Business Law

CONSIDERATION AND OBJECT

Define consideration. Explain the essentials of valid consideration

Definition
Consideration is an essential of a valid contract. The term consideration means something in return. The
consideration is the benefit received by a party to the contract in return for the promise made by him.
An agreement without consideration is void.
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
something, such act or abstinence or promise is called a consideration for the promise."
EXAMPLES
a C agrees to sell his house to B for Rs 50 Lac For C, the consideration is Rs 50 Lac For B. the
consideration is the house
b. C promises to repair B's car and B promises to pay Rs 500 The promise of one party is the
consideration of the other party
c. C promises to paint a picture for B and B promises to teach him for a month The promise of one party
is the consideration of the other party.
Essentials of Valid Consideration
The essentials or rules of a valid consideration are as under
1. Desire of Promisor
2. Promisee or other Person
3. Act or Abstinence.(self-denial)
4. Past, Present or Future
5. Adequacy of Consideration
6. Legal and Certain

1. Desire of Promisor
The act or abstinence that creates a consideration must be done at the desire of the promisor. It means
that any act performed at the desire of a third party or an act performed voluntarily does not create a
valid consideration
EXAMPLES
a C saved B's house from fire B did not ask for help. C cannot demand payment for his services because
he acted voluntarily
b.B promised to pay a commission if D built a market. Later, D built the market at the district collector's
request D demanded a commission from B. Held that the promise was not enforceable because the
market was not built on B's request.(Druga Prasad vs.Baldeo)
2. Promisee or other Person
An act creating the consideration may be done by the promisee or any other person it does not matter
who provides the consideration It may move from the promsee or any other person it means a person
can sue on a contract even if the consideration for the promise is moved from a third party
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EXAMPLES
a A contracts to pay Rs. 500 to B if B repairs C's car. Bagrees Later, B refuses due to lack of consideration
from C C can sue B to enforce the contract
b A gifted property to her daughter R on the condition that she would pay a certain amount to A's sister
CR agreed Later. R refused to pay C sued Held C could recover the amount as the consideration had
moved from A (Chinnaya vs Ramayya)
3. Act or Abstinence.
The consideration may be an act or abstinence An act means doing something When the consideration
is an act, it is called positive consideration Abstinence means not doing something. When the
consideration is abstinence is called negative consideration
EXAMPLES
a P agrees to construct Q's house for Rs. 10 Lac Q's promise to pay Rs 10 Lac is the consideration for P's
promise to construct the house
b. C promises not to sue his debtor B if B pays him an additional Rs 5.000. The abstinence of C is the
consideration for B's payment
4. Past, Present or Future
The consideration may be past, present or future
a. Past Consideration
When the consideration is received before the formation of a contract it is called past consideration. If a
promise is made to compensate a person who has already provided some benefit, then past
consideration is valid However, if a person provides benefits voluntarily without any promise for
compensation the past consideration is not valid and the person cannot get any compensation
EXAMPLES
A. B found C's lost purse and returned it to him 8 cannot demand any compensation for his past
voluntary act
B.C teaches B at his request in January In February B promises to pay C. Rs 2.000 for his services. C can
recover because past consideration is valid.
C.A lawyer gave up his practice to serve as a manager at the request of a landlord. The landlord
promised to pay him a pension. It was held that past consideration was valid. (Shive Saran vs.Kesho
Prasad)
b. Present Consideration
When the consideration is given immediately at the time of forming a contract, it is called present
consideration. The act creating the consideration is fully performed
EXAMPLE
C sells a book to B and B pays the price it is a present consideration.
c. Future Consideration
When the consideration on both sides is to move at a future date after the formation of a contract, it is
called future consideration. In future consideration the promises on both sides remain to be performed:
EXAMPLE
X promises to deliver a car to Y after a week. Y promises to pay at the time of delivery. It is a future
consideration.
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5. Adequacy of Consideration
It is not necessary that the consideration must be adequate The parties are free to decide the value of
consideration. However, inadequate consideration may create doubt about the free consent of parties
The court considers inadequate consideration while deciding cases if the consent of parties is proved to
be free, inadequate consideration is valid
EXAMPLES
a. C agrees to sell his car worth Rs. 2 Lac for Rs. 50,000 with free consent. The contract is valid
b. Before dying, T wished that his wife should have the house for the rest of her life. The executors of T's
will agreed that the wife could have the house for £1 per year rent but later refused on the grounds of
inadequate consideration
The court held that the consideration was valid. (Thomas vs Thomas)
6. Legal and Certain
The consideration must be legal and certain. The consideration is not valid in the following
circumstances:
a. A promise to do something which is physically impossible.
b. A promise to do something which is illegal
c. A promise to do something which is uncertain
d. A promise to perform a duty that a person is already responsible to perform under the law.

