Unit 2 - Law of Contract - LLB 103 - BALLB I Sem

Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040

(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
CLASS & SEMESTER: B.A LL.B I SEMESTER

NAME OF THE SUBJECT: LAW OF CONTRACT-I
SUBJECT CODE: LLB 103
UNIT II
TOPIC: CONSIDERATION AND CAPACITY
FACULTY NAME : Mr. Raman Bhardwaj

Assistant Professor(Law)
CONSIDERATION
Consideration is one of the essential elements to support a valid contract. When

a party to an agreement, promises to do something he must get 'something' in
return. If he does not get something in return, the contract is not valid. This
'something' is defined as consideration.
Definitions
“Consideration is the recompense given by the party contracting to the

other.”…..Blackstone

“When at the desire of the promisor, the promisee or any other person has
done abstained from doing, or does, or abstain from doing or promise to do or
to abstain from doing some thing. Such act or abstinence or promise is called
a consideration for the promise.” - Sec.2(d) of ICA
Consideration is based on the term ‘quid-pro-quo’ which means ‘something

in return’.
When a person makes a promise to other, he does so with an intention to get

some benefit from him. This act to do or to refrain from doing something is
known as consideration.

ESSENTIALS OF CONSIDERATION
1) At the Desire of the Promisor – Consideration must be offered by the

promisee at the desire or request, of the promisor. An act done at the
desire of a third party is not a consideration.[Durga Prasad Vs Baldev].
2) Consideration may move from Promisee or any other Person-

Consideration may move from Promisee or if promisor has no objection ,it
may also move by any other person who is not a party to the contract.
Under the Indian Law, it is not necessary that consideration must be given
by a promisee only it may also be given by any other person. A contract is
valid as long as consideration is given, whether by the promisee or any
other person.

For E.g., Chinnayya v/s Ramaya- In this case 'A' transferred certain property
by deed of gift to her daughter 'B', with the condition that 'B' should pay
certain annuity to 'A's brother 'C'. 'B' agreed to pay the annuity to her uncle
'C' in writing. Later on, she denied to pay it on the ground that no
consideration had moved from 'C' to her (B). It was held that consideration
might also move from any other person. Therefore ‘C’ was entitled to
maintain a suit.
3) Consideration may be Past, Present and future – The consideration may be

past, present, or future. This is clearly indicated by the words, used in the
definition of consideration given in the Act.
A) Past Consideration- In order to support a promise a past consideration

must be moved by a previous request.

Example- if A request B to find out his watch & B does the same. Now if
A promises B to give 100/- it will be past consideration
B) Present or Executed Consideration- In this consideration one party of

contract has done his liability and other have to fulfill his liability.
Example–A pays 1000/-to B and B promises to deliver to him a certain
quantity of wheat within a month. Here only B have to fulfill his liability.
This is Present Consideration.
C) Future and Executor Consideration- In this consideration both the

parties of contract do promise to each other for some future act or
omission, i.e., both the parties have to fulfill their liability.
Example- A agree to sell and B agrees to buy a certain quantity of rice in
1000/-Rs. A promise to sell and B promises to buy. It is future
consideration.

English Law- English law deals only with present and future
consideration, i.e., English law does not consider past consideration as
consideration.
4) Consideration must be Lawful- The consideration or object of an

agreement is lawful ,unless –it's forbidden by law; or is of such a nature
that, if permitted, it would defeat the provisions of any law, or is
fraudulent, or involves or implies injury to the person or property of
another; or the court regards it as immoral or opposed to public
policy.[Sec.23]
Example- A agrees to let her daughter to heir to B for concubinage. The

agreement is void because its immoral though the letting may not be
punishable under the Indian penal code.

5) Adequacy of Consideration– Consideration need not be adequate but should
be real. Consideration need not be any particular value. It need not be
approximately equal value of the promise for which it is exchanged but it
must be something which the law would regards as having some value.
In this context explanation 2 of sec 25 states that an agreement to which the
consent of the promises is freely given is not void just because the
consideration is inadequate. Example- A agrees to sell a horse worth Rs1000/-
for Rs10. A’s consent to the agreement was freely given. The agreement is a
contract, not withstanding the inadequacy of the consideration.

DIFFERENCE BETWEEN
ENGLISH LAW & INDIAN LAW OF CONSIDERATION
1. Indian Law categories consideration as past, present & future while

English Law in present & future consideration i.e., under English past
consideration is no consideration.
2. Under English Law consideration may should from the promise & promise
alone and not from a third person while under the Indian Law
Consideration may move from Promisee or if promisor has no objection, it
may also move by any other person who is not a party to the contract.
3. In English Law real or formal contracts need not to be supported by

consideration. They derive their validity ‘form’ while in Indian Law every
promise must be supported by consideration unless the case falls within
exceptions.

