PROMISSORY ESTOPPEL-

1. Hughes v. Metropolitan Railway Co-

- Thomas Hughes owned property leased the Metropolitan Railway

Company. Under the lease, Hughes was entitled to compel the tenant to
repair the building within six months of notice. Notice was given on
October 22, 1874 from which the tenants had until April 22, 1875 to
finish the repairs. On November 28, the tenant railway company sent a
letter proposing to purchase the building from Hughes. Negotiations
began and continued until December 30th, at which point nothing was
settled. Once the six months had elapsed the landlord sued the tenant
for breach of contract and tried to evict the company. The tenant
completed the repairs in June.

- Was there an implied promise that the month term would be suspended
during the negotiations??
-
- If a promise is implied in negotiations and one party relies on that
promise then it is inequitable to allow the other party to act as though
the promise does not exist.X

2. Central London Property Trust V High Trees House Ltd

Facts
In 1937, Central London Property Trust Ltd (CLPT) leased a block of flats in London to High
Trees House Ltd (HTH) at £2,500 per year for 99 years. Due to the impact of World War II,
there was a drastic under-occupancy of the flats in 1940. CLPT agreed to reduce the rent to
£1,250. This halved rent was paid until the end of 1945. By then, London had largely
recovered from the war and the flats were again fully occupied. CLPT then claimed for the
full rent for the last 2 quarters of 1945.

Issue(s)
The key question was whether the agreement by CLPT to accept a reduced rent was legally
binding, and thus not allowing them to request the full rent once the flats were fully
occupied again.

Direction/Outcome
The court held that CLPT could not go back on its promise to accept reduced rent for the
period when the flats were not fully occupied. This was held as a clear case of CLPT making a
promissory representation that they intended HTH to rely on and thus were estopped from
reneging. However, it was also held that once conditions went back to normal, the original
agreement could be enforced and therefore the claim for full rent for the last quarters of
1945 was successful.
The High Trees case thus strongly established the principle of promissory estoppel in English
law, i.e., once a promise is made and relied upon, it cannot be reneged on without
agreement (even if not supported by consideration) if this would be inequitable. However,
importantly, it was also stipulated by Lord Denning that the effect of such a promissory
estoppel 'is only suspensive' — i.e., it only temporarily varied the rent payable — and does
not permanently extinguish rights.

3. KEDARNATH BHATTACHARJEE V GORIE MAHOMED- (TOWN HALL)

FACTS

 In this case, the plaintiff was a municipal commissioner of Howrah and was also one of
the trustees of the Howrah city council fund.
 A town hall was planned to build in Howrah. After gaining enough membership to
support the funds required to build a town hall, the commissioners, including the
plaintiff, made an agreement with the defendant to build a town hall.
 The plans and proposed structures for the same were submitted and also passed. Later,
because of the expansion in the membership list, the plans also expanded. Therefore,
the expected cost of construction increased from 26,000/- to 40,000/-.
 The defendants made a subscription to pay 100/- for the construction of the town hall,
which he later refused. The commissioner sued the defendant for the same.

ISSUE

 Whether the lawsuit started by the plaintiff maintainable?

 Whether the defendant is liable to pay the amount?

RATIO DECIDENDI

1. In an ordinary situation, when someone puts his name for a subscription for a charitable
work then it cannot be recovered as there is no consideration.
2. But in this case, the people subscribing knew the purpose for which their money will be
used and also were aware that on what account of their subscription the plaintiff
entered into a contract with them.

On these grounds, the court considered it to be a valid contract with good consideration.

DECISION

The court held that even if the defendant does not benefit from the promise he made; he is
liable to pay. The defendant was responsible for the promise he made and cannot step back or
take it back after its commencement. Therefore, the suit was successful.

4. Doraswami Iyer v. Arunachala Ayyar-

FACTS
  The defendant, who was a trustee in the temple, entered into a contract for the necessary
repairs of the temple which was initially initiated by village common funds were now required
more than work proceeded.
 A subscription list for the same was issued to raise money. The petitioner put himself down in
that list for 125/-, and it is to recover the sum this particular suit was filed.

