Consideration under the Indian Contract Act, 1872
Consideration is one of the central requirements of an enforceable agreement under the Indian Contract Act, 1872. In simple terms, it is the legally recognised value given, done, abstained from, or promised in return for a promise. The statutory definition is contained in Section 2(d), while the general rule that an agreement without consideration is void, together with important exceptions, appears in Section 25.
Indian law differs in an important respect from traditional English doctrine: under Section 2(d), consideration may move from the promisee or any other person. Students should therefore distinguish carefully between the doctrine of consideration and the separate doctrine of privity of contract.
Statutory Scheme at a Glance
| Provision | Subject |
|---|---|
| Section 2(d) | Definition of consideration |
| Section 10 | Lawful consideration as an essential condition of a valid contract |
| Section 23 | Lawful consideration and lawful object |
| Section 24 | Agreements void where consideration or object is unlawful in part |
| Section 25 | Agreement without consideration void, subject to stated exceptions |
| Section 185 | No consideration necessary to create an agency |
Definition of Consideration under Section 2(d)
Section 2(d) provides, in substance, that when, at the desire of the promisor, the promisee or any other person:
- has done or abstained from doing something;
- does or abstains from doing something; or
- promises to do or abstain from doing something,
such act, abstinence or promise is called consideration for the promise.
This definition contains several important elements. The act or abstinence must be connected to the promisor’s desire, it may proceed from the promisee or another person, and it may be past, present or future.
Essential Elements of Valid Consideration
1. Consideration Must Move at the Desire of the Promisor
The act or abstinence must be undertaken at the request or desire of the promisor. An act performed voluntarily, or at the request of someone else, does not ordinarily become consideration for a later promise merely because the promisor obtains a benefit from it.
The leading Indian case is Durga Prasad v. Baldeo. The plaintiff constructed shops at the direction of the Collector. The shopkeepers later promised to pay him commission. The promise was held unenforceable because the act relied upon as consideration had not been done at the desire of the promisors.
2. Consideration May Move from the Promisee or Any Other Person
This is one of the distinctive features of Indian contract law. Section 2(d) expressly states that consideration may move from the promisee or any other person.
In Chinnaya v. Ramaya, a transfer of property was made subject to an obligation that the transferee pay an annuity to another person. The case is commonly cited for the proposition that under Indian law consideration need not move from the promisee personally.
This rule must not be confused with privity of contract. A person may supply consideration without necessarily becoming a party entitled to sue on the contract.
3. Consideration May Be Past, Present or Future
The wording of Section 2(d) expressly covers something the promisee or another person has done, does, or promises to do. Indian law therefore recognises:
- Past consideration — an act already done at the promisor’s desire before the promise is made;
- Present or executed consideration — an act or abstinence performed in response to the promise; and
- Future or executory consideration — a promise to do or abstain from doing something in the future.
Past Consideration
Past consideration is valid in India when the earlier act was done at the desire of the promisor and otherwise satisfies Section 2(d).
Example: A asks B to repair A’s damaged boundary wall immediately. B completes the work. A later promises to pay B ₹20,000 for the work. Because B acted at A’s desire, the earlier act may constitute valid past consideration under Section 2(d).
Students should distinguish this from a purely voluntary act done without the promisor’s request. Such a case may, in certain circumstances, fall within Section 25(2), but it does not automatically satisfy Section 2(d).
Present or Executed Consideration
Executed consideration occurs where one party performs the requested act in response to a promise. General offers are a classic example.
If A promises ₹5,000 to anyone who finds and returns a lost document, and B, with knowledge of the offer, finds and returns it, B’s performance constitutes executed consideration for A’s promise.
Future or Executory Consideration
Executory consideration exists where both parties exchange promises to perform in the future.
Example: A promises to deliver 100 units of goods next month, and B promises to pay the agreed price on delivery. Each promise is consideration for the other.
Consideration Need Not Be Adequate
Indian law generally requires the existence of consideration, not equivalence of economic value. The court does not ordinarily measure whether the bargain was commercially wise or whether each side received equal value.
The explanation to Section 25 makes it clear that an agreement is not void merely because the consideration is inadequate, provided consent was freely given.
However, inadequacy may be relevant evidence when the court examines whether consent was free, particularly in cases involving undue influence, fraud or coercion.
Consideration Must Be Real and Legally Recognisable
Consideration must have some legal value. It cannot be merely illusory, physically impossible, legally impossible or so vague that no real obligation exists.
