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Legal Reasoning · Micro-Test

Consideration in Contract Law

No consideration, no contract - except when the Indian Contract Act says otherwise, and those exceptions are exactly where CLAT tries to catch aspirants off guard.

10 questions · 5 minutes · instant scoring

What this topic actually tests

Section 2(d) of the Indian Contract Act, 1872 defines consideration broadly: 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 abstain from doing something, such act or abstinence is called consideration. Two features distinguish Indian law from English common law here. First, consideration need not move from the promisee alone - it may move from a third person, so long as it moves at the promisor's desire; this is why a stranger to the consideration can, in Indian law, sometimes enforce a promise, unlike under strict English privity rules. Second, and separately, is the doctrine of privity of contract, which generally still prevents a person who is not a party to the contract from suing on it, subject to recognised exceptions such as trusts, family arrangements creating a charge in favour of a beneficiary, and assignment of contractual benefits. Section 10 requires lawful consideration (and a lawful object) for an agreement to be a contract, and Section 23 voids agreements whose consideration or object is unlawful. Section 25 lays down the general rule that an agreement without consideration is void, but carves out three important exceptions: (1) a written and registered agreement made on account of natural love and affection between parties standing in a near relation to each other; (2) 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; and (3) a written and signed promise to pay a debt barred by limitation. Explanation 2 to Section 25 further clarifies that an agreement is not void merely because the consideration is inadequate, though inadequacy may be relevant evidence of fraud, coercion, or undue influence. CLAT questions on this topic typically present a fact pattern and ask whether it falls within one of these Section 25 exceptions or fails for want of consideration.

The common trap on this topic

Aspirants frequently apply the blanket rule 'no consideration, no contract' without checking whether the fact pattern fits one of the three specific Section 25 exceptions - natural love and affection (with the added requirements of writing, registration, and near relation), past voluntary service, or a written promise to pay a time-barred debt - all of which validate an agreement despite the absence of ordinary consideration. A second, subtler trap is conflating privity of consideration with privity of contract: Indian law departs from the English rule by allowing consideration to move from a person other than the promisee, but this does not automatically mean that a total stranger to the contract can sue upon it - the separate doctrine of privity of contract still generally bars strangers from suing, subject to narrow exceptions like trusts and family settlements. Students also wrongly assume that unequal or token consideration invalidates a contract; inadequacy of consideration alone does not void an agreement, though it may be a relevant factor if fraud or undue influence is separately alleged.

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Principle: Under Section 25(1) of the Indian Contract Act, an agreement made without consideration is nonetheless valid if it is expressed in writing, registered under the law for registration of documents, and made on account of natural love and affection between parties standing in a near relation to each other. Facts: A father, out of affection, executes a registered written document promising to transfer his ancestral house to his daughter. No money or service is exchanged for this promise.
Q1.

Is the father's promise enforceable despite the absence of consideration?

Principle: Consideration under Section 2(d) may move from the promisee or from any other person, at the desire of the promisor; Indian law does not require that consideration move exclusively from the person seeking to enforce the promise. Facts: A mother, while gifting property to her daughter, directs the daughter to pay an annuity to the mother's sister for life. The daughter accepts the property on this condition and executes a document agreeing to pay the annuity, but later stops paying.
Q2.

Can the mother's sister, who provided no consideration herself, argue that the daughter's promise was nonetheless supported by valid consideration?

Principle: Section 25(3) validates a promise to pay, wholly or in part, a debt that the creditor could have enforced but for the law of limitation, provided the promise is in writing and signed by the debtor or their authorised agent. Facts: Vishal owed Rs. 1 lakh to a friend, but the three-year limitation period to sue for recovery had already expired. Vishal later signs a written note acknowledging the debt and promising to repay it within six months.
Q3.

Is Vishal's promise enforceable?

Principle: Under Section 25(2), a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor is enforceable even without fresh consideration, since the past voluntary act itself serves as valid consideration. Facts: While Meera was away, her neighbour Sanjay, acting entirely on his own initiative, repaired a burst water pipe in her house to prevent flooding, without any prior request from Meera. On returning and learning of this, Meera promises to pay Sanjay Rs. 5,000 for his trouble.
Q4.

Is Meera's promise to pay Sanjay enforceable?

Principle: Under Explanation 2 to Section 25, an agreement is not void merely because the consideration is inadequate, though inadequacy may be considered by a court in determining whether consent was freely given. Facts: Owing to their close friendship, Rakesh sells his motorcycle, market value Rs. 60,000, to Tanya for Rs. 5,000. Tanya later insists the sale is invalid because the price was far below the motorcycle's real value.
Q5.

Is Tanya correct that the sale is void for inadequate consideration?

Principle: Privity of contract generally prevents a person who is not a party to a contract from suing to enforce it, even if the contract was intended to benefit that person, subject to limited exceptions such as trusts and family settlements. Facts: A and B enter into a contract under which B agrees to pay a sum of money to C, a friend of A who is not a party to the agreement and provided no consideration. B later refuses to pay C, and C sues B directly to enforce the promise, without any trust or family settlement being involved.
Q6.

Can C succeed in a direct suit against B?

Principle: A promise to perform an act one is already legally bound to do under an existing contract with the same promisor does not, by itself, furnish fresh consideration for a new promise of additional payment for the same performance. Facts: A contractor already bound by contract to complete a building by a fixed date, without any change in scope of work, later demands and receives a promise of extra payment from the client merely for finishing the work on the originally agreed date.
Q7.

Is the client's promise to pay extra enforceable?

Principle: Forbearance to sue - that is, a promise to refrain from enforcing a valid legal claim - can itself constitute good consideration for a promise made in return. Facts: Owing money to Deepa, Irfan is on the verge of being sued. Deepa agrees not to file the suit for one year if Irfan's brother, Kabir, promises to pay the debt if Irfan defaults. Kabir makes this promise, and Deepa refrains from suing for the year.
Q8.

Is Kabir's promise to pay supported by valid consideration?

Principle: An agreement made without consideration is void unless it falls within one of the specific exceptions recognised under Section 25. Facts: Purely as a gesture of generosity and without any of the circumstances of near relation, past voluntary service, or time-barred debt being present, Naveen promises his acquaintance Ritu Rs. 20,000 'for no particular reason,' with no writing or registration involved. Naveen later refuses to pay.
Q9.

Can Ritu enforce Naveen's promise?

Principle: Under Section 23, consideration or an object is unlawful, among other reasons, if it is forbidden by law, defeats the provisions of any law, or is fraudulent; an agreement with unlawful consideration is void even if both parties freely agreed to it. Facts: Two neighbours agree that one will pay the other Rs. 15,000 in exchange for trespassing onto and damaging a rival's fence out of personal spite.
Q10.

Is this agreement enforceable as a valid contract?

FAQ

Does a promise made purely out of love and affection require consideration to be enforceable?

It can be enforceable without ordinary consideration if it satisfies Section 25(1): the promise must be in writing, registered, and made between parties standing in a near relation to each other, expressed on account of natural love and affection.

Can a person who is not a party to a contract but for whose benefit it was made sue upon it?

Generally, privity of contract bars strangers from suing, but Indian courts recognise exceptions such as trusts, marriage or family settlements creating a beneficial interest, and assignment of contractual rights, allowing the beneficiary to enforce the promise in those specific situations.

Is a contract void just because one party got a much better bargain than the other?

No. Mere inadequacy of consideration does not by itself void an agreement under Explanation 2 to Section 25, though a court may consider it as evidence when deciding a separate claim of fraud, coercion, or undue influence.

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