Consideration in the Indian Contract Act, 1872

Introduction to Consideration The section 25 of the Indian Contract Act, 1872 openly declares that “an agreement made without consideration is void…”1 In other words the presence of consideration is an essential for a contract to be valid.2 In England too “promises without consideration are not enforced, because they are gratuitous”.3 In England the contracts are divided into two categories: 1. Contracts under seal, or contracts in the form of a deed. Such contracts are valid even without consideration. 2. Simple contracts or parol contracts. For validity of such contracts the presence of consideration is needed. Consideration in simple words means something in return of a promise which may either be benefit gained by one party or something lost by the other. So generally there can be no doubt that for a valid contract, there must be consideration, and also free consent.4

Definitions of Consideration According to Blackstone5: “Consideration is the recompense given by a party contracting to the other.” Or the price of the promise. Sir Fredrik Pollock summarized the position of words adopted by the House of Lords in 1915: “An act of forbearance of one party or the promise thereof is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”6 The definition given in Curre v Misa7 by Lush J is widely accepter and stated on the next page: “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, determent, loss, or responsibility given, suffered or undertaken by the other…”

Definitions of Consideration under Section 2(d) Section 2 (d), The Indian Contract Act, 1872 defines consideration as given under: “When, at the desire of the promisor, the promise 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.” 1

The section also provides some exceptions to the rule. Section 10 3 See HEATH J in Lee v Muggeridge, (1813) 128 ER 559 4 Sunitibala Devi v Manindra Chandra Roy, A.I.R. 1930 P.C. 217 5 Commentaries. 6 Pollock On Contracts (13th Ed.) p. 133 7 (1875) LR 10 Ex 153, 162 2

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Essentials of Consideration The definition of consideration highlights the following essentials to be fulfilled for the presence of a valid consideration: 1) Consideration to be given “at the desire of the promisor” 2) Consideration to be given “by the promise or an other person” 3) Consideration may be past, present or future, in so far as definition says that the promisee: a) Has done or abstained from doing, or b) Does or abstains from doing, or c) Promises to do or to abstain from doing, something. 4) There should be some act, abstinence or promise by the promisee, which constitutes consideration for the promise. These essentials have been discussed in detail in the project.

Consideration at the Desire of the Promisor The definition of consideration under section 2(d) clearly emphasizes that the consideration must be given at the desire of the promisor, rather than merely voluntary or at the instance of some third party. In the case Durga Parsad v Baldeo:8 The plaintiff, on the order of the Collector of the town, built at his own expense, certain shops in a bazaar. 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 his articles sold through their agency in the bazaar. The plaintiff’s action to recover the commission was rejected. It was held because as the construction had not been done as per the desire of the defendants, but the order of the collector. Hence, the consideration was not valid and the defendants not liable for the same.

Consideration by Promisee or any other Person (Privity of Consideration) According to the Indian Law9, consideration may be given by ‘the promisee or any other person’. It means that as long as there is a consideration for a promise, it is immaterial who has furnished it. It may move from the promisee, or, if the promisor has no objection, from any other person. But in English Law the position is different, here the consideration must move from the promisee himself.10 For example, A promises to give his watch to B and a consideration of Rs.5000 for the same is given to A by C and not B himself. This will not be a valid contract in England but in India it will be valid as the 8

(1880) 3 All. 221, Oilfield J at p. 228 Section 2(d); Indian Contract Act, 1872 10 Thomas v. Thomas, (1842) 2 Q.B. 851; Tweedle v Atkinson, (1816) 1 B.&S. 393 9

