Consideration under Contract Law

Consideration 

This note explains the concept of Consideration under the Indian Contract Act, 1872. It covers  the meaning, essential elements, types, and legal rules related to consideration. Important  statutory provisions like Sections 2(d), 10, 25, and 185 have been included to show how the law  treats agreements with or without consideration. To make it more practical, landmark case laws  are also discussed. This note is written in simple language to help readers clearly understand the  role of consideration in forming valid contracts. 

1. Introduction 

In contract law, consideration is one of the most important elements required to make an  agreement legally valid. It means something of value that is given by one party to the other in  return for a promise or an act. This value can be in the form of money, goods, services, or even a  promise to do or not do something. Consideration is what makes a contract binding and  enforceable in the eyes of law. 

Without consideration, most agreements are not treated as valid contracts. The law believes that  if both parties are not giving something in return, then the agreement is just a one-sided promise  and cannot be enforced legally. However, the Indian Contract Act also recognizes a few special  situations where a contract can be valid even without consideration, which are called exceptions. 

This concept ensures fairness in agreements and protects the interest of both parties by ensuring  that each side offers something meaningful in exchange.1 

2. Statutory Definition 

Section 2(d) – Definition of Consideration 

“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.”2 

This definition shows that consideration can be past, present, or future, and can move from the  promisee or any other person. 

3. Essentials of a Valid Consideration 
4. a) Must move at the desire of the promisor 

This means that the act or promise (consideration) should be done only at the request of the  person making the promise (promisor). If someone does something on their own without being  asked, it is not valid consideration. 

Example: If A cleans B’s garden without B asking, and later B promises to pay ₹500, it is not  valid because the act did not happen at B’s request. 

But if B asks A to clean the garden and then promises to pay ₹500, it is valid consideration. b) May move from the promisee or any other person 

In Indian law, it is not necessary that only the person receiving the promise (promisee) gives the  consideration. Even a third party can give it, as long as it is done at the promisor’s desire. 

Example (Chinnaya v. Ramayya): A lady gifted land to her daughter with the condition that  the daughter would pay a monthly allowance to the donor’s brother. When the daughter refused,  the brother sued. The court held that even though the brother didn’t give the consideration, the  contract was valid because it was made at the lady’s desire.3 

1. c) May be past, present, or future 

Consideration can be of three types: 

  ⮚ Past: Something already done before the promise. 

⮚ Present: Something being done at the same time as the promise. 

⮚ Future: A promise to do something later. 

Examples: 

⮚ Past: A saves B’s life. Later, B promises to give ₹1,000 to A. This is past consideration. ⮚ Present: A delivers goods to B and B pays cash immediately. This is present consideration. ⮚ Future: A promises to sell his car to B next month, and B promises to pay then. This is  future consideration. 

1. d) Must be real and lawful 

The consideration must be practical and possible to perform, and it should not be illegal or  immoral. If it is impossible, fake, or against the law, it will not be accepted. 

Example: If A promises to pay B ₹10,000 if B brings a star from the moon — this is not real or  possible, so it’s invalid consideration. 

Also, if A promises to pay B to steal someone’s mobile phone — it is unlawful consideration and  not allowed. 

1. e) Must have some value in the eyes of law 

The consideration should have some legal value, even if it is not equal to the promise. It can be  small, but it must be something the law recognizes. 

Example: A agrees to sell his ₹1 lakh bike to B for just ₹1. Even though the amount is small, it  is still valid consideration because there is some value, and both parties agreed to it.4 

4. Types of Consideration

Under Indian Contract Law, consideration can be classified into three types based on the time at  which the act or promise is made: past, present, and future. Each type is legally valid as long as it  meets the conditions of Section 2(d) of the Indian Contract Act. 

3 

1. a) Past Consideration 

Past consideration means that the act was already done before the promise was made, but it was  done at the request of the promisor. In Indian law, past consideration is valid, unlike English law  where it is generally not. 

Example: A saves B’s son from drowning. After that, B promises to give A ₹5,000 in return.  Here, A had already done the act of saving the boy, but since it was at B’s implied request and B  later acknowledged it, this becomes valid past consideration. 

Landmark Case: Sindha v. The Nawab of Maler Kotla (1885) – The court held that past  services done at the promisor’s request can be treated as good consideration for a later promise.5 

1. b) Present Consideration (Executed Consideration) 

Present consideration means something that is done or given at the same time as the promise is  made. This is the most common type in daily transactions where goods or services are exchanged  for money or other value on the spot. 

Example: A buys a book from B’s shop and pays cash immediately. This is a case of present  consideration because the payment and delivery happen at the same time. 

There is usually no landmark case law specifically for present consideration because it’s so  common and straightforward in nature. 

