Consideration

ConsiderationConsideration

Section 10 – Essentials of a valid contractSection 10 – Essentials of a valid contractSection 23 – What considerations and objects are lawful Section 23 – What considerations and objects are lawful and what and what notnotSection 24 – Agreements void if consideration and object Section 24 – Agreements void if consideration and object are are lawful in part lawful in partSection 25 – Agreement without considerationSection 25 – Agreement without considerationSection 2 (d) – DefinitionSection 2 (d) – Definition

– – Consideration English LawConsideration English Law

Speciality contracts Speciality contracts

Parol contractsParol contracts Quid pro quoQuid pro quo

– – Indian Law Consideration Indian Law Consideration

Ex nudo pacto non oritur actio.Ex nudo pacto non oritur actio. No action arises from a nude No action arises from a nude

agreement.agreement. Nudum Pactum.Nudum Pactum. Agreement without consideration.Agreement without consideration. Nudum pactum ex quo non oritur actioNudum pactum ex quo non oritur actio A bare agreement from which no action A bare agreement from which no action

arises.arises.

Mere writing not sufficientMere writing not sufficient

Pillans v. Van Mierop (1765)Pillans v. Van Mierop (1765)

Rann v. Hughes (1778)Rann v. Hughes (1778)

High Trees House Case (1947)High Trees House Case (1947)

Moral obligation is not Moral obligation is not sufficientsufficient

Lee v. Muggeridge (1813)Lee v. Muggeridge (1813)

Eastwood v Kenyon (1840)Eastwood v Kenyon (1840)

DefinitionsDefinitions

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

Patterson – consideration means something Patterson – consideration means something which is of some value in the eyes of the which is of some value in the eyes of the law… it may be some benefit to the plaintiff law… it may be some benefit to the plaintiff or some detriment to the defendant. or some detriment to the defendant.

Currie v. MisaCurrie v. Misa

““A valuable consideration in the sense of A valuable consideration in the sense of law, may consist either in some right, law, may consist either in some right, interest, profit or benefit to the one interest, profit or benefit to the one party, or some forbearance, detriment, party, or some forbearance, detriment, loss or responsibility given, suffered or loss or responsibility given, suffered or undertaken by the other.” undertaken by the other.”

Consideration Under ICAConsideration Under ICA

Sec. 10 of ICA lays down essential of valid contract. Sec. 10 of ICA lays down essential of valid contract. One of which is consideration.One of which is consideration.

Sec. 23 lays down that the agreements considerations Sec. 23 lays down that the agreements considerations and objects of which are unlawful are void. and objects of which are unlawful are void.

Sec. 24 lays down that the agreements are void if Sec. 24 lays down that the agreements are void if consideration and object are unlawful in part.consideration and object are unlawful in part.

Sec. 25 opens with the wordings; ‘ An agreement Sec. 25 opens with the wordings; ‘ An agreement without consideration is void ab initio.’without consideration is void ab initio.’

Privity of ConsiderationPrivity of Consideration

A stranger to a consideration cannot sue.A stranger to a consideration cannot sue. Dutton v. Poole (constructive Dutton v. Poole (constructive

consideration).consideration). Tweedle v. Atkinson.Tweedle v. Atkinson. Under ICA a consideration may move Under ICA a consideration may move

from the promisee or any other person.from the promisee or any other person. Chinnayya v. Ramayya.Chinnayya v. Ramayya.

Privity of ContractPrivity of Contract

A stranger to a contract cannot sue.A stranger to a contract cannot sue. No jus quaesitum tertio (rights No jus quaesitum tertio (rights

acquired for a third party)acquired for a third party) Dunlop Pneumatic Tire co. V. Dunlop Pneumatic Tire co. V.

Selfridge & Co.Selfridge & Co. Beswick v. BeswickBeswick v. Beswick

Exceptions to privity ruleExceptions to privity rule

Beneficiary to contract can sue for its Beneficiary to contract can sue for its enforcement (i.E. Beneficiary under enforcement (i.E. Beneficiary under trust or a charge on property).trust or a charge on property).

