SYNOPSIS

Consideration Under the Indian Contract Act, 1872

I. Introduction

II. Definition of "Consideration"

III. Essentials of Consideration    

1) Consideration Must Move "At the Desire of the Promisor"    

2) It May Move From the "Promisee or Any Other Person"

a. The English Position: Privity of Consideration & Privity of Contract    

b. The Indian Position:

i. Privity of Consideration Does Not Apply:     

ii. Privity of Contract Applies:

Important Exceptions to Privity of Contract:

(1) Beneficiaries Under a Trust or Charge:

(2) Marriage Settlements, Partitions, or Family Arrangements:

(3) Acknowledgment or Estoppel:

(4) Covenants Running with Land

3) Consideration May Be Past, Present, or Future

a. Past Consideration

b. Present (Executed) Consideration

c. Future (Executory) Consideration

4) Consideration Must Be of Real Legal Value (But Need Not Be Adequate)

a. Value in the Eyes of Law:

b. Adequacy is Not Required:

IV. Exceptions to the Rule: "No Consideration, No Contract"

1) Natural Love and Affection [Section 25(1)]

2) Promise to Compensate for Past Voluntary Services [Section 25(2)]

3) Promise to Pay a Time-Barred Debt [Section 25(3)]

4) Completed Gifts [Section 25, Explanation 1]

5) Contract of Agency    

V. Definitions Matrix (Comparative References)

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Consideration Under the Indian Contract Act, 1872

I. Introduction

    According to Section 10 of the Indian Contract Act, 1872, consideration is an essential element for the formation of a valid contract. Section 25 of the Act explicitly declares that an agreement made without consideration is void.

Similarly, under English law, a promise made without consideration is treated as gratuitous and is unenforceable at law. This principle is encapsulated in the Latin maxim:

Ex nudo pacto non oritur actio (No action arises from a naked agreement / An agreement without consideration is null and void.)

II. Definition of "Consideration"

    In ordinary parlance, consideration is the price of a promise—a return, or quid pro quo (something for something)—received by the promisor to induce the promise.

Section 2(d) of the Indian Contract Act, 1872, defines consideration as follows:

"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."

Statutory Illustrations:

i. Illustration (a): A agrees to sell his house to B for ₹10,000. Here, B’s promise to pay the sum of ₹10,000 is the consideration for A’s promise to sell the house, and A’s promise to sell the house is the consideration for B’s promise to pay the ₹10,000. These are lawful considerations.

ii. Illustration (b): A promises to pay B ₹1,000 at the end of six months, if C, who owes that sum to B, fails to pay it. B promises to grant time to C accordingly. Here, the promise of each party is the consideration for the promise of the other party.

iii. Illustration (c): A promises, for a certain sum paid to him by B, to make good to B the value of his ship if it is wrecked on a certain voyage. Here, A’s promise is the consideration for B’s payment, and B’s payment is the consideration for A’s promise.

iv. Illustration (d): A promises to maintain B’s child, and B promises to pay A ₹1,000 yearly for the purpose. Here, the promise of each party is the consideration for the promise of the other party.

III. Essentials of Consideration

    An analysis of Section 2(d) outlines the fundamental legal requirements of valid consideration:

1) Consideration Must Move "At the Desire of the Promisor"

    The act or abstinence constituting consideration must be performed at the explicit request or desire of the promisor. Voluntarily rendering a service without such a request does not constitute valid consideration to enforce a subsequent promise.

Case Law: Durga Prasad v. Baldeo (1880) ILR 3 All 221

Facts: The plaintiff constructed a market at the instance and desire of the District Collector. The defendant occupied a shop in the market and promised to pay the plaintiff a commission on all articles sold through his agency. The defendant later failed to pay.

Held: The agreement was void for want of consideration. The market was constructed at the desire of the Collector, not at the desire of the defendant (promisor).

Case Law: Kedar Nath Bhattacharji v. Gorie Mahomed (1886) ILR 14 Cal 64

Facts: A subscription list was opened to build a Town Hall in Howrah. The defendant voluntarily signed up to subscribe ₹100. On the faith of this subscription, the plaintiff entered into a contract with a builder to construct the hall. The defendant later refused to pay.

Held: The defendant was liable. The commencement of the construction work on the faith of the subscription constituted valid consideration, moving at the implicit desire of the subscriber.

2) It May Move From the "Promisee or Any Other Person"

    Unlike English law, Indian law allows consideration to move from a third party who is not necessarily the promisee.

a. The English Position: Privity of Consideration & Privity of Contract

    English common law strictly dictates that consideration must move from the promisee and the promisee alone. A stranger to the consideration cannot enforce the contract.

Evolutionary Shift:

i. Dutton v. Poole (1677) 2 Lev 211: Initially, the court allowed a daughter to sue her brother who had promised their father he would pay her a marriage portion if the father refrained from cutting down a wood. The court held that the natural love and affection close relation extended the right to sue.

ii. Tweddle v. Atkinson (1861) 1 B&S 393: The Court of Queen’s Bench expressly overruled the older doctrine, holding that no stranger to the consideration can take advantage of a contract, even if made for their express benefit.

iii. Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [1915] AC 847: The House of Lords solidified two principles:

Privity of Consideration: Consideration must move from the promisee only.

Privity of Contract: A person who is not a party to a contract cannot enforce it.

b. The Indian Position:

i. Privity of Consideration Does Not Apply:

    Section 2(d) explicitly states that consideration may move from "the promisee or any other person".

        Case Law: Chinnaya v. Ramayya (1882) ILR 4 Mad 137

Facts: An old lady gifted landed property to her daughter (the defendant) via a registered deed, under the condition that the daughter pay an annuity of ₹653 annually to the lady's sister (the plaintiff). The daughter executed a matching agreement in favor of the aunt but subsequently refused to pay, arguing no consideration moved from the aunt.

