Jitendra Chauhan College of Law

STUDENT NAME: - Richi Monani

ROLL NUMBER AND DIVISION: - D-211

TOPIC: - A study of Consideration and its legal provisions under ICA, 1872

SUBJECT: - Contact Law

FACULTY TO WHOM THE PROJECT IS SUBMITTED: - Prof. Poorva Dighe and

Prof. Sneha Anil Kumar

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Acknowledgement

I would like to take this opportunity to express my gratitude to one and all without whom it
would not be possible to complete the project. Firstly, I would like to express my gratitude
towards Prof. Poorva Dighe and Prof. Sneha Anil Kumar ma’am for guiding me throughout
the project. I also feel thankful and express my gratitude towards our Principal Dr. Priya J.
Shah for giving me this opportunity. All the respected teachers provided me with their vital
support and guidance because of which I could make this project. This project helped me in
finding my capabilities and also enhanced my research skills. I would also like to express my
sincere thanks to my family; it would not have been possible to finish this project without
their support and coordination. Lastly, I would like to thank my friends who have been
upfront whenever I needed help from them for making this project within the stipulated
time frame.

Richi Monani

FYLLB D - 211

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 TABLE OF CONTENTS

SR. NO. TOPIC PG. NO.

1 Introduction 4

2 Definition 5

3 Consideration Meaning in Law 6

4 Rules regarding consideration 7

5 Monetary Value of Consideration 9

6  Exceptions to the Doctrine of Consideration 11

7 Stranger to contract vis-a-vis stranger to consideration 15

8 Legality Of Object & Consideration 17

9 Bibliography 18

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 INTRODUCTION

Enforcing any legal contract requires it to have an element of consideration included in it.
Consideration is a promise, performance, or forbearance bargained by a promisor in exchange
for their promise. Consideration is the main element of a contract. Without consideration by
both parties, a contract cannot be enforceable. For instance, if a person used the money to
purchase an apple, the apple is the merchant’s consideration, and the money is the person’s
consideration. In simple words, it is nothing but a price that the promisee agrees to pay to the
promisor. Now, this price can be paid as a benefit to the promisor and/or a loss or detriment
to the promisee.1

 DEFINITION

1
https://www.law.cornell.edu/wex/consideration#:~:text=Consideration%20is%20a%20promise%2C
%20performance,a%20contract%20cannot%20be%20enforceable.

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 As per section 2(d), the definition of consideration is as follows: 
“When at the desire of the promisor, the promise or any other person has done or abstained
from doing, or does or abstains from doing, or promises to do or abstain from doing
something, such act or abstinence or promise is called a consideration for the promise."

Let’s break it down for further understanding and rewrite it as follows –

Whenever a contract is made, there is a price associated with it. It is the value offered and
accepted by people or companies. In simple terms, consideration is something in return.
At the desire of the promisor if the promisee either

 Does something (in the past, present or future) OR

 Abstains from doing something (in the past, present or future)

Then, this act of doing or abstinence is called Consideration. Now, it has two aspects, either
doing some act or abstaining from doing something. Let’s look at some examples:

Example 1 – Doing something

Peter and John enter into a contract where Peter promises to deliver 15 curtains to John in one
month’s time. Also, John promises to pay Peter an amount of Rs 3,000 on delivery. In this
contract, John’s promise to pay Rs 3,000, on delivery, is the consideration for Peter’s
promise. Also, Peter’s promise of delivering 15 curtains is the consideration of John’s
promise to pay.

Example 2 – Not doing something

Peter has taken a loan from his friend John. However, he has not repaid the loan yet. John
promises not to file a suit against Peter if he promises to repay the loan within a week. In this
case, abstinence on the part of John is due to the consideration of Peter’s promise of
repayment of the loan.2

 CONSIDERATION MEANING IN LAW

Consideration is the foundation on which any contract is built. The law would enforce only
2
Indian Contract Act, 1872
https://www.taxmann.com/post/blog/consideration-under-the-indian-contract-act-1872

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 those promises that are made as part of the consideration. A valid Consideration in business
law must involve every party, which means that each person involved in the contract must
promise to do something and also promise not to do something. Without consideration, a
promise does not have any legal obligations.