Ques- “An agreement without Consideration is void", discuss the
exception of this rule, or
Discuss the validity of an agreement without Consideration.
Ans- Consideration is one of the essential elements to support a valid

contract. When a party to an agreement, promises to do something he
must get 'something' in return. If he does not get something in return,
the contract is not valid. This 'something' is defined as consideration.
Therefore, an agreement without consideration is void and cannot
become a contract.
Sec25 states the general rule is that an agreement made without

consideration is void, i.e. "no consideration no contract" An agreement
without consideration is called "Nudum Pactum".

Example– A agrees B to given 1000/- without consideration. Agreement is
void .
Exceptions: Following are the exceptions to the rule ‘no consideration, no

contract’ i.e., in the following situations an agreement without consideration is
also valid-
1) Natural Love and Affection– sec.25(1) states that– "a written and
registered agreement based on natural love and affection between the parties
standing in near relation (like husband and wife, son and father etc) to each
other is enforceable even without consideration.
In Funu Biwi Vs Fyaz Baksh it was held that the ICA provides no guidance
in the respect of the word “Near Relation”. However according to judicial
interpretation, it includes parties related by blood or marriage.

Example– A for natural love and affection promises to give his son B,
Rs1000/-. A puts his promise to B in to writing and registers it. This is a
contract.
2) Past Voluntary Service– sec.25(2) states that– “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. Examples
1) A finds B’s purse and gives to him. B promises to give a Rs 500.This is a
contract.
2) A support’s B’s infant son. B promises to pay A’s expenses in doing. This
is a contract.
3) Time Barred Debt– sec.25(3) states that– "A promises, made in writing and
signed by the person to be charged therewith or by his.

agent to pay wholly or in part a debt of which the creditor might have
enforced payment but for the law for the limitations of suit Example– A
owes B Rs.1000 but the debt is barred by the limitation act. A sign a
written promise to pay B Rs. 500 on account of the debt. This is a contract.
4) Gift– Explanation 1 of sec.25 states that– "No thing in this section shall
affect the validity as between the donor and donee ,of any gift actually
made.
Sec.63- The second part of this section states that-“every promise may
extend the time for the performance of contract or may accept any
satisfaction which he thinks fit instead of the whole claim without
requiring any consideration to support such an agreement.”

Examples
1) A Promises to paint a picture for B. B afterwards for bids him to
do so. A is no longer bound to perform the Promise. (Dispense)
2) A owes B 5,000. A pay to B and B accepts in satisfaction of his
whole debt 2,000 paid at the time and place at which the 5000 were
payable. The whole debt is discharge.
5) Free Bailment– Sec.148 states that– "Agreement to delivered thing as a

free bailment is valid though there is no consideration.
6) Agency- Sec.185 states that-"No consideration is necessary to create an

agency.

Whether question of inadequacy of consideration can be raised in court?
According to explanation-2 of sec.25-“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 whether the consent of the promisor
was freely given.”
Example- A agrees to sell a horse worth Rs.1000 for Rs.10.A denies that his
consent to the agreement was freely given. The inadequacy of the consideration
is a fact which the Court should take into account by in determining whether or
not the consent of the A’s was freely given.

Ques- Describe the law relating to Minor’s Agreement with the help of
MohoriBibee V. Hermosa's Ghose Case or
Explain the term ‘Minor’? Explain the legal rules regarding

agreement by a minor?(Or)
What is the legal effect of a minor’s misrepresentation of his age while

entering into an agreement?
Ans- For a valid contract it is essential that parties to contract should be

competent to contract. In this reference Sec-11 states that-“ Every person is
competent to contract who is of age of majority ,is of sound mind and not
is disqualified from contracting by any Law to which he is subject.

AGE OF MAJORITY
According to sec- 3 of Indian Majority Act-1875 - Every person domiciled in

Indian attains majority on the completion of 18 years of age but where a
guardian of a minor’s person or property is appointed under the Guardian and
wards Act, 1890 the age of majority is 21 years.

NATURE OF MINOR’S AGREEMENT
• Sec-10 requires that the parties to a contract must be competent and sec-11
declares that a minor is not competent. But neither section makes it clear as to
whether , if a minor enters into an agreement would it be voidable at his
option or altogether void?
• These provisions had therefore quite naturally given rise to a controversy

about the nature of a minor’s agreement.
• This controversy was finally settled in 1903 by the Privy Council in

MohoriBibee vs DharmodasGhose ,where Sir Lord North observed that
minor’s agreement will be void ab initio.