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section 2(h) clearly states that “…at the desire of the promisor, the promisee or any other person” may provide consideration. This can be further understood in the case of Chinnaya v Ramaya11. In this case A, an old lady granted her estate to her daughter (the defendant) with a direction that the daughter should pay an annuity of Rs.653, to A’s brothers (the plaintiffs). On the same day, the defendants made a promise with the plaintiffs that she would pay the annuity as directed by A. The defendant failed to pay the stipulated sum. In an action against her by the plaintiffs she contended that since the plaintiffs themselves had furnished no consideration, they had no right of action. The Madras High Court held that in this agreement the consideration had been furnished by the defendant’s mother and that it was enough consideration to enforce the promise between the plaintiff and the defendant. In the above case it can be seen that A enters in a contract with B, but A himself has not given any consideration to B, but the consideration has been provided by third party i.e. C to B. Although A is a stranger to consideration, he can still enforce the contract against B. One has to remember that this is only true under Indian Law and the situation is different under English Law where the consideration can only move from the promisee and a stranger to the consideration in no condition can maintain any action.

Privity to Contract The Doctrine of Privity of Contract in simple words means that only those persons who are parties to the contract can enforce the same. A stranger to the contract cannot enforce a contract even though the contract may have been for his benefit. To explain it with an example, if there is a contract between A and B whose benefit has been conferred upon C, C cannot file a suit to enforce the contract because only A and B are the parties to the contract and C is a stranger to the same. This rule has to be differentiated from the rule stated earlier according to which in India a person who is a stranger to the consideration can sue. This does not affect the rule of Privity of Contract.

English Law In Tweedle v Atkinson12 the plaintiff was to be married o the daughter of one X and in consideration of this intended marriage X and the plaintiff’s father entered into a written agreement by which it was agreed that each would pay the plaintiff a sum of money. X failed to do so and the plaintiff sued his executors. Whitman J considered it to be an established principle “that no stranger to the consideration can take advantage of a contract, although made for his benefit.” Thus, although the sole object of the contract was to secure a benefit to the plaintiff, he was not allowed to sue as the contract was made with his father and not with him. This rule was further affirmed in the case of Dunlop Pneumatic Tyre Co. Ltd. v Selfridge & Co. Ltd.13 by the House of Lords in the following words: 11

(1882) 4 Mad. 137 (1861) 1 B.&S. 393 13 (1915) A.C. 847, at 853, per Lord Haldane 12

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“In the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a Jus quaesitum tertio arising by way of contract. Such a right may be enforced by way of contract. Such a right may be enforced by way of property, as for example, under a trust, but cannot be conferred on a stranger to a contract as a right to enforce the contract in personam.” In this case Plaintiffs (Dunlop & Co.) sold certain goods to Dew & Co. and secured an agreement from them not to sell the goods below the list price and that if they sold the goods to another trader they would obtain from him a similar undertaking to maintain the price list. Dew & Co. sold the motor to the defendants (Selfridge & Co.) and promised that they will pay to them the sum of £5 for every tyre sold below the list price. The Plaintiffs sued the defendants for breach of contract for selling below the list price and not paying the money. The House of Lords held that Dunlop & Co. could not bring an action against Selfridge and Co. because there was no contract between the two parties. It was further observed even if it is taken that Dew & Co. were acting as agents for Dunlop & Co., the latter still cannot maintain an action as there was no consideration between Dunlop Co., and Selfridge & Co., since the whole of the purchase was paid b Selfridge & Co. to Dew & Co.

Indian Law The rule of “Privity of Contract” is applicable in India as it is applicable in England. Even though under the Indian Contract Act, 1872 the definition of consideration is wider than the English law, yet the common law principle of Privity of contract is generally applicable in India, with the effect that only a party to the contract is entitled to enforce the same.14 In the case of Jamna Das v Ram Avtar15 here A borrowed Rs.40,000 by executing a mortgage of her zamindari in favor of B. subsequently she sold the property to C for Rs.44,000 and allowed C, the purchaser, to retain Rs.40,000 of the price in order to redeem the mortgage if he thought fit. B sued C for the recovery of the mortgage money, but could not succeed because he was not a party to the agreement between A and B. There are also certain exceptions to this rule of a stranger to contract cannot sue which are stated on the below:

