Consideration under the Indian Contract Act 1872: Meaning, Essentials, Types & Privity

Consideration under the Indian Contract Act, 1872: Meaning, Essentials, Types and Privity of Contract

What Is Consideration?

Consideration is the price, benefit or return that each party gives for the other party’s promise. A promise made for nothing is generally not enforceable. Under Section 10, a valid contract needs lawful consideration, and Section 25 says an agreement without consideration is void, except in a few cases.

Example: Rohan agrees to sell his bike to Meera for ₹50,000. The bike is Meera’s consideration, and the ₹50,000 is Rohan’s consideration.

Also Read - Offer and Acceptance under Indian Contract Act, 1872

Definition of Consideration: Section 2(d)

Section 2(d) says 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 it, or promises to do or abstain from doing it, that act, abstinence or promise is called consideration for the promise.

In simple terms, consideration can be:

1.    An act (doing something)

2.    An abstinence (refraining from doing something)

3.    A promise to do something

4.    A promise to refrain from doing something

Example: Asha tells Dev, “Paint my shop and I will pay you ₹8,000.” Dev paints the shop. The painting is the consideration for Asha’s promise to pay.

Essentials of Valid Consideration

1. It must be given at the desire of the promisor

The act must be done because the promisor asked for it. A voluntary act done at the request of a stranger does not count.

Durga Prasad v. Baldeo (1880)

Facts: The plaintiff built a market at the Collector’s request. Shopkeepers later promised him commission on their sales.

Held: He could not enforce the promise. The market was built at the Collector’s desire, not at the desire of the shopkeepers.

2. It may move from the promisee or any other person

Unlike English law, Indian law does not insist that the promisee personally gives the consideration. Someone else may provide it.

Chinnaya v. Ramaya (1882)

Facts: A woman gifted property to her daughter on the condition that the daughter would pay an annual sum to the woman’s brother. The daughter agreed but later refused to pay.

Held: The brother could enforce the promise, because consideration may move from the promisee or any other person.

3. It may be past, present or future

Section 2(d) uses the words “has done”, “does” and “promises to do”, which cover all three. They are explained in the next section.

4. It must be real, not illusory

Consideration must have some legal value. Vague, impossible or imaginary promises do not qualify.

Example: Karan promises ₹10,000 to Isha if she locates buried treasure using magical powers. This is not real consideration.

5. It need not be adequate

Courts do not weigh whether the price was fair. Explanation 2 to Section 25 states that an agreement is not void merely because the consideration is inadequate, though a court may consider inadequacy when deciding whether consent was free.

Example: Neha sells her ₹20,000 watch to Sam for ₹5,000 of her own free will. The contract is not void just because the price is low.

6. It must be lawful

Under Section 23, consideration must not be forbidden by law, fraudulent, immoral or against public policy.

Example: Vikram promises ₹50,000 to Ravi for committing theft. The consideration is unlawful, so the agreement is void.

7. It must be possible to perform

An agreement to do something impossible cannot be enforced (see also Section 56).

Example: Tara promises ₹1 lakh to Anil if he brings a dead person back to life. This is not enforceable.

Also Read - History and theory of Indian Contract Law

Types of Consideration

Past Consideration

An act already done at the promisor’s request before the promise is made. Indian law recognises it, unlike English law, because Section 2(d) uses the words “has done”.

Example: Mohan asks Lata to find his lost documents. She finds them. A week later Mohan promises her ₹2,000 for the help. Her earlier act is valid consideration.

Sindha Shri Ganpatsingji v. Abraham (1896) is commonly cited in textbooks on past services as consideration.

Present Consideration (Executed)

Consideration given at the same time as the promise, such as a cash purchase.

Example: You pay ₹500 and the shopkeeper hands over a book at that moment.

Future Consideration (Executory)

Each party promises to perform later.

Example: Ajay agrees to sell his car to Bina next month, and Bina promises to pay ₹4 lakh on delivery.

Also Read - What is Public Interest Litigation?

Past vs Present vs Future: Quick Comparison

•    Past: act done before the promise (executed).

•    Present: exchange at the same time as the promise (executed).

•    Future: promises to be performed later (executory).

•    Quick tip: ask “when was the act done compared with the promise?”

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When Is a Contract Valid Without Consideration? (Section 25)

Section 25 lists exceptions where a promise is enforceable even without consideration:

1.    Natural love and affection: the promise is in writing, registered, and made between near relatives.

2.    Compensation for past voluntary service: a promise to compensate someone who has already voluntarily done something for the promisor.