Consideration is mostly referred to in monetary terms, but it could also mean a particular
action or a promise to refrain from a specific action. It is a two-way street where each party
must gain something valuable from the other involved parties. 

Let us break down every part of the consideration definition in law:

 Consideration has to move as per the desire of the promisor. 

 Consideration may move from the promise to another person. 
 Consideration might be in the past, present, or future.
 Consideration does not need to be adequate.
 Consideration must be real and not illusory.
 Illegal or immoral acts are not considered.3
 

 RULES REGARDING CONSIDERATION

The term consideration is defined in Section 2(d) of the Indian Constitution Act. According
to section 2(d), three things are required for consideration to uphold validly, that is, the
abstinence or act should be done at the desire of the promisor, the act should be done by the

3
Indian Contract Act, 1872
https://www.tickertape.in/blog/importance-ofconsideration-in-contract/#:~:text=According%20to%20the
%20Indian%20Contract,the%20consideration%20to%20the%20contract.

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 promise or any other person, the act should be either already executed or be in the process of
being done or should be executory, that is, it should be promised to be done.

Let us explain the essential elements of consideration in detail.

 
 Consideration has to Move as Per the Desire of the Promisor
The performance of the contract has to move as per the promisor and not any third party. The
promisor doesn't need to always benefit from the consideration; it could be meant for a third
party also. The significant thing is that there has to be a connection between the promisor's
desire and the action of the promise. Another factor to note here is that what is done as part of
the consideration is not voluntarily but at the promisor's behest. For example, if A’s house is
on fire and B rushes to save it at his own will, this is not a consideration. But if A asks B to
do it, then it will be deemed as a consideration.
 
 Consideration May Move from the Person to Another Person
As per consideration in law, if the promisor has no objection, consideration may move to a
third party.
 
 Consideration Might be in the Past, Present, or Future
 Past Consideration - If the promise or act is performed before the contract was made, it
is considered past consideration, and it holds good in Indian law. As an example, A’s
bike ran out of petrol on the way and A requests B to fill petrol for which he agrees to
pay later. So, the promise of money is made for a past consideration of filling petrol. In
English law, any past consideration is no consideration.
 Present Consideration - When one of the parties in the contract has performed his part
of the promise, which constitutes the consideration to be performed by the other party, it
is called present consideration. 
 Future Consideration – When a party makes a promise in exchange for the promise
from the other party and the performance of the consideration is to be done after making
the contract; then it is a future consideration.
 

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  Consideration Does Not Need to be Adequate
An agreement must be supported by consideration, but the consideration doesn’t need to be
equivalent to the promise. The parties are free to determine the appropriate consideration at
the time of the bargain. Whether the promise is adequate or not is the lookout of the promisor
and not the obligation of law or court to investigate the adequacy of the consideration. For
example, if A has a property worth Rs. 50,000, which he agrees to sell to B only for Rs. 5000,
then the inadequacy of the transaction does not make the contract void. But if B pleads
coercion, fraud, or under influence, then the consideration will be looked into with sufficient
evidence.
 
 Consideration Must be Real and Not Illusory 
The legal rules of consideration state that consideration has to be certain, definitive, and
competent. It cannot be vague, uncertain, or impossible. The transaction is rendered void in
such a case. As an example, if A promises to find a treasure by magic if B pays him Rs.
10,000, then this is an illusory consideration and not considered valid.4
 

 MONETARY VALUE OF CONSIDERATION

Generally, courts do not inquire whether the deal between two parties was monetarily fair—
merely that each party passed some legal obligation or duty to the other party. The dispositive

4
https://www.vedantu.com/commerce/legal-rules-regarding-consideration

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 issue is the presence of consideration, not the adequacy of the consideration. The values
between consideration passed by each party to a contract need not be comparable.

