This article is written by Shreya Patel. This article comprehensively explains the rule of no consideration, no contract and the meaning of consideration & contract. It also discusses the exceptions and alternatives present to the rule of no consideration, no contract with case laws and illustrations. 

Table of Contents

Introduction

Ever wondered if the car dealership company can sue you for not buying the car after you have taken a test drive? Here is why it can’t. When you agree to test drive a car, there is no consideration exchanged between the parties which shows that they will buy the car after the test drive. A test drive acts as a complimentary service when you go to buy a car. Hence no consideration, no contract. Contracts are a part of everyone’s daily routine.

For instance, when you go to buy groceries you are entering into a contract with the shop owner to sell the groceries to you, and in return, you will pay for them. The goods form consideration on behalf of the shopkeeper for you and the price you pay is the consideration on your behalf to the shopkeeper. This is where the rule of no consideration no contract becomes relevant. 

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Let’s first understand what consideration and contract mean. 

Consideration is the cornerstone of contractual agreements

One of my juniors in college asked me what a consideration is after he had his lecture on contract law. I told him consideration is a type of benefit/something of value that both parties exchange between them. At the start of the article itself, we know that consideration is and has always been an important concept in contract law. For any contract to be valid we definitely need consideration in it. We can count consideration as an incentive. This incentive is received by both parties after they are done carrying out a certain act. 

When someone asks me they cannot understand what consideration is. I would simply say that consideration is a type of price that parties get when a promise is made. Consideration can be of different types. It can be a:

  • Type of service,
  • Money.
  • Promise to do a certain act,
  • Goods,
  • A promise to not carry out a specific act,
  • Performance of some work etc.

Still confused? No worries, let me explain the same in a hypothetical situation. 

One of my friends Panthi had agreed to pay me ₹50,000 for an iPhone. She agreed to do this as I let her live in my flat for 45 days. Both the iPhone and letting to live in the flat are considerations which are exchanged between us. 

You can visit this link to understand what consideration means in more detail. 

Let us look at the legal definition of the same. Section 2(d) of the Indian Contract Act, 1872 (hereinafter mentioned as the ‘Act’) defines consideration as –

‘When a specific act to do something or to not do something is asked by the promisor to the promisee. This act is to be done in the present time or in the future. Here, when the promisee agrees to the same it is known as consideration. The act or promise made here is the consideration.’

The contract should be in writing then only it will be considered valid. Mutual consent is a must! It does not matter how many parties are in the contract. All of them must have mutual consent. Another important thing is to exchange something. Both of these must be there. If it is found that any party violates anything then it won’t be counted. Simple right?

Based on the above definitions, what we understand is that agreement consists of the exchange of promises. When such an agreement is enforced by law it becomes a contract. Contracts are governed by the Indian Contract Act, 1872 primarily in India. The definition of a contract under the Act is mentioned in Section 2(h). The Section says that any agreement which is enforceable by law is a contract. 

After understanding what contract and consideration mean our boat will sail more steadily. However, there are some conditions for a valid contract that we must take a look at before diving into the rule. 

Conditions for a valid contract

Understanding these conditions is important so that we can ensure none of our contracts become invalid. We have to ensure that:

  • An offer is made and the same offer is accepted as well. Because just making an offer doesn’t count. Both the offer and its acceptance must be present together.
  • No parties can enter into a contract without any reason. Correct right? Like, why would you enter into a contract if there is no objective? The parties should have an objective when they enter into a contract. Something for which they need to enter into the contract. 
  • Wait a minute, we also have to ensure that the objective which is there is legal. You cannot just make an offer to steal something with your friend, and his acceptance of it will not be counted. 
  • The next vital condition to enter into a contract also includes being eligible for it. You won’t get admission to the 5th standard if you are in the 4th standard, right? Similarly, the parties to the contract must be eligible to enter into a contract. 
  • Something of value should be exchanged between the parties. The parties must have given mutual consent.
  • The intention must be there to enter into a contract.

In this article we have only discussed these conditions briefly, however, by clicking on this link you can understand the conditions with cases and relevant examples. 

