Unit 2: Consideration Notes

The Story

Lizardi & Co. sold four bills of exchange to Mr. Misa. Under the trade practice, Misa had to pay for those bills on the next foreign post day. At the same time, Lizardi & Co. owed money to Currie’s banking firm, and the bank was pressing them to reduce their outstanding balance.

To reduce that debt, Lizardi & Co. gave Currie’s bank an order directing Misa to pay the amount of the bills to the bank. Misa’s manager first gave a cheque for the amount. But later, when he came to know that Lizardi & Co. had stopped payment and were in financial trouble, he instructed his bankers not to honour the cheque. Currie’s bank then sued Misa for the amount.

Legal Problem

Was the bank’s position supported by consideration, even though the consideration was not a simple cash payment directly from the bank to Misa?

Court's Reasoning

The court looked at the legal value exchanged between the parties. It explained that consideration is not restricted to money. It may be a benefit to one party, or a detriment, loss, responsibility, or forbearance undertaken by the other party.

Exam Application

Use this case when the question asks to define consideration or explain its meaning with reference to case law.

Memory Trigger

Look for legal value, not only money.

The Story

Durga Prasad constructed shops in a market. But the important fact was that he did not construct those shops because Baldeo or the shopkeepers had asked him to do so. The construction was carried out at the request of the Collector.

After the shops were built, the market became more useful and the shopkeepers benefited from the improved business activity. Because they were getting benefit from the market, they later promised to pay Durga Prasad a commission on goods sold through the market. When they refused to pay the commission, Durga Prasad sued them to enforce the promise.

Legal Problem

Can a promise be enforced when the act claimed as consideration was done at the request of a third party and not at the request of the promisor?

Court's Reasoning

The court held that the promise was not enforceable. Mere benefit to the promisor is not enough. The act must be done at the desire or request of the promisor.

Exam Application

If A repairs B’s property without B’s request, or at the request of a government officer, and B later promises to pay, the promise may not be enforceable.

Memory Trigger

Collector requested, not shopkeepers. Therefore, no valid consideration.

The Story

An old lady owned certain property and decided to gift it to her daughter. While making the gift, she imposed a condition that her daughter should pay a fixed annuity to the old lady’s brother. In simple terms, the daughter was getting the property, but she also had to support the uncle by making regular payments.

The daughter accepted the property and also executed a written agreement in favour of the uncle, promising to pay him the annuity. Later, after receiving the benefit of the gift, she refused to make the payment. The uncle sued her. The daughter argued that the uncle himself had given her nothing, because the property had come from the mother and not from him.

Legal Problem

Was the uncle barred from enforcing the promise merely because consideration moved from the mother and not from him?

Court's Reasoning

The court held that the uncle could recover the amount. Section 2(d) says consideration may move from the promisee or any other person. Therefore, it was not necessary that the uncle himself should have provided consideration.

Exam Application

Use this when A gives consideration but the promise benefits B, especially where the arrangement gives B enforceable rights.

Memory Trigger

Mother gave property, daughter promised annuity, uncle could sue.

The Story

Two parties entered into an agreement where one party promised to subscribe money to a charitable object, and the other side promised to vote in a particular manner connected with that object. The value exchanged between the parties was not equal in a commercial sense.

The dispute reached the court because one side argued that the consideration was not sufficient or adequate. The court had to consider whether a bargain can fail merely because the value given by one party appears small, unequal, or not commercially equivalent to the promise received.

Legal Problem

Can a contract be challenged only because the consideration appears inadequate or unequal?

Court's Reasoning

The court recognised that consideration must have some legal value, but it need not be equal in value to the promise. Courts normally do not rewrite a freely made bargain merely because the value appears inadequate.

Exam Application

If A sells a house worth ₹60 lakh for ₹10 lakh, the agreement is not void merely because the price is low. But the low price may support an allegation of undue influence if facts show pressure.

