimed.
- Express promise:
The promise to pay the time barred debt must be an express one and cannot be held to be sufficient if the intention to pay is unexpressed and has to be gathered from a number of circumstances.
Section 25(3) requires an express promise to pay a time barred debt rather than a mere acknowledgment of the debt. In Tulsi Ram vs. Same Singh AIR 1981 Delhi165. It was held that the words simply mean an acknowledgment about the existence of the pronote, and there were no words stating that the defendant intended to pay the time barred debt.