EXAMPLES
a C promises to put life in B's dead cat and B promises to pay him: Rs 1 Lac. The consideration is not
valid
b.D promises to pay Rs. 1 Lac to B if B promises to beat up C. The consideration is not valid
c.C employs B for some work and promises to pay a reasonable amount The consideration is not valid
d G promised to pay C if he gave evidence in the court for G C gave evidence on the court order. C sued
for payment It was held that C could not get compensation because it was his legal duty to attend the
court (Collins vs Godefroy)

What are the exceptions of Consideration?

Exceptions to Consideration
An agreement without consideration is void. However, the following agreements are valid even without
consideration:
1. Natural Love and Affection
2. Voluntary Compensation
3. Time-Barred Debt
4. Completed Gift
5. Contract of Agency
6. Remission by Promisee

1. Natural Love and Affection

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An agreement made on account of natural love and affection between parties is valid without
consideration if the following conditioris are satisfied: [Sec 25(1)]
a The contract must be in writing
b. The contract must be registered according to the law
c.The contract must be based on natural love and affection
d. There must be a near relation between parties to the contract
EXAMPLES
a F, on account of natural love and affection, promises to give Rs. 1 Lac to his son S. F puts the
agreement in writing and gets it registered. It is a contract
b. K sued M on the grounds that she never gifted her property to M It was held that the agreement was
not valid and the gift deed was cancelled. (Mehmood Khatoon vs. Mohammad Khan)
2. Voluntary Compensation
If the promise is made to compensate a person who has voluntarily done something for the promisor, it
is enforceable even without consideration. In other words, a promise to compensate for a past voluntary
act is binding The following points are important in this respect [Sec 25(2)]
a. The act must be performed voluntarily for the promisor
b. The promisor must be in existence when the act was performed
c. The intention of the promisor must be to compensate the promisee
d.The act performed must be legal.

EXAMPLE
C saves B from drowning in the river. B promises to pay Rs. 10,000 to C as reward .It is a valid contract.
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3. Time-Barred Debt
A debt becomes time-barred if it is not paid or claimed for a penod of 3 years from the date it becomes
due. A time-barred debt is not recoverable Ari agreement to pay a time-barred debt is valid without
consideration if the following conditions are fulfilled. [Sec 25 (3))
a. The debt must be time-barred.
b. The promisor himself must be liable for the debt
c. There must be a promise to pay the time-barred debt
d. The promise must be in writing and signed by the debtor or his agent
EXAMPLE
C owes Rs 10,000 to B. The debt becomes time-barred. C signs a written promise to pay Rs. 10,000 to B
on account of the debt. It is a valid contract
4. Completed Gift
Any gift given by the donor to donee is valid without consideration. A gift is completed when the
possession is transferred by the donor to the donee [Sec 25 Explanation 1]
EXAMPLE
C transferred some property to B by a registered deed as a gift it is a valid contract even without
consideration.
5. Contract of Agency
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Consideration is not necessary to create an agency Usually, an agent gets a commission for his services.
If an agent promises to perform any act for his principal without taking any commission, the agreement
is valid even without consideration: [Sec 185]
EXAMPLE
C promises to sell B's house on his behalf. An agreement between C and B is valid even without
consideration

6. Remission by Promisee
When a person agrees to receive less than what is due, it is called remission. If a creditor agrees to give
up a part of his claim, the agreement is valid without consideration Similarly, an agreement to extend
the time for the performance of a contract requires no consideration [Sec. 63]

EXAMPLE
Cowes Rs 5,000 to B. C pays Rs 2.000 and B accepts in full satisfaction of the total debt. The total debt is
discharged.

Who is stranger? Can a Contract with Stranger is Valid?