ISSUE

 Is there a valid consideration in this particular case?

RATIO DECIDENDI

1. It cannot be said that mere promise to subscribe a sum of money or the entry of such promised
sum in a subscription list secures consideration.
2. There must have been some request or demand by the promisor to the promisee to do
something in consideration of the promised subscription.

There was no consideration in this contract.

DECISION

The honorable court held that it was a bare promise unsupported by consideration. There is no evidence
that there was any request by the subscriber to the plaintiffs to do any temple repairs or any undertaking
to do anything by them when he put his name in that list for 125/-. Therefore, the suit ought to be
dismissed, and the petition was allowed with costs as well.

5. M.P. Sugar Mills v. State of U.P-

PRIVITY CASE LAWS-

1. TWEDDLE V ATKINSON- (son and daughter couple father)

Facts
The son and daughter of the parties involved in this dispute were getting married. As
such, the father of the groom and father of the bride entered into an agreement that
they would both pay sums of money to the couple. Unfortunately, the father of the
bride died before he paid the money to the couple and the father of the son died
before he could sue on the agreement between the parties. As a result of this, the
groom brought a claim against the executor of the will for the payment that was
previously agreed between the fathers.

Issue
whether or not the son could, as a third party to the agreement, enforce the contract
between the fathers, which was ultimately for the benefit of him and his wife.

Outcome / Decision
The groom’s claim was rejected by the court. It was held that the groom was not a
part of the agreement between the fathers and he did not provide any consideration
for the promise made by the father of the bride. Also, as a stranger to the contract,
the son could not enforce it. On this basis, the court found in favour for the executor
of the will.

2. DUNLOP PNEUMATIC TYRE CO LTD V SELFRIDGE LTD.- (TYPES)

Facts
Dunlop was a tire manufacturer who agreed with their dealer to not sell the tires
below a recommended retail price (RRP). As part of the agreement, Dunlop also
required their dealers to gain the same agreement with their retailers, who in this
instance was Selfridge. The agreement held that if tires were sold below the RRP,
they would be required to pay £5 per tire in damages to Dunlop. This was agreed
between the dealer and Selfridges, which effectively made Dunlop a third-party to
that agreement. Sometime after this, Selfridge sold the tires below the agreed price
and Dunlop sued for damages and an injunction to prevent them from continuing
this activity. At the initial trial, the decision was given to Dunlop. This was appealed
by Selfridge and the decision was reversed. Dunlop appealed.

Issue
whether Dunlop had the right to access damages without a contractual relationship.

Decision/Outcome
The court held in a unanimous decision that Dunlop could not claim for damages in
the circumstances. The court found that firstly, only a party to a contract can claim
upon it. Secondly, Dunlop had not given any consideration to Selfridge and therefore
there could be no binding contract between the parties. Lastly, Dunlop was not listed
as an agent within the contract and could therefore not be included as a valid third-
party who had rights to claim on the contract.

3. Chinnaya v. Venkataramaya- (ESTATE)

 Plaintiff’s sister transferred her estate to Defendant in a contract on condition that
Defendant would pay an annuity to Plaintiff.
Subsequently, Defendant refused to pay the annuity on grounds that Plaintiff did not
provide any consideration and was a thirds party to the contract.
Can Plaintiff claim the annuity?
 Yes she can.
 Rationale:
Plaintiff used to receive annuity from the estate in question before it was transferred to
defendant. Therefore, the same arrangement should continue even after the transfer.
Principle followed:
Failure to keep the promise on part of the defendant (made to the plaintiff’s sister at time of
transfer of estate) would have deprived plaintiff from getting annuity amount which she was
already receiving before transfer, therefore, plaintiff can sue the defendant for such
consideration.

4. Kepong Prospecting Ltd v Schmidt-

Facts
T agreed with Schmidt in writing, that in consideration for Schmidt’s assistance to
obtain a permit and start mining operations, T would pay Schmidt 1% of the price
that all ore from the land was sold at. A year later, KP (the plaintiff) agreed to work
the land and undertake T’s agreement to Schmidt. The agreement that KP and
Schmidt signed stated it was supplementary to the original agreement between KP
and T. These terms were later terminated by a consent order which stated that J
would take over the company and provide the company an indemnity from the
payment owed to Schmidt. Schmidt claimed for the money that was agreed upon
and KP claimed that they had been indemnified by J.

