Consideration Self-Study Questions And Answers
Question 1. What is consideration?
Answer:
Consideration
- Consideration should be lawful.
- A mere promise is not enforceable by law.
- It means “Quid Pro Quo” i.e. “something in return”.
- As per 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 to do or abstain from doing such act or abstinence or promise is called as consideration of promise.”
- As per Section 2(e) “Every promise and every set of promises, forming the consideration for each other is an agreement”
- The general rule is – “NO CONSIDERATION, NO CONTRACT’
- Consideration may move at the desire of the promisor and not at the desire of the
third party. - There may be a stranger to consideration but not a stranger to a contract.
- Under English Law, it must move from the promisee or any other person. Thus, a stranger cannot sue on the contract.
- Under Indian Law, however, a stranger to consideration can file a suit.
Question 2. Describe the Legal Rules Regarding Consideration.
Answer:
The Legal Rules Regarding Consideration
- It must move at the desire of the promisor [Case law: Durga Prasad V/s Baldeo].
- It may be done by the promisee himself or by any other person.
Relevant Case Law:
Chinnayya V/s Ramayya.
Facts
- A by a gift deed transferred certain property to her daughter, giving her the direction to pay an annuity to A’s brother.
- On the same day, the daughter executed writing in favor of A’s brother, agreeing to pay an annuity.
- She declined afterwards stating that no consideration had moved from her uncle Decision – Court held that consideration may move from any person. Thus, A’s brother was entitled to file a suit.
- It may be past, present, or future.
- It must be real and not vague.
- It must be legal.
- It need not be adequate (But if not adequate then consent must be free).
- It must be something more than the promisee is already bound to do for the promisor.
- It may not be illusory.
Question 3. What do you understand as a Suit by a third party to a contract?
Answer:
- The doctrine of Privity of Contract:
- It means that only those persons who are the parties to a contract, can sue and be sued upon the contract.
- it is different from- a stranger to consideration.
- It refers to the relationship between parties who have entered into the contracts.
- The third party cannot sue upon it, even though, the contract may be for his benefit.
- Thus, a stranger to the contract’ cannot bring a valid suit under the contract’.
Relevant Case Law
-
- Dunlop Pneumatic Tyre Co. V/s Selfridge Ltd.
- Tweddle V/s Atkinson
- Stranger to contract how right to sue in the following cases:
- The beneficiary of the Trust or charge can enforce it even if he is not a party in the trust deed.
- Marriage settlement, partition, and other family arrangements and other such agreements are reduced to writing.
- Acknowledgment of liability or by past performance thereof.
- Assignment of contract, however, it must be noted nominee is not an assignee.
- Contracts are entered through an agent.
- Covenant running with the land. The purchaser of immovable property is bound by several conditions created by an agreement affecting the land, even though he is not a party to the original agreement.
- Where the promisor by his conduct is estoppel from denying his liability to perform the promise, the person who is not a party to the contract can sue upon to make the promisor liable.
Question 4. Describe the Validity of an agreement without consideration.
Answer:
The Validity of an agreement without consideration
- An agreement made is valid if
- expressed in writing and registered under law.
- made an account of natural love and affection.
- between parties standing in near relation to each other.
- A promise is valid if
- it is a promise to compensate a person wholly or in part, a person who has already done something voluntarily for the promisor.
- Something which the promisor was legally compellable to do.
- A promise to pay, wholly or in part, a debt, which is barred by law of limitation can be enforced if
- it is in writing.
- it is signed by the debtor or his authorized agent.
Note – A debt barred by limitation cannot be recovered, a promise to pay such debt is without any consideration.
It does not apply to completed gifts i.e. gifts given and accepted.
- Consideration is not required to effect a valid bailment of goods i.e. gratuitous bailment.
- Not required to create an agency.
- If a person promises to contribute anything to a charity and on his faith, the promisee undertakes a liability to that extent, the contract shall be valid. [Relevant case law: Kedarnath V/s Gorie Mohammed].
Consideration Objective Questions And Answers
Question 1. State with reason whether the following statement is Correct or Incorrect. Consideration in a contract of sale of goods can also be paid partly in money and partly in goods.
