Consideration is the price for which the promise of another is bought. Without consideration, an agreement is generally void under S.25, unless it falls within one of the statutory exceptions carved out precisely because certain promises deserve enforcement despite the absence of a bargained exchange.
Legal Framework
| Section | Act | Scope |
|---|---|---|
| S.2(d) | Indian Contract Act, 1872 | Defines consideration: act, abstinence, or promise at the desire of the promisor |
| S.25 | Indian Contract Act, 1872 | Agreement without consideration is void, subject to exceptions |
| S.185 | Indian Contract Act, 1872 | No consideration necessary to create an agency |
Salient Features of Consideration
1. Must Move at the Desire of the Promisor. An act done voluntarily, or at a third party's request, is not consideration.
Why: The law enforces bargains, not unsolicited generosity; the promisor must have actually sought the act in exchange for their promise.
2. May Move from the Promisee or a Third Party. Under Indian law, unlike English law's privity doctrine, consideration may move from any person, even one who is not the promisee.
Why: This is a deliberate Indian departure, permitting family settlement arrangements where a third party furnishes consideration for a promise benefiting someone else.
3. May Be Past, Present, or Future. Past consideration, an act already done before the promise, present consideration given simultaneously, and future consideration, a promise for a promise, are all valid under Indian law.
Why: S.2(d)'s phrase "has done or abstains from doing" expressly recognises past acts as valid consideration, a position broader than classical English contract law.
4. Need Not Be Adequate. Courts do not inquire into whether consideration matches the value of the promise, only whether it is real.
Why: Freedom of contract permits parties to strike their own bargains; courts are not equipped or entitled to second-guess commercial judgment on adequacy.
5. Must Be Real, Not Illusory. Consideration that is physically or legally impossible, or too vague, is not valid consideration.
6. Must Not Be Unlawful. Consideration that is forbidden by law, or would defeat any law's provisions, or is fraudulent, or involves injury to person or property, or is regarded as immoral or against public policy, renders the agreement void under S.23.
Exceptions to S.25: Agreements Without Consideration That Are Still Valid
1. Natural Love and Affection. Under S.25(1), a written and registered agreement made on account of natural love and affection between parties standing in a near relation to each other is valid without consideration.
Why: Family bonds justify enforcement of deliberate, formalised promises even absent an exchange, provided the formalities of writing and registration guard against casual or coerced promises.
2. Compensation for Past Voluntary Service. Under S.25(2), a promise to compensate a person who has already voluntarily done something for the promisor, or something the promisor was legally bound to do, is valid.
Why: This rewards genuine past generosity with a subsequent promise, recognising that requiring fresh consideration for compensating a past kindness would be artificial.
3. Promise to Pay a Time-Barred Debt. Under S.25(3), a written and signed promise to pay a debt barred by limitation is valid without fresh consideration.
Why: The debt was originally supported by consideration; limitation only bars the remedy, not the underlying obligation, so a fresh written promise revives enforceability.
4. Completed Gifts. Under the Explanation to S.25, gifts actually made are not invalid merely for want of consideration.
Why: A completed gift is not an executory promise requiring consideration; possession has already passed.
5. Agency. Under S.185, no consideration is necessary to create an agency.
Why: Agency is a relationship of trust rather than a bargained exchange; requiring consideration would obstruct routine appointments of agents for convenience.
Illustrations
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Valid: consideration from a third party. A's father promises to pay B a sum of money in consideration of B marrying A. B marries A. Even though the consideration, marriage, moves from A and not from the father who made the promise, this is valid under Chinnaya v Ramayya, since Indian law permits consideration to move from a person other than the promisee.
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Valid exception: natural love and affection. A registers a written document gifting his son Rs. 5 lakh, citing love and affection, without any consideration. This is valid under S.25(1), since the document is written, registered, and between near relations.
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Void: no consideration, no exception applies. A orally promises to gift his friend B a car, without any writing or registration, purely out of goodwill. This agreement is void under S.25, since it does not fall within any statutory exception, S.25(1) requiring both writing and registration.
Recall Check
- Why does Indian law permit consideration to move from a person other than the promisee?
- Explain why "adequacy" of consideration is not examined by courts.
- List the five exceptions to the rule that an agreement without consideration is void.
Key Cases
Chinnaya v. Ramayya (1882) Chinnaya-v-Ramayya-1882 Issue: Whether a promisee could enforce a promise when the consideration for that promise moved from a third party, not the promisee. Rule: Under Indian law, consideration may move from any person, not necessarily the promisee, unlike the English privity rule. Held: The promisee could enforce the promise, since S.2(d) does not require consideration to move exclusively from the promisee.
Durga Prasad v. Baldeo (1880) Durga-Prasad-v-Baldeo-1880 Issue: Whether expenditure incurred without the promisor's request could constitute valid consideration for a later promise. Rule: Consideration must move at the desire of the promisor; voluntary acts done without such desire are not consideration. Held: No valid consideration existed, since the plaintiff's expenditure had been made at the request of the Collector, not at the defendants' desire.
Distinctions
| Basis | Consideration (General Rule) | Exceptions under S.25 |
|---|---|---|
| Requirement | Must be present for enforceability | Enforceable despite absence of consideration |
| Formality | No special form generally required | Written and registered (S.25(1)); written and signed (S.25(3)) |
| Rationale | Bargain theory of contract | Policy carve-outs: family bonds, past service, revived debts, completed gifts, agency |
Flashcards
Q: Which section defines "consideration" under the Indian Contract Act, 1872? A: S.2(d): an act, abstinence, or promise done or made at the desire of the promisor.
Q: Can consideration move from a person other than the promisee under Indian law? A: Yes, per Chinnaya v Ramayya, departing from the English privity rule.
Q: What two formalities must an S.25(1) agreement based on natural love and affection satisfy? A: It must be in writing and registered.
Q: Is past voluntary service valid consideration for a later promise to compensate it? A: Yes, under S.25(2), provided the service was rendered voluntarily or was something the promisor was legally bound to do.
Q: Does agency require consideration to be validly created? A: No, under S.185, no consideration is necessary to create an agency.
Exam Scenario
A's uncle orally promises to pay off A's time-barred debt of Rs. 50,000 out of affection, but never puts it in writing. A relies on this promise and does not pursue any other recovery route. The uncle later refuses to pay. Advise A on the enforceability of the uncle's promise.
Approach: Examine whether the promise falls under S.25(3), which requires a promise to pay a time-barred debt to be in writing and signed by the debtor or their agent, to be enforceable without fresh consideration. Since the uncle's promise was oral, assess whether any other exception under S.25 or S.185 could apply, and conclude that an oral promise to pay a time-barred debt fails the statutory formality requirement, rendering it unenforceable notwithstanding A's reliance.
See Also
- Definition and Essentials of Valid Contract : lawful consideration as one of the six essentials under S.10.