Examine, the proposition: ‘Past consideration is no consideration at all’ with particular reference to India Law.

Question: Examine, the proposition: ‘Past consideration is no consideration at all’ with particular reference to India Law.

Define Consideration according to the Indian Contract Act, and bring out the difference if any, between the concept of consideration under Indian Law and the concept of consideration in English Law.

Also, Examine, the proposition: ‘Past consideration is no consideration at all’ with particular reference to India Law. [BJS 1978]

Find the answer to the mains question of the Law of Contract only on Legal Bites. [Examine, the proposition: ‘Past consideration is no consideration at all’ with particular reference to India Law.]

Answer

Section 2 (d) of the Indian Contract Act, 1872 defines Consideration. It states: when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

Consideration is a universal requirement of contracts not made by deed. A promise is not accordingly enforceable in English law. Consideration is the doctrine designed to establish which promises should be legally enforceable.

In Currie v. Misa, [(1875) LR 10 Ex 153] Lush J stated:

A valuable consideration, in the sense of the law, may consist in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other.

This brings out the idea of reciprocity as the distinguishing mark. Consideration reflects a variety of policies and serves a number of functions:

First, enforceability may depend on the content of the promise or the circumstances in which it was made. Thus, promises to do what one is already obliged to do, particularly where a contract has been renegotiated, have, as we shall see, caused difficulties.

Secondly, consideration has been said to identify which promises the parties intend to be legally enforceable. They may so intend either where there is a substantive bargain, or where they have put the transaction into the form of an exchange, for instance by providing that the promisee should pay a nominal price to the promisor. It thus serves an evidential and formal function.

Thirdly, consideration is sometimes seen as a requirement that ensures that a promisor has deliberately decided to contract and prevents parties from accidentally binding themselves on impulse.

Past Consideration: English Law

Under English law, past consideration is no consideration. If the act or forbearance alleged to constitute the consideration has already been done before, and independently of the giving of the promise, it is said to amount to past consideration, for eg, a thing guaranteed by the seller after it has been sold.

Executed consideration is not past consideration. In the case of executed consideration, the promise and the act constituting the consideration are both integral and co-related parts of the same transaction. In the case of past consideration, the promise is subsequent to the act and independent of it.

It is merely an act or forbearance given in the past by which a person has benefited without incurring any legal liability.

A promise to pay compensation for something already done is past consideration and is no consideration. This rule is, under English law, subject to exceptions. The general principle of common law is that in the formation of a contract, consideration is given and accepted in exchange for the promise.

Hence, the acceptance of the consideration and the giving of the promise must be simultaneous, and, in order to have the effect of binding the party making it, a request must be the offer of a promise in return for some consideration, which offers will become a promise (if not meanwhile revoked), if and when the consideration is furnished as requested.

Thus, the consideration must always be present at the time of making the promise, and there is no such thing as a past consideration.

If a service is rendered without any immediate promise or understanding that it is to be recompensed, it is a mere gratuitous act having no legal effect except such transfer of property or the like as may be contained in the act itself.

If there be such a promise, expressed by words or by tacit understanding, to be inferred from the circumstances, there is at once an agreement, in which, if the recompense be not specified, the promise is to give such reward as may be found reasonable.

A subsequent promise specifying the reward will not make an obligation where there was none before, but will show what the parties thought reasonable; and there is generally no reason why the parties’ own estimate, in a matter which concerns only themselves, should not be accepted. Such a promise may be treated either as an admission which evidences or as a positive bargain which fixes, the amount of that reasonable remuneration on the faith of which the service.

Past Consideration: India

In India, past consideration is good consideration as it covers the situation where a promisee has done or has abstained from doing something.

An agreement to pay for services rendered in the past is supported by consideration. Similarly, an agreement to pay a past debt if it is not time-barred is good consideration as also a promissory note executed as security for repayment of a loan already received by the debtor or a promissory note executed in favour of a person for services rendered by him.

However, a promise made after a person has attained majority to pay a debt incurred when he was a minor cannot be a good consideration, such agreement being void ab initio; but where the subsequent promise is to pay a debt incurred during minority and a further advance, it is enforceable.

In, Suraj Narain Dube v. Sukhu Aheer And Anr [AIR 1928 All 440] the plaintiff rendered services to the defendant at his desire expressed during his minority and continued those services after his majority at his request again. The question arose whether such services constituted a good consideration for a subsequent express promise by the defendant to pay an annuity to the plaintiff.

The agreement was one to compensate for past services, and it was held that it could be enforced, as the services formed a good consideration within the meaning of this section.

The court was of the opinion that the services were intended to be recompensed, though the nature and the extent of the proposed recompense were not fixed until the agreement, sued upon, was executed by the defendant.

If so, there was a contract for reasonable recompense when the services were rendered, and the decision might have been put on that ground alone. It was chiefly rested, however, on the ground that, under the words of the present sub-section, service already rendered at the desire of the promisor and such services to be rendered, stood upon the same footing.

The general rule that past consideration is no consideration is, however, subject to certain exceptions.

(i) Previous request of the promisor

A past consideration will, it has been said, support a subsequent promise if the consideration was given at the request of the promisor. In Pau On v. Lau Yiu Long [[1980] AC 614, 629] the Judicial Committee of the Privy Council stated the conditions in which this exception will apply as follows:

“An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be a consideration for the promise.
The act must have been done at the promisor’s request, the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit, and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance.”

(ii) An antecedent debt

It has sometimes been thought that the existence of the existing debt is sufficient consideration for a subsequent promise to pay that debt. It should not be supposed, however, that the existence of debt from A to B will always be a consideration for any subsequent promise which A may make to pay that debt.

There must be present consideration in the form of a forbearance to sue by the creditor, or else, if a security is given by the debtor, it must be communicated to the creditor and induce such a forbearance.

(iii) Negotiable instruments

By section 27(1) of the Bills of Exchange Act 1882, valuable consideration for a bill may be constituted by: (a) any consideration sufficient to support a simple contract; or (b) an antecedent debt or liability. So if A, whose account at the bank is overdrawn, negotiates to its banker a cheque drawn by a stranger, the banker becomes a holder for the value of the cheque, as the antecedent debt of A is a consideration for the instrument. This is a genuine exception to the rule that past consideration does not count.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X