Trust of Contractual rights or beneficiary under a contract One of the exceptions of the doctrine of Privity of contract was recognized by Lord Haldane in Dunlop Pneumatic Tyre Co. v. Selfridge & Co.16, itself. While it is mentioned that only a party to a contract can sue on it, no such right is conferred on the third party, it was also stated that “such a right may be conferred by way of property, as, for example, under a trust.”17 For example, in a contract between A and B, beneficial right in respect of some property may be created in favor of C. In such a case C can 14

Narayani Devi v. Tagore Commercial Corporation Ltd., A.I.R. 1973 Cal. 401 at 405 (1911) 30 I.A. 7 16 (1915) A.C. 847 17 (1915) A.C. 847, at 853 15

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enforce his claim on the basis of the right conferred upon him depending upon the particular case there is an obligation in the nature of trust in favor of the third party, C, arising out of a contract will depend on the facts of the case. 18 The Indian Law also recognizes this exception in the case of Khwaja Muhammad Khan v. Husaini Begum19, there was an agreement between the father of the boy and a girl that if the girl (plaintiff in this case) married a particular boy, the boy’s father (here the defendant in this case) would pay certain personal allowance known as Kharchi-i-pandan (bettle-box expenses) or pin money to the plaintiff. It was also mentioned that a certain property had been set aside by the defendant and this allowance would be paid out of the income of the property. The plaintiff married the son but defendant failed to pay the allowance paid to him. In an action by the plaintiff to claim this allowance, the defendant contended that his contract to pay the allowance had been made only with the plaintiff’s father and not with the plaintiff; she being a stranger to the contract cannot sue. But it was held that since, the basis of the plaintiff’s claim being a specific charge on immovable property in her favor, she was entitled to claim the same as a beneficiary, and as such, the Common Law rule was not applicable to the facts and circumstances of the present case. It was observed that: “Here the agreement executed by the defendant specifically charges immovable property for the allowance which he binds himself to pay to the plaintiff. She is the only person beneficially entitled under it … although (she is) not a party to the document, she is clearly entitled to proceed in equity to enforce her claim.” In the case of Narayani Devi v. Tagore Commercial Corporation Ltd.20 A held various shares of value of Rs. 40,500. It was agreed that A would sell his shared to B and in return B will pay A Rs.500/month and after his death Rs.250/month to his A’s widow during her life. C stood a surety for B. some payments were made by C to A and after his death to A’s widow. Thereafter the payments were stopped. A’s widow brought action against B and C to recover the amount. One of the defendants pleaded that the plaintiff was not a party to the contract and it was entered into by his husband and the defendants, she was not legally entitled to sue in respect of this agreement being a stranger to the contract. The Calcutta High Court rejected this and held that from the facts and circumstances of the case the obligation the obligation in the nature of trust was in favor of the plaintiff, and equity was created in her favor and she was entitled to it even if she was not the party to the contract. A decree was passed in her favor for the arrears of the amount due.

Conduct, Acknowledgment, or Admission Sometimes there may be no Privity of contract between the two parties, but if one of them by his conduct, acknowledgment, or admission recognizes the right of the other to sue him, he may be liable on the basis of the law of estoppel. In the case Narayani Devi v Tagore Commercial Corporation Ltd.21 discussed earlier had no contract between the plaintiff and the defendants but the defendants in their agreement had agreed to pay some money to them even after her husband’s death. Here 18

Malda v. Raj Bahadur, A.I.R. 1937 Cal. 625, at 630 (1910) 37 IA 152: 12 Bom LR 638 20 A.I.R. 1973 Cal. 401 21 Ibid. 19

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the question to sue the defendants arose. After the death of the husband same payments were received. Apart from this the defendants had also called the plaintiff to administer some documents in the same respect recognizing her rights. It was, therefore, held that the had created Privity with the plaintiff by their conduct and by acknowledgment and admission of her rights hence the plaintiff was entitled to the action even though at the time of the contract there was no Privity.