Memory Trigger

Court checks presence of consideration, not fairness of bargain.

The Story

Godefroy was involved in a legal case and wanted Collins to attend court as a witness. Collins had already been subpoenaed, which means he was legally required to attend court. His attendance was not a voluntary favour; it was a duty imposed by law.

To make sure Collins attended, Godefroy promised to pay him one guinea for every day he remained in court. Collins attended for six days, although he was not actually called to give evidence. After that, he demanded payment for the six days. Godefroy refused, and Collins sued to recover the promised amount.

Legal Problem

Can a person claim payment for doing something which he was already legally bound to do?

Court's Reasoning

The court held that Collins had given no fresh consideration. He was already bound by law to attend court because of the subpoena. Doing what the law already required him to do could not support a new promise of payment.

Exam Application

If a public officer, witness, or legal duty-holder is promised extra money for doing what the law already requires, the promise is generally not enforceable.

Memory Trigger

Already bound by law means no fresh consideration.

The Story

A son owed money to his father. The son frequently complained that his father had not distributed family property fairly among the children. The father, tired of these complaints, told the son that if he stopped complaining, the father would forgive or not enforce the debt.

After the father’s death, the executors of the estate demanded repayment of the debt from the son. The son argued that he did not have to pay because he had kept his side of the arrangement by not troubling his father with complaints. The court had to decide whether stopping complaints was something of legal value.

Legal Problem

Does a promise to stop complaining amount to real consideration in law?

Court's Reasoning

The court held that the son had not given valid consideration. His promise to stop complaining had no real legal value. It was too vague and did not involve giving up a legal right or undertaking a legal burden recognised by law.

Exam Application

Use this when the alleged consideration is something vague, sentimental, imaginary, or not recognised by law.

Memory Trigger

Stopping complaints is not legal consideration.

The Story

Two highway robbers had worked together in committing robberies and collecting stolen money. After some time, a dispute arose between them regarding the division of the stolen proceeds. One robber claimed that the other had not given him his proper share.

Instead of settling the matter privately, he approached the court and filed a claim for an account of the robbery profits. In effect, one criminal was asking the court to enforce an agreement to share the gains of crime. The case became famous because it showed the court’s refusal to assist a party whose claim is founded on illegality.

Legal Problem

Can a court enforce an agreement whose object or consideration is illegal?

Court's Reasoning

The court refused to enforce the claim. The agreement was based on criminal activity, and the court would not help either party recover benefits arising from an illegal arrangement.

Exam Application

Use this when the facts involve payment for crime, bribery, smuggling, illegal influence, or any unlawful object.

Memory Trigger

A robber cannot sue another robber for robbery profits.

The Story

A husband and wife were not living together peacefully. Serious differences had arisen between them, and they were living separately. During this period of separation, the husband executed a registered agreement promising to pay a separate allowance to his wife.

Later, when the payment was not made, the wife tried to enforce the promise. She argued that the agreement was between near relatives and was registered, so it should fall within the exception for natural love and affection. The husband’s side argued that the circumstances showed absence of natural love and affection because the parties were already separated due to disputes.

Legal Problem

Does near relationship alone prove natural love and affection under Section 25(1)?

Court's Reasoning

The court held that the promise was not enforceable merely because the parties were husband and wife. The facts showed quarrel and separation, so natural love and affection could not be presumed.

Exam Application

Use this when a question says the parties are related but the facts show dispute, separation or absence of affection.

Memory Trigger

Relation alone is not affection.

The Story

Services were rendered to a person while he was still a minor. Since a minor is not competent to contract, any promise made during minority could not create an ordinary enforceable contract. The services, however, were not treated as completely irrelevant after the minor became major.

After attaining majority, the same person continued to receive the benefit of the services and later promised to pay for them. When payment was disputed, the court had to consider whether the later promise could be connected with the services already rendered and continued after majority.

Legal Problem

Can services rendered earlier, especially where they continued after the promisor became competent to contract, support a later promise to pay?