Having understood the meaning of consideration and contract, let’s dive into our core topic for today, which is the rule of no consideration, no contract. 

Rule of no consideration no contract 

Consideration, offer and acceptance are the three main pillars of a contract. If even one pillar is missing then it will not stand straight. In simple words, consideration is when goods or services are exchanged, and in return something of value is given to the seller. 

Let’s say you and your mom went to buy raw materials for your business. You have a deal with a wholesaler for the same. You pay the wholesaler a specific amount every month in exchange for the raw materials, right? This raw material acts as a consideration by the wholesaler and the payment that you make is the consideration from your side. 

Here two things of value are exchanged between two parties. And as we have already discussed above, consideration can be of various types. Here the consideration is in the type of money. 

Without consideration, there is no promise. It is a crucial step for a promise. If there is no consideration, then the other party will have no obligation to fulfil what they have promised. So, if there is no consideration there won’t be any contract as well. We already know that for a contract to be valid, we need consideration. Since for a promise to be enforceable in nature, we need consideration. All these concepts are intertwined. 

Do you know the Latin term ‘quid pro quo’? No? No worries, I will tell you. ‘Quid pro quo’ basically means to give something in return. We have to give something in exchange for the promise to the promisor. This price is given when the act which was promised is carried out. I made a promise to my brother that I would pay his tuition fee if he got 95 marks on a math test. Here I am the promisor and my brother is the promisee. 

When we say ‘no consideration, no contract’ it straight out means that a contract will not be valid if there is no consideration. There has to be an exchange of something that is of value, only then the contract will be valid and enforced by law. There is no hard and fast rule that consideration between the parties has to be equal. 

Let’s take a look at a few examples to understand what we are talking about. 

Illustrations on the rule of no consideration no contract

Now, we shall understand the rule with the help of some simple examples. These examples are of different situations, so you can understand how the rule works in different circumstances. 

Suman tells Anita that she will pay ₹ 5000 as she got a bonus today. Here, in this case, Anita is not giving anything to Suman in return, hence this cannot be a contract as it is hardly a promise. If Suman later denies to give the money, Anita cannot legally enforce the same as the promise was made without any consideration. Any such promises are not enforceable by law. 

Priti had agreed to sell her car to Roshan for ₹ 5 lakh, to which there was no consideration given from Roshan’s side nor was there any acceptance of the same. Here, if in the future Priti decides to not sell her car to Roshan, he cannot enforce the same against Priti as there was no exchange of something of value/promise. And, without consideration from Roshan’s side, this cannot be considered an enforceable contract. 

Goodwill company agrees to buy cotton from a local mill as the company desires and no minimum quantity was specified by them. Here in this case there is no definite consideration from the company’s side. They may or may not buy cotton from the local mill. No obligation is set by the Goodwill company. There was no definite consideration amongst the parties and hence such promise will not be considered a contract and is not enforceable. 

Sanjana promises to buy a new pet for Aniska for her birthday to which Aniska agrees. In this case, there was no promise made from Aniska’s side. So the promise made by Sanjana is not legally enforceable, as the parties did not exchange any consideration. This was merely a gift which does not create a legally enforceable contract. 

Now, we will move towards the exceptions to the rule. We just now discussed how consideration is necessary but is it required for all types of contracts? Let us take a look. 

Exceptions to the rule of no consideration no contract 

We have already discussed how important it is to have consideration from both sides to legally enforce a promise. We however must note that there are some exceptions to the rule of no consideration, no contract. Under Section 25 of the Indian Contract Act of 1872, some exceptions are mentioned where an agreement despite having no consideration is still considered valid. 

So now we will study that there are certain alternatives provided where even if there is no consideration, the contract is considered valid and enforceable by law. Some of these alternatives are:

  • If the promise made is in writing and is also registered under the law then it will not be considered void even if there is no consideration. 
  • If a consumer service is being given then in that case it will be considered as an alternative. In this case, the service is provided to the promisor where the promise had taken place in the past to carry out a certain act. 
  • If any type of legitimate document mentions a certain time for the fulfilment of the promise. 

