DR. RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY, LUCKNOW (U.P.)

Session- 2014-15

LAW OF CONTRACTS

“CONSIDERATION MAY BE SUFFICIENT”

ANALYSE WITH CASE LAWS

PROJECT

SUBMITTED TO: SUBMITTED BY:

Dr. VISALAKSHI VEGESNA SANDESH NIRANJAN

Associate Professor Roll no. - 115

Department of Law Section - B

Semester- II

ACKNOWLWDGEMENT:

I would like to express my gratitude to all those who helped me in this topic. I extend my

sincere acknowledgements to Dr. Visalakshi Vegesna Ma’am who gave me the opportunity

to make a project on the topic “Consideration may be Sufficient”- Analyse with Case

Laws. I am deeply indebted to her whose help and stimulating suggestion helped me in

choosing this topic. 

I would also like to thank my friends for their constant help and valuable suggestions.

I further extend my thanks to library staff of DR. RAM MANOHAR LOHIYA

NATIONAL LAW UNIVERSITY who helped me in getting all the materials necessary for

the project.

-SANDESH NIRANJAN

Roll No. 115

TABLE OF CONTENTS:

SL. No. CONTENTS PAGE NO.

1 Objective 4

2 Introduction 4

3 Consideration by Promisee or any other person 5

4 Past Consideration 6

5 Present Consideration 6

6 Future Consideration 7

7 Consideration may be sufficient, it need not to be adequate 7

8 Consideration must be of some value 8

9 Value need not to be Adequate 9

10 Conclusion 11

11 Bibliography 12

OBJECTIVE:

The objective of this project is to give a detailed analysis on the sufficiency of a consideration

in a contract. Here, I have analysed whether a consideration is sufficient to conclude a

contract irrespective of the fact it is adequate or inadequate.

INTRODUCTION:

There are a number of essentials which are required for a valid contract such as there must be

an agreement between the two parties, the parties entering into the contract must be

competent to do so, etc. One of the essentials needed for a valid contract is that there should

be a lawful consideration. Consideration has been variously defined. The simplest definition

is by Blackstone: “Consideration is the recompense given by the party contracting to the

other.” In other words, it is a price of the 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.” But the most commonly accepted definition is that which was attempted by

Lush J in Currie v. Misa1: “A valuable consideration in the sense of the law may consist

either in some right, interest, profit or benefit accruing to the one party, or some forbearance,

detriment, loss, or responsibility given, suffered or undertaken by the other.”

In Section 2(d) of the Indian Contract Act, consideration is defined 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 to abstain from doing, something, such act

or abstinence or promise is called a consideration of the promise.”

The definition requires the following essentials to be satisfied in order that there is valid

consideration:

1. Consideration to be given ‘at the desire of the promisor’.

2. Consideration to be given ‘by the promise or any other person’.

3. Consideration may be Past, Present or Future.

4. There should be some Act, abstinence or promise by the promise, which constitutes

consideration of the promise.

1 (1875) 10 Ex 153,162

Consideration by Promisee or any other person (Privity of Consideration):

Unlike England, in India, it does not matter whether the Consideration is given by the

promisee or any other third party. As long as consideration is there, the contract will be valid

irrespective of the fact whether the consideration was moved from the promise or a third

person. For example, A promises to give his watch to B and a consideration of Rs 2,000 for

the same is given to A by X and not by B. This will not constitute a valid contract in England

as consideration for A’s promise in favour of B was not provided by the promise B himself

but by somebody else. Such a contract will be valid in India as Section 2(d) clearly provides

that “....at the desire of the promisor, the promisee or any other person” may provide

consideration.

The position in India may be explained by referring to the case of Chinnaya v. Ramaya.2 In

that case A, an old lady, granted an estate to her daughter (the defendant) with a direction that

the daughter should pay the annuity of Rs, 653, to A’s brothers (the plaintiffs). On the same

day, the defendant made a promise with the plaintiffs that she would pay the annuity as

directed by A. The defendant failed to pay stipulated sum. In an action against her by the

plaintiffs she contended that since the plaintiffs themselves furnished no consideration, they

had no right of action. The Madras High Court held that in this agreement (between the

defendant and the plaintiffs), the consideration has been furnished by the defendant’s mother

and that is enough consideration to enforce the promise between the plaintiffs and the

defendant.

