Consideration

Section 10 – Essentials of a valid contract

Section 23 – What considerations and objects are lawful and what
not
Section 24 – Agreements void if consideration and object are
lawful in part
Section 25 – Agreement without consideration
Section 2 (d) – Definition
– Consideration English Law

 Speciality contracts

 Parol contracts
 Quid pro quo
– Indian Law Consideration
 Ex nudo pacto non oritur actio.
 No action arises from a nude agreement.
 Nudum Pactum.
 Agreement without consideration.
 Nudum pactum ex quo non oritur actio
 A bare agreement from which no action
arises.
Mere writing not sufficient
 Pillans v. Van Mierop (1765)

 Rann v. Hughes (1778)

 High Trees House Case (1947)

Moral obligation is not sufficient

 Lee v. Muggeridge (1813)

 Eastwood v Kenyon (1840)

 Definitions
 Pollock – consideration is the price for which
the promise of the other is bought, and the
promise thus given for value is enforceable.

 Patterson – 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.
 Currie v. Misa

 “A valuable consideration in the sense of law,

may consist either in some right, interest,
profit or benefit to the one party, or some
forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other.”
 Consideration Under ICA

 Sec. 10 of ICA lays down essential of valid contract. One of

which is consideration.

 Sec. 23 lays down that the agreements considerations and

objects of which are unlawful are void.

 Sec. 24 lays down that the agreements are void if

consideration and object are unlawful in part.

 Sec. 25 opens with the wordings; ‘ An agreement without

consideration is void ab initio.’
 Privity of Consideration
 A stranger to a consideration cannot sue.
 Dutton v. Poole (constructive
consideration).
 Tweedle v. Atkinson.
 Under ICA a consideration may move from
the promisee or any other person.
 Chinnayya v. Ramayya.
 Privity of Contract
 A stranger to a contract cannot sue.
 No jus quaesitum tertio (rights acquired
for a third party)
 Dunlop Pneumatic Tire co. V. Selfridge &
Co.
 Beswick v. Beswick
 Exceptions to privity rule
 Beneficiary to contract can sue for its
enforcement (i.E. Beneficiary under trust
or a charge on property).
 Khwaja Muhamad v. Husaini begum.
 Acknowledgment or estoppel.
 Devaraja Urs v. Ram Krishnaiah
 Privity of Contract
 Family arrangements, marriage
settlements etc.
 Rose Fernandez v. Joseph Gonsalves.
 Daropti v. Jaspat Rai.
 Covenants running with land.
 Definition

 Sec. 2 (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.
 Promissory Estoppel
 Acts done at the request of the promisor

 Kedarnath v. Gorie Mohamed

 Doraswami Iyer v. Arunachala Iyer

 Kinds of Consideration
 Executory – promise for a promise
 Executed – an act for a promise
 Past – promise independent and
unconnected with an act already done.
 Under English law such a past
consideration is not valid and enforceable
 Exceptions to Past
Consideration.
 Act done at the request of the promisor
 Lampleigh v. Brathwait (1615)
 Kennedy v. Brown (1863)
 Precedent debt
 Negotiable instrument
Past Consideration Under Indian
Law
 S. 2(d) clearly lays down the words ‘ has done’
which suggest that past act done by the
promisee at the desire of the promisor is valid
and enforceable.
 S. 25 (2) lays down that if a person has done
something for another voluntarily and that other
has promised to pay him an amount for the
same, the promise is enforceable against such a
promisor.
 Agreements Without
Consideration S. 10 & S. 25
 Ex nudo pacto non oritur actio.

 Out of a bare pact no action arises.

 Promise to contribute money to a

charitable purpose.
 Exceptions Under S. 25
 Agreement without consideration is valid and
enforceable if –
 It is in writing and registered,
 It is out of natural love and affection of parties,
 Parties are in near relationship.
 For example, a promise by a person in writing
and registered to pay all the debts of his
brother.
 Promise to compensate
 Promise to compensate wholly or in part
to a person who has already done
something –
 Voluntarily for the promisor, or
 Something which the promisor was legally
bound to do.
 Promise to pay a time barred
debt
 A promise to pay a time barred debt is
enforceable by law.