We shall now take a look at each clause of Section 25 individually to understand it more easily. 

Diving in Section 25 of the Indian Contract Act 1872

As per Section 25, the agreements are considered void when there is no consideration. There are a few exceptions to the same. If the agreement is:

  1. In writing,
  2. Is registered,
  3. A promise for compensating a past act is there, and
  4. A promise for the payment of a time-barred debt is there.

Then in above mentioned cases the agreement despite lacking consideration will be considered a valid agreement. Let us read further to get an even better grasp of the concept.

Clause-wise explanation of Section 25 of the Indian Contract Act 1872

If someone asks me how to understand a Section properly, I would say there is no better way than breaking it into clause-wise understanding. 

Section 25(1) of the  Indian Contract Act 1872 

As per Section 25(1) an agreement if found in writing and when registered will be considered a valid agreement even if there is no consideration. When an agreement is based on natural love and affection between the parties they are considered valid without the presence of consideration. 

Confused? Let’s see the same with an illustration. 

When my father had promised me that he would buy me a scooter when I got into college as a gift. His buying me the Scooter was out of his affection and love for me. So that I can travel to my college easily. We got the same thing in writing and got it registered as well, that when I get into college he will buy me a Scooter. This type of agreement will be considered valid even if I am not exchanging something of value in return with my father.  

If any contract is entered on the basis of love and affection then even in the absence of consideration it is valid. If any agreement is made between a son and his father, or a married couple, or a brother or sister. All these will be counted as a valid contract even if no consideration is given by the parties involved.  

Let’s understand this legal provision in more detail for better understanding.

The agreement has to be in written form and should also be registered as per the law. Only when these two conditions are fulfilled the absence of consideration is counted as an exception. 

Section 25(1) of the Act states that when two parties have affection and love between them and enter into a contract on that basis even with the absence of the consideration it will be considered valid. However, the contract should be in writing. The parties should share a close relationship. 

Understanding with examples always makes it easy. 

Arjun promises to his son ₹ 3000, which the son puts into writing and also registers the same. In this case, this promise will be considered as enforceable by law and the contract will be valid. 

A contract can also be between two siblings. Let us say Susan and Niit are two sisters. It was promised by Susan that she would give 10% of her income every month to her sister. The promise was written and registered. After the agreement is written and registered it becomes legally enforceable in the eyes of law. So now Susan is legally bound to pay 10% of her salary to her sister. If she fails to do so, Niti can file a case against her. 

Let this article take you through some case laws to give a clearer picture regarding the same. 

Relevant case laws on love and affection exception

In Rajlakhi Debi vs. Bhootnath Mukerjee (1900) 4 Cal WN 488, there was an agreement related to maintenance between the couple. The husband and wife had reached an agreement and decided on a fixed amount as maintenance. This was officially written, registered and signed by both of them. Later the husband refused to pay the maintenance. Aggrieved by this the wife moved to the court. 

The High Court of Calcutta ruled that this type of contract was not applicable as it lacked affection and love from the husband. The husband was tired of the constant fights and agreed for the maintenance to have some peace. 

When there is love and affection present behind making the promise, then promises are accepted under the law. This part is clearly missing here. The payment of maintenance was agreed upon by the husband due to many fights that were happening. He did not voluntarily act. He came under his wife’s pressure to do so. The court stated that marriage does mean sharing a close relationship all the time.

Now let’s move towards the second clause of the Section which states about the contract which is based on the voluntary services carried out by a party. 

Section 25(2) of Indian Contract Act, 1872

As per this Section 25(2) an agreement is not void even without consideration. It is only if the promise is made for partly or wholly compensating a person. The compensation is to a person who has acted voluntarily by doing something for the promisor which the promisor was compellable (legally) to do.

Illustration for better understanding

Dipal found a bag that belonged to Shashi. She returned it to her. On getting her bag back, Shashi in happiness promised to reward Dipal with one thousand rupees. Such a promise will also be considered valid. Despite no consideration being there, it will be a valid contract. 