In the above case, it has been noticed that A has entered into a contract with B, but ‘A’

himself has not given any consideration to B, but the consideration has been given by a third

party, ‘C’ to contract against ‘B’. This is because of the rule under Indian Law which permits

consideration to be provided either by the promisee or by any other person.

Consideration may be Past, Present (Executed) or Future (Executory):

In India, it also does not make any difference whether the consideration was furnished in the

Past or it is furnished in the Present or it is promised to be given in the Future. The fact that

legal consideration is furnished is sufficient and there is need to ponder over the fact that at

which time consideration was, is or will be given.

2 (1882) 4 Mad. 137

When, in return for the promise, the promise or any other person:

1. Has done or abstained from doing, the consideration is Past.

2. Does or abstains from doing, the consideration is Executed or Present.

3. Promise to do or to abstain from doing, the consideration is Executory or Future.

Whether the consideration is Past, Executed or Executory, it is essential that it must have

been given “at the desire of the promisor.”

Past Consideration

As noted above, Indian Contract Act recognises Past consideration. It means that the

consideration for any promise was given earlier and the promise is made thereafter. It is, of

course, necessary that at the time the consideration was given, that must have been done at

the desire of the promisor. For example, ‘A’ requests to ‘B’ to find his lost dog and after he

has done the same, if A promise to pay Rs 100 for that, it is a case of past consideration. For

A’s promise to pay B Rs 100, the consideration is B’s efforts in finding A’s lost dog and the

same had been done before A promised to pay the amount. In this case, the consideration has

been given at A’s request, because it is only when A requested B that he found the dog. This

constitutes valid (Past) consideration under section 2(d), and therefore the promise is

enforceable. The word “has done or abstained from doing”, according to Pollock and Mulla

“declare the law to be that an act done by A at B’s request, without any contemporaneous

promise form B, may be consideration for a subsequent promise from B to A.”

Executed or Present 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.

For example, A makes an offer of reward of Rs 100 to anyone who finds his lost dog and

brings the same to him. B finds the lost dog and delivers the same to A. When B does so, that

amounts to both the acceptance of the offer, which results in a binding contract under which

A is bound to pay Rs 100 to B, and also simultaneously giving consideration for the contract.

The consideration in this case is “executed”.

Executory or Future Consideration:

When one person makes a promise in exchange for the promise by the other side, the

performance of the obligation by each side to be made subsequent to the making of the

contract, the consideration is known as executor. For example, A agrees to supply certain

goods to B and B agrees to pay for them on a future date, this is a case of executor

consideration.

Consideration May be Sufficient, it need not to be Adequate:

Consideration may be of some value but mere presence of consideration is sufficient. It does

not matter if the consideration is adequate or not. The courts are not concerned by the

adequacy of consideration; they are only concerned by the fact of the presence of it.

However, adequacy of consideration can be a factor which the court may take into account to

determine whether the consent of a party was free or not.

Consideration is one of the important elements that must be present with the purpose of

making a contract binding. Consideration can be defined as payment or money and it is also a

fundamental element into a contract. The principle of consideration is to ensure that promises

are enforced to the parties that promised to exchange something of value in the viewpoint of

the law. Consideration is only present when the parties mean to have an exchange.

However, consideration must be sufficient but need not be adequate. It means consideration

must be having some values, whether it appropriates in order to meet the return of the

agreement. The things that they agree to make an agreement are not just simply in oral

promises but also in exchange of some value of the exchange. They would probably not need

to have the same value or equal value of the exchange in an agreement but the law will take it

as a consideration as adequate if the parties are agreed to the exchange. The conditions of a

legally consideration is simply that the parties agree into an exchange and respect to each

other, the subjects exchanged or promised in exchange.

In White v Bluett3, Bluett sued his father’s will for an outstanding debt to his father and he

claimed that his father had promised him to return it for him. But his father asked him to stop

complaining in return for him. The court held that the promise does not counted as real

3 (1853) 23 LJ Ex 36

consideration, because to stop complaining was not have any economic value. So Bluett was

still liable for the debt. In this case, we can see that in consideration, the exchange of the

promise must be tangible. Not stop grumbling or complaining, these are no economic value to

have an exchange with the other parties.

