Essential Legal Rules for Consideration in Contract Law

A promise by itself does not create a contract. If a friend says she will give you her old laptop, and later changes her mind, you cannot drag her to court over it. But the moment there is something in return, however small, the promise takes on legal weight. That “something in return” is called consideration, and Indian contract law is remarkably precise about what qualifies and what does not. Get this one concept right, and most of the confusion around valid and void contracts starts to clear up.

What the law means by consideration 🔗

Section 2(d) of the Indian Contract Act, 1872 defines consideration as something done, not done, or promised at the desire of the promisor, by the promisee or by any other person. In simpler terms, it is the price the promisee pays, in the form of an act, an abstinence, or a promise, to make the other party’s promise enforceable. Courts have consistently held that consideration means a reasonable equivalent or valuable benefit that passes between the parties, and without it, an agreement is generally void under Section 25 of the Act.

But not every act done for another person counts as valid consideration. The law lays down specific rules, and case law from Indian courts has shaped how these rules apply in practice.

Rule 1: Consideration must move at the desire of the promisor 🔗

This is the most fundamental rule, and it trips up more students than any other. An act only becomes consideration if it was done because the promisor asked for it, not because a third party requested it, and not out of pure goodwill.

The classic illustration is Durga Prasad v. Baldeo. A district collector asked Durga Prasad to build shops in a marketplace at Etawah. He did so at his own expense. Some shopkeepers, including Baldeo, occupied these shops and later promised to pay Durga Prasad a commission on goods they sold there. When they refused to pay, Durga Prasad sued. The Allahabad High Court held that his claim failed because the construction was carried out at the desire of the collector, not at the desire of the shopkeepers. Since the promisors themselves had not asked for the act, there was no valid consideration, and their promise to pay commission was unenforceable.

The lesson is simple: doing something helpful for someone, on your own initiative or at a stranger’s request, does not entitle you to demand payment later just because that person benefited.

Rule 2: Consideration may move from the promisee or any other person 🔗

Here Indian law departs from English common law in a significant way. English contract law follows the doctrine of privity of consideration, which requires that consideration must come from the promisee, the person to whom the promise is made. Indian law, through the wording of Section 2(d), allows consideration to move from “the promisee or any other person.”

This principle was settled in Chinnaya v. Ramayya, decided by the Madras High Court in 1882. An elderly woman gifted her property to her daughter, Ramayya, through a registered deed, on condition that Ramayya would pay an annuity to the woman’s sister, Chinnayya. After the mother’s death, Ramayya refused to pay, arguing that Chinnayya had given her nothing in return. The court disagreed. The consideration for Ramayya’s promise had moved from the mother, who transferred the property, even though the person seeking to enforce the promise, Chinnayya, was a different person altogether. The court ruled the arrangement enforceable, confirming that a stranger to the consideration can still be a party to the contract and sue on it, so long as they are named as a beneficiary in the agreement.

This is why family settlements, trusts, and gift-linked arrangements often hold up in Indian courts even when the person enforcing the promise did not personally hand over anything of value.

Rule 3: Consideration can be past, present, or future 🔗

Indian law recognises three timings for consideration, and this flexibility is another point of departure from English law, which generally does not treat past acts as valid consideration.

Past consideration 🔗

If an act was performed before the promise was made, but at the desire of the promisor, it still counts as valid consideration in India. For example, if someone carries out a task at another person’s request in January, and that person promises in March to pay for it, the earlier act is treated as past consideration and the March promise is enforceable.

Present or executed consideration 🔗

This is consideration that is given at the same time as the promise. Buying groceries and paying for them at the counter is a straightforward example of executed consideration; the exchange happens simultaneously.

Future or executory consideration 🔗

Here, the consideration is a promise to do something later. Both parties exchange promises to perform in the future, and the contract is valid from the moment those promises are exchanged, even though performance is yet to happen.

Rule 4: Consideration must be real, not illusory 🔗

Consideration has to be genuine and possible to perform. It cannot be physically impossible, legally forbidden, uncertain, or based on something too vague to enforce. A promise to bring back a person who has already died, or to pay someone for making an object weightless, would not amount to real consideration because these acts cannot actually be performed.

Similarly, an act that a promisee is already legally bound to do, such as a public official performing an existing duty, does not amount to fresh consideration for a new promise. The law expects something additional, not a restatement of an obligation that already exists.

Rule 5: Consideration need not be adequate, but it must have value 🔗

Courts in India do not sit in judgment over whether the parties struck a fair bargain. If someone freely agrees to sell a house worth several lakhs for a token sum, the contract is not void merely because the price seems unreasonably low. Explanation 2 to Section 25 makes this clear: inadequate consideration does not by itself invalidate an agreement, though a court may consider it while examining whether consent was given freely.

That said, the consideration must still be something the law regards as having value. Vague promises, moral obligations without a defined act, or purely sentimental gestures generally will not qualify, even though the parties themselves may attach importance to them.

Rule 6: Consideration must be lawful 🔗

Under Section 23 of the Act, consideration cannot be illegal, immoral, fraudulent, or opposed to public policy. If the consideration involves something forbidden by law or something a court would consider against the interests of society, the agreement is void, regardless of how willingly both parties entered into it. A well-known illustration is an agreement built around an unlawful or immoral arrangement, where the entire contract collapses because the unlawful part cannot be separated from the rest of the deal.

When consideration fails: common invalid scenarios 🔗

Two situations repeatedly show up in exam questions and real disputes, and both connect directly to the rules above.

Voluntary acts done for a third party without the promisor’s request. As Durga Prasad v. Baldeo demonstrates, doing something helpful because a third party asked, and then expecting payment from someone who benefited but never requested the act, does not create enforceable consideration.

Worthless or illusory acts. A promise to do something that has no real value, that is impossible to perform, or that is too uncertain to measure cannot support a contract. The law needs something concrete on both sides, even if that “something” is modest in monetary terms.

Quick summary of the rules 🔗

Once these rules click, most consideration-related problems in a contract law paper start to look familiar. Almost every fact pattern is really just one of these six rules dressed up in a story about shopkeepers, gift deeds, or unpaid commissions.

What do you think? If Durga Prasad had built the shops at Baldeo’s direct request instead of the collector’s, would the outcome have changed? And can you think of a modern transaction, perhaps involving a parent paying for a child’s purchase, where consideration technically moves from someone other than the person enforcing the contract?

References

1. https://www.taxmann.com/post/blog/consideration-under-the-indian-contract-act-1872
2. https://www.drishtijudiciary.com/landmark-judgement/indian-contract-act/durga-prasad-v-baldeo-and-ors-1881-ilr-3-all-221
3. https://legalvidhiya.com/chinnaya-v-ramayya-1882/