Introduction

• This landmark judgment deals with consideration under Section 2(d) of Indian Contract Act, 1872 (ICA) and agreements made without consideration under Section 25 of ICA.

Facts

• In or about the year 1862 a market for grain was established at Etawah called Hume Ganj.
• Durga Prasad (Plaintiff) at the instance of the Collector assisted in the establishment of the market, erecting new shops and causing other persons to erect them at his own expense.
• The plaintiff asked for certain amount from the occupiers of the shops on the grounds of his services in establishing the market and claimed himself to be the “chaudhari” of the market.
• The claim of the plaintiff is appeared to have been recognized by the District Authorities and an order to that effect was passed by the Municipal Committee.
• However, at the instance of the occupiers the above order was cancelled by the Local Government as illegal.
• With the view to settle constant disputes between the plaintiff and the occupiers, the Municipal Committee suggested to the plaintiff that he should enter into an agreement with the occupiers respecting such claim.
• Pursuant to this the plaintiff produced an agreement dated 22nd June 1875 purported to be executed by the occupiers whereby they have agreed to pay six annas of the percentage received by the occupiers of the shop.
• The registration of the above agreement was however refused as many of the persons denied that they had executed the agreement.
• One of the persons also filed a criminal case against the plaintiff on the ground that his signature was forged, however, he failed in prosecuting the plaintiff.
• The present suit was brought by the plaintiff in 1877 against the defendants (118 in number) to establish the validity of the agreement.
• Out of the total defendants 71 defendants defended the suit on the ground that the agreement was void for want of consideration.
• The Court of First Instance disallowed such defence and held that “the plaintiff besides spending money from his own pocket in the establishment of ‘Hume Ganj’ exercised great diligence and took great pains in having the property tenanted. In recompense of that trouble and diligence if a portion of the fees was fixed for the plaintiff, the consideration for that portion of the fees is that diligence of the plaintiff.”
• The Lower Appellate Court set aside the decree of the court of first instance and held that the efforts he put to build the shops were to please the Collector and not at the desire of the occupiers.
• The Lower Appellate Court held that there has been no consideration in terms of Section 2(d) of ICA.
• The Plaintiff appealed to the High Court on the ground that his past services and exertions in establishing the market were good consideration and that the agreement was proved and he was entitled to decree against the defendants who admitted the execution of the agreement or could not prove that they had not executed it.

Issues Involved

Whether the agreement is void for want of proof of consideration under Section 25 of the Indian Contract Act, 1872 (ICA)?

Observations

• The Court observed here that to render the agreement as valid contract it must be shown that there was consideration as defined in ICA and if not the agreement must fall within the exceptions of Section 25 of ICA.
• The Court further observed that the deed is silent as to the character of consideration for promise and the only ground for making the promise is the expense incurred by the plaintiff in establishing the Ganj.
• However, the Court observed that anything done by the plaintiff was not done “at the desire” (see Section 2(d) of ICA) of the defendants and hence did not constitute consideration.
• It was observed that when the plaintiff established the Ganj the defendants were not in his mind and there was nothing done for them for which compensation might be given.

Conclusion

• It is to be noted that consideration under Section 2(d) of ICA would mean anything done “at the desire of the promisor”, thus consideration should be something which is done at the desire of promisor.
• If anything is done not at the desire of the promisor but at the instance of some other person (like Collector in this case) it would not constitute consideration.
• Therefore, the Court in this case held that there was no consideration and hence the agreement was void under Section 25 of ICA.