Stranger to Contract
Any person other than the parties to a contract is called a stranger to the contract. A person may be a
stranger to the consideration but must not be a stranger to the contract A contract cannot give rights or
impose obligations on a person who is not a party to the contract. Only the parties to a contract can sue
to enforce their rights arising from the contract. This principle is also called the privity of contract
EXAMPLES
a X owes Rs 8 Lac to Y X sells his house to B for Rs 8 Lac and asks B to pay Y B fails to pay Y cannot sue B
because he is not a party to the contract
b. Dunlop sold tyres to D on the condition that he will not sell them below Dunlop's list price D sold tyres
to S on the same condition. S sold tyres below Dunlop's list price. It was held that Dunlop could not sue S
as he was a stranger to the contract (Dunlop Tyres Co vs. Selfridges Ltd.)
The following are the exceptions to this rule:
1. Trust
In a trust, the person for whose benefit the trust is created can sue to enforce his rights under the trust
even though he is not a party to the contract.
EXAMPLE
C transfers some property to B under a trust for the benefit of M. M can enforce the agreement. (M. K.
Ropai vs John)
2. Immovable Property
The owner of a property may be entitled to certain rights and obligations created by a contract affecting
the property. When a person purchases such property with the notice of rights and obligations of the
owner, he is bound by those rights and obligations although he is not a party to the original contract
EXAMPLE
Y buys a house by taking a loan from a bank. Y sells the house to X without returning the loan to the
bank. The bank can recover the loan from X.
3. Family Settlement
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Where a provision is made in a contract for the benefit of any member of a family, such a member can
enforce the contract although he is not a party to the contract. Such a contract must be in writing.
EXAMPLE
On the partition of joint property, two brothers agreed to pay Rs 300 to their mother for maintenance
Held, she was entitled to recover the amount (Shuppu vs. Ammal)

4. Agent
When a person acts as an agent for his principal, the principal can sue on a contract although he is not a
party to a contract. The agent must act in the name of his principal.
EXAMPLE
A appoints B as his agent to buy goods. B buys goods from C. The goods are defective A can sue C for the
defective goods although there is no contract between A and C
5. Assignment
Where the benefit under a contract is assigned to a third party, the assignee can enforce the contract
although he is not a party to the contract
EXAMPLE
X assigned his insurance policy in favour of his wile The wife can enforce the contract although she is not
a party to the contract.
Unlawful Consideration and Object
The object and consideration of an agreement must be lawful it the consideration or object of an
agreement is unlawful, the agreement is vold. The consideration or object of an agreement is unlawful
in the following cases Sec 23]
1. Forbidden by Law
If the consideration or object of an agreement is the doing of an act forbidden by law, the agreement is
void. An act is forbidden by law
a. When it is punishable by the criminal law of the country.
b. When it is prohibited by a special Act of the legislature.
EXAMPLES
a. B and C agree to divide the goods obtained by theft. The agreement is void.
b. An agreement to sell alcohol without a license is illegal in Pakistan
2. Defeats Provisions of Law
If the object or consideration of an agreement is of such a nature that, if permitted, it would defeat the
provisions of any law, it is unlawful. Such objects or considerations may indirectly violate the law
EXAMPLE
C fails to pay a loan taken from a bank. C's house is put on sale to recover the loan. According to the law,
C cannot purchase his house. Casks B to purchase the house and transfer it to him. The agreement is
void.

3. Fraudulent
If the object or consideration of an agreement is to defraud other people, it is unlawful and void.
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EXAMPLES
a. A promises to pay Rs. 20,000 if B commits a fraud on C. The agreement is void.
b.A is the agent of X. A agrees to sell land to B at a lesser price without telling X. The agreement
between A and B is void
4. Injury to Person or Property
If the object or consideration of the agreement is to cause injury to a person or damage his property, it
is illegal and void
EXAMPLES
a Y agrees with X to put a certain property on fire. The agreement is void.
b. An agreement to beat up a man was held unlawful and void (Allen vs Rescous)

5. Immoral
If the consideration or object of an agreement is such that the court regards it as immoral, the
agreement is void Immoral means an act that is against the moral values of society
EXAMPLE
B gave a loan to a woman to get a divorce from her husband and then marry B. The woman refused to
take the divorce Held, the agreement was immoral and B could not recover the money (Bai Vijli vs.
Hamda Nagar)
6. Against Public Policy
An agreement that is harmful to the welfare of society is against public policy If the court considers the
object or consideration of an agreement as opposed to public policy, the agreement is void. An
agreement that leads to corruption, injustice or immorality is considered to be against public policy
EXAMPLES
a. B promises to provide a government job to C. C promises to pay him Rs. 10.000. The agreement is
void
b. The daughter claimed her right to her father's inheritance. Her brothers argued that earlier she had
agreed to give up her right to inheritance. The court held that the agreement was void because it was
against public policy. (Ghulam Ali vs Ghulam Sarwar Naqvi)
QUESTIONS
1. Define consideration. Explain the essentials of valid consideration
2. Explain the contracts which are valid without consideration.
3. Explain the circumstances under which the objects or considerations are lawful