Issue
The court was required to establish at which point Schmidt had given consideration
during proceedings.

Decision / Outcome
The court dismissed Schmidt’s claim to be able to enforce the original agreement
between T and KP as he was not a party to that agreement. However, Schmidt was
deemed to have given consideration under Malaysian law for the agreement
between himself and KP. Therefore Schmidt could sue for the sum that was owed on
the agreement between himself and KP.
 5. Iswaram Pillai v Sonivaveru Taragan- Iswaram Pillai v. Sonivaveru[4], A mortgaged
his lands to B, and part of the consideration was B’s promise to discharge A’s debt to C. C
sued B but C was held to be a stranger to the contract.

6. The National Petroleum Company vs Popatlal Mulji –

7. M.C.Chacko v. The State Bank of Travancore-

 A was the manager of the bank of Travancore, A’s father B – took

overdraft from the bank.
 Subsequently B transferred his property to his family members including
A through a gift deed.
 The deed mentioned that all his debts to the bank, would be recovered from
A or from the property.
 The bank sued A for recovery.
 Is A liable?
 By applying the principle of privity of contract, the Supreme Court held that since the
bank was not a party to the gift deed therefore, they cannot make A liable personally
for his father’s overdraft.
 However, the representatives of B who held his property would be liable to pay his
overdraft if the action is not time-barred.


Doctrine of Privity of Contract

The Indian Contract Act. 1872, allows the ‘Consideration‘ for an agreement to proceed from a
third-party. However, a stranger (third-party) to consideration is different from a stranger to a
contract. The law does not allow a stranger to file a suit on the contract. This right is available
only to a person who is a party to the contract and is called Doctrine of Privity of Contract.

Exceptions to the Doctrine of Privity of Contract

A stranger or a person who is not a party to a contract can sue on a contract in the following
cases:

1. Trust

2. Family Settlement

3. Assignment of a Contract

4. Acknowledgement or Estoppel

5. A covenant running with the land

 6. Contract through an agent

Trust

If a contract is made between the trustee of a trust and another party, then the beneficiary of
the trust can sue by enforcing his right under the trust, even if he is a stranger to the contract.

Arjun’s father had an illegitimate son, Ravi. Before he died, he put Arjun in possession of his
estate with a condition that Arjun would pay Ravi an amount of Rs 500,000 and transfer half of
the estate in Ravi’s name, once he becomes 21 years old.

After attaining that age when Ravi didn’t receive the money and asked Arjun about it, he
denied giving him his share. Ravi filed a suit for recovery. The Court held that a trust was
formed with Ravi as the beneficiary for a certain amount and share of the estate. Hence, Ravi
had the right to sue upon the contract between Arjun and his father, even though he was not a
party to it.

Family Settlement

If a contract is made under a family arrangement to benefit a stranger (person not a party to
the contract), then the stranger can sue in his own right as a beneficiary of the contract.

Peter promised Nancy’s father that he would marry Nancy else would pay Rs 50,000 as
damages. Eventually, he married someone else, thereby breaching the contract. Nancy filed a
case against Peter which was held by the Court since the contract was a family arrangement
with Nancy as the beneficiary.

Ritika was living in a Hindu Undivided Family (HUF). The family had made a provision for her
marriage. Eventually, the family went through a partition and Ritika filed a suit to claim her
marriage expenses. The Court held the case because Ritika was the beneficiary of the provision
despite being a stranger to the contract.

Assignment of a Contract

If a contract is made for the benefit of a person, then he can sue upon the contract even
though he is not a party to the agreement. It is important to note here that nominees of a
life insurance policy do not have this right.

If a contract requires that a party pays a

Acknowledgment or Estoppel-
certain amount to a third-party and he/she acknowledges it,
then it becomes a binding obligation for the party to pay the
third-party.
If a contract requires that a party pays a certain amount to a third-party and he/she
acknowledges it, then it becomes a binding obligation for the party to pay the third-party. The
acknowledgment can also be implied.

