Consideration in Indian Contract Act, 1872

Consideration is an essential element of a valid contract under the Indian Contract Act, 1872. It means something of value given by each party to the other. It may be an act, a promise, a benefit, or a loss suffered at the request of the other party. Consideration shows that both parties are giving something and getting something in return. Without consideration, a promise is generally not enforceable. It ensures fairness and balance in agreements because each side contributes to the contract. Consideration can be past, present, or future. It must be lawful and must not be something that is already a person’s duty under existing law.

The principle of consideration is based on the idea that a contract is a bargain and both sides must exchange something. Even a small amount of consideration is enough if it has some value in the eyes of law. The act also accepts consideration given by any person, not only by the promisee, as long as it is at the desire of the promisor. This makes Indian law different from English law. Consideration becomes invalid if it is illegal, immoral, or against public policy. Without valid consideration, the contract becomes void except in a few special cases.

Essentials of Valid Consideration:

1. Consideration must move at the desire of the promisor

Consideration is valid only when it is given at the request or desire of the promisor. If a person performs an act voluntarily without being asked, it is not valid consideration. The promisor must clearly want the act, service, or promise. This ensures that the promisor accepts the obligation willingly. Courts verify whether the act was done because the promisor wanted it. If not, the promise cannot be enforced as a contract because the requirement of valid consideration is not satisfied.

2. Consideration may move from the Promisee or any other Person

Indian law allows consideration to come from the promisee or even a third person. It is enough that the act or promise is done for the promisor’s desire. This rule makes contracts flexible. Even if a third party provides the consideration, the promisee can still enforce the contract. This principle is different from English law. What matters is that the promisor wanted the act or benefit. As long as this condition is met, the consideration is valid and the contract becomes enforceable.

3. Consideration may be Past, Present, or Future

Consideration is valid whether given earlier, at the time of the contract, or promised for the future. Past consideration refers to an act already done at the promisor’s request. Present consideration is performed immediately when the promise is made. Future consideration means a promise to do something later. Indian law accepts all three, which helps create many types of agreements. The key requirement is that the act or promise must be connected to the agreement and must satisfy the promisor’s desire.

4. Consideration must be real and not illusory

The consideration must have some real value in the eyes of law. It should not be vague, impossible, or imaginary. A promise to do something impossible or something uncertain cannot be treated as valid consideration. Even a small value is acceptable as long as it is genuine. The law only checks whether the consideration is real, not whether it is equal. This requirement ensures that both parties exchange something meaningful, making the agreement a valid contract.

5. Consideration must be Lawful

The consideration must be legal and should not involve any unlawful activity. It must not be immoral, fraudulent, or against public policy. If the act or promise includes something forbidden by law, it becomes void. Examples include agreements involving crime, corruption, or activities harmful to society. Lawful consideration ensures that contracts support fair and legal conduct. If the consideration is illegal, the whole agreement becomes invalid even if both parties willingly agreed.

Exceptions of Consideration in Indian Contract Act, 1872:

1. Agreement made out of natural love and affection (Section 25(1))

When an agreement is made between close family members out of natural love and affection, it is valid even without consideration. This applies only when the agreement is written, registered, and made voluntarily. The parties must share a close relationship such as husband and wife, parent and child, or close relatives. The intention should be genuine affection, not pressure. Courts look for real goodwill between the parties. If these conditions are satisfied, the promise becomes enforceable even though nothing is given in return.

2. Promise to compensate for Voluntary Services (Section 25(2))

A promise to pay for something already done voluntarily is valid without consideration. This applies when a person performs an act to help another without being asked, and later the benefited person promises to give a reward. Even though there was no request initially, the later promise becomes enforceable. The voluntary act must be real and must have benefited the promisor. Examples include saving someone’s property or helping in an emergency. The promise to compensate becomes binding even though the act happened earlier.

3. Promise to pay a Time-barred Debt (Section 25(3))

A debt becomes time-barred when it cannot be legally recovered due to expiry of the limitation period. If the debtor later makes a fresh written and signed promise to pay the old debt, the promise becomes valid even without new consideration. The law allows this because the debtor willingly accepts the obligation again. The promise may be to pay the full amount or part of it. Once the written promise is given, the creditor can legally enforce it, even though the original claim became time-barred.

4. Completed Gifts

Gifts once given cannot be questioned for lack of consideration. When a person voluntarily transfers property or money and the gift is completed through delivery or registration, it becomes valid. The receiver has no obligation to give anything in return. The law protects completed gifts even if there was no exchange of value. However, a mere promise to give a gift in future is not enforceable because it has no consideration. Only completed gifts are treated as valid exceptions to the rule of consideration.

5. Agency (Section 185)

In the case of agency, no consideration is required to create the relationship between principal and agent. A person may appoint another to act on their behalf without giving any benefit or payment. The law accepts this because agency is based on trust. Once appointed, the agent can bind the principal for valid acts done within authority. The absence of consideration does not affect the validity of the agency contract. This exception helps in many practical situations where someone acts for another without expecting payment.