Provision for marriage expenses or maintenance under family agreement Where, under a family agreement, the contract is intended to secure a benefit to a third party, he may sue in his own right as a beneficiary.22 In the case of Sundara Aiyangar v. Lakshmiammal23, under a family agreement, the male members of the family made a provision for the expenses of her marriage to be contributed by the defendants, i.e., her father and brothers. She brought an action to enforce the agreement between the defendants. It was held that even though the plaintiff was not a party to the contract, yet the contract constituted a situation like trust in her favor and therefore, she was entitled to the amount.

Consideration may be Past, Present or Future (Executory) Section 2(d) of the Indian Contract Act, 1872, recognizes three types of consideration, namely, Past, Executed and Executory. It says that when at the desire of the promisor, the promisee 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. Promises to do or abstain from doing, (the consideration is Executory or future.) These have been discussed in detail as under:

Past Consideration Past consideration means that the consideration for the promise had been given earlier and the promise has been made afterwards. It is, of course, necessary that at the time the act constituting consideration was done, must have been done at the desire of the promisor.24 For example in lost or found cases if A looses his watch and puts out a notice that whoever finds it will get Rs.500 as reward. The person who finds it has already done the consideration. This amounts to valid (past) consideration under Section 2(d), and the promise is enforceable. The words “has done and abstained from doing”, in Section 2(d) of the Indian Contract Act, 1872, according to Pollock and Mulla25 “declare the law to be that an act done by A at B’s request, without any contemporaneous promise from B, may be consideration for a subsequent promise from B to A.” 22

Mst. Dan Kuer v. Sarla Devi, A.I.R. 1947 P.C. 8: I.L.R. (1946) All.756: (1947) 49 Bom. L.R. 123 A.I.R. 1957 A.P. 965 24 See Section 2(d) 25 Indian Contract and Specific Relief Acts, 9th Ed. (1972) p.41 23

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Past services voluntarily rendered [Section 25(2)] A voluntary service means a service rendered without any request and there is no subsequent promise for the same. For example if a person A has lost his watch and another person B finds it and returns it to A and now asks A to give him a reward for the same, A is not liable for the same as A has not made any prior promise for the reward and this is not a contract. The following illustrations also show the difference: 1. A finds B’s purse and gives it to him. B promises to give A Rs.50. This is a contract.26 2. A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a contract.27

English Law Regarding to Past Consideration According to English law if the act has been done before any promise is made, it is called past consideration and a past consideration is no consideration. 28 The past act may explain why the promise was given and may, thus, be a motive for the promise, but it furnishes no legal consideration.29 “The consideration and the promise ought to go together.”30 An example is McArdle, In re:31 A effect certain improvements to certain property. The ultimate beneficiaries of the property signed a document declaring that: “In consideration of your carrying out certain alterations and improvements, we the beneficiaries shall repay to you the sum of £488 in settlement of the amount spent on such improvements.” An action to enforce this promise was rejected.

Past consideration at the Promisor’s Request Past consideration in lieu of a prior request by the promisor is deemed to be a good consideration. It was established as early as 1616 as in the case of Lampleigh v Barthwait32 that a past act done at request will be good consideration for a subsequent promise. The facts were as given on the next page: The defendant, having committed a murder, requested the plaintiff to labour and to do obtain pardon from the King. The plaintiff did his best to obtain the King’s pardon, riding and journeying at his own expense. Afterwards the defendant promised the plaintiff to give him £100 and then refused to pay. He was, however, held liable. On this context there is not much difference between the Indian and English laws. Indian law recognizes past consideration, when the same is given “at the desire of the promisor.” Past act done voluntarily is no consideration either in India or England. In India, however, a voluntarily done consideration can render an agreement valid if it is declared 26

Illustration (c) to Section 25 Illustration (d) to Section 25 28 See Anson, Principles of the English Law of Contract, 23rd Ed., (1972), p. 85 29 See Roscoral v. Thomas, (1842) 3 QB 234: 11 LJ QB 214: 114 ER 496, where a horse having been sold, a subsequent warranty for its soundness was held to be based upon past consideration. 30 Street, Foundations of Legal Liability, 281 31 (1591) 1 Ch 669: (1951) 1 All ER 905 32 (1616) Hob 105: 80ER 255 27

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valid under exception mentioned in Section 25(2). There is no such provision under English law.