Answer:
Correct: Consideration paid partly in money and partly in goods will be taken as valid sales because the price is there. It is so because price is considered a must for sale.
Question 2. State with reason whether the following statement is Correct or Incorrect. Consideration may move even from a person who is not a party to the contract.
Answer:
Correct: According to Section 2(d) of the Indian Contract Act, 1872 consideration may move from the promisee or any other person who may not be a party to the contract. In other words, there can be a stranger to the consideration.
Question 3. State with reason whether the following statement is Correct or Incorrect. A promise to take either rice or smuggled opium for a consideration of ₹ 1,000 is wholly void.
Answer:
Incorrect: As per Section 58 of the Indian Contract; Act, 1872, in the case of an alternative promise, one branch of which is legal and the other branch is illegal; the branch with legal promise can only be enforced.
Therefore, to take the rice is a legal promise hence it is enforceable, whereas to take smuggled opium is illegal and is enforceable by law.
Question 4. State with reason whether the following statement is Correct or Incorrect. Consideration may be present or future but not past.
Answer:
Incorrect: Section 2(d) of the Act states that the consideration may be past, present, or future.
Question 5. State with reason whether the following statement is Correct or Incorrect. Consideration for the sale of goods must be in terms of Money.
Answer:
Correct: It is one of the most important features of the contract of sale that the price should be paid in terms of money.
Question 6. State with reason whether the following statement is Correct or Incorrect. Consideration may be present or future, but not past.
Answer:
Incorrect: As per the definition of consideration contained in, Section 2(d) of the Indian Contract Act, 1872 consideration may be present, past, and future.
Consideration Descriptive Questions And Answers
Question 1. Comment on the following: “For every valid agreement there should be the consideration”.
Answer:
“For every valid agreement there should be the consideration”
A contract without consideration is valid under the following cases:
For an agreement to be enforceable law must be supported by a valid consideration. An agreement without consideration is void and enforceable (General Rule). But Section 25. Specifies the cases where an agreement made without consideration is valid. The exceptional cases are as follows:
1. Natural Love and Affection [Section 25(1)]: An agreement made without consideration will be valid if it is in writing and registered and is made on account of natural love and affection between the parties standing in near relation to each other.
2. Compensation for services rendered [Section 25 (2)]: An agreement will be valid without consideration it if is 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 for, that a promise to make payment for the past voluntary services is binding, there should be following factors:
- The services should have been rendered voluntarily.
- These should have been rendered for the promisor. „
- The promisor must exist at the time of rendering services.
- The promisor must have intended to compensate the promisee.
3. Time-barred debt [Sec. 25 (3)]: A promise to pay a time-barred debt is also enforceable if it is in writing and signed by the promisor. The promise must be to pay whole or part-time debt.
4. Completed gift: An agreement in respect of a gift that has been made and accepted.
5. Agency: An agreement containing agency may be without consideration.
Question 2. Comment on the following: To form a valid contract consideration must be adequate.
Answer:
To form a valid contract consideration must be adequate
The law provides that a contract should be supported by consideration. So long as consideration exists, the Courts are not concerned as to its adequacy, provided it is of some value.
- The adequacy of the consideration is for the parties to consider at the time of agreeing, not for the Court when it is sought to be enforced. (Bolton v. Madden).
- Consideration must, however, be something to which the law attaches value though it need not.be equivalent in value to the promise made.
- According to Explanation 2 to Section 25 of the Indian Contract Act ’1872, an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate.
- However, the inadequacy of the consideration may be taken into account by the Court in determining the question of whether the consent of the promisor was freely given.
Question 3. Briefly the following: “No consideration, no contract’
Answer:
No consideration, no contract:
- All contracts contain two parts:
- the promise, and
the consideration for such a promise. A promise without consideration is purely gratuitous. Such a promise can not create a legal obligation, no matter that it is highly sacred and morally binding (Abdul Aziz v. Mazum Ali -AIR 1914, 36 All 268).
Thus, the rule of law is that no consideration, no contract. Section 25 of the Indian Contract Act, of 1872 embodies the rule that an agreement without consideration is void. However, there are certain exceptions to the general rule.