A promise to do what is legally impossible cannot ordinarily constitute meaningful consideration. Similarly, an entirely discretionary promise that imposes no real obligation may fail as consideration depending on the terms.
Consideration May Consist of an Act, Abstinence or Promise
Section 2(d) is broad. Consideration may be:
- a positive act;
- forbearance or abstinence from exercising a right;
- a promise to perform an act in the future; or
- a promise to refrain from doing something.
Forbearance to sue on a bona fide claim, for example, may constitute valid consideration if the legal requirements are satisfied.
Lawful Consideration: Section 23
Consideration must not only exist; it must also be lawful. Under Section 23, the consideration or object of an agreement is unlawful where, among other things, it is:
- forbidden by law;
- of such a nature that, if permitted, it would defeat the provisions of law;
- fraudulent;
- involves or implies injury to the person or property of another; or
- regarded by the court as immoral or opposed to public policy.
If consideration is unlawful, the agreement is void.
Section 24: Consideration or Object Unlawful in Part
Section 24 addresses agreements where part of a single consideration or part of one of several considerations for a single object is unlawful. Where the lawful and unlawful portions are inseparably connected in the manner contemplated by the section, the agreement is void.
The General Rule: No Consideration, No Contract
Section 25 begins with the rule that an agreement made without consideration is void, unless it falls within one of the statutory exceptions.
The expression often used in textbooks is ex nudo pacto non oritur actio — no action arises from a bare promise. Indian law, however, must be applied through the express language of Section 25 and its exceptions.
Section 25(1): Natural Love and Affection
An agreement without consideration is enforceable under Section 25(1) where all the statutory conditions are satisfied:
- the agreement is expressed in writing;
- it is registered under the law for the time being in force relating to registration of documents;
- it is made on account of natural love and affection; and
- it is between parties standing in a near relation to each other.
All these requirements matter. Near relationship alone is insufficient if the surrounding facts show absence of natural love and affection.
Rajlukhy Dabee v. Bhootnath Mookerjee is commonly cited to illustrate that a written and registered promise between spouses may still fail under this exception where the circumstances do not establish natural love and affection.
Section 25(2): Compensation for Past Voluntary Services
Section 25(2) validates a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do.
Example: B finds A’s lost property and returns it without any prior request. A later promises to pay B ₹2,000. Depending on the facts, this may fall within Section 25(2).
This exception should be distinguished from past consideration under Section 2(d). If the earlier act was done at the promisor’s desire, it may itself be consideration. Section 25(2) deals with a different class of past voluntary acts.
Section 25(3): Promise to Pay a Time-Barred Debt
A promise to pay wholly or in part a debt that would otherwise be barred by limitation may be enforceable under Section 25(3) if:
- the promise is in writing; and
- it is signed by the person to be charged or by an authorised agent.
The original debt must be one which the promisor was legally liable to pay before it became time-barred.
The promise itself becomes the basis of enforceability even though fresh consideration is absent.
Completed Gifts Are Not Affected
Section 25 also preserves the validity of a gift actually made. A completed gift is not invalid merely because it was made without consideration.
This must be distinguished from a mere promise to make a gift in the future, which may require compliance with the law governing gifts and cannot automatically be enforced as a contract merely because the intended transfer was gratuitous.
Agency: No Consideration Necessary under Section 185
Section 185 expressly provides that no consideration is necessary to create an agency.
This is an important statutory exception to the general role of consideration in contractual relations. A principal may validly appoint an agent even though the agent provides no consideration for the appointment.
Charitable Subscriptions and Consideration
Promises to donate money to charitable or public causes raise important questions of consideration.
In Abdul Aziz v. Masum Ali, a promise to subscribe money for a charitable purpose was held unenforceable because no liability had been incurred on the faith of the promise and there was no consideration.
By contrast, in Kedarnath Bhattacharji v. Gorie Mahomed, a subscription promise was enforced where obligations had been incurred in reliance upon the subscription. The liability undertaken on the faith of the promise supplied the necessary consideration.
Privity of Consideration versus Privity of Contract
These two doctrines are frequently confused.
| Doctrine | Rule in India |
|---|---|
| Privity of consideration | Not required in the English sense; consideration may move from promisee or any other person under Section 2(d) |
| Privity of contract | Generally, only parties to a contract can sue upon it, subject to recognised exceptions |
Thus, a stranger to consideration may sometimes sue if that person is a party to the contract, but a complete stranger to the contract generally cannot sue merely because the agreement benefits them.
