Cheat Sheet: Consideration

1. Definition and Essential Elements

1.1 Definition under Section 2(d)

1.2 Essential Elements

• Must move at the desire of the promisor (not voluntary or gratuitous)
• May move from promisee or any other person (privity of contract not required for consideration)
• May be past, present, or future
• Need not be adequate but must be real and of some value
• Must be lawful and not forbidden by law
• Must be something which promisor is not already bound to do

2. Types of Consideration

2.1 Classification Based on Time

2.2 Past Consideration

• Valid in India (differs from English law)
• Must have been done at the desire of the promisor
• Must have been done voluntarily (not under legal obligation)
• Promisor must be legally liable to pay at the time of act

3. Doctrine: No Consideration, No Contract

3.1 General Rule - Section 25

3.2 Exceptions to Section 25

3.2.1 Love and Affection - Section 25(1)

• Agreement must be in writing and registered
• Must be made on account of natural love and affection
• Between parties standing in near relation to each other
• Example: Gift deed between family members

3.2.2 Compensation for Past Voluntary Services - Section 25(2)

• Promise to compensate for something already done voluntarily
• Act must have been done for the promisor
• Promisor must have been in existence at the time of act
• Example: Promise to pay for medical services already rendered

3.2.3 Time-Barred Debt - Section 25(3)

• Promise to pay a time-barred debt in writing and signed by debtor
• Debt must have been legally recoverable but barred by limitation
• No consideration required for such promise
• Writing and signature are mandatory

3.2.4 Other Exceptions

• Gift actually made (completed gifts are valid - no consideration needed)
• Agency (no consideration needed between principal and agent for appointment)
• Charitable subscriptions (promissory estoppel may apply)

4. Privity of Consideration vs. Privity of Contract

4.1 Comparative Analysis

4.2 Landmark Case: Chinnaya v. Ramaya

• Established that consideration may move from a third party
• Sister transferred property to brother; brother promised to pay annuity to sister's daughter
• Daughter (promisee) could enforce promise though consideration moved from mother
• Doctrine: "Stranger to consideration may sue but stranger to contract cannot sue"

5. Adequacy and Legality of Consideration

5.1 Adequacy Not Required

5.2 Unlawful Consideration - Section 23

• Consideration is unlawful if forbidden by law
• If it defeats provisions of any law
• If fraudulent
• If it involves injury to person or property of another
• If court regards it as immoral or opposed to public policy
• Agreement with unlawful consideration is void

6. Existing Obligations and Consideration

6.1 Pre-existing Duty Rule

6.2 Part Payment of Debt

• Part payment of debt is not satisfaction of whole debt (Foakes v. Beer principle)
• Creditor's promise to accept lesser sum not binding without fresh consideration
• Exception: If part payment at different place, time, or with something else added
• Promissory estoppel may prevent creditor from going back on promise

7. Forbearance as Consideration

7.1 Meaning and Validity

7.2 Compromise of Disputed Claims

• Forbearance to sue on doubtful claim is good consideration if claim is bona fide
• Claim need not be valid but must be honest and not frivolous
• Compromise agreements are enforceable even if underlying claim weak

8. Important Case Laws

8.1 Leading Judgments

9. Contract Without Consideration - Special Situations

9.1 Gift

• Completed gift requires no consideration (Transfer of Property Act applies)
• Promise to make gift requires consideration unless falls under Section 25 exceptions
• Delivery and acceptance complete the gift

9.2 Bailment and Agency

• Gratuitous bailment valid without consideration
• Agency may be created without consideration
• Agent's authority to bind principal does not require consideration

9.3 Negotiable Instruments

• Negotiable Instruments Act provides holder for value has rights even without consideration
• Presumption of consideration exists under Section 118(a) of NI Act

10. Key Distinctions and Exam Points

10.1 Critical Distinctions

10.2 Section References

• Section 2(d): Definition of consideration
• Section 10: Consideration required for valid contract
• Section 23: Unlawful consideration makes agreement void
• Section 25: Agreements without consideration are void (with three exceptions)
• Section 185: No consideration needed for guarantee to benefit principal debtor