CONSIDERATION
Section 25 of the Indian Contract
Act 1872 openly declares, “an agreement made without consideration is void…”
In other words, the presence of
consideration is essential for a contract to be valid.
According to Section 2(d) of the
Indian Contract Act, 1872, Consideration is defined as:
"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."
It is the price paid by one party
for the promise of the other.
Consideration is the benefit accruing
to the parties to a contract. [Abdul Aziz
vs Masum Ali, (1914)]
Consideration can be ‘right,
interest, profit or benefit’ for one party. It can also be ‘some
forbearance, detriment, loss or responsibility given, suffered or undertaken.’
by the other. [Kedarnath Bhattacharji v.
Gorie Mahomed (1887)]
1.
Agreements without consideration are not
enforceable.
2.
Consideration does not have to be commensurate or
sufficient.
3.
Consideration must move at the desire of the
promisor. [Durga Prasad v
Baldeo (1880)]
4.
Consideration may move from the promisee or any
other person. [Chinnaya v Ramayya
(1882)]
5.
It must have some value in the eyes of the law.
6.
It must be real, not illusory. [Stilk v Myrick (1809) & Williams v
Roffey Bros & Nicholls (Contractors) Ltd [1989]]
7.
It must be something that one is not already bound
to do. [Ramachandra Chintaman v
Kalu Raju (1877)]
Nude Contracts: An agreement made without consideration is void
According to Section 25 of The
Indian Contract Act, an agreement made without consideration is void unless-
1)
It is expressed in writing and registered under
the law for the time being in force for the 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
2)
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
3)
It is a promise, made in writing and signed by
the person to be charged therewith, or by his agent generally or specially
authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of
suits.
In any of these cases, such an
agreement is a contract.
Explanation 1. - Nothing in this
section shall affect the validity, as between the donor and donee, of any gift
actually made.
Explanation 2. - 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 of whether the
consent of the promisor was freely given.
The above provisions can be
summarised as follows:
Exceptions:
· Love and affection.
(A written and registered agreement based on natural love and affection between
near relatives.) [Rajlukhy Dabee v.
Bhootnath Mookerjee (1900)]
· Compensation for past
voluntary services.
· Promise to pay a time
barred debt.
Additionally:
· Completed gift. (Transfer of property by one
person to another as a gift according to the provisions of Transfer of Property
Act.)
· Contract of agency does not require
consideration.
· Consideration is
not required for the remission of a debt.
· A contract of
guarantee is made without consideration.
Cases
1.
Abdul Aziz vs. Masum Ali, (1914)
It was held in this case that the
promise was not enforceable because “there was no consideration in the sense of
benefit”, as “the person who made the promise gained nothing in return for the
promise made”, and the secretary of the Committee to whom the promise was made,
“suffered no detriment as nothing had been done to carry out the repairs.”
Summary
A movement having been set on
foot for re-constructing a mosque, Mr Abdul Karim & Mr Jan Mohammed
promised to subscribe Rs. 500 each. Mr Abdul Karim was appointed treasurer of the
committee for collecting subscriptions. Mr Jan Mohammed gave a cheque for his
promised subscription of Rs. 500, but owing, first, to some defect in the
endorsement, and later onto its having become out of date, it was never cashed.
The mosque also was never re-constructed. Mr Abdul Karim, having died, his heirs were
sued by the committee members for unpaid subscriptions.
2.
Kedarnath Bhattacharji v. Gorie Mahomed
(1887)
In this case, it was held that an obligation incurred on the faith of a promise to donate was constituted as a
good consideration.
Summary
The town planners of Howrah thought advisable to erect a town hall at Howrah, provided sufficient
subscription were collected. With the object in view, the Howrah municipality commissioner started to raise necessary fund by public subscription. The
defendants, one of the subscriber’s of this fund for Rs 100, signed his name in
the subscription book at that amount.
On the faith of the promised subscription the
plaintiff (commissioner of the Howrah municipality) entered into a
contract with a contractor for the
purpose of the building the town hall.
Later the defendant subscriber
refused to pay the amount upon the promise to pay. He contended that there
would be no personal benefit from the construction of the hall.
He was held liable. It was
observed that in this case that the persons were asked to knowingly subscribe to the purpose to which the money was to be applied or used. They also knew that an obligation was to be incurred to pay the
contractor for the work on the faith of their subscription. The Act of the plaintiff, that is, entering into a contract
with the contractor, was done at the desire of the promisor, constituting a good consideration within the meaning of section 2(d).