One day on this way to his office Shivam meets his neighbour. The neighbouring was accompanying his family to visit the railway station. Shivam was going the same way. So he offered them a ride in his car. The neighbour was getting late so Shivam’s offer was a blessing to him. He agreed and sat in the car. In exchange, the neighbour promised that he would pay for the petrol for this trip. 

Such a promise by the neighbour is fully considered valid and is 100% legally enforceable.

When an act is carried out voluntarily without asking for something in return such promises are considered valid without consideration. The same is mentioned under Section 25 (2) of the Indian Contracts Act. The contract is valid even if the consideration is not present consideration. When the voluntary acts take place the promisor has to be present. The promisor should also have the willingness to compensate for the act done voluntarily. 

Let’s see how this exception is seen from the case law point of view. 

Relevant case law for voluntary service exception

The court in the case of Karam Chand vs. Basant Kaur [1911] 31 P.R. 1911 stated that when a minor makes a promise it is usually not counted as valid. However, if the minor states that he will carry out an act or promises something after he has attained the age of majority then that type of promise is valid. 

Let’s move towards the third clause of the Section. 

Section 25(3) of Indian Contract Act, 1872

If a person had made a promise in the written form to pay back a certain debt, the non-payment of which would incur any legal non-compliance. The payment could have been avoided if it had become time-barred. Such agreements will also not be considered void as per Section 25(3)

For instance, I had taken Rs. 50,000 from my friend Sakhi. I took this loan 7 years back. The limitation period for the same would end in 3 years. However, I had given her in writing that I would pay her the money back even after it became a timed-barred debt. 

When one party borrows money from another party and does not repay on time it is known as time-barred debt. When the time period in which the money was to be returned had ended the money could no longer be collected legally. 

Under this exception, a promise is made in writing by the borrower that he will pay the amount even if the period for the same has ended. Then it will be considered valid without consideration. Such a promise must be signed by the borrower or their agent. 

Now let us read a case law to understand this in an even better way. 

Relevant case laws under time-barred debt exception 

In the Daulat Ram vs. Som Nath And Ors (1980) case, the landlord had to ask for rent from the tenant. On asking the tenant replied that he could pay the rent by using cash, in draft or by cheque. When the rent was not paid the landlord moved to the court stating the tenant had broken his promise. The Delhi High Court held that this type of reply from the tenant does not show any sign of a promise made by him. This will not be considered as a time-barred debt. Hence will not attract Section 25 of the Act. 

The Supreme Court in Khan Bahadur Shapoor Fredoom Mazda vs. Durga Prosad Chamaria And Others (1961), held that under Section 25(3) there is no mention that the promise has to be exclusively an express promise. The promise can be implied or expressed. The word express is not mentioned anywhere in the Section. When the word promise is being understood we have to understand and read both Section 2(b) and Section 9 of the Contracts Act.

Comparison between Section 18 of the Limitation Act 1963 and Section 25 of the Indian Contract Act 1872

Do you know about the Limitation Act, 1963? Check this link to learn about the Act in detail. Under this heading, we are going to compare Section 18 of the Limitation Act, 1963 with Clause 3 of Section 25 of the Indian Contract Act, 1872. 

Both of these Sections talk about the acknowledgement which is in writing from the debtors. 

What does Section 18 of the Limitation Act of 1963 say?

It says that whenever an acknowledgement is made by the debtor during the limitation period to the creditor, a fresh limitation period is counted from the exact day. So, if the acknowledgement is made on 4th November, the limitation period will start from the 4th November itself. 

When the time limit for paying a certain debt is finished, we cannot claim it anymore. However, if the debtor himself says that despite the debt being timer bared he will pay. Then it will be valid. 

Another important thing mentioned in Section 25 is that if there is a written agreement that is also registered and is with no consideration. Then also it will be counted as a valid contract. It will obviously also be legally enforceable. So if a debtor makes a promise in writing that he will pay the creditor it is considered a valid contract. 

Both provisions are concerned with a written acknowledgement from the debtors. A mere acknowledgement works when it comes to Section 18. Section 25(3) of the Act states that a promise for payment after the expiry of the limitation period has to be made in writing. 