Executed or Present Consideration When one of the parties to the contract performs his part of the promise which constitutes the consideration for the promise by the other side is called executed consideration and the performance of the promise by the other side is the only thing now to be done. For example, A makes an offer to reward Rs. 100 to anyone who his lost phone and brings the same back to him. B finds the lost item and delivers it to A. When B does so it amounts to acceptance of the offer which results into a binding contract under which A will have to pay Rs.100 to B, and also simultaneously giving consideration for the contract (i.e. the lost object).33 The consideration in this case is “executed”. Executed consideration is different from past consideration as executed consideration is provided simultaneously along with the making of the contract while past consideration is provided prior to the making of the contract.

Executory or Future Consideration When a person makes a promise in exchange of the promise made from the other side, the performance of this promise is to be done after making the contract. This is called Executory consideration. For example, A agrees to sell and B to buy a quantity of goods at a stated price. In other words, A has promised to sell and B has promised to buy. Some Act, Abstinence or Promise by the Promisee Constitutes Consideration According to Section 2(d), 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 not to do or abstain from doing something, such “act or abstinence or promise” is called consideration for promise. It means that if nothing is done in exchange for the promise, i.e., where there is no act, abstinence or promise, there is no consideration.

Consideration Received by one of the Joint Promisors. In case there are joint promisors but consideration has been received by any one of them, then it is held that the consideration is sufficient and binding on others also. In Andhra Bank v Anantnath Goel,34 the father received a loan from the bank by the deposit of titledeeds of his immovable property, but the promissory note, to repay the loan with interest, was signed by the father and his son jointly, in favor of the bank. It was held that the son was equally liable with his father on the said promissory note, even though he himself had received no direct consideration.

33 34

See Carlill v Carbolic Smoke Ball Co., (1893) 1 Q.B. 256 A.I.R. 1991 A.P. 245 (D.B.)

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Subscription for a Charitable Purpose Consideration is needed in exchange in every promise in order to make it enforceable. A mere promise to make contribution to a charitable purpose may not make it enforceable. In Abdul Aziz v Mausam Ali35 the defendant promised to pay a sum of Rs.500 as donation for the purpose of repair and reconstruction of a mosque. Nothing was done and the defendant refused to pay the amount. It was held that nothing could be done to enforce the same as nothing was done in faith of the promise and no consideration was given. Therefore, the defendant was not liable for breaking his promise. Although, a promise to contribute is not enforceable only till then the promise has caused something done in faith of the promise. The English decisions on this point are similar to the Indian ones. In Re Soames,36 one Soames made a promise to the plaintiffs that he would leave a sum of £300 by his will for the maintenance of a school which was to be established by the plaintiffs. On the faith of this promise the plaintiffs established a school. But there was no such provision in the will of Soames. It was held that the executors of the promisors will be liable for the same.

Consideration Need Not be Adequate It is not necessary for the consideration to be adequate to the promise. The courts can hardly assume the task of setting what is the appropriate consideration for the promise. According to Explanation 2 to Section 25 of the Contract Act, 1872: 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. The parties are free to make the consideration of their choice. 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.37 For example, A agrees to sell his house worth Rs.1,00,00,000 for Rs.1,00,000. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.38

Consideration must be real It is necessary for consideration to be real and should not be unsubstantial. In White v Bluett,39 a son used to complain to his father that his brothers had been given more property then him. The father promised that he would release the son from his debt if he stopped complaining. After the death of the father an action was brought by the executors 35

A.I.R. 1914 All. 22 (1897) 15 T.L.R. 430 37 Bolton v Madden, L.R. (1873) 9 Q.B. 55, at 57, per Blackburn J. 38 Illustration (f) to Section 25 39 (1853) 23 L.J. Ex. 36 36

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to recover the debt. It was held that the promise of not facing the father with the complaints in future was not a good consideration for the father’s promise to release him from the debt. Therefore the son continued to be liable for the debt.