- If an agreement is expressed in writing and registered and is made on account of natural love and affection, it is a valid contract without consideration.
- A promise to compensate a person for something that has already been done voluntarily for the promisor is valid without consideration and creates a contract.
- A promise by a debtor to pay a time-barred debt is valid provided that it is made in writing and is signed by the debtor or by his authorized agent on this behalf.
- The rule ‘no consideration, no contract’ does not apply in the case of a completed gift.
- No consideration is necessary to create an agency
Question 4. Explain the following: Unlawful consideration
Answer:
Unlawful Consideration: One of the essential elements of consideration is that it must be lawful. An agreement becomes void, if it is based on unlawful consideration. The consideration of an agreement becomes unlawful when:
- It is forbidden by law or
- If it is fraudulent or
- If it defeats the provision of any law or
- If it involves or implies injury to the person or property of another or
- The court regards it as immoral or opposed to public policy.
Question 5. Briefly the following: What is Consideration? Give its characteristics
Answer:
Consideration:
It is the price of the promise i.e. something in return Section 2(d) of the Indian Contract Act, 1872 defines it as when the desire of the promisor, the promises, or any other person abstained has done or from doing, or does or abstains for doing, or promises to do or abstain from doing something such an act or abstinence or promise is called consideration for the promise”.
Characteristics
- Consideration is the doing or not doing of something which the promisor desires to be done or not done.
- Consideration must be at the desire of the promisor.
- Consideration may move from one person to any other person.
- Consideration may be past, present, or future.
- Consideration need not be adequate but should be real.
Question 6. State the exceptions to the rule “An agreement without consideration is void”.
Answer:
The exceptions to the rule “An agreement without consideration is void”
The general rule is that an agreement without consideration is void. However, there are certain exceptions to this rule. In the following cases, the agreement though made without consideration, will be valid and enforceable.
- Natural love and affection: A written and registered agreement based on natural love and affection between the parties standing in near relation (For Example. husband and wife) to each other is enforceable without consideration.
- Compensation for past voluntary services: A promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor, is enforceable, although it is without any consideration today.
- Promise to pay time-barred debt: Where a promise in writing signed by the person making it or by his authorized agent is made to pay a debt barred by limitation it is valid and binding even though without consideration.
- Agency: No consideration is necessary to create an agency.
- Completed Gift: In the case of gifts the rule of no consideration, no contract is not applicable.
- Bailment: No consideration is required for this.
- Charity: If one promises to undertake liability to contribute to charity, the contract shall be valid even though without consideration.
Question 7. Define consideration. What are the legal rules regarding consideration under the Indian Contract Act, of 1872?
Answer:
Consideration
Section 2(d) of the Indian Contract Act, of 1872 defines consideration 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 abstain from doing something, such an act or abstinence or promise is called a consideration for the promise”.
- It is defined as “quid-pro-quo”, i.e. “something in return”. This something need not be in terms of money, as stated, it is some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility, given suffered or undertaken by the other”.
- However, it must have some value in the eyes of the law and must not be vague or illusory.
Legal Rules Regarding Considerations:
- Consideration must done at the desire of the promisor: An act done at the desire of a third party is not a consideration.
- Consideration may move from a promisee or any other person: There can be a stranger to consideration but not a stranger to a contract.
- Executed and Executory Consideration: When consideration consists of an act it is executed but when it consists of a promise it is executory.
- Consideration may be past present or future: The words “has done or abstained from doing” are a recognition of the doctrine of past consideration.
- Consideration need not be adequate: It need not be of any particular value, but it must be something.
- Performance of what one is legally bound to perform, cannot be treated as consideration.
- Consideration must be real and not illusory.
- Consideration must not be unlawful, immoral, or opposed to public policy.
Question 8. The general rule is that an agreement without consideration is void. Discuss the cases where the agreement though made without consideration will be valid and enforceable as per the Indian Contract Act, of 1872.
Answer:
No consideration no contract:
The general rule is that an agreement made without consideration is void (Section 25 of the Indian Contract Act, 1872). In every valid contract, consideration is very important.