Court's Reasoning

The court treated the services continued after majority, and the later promise to pay for them, as capable of supporting enforceability. The case is used to explain how past services and later compensation may operate under Indian law when the statutory conditions are satisfied.

Exam Application

Use this when services were already rendered and the promisor later promises compensation for those services.

Memory Trigger

Past voluntary service can support later compensation.

The Story

Money had been advanced several years before the dispute. When recovery was later sought, the defence was that the claim related to an old debt and was therefore barred by limitation. The matter also involved documentary material showing acknowledgment of liability, including entries relied upon to show that the debt had not simply disappeared in law.

The lower court had treated the limitation point as sufficient to reject the claim at the threshold. The Supreme Court held that this was not the correct approach where there was material suggesting acknowledgment or a legally relevant promise. The limitation issue had to be examined properly on evidence instead of being dismissed mechanically.

Legal Problem

Can liability connected with an old debt still become legally relevant where there is written acknowledgment or a promise satisfying legal requirements?

Court's Reasoning

The court recognised that limitation and acknowledgment are factual and legal questions. For Section 25(3), the key rule remains simple: a written and signed promise to pay a time-barred debt is enforceable even without fresh consideration.

Exam Application

Use this when the debtor orally promises payment versus when the debtor gives a written and signed promise. Only the written and signed promise satisfies Section 25(3).

Memory Trigger

Old debt plus written signed promise equals enforceable.

The Story

A proposal was made to construct a town hall. For this public purpose, several persons promised to contribute money by way of subscription. Kedarnath was one of the subscribers who promised to pay a certain amount.

The organisers did not merely keep the promises on paper. Acting on the faith of these subscriptions, they proceeded with the project and incurred liabilities for construction. Later, Kedarnath refused to pay the amount he had promised. The organisers sued him, arguing that they had changed their position and taken financial responsibility because of the promised subscriptions.

Legal Problem

Is a charitable promise enforceable when the promisee has acted upon it and incurred liability?

Court's Reasoning

The court held that the promise was enforceable. Once the organisers incurred liability on the faith of the promised subscription, the promise was no longer a bare promise.

Exam Application

If A promises ₹1 lakh for a school building fund and the trustees enter into a construction contract relying on it, A may be bound to pay.

Memory Trigger

Charity promise plus liability incurred equals enforceable.

The Story

A marriage was arranged between a bride and a groom. The fathers of both sides entered into an agreement with each other that each father would pay a sum of money to the groom after the marriage. The groom was clearly the person who was supposed to receive the benefit.

However, the groom himself was not a party to the agreement between the two fathers. After the marriage, the promised amount was not paid. The groom then sued to recover the money, arguing that the contract had been made for his benefit.

Legal Problem

Can a person sue on a contract merely because it was made for his benefit, even though he was not a party to it?

Court's Reasoning

The court held that the groom could not sue. Benefit under a contract is not enough. The person must be a party to the contract unless a recognised exception applies.

Exam Application

Use this when a third-party beneficiary tries to enforce a contract made between two other persons.

Memory Trigger

Benefit is not enough. Party to contract is necessary.

The Story

Dunlop manufactured tyres and sold them to dealers on a condition that the tyres should not be resold below a fixed price. This condition was meant to protect Dunlop’s price structure in the market.

One dealer sold tyres to Selfridge & Co. Selfridge also agreed with that dealer not to sell below the fixed price. Later, Selfridge sold the tyres at a lower price. Dunlop wanted to sue Selfridge for breaking the resale-price condition, but Dunlop had no direct contract with Selfridge. The direct agreement was between the dealer and Selfridge.

Legal Problem

Could Dunlop sue Selfridge even though Dunlop had no direct contract with Selfridge?

Court's Reasoning

The court held that Dunlop could not sue Selfridge. Dunlop was not a party to the contract between the dealer and Selfridge, and no consideration had moved from Dunlop to Selfridge in that contract.