Khwaja Muhamad v. Husaini begum.Khwaja Muhamad v. Husaini begum. Acknowledgment or estoppel.Acknowledgment or estoppel. Devaraja Urs v. Ram KrishnaiahDevaraja Urs v. Ram Krishnaiah

Privity of ContractPrivity of Contract

Family arrangements, marriage Family arrangements, marriage settlements etc.settlements etc.

Rose Fernandez v. Joseph Gonsalves.Rose Fernandez v. Joseph Gonsalves. Daropti v. Jaspat Rai.Daropti v. Jaspat Rai. Covenants running with land.Covenants running with land.

Definition Definition

Sec. 2 (d) when, at the desire of the Sec. 2 (d) when, at the desire of the promisor, the promisee or any other promisor, the promisee or any other person has done or abstained from person has done or abstained from doing, or does or abstains from doing, or does or abstains from doing, or promises to do or to doing, or promises to do or to abstain from doing, something, such abstain from doing, something, such act or abstinence or promise is called act or abstinence or promise is called a consideration for the promise.a consideration for the promise.

Promissory EstoppelPromissory Estoppel

Acts done at the request of the Acts done at the request of the promisorpromisor

Kedarnath v. Gorie MohamedKedarnath v. Gorie Mohamed

Doraswami Iyer v. Arunachala IyerDoraswami Iyer v. Arunachala Iyer

Kinds of ConsiderationKinds of Consideration

Executory – promise for a promiseExecutory – promise for a promise Executed – an act for a promiseExecuted – an act for a promise Past – promise independent and Past – promise independent and

unconnected with an act already unconnected with an act already done.done.

Under English law such a past Under English law such a past consideration is not valid and consideration is not valid and enforceableenforceable

Exceptions to Past Exceptions to Past Consideration.Consideration.

Act done at the request of the Act done at the request of the promisorpromisor

Lampleigh v. Brathwait (1615)Lampleigh v. Brathwait (1615) Kennedy v. Brown (1863)Kennedy v. Brown (1863) Precedent debtPrecedent debt Negotiable instrument Negotiable instrument

Past Consideration Under Past Consideration Under Indian Law Indian Law

S. 2(d) clearly lays down the words ‘ has S. 2(d) clearly lays down the words ‘ has done’ which suggest that past act done by done’ which suggest that past act done by the promisee at the desire of the promisor the promisee at the desire of the promisor is valid and enforceable.is valid and enforceable.

S. 25 (2) lays down that if a person has S. 25 (2) lays down that if a person has done something for another voluntarily done something for another voluntarily and that other has promised to pay him an and that other has promised to pay him an amount for the same, the promise is amount for the same, the promise is enforceable against such a promisor.enforceable against such a promisor.

Agreements Without Agreements Without Consideration S. 10 & S. 25Consideration S. 10 & S. 25

Ex nudo pacto non oritur actio.Ex nudo pacto non oritur actio.

Out of a bare pact no action arises.Out of a bare pact no action arises.

Promise to contribute money to a Promise to contribute money to a charitable purpose.charitable purpose.

Exceptions Under S. 25Exceptions Under S. 25

Agreement without consideration is valid Agreement without consideration is valid and enforceable if – and enforceable if –

It is in writing and registered, It is in writing and registered, It is out of natural love and affection of It is out of natural love and affection of

parties,parties, Parties are in near relationship. Parties are in near relationship. For example, a promise by a person in For example, a promise by a person in

writing and registered to pay all the debts writing and registered to pay all the debts of his brother.of his brother.

Promise to compensatePromise to compensate

Promise to compensate wholly or in Promise to compensate wholly or in part to a person who has already part to a person who has already done something – done something –

Voluntarily for the promisor, orVoluntarily for the promisor, or Something which the promisor was Something which the promisor was

legally bound to do.legally bound to do.

