Dhruv BansalCMS, Nalsar

Lawful consideration

Contract Law

Table of ContentsIntroduction...................................................................................................................................

Definition and its Requirements....................................................................................................

"At the desire of the promisor" (Promissory Estoppel)..................................................................

Acts Done at Request....................................................................................................................

Promises of Charitable Nature.......................................................................................................

Unilateral Promises........................................................................................................................

Revocation of Unilateral Promises.................................................................................................

Promissory Estoppel and Government Agencies...........................................................................

Estoppel of Licensee......................................................................................................................

Bibliography.................................................................................................................................

IntroductionSection 25 of the Indian Contract Act opens with the declaration that "an agreement made

without consideration is void ....”. In England also "promises without consideration are not

enforced, because they are gratuitous".2 In Rann v Hughes the Lord Chief Baron SKYNNER

observed:

It is undoubtedly true that every man is by the law of nature bound to fulfil his engagements.

It is equally true that the law of the country supplies no means, nor affords any remedy, to

compel the performance of an agreement made without sufficient consideration.

Definition and its RequirementsConsideration 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." Another simple definition is by Justice PATIERSON:

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.

But the most commonly accepted definition is that which was attempted by LUSH J in

Currie v Misa:

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.

The definition of consideration as a "price of the promise" has been commended by Cheshire

and Fifoot. According to the learned writers, "it is easier to understand, it corresponds more

happily to the normal exchange of promises and it emphasises the commercial character of

the English contract. It reveals the essential simplicity of the concept.

Similarly, the Calcutta High Court has observed in a case that “consideration is the price of a

promise, a return or quid pro quo, something of value received by the promisee as

inducement of the promise."

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 for the promise.

This is rather a practical definition. The purpose is to emphasize the simple fact that

consideration is some act, done or promised to be done, at the desire of the promisor. It also

avoids the practical difficulties caused by the theory of consideration as consisting of some

act which is beneficial to one party or detrimental to the other. This antithesis has been

described to be not altogether happy. The Act simplifies the matter by saying that any kind of

act or abstinence which is done or undertaken to be done at the desire of the promisor is a

sufficient consideration.

The definition of consideration in Section 2(d) requires, in' the first place, that the act or

abstinence, which is to be a consideration for the promise, should be done at the desire of the

promisor; secondly, that it should be done by promisee or any other person and, lastly, that

the act or abstinence may have been already executed or is in the process of being done or

may be still executory, that is to 'say, it is promised to be done.

"At the desire of the promisor" (Promissory Estoppel)

The definition of consideration in Section 2(d) clearly emphasizes that an act or abstinence

which is to be a consideration for the promise must be done or promised to be done in

accordance with the desire of the promisor, In other words, an act shall not be a good

consideration for a promise unless it is done at the desire of the promisor. In Durga Prasad v

Baldeo:

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 expended money in the construction,

promised to pay him a commission on articles sold through their agency in the

bazar. The plaintiff’s a c t i o n to recover the commission was rejected.

"The only ground for the making of the promise is the expense incurred by the plaintiff

in establishing the Ganj (market) but it is clear that anything done in that way was not 'at

the desire' of the defendants so as to constitute consideration. The act was the result not of

the promise but of the Collector's order.

Acts Done at RequestOn the other hand, an act done at the promisor's desire furnishes a good

consideration for his promise even though it is of no personal significance or benefit to him.

The decision of the Calcutta High Court in Kedar Nath v Gorie Mohamed has become

well-known in this connection.

It was thought advisable to erect a town hall at Howrah provided sufficient subscription

could be got together. For the purpose. To this end the Commissioners of Howrah

municipality set out to work to obtain necessary funds by public subscription. The

defendant was a subscriber to this fund for Rs 100 having signed his name in the

subscription book for that amount. On the faith of the promised subscriptions the plaintiff

entered into a contract with a contractor for the purpose of building the hall. But the

defendant failed to pay the amount and contended that there was no consideration for his

promise.

