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Report No. 13

5. Doctrine of consideration.-

We have devoted anxious thought to the modern attitude towards the doctrine of consideration and to the desirability of its abolition or, at any rate, modification. This doctrine was borrowed from English Common Law. According to some eminent English jurists, the law on the subject requires change. Professor Holdsworth has described the doctrine "as something of an anachronism1", and observed that "the requirements of consideration in its present shape prevent the enforcement of many contracts, which ought to be enforced, if the law really wishes to give effect to the lawful intentions of the parties to them; and it would prevent the enforcement of many others, if the judges had not used their ingenuity to invent considerations.

But the invention of considerations, by reasoning which is both devious and technical adds to the difficulties of the doctrine2". Thus remedy, according to Professor. Holdsworth is not to scrap the doctrine of consideration but to reduce it to a subordinate place in the English theory of contract. He suggested, inter alia, that the law should provide that all lawful agreements should be valid contracts if the parties intended by their agreement to affect their legal relations, and either consideration was present, or the agreement was put into writing and signed by all the parties thereto.

1. Holdswort History of English Law, Vol. VIII, 47.

2. Ibid. 46.

Lord Wright has remarked that the doctrine of consideration in its present form serves no practical purpose and ought to be abolished1. Sir Frederick Pollock has said that the application of the doctrine of consideration "to various unusual but not unknown cases has been made subtle and obscured by excessive dialectic refinement2". Equally strong observations are to be found in judicial pronouncements. In the well-known case of the Dunlop Pneumatic Tyre Co.3, Lord Dunedin observed:

1. The Article "Ought the doctrine of consideration to be abolished form the Common Law" published in (1936) 49 Harvard Law Review, 1225 (1253).

2. Genius of Common Law, 91.

3. Dunlop Pneumatic Tyre Co. v. Selfridge and Co., 1915 AC 847 (855) HL.

"I confess that this case is to my mind apt to nip any budding affection which one might have had for the doctrine of consideration. For the effect of that doctrine in the present case is to make it possible for a person to snap his fingers at a bargain deliberately made, a bargain not in itself unfair, and which the person seeking to enforce it has a legitimate interest to enforce."

6. In America too, the doctrine of consideration has received severe criticism at the hands of Dean Pound. He observes:

"It is significant, although we have been theorising about consideration for four centuries, our texts have not agreed upon a formula of consideration much less our courts upon any consistent scheme of what is consideration and what is not. It means one thing in the law of simple contracts, another in the law of negotiable instruments, another in conveyancing under the Statute of Uses and still another thing no one knows exactly what in many cases in equity.1"

1. Pound An introduction to the Philosophy of Law (Revd . Edn.), 155.

According to him, promise as a social and economic institution becomes of the first importance in a commercial and industrial society. A man's word should be "as good as his bond" and his fellowmen must be able to rely on the one equally with the other if our economic order is to function efficiently. This is the expression of the moral sentiment of the civilised society.1

1. Ibid, 147.

7. The continental countries adopted the requirement of 'causa' (which literally means a 'reasonable cause'1) from Roman Law. But the interpretation of that expression has given a very wide and elastic meaning to the requirement of an agreement enforceable at law. Thus, as the Privy Council has observed,2 according to Roman-Dutch Law, a promise deliberately made to discharge a moral duty, or to do an act of generosity or benevolence can be enforced at law.

In other words, "the doctrine has become so broad that it is almost true to say that any agreement for a lawful object is valid if the parties seriously intend to enter into legal relations." Many French writers who support this view have openly discarded the doctrine of causa as confusing.3 The German Civil Code, similarly makes no mention of causa and under that Code, every lawful agreement entered into with the serious intention of being legally binding would directly produce an obligatory effect.

1. Paton A Text Book of Jurisprudence, 2nd Edn., 354.

2. Jayawickrame v. Amar Suriya, (1918) AC 869 (875).

3. Paton A Text Book of Jurisprudence, 2nd Edn., 355.

8. In England, the problem of consideration was referred to the Law Revision Committee, whose sixth report appeared in 1937.1 The Committee's general conclusion substantially accepted Professor Holdsworth's view, for it advocated that a contract should exist if there was an intention to create legal relations and if either the contract was reduced to writing or consideration was present. It may be noted, however, that the Parliament in England has not yet adopted the recommendation of the Law Revision Committee. In the United States of America, the New York Law Revision Commission which was constituted at about the same time as the English Law Revision Committee, reached conclusions which in many respects were similar to those of the English Committee.