LEGAL RULES & EFFECTS OF
MINOR’S AGREEMENT
• All the rules related to minor's agreement are based on the fundamental that
‘ Law always protects the minors.
• A minor is incompetent to contract u/s 11of the Indian contact act, 1872.
Minor’s incompetence is not a punishment, but it is a protection given to
minors by law.
• The law becomes the guardian of minors to protect their rights because their
mental capacity is not well developed.

The following are the legal rules & effects regarding minor’s agreement –
1. No liability in contract or in Tort arising out contract- In Johnson vs

Pye it was held that an infant who obtains a loan of money by falsely
representing his age can’t be made to repay the amount of the loan in the
form of damages for deceit.
The court pointed out that if infants were held liable on their contract by
means of action in tort, all the infants would be ruined. But in Burnard vs
Haggis it was held that where a tort is independent of the contract, the mere
fact that a contract is also involved, will not absolve the infant from
liability.
2. Liability for Estoppel- In MohoriBibee vs Dharmodas Ghose it was held

that the infant is not estopped from setting up the defence of infancy. There
can be no estoppel against statute.

3. Liability for Restitution - In Stokes Wilson it was held that an infant
obtains property for good by misrepresenting his age, he can be compelled
to restore it, but only so long as the same is traceable in his possession.
This is known as the equitable doctrine of restitution.
Where the infant has sold the goods or converted them, he can’t be made to
repay the value of the goods, because that would of amount to enforcing a
void contract.
Again, this doctrine it is not applied where the infants has obtained cash
instead of goods.

4. Liability for Rectification- In Nazir Ahmed vs Jevan Das it was held
that an agreement with a minor is void ab initio and therefore, it can’t be
ratified by the minor after attaining the age of majority, but in Kundan
Bibi vs Shree Narayan it was held that where a minor has received some
consideration during minority and in addition to it, he receives a further
or fresh consideration after attaining the age of maturity and he promises
after being major, to pay the whole of the amount, the promise will be
binding.
5. Liability for Specific Performance- In Subramanyam vs Subba Rao it

was held that if the contract entered by the guardian of the minor on his
behalf is within the competence and it is for the benefit for the minor, it
will be valid and enforceable. In Durga Thakurani vs Swain a trustee of a
deity made a contract for the sale of property of the deity under legal
necessity. The contract was held to be valid or enforceable.

Ques- Describe the law relating to privity of contract & privity of
consideration with relevant cases. Or
“Only parties to contract can sue or can be sued”-Discuss with
relevant cases and exceptions.
Ans- The doctrine of privity in contract law provides that a contract cannot
confer rights or impose obligations arising under it on any person or
agent except the parties to it.
This seems to make adequate sense, in that only parties to contracts

should be able to sue to enforce their rights or claim damages as such.
However, the doctrine has proven problematic due to its implications
upon contracts made for the benefit of third parties who are unable to
enforce the obligations of the contracting parties.

ENGLISH LAW
• Under English law, there privity of consideration is well recognized –
consideration must move from the promisee and the promisee only.
• In Dutton vs. Poole (1677) 83 LR523 X was prepared to cut down timber on
his estate to provide a marriage portion to his daughter, Y. His son, Z,
promised to give a certain sum to his sister on her marriage if X did not cut
down the timber. When Z failed to pay the amount, Y sued him for the
amount. The suit was held maintainable on grounds of the close relationship
between X and Y as father and child; the relationship made Y a party to the
consideration though if she was a stranger to the contract. English law
recognizes the rule of ‘privity of contract’.
• Thus, a contract cannot be enforced by a person who is not a party to it even if

the contract is made for his benefit. A stranger to the contract cannot claim
any rights under it.

• The doctrine was introduced in 1861 though Tweddle vs. Atkinson (1861) 1
B&S 393. The father and father-in-law of a groom agreed in writing to pay
the groom a certain sum of money. However, the contracting parties died
without having made their share of the specified payment. The groom sued
the executors of his father-in-law for the payment of the amount due. The
principle of near relationship of the contracting parties (as in Dutton vs.
Poole case) was held not applicable. The groom was not allowed to sue
because he was a stranger to the contract though the contract sought to
benefit him.
• In Beswick vs. Beswick (1960) 3 All ER 1 CA, a man transferred his

business to his nephew on the condition that the latter maintain the man till
his death and his widow thereafter. After the death of the man, the nephew
did not keep up his end of the bargain and the widow sued him. It was held
that the widow was suing not only as beneficiary under the contract but also
as the heir of her deceased husband who was a party to the contract.