Doctrine of Privity of Contract
The doctrine of privity means that contractual rights and obligations ordinarily arise only between the parties to the contract.
The Supreme Court recognised the doctrine in M.C. Chacko v. State Bank of Travancore, while also acknowledging that Indian law recognises certain exceptions.
English cases such as Tweddle v. Atkinson and Dunlop Pneumatic Tyre Co. v. Selfridge & Co. are often cited for the traditional common-law formulation of privity.
Important Exceptions to Privity of Contract
Indian law recognises situations in which a person who is not formally a contracting party may nevertheless enforce an obligation. Important categories commonly discussed include:
- Trust or charge: a beneficiary may enforce rights created in their favour under a trust or charge.
- Family settlement or marriage arrangement: a beneficiary under certain family arrangements may be able to sue.
- Acknowledgment or estoppel: where a party acknowledges liability directly to a third person, the facts may create enforceable rights.
- Agency: a principal may sue and be sued on contracts entered into by an authorised agent.
- Assignment: contractual rights may in appropriate cases be assigned, allowing the assignee to enforce them.
- Covenants running with land or obligations attached to property: proprietary principles may permit enforcement beyond the original contracting parties.
Khwaja Muhammad Khan v. Husaini Begum is a leading Indian authority commonly discussed in relation to a beneficiary under a family or marriage arrangement.
Chinnaya v. Ramaya: Why It Is Important
Chinnaya v. Ramaya is central to Indian consideration law because it demonstrates that consideration need not move from the promisee personally.
The case is often contrasted with the English rule that consideration must move from the promisee. Under Section 2(d), Indian law is broader: the consideration may move from the promisee or any other person.
However, students should not write that the case abolishes privity of contract. It addresses the source of consideration, not the separate question of who is entitled to sue on a contract.
Durga Prasad v. Baldeo: Desire of the Promisor
The importance of Durga Prasad v. Baldeo lies in the phrase “at the desire of the promisor” in Section 2(d).
An act that incidentally benefits the promisor does not amount to consideration if it was not performed at the promisor’s desire. This requirement prevents a person from unilaterally conferring a benefit and later claiming contractual payment merely because the other person benefited.
Consideration and Pre-Existing Duties
Where a person merely performs an obligation that the law already requires that person to perform, difficult questions may arise as to whether there is fresh consideration for a new promise.
The issue is highly fact-sensitive. Students should examine whether the promisee undertook any additional legal detriment, additional performance or fresh obligation beyond the pre-existing duty.
Forbearance as Consideration
Agreement to refrain from exercising a legal right may be valid consideration. For example, a creditor’s promise to postpone legal proceedings for a specified period may support a reciprocal promise by the debtor.
Where forbearance concerns a disputed claim, the claim should generally be bona fide rather than knowingly baseless.
Consideration and Compromise of Claims
A genuine compromise of disputed rights may constitute valid consideration because each party gives up the possibility of insisting upon their full claim.
Settlement therefore does not fail merely because one party later believes they might have succeeded entirely in litigation.
Consideration and Free Consent
Inadequacy of consideration does not by itself make an agreement void. However, the court may consider gross inadequacy while deciding whether consent was obtained by undue influence, coercion, fraud or misrepresentation.
This reflects a distinction between:
- sufficiency or legal existence of consideration; and
- adequacy or economic equivalence of consideration.
The law generally insists on the former, not the latter.
Difference Between Consideration and Motive
| Consideration | Motive |
|---|---|
| Legal value exchanged for a promise | Personal reason for entering the transaction |
| Relevant to enforceability | Usually not decisive for contract formation |
| Defined in Section 2(d) | Not defined as an element of contract |
| Must satisfy legal requirements | May be moral, emotional, commercial or personal |
A person may contract because of affection, friendship, profit or fear of losing business. Those motives are different from the legal consideration exchanged between the parties.
Difference Between Consideration and Object
Consideration is the value given in return for the promise. The object is the purpose or end sought to be achieved by the agreement.
Both must be lawful under Section 23. An agreement may involve apparently lawful consideration but an unlawful object, or vice versa.