Peter gives Rs 1,000 to John to pay Arjun. John acknowledges the receipt of funds to be paid to
Arjun. However, he fails to pay him. Arjun can sue John for recovery of the amount.

Rita sold her house to Seema. A real estate broker, Pankaj, facilitated the deal. Out of the sale
price, Pankaj was to be paid Rs 25,000 as his professional charges. Seema promised to pay
Pankaj the amount before taking possession of the property. She made three payments of Rs
5,000 each and then stopped paying him. Pankaj filed a suit against Seema which was held by
the Court because Seema had acknowledged her liability by conduct.

A Covenant Running with the Land

When a person purchases a piece of land with the notice that the owner of the land will be
bound by all duties and liabilities affecting the land, then he can sue upon a contract between
the previous land-owner and a settler even if he was not a party to the contract.

Peter owned a piece of land which he sold to John under a covenant that a certain part of the
land will be maintained as a public park. John abided by the covenant and eventually sold the
land to Arjun. Though Arjun was aware of the covenant, he built a house in the specific plot.
When Peter came to know of it, he filed a suit against Arjun. Although Arjun denied liability
since he was not a party to the contract, the Court held him responsible for violating the
covenant.
CONSIDERATION-

PINNEL’S RULE-

1. PINNEL V COLE-

Facts:
The defendant, Cole, owed the plaintiff, Pinnel, the sum of £8 10s. Pinnel sued Cole
for recovery of the debt. Cole had, at Pinnel’s request, paid £5 2s 6d one month
before the debt was due to be paid and stated that they had an agreement that this
part payment would discharge the entire debt.

Issues:
The defendant argued that the plaintiff had accepted partial payment of the debt as
satisfaction of the whole. However, it was a general rule that payment of a lesser
sum than that which was owed in satisfaction of a debt could not discharge the
obligation to repay the whole amount.

Decision/Outcome:
The court confirmed the general rule that part payment of a debt cannot be
satisfaction for the whole. However, since the payment had been made early this was
sufficient to discharge he debt.

Therefore, by paying some money early the defendant had provided the plaintiff with
a further benefit and had not just repaid the money which he already owed.
Consequently, this was good consideration, and the court found for the defendant.

2. FOAKES V BEER-

 Mrs. Julia Beer received a decree from the court £2000 from the plaintiff. The
plaintiff not having that amount immediately, paid £200 and promised to pay the
rest through installments.
 Once he finished paying the installments, Beer sued him to recover interest
on the payment.

 Can she sue for the interest?
 She can.
  Since by the decree, Beer was entitled to the entire payment of £2000 and merely by
agreeing to receive the payment by installments she has not foregone the right to
the entire compensation, therefore, she is also entitled to receive the interest on the
amount when paid in installments.

EXCEPTIONS TO PINNEL’S RULE-

Exceptions to the rule- where partial payment works

Disputed Claims: The above rule does not apply if there is a genuine dispute about whether
the debt is actually owed, or about the amount owed. In such circumstances, a partial
payment by the debtor will be considered a promise not to enforce the rest of the alleged
debt.

Unliquidated Claims: A liquidated claim is one for a fixed amount – a sum of money lent, for
example, or the agreed price of goods or services supplied. Where the amount of a claim is
uncertain, as in a claim for damages, or in connection with a contract specifying ‘reasonable
remuneration’, it is said to be unliquidated. In such circumstances, the rule in Pinnel’s case
does not apply. This is because the value of the claim is not known.

Composition Agreements: A debtor who owes money to several different people, and
cannot pay, may offer to pay each one a percentage of their claim, which is often expressed
as so much in the pound, and known as a dividend. The courts have long held such an
agreement to be binding so that none of the creditors can later sue for the full amount
although it is hard to see what in the arrangement could amount to consideration.

Payment by a third party: A creditor who accepts part-payment from a third party, in full
settlement of the debtor’s liability, cannot then sue for the outstanding amount.