1. c) Future Consideration (Executory Consideration) 

Future consideration means both parties promise to do something in the future. The act or value  is exchanged at a later date. It is valid if both parties are bound by their promises and intend to  fulfil them in the future. 

Example: A agrees to sell his bike to B after one month, and B promises to pay at that time. This  is future consideration because both the delivery and payment are to happen later. 

Landmark Case: Abdul Aziz v. Masum Ali (1914) – In this case, the court held that a mere  promise to pay without any consideration, present or future, is not enforceable. So if the act is  not done or promised in return, no valid future consideration exists.

All three types — past, present, and future consideration — are recognized under Indian law.  What matters is that the act is done at the promisor’s desire and has some legal value, even if it’s  not equal. These types allow flexibility in enforcing promises made in different situations.

5. Consideration and Valid Contracts 

According to Section 10 of the Indian Contract Act, 1872, an agreement becomes a valid and  enforceable contract only when it is made by the free consent of parties who are competent to  contract, for a lawful object, and supported by lawful consideration. This means that  consideration is one of the essential elements for forming a valid contract. If there is no  consideration, the agreement is generally considered void, unless it falls under the exceptions  mentioned in Section 25. 

In simple terms, the law does not recognize promises made without any return. For a contract to  be legally binding, both parties must give something in return — it could be money, service,  goods, or even a promise. This mutual exchange makes the contract fair and balanced.

Example: If A agrees to sell his car to B for ₹1,00,000, and B agrees to pay the amount, both are  giving consideration — A gives the car, B gives the money. This is a valid contract. But if A  simply promises to give his car to B as a gift, and B gives nothing in return, then there is no  consideration, and such a promise cannot be enforced in a court of law. 

Case Law: Abdul Aziz v. Masum Ali (1914) 

In this case, a person promised to donate money for repairing a mosque, but the court held that  since there was no consideration (nothing was done in return), the promise was not enforceable.  

This case shows that even promises made for good causes need legal consideration to be  binding.

In conclusion, consideration gives life to a contract. Without it, most agreements remain as mere  promises, and the courts will not treat them as legally binding contracts — unless they fall under  a legal exception. 

6. Exceptions to the Rule – “No Consideration, No Contract” Section 25 – Indian Contract Act, 1872 

Generally, an agreement without consideration is void. But Section 25 provides three important  exceptions where an agreement without consideration is still valid and enforceable by law. These  are mentioned under Clauses (1), (2), and (3) of Section 25. Let’s understand each in detail: 

Clause 25(1) – Natural Love and Affection 

If an agreement is made out of natural love and affection between close relatives, it can be valid  even without consideration, but it must be: 

⮚ Made in writing, 

⮚ Registered, and 

⮚ Made between parties who share near relations. 

Example: A father, out of love, promises in writing and registers a document stating that he will  give ₹1 lakh to his daughter. Even though the daughter gives nothing in return, this agreement is  valid because it is made out of natural love and affection, is in writing, and is registered. 

Case Law: Venkataswamy v. Rangaswamy (1903) 

In this case, a written and registered agreement between a brother and sister, made out of  affection, was held to be valid even without consideration, as it fulfilled the conditions of Section  25(1).

Clause 25(2) – Past Voluntary Services 

If someone has voluntarily done something for another person in the past, and that person later  promises to compensate, the promise is valid, even though there was no consideration at the time  of the act. 

Example: A sees B’s house on fire and, without being asked, helps to save it. Later, B promises  to pay A ₹10,000 as a reward. Though A acted voluntarily, the later promise to pay is valid under  this clause. 

Case Law: Kedarnath v. Gorie Mohamed (1886) 

In this case, the defendant promised to donate money to build a town hall. The plaintiff incurred  expenses relying on the promise. Even though there was no direct consideration, the court held  the promise was enforceable, as the act had been done and accepted in good faith.11 

Clause 25(3) – Promise to Pay Time-Barred Debt 

If a person owes a debt that is time-barred (meaning the limitation period to file a case has  passed), and later promises in writing and signs that they will repay it, the promise is enforceable  — even if the original debt cannot be recovered in court due to time lapse.12 

Example: A owes B ₹50,000, but B fails to recover it within the limitation period (3 years).  After 5 years, A writes and signs a note saying, “I will pay B ₹20,000 next month.” This promise  is valid and enforceable, even though the debt is old and time-barred. 

Case Law: Kalu Khan v. Makhanu (1908) 

In this case, a time-barred debt was acknowledged by the debtor in a signed writing. The court  held that the new promise was binding, even though the original debt couldn’t be recovered  through a suit.