The legal term consideration does not mean payment of money only. The Contract Act says
that the consideration can be in the form of an act, abstinence, forbearance or detriment.

(a) Consideration as an act – An act done by a person can constitute consideration. Where a
person executes an undertaking in favour of a bank on the basis of which he receives a
substantial benefit of having a current overdraft account with a bank, the facility of
overdraft account cannot be said to be without consideration – AIR 1953 Tripura 10 (10).

(b) Consideration as an abstinence – To constitute abstinence as consideration, one must

refrain or promise to refrain from doing something that he or she is privileged to do.

Example – X promised to pay his nephew Y, a sum of Rs. 50,000 if he would refrain from
drinking, using tobacco, swearing and playing cards for money until he becomes 21 years
of age. The nephew refrained from all the specified activities as he was requested to do but
his uncle died without making the payment. He claimed the money out of the uncle’s
estate as his legal right. Held that, he abandoned his legal right and restricted his lawful
freedom of action upon the faith of his uncle’s agreement although it may seem that such
performance actually did not prove to be a benefit to the promisor. Such detriment
however amounted to consideration and he was granted the promised sum of Rs. 50,000.

(c) Consideration as forbearance – Forbearance means foregoing one’s legal right or claim.
Creditor forbearing to enforce execution and allowing time to pay at the request of the
debtor is a good consideration – AIR 1912 Cal. 67 (69)

Examples –

1. An agreement to accept a decree and not to appeal against it when parties to it would
have appealed is one which is supported by good consideration – AIR1969 Bom. 221
(223, 224)
2. A promises to pay C, his law partner, Rs. 750 if C will give up his part-time job in a
dance band for the next nine months. C lives up to the terms of the offer, but A
refuses to pay. If C brings suit to recover Rs.750, A is liable. Here again we have a
unilateral contract, promise in exchange for a negative act (or a forbearance) – the act
of not playing in the band. C’s refraining constituted both an acceptance of the offer
and a legal detriment to him; thus, we can see that A’s promise was supported by
consideration.

(d) Consideration as detriment – A detriment suffered by the promisee or any other person,

whether actual or prospective, can constitute a good consideration. The ordinary contract

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 of guarantee is good example of detriment form of consideration. In consideration of A’s
lending B Rs.1000, C promises to repay the loan if B does not. Here C derives no benefit,
but A suffers detriment by parting with his money, and this is enough consideration to
support C’s promise provided A lends the money at C’s request.

Example – X, a publisher, promises Y: “If you will loan Rs. 5,000 to my nephew for one
year, I will run all your advertisements during that time at half the regular rate.” Y makes
the loan, but X refuses to provide advertising space at the reduced rate. If Y sues X to
recover damages for breach of contract – that is, Y seeks to enforce X’s promise – X is
liable. Y’s act of making the loan to the nephew constituted not only an acceptance of X’s
offer but a detriment to Y – the parting with something of value where he was not
otherwise legally obligated to do so. Thus, X’s promise, supported by consideration, is
enforceable against him.

Note: That it is not necessary for the promisor to receive any benefit as long as the
promisee or someone else suffers a detriment.5

 EXCEPTIONS TO THE DOCTRINE OF CONSIDERATION

So far, we have seen that an agreement has to be supported by consideration to be

enforceable at law. But there may be certain circumstances where it will not be
reasonable to apply the doctrine of consideration to meet the basic motives of the
law.
5
https://www.vedantu.com/commerce/legal-rules-regarding-consideration

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Section 25 of the Indian Contract Act, 1872 takes care of such circumstances. It says
that,

“An agreement without consideration is void unless it is in writing and registered or

is a promise to compensate for something done, or is a promise to pay a debt barred
by limitation law.”

