Consideration- Section 25 of the Indian Contract Act,1872-Part 2

 

In the previous article of #TuesdayTeachings we understood the consideration as defined in section 2(d) of the Indian Contract Act. In today’s article we will discuss certain other aspects of consideration under section 2(d) and section 25 of the Indian Contract Act.

 

CONSIDERATION MUST BE REAL

 

Consideration, according to the Indian Contract Act, means any act, abstinence or promise done at the desire of the promise. But then does it mean that anything done by the promisee at the desire of the promisor will suffice as consideration for the promise.

For example, A promises B that he will give her his gold chain if she fetched it from the cupboard. The mere act of fetching the chain from the cupboard cannot be regarded as consideration. Such an act, although complies with the wording of the definition but does not comply with the spirit of the definition. Even though the act does not express it specifically however it is supposed to be implied in the definition of consideration that consideration must be something of value in the eyes of the law as opined by the Madras High Court in the case of Kulasekaraperumal v. Pathakutty Thalavana. Even the Supreme Court (Chidambara Iyer v. P.S. Renga Iyer) has held that consideration "shall be 'something' which not only the parties regard but the law can also regard as having some value". It need not be anything of particular value or equal to the promise for which it is given, but it must be of some value in the eyes of the law. It must be real and not illusory, whether adequate or not.

A case in point is White v. Bluett, the defendant owed a sum of money to his father under a promissory note. He continuously complained to his father that he was not treated equally as the other children. The father proposed that he will forgo all the son's dues if he stopped complaining which the defendant accordingly did. The issue arose that whether the son's promise to cease his complaints was enough consideration to sustain his father's promise. It was held by the court that "It would be ridiculous to suppose that such promises could be binding. In reality, there was no consideration whatever." In a similar case, Dunton v. Dunton, a judge said that "a contract founded upon such an illusory consideration appears to be as invalid as a promise by a father made in consideration that his son would not bore him"

A meritorious or gratuitous consideration like love, affection, submission or obedience by way of respect, the performance of moral duty, expectation of spiritual or moral benefit is not good or valuable consideration.

 

ADEQUACY OF CONSIDERATION

 

It is not necessary that consideration should be approximately equal or adequate to the promise. If a party gets what he contracted for and if it is of some value, however great or small, then the courts will not enquire whether it is equivalent to the promise or not. Adequacy of consideration is purely a matter for the contracting parties to agree upon. This principle is applicable under English Common Law as well as the Indian Law. The question of the adequacy of consideration is a mixed question of law and fact.

For example, if A sells a painting worth Rs. 20,000 to B for Rs. 200 and it is proven that there was free consent given by A then the consideration is good, and the courts will not look at the equitability of the consideration with the promise.

Explanation 2 of section 25 further helps explain the rule regarding the inadequacy of consideration,

"An Agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate, but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given."

Therefore, the inadequacy of consideration may not affect the validity of the contract where the consent is free. However, in cases where there is a lack of consent, it can be taken as corroborative evidence to prove the same.

The illustrations provided under section 25 illustrates this concept more clearly;

If A sells a horse worth Rs. 10,000 to B for Rs. 10 and A denies that free consent was given by him then the court should take into account the inadequacy of consideration while deciding whether A's consent was freely given or not. 

A well-known English authority in this regard is De La Bere v. Pearson Ltd.;

The facts of the case are - The owner of the defendant newspaper offered to answer inquiries from the readers seeking financial advice. A query by the plaintiff seeking advice regarding safe investment and reference to a good investment broker was answered by the financial editor. The person suggested by him was an undischarged bankrupt, which led to the misappropriation of the funds of the plaintiff having relied on the editor's advice. He initiated action against the newspaper company. It was held by the court of appeal that

"the trouble of sending an inquiry is sufficient consideration for an undertaking that reasonable care shall be used to give sound advice in answer thereto. Such publication might obviously have a tendency to increase the sale of the defendant's paper. Thus, this offer, when accepted, resulted in a contract for good consideration."

In another case Chappell & Co. v. Nestle, it was held that consideration need not be adequate.

Nestle promised to supply one of the six gramophone records of Chappell & Co. in return for three wrappers of Nestle 6d chocolate and a postal order of 1shilling 6 pence. Nestle gave royalty to Chappell & Co. on the money that was received 1shilling 6 pence. Chappell argued that it should be more and sought an injunction suit against Nestle. The issue arose as to whether the wrappers were a part of the consideration. It was held by the court of appeal that the wrappers were also a part of the consideration. Lord Somervell said,

"A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn."

Forbearance to sue is regarded as good and valuable consideration, as discussed in detail in the first part of this article.

PERFORMANCE OF EXISTING DUTIES

 

Consideration must be something more than what the promisee is bound to do already by law or by contract.