Held: The contract was enforceable. The consideration provided by the plaintiff’s sister (the donor) was legally sufficient to sustain the promise made to the plaintiff.

ii. Privity of Contract Applies:

    Although consideration can move from a third party, a stranger to the contract cannot sue upon it. However, Indian jurisprudence recognizes vital exceptions where a non-party can sue:

    Important Exceptions to Privity of Contract:

(1) Beneficiaries Under a Trust or Charge: A person for whose benefit a trust or specific property charge is created can enforce the obligation.

        Khwaja Muhammad Khan v. Husaini Begum (1910) 37 IA 152: A father-in-law agreed with his daughter-in-law's father to pay her ₹500/month for betel-leaf expenses (Kharch-i-Pandan), charging specific immovable properties. The Privy Council held that the daughter-in-law, though a stranger to the contract, could enforce it as a beneficiary of the charge.

(2) Marriage Settlements, Partitions, or Family Arrangements: Provisions made for family members (e.g., maintenance or marriage expenses of a female relative) during a partition or family arrangement can be enforced by them.

(3) Acknowledgment or Estoppel: Where a party admits or acknowledges their liability to a third party by conduct or statement.

Devaraja Urs v. Ram Krishnaiah AIR 1952 Mys 109: A sold property to B and instructed B to pay part of the sale price to C (A’s creditor). B paid a portion to C and acknowledged that the rest would follow. B later failed to pay. The court held that B was liable because his acknowledgment created a direct obligation to C.

(4) Covenants Running with Land: Based on Tulk v. Moxhay (1848) 2 Ph 774, a purchaser who buys land with notice that the prior owner is bound by certain restrictive covenants is bound by them, regardless of privity.

3) Consideration May Be Past, Present, or Future

    The statutory phrase "has done or abstained from doing (past), or does or abstains from doing (present), or promises to do or to abstain from doing (future)" divides consideration into three distinct categories:

a. Past Consideration: When the act is performed before the promise is made. Under Indian law, past consideration is valid as long as it was performed at the prior request of the promisor.

b. Present (Executed) Consideration: When one party completely performs their part of the obligation simultaneously with the formation of the contract (e.g., cash sales).

c. Future (Executory) Consideration: When one promise is exchanged for another, and both parties are to fulfill their obligations at a later date.

4) Consideration Must Be of Real Legal Value (But Need Not Be Adequate)

a. Value in the Eyes of Law: Consideration must be real, certain, and possess some legal value. A completely illusory or physically/legally impossible act is not valid consideration.

b. Adequacy is Not Required: The law does not require that the consideration be equal in value to the promise. The parties are free to make their own bargains.

Exception (Free Consent): According to Explanation 2 of Section 25, while inadequacy of consideration does not void a contract, it may be taken into account by the court to determine whether the consent of the promisor was freely given.

Inder Singh v. Parmeshwardhari Singh AIR 1957 Pat 491: A property worth approximately ₹25,000 was agreed to be sold for just ₹7,000. The mother proved that the vendor was an idiot incapable of understanding transactions. The court utilized the gross inadequacy of consideration alongside mental incapacity to set aside the contract.

IV. Exceptions to the Rule: "No Consideration, No Contract"

Section 25 of the Indian Contract Act establishes the general rule that an agreement without consideration is void, but marks out distinct, clear exceptions where contracts are valid without it:

1) Natural Love and Affection [Section 25(1)]

An agreement made without consideration is perfectly valid if it is:

a. Expressed in writing,

b. Registered under the law, and

c. Made on account of natural love and affection between parties standing in near relation to each other.

Rajlukhy Dabee v. Bhootnath Mookerjee (1900) 4 CWN 488: A husband promised in writing to pay his wife a fixed monthly sum for her separate residence after severe quarrels. The court held the agreement void because the document itself outlined chronic friction, proving that it was not executed out of natural love and affection.

2) Promise to Compensate for Past Voluntary Services [Section 25(2)]

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, is enforceable.

Example: If A finds B's lost wallet and returns it, and B subsequently promises to give A ₹50, this promise is legally binding under Section 25(2).

3) Promise to Pay a Time-Barred Debt [Section 25(3)]

    A promise made in writing and signed by the debtor (or their authorized agent) to pay a debt that cannot be recovered by the creditor due to the law of limitation is valid.

Case Law: Nepal Airlines Corporation v. Girish Kumar Singh (Decision of the Delhi High Court, 2014)

The Court observed that under Section 25(3), a written promise to pay a debt barred by limitation acts as a novation of the contract, breathing legal life back into an otherwise unenforceable liability.

4) Completed Gifts [Section 25, Explanation 1]

    The rule ex nudo pacto non oritur actio does not affect the validity of any gift that has already been completely made and accepted between a donor and a donee.

5) Contract of Agency

    According to Section 185 (corrected from the draft's erroneous reference to Section 105) of the Indian Contract Act, 1872:

"No consideration is necessary to create an agency."

V. Definitions Matrix (Comparative References)

Jurist / Source	Definition Perspective	Important Concept
Blackstone	Recompense	"Consideration is the recompense given by the party contracting to the other."
Sir Frederick Pollock	Commercial Exchange	"The price for which the promise of the other is bought, and the promise thus given for value is enforceable."
Patterson, J.	Benefit / Detriment	"Consideration means something which is of some value in the eyes of the law... It may be some benefit to the plaintiff or some detriment to the defendant."
Lush, J. (Currie v. Misa)	Classic English Common Law	"A valuable consideration in the sense of the law, may consist either 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."
Section 2(d), ICA 1872	Statutory Indian Law	Focuses on act, abstinence, or promise moving from the promisee or any other person at the desire of the promisor.

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