A contract may only be enforceable when consideration is there. However, the Indian Contract Act contains certain exceptions to this rule. In the following cases, the agreement though made without consideration, will be valid and enforceable.
1. In case of an agreement on account of natural love and affection: An agreement on account of natural love and affection will be valid if it:
- Written
- Registered
- Based on Natural Love affection
- Parties stand in near relation with each other (For Example. husband and wife)
Example: A husband, by a registered agreement, promised to pay his earnings to his wife. Held the agreement though without consideration, was valid.
2. Agency: In the case of a contract of agency consideration is not required.
3. Bailment: In the case of a contract of bailment consideration is not required.
4. Completed gift: Completed gift moans and a gilt handed over. Thus, gifts made by a donor and accepted by the done are valid ovens without consideration.
Example: On A”‘s birthday, B gives him a gold chain as a birthday gift in this case B cannot demand back the chain on the ground that there was no consideration.
5. Charity: A mere promise for charity is void because it is without consideration. But if a person promises to contribute to a charity and the promisee undertakes liability-i.e. incur liability then the contract will be valid up to the extent of the subscription promised.
Note: In the case of charity, the promisee is liable to pay the amount of incurred liability but up to the promised amount.
6. Compensation for Past Voluntary Service: When a person, has already voluntarily done something for the promisor then a promise to compensate either wholly or partly will be binding when:
- The services should have been – done voluntarily (but not involuntarily)
- The services should have been rendered for the promisor
- The promisor must be in existence at the time when services were rendered
- The promisor must have intended to compensate.
Example: P finds R’s purse and gives it to Him. R promises to give P ₹ 1,000. This is a valid contract.
7. In the case of Promise to Pay time-barred debt: Time-barred debt or a debt-based by limitation refers to an amount that has remained unclaimed beyond a period of 3 years.
A promise to pay time-barred debt is valid if:
- It is in writing and
- Signed by the person making a promise or by his agent.
Example: A is indebted to C ₹ 6,000 but the debt is barred by the Limitation Act. Signs a written promise now to pay ₹ 5,000 in final settlement of the debt. This is a contract without consideration, but enforceable.
Question 9. “The general rule is that an agreement made without consideration is void”. State the exceptions of this general rule as per the Indian Contract Act, of 1872.
Answer:
“The general rule is that an agreement made without consideration is void”
The general rule is that an agreement made without consideration is void. However, the Indian Contract Act contains certain exceptions to this rule. In the following cases, the agreement is valid even though it is made without consideration, yet it will be valid
1. Natural Love and Affection – A promise that is made out of natural love and affection is enforceable even though it is without consideration if all the below-stated conditions are satisfied
- It must be made out of natural love and affection between the parties.
- Parties must stand in near relationship to each other.
- It must be in writing.
- It must be registered under the Law. In other words, a written and registered agreement based on natural love and affection between the parties standing in near relation (eg: husband and wife) to each other, is enforceable even without consideration.
2. Compensation for past voluntary services:
A promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor is enforceable even without consideration, if all the below-stated conditions are satisfied
- The services should have been rendered voluntarily.
- The services must have been rendered for the promisor.
- The promisor must be in existence at the time when such services were rendered.
- The promisor must have intended to compensate the promisee.
3. Promise to pay Time-Barred Debt
A promise to pay a debt that is barred by limitation is valid even without consideration if all the below-stated conditions are satisfied:
- It must be made in writing.
- It must be signed by the person making it or by his authorized agent.
4. Contract of Agency:
Consideration is not necessary to create an agency.
5. Completed Gift:
- Nothing in this section shall affect the validity of gifts made between the donor and donee.
- Completed gifts do not require any consideration.
- If a person transfers some property by a duly written and registered deed as a gift, he cannot claim back the property subsequently on the ground of lack of consideration.
6. Contract of Bailment:
Consideration is not required to affect a contract of bailment.
7. Promise to contribute to charity:
If a promisee undertakes the liability on the promise of the person to contribute to charity, the contract shall be valid.
Question 10. Explain the following statements in the light of provisions of the Indian Contract Act, of 1872:
- “Agreements made out of love and affection are valid agreements”.
- “Promise to pay a time-barred debt cannot be enforced”.