3.    Time-barred debt: a written, signed promise to pay a debt that is barred by limitation.

Separately, no consideration is needed to create an agency (Section 185), and completed gifts do not need fresh consideration.

Privity of Contract

Privity of contract means that only the parties to a contract can enforce it or be bound by it. A stranger to the contract generally cannot sue, even if the contract was made for their benefit.

Key Features

•    Only parties can enforce the contract.

•    A third-party beneficiary cannot ordinarily sue.

•    Benefit alone does not create a right to sue.

•    It is different from the rule that consideration can move from a third person.

Leading Cases

Tweddle v. Atkinson (1861)

Facts: The fathers of a bride and groom promised to pay money to the groom. One father died without paying, and the groom sued the estate.

Held: The groom could not sue because he was not a party to the agreement and had given no consideration.

Dunlop Pneumatic Tyre Co. v. Selfridge & Co. (1915)

Facts: Dunlop sold tyres to a dealer on condition that the dealer would impose a fixed resale price on later buyers. Selfridge bought from the dealer, agreed to the condition, and then undercut the price.

Held: The House of Lords held that Dunlop could not sue Selfridge because there was no contract between them and Dunlop had given no consideration to Selfridge.

Note: Both cases are English decisions. Indian courts discuss them, but Section 2(d) gives Indian law a wider rule on who may provide consideration.

Exceptions to Privity of Contract

1.    Trust: a beneficiary can enforce a trust created for their benefit.

2.    Family arrangements and marriage settlements: family members who are intended beneficiaries have sometimes been allowed to enforce such arrangements. Khwaja Muhammad Khan v. Husaini Begum (1910) is often discussed here, so check your textbook’s treatment before using it.

3.    Acknowledgment or estoppel: a person who acknowledges a liability to a third party may be stopped from denying it.

4.    Assignment: the assignee of a contract’s benefit can enforce it, subject to the law.

5.    Agency: the principal can enforce contracts made by an agent on their behalf (Sections 182 and 226).

6.    Charge on immovable property: a person in whose favour a charge is created can enforce it.

Privity of Contract vs Privity of Consideration

Students often mix these up. Privity of contract is about who can sue. Privity of consideration is about who may provide the price for the promise. Under Indian law a third person may provide consideration, but the person suing must still be a party to the contract. The Privy Council confirmed this position in Jamna Das v. Ram Autar (1911).

•    Privity of contract: asks who can sue. Only parties can, unless an exception applies. Leading case: Tweddle v. Atkinson.

•    Consideration from a stranger: asks who can supply the price. Anyone can (Section 2(d)). Leading case: Chinnaya v. Ramaya.

 Also Read - Contract Law | Question Answer

Important Sections and Cases for Exams

Section / Case	Principle
Section 2(d)	Definition of consideration
Section 10	Essentials of a valid contract
Section 23	Lawful consideration and object
Section 25	Agreement without consideration is void, with exceptions
Sections 182, 226	Agent, principal and enforcement of agent’s contracts
Durga Prasad v. Baldeo	Consideration must be at the promisor’s desire
Chinnaya v. Ramaya	Consideration may move from any person
Jamna Das v. Ram Autar	Promisee must still be a party to the contract
Tweddle v. Atkinson	A stranger to a contract cannot sue
Dunlop v. Selfridge	Privity of contract and consideration

 

Frequently Asked Questions

What is consideration in simple words?

It is the benefit, act or promise each party gives in exchange for the other’s promise.

Is past consideration valid in India?

Yes, if the act was done at the promisor’s desire. This differs from the English rule.

Can a third person provide consideration?

Yes. Section 2(d) allows consideration to move from the promisee or any other person.

Does consideration have to be adequate?

No. It must have legal value, but courts do not check whether the price was fair.

Can a stranger sue on a contract in India?

Generally no, unless an exception applies, such as trust, agency, assignment or a recognised family arrangement.

Quick Summary

•    Consideration means “something in return” for a promise.

•    Section 2(d) of the Indian Contract Act defines it.

•    Indian law accepts past, present and future consideration.

•    Consideration can come from the promisee or any other person.

•    Only parties to a contract can normally sue on it (privity of contract), but there are important exceptions.

Also Read -  50 Sample Questions from Indian Contract Act , 1872

Conclusion

Consideration turns a bare promise into a legally enforceable contract. Section 2(d) gives Indian law a wide definition that accepts past, present and future consideration and allows it to come from any person. Privity of contract adds a limit: only parties can sue, subject to well-known exceptions. Understanding both ideas together is the key to answering exam questions and real contract problems.

Disclaimer: This article is for educational purposes only and is not legal advice.