Promise to pay a time Promise to pay a time barred debtbarred debt

A promise to pay a time barred debt A promise to pay a time barred debt is enforceable by law.is enforceable by law.

Such a promise is an Such a promise is an acknowledgment of the debt which acknowledgment of the debt which gives rise to a new cause of action.gives rise to a new cause of action.

Adequacy of considerationAdequacy of consideration

Laesio enormis – price to be fair and Laesio enormis – price to be fair and serious.serious.

Bailment – no consideration is required.Bailment – no consideration is required. Adequacy may be used to determine Adequacy may be used to determine

the free consent of the parties.the free consent of the parties. Consideration to be real and not Consideration to be real and not

illusory or mere moral obligation.illusory or mere moral obligation. Consideration to be certain and lawful.Consideration to be certain and lawful.

Forbearance to sue and Forbearance to sue and compromisecompromise

A forbearance to to sue for a time period is A forbearance to to sue for a time period is a good consideration. As it is a detriment a good consideration. As it is a detriment to the creditor and a benefit to the debtor.to the creditor and a benefit to the debtor.

Alliance Bank v. Broom (1864)Alliance Bank v. Broom (1864) A compromise of a doubtful claim is similar A compromise of a doubtful claim is similar

to the forbearance to sue and therefore is to the forbearance to sue and therefore is a good consideration.a good consideration.

Callisher v. Bischoffsheim (1870)Callisher v. Bischoffsheim (1870)

Pre existing obligationsPre existing obligations

Duty imposed by law not a good Duty imposed by law not a good consideration.consideration.

Collins v. Godefroy (1831).Collins v. Godefroy (1831). Duty owed to the promisor not a Duty owed to the promisor not a

good consideration.good consideration. Stilk v. Myrick (1809).Stilk v. Myrick (1809). Contractual duty to third party.Contractual duty to third party. Shadwell v. Shadwell (1860).Shadwell v. Shadwell (1860).

Accord and SatisfactionAccord and Satisfaction

If the party bound performed something If the party bound performed something other than that which was required by the other than that which was required by the original promise and the promisee original promise and the promisee consented to that, that will act as a valid consented to that, that will act as a valid discharge for the promisor’s obligation. discharge for the promisor’s obligation.

No executory consideration was allowed No executory consideration was allowed but now it is allowed.but now it is allowed.

Pinnel’s case rule that a part payment of a Pinnel’s case rule that a part payment of a debt cannot operate as a satisfaction of debt cannot operate as a satisfaction of the whole debt.the whole debt.

Modern TrendModern Trend

London Property Trusts Ltd. v. High Trees London Property Trusts Ltd. v. High Trees House Ltd. (1947)House Ltd. (1947)

Principle of accord and satisfaction applies Principle of accord and satisfaction applies only where the – only where the –

Promise is intended to create legal Promise is intended to create legal relations;relations;

Promise is intended to be acted upon by Promise is intended to be acted upon by promisee;promisee;

Promise is in fact acted upon.Promise is in fact acted upon.

Accord and Satisfaction Accord and Satisfaction

Under English law to remit the Under English law to remit the performance in the original contract a performance in the original contract a satisfaction (consideration) must be satisfaction (consideration) must be given.given.

S. 63 of ICA does not accept the rule and S. 63 of ICA does not accept the rule and it requires no consideration for remitting it requires no consideration for remitting the performance by the promisee. the performance by the promisee.

Exceptions to Pinnel’s CaseExceptions to Pinnel’s Case

Composition with the creditors.Composition with the creditors.

Part payment by a third party.Part payment by a third party.

