Page 23 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes
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.

1.7.3 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 fulfil 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).

3. Consideration need not be adequate: How much consideration or payment must there be
for a contract to be valid, is always the lookout of the promisor. Courts do not see whether
a person making the promise has recovered full return for the promise. Thus, if A promises
to sell his pen worth ` 80 for ` 20 only the inadequacy of the price in itself shall not render
the contract void. But where A pleads coercion, undue influence or fraud, then the
inadequacy of consideration will also be a piece of evidence to be looked into.
4. Consideration must be real and competent: A consideration for a contract must be real and
not illusory. Also, the consideration must be competent, i.e., it must be something to
which law attaches some value.

Example: A promises to discover treasure by magic. The agreement is void, being illusory.
5. Consideration must be legal: Illegal consideration renders a contract void.

6. A consideration may be present, past or future: A consideration which moves
simultaneously with the promise is called present (or executed) consideration. ‘Cash Sales’
provides an excellent example of the present consideration. Where the consideration is to
move at a future date it is called future or executory consideration. It takes the form of a
promise to be performed in the future.

Example: A, a shopkeeper, promises B, a household lady, to deliver certain items of
grocery after three days. B promises to pay for it on delivery.
A past consideration is something wholly done, forborne or suffered before the making of
the contract.

16 LOVELY PROFESSIONAL UNIVERSITY