1. Sixth Interim Report in the Law Revision Committee, 1937 Cmd 5449.

9. Notwithstanding the foregoing considerations and the views of eminent jurists, however, we are unable to recommend an abolition of the doctrine. It has become so firmly rooted in our concept of contract, that a wholesale rejection of the doctrine would have the result of overturning the very structure on which our Law of Contract is based and would require a complete and thorough overhaul of the law. This, in our opinion, is hardly warranted by the circumstances. Nor do we feel it logically defensible to provide, while retaining the existing law, that where a promise is in writing, no consideration should be required.

We have, accordingly, come to the conclusion that instead of abolishing the doctrine or introducing an alternative to it, we should make suitable changes in the existing law which will have the effect of preventing the inequitable and anomalous consequences resulting from a rigid adherence to the doctrine. We propose to achieve this end by adding some clauses to section 25 which now enumerates the exceptional cases where a contract without consideration is valid.

10. Great injustice is done sometimes where a promise is made which the promisor knows will be acted upon and which is in fact acted upon and then it is held that such promise is unenforceable on the ground of want of consideration. A common example of such a case is where a person agrees to pay a subscription to a charitable institution with the knowledge that a building will be constructed with the aid of the amount subscribed and the trustees of the charity incur expenditure on the faith of the fulfilment of the promise. The Law Revision Committee of England has cited a number of such instances and the American Restatement on Contract, under section 60 in the Volume on Contracts, also mentions them.

In India, some Judges have upheld such promises on the ground that they were supported by consideration1 inasmuch as the expenditure was incurred "at the desire of the promisor", while other Judges have held that the facts did not justify the finding that the expenditure was incurred "at the desire of the promisor" and thus the agreement being without consideration was void and unenforceable2. In our opinion, the former view puts considerable strain on the meaning of the expression "at the desire of the promisor". "A promise, which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance, is binding, if injustice can be avoided only by enforcement of the promise3".

In order to set at rest the above-mentioned controversy and to prevent injustice, we recommend that an exception be added to section 25 on lines similar to those suggested in the Sixth Interim Report of the Law Revision Committee in England. According to that Committee, "a promise which the promisor knows or reasonably should know, will be relied upon by the promisee, shall be enforceable if the promisee has altered his position to his detriment in relying on his promise4". We are further of the view that for purposes of this exception, a promise need not be an express promise but may be implied from conduct i.e., from acts or omissions. The words "express or implied" should therefore be added after the word "promise" in adopting the above recommendation of the Law Revision Committee.

1. Kedarnath v. Gorie Muhammad, 14 Cal 745; Perumal v. Sendanatha, AIR 1918 Mad 311.

2. Doraswamy Iyer v. Arunachala, AIR 1936 Mad 135

3. American Restatement on Contracts, 110 (section 90).

4. Sixth Interim Report, para. 50, Recommendation No. 8 (p. 31).

11. According to the present law in India, which is the same as in England, an undertaking to keep the offer open for a certain time, is a promise without consideration, and as such unenforceable. In order to be binding, such a promise must be supported by a distinct consideration. This rule is a necessary implication from section 5 and sub-section (2) of section 6 of the Contract Act.

The Law Revision Committee recommended that an agreement to keep an offer open for a definite period of time or until the occurrence of some specific event should be enforceable even where there is no consideration to support it.1

1. Sixth Interim Report, para. 50, Recommendation No. 8 (p. 31).

A similar recommendation has been made by the Law Revision Committee in respect of a promise to dispense with or remit the performance of a promise or to extend the time for its performance.

We recommend that exceptions should be added to section 25 of our Act in terms of the above recommendations of the Law Revision Committee.

12. It was suggested to us that it should be made clear that the performance of a pre-existing legal duty should not form good consideration. In our view no change is called for in this respect, for, the cases where such legal duty arose out of a pre-existing contract between the promisor and promisee are fully provided in section 62, as would appear from the Illustrations thereto; and the cases where it arose out of contract with a third party is governed by the existing provisions. We do not recommend any change in the law on this topic.

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