 Such a promise is an acknowledgment of

the debt which gives rise to a new cause
of action.
 Adequacy of consideration
 Laesio enormis – price to be fair and
serious.
 Bailment – no consideration is required.
 Adequacy may be used to determine the
free consent of the parties.
 Consideration to be real and not illusory or
mere moral obligation.
 Consideration to be certain and lawful.
 Forbearance to sue and
compromise
 A forbearance to to sue for a time period is a
good consideration. As it is a detriment to the
creditor and a benefit to the debtor.
 Alliance Bank v. Broom (1864)
 A compromise of a doubtful claim is similar to
the forbearance to sue and therefore is a good
consideration.
 Callisher v. Bischoffsheim (1870)
 Pre existing obligations
 Duty imposed by law not a good
consideration.
 Collins v. Godefroy (1831).
 Duty owed to the promisor not a good
consideration.
 Stilk v. Myrick (1809).
 Contractual duty to third party.
 Shadwell v. Shadwell (1860).
 Accord and Satisfaction
 If the party bound performed something other
than that which was required by the original
promise and the promisee consented to that,
that will act as a valid discharge for the
promisor’s obligation.
 No executory consideration was allowed but now
it is allowed.
 Pinnel’s case rule that a part payment of a debt
cannot operate as a satisfaction of the whole
debt.
 Modern Trend
 London Property Trusts Ltd. v. High Trees House
Ltd. (1947)
 Principle of accord and satisfaction applies only
where the –
 Promise is intended to create legal relations;
 Promise is intended to be acted upon by
promisee;
 Promise is in fact acted upon.
 Accord and Satisfaction
 Under English law to remit the
performance in the original contract a
satisfaction (consideration) must be given.

 S. 63 of ICA does not accept the rule and

it requires no consideration for remitting
the performance by the promisee.
 Exceptions to Pinnel’s Case
 Composition with the creditors.

 Part payment by a third party.

 Welby v. Drek
 Incapacity to Contract

In c a p a c i t y to c o n tra c t m a y a ri s e

S ta tu s M e n ta l D e f i c i e n c y

P o lit ic a l P ro f e s s i o n a l A rti f i a c i a l M a rri e d M i n o ri t y Id i o c y Lunacy D ru n k e n n e s s

 Political Status

P o litic a l s ta tu s

F o r e ig n S o v e r e ig n A lie n E n e m y F e lo n s
 Political Status
 Foreign Sovereigns and Ambassadors.
 Mighell v. Sultan of Johore (1894).
 Three principles are laid down in the case:
 A foreign sovereign cannot be sued,
 This privilege may be waived by him, if he so
chooses,
 The time for waiving this privilege is after the
serving of summons i.e. when he is called upon
in the court.
 Diplomatic Privileges Act, 1964
 It repealed the earlier Act of 1708.
 Immunity under this Act is available to –
 Diplomatic Agents,
 Administrative and technical staff,
 Service staff, i.e. members of mission in
domestic service.
 Diplomatic Privileges Act, 1964
 The conclusive proof of the status of a
person is a certificate issued by or under
the authority of the Secretary of State.
 In India, Section 86 of C.P.C. lays down
that if a suit is to be instituted against a
foreign sovereign, the consent of the
Central Government is required.
 Alien Enemy
 An alien enemy who is permitted to reside
in the country or a national of a neutral
country is considered to be an alien friend.
 A contract with an alien enemy is
unenforceable if the war situation arises.
 Such a right to sue is merely suspended
till the war is over.
 Alien Enemy
 If, however, the war continues for a long
period of time, such a right is lost on the
ground of impossibility of performance.
 If the alien enemy is registered and
permitted to stay under Aliens Restrictions
Act, in England, he will be entitled to sue
and be sued in the court of law.
 Indian Position
 Sec. 83 of C.P.C. Alien enemies residing in
India with the permission of the Central
Govt. can sue and be sued in the court of
Law. However if they are not residing with
such permission they will not be entitled
to sue or be sued.
 Professional Capacity
 Barristers were not entitled to sue for the
enforcement of the contract. Their
services were considered to be purely
honorary in nature.
 With the enactment of Bar Councils Act,
1927, they were held to be entitled to sue
for the fees for the services rendered by
them.
Artificial Status – Corporations
 Physical impossibility i.e. natural or
necessary limitations – Contracts of
personal nature cannot be entered into by
the corporations. For example, marriage.
 Legal limitations – Ultra-vires acts, not
within the power of the company i.e. not
mentioned in the memorandum of
association.
 Married Woman
 Before 1883, in England, a married
woman was not entitled to sue or be sued
for contracts or even torts.
 But now there is no such restriction in
England or even in India.
 Mental Deficiency
 S. 10 parties must be competent to enter into a
contract.
 S. 11 competent means –
 Major according to the law to which he is
subjected;
 Who is sound mind;
 Not disqualified from entering into a contract.
 S. 12 what amounts to unsoundness of mind.
 Minority
 Infants’ Relief Act, 1874.
 Family Reforms Act, 1969.
 Minor’s Contracts Act, 1987.
 Contract with a minor cannot be enforced
against him.
 Indian Majority Act, 1875, Sec. 3.
 Contracts for Necessaries
 Ryder v. Wombwell (1867).
 Nash v. Inman (1908).
 Sec. 2 of SOGA, 1893, defines ‘necessaries’
goods suitable to the condition in life of such
infant or minor or other person and to his actual
requirements at the time of sale and delivery.
 Executory contract for purchase of goods.
 Contract for Minor’s Benefit
 Roberts v. Gray (1913).