Consideration must be of some value:

Consideration as defined in the Indian Contracts Act means some act, abstinence or promise

on the part of the promise or any other person which has been done at the desire of the

promisor. Does it, therefore, mean that even a worthless act will suffice to make a good

consideration if it’s only done at the promisor’s desire? For example, ‘A’ promises to give his

new Rolls-Royce car to ‘B’ provided he will fetch it from the garage. The act of fetching the

car cannot by any stretch of imagination be called a consideration of the promise. Yet it is the

only act the promisor desired the promise to do. Such an act no doubt satisfies the words of

the definition, but it does not catch its spirit. It is for this reason that the English common law

has always insisted that “consideration must be of some value in the eyes of the law. White v.

Bluette4 may be cited as an illustration in point.

The defendant owned a sum of money under a promissory note to his father. The defendant

perpetually, day and night, complained to his father that he had not been treated equally with

other children in the distribution of his property. Thereupon the father promised to discharge

him from all liability in respect of the loan and the note, provided he would stop complaining,

which the defendant accordingly did. The question was whether the defendant’s promise to

his complaints was a sufficient consideration to sustain his father’s promise. Pollock CB said:

“It would be ridiculous to suppose that such promises could be binding. In reality there was

no consideration whatever.”

In India also it has been laid down by Subba Rao J of the Supreme Court in Chidambara v.

P.S. Renga5 that consideration “shall be ‘something’ which not only the parties regard but the

law can also regard as having some value”. Similarly, it has been observed by the Madras

High Court in Kulasekaraperumal v Pathakutty6 Though the Indian Contract Act does not in

terms provide that consideration must be good or valuable to sustain a contract it has always

4 (1853) 23 LJ Ex 365 AIR 1965 SC 193, 1976 AIR 1961 Mad 405

been understood that consideration means something which of some value in the eyes of law.

It must be real and not illusory, whether adequate or not...So long as the consideration is not

unreal it is sufficient if it be of slight value only.

But the courts have been very liberal in this respect and have always tried to find value in

something to which parties attach value. Thus, a transfer of property “in consideration that

the transferee shall accept the responsibility and discharge those recurrent services and

ceremonies” (Ramacharya v Shiv Nivascharya7), and a promise by a wife to pay off her

husband’s debts and to maintain his mother made in consideration of enjoying certain

properties, were held to be for valuable consideration.

Value need not be Adequate (adequacy of consideration):

It is not however, necessary that consideration should be adequate to the promise. The courts

can hardly assume the job of settling what should be the appropriate consideration for a

promise. It is entirely for the parties. If a party gets what he has contracted for and if it is of

some value, which may be great or small, the courts “will not enquire whether it was an

equivalent to the promise which he gave in return”. 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 the English rule and is applicable in India also, for Explanation 2

attached to Section 25 lays it down so clearly that “an agreement to which the consent of the

promisor is freely given is not void merely because the consideration is inadequate”. This is

further fortified by illustration (f) which is as follows:

‘A’ agrees to sell a horse worth Rs 1000 for Rs 10. A’s consent to the agreement was freely

given. The agreement is a contract notwithstanding the inadequacy of the consideration.

The statement ‘consideration must be sufficient but need not be adequate’ means that

consideration must be sufficient in law [however need not be adequate but sufficient]. There

must the possibility of some value capable of expression in economic term to the

original promise but need not be adequate (far) as matter of commercial exchange. Thus, a

gratuitous promise or ‘agreement’ cannot enforceable as a contract. Natural love and

affection is also not sufficient consideration, likewise sentimental motive. Therefore, the

Court will not investigate its adequacy and see if the parties have got equal value. It can be

summarized that the limitation to this doctrine as merely doing something to entitle yourself

7 (1918) 20 Bom LR 441: 46 IC 19

to a gift will not provide sufficient consideration, and nor will giving something you were

not entitle to give. For example, if I offer to sell you my house for £1, this is valid

consideration. If I offer to give you my house for nothing, there is no consideration and this

agreement could not be enforced.