Such circumstances are elaborated below:

(1) Love and affection [Sec. 25(1)] – An agreement is enforceable even if there is no

consideration, if it is

(i) expressed in writing,

(ii) registered under the law for the time being in force for the registration of
documents,

(iii) is made on account of natural love and affection, and

(iv) between parties standing in a near relation to each other.

In simple words, a written and registered agreement based on natural love and
affection between near relatives is enforceable even if it is without consideration –
Ram Dass v. Krishan Dev AIR 1986 H.P. 9.

Examples:

1. F, for natural love and affection, promises to give his son, S, Rs. 1,000. F puts
his promise to S in writing and registers it. This is a contract.

2. An agreement by a person entitled to a certain share in the income of a Trust,

to pay out of that share a certain amount to his mother over and above her own
share of that income is supported by consideration as per section 25 (1) of the
Act [AIR 1949 Bom. 17 (18) DB].

Note: The Act does not provide any guidance as to who is near relative. The
expression would therefore include parties related by blood or marriage. Further,
nearness of relationship does not necessarily import natural love and affection.

3. A Hindu husband, after referring to quarrels and disagreement between him

and his wife executed a registered document in favour of his wife agreeing to
pay her for maintenance, but no consideration moved from the wife. Held, the

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 agreement was void for want of consideration
– Rajlukhyv.  Bhoothnath, (1900) C.W.N. 488 as the essential requirement that
the agreement is made on account of natural love and affection between the
parties was missing.

(2) Compensation for past voluntary services [Sec. 25 (2)] – A promise to

compensate, wholly or in part, a person who has already voluntarily done something
for the promisor, is enforceable, even though without consideration.  In simple words,
a promise to pay for a past voluntary service is binding .

Examples:

1. A finds B’s purse and gives it to him. B promises to give A Rs. 50. This is a
contract.

2. A supports B’s infant son. B promises to pay A’s expenses in so doing. This is
a contract.

3. A says to B, “At the risk of your life you saved me from a serious accident. I
promise to pay you Rs. 1,000.” There is a contract between A and B.

4. X agreed to pay Y Rs. 5 per mensem for life in consideration of Y having

trained X in the art of singing. It was found that Y’s sister and not Y himself
had rendered those services for X. In a suit by Y it was held that as Y himself
had done nothing for X’, there was no consideration for the agreement and
hence it was not enforceable. [AIR 1916 Pat. 80 (81)]

(3) Promise to pay a time-barred debt [Sec. 25(3)] – A time barred debt is a debt
which is not recoverable because of lapse of specified time (presently 3 years) under
the Limitation Act. In the normal course, once a debt becomes time barred, the lender
is left with no remedy to get his money back. Therefore a debtor is not legally bound
to pay the debt if it becomes time-barred.

In such a case, if the debtor subsequently promises to pay the time barred debt,
apparently there is no consideration moving from the other party but the contract is
still enforceable. This is because, under section 25(3) of the Act, a promise by a
debtor to pay a time-barred debt is enforceable provided:

(i) it is made in writing,

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(ii) is signed by the debtor or by his agent generally or specially authorized in that
behalf, and

(iii) the debt must be such “of which the creditor might have enforced payment but
for the Law of the limitation of suits.”

The promise may be to pay the whole or any part of the debt.

Example –  D owes C Rs. 1,000 but the debt is barred by the Limitation Act. D signs
a written promise to pay C Rs. 1,000 on account of the debt. This is a contract.

Note: Section 25(3) applies only :

(a) When a promisor himself was liable for the time barred debt . This means sub-
section 25(3) would not apply to a case of a promise to pay a time barred debt
payable by a third party – Pestonji v. Meherbai, 30 Bom. L.R. 1407.

If, however, a Hindu promises to pay a time barred debt due by his father, he can be
held liable, because the Hindu law makes the son responsible for his father’s debts to
the extent to which he has received property from his deceased father or to the extent
of his ancestral estate – Champak Lal v. Raya Chand 1932 34 Bom. LR 1005.