 Contracts of apprenticeship and of the

employment for the minor are held to be
valid and binding on the minor.
 Contracts Valid until Avoided
 Contracts of continuing or recurring
liability.

 For example, partnership agreements.

 The repudiation of a contract must be

done within a reasonable time period.
 Ratification of Contracts
 Contracts entered into by the minor can
be ratified by him after attaining the
majority.
 However, under Indian law no such
ratification is allowed and minor’s
agreement is void ab initio.
 Contracts With Minor
 Under Infant’s Relief Act, contracts with minor
are void ab initio.
 Contract for loan or repayment of money.
 Contract for goods supplied other than
necessaries.
 All accounts stated with minor are void, i.e. an
action in which acceptance and admission by
debtor of the statement of account by creditor
was deemed to furnish a new cause of action.
 Restitution under Void
Agreement
 Valentini v. Canali (1889).
 Restitution is possible only when there is
total failure of consideration on the part of
other party.
 Steinberg v. Scala (Leeds Ltd.) (1923).
 Liability of Minor in Tort
 Ballett v. Mingay (1799). Tort of Detinue

 Jennings v. Rundall (1863).

 Burnard v. Haggis (1863). Tort of

Trespass as if no hiring.
 Indian Law on Minors
 Indian Majority Act, 1875.

 Mohoribibi v. Dharmodas Ghosh, (1903)

 Raj Rani v. Prem Adib (1949)

 S. 68 contracts for necessaries.

 Indian Law on Minors
 Specific performance of contract is allowed
only if it is entered into by the guardian,
having competence to do so, for the
benefit of minor.
 No estoppel can be pleaded against the
minor, i.e. against the statute.
 Sadik Ali Khan v. Jai Kishore (1928)
 Restitution
 ‘Infants are no more entitled than adults
to gain benefits to themselves by fraud’.

 Leslie v. Sheill,

 Restitution stops where repayment begins.

 Indian Law
 S. 31 to S. 33 of Specific Relief Act.

 Khan Gul v. Lakha Singh(1928 Lahore)

 Ajudhia Prasad v. Chandan Lal (1937 All.)

 Idiocy and Lunacy
 An idiot or a natural fool is not capable of
entering into a contract.
 A lunatic or non compose mentis is one
who has lost the use his reason because
of any disease, grief or other cause.
 Under English law a contract entered into
by lunatic is voidable at his option.
 Lunatic
 A contract is voidable only if –
 The person pleading insanity proves that
he was insane at the time of entering into
contract so as not in a position to
understand the effect of the contract, and
 That the other party had a knowledge of
his insanity at the time of entering into the
contract.
 Indian Law
 Sec. 12 defines who is of unsound mind,
as a person incapable of understanding
the contract at the time of entering into
contract and who is incapable of forming a
rational judgment as to its effects on his
interest.
 Such a contract entered into by a lunatic is
void ab initio.
 Insanity
 A subsequent insanity of a party does not
affect the contract except in certain
contracts e.g. marriage contract.
 Drunkenness
 Under English law a contract is merely
voidable at the option of the person who
pleads the drunkenness as a defense if he
can prove –
 His incapacity at the time of entering into
contract,
 Knowledge of the other party about his
incapacity.
 Indian Law
 A contract by a drunken person is void.
 Illustration (b) to S. 12 of ICA.
 In American law, a drunken person is
deemed to have ratified the contract, if he
does not disaffirm it within a reasonable
time.