1.     Legal obligations-

 

It is an established common law principle that performance of legal duty is no consideration for the promise. This principle was laid down in an English case Collins v. Godefroy. The plaintiff had been served with a subpoena (summons) to appear in the court as a witness on behalf of the defendant. The defendant promised to pay him a certain amount of money for the inconvenience caused to him for appearing in the court. The promise was held to be void because of lack of consideration as appearing in court was the duty of the plaintiff imposed upon him by law, and he would have to do so even if the proposal was not offered to him.

Similarly paying a police officer to solve a crime is also no consideration. However, the reward for doing or agreeing to do more than the existing legal duty can be regarded as consideration. The English case of Glasbrook Bros Ltd v. Glamorgan County Council must be referred to understand this principle. In this case, the owners of a coal mine fearing a strike sought for more police protection than necessary agreeing to pay them for their extra protection and care. It was held that

"although the police authority is bound to provide sufficient protection to life and property without payment, if in particular circumstances, at the request of an individual, they provide a special form of protection outside the scope of their public duty, they may demand payment for it".

2.     Contractual obligations-

 

i.                 Performance of existing duties owed to promisor-

 

Compliance of the duty already owed under an existing contract to the promisor does not form a good consideration for a promise. This principle can be better explained with the help of a case law- Ramchandra Chintaman v. Kalu Raju. In this particular case, the plaintiff accepted a vakalatnama representing the defendant in a certain suit on his usual fees. The defendant promised him an extra payment if he won the case. The defendant won the case; however, he did not pay the extra amount to the plaintiff. The plaintiff initiated action against him. The Bombay High Court held that the plaintiff having accepted the vakalatnama was already under a contractual obligation to render his services in the best interests of the client. There was thus no fresh consideration from the plaintiff for this promise by the defendant.

However, if the situation so arises that a party can refuse to go ahead with his original contract a promise to pay him an additional award to do so is valid. For example, if a plumber refuses to visit a customer's house for repairs due to the current coronavirus situation, a promise by the customer to the plumber to pay him an extra commission would be valid. The case of Williams v. Roffey Bros. & Nicholls (Contractors) Ltd. Might be referred to in this regard.

 

ii.               Performance of existing duties owed to a third party-

 

A promise to perform an existing duty under a contract with a third party is a valid consideration for that promise. For example, A made a contract with B to unload B's ships. Some of the goods unloaded by A belonged to C. C promised A not to sue him for any damages. Here A has provided consideration to C by unloading the goods even if he was already bound under the contract with B to do so.

This principle was laid down in the case of Shadwell v. Shadwell. In this case, the plaintiff was already engaged to a girl named Ellen Nicholl. His uncle wrote a letter to him saying,

"I am glad to hear of your intended marriage with Ellen Nicholl, and, as I promised to assist you at starting, I am happy to tell you that I will pay to you £150 yearly during my lifetime and until your annual income from your profession of a chancery barrister shall amount to 600 guineas, of which your own admission will be the only evidence that I shall receive or require."

The uncle died, but he had not paid the amount in full as promised before his death, and the plaintiff sued his estate to recover the arrears. It was claimed by the uncle's estate that there was no consideration given by the plaintiff to the uncle for his promise. It was held by the court; the promise of annuity might be intended as an inducement for the marriage of the plaintiff. The marriage of the plaintiff was an object of interest for his uncle. The consideration of the promise to his uncle flowed from his existing duty to Ellen (third party) to marry her.

The cases of Pao On v. Lau Yiu Long and Scotson v. Pegg might also be referred for more clarity regarding this principle.

EXCEPTIONS

A contract without consideration is void except in certain circumstances specified in section 25 of the Indian Contract Act.

1.     Natural Love and affection-

 

The first exception states that a written and registered agreement based on natural love and affection between near relatives is enforceable without consideration. Who is a near relative? And how can natural love and affection be inferred in a case? The act provides no guidance in this regard, nor has it been construed clearly by the judiciary. It depends on the facts and circumstances of each case. This is a question of fact to be decided in each case separately.

The case of Maturi Pullaiah v. Maturi Narasimham is an illustration of this exception. In this case, a sister in favour of the brother relinquished her right in the joint family property out of love and affection and also authorised him to enter into a partition on her behalf by way of a power of attorney. This was held valid by the Supreme Court, and the sister was to be bound to that promise as it is covered wholly by this exception.

However, it is not to be supposed that every nearness of relationship purports natural love and affection. The case of Rajlukhy Dabee v. Bhootnath Mookerjee is an example of this. In this case, A husband, i.e. the defendant promised to pay his wife maintenance while she lived in a separate residence. The agreement was contained in a registered document. It was revealed that there were a lot of quarrels and arguments between the couple due to which they were staying separate. The Calcutta high court held that this agreement was not covered under this exception even if the parties were in a close relationship as no representation of natural love and affection can be assumed between the parties given their quarrels and separate residence.

