Page 44 - DCOM103_COMMERCIAL_LAW

Unit 4: Consideration

“No Consideration, No Contract” [Ss.10 and 25] Notes

A promise without consideration cannot create a legal obligation. A person who makes a promise
to do or abstain from doing something usually does so as a return of equivalent of some loss,
damage, or inconvenience that may have or may have been occasioned to the other party in

respect of the promise. The benefit so received or the loss, damage or inconvenience so caused is
regarded in law as the consideration for the promise.
Exceptions to the rule “no consideration, no contract”. There are some cases where contracts,
even though not supported by consideration, are enforceable. These are:
1. An agreement made without consideration is valid if it is expressed in writing and is
registered under the law relating to registration of documents and is made an account of
natural love and affection between parties standing in a near relation to each other.
2. A promise without consideration is valid if it is a promise to compensate wholly or in part
a person who has already voluntarily done something for the promisor or something the
promisor was legally compellable to do. Thus, where A finds B’s purse and gives it to him,

and B promises to give A ` 100, this a valid contract.
3. A promise to pay wholly or in part a debt which is barred by the Limitation Act can be
enforced if it is in writing and is signed by the debtor or his authorised agent. A debt
barred by limitation cannot be recovered. Therefore, a promise to pay such a debt is, strictly
speaking, without any consideration. But if a written promise to pay is made by the debtor
then the same is enforceable by the creditor.
4. The rule ‘no consideration, no contract’ does not apply to completed gifts.
5. No consideration is required in the case of an agreement between a principal and an agent
(s.185).

Example: An elder brother, on account of natural love and affection, promised to pay the
debts of his younger brother. The agreement was put to writing and was registered. This was
held to be a valid agreement, even though there was no consideration for the promise.

4.2 Rules Regarding Consideration

The following rules as regards consideration emerge from the definition given in S.2 (d):
1. Consideration must move at the desire of the promisor and therefore an act done by the
promise at the desire of a third party is not a consideration.
2. Consideration may move either from the promisee or any other person. It is not necessary
that the consideration must move from the promisee. It may move from any other
person. In such a situation, the promisee can maintain a suit even if he is a stranger to the
consideration. But he must not be a stranger to the contract.

Capacity of a stranger to consideration to file a suit. We have seen earlier that a stranger to

a contract cannot maintain a suit. However, a stranger to consideration can maintain a suit.
Consideration may be supplied either by promisee or any other person.

Example: A, a lady, by a deed of gift, transferred certain property to her daughter
with a direction that the daughter should pay an annuity to A’s brother as had been
done by A. On the same day, the daughter executed a writing in favour of A’s brother
agreeing to pay the annuity. Afterwards, she declined to fulfill her promise saying that no

consideration had moved from A’s brother to her. A’s brother was held entitled to recover
the money (Chinnayya v. Ramayya, 4 Mad 137).

LOVELY PROFESSIONAL UNIVERSITY 37