Promissory estoppel: This is the doctrine that a party may recover on the basis of a promise
made when the party’s reliance on that promise was reasonable, and the party attempting
to recover detrimentally relied on the promise.
PRE EXISTING DUTY RULE-

1. STILK V MYRICK- (SAILOR)

Facts
Stilk was contracted to work on a ship owned by Myrick for £5 a month,
promising to do anything needed in the voyage regardless of emergencies.
After the ship docked at Cronstadt two men deserted, and after failing to find
replacements the captain promised the crew the wages of those two men
divided between them if they fulfilled the duties of the missing crewmen as
well as their own. After arriving at their home port the captain refused to pay
the crew the money he had promised to them.

Issue
1. Was there legally sufficient consideration of this agreement to
allow the sailors to collect?
Decision
No consideration found; finding for the defendant.

Reasons
The court held that the original contract bound Stilk to perform any and all
duties on board the ship, including performing the additional work of deserted
crewmen, which according to the court, was “to be considered an emergency
of the voyage as much as [crewmen's] death” and thus did not constitute
sufficient consideration. In other words, the crewmen did not perform
anything new that they had not already agreed to do under their original
agreement before the voyage, so there was no real ‘extra’ work done in
exchange for the higher wages. They had already agreed to do all they could
in an event of an emergency.

Ratio
Performance of a pre-existing duty is not legally sufficient consideration. They
already agreed to do all that was needed in the case of an emergency.

2. WILLIAM V ROFFEY BROTHERS-

Facts of Williams v Roffey Bros-
The appellants Roffey Bros, were builders who were contracted to refurbish 27 flats
belonging to a housing corporation. The contract had a penalty clause for late
completion. The appellants subcontracted some work to Williams, a carpenter. When
Williams fell behind with his work the appellants offered him bonus payment to
finish on time. Williams carried on working until the payments stopped. He sued the
appellants for breach of contract.

Issues in Williams v Roffey Bros

The appellants argued that the agreement to pay extra was unenforceable as
Williams had provided no consideration; the appellants only received the practical
benefit of avoiding the penalty clause. They did not receive any benefit in law.
Williams was only agreeing to do what he was already bound to do. The appellants
relied on Stilk v Myrick (1809) 2 Camp 317 where it was held that performance of an
existing duty was not good consideration.

Decision / Outcome of Williams v Roffey Bros

The Court of Appeal held that the doctrine in Stilk v Myrick had been refined since
then. Gildwell LJ said a promise to make bonus payments to complete work on time
was enforceable if the promisor obtained a practical benefit and the promise was not
given under duress of by fraud. It was the appellants’ own idea to offer the extra
payment. Therefore, there was no duress. The appellants also gained a practical
benefit by avoiding the penalty clause. Russel LJ said (at 19) that the court would
take ‘a pragmatic approach to the true relationship between the parties’.

3. LALMAN SHUKLA V GAURI DATT-

FIRM OFFER RULE-

1. Bank of India v O P Swarankar-

- Facts:

- Nationalized banks implemented a Voluntary Retirement Scheme (V.R. Scheme) with

eligibility criteria, including a clause barring employees facing disciplinary action.
 Over 1,01,000 employees applied, with around 2000 withdrawing their applications.
Some offers were accepted during and after the scheme's operational period. Writ
petitions were filed challenging the validity of the scheme.

- Issues:

- 1. Whether the VRS constitutes an offer or an invitation to offer.

- 2. Whether employees could withdraw VRS applications before acceptance.

- 3. Whether the banks had unilateral authority to determine the master-servant

relationship post-VRS application.

- Ratio Decidendi:

- The Supreme Court ruled the VRS was an 'invitation to offer,' with employee
applications constituting 'offers.' The scheme's acceptance was left to the banks'
discretion. The Court held that an offer could be revoked before acceptance.

- Decision:

- The Court held that the VRS was not an offer but an 'invitation to offer.' Employees
had the right to revoke offers before acceptance. Banks had discretion in accepting
offers. The decision was based on the Indian Contract Act.