(b) Where the promise is to pay an ascertained amount. A promise to pay what is due
after taking accounts is not a promise within the meaning of section 25(3). [AIR 1952
Pat. 73 (77)]

(4) Completed gift [Explanation 1 to Sec. 25] – The rule “No consideration, no

contract” does not apply to completed gifts. According to Explanation 1 section 25,
nothing in section 25 shall affect the validity, as between the donor and the donee, of
any gift actually made.

Thus, transfer of properties by one person to the other as a gift according to the
provisions of the Transfer of Property Act (i.e. by a written and registered document)
is valid and a person transferring the property cannot subsequently demand the
property back on the ground that there was no consideration.

Note: In earlier paras we have discussed that gratuitous promises/gifts are not
enforceable at the court of law because in such cases there is no consideration for the
donor. This is to be distinguished from the Explanation 1 to section 25 because as per

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 the latter, once a gift has actually been made, the donor cannot demand it back on the
ground that there was no consideration.

(5) Agency [Sec. 185] – Under section 185 of the Indian Contract Act, no
consideration is necessary to create an agency, i.e. a transaction of agency. For giving
a person authority to act as agent, consideration is not necessary. Thus if A authorises
B to act on his behalf (act as an agent) before C, and B agrees to do so, the contract is
enforceable at the court of law although no consideration is moving from A to B. A
will be bound by the acts done by B on his behalf as against C. Even a gratuitous
agent can be held liable for negligence. The principle of Promissory Estoppel
emanates from this provision.

(6) Remission – Under section 63 of the Act, no consideration is necessary for an

agreement to receive less than what is due, known as remission in the law.

Example – Creditor A agrees to accept Rs. 500 from B in full satisfaction of the debt
of Rs. 1000. A subsequently cannot claim the amount of Rs. 500 which he has
rescind.

(7) Guarantee [Sec. 127] – A contract of guarantee is made without consideration. 6

 STRANGER TO CONTRACT VIS-A-VIS STRANGER TO CONSIDERATION

A stranger to the contract, not being a party to the contract, can neither sue nor be
sued upon under it. However, if a party to contract is a stranger to consideration, it
does not affect his legal rights under the contract.

 Stranger to the contract

A person who is not a party (i.e. neither a promisor nor a promisee) to the contract is
a stranger to the contract. Under the law of contract, an agreement can be binding on
and can only be enforced against the parties to it. Since a contract is a private
relationship between the parties who make it, the rights and obligations under such a
6
https://www.vedantu.com/commerce/legal-rules-regarding-consideration

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 contract are strictly confined to them – Tweedle v. Atkinson [1861-73] All. E.R. Rep.
369. This is known as the doctrine of privity of contract. From this follows a general
rule of law that only parties to a contract may sue and be sued on a contract. Privity
of contract means relationship subsisting between the parties who have entered into
contractual obligations. The consequences of the doctrine of privity of contract are :

(i) a person who is not a party to a contract cannot sue upon it even though he has
provided the consideration.

(ii) a contract cannot confer rights or impose obligations arising under it on any
person other than the parties to it. Thus, if there is a contract between X and Y, Z
cannot enforce it.

The principle that a person who is not a party to the contract cannot take advantage of
its provisions is subject to certain recognised exceptions discussed under the heading
‘exceptions to the doctrine of privity of contract’.

 Stranger to consideration

In the Indian Contract Act, in order to constitute a valid contract, the consideration
may move from the promisee or any other person. In case, the consideration moves
from a person other than the promisee, the promisee can be categorized as a stranger
to the consideration.

 Exceptions to the Doctrine of privity to contract

Following are the exceptions to the rule that a stranger to a contract cannot sue :

(1) Beneficiary under trust or a charge  – When a trust is created, the beneficiary can
enforce the rights given to him under the trust, even though he was not a party to the
contract between the settler and the trustees.

(2) Doctrine of promissory estoppel  – Courts have at times been confronted by the

cases involving gratuitous promises and unaccepted offers, which are without
consideration and hence not enforceable at law. Under certain circumstances, the
courts will enforce gratuitous promises and unaccepted offers.