Exam Application

Use this where A contracts with B, B makes a related contract with C, and A tries to sue C directly.

Memory Trigger

No direct contract with Selfridge, so Dunlop could not sue.

The Story

A charterparty agreement was made for the use of a ship. The agreement contained a clause that commission would be paid to Walford, the broker who had helped bring about the transaction. Walford was not himself one of the main contracting parties to the charterparty.

When the commission was not paid, Walford claimed it. The objection was that he was a stranger to the contract because the promise to pay commission appeared inside a contract between other parties. The case therefore raised a practical question: if a contract clearly provides a benefit for a third person, can that person enforce it through the trust exception?

Legal Problem

Can a third-party beneficiary enforce a promise where the contract shows that the promise was meant to be held for his benefit?

Court's Reasoning

The court treated the promise as one where the contracting party could be regarded as holding the benefit for the broker. This allowed the beneficiary to enforce the promise through the recognised trust exception to privity.

Exam Application

Use this under the trust exception where a contract clearly sets aside a benefit for a named third person.

Memory Trigger

Benefit held for a person can be enforced as trust.

The Story

Hussaini Begum’s marriage was arranged with the son of Khwaja Muhammad Khan. As part of the marriage arrangement, Khwaja Muhammad Khan executed an agreement promising to pay Hussaini Begum a monthly allowance for her personal expenses after she was received into her husband’s household.

The allowance was not a casual oral promise. It was connected with the marriage arrangement and was charged on specific immovable properties. Later, when the payment was not made, Hussaini Begum sued to recover the allowance. The objection raised was that she was not a direct party to the original arrangement in the strict contractual sense.

Legal Problem

Can a beneficiary under a family or marriage arrangement enforce the promise despite the general rule of privity?

Court's Reasoning

The court allowed enforcement because family and marriage arrangements are often made by elders for the benefit of a specific family member. Denying enforcement would defeat the purpose of such arrangements.

Exam Application

Use this when a promise is made under a family settlement, marriage settlement, or arrangement for the benefit of a specific family member.

Memory Trigger

Marriage settlement beneficiary can sue.

The Story

Humble managed a public house, but the business actually belonged to Fenwick. Humble appeared to outsiders as if he was carrying on the business, and goods were purchased from Watteau for the business. Watteau supplied the goods believing he was dealing with Humble.

When payment was not made, Watteau discovered that Fenwick was the real owner behind the business and sued Fenwick. Fenwick argued that he had not personally dealt with Watteau and that Humble had acted beyond the limits placed on him privately. The dispute showed how agency can connect a principal with contracts made through an agent.

Legal Problem

Can a principal be connected with a contract made through an agent, even though the principal did not personally negotiate with the third party?

Court's Reasoning

The court held the principal liable because the transaction was of a kind ordinarily connected with the agent’s position. In agency, the agent’s authorised acts are treated as acts of the principal.

Exam Application

Use this when a contract is made through an agent and the question asks whether the principal gets rights and liabilities.

Memory Trigger

Agent acts; principal is legally connected.

The Story

Tulk owned a piece of land in Leicester Square, London. He sold the land to another person under a covenant that the land would be maintained as an open garden and would not be built upon. The object was to preserve the open character of the square.

The land later passed through different hands and eventually came to Moxhay. Moxhay had notice of the original restriction, but he still wanted to build on the land. Tulk sued to stop him, even though Moxhay was not a party to the original contract between Tulk and the first purchaser.

Legal Problem

Can a later purchaser of land be bound by a restrictive covenant when he bought the land with notice of that restriction?

Court's Reasoning

The court restrained Moxhay from building. It held that a purchaser who takes land with notice of an obligation attached to it cannot ignore that obligation merely because he was not a party to the original contract.

Exam Application

Use this when land is sold subject to a condition and the subsequent purchaser knew of that condition.

Memory Trigger

Garden must remain a garden.