- Conclusion:

- The appeals by Nationalized Banks were mostly dismissed, except where employees
had accepted benefits. Cases were remitted to the High Court for further
consideration. Bank of India v. OP Swarankar established a crucial distinction
between 'Offer' and 'Invitation to Offer' in VRS cases, guiding acceptance of offers
under such schemes.
 2. Somasundaram Pillai v Provincial Government of Madras

PAST CONSIDERATION AND ITS LIMITS-

1. LAMPLEIGH V BRATHWITE- (KILLED MAN, PARDON FROM KING)

Facts
The defendant, Braithwaite, killed a man. He asked the plaintiff, Lampleigh to secure
him a pardon from the king. The plaintiff spent many days doing this, riding and
journeying at his own cost across the country to where the King was and back again.
Afterwards, the defendant promised to pay the plaintiff £100 in gratitude. He later
failed to pay the money. The plaintiff sued.

Issues
The court considered whether this past consideration was sufficient to create a valid
contract.

Decision/Outcome
The court found in favour of the plaintiff. The promise was indeed given after the
plaintiff had acted. However, the plaintiff had acted upon a request made by the
defendant. The court considered that the original request by the defendant
contained an implied promise to pay the plaintiff for his efforts. Bowen LJ said:

‘A mere voluntary courtesie will not have a consideration to uphold an assumpsit. But
if that courtiesie were moved by a suit or request of the party that gives the
assumpsit, it will bind’.

Consequently, the court held that if A does something for B at their request and
afterward B promises to pay A for their trouble, then that promise is good
consideration. The later promise was considered to be part of the same single
transaction and was, therefore, enforceable.

2. EASTWOOD V KENYON- (GUARDIAN TO DAUGHTER, PAY LOAN)

Facts
John Sutcliffe died and left Eastwood as the guardian to his infant daughter,
Sarah. Eastwood borrowed money from one Blackburn to pay for Sarah's
education and Sarah promised Eastwood she would pay back Blackburn when
she came of age. Sarah paid one year's interest to him. Sarah then married
Kenyon who also promised Eastwood to pay back Blackburn. Kenyon failed to
do so and Eastwood sued.

Issue
1. Is a promise sufficient to form a contract??
Decision
No contract found to have existed. Hence can't be binding

Reasons
The court found that on the facts there was nothing more than a benefit
voluntarily conferred by Eastwood and an express promise made by Kenyon to
repay the money.

Lord Denman CJ argued that while deliberately made promises should be

enforced this would have the result of:

1. annihilating the necessity for consideration and it is not the role

of contract law to enforce morality
2. the floodgates opening with everyone seeking to enforce
promises made
Ratio
 Promises are not sufficient to found a contract.
 Consideration made in the past is no consideration at all.
 Moral obligation does not constitute consideration

CONSIDERATION CAN’T BE ILLUSIONARY-

1. WHITE V BLUETT- (COMPLAIN ABT DISTRI OF LAND BY SON)

Facts
Bluett Sr. lent his son, the respondent in this case, a sum of money and died before
his son had repaid this to him. Bluett Sr. and Jr. had agreed on this and completed a
promissory note to this effect. Bluett’s will was executed by White. In the course of
executing the will, White sued Bluett’s son for the outstanding payment. The son
argued, as a defence, that Bluett Sr. had stated that repayment was not necessary to
render the promissory note ineffective if the son stopped complaining about the
manner in which Bluett Sr. spread his estate among the other members of the family.

Issue
The court was required to define whether the son’s promise to stop complaining
about his father’s plans would satisfy the requirement of consideration in
constructing a contract. If this could be proven, then it would be likely that Bluett’s
son would be released from the requirement to repay the debt owed to his father’s
estate.

Decision/Outcome
The court held that there was no consideration given by the son which would absolve
him of having to repay the debt to his father’s estate. The court also believed that the
son had no right to complain as the father was free to distribute his property as he
wished. As a result, ceasing from complaining was not consideration and was
ultimately an intangible promise. Pollock, CB was clear in his summing up of the
decision: ‘…the argument…is pressed to an absurdity, as a bubble is blown until it
bursts’.