Welby v. DrekWelby v. Drek

Incapacity to ContractIncapacity to Contract

P o lit ica l P ro fess ion a l A rt ifiac ia l M arried

S ta tu s

M in ority Id iocy L u n acy D ru n ken n ess

M en ta l D e fic ien cy

In cap ac ity to con trac t m ay a rise

Political StatusPolitical Status

F ore ig n S overe ig n A lien E n em y F e lon s

P o lit ica l s ta tu s

Political StatusPolitical Status

Foreign Sovereigns and Ambassadors.Foreign Sovereigns and Ambassadors. Mighell v. Sultan of Johore (1894).Mighell v. Sultan of Johore (1894). Three principles are laid down in the case:Three principles are laid down in the case: A foreign sovereign cannot be sued,A foreign sovereign cannot be sued, This privilege may be waived by him, if he This privilege may be waived by him, if he

so chooses,so chooses, The time for waiving this privilege is after The time for waiving this privilege is after

the serving of summons i.e. when he is the serving of summons i.e. when he is called upon in the court.called upon in the court.

Diplomatic Privileges Act, Diplomatic Privileges Act, 19641964

It repealed the earlier Act of 1708.It repealed the earlier Act of 1708. Immunity under this Act is available Immunity under this Act is available

to – to – Diplomatic Agents,Diplomatic Agents, Administrative and technical staff,Administrative and technical staff, Service staff, i.e. members of mission Service staff, i.e. members of mission

in domestic service.in domestic service.

Diplomatic Privileges Act, Diplomatic Privileges Act, 19641964

The conclusive proof of the status of a The conclusive proof of the status of a person is a certificate issued by or person is a certificate issued by or under the authority of the Secretary of under the authority of the Secretary of State.State.

In India, Section 86 of C.P.C. lays down In India, Section 86 of C.P.C. lays down that if a suit is to be instituted against that if a suit is to be instituted against a foreign sovereign, the consent of the a foreign sovereign, the consent of the Central Government is required. Central Government is required.

Alien EnemyAlien Enemy

An alien enemy who is permitted to An alien enemy who is permitted to reside in the country or a national of a reside in the country or a national of a neutral country is considered to be an neutral country is considered to be an alien friend.alien friend.

A contract with an alien enemy is A contract with an alien enemy is unenforceable if the war situation arises.unenforceable if the war situation arises.

Such a right to sue is merely suspended Such a right to sue is merely suspended till the war is over.till the war is over.

Alien EnemyAlien Enemy

If, however, the war continues for a long If, however, the war continues for a long period of time, such a right is lost on the period of time, such a right is lost on the ground of impossibility of performance. ground of impossibility of performance.

If the alien enemy is registered and If the alien enemy is registered and permitted to stay under Aliens permitted to stay under Aliens Restrictions Act, in England, he will be Restrictions Act, in England, he will be entitled to sue and be sued in the court entitled to sue and be sued in the court of law. of law.

Indian PositionIndian Position

Sec. 83 of C.P.C. Alien enemies Sec. 83 of C.P.C. Alien enemies residing in India with the permission residing in India with the permission of the Central Govt. can sue and be of the Central Govt. can sue and be sued in the court of Law. However if sued in the court of Law. However if they are not residing with such they are not residing with such permission they will not be entitled permission they will not be entitled to sue or be sued.to sue or be sued.

Professional CapacityProfessional Capacity

Barristers were not entitled to sue for Barristers were not entitled to sue for the enforcement of the contract. the enforcement of the contract. Their services were considered to be Their services were considered to be purely honorary in nature.purely honorary in nature.

With the enactment of Bar Councils With the enactment of Bar Councils Act, 1927, they were held to be Act, 1927, they were held to be entitled to sue for the fees for the entitled to sue for the fees for the services rendered by them. services rendered by them.

Artificial Status – Artificial Status – Corporations Corporations

Physical impossibility i.e. natural or Physical impossibility i.e. natural or necessary limitations – Contracts of necessary limitations – Contracts of personal nature cannot be entered into personal nature cannot be entered into by the corporations. For example, by the corporations. For example, marriage.marriage.

Legal limitations – Ultra-vires acts, not Legal limitations – Ultra-vires acts, not within the power of the company i.e. not within the power of the company i.e. not mentioned in the memorandum of mentioned in the memorandum of association.association.