Answer:
The general rule is that an agreement made without consideration is void (Sec. 25). In every valid contract consideration is very important. A contract may only be enforceable when there is adequate consideration is there.
However, the Indian Contract Act contains certain exceptions to this rule. In the following cases, the agreement though made without consideration, will be valid and enforceable.
1. “Agreements made out of love and affection are valid agreements” A written and registered agreement based on natural love and affection between the parties standing in near relation (For Example., husband and wife) to each other is enforceable even without consideration.
A contract in writing, registered on account of natural love, and affection between parties standing near relation to each other is the essential requirement for a valid contract though it is without consideration (Rajlakhee Devi vs. Bhootnath). Hence, the given statement is correct.
2. “Promise to pay a time-barred debt cannot be enforced.” Where a promise in writing signed by the person making it or by his authorized agent, is made to pay a debt barred by limitation it is valid without consideration (Sec. 25 (3)). Hence, the given statement is incorrect.
Question 11. As per the general rule, “Stranger to a contract cannot file as a suit in case of breach of contract”. Comment and explain the exceptions to this rule as per the provisions of the Indian Contract Act, of 1872.
Answer:
As per the provisions of the Indian Contract Act, 1 872, the consideration for an agreement may proceed from a third party but the third party cannot sue oh contract. This doctrine of privity of contract is however subject to certain exceptions stated below:
- In the case of trust, a beneficiary can enforce his right under the trust, though he was not a party to the contract between the setter and the trustee.
- In the case of family settlement, if the terms of the settlement are reduced into writing the members of the family who originally had not been parties to the settlement may enforce the agreement.
- In the case of certain marriage contracts or agreements, a provision may be made for the benefit of a person, he may file the suit though he is not a party to the agreement.
- In the case of assignment of a contract, when the benefit under a contract has been assigned, the assignee can enforce the contract but such assignment should not include any personal skill.
- Acknowledgment or Estoppel – where the promisor by his conduct acknowledges himself as an agent of the third party, it would result in a binding obligation towards the third party.
- In the case of a covenant running with the land, the person who purchases land with notice that the owner of the land is bound by certain duties affecting the land, and the covenant affecting the land may be enforced by the successor of the seller.
- Contracts entered into through an agent: The principal can enforce the contracts entered by his agent where the agent has acted within the scope of his authority and in the name of the principal.
Question 12. Mr. Sohanlal sold 10 acres of his agricultural land to Mr. Mohanlal on 25th September 2018 for t 25 Lakhs. The Property papers mentioned a condition, amongst other details, that whosoever purchases the land is free to use 9 acres as per his choice but the remaining 1 acre has to be allowed to be used by Mr. Chotelal, son of the seller for carrying out farming or other activity of his choice. On 12th Oct 2018, Mr. Sohanlal died leaving behind his son and wife. On 15th Oct 2018, the purchaser started construction of an auditorium on the whole 10 acres of land and denied any land to the son.
Now Mr. Chotelal wants to file a case against the purchaser and get a suitable redressed. Discuss the above in light of provisions of the Indian Contract Act, 1 872 Arid decide upon Mr. Chotelal’s plan of action?
Answer:
In India,’ consideration may proceed from the promisee or any other person who is not a party to the contract. According to the definition of consideration as given in Section 2(d), when at the desire of the promisor, the promisee, or
- Any other person does something, such an act is consideration. In other words, there can be a stranger to a consideration but not a stranger to a contract.
- In the given case between the defendant (Mr. Mohanlal) and the plaintiff (Mr. Chotelal), the consideration has been furnished on behalf of the plaintiff (Mr, Chotelal) by his father (Mr. Sohanlal).
- Although the plaintiff was a stranger to the consideration since he was a party to the contract he could enforce the promise of the promisor, since under Indian law, consideration may be given by the promisee or anyone on his behalf vide Section 2(d) of Indian Contract Act.
- Thus, consideration furnished by Mr. Sohanlal to Mr. Mohanlal constitutes sufficient consideration for the plaintiff (Mr. Chotelal) to sue the defendant on the promise. Held, Mr. Chotelal was entitled to a decree for the right to use that 1 acre of land.