2. HAMER AND SIDWAY- (REFRAIN SMOKING)

Facts.
Story (D) agreed with his nephew William (P) that if P would refrain from drinking, using tobacco,
swearing, and playing cards or billiards for money until he became 21, D would pay him $5,000.
When P became 21 he wrote a letter to D stating that P had performed his part of the agreement and
had earned the $5,000. P and D agreed that $5,000 plus interest should remain with D until P was
capable of taking care of it. D died without paying P the $5,000 plus interest. Judgment for D. P
appealed.

Issue.
Is mere abstention from legal conduct sufficient consideration?

Held.
Yes. Judgment reversed.
Valuable consideration may consist either in some right, interest, profit, or benefit accruing to
one of the parties or some forbearance, detriment, loss, or responsibility given, suffered, or
undertaken by the other party.
Here, the court found that it is sufficient that P restricted his lawful freedom of action within
certain prescribed limits upon the faith of D’s agreement. Furthermore, the court found
nothing in the record that would permit a determination that D was not benefited in the legal
sense.

ADEQUACY OF CONSIDERATION-

1. CAHPPEL V CO NESTLE-

Facts
The defendants, Nestlé, contracted with a company manufacturing gramophone
records to buy several recordings of music. The plaintiffs, Chappell & Co, held the
copyright in these recordings. Nestlé offered to sell these records at a discount price
to anyone presenting three wrappers from their chocolate bars. The wrappers
themselves were worthless and were thrown away by Nestle. The plaintiffs sought an
injunction restraining the manufacture and sale of the records because they
breached copyright.

Issues
The Copyright Act 1956, s.8 allowed for the manufacture of records for retail sale
provided that a royalty of 6 ¼ percent was paid to the copyright holder. The
question was whether the sale was a ‘retail sale’. The defendants argued that the
wrappers were part of the consideration and this was not covered by s.8, which only
applied to monetary sales. Consequently, the issue was whether the wrappers were
consideration for the sale of records or whether they were merely a qualification for
buying the records.

Decision/Outcome
The House of Lords held that the wrappers did form part of the consideration for the
sale of records despite the fact that they had no intrinsic economic value in
themselves.

Lord Somervell said (at 114):

‘A contracting party can stipulate 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.’

Therefore, as the wrappers had no monetary value, the sale was not covered by s.8 of
the 1956 Act, and the Lords found in favour of the defendants.

EXCEPTIONS TO CONSIDERATION-

Natural Love and Affection

If an agreement is in writing and registered between two parties in close relation (like blood
relatives or spouse), based on natural love and affection, then such an agreement is
enforceable even without consideration.
Example, Peter and John are brothers. In his will, their father nominates Peter as the sole owner
of his entire property after his death. John files a case against Peter to claim his right to the
property but loses the case. Peter and John come to a mutual decision where Peter agrees to
give half of the property to his brother and register a document regarding the same.

Eventually, Peter didn’t fulfil his promise and John filed a suit for recovery of his share in the
property. The Court held that since the agreement was made based on natural love and
affection, the no consideration no contract rule didn’t apply and John had the right to recover
his share.

Past Voluntary Services

If a person has done a voluntary service in the past and the beneficiary promises to pay at a
later date, then the contract is binding provided:

 The service was rendered voluntarily in the past

 It was rendered to the promisor

 The promisor was in existence when the voluntary service was done (especially
important when the promisor is an organization)

 The promisor showed his willingness to compensate the voluntary service

Example, Peter finds Johns wallet on the road and returns it to him. John is happy to find his lost
wallet and promises to pay Peter Rs 2,000. In this case, too, the no consideration no contract
rule does not apply. This contract is a valid contract.

Promise to pay a Time-Barred Debt

If a person makes a promise in writing signed by him or his authorized agent about paying a
time-barred debt, then it is valid despite there being no consideration. The promise can be
made to pay the debt wholly or in part.

Example, Peter owes Rs 100,000 to John. He had borrowed the money 5 years ago. However, he
never paid a single rupee back. He signs a written promise to pay Rs 50,000 to John as a final
settlement of the loan. In this case, ‘the no consideration no contract’ rule does not apply
either. This is a valid contract.