He was, however, held liable: Persons were asked to subscribe knowing the purpose for

which the money was to be applied, they knew that on the faith of their subscription an

obligation was to be incurred to pay the contractor for the work. The promise is: 'In

consideration of your agreeing to enter into a contract to erect, I undertake to supply money

for it.' The act of the plaintiff in entering into contract with the contractor was done at the

desire of the defendant (the promisor) so as to constitute consideration within the meaning

of Section 2(d). ·

It was indeed a promise to pay for the performance of an act and it could not have been

revoked once the promisee entered performance. In England also "the Jaw for centuries

has been that an act done at the request of another, express or implied, is sufficient

consideration to support a promise”. Writing· in an article Lord Justice Denning says:

is "Nowadays there are some grounds for suggesting that an act may be good

consideration even though it is not a benefit to the promisor nor a detriment to the

promisee, If a man promises a charitable institution that he will pay £ 100 into its

funds if it procures nine other persons to do the same, justice requires that his

promise should be held binding on him as soon as it has procured

the nine others to pay £ 100 each; but the act done by the institution is not a benefit to

him nor a detriment to the institution." A trend of this kind is observable in a decision of

the Supreme Court." On the death of their father, his two sons picked up a clash. Their

mother intervened writing to the junior son that in case his elder brother did not

pay the sum of rupees fifty lakhs which was due to him out of the family assets, she

would pay the same. The brother paid a part of the amount. The mother supplemented

the payment to a certain extent, but she had still to pay the balance amount and for

that she claimed a reduction in the computation of her net wealth. The Court allowed

the deduction. The contract was a part of the family arrangement. It was not hit by

Section 25 as purchase of family peace in such circumstances is good consideration.

Promises of Charitable NatureThe decision of the Calcutta High Court in Kadar Natha case was followed by the

Madras High Court in two cases in both of which the court laid down that "a promise

to pay a subscription becomes enforceable as soon as any definite steps have been

taken in furtherance of the object and on the faith of the promised subscription".

In one of these cases:

A sum of Rs 5,000 was promised by the defendant as a personal

Contribution for the purpose of constructing a bridge. He was held liable to pay the

amount on the completion of the bridge

In a subsequent case, Dora swami Ayer v Arunachala Ayyar, the Madras High Court

explained the principle of Kedar Nath v Gorie Mahomed on the footing that there

was not a bare promise to subscribe, but also a request that the promisee should do

an act (construction of the town hall in that case), and that where there is no such request

for an, act the promise will be a· bare promise and without any consideration. The

facts of the case were:

The Repair of a temple was in progress. As the work proceeded, more money was

required and to raise this money subscriptions were invited and a subscription list

raised. The defendant put himself down on the list for Rs 125 and it was to recover this sum

that the suit was filed.

But no recovery was allowed. CORNISH J proceeded like this:

The plaint found the consideration for the promise as follows: That plaintiffs

relying on the promise of the subscriber incurred liabilities in repairing the temple.

The question is, does this amount to a consideration? The definition of consideration in

the ·contract Act is that where at the desire of the promisor the promisee has done or

abstained from doing something, such act or abstinence is called consideration.

Therefore, the definition postulates that the promisee must have acted on something

amounting to more than a bare promise. There must be some bargain between them

in respect of which consideration has been given.... There must have been some

request by the promisor to the promisee to do something in consideration of the promised

subscription,

The learned judge found support in the English case of Hudson, Re where the promise was to

contribute a large. sum of money for the payment of Chapel debts, the promisor having

died after paying a large instalment, the balance. Could not be recovered from his

executors. The claim was considered to be unsustainable in as much as the promisee had

not undertaken any liability as part of the bargain with the promise. Applying these

principles to the present case, the learned judge. said that there was no evidence of any

request by the subscriber to the plaintiff to do the temple repairs.

The principal difference between these cases is that in the Kedar Nath case the

construction of the hall began on the faith of the promised subscriptions, but in the

present case, temple repairs were already in progress when the subscriptions were

invited. The action was not induced by the promise to subscribe but was rather

independent of it.

Unilateral PromisesA unilateral promise is a promise from one side only and is intended to induce some action

by the other. Party. The promisee is not bound to act, for he gives no promise from his side.

But if he 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. "An act

done at the request of the offer or, in response to his promise is consideration, and

consideration in its essence is nothing else but response to such a request.”

It should be noted that in all the above cases where liability arose it arose only when

the promisee had by doing some act, on the faith of the promise, altered his position. It

follows, therefore, that where the promisee has done nothing, there is no consideration.

Accordingly, in Abdul Aziz v MA sum Ali, 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, therefore, held not liable. Similarly, it has been pointed out in other

cases that a mere promise to subscribe to a charitable institution cannot be sued upon. Thus

where the defendant had agreed to pay from time to time, out of his own pocket certain sums

proportionate to the value of the goods imported by him, to a charitable society, the promise

was held to be not enforceable, being without consideration.