3.
Durga Prasad v Baldeo (1880)
Consideration must be given at
the desire of the promisor.
Summary
On the order of the town collector, Durga Prasad built some shops at his own expense in a market. The
shopkeepers who occupied these shops promised to pay 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.
4.
Chinnaya v Ramayya (1882)
When a promisor promises,
the promisee or any other person may provide a valid consideration in return.
Summary
An old lady agreed
with her daughter that she would gift her some landed property, but the
condition was that the daughter would pay her aunt some amount regularly as a maintenance allowance. The daughter promised her aunt (mother’s sister) the
maintenance money. However, later she stopped paying the money to her aunt. The
aunt filed a case against her niece for not paying the money. The decision was
in favour as this was a perfectly valid consideration.
Note: Under English Law, consideration must move from the
promisee. The Indian Law states that consideration may move from the promisee
or any other person. It may even move through a stranger. However, the stranger
to a contract can only sue if he/she is a party to the contract. This means that
it is important to have some valid consideration to an agreement to make it a
valid contract.
5.
Stilk v Myrick (1809)
In cases where an individual was
bound to do duty under an existing contract, that duty could not be
considered valid consideration for a new contract.
Summary
Stilk was contracted to work on a ship owned by Myrick for £5 a month, promising to do anything needed in the
voyage regardless of emergencies. After the ship docked
at two men deserted, and after failing to find replacements, the
captain promised the crew the wages of those two men divided between them if
they fulfilled the duties of the missing crewmen as well as their own. After
arriving at their homeport, the captain refused to pay the crew the money he
promised them.
Note: Harris v. Watson was a 1791 case regarding sailors'
wages.
The plaintiff was a seaman on
board the ship Alexander, of which the defendant was master and commander. The
Alexander was bound on a voyage to Lisbon, and whilst the ship was on her
voyage the defendant, in consideration that the plaintiff would perform some
extra work in navigating the ship promised to pay him five guineas over and
above his common wages. The plaintiff proved that the ship had been in danger
and that the commander, to induce the seamen to exert themselves had made the
promise stated in the declaration.
The issue was whether the
reformation of the contract was enforceable.
The reformation of the contract
to provide extra wages in exchange for extra work under exigent circumstances
was not enforceable for public policy reasons. If such an agreement were
enforceable, it would enable sailors to act opportunistically while at sea.
6.
Williams v Roffey Bros & Nicholls
(Contractors) Ltd [1989]
It is a leading English contract
law case. It decided that in varying a contract, a promise to perform a
pre-existing contractual obligation will constitute good consideration so long
as a benefit is conferred upon the promisee. This was a departure from the
previously established principle that promises to perform pre-existing
contractual obligations could not be a good consideration.
Summary
Roffey Bros was contracted by
Shepherds Bush Housing Association Ltd to refurbish 27 flats at Twynholm Mansions,
Lillie Road, London SW6. They subcontracted carpentry to Mr Lester Williams
for £20,000, payable in instalments. Some work was done, and £16,200 was paid.
Then Williams ran into financial difficulty because the price was too low.
Roffey Bros would be liable under a penalty clause for late completion,
so they had a meeting on 9 April 1986 and promised an extra £575 per flat for
on-time completion. Williams did eight flats and stopped because he had only
got £1,500. New carpenters were brought in. Williams claimed.
Held that Williams should get the
eight times £575 with a few deductions for defects and some of the £2,200 owing
from the original sum. Held that they had agreed that the original price was
too low, and that raising it to a reasonable level was in both sides’
interests.
7.
Ramachandra Chintaman v Kalu Raju (1877)
The promise was void for want of
consideration. The Vakil was under a pre-existing contractual obligation to
render the best of his services under the original contract.
Summary
There was a promise to pay to the
Vakil an additional sum if the suit was successful.
8.
Rajlukhy Dabee v. Bhootnath
Mookerjee(1900)
There is always some degree of
instinctive love and affection between parties nearly related. But this
instinct may sometimes be overruled by external circumstances.
Summary
The defendant promised to pay his
wife a certain amount every month for maintenance. The promise was made in
writing, and the quarrels the husband and wife had were also mentioned. A case
was filed to recover the amount promised to be paid as maintenance. However,
the judge decided in favour of the defendant as although the two were in near
relation, the court held that there was no natural love and affection between
them.
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