Married WomanMarried Woman

Before 1883, in England, a married Before 1883, in England, a married woman was not entitled to sue or be woman was not entitled to sue or be sued for contracts or even torts.sued for contracts or even torts.

But now there is no such restriction But now there is no such restriction in England or even in India. in England or even in India.

Mental Deficiency Mental Deficiency

S. 10 parties must be competent to enter into S. 10 parties must be competent to enter into a contract.a contract.

S. 11 competent means – S. 11 competent means – Major according to the law to which he is Major according to the law to which he is

subjected;subjected; Who is sound mind;Who is sound mind; Not disqualified from entering into a contract.Not disqualified from entering into a contract. S. 12 what amounts to unsoundness of mind.S. 12 what amounts to unsoundness of mind.

MinorityMinority

Infants’ Relief Act, 1874.Infants’ Relief Act, 1874. Family Reforms Act, 1969.Family Reforms Act, 1969. Minor’s Contracts Act, 1987. Minor’s Contracts Act, 1987. Contract with a minor cannot be Contract with a minor cannot be

enforced against him.enforced against him. Indian Majority Act, 1875, Sec. 3.Indian Majority Act, 1875, Sec. 3.

Contracts for NecessariesContracts for Necessaries

Ryder v. Wombwell (1867).Ryder v. Wombwell (1867). Nash v. Inman (1908).Nash v. Inman (1908). Sec. 2 of SOGA, 1893, defines Sec. 2 of SOGA, 1893, defines

‘necessaries’ goods suitable to the ‘necessaries’ goods suitable to the condition in life of such infant or minor or condition in life of such infant or minor or other person and to his actual other person and to his actual requirements at the time of sale and requirements at the time of sale and delivery.delivery.

Executory contract for purchase of goods.Executory contract for purchase of goods.

Contract for Minor’s BenefitContract for Minor’s Benefit

Roberts v. Gray (1913).Roberts v. Gray (1913).

Contracts of apprenticeship and of Contracts of apprenticeship and of the employment for the minor are the employment for the minor are held to be valid and binding on the held to be valid and binding on the minor.minor.

Contracts Valid until Contracts Valid until AvoidedAvoided

Contracts of continuing or recurring Contracts of continuing or recurring liability. liability.

For example, partnership agreements.For example, partnership agreements.

The repudiation of a contract must be The repudiation of a contract must be done within a reasonable time period. done within a reasonable time period.

Ratification of ContractsRatification of Contracts

Contracts entered into by the minor Contracts entered into by the minor can be ratified by him after attaining can be ratified by him after attaining the majority.the majority.

However, under Indian law no such However, under Indian law no such ratification is allowed and minor’s ratification is allowed and minor’s agreement is void ab initio. agreement is void ab initio.

Contracts With MinorContracts With Minor

Under Infant’s Relief Act, contracts with Under Infant’s Relief Act, contracts with minor are void ab initio.minor are void ab initio.

Contract for loan or repayment of money.Contract for loan or repayment of money. Contract for goods supplied other than Contract for goods supplied other than

necessaries.necessaries. All accounts stated with minor are void, All accounts stated with minor are void,

i.e. an action in which acceptance and i.e. an action in which acceptance and admission by debtor of the statement of admission by debtor of the statement of account by creditor was deemed to furnish account by creditor was deemed to furnish a new cause of action. a new cause of action.

Restitution under Void Restitution under Void AgreementAgreement

Valentini v. Canali (1889).Valentini v. Canali (1889). Restitution is possible only when Restitution is possible only when

there is total failure of consideration there is total failure of consideration on the part of other party.on the part of other party.

Steinberg v. Scala (Leeds Ltd.) Steinberg v. Scala (Leeds Ltd.) (1923).(1923).

Liability of Minor in TortLiability of Minor in Tort

Ballett v. Mingay (1799). Tort of Ballett v. Mingay (1799). Tort of DetinueDetinue

Jennings v. Rundall (1863).Jennings v. Rundall (1863).