INDIAN LAW
• There is no provision in the Indian Contract Act, 1872 either for or against
the rule of ‘privity of contract. Section 2(d) of the Act says that ” 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.”
• It is clear from this section that the consideration for a contract can proceed
from any person and not necessarily the parties to the contract. A promise is
enforceable if there is some consideration for it and it is quite immaterial
whether it moves from the promisee or any other person. However, there is
no specific provision in the Act which either for or against the Doctrine of
Privity of Contact. It is through a series of case laws that the Doctrine has
evolved.

• In the case of Jamna Das vs. Ram Avtar, (1911) 30 IA 7 X mortgaged some
property to Y and then sold it to Z who agreed with X to pay the mortgage
debt to Y. Y sued Z for the recovery of the mortgage money. It was held that
Y could not succeed as he was not party to the agreement between X and Z.
• In Bank was indebted to the State Bank of M.S. Chacko vs. State Bank of
Travancore (1969) 2 SCC 343X Travancore under an overdraft. A was the
manager of the said X Bank and his father –B, had guaranteed the
repayment of the overdraft. B gifted his properties to the members of his
family. The gift deed provided that any liability under the guarantee should
be met by A either from the bank or from the share of the property gifted to
him. The State Bank of Traven core sought to hold a liable on the basis of
the gift deed. It was held that the State was not a party to the deed and could
not enforce it.

(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of
Delhi & Bar Council of India
EXCEPTIONS TO THE ‘PRIVITY RULE’
A person who is not a party to a contract may sue upon it in the following cases:
1. Trust or Charge-Where a trust is created for the benefit of a person, he can

sue upon the agreement to create the trust even if he is not a party to it.
In case of, the father and father-in-law of X, entered into an agreement where
for the consideration of X marrying Y, the father-in-law would pay her Rs 500
per month for perpetuity as betel leaf expenses. Certain immovable property
was specifically charged for the payment of these expenses. After marriage, X
and Y separated. X bought a suit for the recovery of arrears of annuity. It was
held that X could enforce the promise in her favour and that she was claiming
as beneficiary under such settlement to provide for her.

In the case of Baksh Singh vs. Jang Bahadur, AIR 1938 PC 245 X was
appointed successor by his father and put in possession of his estate. In
consideration, X agreed with the father to pay a certain sum of money and
property a – illegitimate son of his father upon on his attaining majority.
When A asked for his share upon attaining majority, X refused. It was held
that a trust was created in favour of A for a specific amount and property and
the suit was maintainable

2. Family Arrangement-If a contract under a family arrangement is intended to
secure a benefit to third party, he may sue in his own right as a beneficiary.
In Rose Fernandez vs. Joseph Gonsalves ILR (1924) 48 Bom 673 X entered
into an agreement for his daughter’s marriage to A. It was held that the girl
could sue A for damages for breach of the promise of marriage. A’s plea that
she was not a party to the agreement did not hold ground.
Similarly, in the case of Rakhmanbai, there was provision made for the
marriage expenses of a female member of a Joint Hindu Family. When
partition of the family property took place, the woman sued for her marriage
expenses. It was held that she was entitled to sue for the same.

3. Acknowledgement or Estoppel- If a contract requires a party to pay a third
party and he acknowledges it to the third party, he will incur a binging
obligation. The acknowledgement may be express or implied
Example- X receives Rs 1000 from Y for paying Z. X acknowledges the

receipt of funds to pay him. Now, Z can sue X for the recovery of the sum.
In DevarajaUrs vs. Ram Krishniah, AIR 1952 Mys. 109 X sold his house to
Y and a specific sum was to be paid to A out of the sale price due from Y. Y
made a few payments to A but not the whole amount. It was held that A
could recover the balance because Y had acknowledged his liability by
conduct.

4. Assignment of a Contract - A benefit under a contract may be assigned
either by an act of the parties or by operation of law (in cases of death and
insolvency) and the assignee can sue upon the contract for the enforcement
of his rights. However, in another case it was held that a mere nominee, the
person for whose benefit the deceased insured his or her life, cannot sue on
the policy because such person is not an assignee.
5. Covenants running with the land In Tulk vs. Moxhay (1919) 88 LJKB861
it was held that a person is bound by obligations attached to a land via a
contract when he purchases the said land with the notice that the
agreements affecting the land bind him though he was not a party to such
contract or agreement.