 

2.     Past voluntary service-

 

The second exception asserts that where a promise is made to pay for a voluntary service done by a person in the past for the promisor, it is enforceable even with the lack of consideration. There are four elements of this exception;

i.                 Promise

ii.               Past

iii.             Voluntary service

iv.             For the promisor

The first element states that there should a promise made by the promisor to the person who has rendered the service to pay him/her. If a promise is not made then a person who has even though rendered a service to the another voluntarily in the past, it cannot hold that person liable to pay him/her.

The second element refers to an act done in the past. This validates the principle that past consideration is applicable in India contrary to the common law principle of past consideration, not being a good consideration.

The third element signifies that a case can come under this exception only when the act done by a person is done voluntarily and of his own free will and choice and not under some constraint or prompting.

The fourth element suggests that the voluntary service must be done for the promisor. The case of Durga Prasad v. Baldeo discussed in detail in the previous part might be of relevance here.

The application of this exception can be seen in the case of Karam Chand v. Basant Kaur, A after attaining majority promised B to pay for all the goods supplied to him by B during A's minority. It was held in this case that,

"It is now settled law that a promise by an infant is in law a mere nullity and void, but we fail to see how an agreement made by a person of full age to compensate a promisee, who has already voluntarily done something for the promisor even at a time when the promisor was a minor does not fall within the purview of Section 25(2) of the Indian Contract Act. As at the time when the thing was done, the minor was unable to contract, the person who did it for the minor must, in law, be taken to have done it voluntarily. But he has in fact done something for the minor, and if words mean anything at all, surely his case must be deemed to come within the scope of the Act."

 

3.     Time-barred debt-

 

This third exception refers to the promise to pay a time-barred debt of the promisor. For this exception to apply, the promise should be made by the promisor in writing and should be signed by either the promisor or his/her agent. It is also necessary that the debt should be existing and time-barred. It is also significant that the promisor should be liable for the debt.

There have been conflicting views in regard to if the promise to pay is enforceable if the debt is not of the promisor but a third party of whom the promisor has no liability to pay.  The Bombay High Court (Pestonji Manekji Mody v. Bai Meherbai) has opined in a case that the promise is not enforceable where the promisor has no liability to pay the debt in question wherein Madras High Court (Puliyath Govinda Nair v. Parekalathil Achutan Nair) has held that the promise to pay someone else's debt will be enforceable as the proposer accepted liability to pay the debt of another.

The promise referred to under this section must expressly mention the intention of the promisor to pay the debt. The promise to pay must contain an undertaking to pay and should be unconditional and absolute. The promise to pay should specify if the debt may be paid wholly or partly.

A promise to pay must be distinguished from an acknowledgement of debt. A mere acknowledgement of debt made after the period of limitation cannot be enforced unless there are some additional words which may be regarded as a promise. This is a question of fact which may be decided by the court in that particular case.

 

References-

1.     Indian Contract Act, 1872.

2.     Pollock & Mulla, The Indian Contract and Specific Relief Acts, 16th edition.

3.     Avtar Singh, Contract and Specific Relief, 12th edition.

4.     Anson’s Law of Contract, 29th edition.

5.     Halsbury’s Laws of India Contract, 2e 2015.

6.     Kulasekaraperumal v. Pathakutty Thalavana, AIR 1961 Mad 405.

7.     Chidambara Iyer v. P.S. Renga Iyer, AIR 1966 SC 193,197: (1966) 1 SCR 168.

8.     White v. Bluett, (1853) 23 LJ Ex 36.

9.     Dunton v. Dunton, (1892) 18 VLR 114.

10.  De La Bere v. Pearson Ltd., (1908) 1 KB 280 (CA).

11.  Chappell & Co. v. Nestle, [1959] 3 WLR 168: [1960] AC 87.

12.  Collins v. Godefroy, (1831) 109 ER 1040: 9 LJ KB 158.

13.  Glasbrook Bros Ltd v. Glamorgan County Council, 1925 AC 270 (HL).

14.  Ramchandra Chintaman v. Kalu Raju, ILR (1877) 2 Bom 362.

15.  Williams v. Roffey Bros. & Nicholls (Contractors) Ltd., (1991) 1 QB 1: (1990) 2 WLR 1153 (CA).

16.  Shadwell v. Shadwell, (1860) 9 CB (NS) 159: 142 ER 62: 127 RR 604.

17.  Pao On v. Lau Yiu Long, [1980] AC 614.

18.  Scotson v. Pegg, (1861) 6 H & N 295.

19.  Maturi Pullaiah v. Maturi Narasimham, AIR 1966 SC 1836.

20.  Rajlukhy Dabee v. Bhootnath Mookerjee, (1899-00) 4 CWN 488.

21.  Bhiwa v. Shivaram, (1899) 1 Bom LR 495.

22.  Durga Prasad v. Baldeo, ILR (1881) 3 All 221.

23.  Karam Chand v. Basant Kaur, 1911 Punjab Rec No 31, p.91.

24.  Pestonji Manekji Mody v. Bai Meherbai, AIR 1928 Bom 539.

25.  Puliyath Govinda Nair v. Parekalathil Achutan Nair, AIR 1940 Mad 678.