Difference Between Past Consideration and Past Voluntary Service
| Past Consideration | Past Voluntary Service |
|---|---|
| Act done earlier at promisor’s desire | Act done voluntarily without prior request |
| Falls within Section 2(d) | May fall within Section 25(2) |
| Earlier act itself constitutes consideration | Later promise is enforceable only if statutory exception applies |
Important Cases at a Glance
| Case | Principle |
|---|---|
| Durga Prasad v. Baldeo | Consideration must move at the desire of the promisor |
| Chinnaya v. Ramaya | Consideration may move from promisee or any other person under Indian law |
| Abdul Aziz v. Masum Ali | Charitable promise without consideration or incurred liability unenforceable |
| Kedarnath Bhattacharji v. Gorie Mahomed | Subscription enforceable where liability incurred on faith of the promise |
| Rajlukhy Dabee v. Bhootnath Mookerjee | Natural love and affection exception requires substantive satisfaction of Section 25(1) |
| M.C. Chacko v. State Bank of Travancore | Doctrine of privity of contract recognised in India |
| Khwaja Muhammad Khan v. Husaini Begum | Illustrates enforcement by beneficiary under recognised exception to privity |
| Tweddle v. Atkinson | Traditional English privity rule |
| Dunlop Pneumatic Tyre Co. v. Selfridge & Co. | Privity and consideration principles in English common law |
Frequently Asked Examination Questions
- Define consideration under Section 2(d) of the Indian Contract Act, 1872.
- What are the essential elements of valid consideration?
- Explain the phrase “at the desire of the promisor” with reference to Durga Prasad v. Baldeo.
- Can consideration move from a person other than the promisee in India?
- Discuss Chinnaya v. Ramaya.
- Explain past, present and future consideration.
- Is inadequacy of consideration fatal to a contract?
- Explain the rule “no consideration, no contract”.
- Discuss the exceptions contained in Section 25.
- Explain the natural love and affection exception under Section 25(1).
- Explain compensation for past voluntary services under Section 25(2).
- Explain the promise to pay a time-barred debt under Section 25(3).
- Distinguish privity of consideration from privity of contract.
- Discuss the exceptions to the doctrine of privity of contract.
- Explain charitable subscriptions with reference to Abdul Aziz and Kedarnath Bhattacharji.
5-Mark Answer: Consideration
Consideration is defined in Section 2(d) of the Indian Contract Act, 1872. When, at the desire of the promisor, the promisee or any other person has done, does, or promises to do or abstain from doing something, that act, abstinence or promise is consideration for the promise. Consideration may therefore be past, present or future and may move from the promisee or any other person. It need not be adequate, but it must be real and lawful. Under Section 25, an agreement without consideration is generally void, subject to exceptions including natural love and affection in a written and registered agreement, compensation for past voluntary services, and a written promise to pay a time-barred debt.
10-Mark Answer Structure
- State the definition under Section 2(d).
- Explain the requirement that consideration move at the desire of the promisor.
- Explain that it may move from the promisee or any other person.
- Discuss past, present and future consideration.
- State that consideration need not be adequate but must be real and lawful.
- Explain Section 23 where relevant.
- Discuss Section 25 and its three principal exceptions.
- Distinguish consideration from motive.
- Distinguish privity of consideration from privity of contract.
- Add leading cases such as Durga Prasad, Chinnaya, Abdul Aziz and Kedarnath Bhattacharji.
One-Minute Revision Table
| Question | Answer |
|---|---|
| Definition of consideration? | Section 2(d) |
| Must consideration move at whose desire? | Promisor |
| Who may furnish consideration? | Promisee or any other person |
| Can consideration be past? | Yes, under Section 2(d) if requirements are satisfied |
| Can consideration be future? | Yes |
| Must consideration be adequate? | No |
| Must consideration be lawful? | Yes |
| General no-consideration rule? | Section 25 |
| Natural love and affection exception? | Section 25(1) |
| Past voluntary services? | Section 25(2) |
| Time-barred debt? | Section 25(3) |
| Agency requires consideration? | No, Section 185 |
| Desire of promisor case? | Durga Prasad v. Baldeo |
| Consideration from third person case? | Chinnaya v. Ramaya |
| Privity case in India? | M.C. Chacko v. State Bank of Travancore |
Conclusion
Consideration is the legal value that supports a contractual promise. Section 2(d) adopts a broad Indian formulation by recognising acts, abstinences and promises, whether past, present or future, and by allowing consideration to move from the promisee or any other person. Section 25 then qualifies the general rule that agreements without consideration are void by creating carefully defined exceptions. A complete understanding of consideration also requires students to distinguish adequacy from sufficiency, consideration from motive, and privity of consideration from privity of contract.
Academic note: This material is intended for legal education and examination preparation. Students should consult the latest official statutory text and full judgments for authoritative study.