CONCLUSION
• The Act does not specifically provide for the doctrine of Privity of
Contract; however, through a series of case laws the doctrine as laid down
in Tweddle v Atkinson is now applicable in India along with various
exceptions.
• With reference to consideration of a contract the position in India and

England are somewhat different. Under the English law only a party to the
contract alone can pay the consideration. If he doesn’t pay the
consideration, he becomes a stranger to the contract.
• Under the Indian Law, it is not necessary that consideration should be

moved from the promisee alone. Even a Stranger can enforce am contract if
the contact was made avowedly for his benefit albeit not a party to the
original contract.

THANK YOU


Unit 2 - Law of Contract - LLB 103 - BALLB I Sem

Uploaded by

Copyright:

Available Formats

Unit 2 - Law of Contract - LLB 103 - BALLB I Sem

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Unit 2 - Law of Contract - LLB 103 - BALLB I Sem

Uploaded by

Copyright:

Available Formats

Chanderprabhu Jain College of Higher Studies & School of Law

Plot No. OCF, Sector A-8, Narela, New Delhi – 110040

CLASS & SEMESTER: B.A LL.B I SEMESTER

FACULTY NAME : Mr. Raman Bhardwaj

Consideration is one of the essential elements to support a valid contract. When

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

Chanderprabhu Jain College of Higher Studies & School of Law

Consideration is based on the term ‘quid-pro-quo’ which means ‘something

When a person makes a promise to other, he does so with an intention to get

Chanderprabhu Jain College of Higher Studies & School of Law

1) At the Desire of the Promisor – Consideration must be offered by the

2) Consideration may move from Promisee or any other Person-

Chanderprabhu Jain College of Higher Studies & School of Law

3) Consideration may be Past, Present and future – The consideration may be

A) Past Consideration- In order to support a promise a past consideration

Chanderprabhu Jain College of Higher Studies & School of Law

B) Present or Executed Consideration- In this consideration one party of

C) Future and Executor Consideration- In this consideration both the

Chanderprabhu Jain College of Higher Studies & School of Law

4) Consideration must be Lawful- The consideration or object of an

Example- A agrees to let her daughter to heir to B for concubinage. The

Chanderprabhu Jain College of Higher Studies & School of Law

Chanderprabhu Jain College of Higher Studies & School of Law

1. Indian Law categories consideration as past, present & future while

3. In English Law real or formal contracts need not to be supported by

Chanderprabhu Jain College of Higher Studies & School of Law

Discuss the validity of an agreement without Consideration.

Ans- Consideration is one of the essential elements to support a valid

Sec25 states the general rule is that an agreement made without

Chanderprabhu Jain College of Higher Studies & School of Law

Exceptions: Following are the exceptions to the rule ‘no consideration, no

Chanderprabhu Jain College of Higher Studies & School of Law

2) Past Voluntary Service– sec.25(2) states that– “A promise to compensate,

Chanderprabhu Jain College of Higher Studies & School of Law

Chanderprabhu Jain College of Higher Studies & School of Law

5) Free Bailment– Sec.148 states that– "Agreement to delivered thing as a

6) Agency- Sec.185 states that-"No consideration is necessary to create an

Chanderprabhu Jain College of Higher Studies & School of Law

According to explanation-2 of sec.25-“an agreement to which the consent of

Chanderprabhu Jain College of Higher Studies & School of Law

Explain the term ‘Minor’? Explain the legal rules regarding

What is the legal effect of a minor’s misrepresentation of his age while

Ans- For a valid contract it is essential that parties to contract should be

Chanderprabhu Jain College of Higher Studies & School of Law

According to sec- 3 of Indian Majority Act-1875 - Every person domiciled in

Chanderprabhu Jain College of Higher Studies & School of Law

• These provisions had therefore quite naturally given rise to a controversy

• This controversy was finally settled in 1903 by the Privy Council in

Chanderprabhu Jain College of Higher Studies & School of Law

Chanderprabhu Jain College of Higher Studies & School of Law

1. No liability in contract or in Tort arising out contract- In Johnson vs

2. Liability for Estoppel- In MohoriBibee vs Dharmodas Ghose it was held

Chanderprabhu Jain College of Higher Studies & School of Law

Chanderprabhu Jain College of Higher Studies & School of Law

5. Liability for Specific Performance- In Subramanyam vs Subba Rao it

Chanderprabhu Jain College of Higher Studies & School of Law

This seems to make adequate sense, in that only parties to contracts

Chanderprabhu Jain College of Higher Studies & School of Law

• Thus, a contract cannot be enforced by a person who is not a party to it even if