Performance of an Existing Legal Duty in no Consideration Doing something what a person is already legally bound to do is not a consideration. But for a proper consideration there should be a promise to do something more than what a person is already bound to do. In Collins v Godefroy,40 A received a subpoena, i.e. presence of a witness to testify, in a case. Thereafter B promised to pay A some money for the trouble caused to him in appearing in that case. A sued to recover B for the amount promised. It was held that A was already under a public duty to give evidence and that the consideration to pay by B did not constitute a good consideration.

Promise to Perform an Already Existing Contractual Duty If a person is already contractually bound to perform a certain task for B then B’s promise to pay something additional in return is no consideration. In other words compliance to a legal obligation imposed by a contract is no consideration for promise. In the case of Ramchandra Chintaman v Kalu Ram:41 The plaintiff accepted a vakalatnama from the defendant to act for him in a certain suit on receiving his usual fee. Subsequently the defendant agreed to pay him a certain sum as special reward (inam), if the suit is decided in his favor. The suit was decided in favor of the defendant, who, however, did not pay the amount. The plaintiff, therefore, brought the present suit action against him. Rejecting the action, Westroppe CJ said: “The plaintiff, having accepted a Vakalatnama was already bound to render his best service as a pleader. There was no fresh consideration proceeding from the plaintiff when he obtained the agreement.”

Promise to Pay Less Amount than Due The Rule of Pinnel’s Case The rule laid down in Pinnel’s Case42 in English law laid down that in an agreement payment of a smaller amount in lieu of a valid consideration is not binding as the agreement is without consideration. This means in spite of the promise to pay the smaller amount the promisor can claim the whole due amount. In the case a sum of £8-10 sh. was due to be paid on 11th November, 1600 on the basis of a bond executed by Cole in favor of Pinnel. On October 1, 1600 Cole paid £5-2 sh. 6d. to Pinnel, and he accepted the same as the full payment of the original debt. Later Pinnel moved action against Cole to claim the whole amount on the basis of the bond. It was held the Pinnel could succeed in recovering as mere partial performance of contract would not discharge the contract. It 40

(1831) 1 B. & Ad. 950 (1877) 2 Bom. 362 42 (1602) 5 Co. Rep. 117a 41

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was also stated that the original debt could be discharged only by the introduction of a new element in the contract upon the request of the creditor, e.g., tender of movable property in lieu of cash, or payment at fresh place. This rule doesn’t appear to be logical. In 1937, the Law Revision Committee43 recommended the abolition of the rule but so far the recommendation has not found the place in the statute book.

Exception to the Rule in Pinnel’s Case The various recognized exceptions to the rule, which are as given on the below: 1. Payment in kind – When the promise to deliver some movable property or assets in lieu of a due sum, the promise is valid is these assets are of smaller value than the amount due. 2. Payment before due date – Payment of a lesser sum before time, or different mode or at a different place than appointed in the original contract. 3. Part payment by third party – A part payment made by a third party may be a good consideration for the discharge of the whole of the debt. In other words if one party has already accepted a part payment from the third party then he cannot sue for the balance of the amount. 4. Composition with the creditors – Payment of a lesser amount in satisfaction of a larger sum where this is done in pursuance of an agreement of compromise entered into by the debtor with his creditors. 5. Promissory Estoppel – This is an equitable estoppel preventing a person from denying what he asserted earlier. The person making the representation or promise becomes bound by the same, on the basis of promissory becomes bound by the same, on the basis of the law of estoppel if another person acted in faith of the representation. The promise is enforceable at the instance of the instance of the promisee notwithstanding that there is no consideration for the promise.44