7. No Consideration Required in Certain Cases 

Section 185 – Agency 

As a general rule, a contract must have consideration to be valid. However, Section 185 of the  Indian Contract Act, 1872, provides an important exception to this rule. It states that no  consideration is required to create an agency relationship. In simple words, a person (called the  principal) can appoint another person (called the agent) to act on their behalf without paying  anything in return. The creation of such a relationship does not depend on any exchange of  money or promise.14 

Example: A is going abroad and authorizes his friend B to sell his house while he is away. A  does not offer B any money for this responsibility. Even though there is no payment or benefit,  the agreement is still valid because an agency can be created without consideration under Section  185. 

This provision is based on trust and mutual consent, not payment. The agent’s duty is to act in  the best interest of the principal, and the law allows such relationships to be formed freely, even  without compensation. 

So, Section 185 is a clear exception to the general rule of “No consideration, no contract,” and it  helps in situations where people wish to authorize someone out of trust, friendship, or  convenience, without involving money. 

8. Landmark Case Laws on Consideration 

❖ Durga Prasad v. Baldeo (1880) 

In this case, Durga Prasad had built some shops at his own expense in a town under the orders of  the government. Baldeo, who later became a shopkeeper in one of those shops, promised to pay a 

commission to Durga Prasad as a token of appreciation. However, there was no request from  Baldeo for the construction of those shops. 

Judgment: 

The court held that there was no valid consideration, as the act of building the shops was not  done at the desire of the promisor (Baldeo). So, the promise to pay was not enforceable.15 

❖ Chinnaya v. Ramayya (1882) 

In this case, an elderly lady transferred her property to her daughter with a condition that the  daughter would pay a fixed sum of money annually to the lady’s brother (uncle). The daughter  accepted the condition but later refused to pay. 

Judgment: 

The court ruled that even though the uncle (the promisee) had not given any consideration, the  promise was still enforceable because the consideration moved from a third party (the lady), and  it was at the desire of the promisor. This case established that consideration may move from a  person other than the promisee.16 

❖ Abdul Aziz v. Masum Ali (1914) 

In this case, a person promised to donate a certain amount of money to help with the repair of a  mosque. However, no steps had been taken based on that promise. When the person later refused  to pay, the matter went to court. 

Judgment: 

The court held that the promise was not enforceable, as it was a mere promise to donate and no  act had been done or expenses incurred in return. Since there was no consideration, the  agreement was void.17 

❖ Kedarnath v. Gorie Mohamed (1886) 

In this case, the defendant had promised to donate money to help build a town hall. Relying on  that promise, the plaintiff incurred expenses by hiring a contractor and starting construction.  Later, the defendant refused to pay. 

Judgment: 

The court held that the promise was valid and enforceable because the plaintiff had acted upon  the promise and incurred expenses, which was sufficient consideration. The case shows that if a  promisee changes their position based on a promise, it can be enforced.18 

❖ Thomas v. Thomas (1842) 

In this English case, a man, before dying, expressed his wish that his wife should be allowed to  live in his house. After his death, his executors agreed to this and allowed the wife to stay in the  house in return for a small rent of £1 per year. 

Judgment: 

The court held that even though the rent was a small amount, it was still a valid consideration, as  it had some legal value. This case established the principle that consideration need not be equal  in value — it just needs to have some value in the eyes of law.

9. Conclusion

Consideration is one of the most important elements for making a contract legally valid. It refers  to something of value given by one party to another in return for a promise or an act. According  to Section 2(d) and Section 10 of the Indian Contract Act, a contract without consideration is  generally not enforceable. However, the law also recognizes certain exceptions under Section 25  and Section 185, where an agreement can still be valid without consideration — such as in cases  of natural love and affection, past voluntary services, time-barred debts, and agency  relationships. Through various landmark judgments, Indian courts have made it clear that  consideration can be past, present, or future and may even come from a third party. Overall,  consideration plays a vital role in ensuring fairness and mutual obligation in contractual  relationships, and without it, most agreements are treated as mere promises and not binding  contracts. 

10. References 

✔ https://lawbhoomi.com/consideration-under-indian-contract-act-1872/ ✔ https://www.indiacode.nic.in/bitstream/123456789/2187/2/A187209.pdf ✔ https://lawbhoomi.com/chinnaya-vs-ramayya/ 

✔ https://blog.ipleaders.in/consideration-in-contract-law/ 

✔ https://hallellis.co.uk/contractual-consideration/ 

✔ https://www.steveharveylaw.com/blog/2022/11/valid-consideration-for-a-contract/ ✔ https://blog.ipleaders.in/no-consideration-no-contract/ 

✔ https://indiankanoon.org/doc/1819135/ 

✔ https://blog.ipleaders.in/kedarnath-bhattacharji-v-gorie-mohammad-case/ ✔ https://www.writinglaw.com/section-185-contract-act/ 

✔ https://www.drishtijudiciary.com/landmark-judgement/indian-contract-act/durga-prasad-v baldeo-and-ors-1881-ilr-3-all-221