Burnard v. Haggis (1863). Tort of Burnard v. Haggis (1863). Tort of Trespass as if no hiring.Trespass as if no hiring.

Indian Law on MinorsIndian Law on Minors

Indian Majority Act, 1875.Indian Majority Act, 1875.

Mohoribibi v. Dharmodas Ghosh, (1903)Mohoribibi v. Dharmodas Ghosh, (1903)

Raj Rani v. Prem Adib (1949)Raj Rani v. Prem Adib (1949)

S. 68 contracts for necessaries.S. 68 contracts for necessaries.

Indian Law on MinorsIndian Law on Minors

Specific performance of contract is Specific performance of contract is allowed only if it is entered into by allowed only if it is entered into by the guardian, having competence to the guardian, having competence to do so, for the benefit of minor.do so, for the benefit of minor.

No estoppel can be pleaded against No estoppel can be pleaded against the minor, i.e. against the statute.the minor, i.e. against the statute.

Sadik Ali Khan v. Jai Kishore (1928)Sadik Ali Khan v. Jai Kishore (1928)

RestitutionRestitution

‘‘Infants are no more entitled than Infants are no more entitled than adults to gain benefits to themselves adults to gain benefits to themselves by fraud’.by fraud’.

Leslie v. Sheill, Leslie v. Sheill,

Restitution stops where repayment Restitution stops where repayment begins.begins.

Indian LawIndian Law

S. 31 to S. 33 of Specific Relief Act.S. 31 to S. 33 of Specific Relief Act.

Khan Gul v. Lakha Singh(1928 Khan Gul v. Lakha Singh(1928 Lahore)Lahore)

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

Idiocy and LunacyIdiocy and Lunacy

An idiot or a natural fool is not capable An idiot or a natural fool is not capable of entering into a contract.of entering into a contract.

A lunatic or A lunatic or non compose mentis non compose mentis is one is one who has lost the use his reason because who has lost the use his reason because of any disease, grief or other cause.of any disease, grief or other cause.

Under English law a contract entered Under English law a contract entered into by lunatic is voidable at his option. into by lunatic is voidable at his option.

LunaticLunatic

A contract is voidable only if – A contract is voidable only if – The person pleading insanity proves The person pleading insanity proves

that he was insane at the time of that he was insane at the time of entering into contract so as not in a entering into contract so as not in a position to understand the effect of position to understand the effect of the contract, andthe contract, and

That the other party had a That the other party had a knowledge of his insanity at the time knowledge of his insanity at the time of entering into the contract.of entering into the contract.

Indian Law Indian Law

Sec. 12 defines who is of unsound mind, Sec. 12 defines who is of unsound mind, as a person incapable of understanding as a person incapable of understanding the contract at the time of entering into the contract at the time of entering into contract and who is incapable of contract and who is incapable of forming a rational judgment as to its forming a rational judgment as to its effects on his interest.effects on his interest.

Such a contract entered into by a Such a contract entered into by a lunatic is void ab initio.lunatic is void ab initio.

InsanityInsanity

A subsequent insanity of a party A subsequent insanity of a party does not affect the contract except in does not affect the contract except in certain contracts e.g. marriage certain contracts e.g. marriage contract.contract.

DrunkennessDrunkenness

Under English law a contract is Under English law a contract is merely voidable at the option of the merely voidable at the option of the person who pleads the drunkenness person who pleads the drunkenness as a defense if he can prove – as a defense if he can prove –

His incapacity at the time of entering His incapacity at the time of entering into contract,into contract,

Knowledge of the other party about Knowledge of the other party about his incapacity.his incapacity.

Indian LawIndian Law

A contract by a drunken person is A contract by a drunken person is void.void.

Illustration (b) to S. 12 of ICA.Illustration (b) to S. 12 of ICA. In American law, a drunken person is In American law, a drunken person is

deemed to have ratified the contract, deemed to have ratified the contract, if he does not disaffirm it within a if he does not disaffirm it within a reasonable time.reasonable time.