In the case of Thomas v. Thomas8, the promise to pay £1 per annum rent was irrelevant to

the fact of ‘sufficient’ to pay for commercial rent. The Courts did not consider the issue of

‘adequacy’ to pay. The rule is well established in the case of Chappell v. Nestle Co Ltd

that ‘consideration only needs to be sufficient not adequate’. This case, dispute was centred

on whether chocolate wrapper could form part of the consideration. It was held that they

could as they were of value to the person providing them and were therefore

sufficient consideration for the promise made. Whether or not consideration is sufficient, that

shall be a subjective test. So, it justified the Courts approached to the issue of ‘adequacy’ by

reference to ‘freedom of contract’. The contracting parties could stipulate for

what consideration that they had been chosen. The Courts would not interfere just because it

appears that a person had made a bad bargain. The reasoning of Chappell was presumably

that the requirement to send in the worthless wrappers would encourage more people to buy

the company chocolate. It can be summarized the points of law and arguments in the above

for the statement ‘consideration must be sufficient but need not be adequate’. When

considering ‘value’, the Courts is not interested in ‘adequacy’ of consideration, i.e. whether

the price is ‘fair’, it is only concerned with whether or not the consideration can be expressed

in terms of economic worth. Hence, intangibles such as emotions (respect for a

husband’s wishes, love and affection), lack of boredom – Thomas v. Thomas and White v.

Bluett are not valuable consideration. Provided, however that the consideration has some

economic value to you, as long as it has some economic purpose – Chappell v. Nestle.

This explains White v Bluett (1853) where a son’s promise to stop complaining to his father

about the distribution of the father’s property was held to be incapable of amounting to

consideration.

The best known English authority is De La Bere v Pearsons,9 the defendants who were

newspaper propreiters, offered to answer inquiries from readers of the paper desiring

financial advice. The plaintiff wrote to them asking for a safe investment and also for the

name of a good stock broker. The editor recommended a person who, unknown to him, was,

8 (1842) 2 QB 8519 (1908) 1 KB 280

in fact, an undischarged bankrupt. The plaintiff, in reliance on the recommendation, sent

sums for investment and they were immediately misappropriated. In an action against the

defendants, the question was whether there was sufficient consideration for the offer of the

advice. It was held by the court that, “Such publications might obviously have a tendency to

increase the sale of the defendant’s paper. This offer when accepted, resulted in a contract for

good consideration.”

The principle has been followed in India also. In the case of Devji Shivji v Karsandas

Ramji,10 the transfer of the goodwill and the whole of the assets of a business for a bare Rs

1000 has been upheld.

Although inadequacy of consideration by itself is not a ground for treating the contract as

invalid but it may be a factor which the court may take into consideration to know whether

the consent of a party was free or not. If a party does not take undue advantage in a

transaction and there is no undue influence, the agreement is not affected by the mere fact of

inadequacy of consideration. In Vijaya Minerals Pvt. Ltd. V Bikash Deb,11 the position in

this regard was explained in the following words, “It may be noted that short of undue

influence and duress, an agreement between the parties cannot be rendered nugatory on the

ground that the consideration is not adequate.... In fact, the courts do not go into the question

of adequacy of consideration when considering whether an agreement is binding or not.

Conclusion:

There are a number of essentials which are required for a valid contract such as there must be

an agreement between the two parties, the parties entering into the contract must be

competent to do so, etc. One of the essentials needed for a valid contract is that there should

be a lawful consideration. Consideration has been variously defined. The simplest definition

is by Blackstone: “Consideration is the recompense given by the party contracting to the

other.” In other words, it is a price of the 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. Unlike England, in India, it does not matter whether the Consideration is given

by the promisee or any other third party. As long as consideration is there, the contract will

be valid irrespective of the fact whether the consideration was moved from the promise or a

third person. For example, A promises to give his watch to B and a consideration of Rs 2,000

10 AIR 1954 Pat 28011 AIR 1996 Cal. 67

for the same is given to A by X and not by B. This will not constitute a valid contract in

England as consideration for A’s promise in favour of B was not provided by the promise B

himself but by somebody else. Such a contract will be valid in India as Section 2(d) clearly

provides that “....at the desire of the promisor, the promisee or any other person” may provide

consideration. ”. 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 the English

rule and is applicable in India also, for Explanation 2 attached to Section 25 lays it down so

clearly that “an agreement to which the consent of the promisor is freely given is not void

merely because the consideration is inadequate.

Bibliography:

Indian Contract Act by R.K. Bangia

Law of Contract by Avtar Singh

Law of Contract by Anson

Webliography:

www.ssconline.com

www.manupatra.com

www.lexisnexis.com