Indian Law In India such confusion is not likely to arise, for the Contract Act in Section 63 clearly provides that “every promise may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of any satisfaction which he thinks fit.” The section also provides the following illustrations45: 1. A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2,000 rupees paid at the time and place at which 5,000 rupees were payable. The whole debt is discharged. 2. A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them in satisfaction of claim on A. this payment is a discharge of the whole claim. 3. A owes B under a contract, a sum of money, the amount of which has not been ascertained. A, without ascertaining the amount gives to B, and B, in satisfaction 43

6th Interim Report, paras 35, 40 Moti Lal, etc. Sugar Mills v State of U.P., A.I.R. 1979 S.C. 621, at 643 45 Illustrations (b), (c), (d) & (e) respectively, to Section 63 44

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thereof, accepts the sum of 2,000 rupees. This is a discharge of the whole debt, whatever may be its amount. 4. A owes B 2,000 rupees, and is also indebted to other creditors. A makes an arrangement with his creditors, including B, to pay them a compensation of eight annas in a rupee (i.e. 50%) upon their respective demands. Payment to B of 1,000 rupees is a discharge of B’s demand.

Forbearance to Sue is Consideration Forbearing i.e. abstaining from enforcing the claim is a good consideration for a promise to pay or do some other act.46 Forbearance to sue only constitutes consideration only so far as the delay in the proceedings is a benefit to the person intended to be sued. Promise to forbear may be implied and it may be forbearance only for unspecified time.

Exceptions when the Agreement is Valid without Consideration English Law In the English law a contact under seal is enforceable without consideration while the simple contracts need the presence of consideration. In the words of Anson: “English law recognizes only two kinds of contract, the contract made by deed that is under seal, which is called deed or specialty, and the simple contract.”47 A contract under seal means which is in writing and which id “signed, sealed and delivered.” The English law says that there is no liability upon a contract, unless the contract fulfils on of the two conditions, namely, either that it should be without “consideration’ or that it is a deed under seal.48

Indian Law Section 25 of the Indian Contract Act, 1872, generally declares that an agreement without consideration is void. The Section, however, provides exceptions to the rule stated as under: “25. 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 near relation to each other, or unless 2. It is promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor who 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 but for the law for the limitation of suits. In any case of these cases, such an agreement is a contract.” 46

See Morton v Burn, (1837) 7 A.&E. 19; Coles v Pack (1869) L.R. 5 C.P. 65 A.G. Guest, Principles of the Law of Contract, 22nd Ed. (1964), p. 65 48 Markby’s Elements of Law, 5th Ed., 1896, p. 311 47

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Promise due to natural love and affection [Section 25(1)] If a promise is made in favor of a person of a near relation on account of nearness, love or affection, the same is valid even though there is no consideration. The following conditions need to be satisfied in order to cover this exception: 1. The parties to the agreement must be standing in a near relationship to each other. 2. The promise should be made to one party out of natural love and affection for the other. 3. The promise should be in writing and registered. The near relationship has not been defined by act or any judicial pronouncement. But, from the various decisions we can see that it covers blood relations49 and relations made through matrimony50, but would not include such relations which are not near, but remotely entitled to inherit.51 But in a relation where there is no love and affection the exception does not apply. Like in Rajlucky Dabee v Boothnath Mookerjee,52 after a lot of quarrels and disagreements between the parties who were Hindu husband and wife decided to live apart. Later the husband executed a document giving the wife separate residence and maintenance. The agreement also included mention of the quarrels and disagreements between the two. It was held that the document was not executed because of love and affection but the absence of the same, therefore, the wife could not recover the sums mentioned in the document. It is also necessary for the document to be in writing and the writing be registered under the law relating to registration of documents.