If a person makes a promise to the other, and that other person incurs a detriment
relying upon the promise, in such a case, the promiser is estopped from going back
from his promise to the extent the promisee has incurred a detriment on the basis of
such promise. This is known as the doctrine of promissory estoppel.

The basic idea underlying this doctrine is that if the promisor makes a promise under
circumstances in which he or she should realise that the promisee is almost certainly
going to react to the promise in a particular way, and if the promisee does so react,

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 thereby causing a substantial change in his or her position, the promisor is bound by
the promise even though the consideration is lacking.

(3) Family Settlements  – Family arrangements or compromises made among male

members for the benefit of female members of the family can be enforced by the
female members, although the female members are not a party to those arrangements.
Thus, where an agreement is made in connection with marriage, partition or other
family arrangement and a provision is made for the benefit of a person, that person
may take advantage of that agreement although he is not a party to it.

Example - Two brothers on a partition of the family property agreed to pay Rs. 300
in equal share to their mother for maintenance. It was held that the mother, though a
stranger could enforce the provision in her favour – Shuppu Ammal  v.
Subramanian1910 33 Mad. 238 41 C1083.

(4) Marriage Settlement of Minor  – In case of provisions of marriage settlement of

minors, the minor is entitled to sue to enforce his claim. This is because in India,
marriages are contracted for minors by their parents and guardians and therefore the
Doctrine of Privity of Contract does not apply in this case.

(5) Agency  – Contracts entered into by an agent can be enforced by the principal.

(6) Covenants running with the land  – In cases of transfer of immovable property,

the purchaser of land is bound by certain conditions or covenants created by an
agreement between the original buyer and the concerned authority effecting the land
although he was not a party to the original agreement which contained those
conditions or covenants – Tulk  v.  Moxhay (1919) 88 LJ KB 861. 7

 LEGALITY OF OBJECT AND CONSIDERATION

According to section 10 of the Indian Contract Act, 1872, lawful consideration and
object is one of the essential ingredients to constitute a valid contract. Section 23 lays
down the cases where the consideration and object (purpose or  design ) of an
agreement can be deemed to be unlawful.

Anything which is not lawful within section 23 is unlawful for the purpose of an
agreement or compromise, and a decree incorporating such an agreement or
compromise is a nullity. The section declares following agreements to be void for
unlawfulness:

7
https://www.preservearticles.com/difference/difference-between-a-stranger-to-consideration-and-a-
stranger-to-contract/19213

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(a) Where the consideration or object is forbidden by law  – A contract which is
expressly forbidden and made criminal by statute can give no cause of action to a
party who seeks to enforce it.

(b) Where the consideration or object defeats the provisions of any law – Where a
contract is to do a thing which cannot be performed without an infringement of law, it
is void whether parties knew the law or not.

(c) Where the consideration or object is of such nature that it is fraudulent  – Where

agreement involve the commission of a wrong, or commission of a fraud against a
third person or the commission of fraud against the public, they are unlawful and
unenforceable. 8

 BIBLIOGRAPHY

1. https://www.law.cornell.edu/wex/consideration#:~:text=Consideration%20is%20a
%20promise%2C%20performance,a%20contract%20cannot%20be%20enforceable

2. https://www.taxmann.com/post/blog/consideration-under-the-indian-contract-act-
1872

8
https://sociallawstoday.com/consideration-under-indian-contract-act/

17 | P a g e
3. https://www.tickertape.in/blog/importance-ofconsideration-in-contract/
#:~:text=According%20to%20the%20Indian%20Contract,the%20consideration
%20to%20the%20contract.

4. https://www.vedantu.com/commerce/legal-rules-regarding-consideration

5. https://www.preservearticles.com/difference/difference-between-a-stranger-to-
consideration-and-a-stranger-to-contract/19213

6. https://sociallawstoday.com/consideration-under-indian-contract-act/

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