Revocation of Unilateral PromisesThere is yet another problem concerning such unilateral contracts. It is no doubt true that a

promise which is given in return for an act is revocable before the promisee begins to

alter his position by acting upon the promise. But may it be revoked after the promisee has

commenced performance? If, for example, the promise is to pay a sum of money if the

promisee walks from Luck now to Kanpur, can it be revoked after the promisee has

embarked upon the journey? The decision in Kedar Nath v Gorie Mohammad suggests,

though not in so many words. That such a revocation is impossible. The defendant, in that

case, was held liable as soon as the contract for the construction of the hall was entered into.

The same appears from the decision of DENNING LJ in Arrington v Errington. The owner

of a house had mortgaged it. The house· was in the occupation of his son and daughter-in-

law. He told them that the house would become their property if they paid off the

mortgage debt in instalments and they commenced payment. In these circumstances, the

court felt, that it would be unjust if the promisor could revoke this promise at his

pleasure. His Lordship said:

"The father’s promise was a unilateral contract... a promise of the house in return for their

act of paying the instalments. It could not be revoked by him once the couple entered on

performance of the act. But it would cease to bind him if they left it incomplete and

unperformed."

Either way there is some difficulty. If the promisor is at liberty to revoke, tie 'can frustrate

the promisee at his pleasure. On the other hand, if he has no such liberty, he will be bound

even though the promisee may stop performance at his sweet will. The House of Lords,

therefore, suggested in Morrison Steamship Co Ltd v The Crowns! that the mere

commencement of performance does not convert the offer into a contract in the sense that

the promisor is bound to stay with his promise, but that if he revoked it, he may be sued for

damages or on a quantum meruit.

Promissory Estoppel and Government AgenciesThe position of the doctrine of promissory estoppel as against the Government and its

agencies is thus summarized by RM SAHAI J of the Supreme Court in Amrit Banaspati

Co v State of Punjab:

Law of promissory estoppel which found its most eloquent exposition in Union of

India v lndo Afghan Agencies, crystallized in Motilal Padampat Sugar Mills v State of

UP as furnishing cause of action to a citizen, enforceable in a court of law, against

the Government if it or its officials in the course of their authority extended any promise

which created or was capable of creating legal relationship, and it was acted upon by the

promisee, irrespective of any prejudice. It was reiterated in Union of India v Godfrey

Philips (India) Ltd and was taken further when it was held that no duty of excise

was assessable on cigarettes manufactured by the assessee by including the cost of

corrugated fibre board containers when it was clearly represented by the Central Board of

Excise and Customs in response to the submission made by the Cigarette

Manufacturers' Association and the representation was approved and accepted by the

Central Government that the cost of containers would not be included in the value of

cigarettes for the purpose of assessment of excise duty. In Delhi Cloth and General Mills Ltd

v Union of India it was held: 'All that is now required is that the party asserting the estoppel

must have acted upon the assurance given to him. Must have relied upon the representation

made to him. It means that the party has changed or altered his position by relying on the

assurance or representation. The alteration of his position by the party is the only

indispensable requirement of the doctrine. It is not necessary to prove further any damage,

detriment or prejudice to the party asserting the estoppel.'

In Gourami Oil Mills v State of Kerala the Government was not permitted to go back on

its earlier promise of wider exemption from sales tax in pursuance of which certain

industries were set up. A subsequent notification curtailing the exemption was held to

be applicable to industries established after the notification.

A promise which is against public policy or in violation of a statutory prohibition cannot be

the foundation of an estoppel.

Estoppel of LicenseeThe party who was granted liquor license was held to be estopped from saying

afterwards that some of the restrictions imposed upon his trade freedom, particularly the

one under which the Government reserved with it the power to vary issue prices, were

unreasonable. Unreasonableness has to be considered in the totality of the circumstances

including public interest. Liquor consumption has to be reduced and, therefore, free trade of

such an item cannot be encouraged. The power to vary issue prices is a method of

exercising control of this trade. The courts will only prevent a crushing use of this power.

Such power does not also offended Section 29 of the Contract Act because there is no

uncertainty about the nature of the price variation clause. Its unreasonable use can always

be prevented under writ jurisdiction.

A person, who had acquired title to the land of a Council by adverse possession, agreed

subsequently to hold the same under a term license from the Council. On the expiry of the

term the Council told him to hand over possession. He tried to assert his title by adverse

possession. He was not allowed to do so. Whatever rights he had acquired became

substituted under the new arrangement which he voluntarily accepted. The new

arrangement constituted a promissory estoppel against him.

Bibliography

Singh Avatar, Law of Contract & Specific Relief Act, 9th Ed. 2006, Eastern Book

Company, Lucknow