Consideration for Past Voluntary Services [Section25 (2)] When something’s done at the desire of the promisor it constitutes a valid consideration in the same respect a subsequent promise to compensate for whatever has already been done is also good. In other words promise to pay for a past voluntary service is binding. In Sindha v Abraham53 the Bombay High Court said that “services rendered at the desire of the minor expressed during majority and continued at the same request after his majority form a good consideration for a subsequent express promise by him in favor of the person who rendered the services.”

Promise to Pay Time Barred Debt In another condition if a party agrees to pay a time barred debt it is considered to be valid contract. Section 25(3) required the following essentials to be satisfied in such a case: 1. The promise must be to pay wholly or in part a time barred debt, i.e., a debt which the creditor might have enforced payment but for the law the limitation of suits. 49

Bhiva v Shivram, (1899) 1 Bom. L.R. 495 Gopal Saran v Sita Devi, (1932) 36 C.W.N. 392 51 Jafar Ali v Amhad Ali, (1868) 5 B.H.C. 37 52 (1900) 4 C.W.N. 488 53 (1895) 20 Bom. 755 50

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2. The promise must be in writing and signed by the person to be charged therewith, or his duly authorized agent. The English law on the point is also same. It was established in England as way back as 160154 that a precedent debt is good consideration for a subsequent promise. This also includes time barred debts.55

Wholly or in Part Section 25(3) permits a promisee to pay the time barred debt wholly or in part. If the person promises to pay only a part of the time barred debt then he cone only be made liable for the part promised and not the whole amount.56

There should be Express Promise The promise to pay a time barred debt must be an express one57 and cannot be held sufficient if the intention has to be gathered from large number of circumstances. 58 In Tulsi Ram v Same Singh59 after three years of expiry period of a promissory note the defendant made the statement “I accept this pronote and it is valid for the next three years” (translated to English). Here the Delhi High Court held that the mere acknowledgment of presence of debt did not give the promise of payment and the defendant could not be made liable.

Admission to Pay in Court Proceedings In State Bank of India v Dilip Chandra Singh Deo60 it has been held that if the legal heir of deceased makes an admission in court indicting his willingness to pay the sum borrowed by the deceased, he can be held liable on the basis of his admission, even though the recovery for the same is barred by limitation. Promise to Pay must be Unconditional Promise to pay time barred debt within the meaning of clause (3) of Section 25must be expressed and unconditional. In K. Jeyaraman v M/s Sundaram Industries Ltd.,61 the appellant made a formal recognition of the fact that in a document he had agreed to pay the amount only after receiving the amount from the State Electricity Board. It was held by the Madras High Court that the document conveyed a conditional promise and was not covered by Section 23(3) as the cause of action of filing suit would only arise after amount was received from the State Electricity Board.

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Slad’s case, (1602) 2 Co. Rep. 91a. Hyelling v Hastings, (1699) 1 Ld. Ray. 389, Also see Section 23(4) (English) Limitation Act, 1939 56 Govinda Niar v Achutan Niar, A.I.R. 1940 Mad. 678 at p. 679 57 Bachu Kamalamma v Srinivasa Oil Mill, A.I.R. 1980 N.O.C. 41 (A.P.) 58 Govinda Niar v Achutan Niar, A.I.R. 1940 Mad. 678 at p. 679 59 A.I.R. 1981 Delhi 165 60 A.I.R. 1998 Orissa 129 61 A.I.R. 2008 (NOC) 2532 (Mad.) 55

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Bibliography Books referred Singh, Avtar Contract & Specific Relief, 10th Ed. Eastern Book Company (Lucknow), 2008 Bangia, R.K. 15

Law of Contract Part I, 6th Ed. Allahabad Law Agency (Faridabad), 2009 Furmston, Michael Cheshire, Fifoot & Furmston’s Law of Contract, 14th Ed. Lexis Nexis Butterwoths, 2006 Kumar, P.N. Sanjiva Row’s Commentary on The Indian Contract Act, 1872 and Tenders, 10th Ed. Delhi Law House, 2007

Websites referred http://en.wikipedia.org/wiki/Currie_v_Misa http://www.thefreedictionary.com/

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