Credit: Written by Ishan Singh, Student, University of Lucknow
Table of Contents
- Introduction
- Definition of Consideration (Section 2(d))
- Key Aspects of the Definition
- Essentials of Valid Consideration
- Must move at the desire of the promisor
- May move from promisee or any other person
- May be past, present, or future
- Must be real and lawful
- Need not be adequate
- Privity of Contract
- Position under English Law
- Position under Indian Law
- Exceptions to the Privity Rule in India
- Section 25 – Agreement Without Consideration
- Text of Section 25
- Detailed Explanation of the Exceptions
- Natural Love and Affection
- Past Voluntary Services
- Time-Barred Debt
- Significance of Section 25
- Conclusion
Consideration is a fundamental element in the formation of a valid contract. It represents the principle of quid pro quo — “something for something.” It ensures that a promise is supported by something of value, making it legally enforceable. Under Section 2(d) of the Indian Contract Act, 1872, consideration is defined broadly to include acts or abstinences. These may be past, present, or future. The consideration may move from the promisee or any other person. This is a notable departure from English law, which requires consideration to move only from the promisee.
The requirement of consideration prevents the enforcement of purely gratuitous promises, ensuring mutuality and intention to create legal relations. However, the Act also recognises specific situations under Section 25. In these situations, an agreement without consideration may still be valid. This balances the rigidity of the rule with fairness. The doctrine also interacts with the principle of privity of contract. This principle limits who can sue upon a contract. However, Indian law allows greater flexibility in this regard.
Definition of Consideration (Section 2(d))
According to Section 2(d) of the Indian Contract Act, 1872:
“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.”
Key aspects of this definition:
- The act must be at the desire of the promisor.
- The act or abstinence can be past, present, or future.
- The act can be done by promisee or any other person.
- It must be something of value in the eyes of law.
Essentials of Valid Consideration
- Must move at the desire of the promisor
- The act or abstinence should be at the request of the promisor and not voluntarily or at the desire of a third party.
- Case law: Durga Prasad v. Baldeo (1880) – An act done without the promisor’s desire is not consideration.
- May move from promisee or any other person
- Consideration may be provided by the promisee or even by a third party.
- Case law: Chinnaya v. Ramaya (1882) – Consideration may flow from a third person.
- May be past, present, or future
- Past consideration: Act done before the promise is made.
- Present consideration: Simultaneous exchange at the time of contract.
- Future consideration: Promise to do something in the future.
- Must be real and lawful
- Consideration must have some value and must not be unlawful, impossible, or illusory.
- Need not be adequate
- The law does not require consideration to be equal in value to the promise, but it must be sufficient in the eyes of law.
- Case law: Thomas v. Thomas (1842).
Privity of Contract
The doctrine of privity of contract is a fundamental principle in the law of contracts. It refers to the legal relationship between the parties to a contract and determines who has the right to sue or be sued upon it. In its simplest form, the doctrine states that only the parties to a contract are bound by its terms and can enforce its rights or obligations. A third person, even if they benefit from the contract, generally cannot enforce it because they are not a party to it.
Position under English Law
The principle is well-established in English common law through cases such as Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. (1915), where the House of Lords held that a third party could not enforce a contract, as there was neither consideration moving from them nor any privity between them and the promisor.
Position under Indian Law
While Indian contract law recognises the principle of privity, it differs from English law in one important respect — consideration can move from the promisee or any other person (Section 2(d)). This means that while a stranger to a contract generally cannot sue, the consideration for a promise does not necessarily have to be furnished by the promisee alone. However, the right to sue still usually rests with the contractual parties, not with strangers.
Exceptions to the Privity Rule in India
Indian courts have carved out notable exceptions allowing third parties to enforce contractual benefits:
- Trusts – A beneficiary under a trust can enforce the terms of the trust even if not a party to the contract creating it.
- Marriage settlements, family arrangements, and partition deeds – Agreements that confer benefits on members of a family, even if not direct parties.
- Acknowledgement of liability or estoppel – Where a person acknowledges their obligation to a third party, they may be bound to fulfil it.
- Agency contracts – The principal can enforce agreements made by an agent on their behalf.
- Assignment of contractual rights – Rights under a contract can be transferred to third parties, who can then sue to enforce them.
These exceptions demonstrate the Indian judiciary’s pragmatic approach, ensuring that strict adherence to the doctrine does not defeat the legitimate expectations of those intended to benefit from contractual arrangements.
Section 25 – Agreement Without Consideration
The general rule under Section 10 of the Indian Contract Act is that an agreement, to be enforceable, must be supported by consideration. However, Section 25 provides specific exceptions to this rule, recognising circumstances where agreements without consideration can still be valid and binding.
Text of Section 25
Section 25 states:
“An agreement made without consideration is void unless—”
- It is expressed in writing and registered, and is made on account of natural love and affection between parties standing in a near relation to each other; or
- It is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something the promisor was legally compellable to do; or
- It is a promise, in writing and signed by the person to be charged therewith, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
Detailed Explanation of the Exceptions
1. Natural Love and Affection
- The agreement must be between parties in a near relationship (e.g., close family members).
- It must be in writing and registered.
- It must be motivated by natural love and affection, which courts interpret narrowly — mere relationship is insufficient unless accompanied by genuine affection.
- Case example: Rajlukhy Dabee v. Bhootnath Mookerjee (1900) – Mere existence of close relationship does not imply natural love and affection unless proven.
2. Past Voluntary Services
- If a person has voluntarily done something for another, without a previous request, and later the other person promises to compensate them, such a promise is enforceable.
- This applies even if the act was one that the promisor was legally bound to perform.
- Case example: Sindha Shri Ganpatsinghji v. Abraham (1896) – A promise to compensate for past voluntary services was held valid under Section 25(2).
3. Time-Barred Debt
- A debtor’s promise, made in writing and signed, to pay a debt barred by the Limitation Act is valid and enforceable.
- The promise may be to pay the full debt or part of it.
- This provision ensures that moral obligations arising from debts are given legal effect if the debtor voluntarily reaffirms their commitment.
Significance of Section 25
Section 25 strikes a balance between the need for consideration as a safeguard against rash or fraudulent promises and the recognition of moral duties and equitable principles. By permitting certain promises without consideration to be legally enforceable, the law prevents injustice in situations where a strict requirement of consideration would defeat legitimate expectations.
In conclusion, consideration is the foundation of contractual enforceability in Indian law. It ensures that promises are backed by a reciprocal obligation or value. The Indian Contract Act adopts a more inclusive approach than its English counterpart. It does so by recognising past, present, and future consideration. Additionally, it allows consideration to move from the promisee or any other person.
The general rule bars the enforcement of agreements without consideration. However, the exceptions under Section 25 reflect the law’s adaptability to moral obligations. They also highlight equitable principles. Understanding how consideration, privity of contract, and statutory exceptions interact is crucial. This knowledge helps appreciate how Indian contract law balances legal certainty and fairness.
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Also Read- Offer and Acceptance under the Indian Contract Act, 1872