In the case of Kasturchand Jiwaji vs. Manekchand Devchand (1943), the Bombay High Court mentioned the conditions that should be present to amount to a promise as per Section 25(3). The conditions are:

  • Written promise,
  • Signs of both parties,
  • Part or full promise.

The Supreme Court in Hiralal And Others vs. Badkulal And Others (1953), mentioned that under Section 25(3) a fresh contract will be made which will revive the previous liability with a new interest rate and time limit.

Now just understanding the subsections is not enough. We also have to understand the 2 explanations that are added at the end of the Section. 

Explanations under Section 25 of the Indian Contract Act, 1872

Explanation 1 states that this section will not affect the validity of a gift made in any sense. If the gift is accepted by the other party it is considered to be a completed contract of offer and acceptance, hence validity of the gift does not come under this section. 

Illustration 

Amit gifts his friend a property. Ram, his friend accepts the gift and here the agreement ends. If in the future Amit changes his mind the gift will be considered valid nonetheless. The agreement’s validity can’t be questioned. The gift once accepted cannot be taken back. Even if there is no contract, the gift will not be returned. The property will now be considered as a gift only. 

In the second explanation it is stated that when there is free consent from the promisor, the consideration will not be void even if it is inadequate. The consideration’s adequacy is considered only then the courts have to find out whether the consent was free or not. 

You can visit this link to learn more about Section 25 of the Indian Contract Act, 1872. 

Now let’s see some of the other exceptions under the rule of ‘no consideration, no contract.’ 

Other exceptions

Other than the exceptions that we discussed above, there are some other exceptions to the rule of ‘no consideration, no contract.’ There are some circumstances wherein despite not having any form of consideration from both or either side the contract is valid. You might think that this is exactly opposite to what we have just read above in the article. There are some conditions that have to be present along with these exceptions to become a valid contract. All professionals and legal students should be aware of these exceptions to the rule

Charity

Under this exception when a person is making a donation to some charity, the other party is responsible for handling all the responsibilities regarding the same. Then promises made related to these responsibilities are valid without consideration. When a party assumes the responsibility or liability to carry out an act on behalf of the other person, then a contract without consideration is also valid. The consideration does not need to be a present consideration in this case. 

Illustration

Sima is working as a trustee in a Jeevandeep NGO in Mumbai. In order to raise funds for an event Sima appeals to the public to make some contributions. 5 contractors agreed to donate some funds. At the time of paying two of them refused to make the donations who had promised to do so. The NGO filed a case against the two contractors. 

The promise that was made between the contracts and Sima will be considered valid by the court. On the confirmation by the contractors, Sima had informed the NGO about the contributions and taken the liability for the same. Sima had assumed both the responsibility and the liability for the donations on the promise made by the contractors. 

Another exception to the rule is gifts. When a gift is made to a party, if there is no consideration even then it is allowed and counted as valid. 

Gift

When a property is being transferred as a gift there won’t be any exchange of something in value which is consideration. We do not gift someone to get something in return. A gift is a transaction that is made voluntarily. In this type of transaction despite the absence of promise, it will be considered valid. 

There are four conditions which must be present. 

Conditions to gift
  1. The gift must be given voluntarily. 
  2. No use of coercion or any kind of undue influence should be there when the gift is made.
  3. The donor must have the intention to gift something to the donee. 
  4. The gift has to be accepted. 

Let’s us understand the same with an illustration, as illustrations make it easy….

Example

Rahul gifts his sister a car and a flat at her wedding. Here the only Rahul is the one who is giving gifts. His sister will not be giving something back to him. These gifts are his form of showing love to his sister for her wedding. Hence despite the consideration not being present, it will be considered valid. 

As per the Transfer of Property Act, 1882 a gift is considered a transfer of property. However, when it comes to contract law it is not the same. As per the contract act a gift is not considered a valid contract. Once a gift has been accepted it cannot be taken back. When the gift is accepted it becomes a valid contract. 

To know more about the gift and its conditions under the Transfer of Property Act, 1882 you can simply click on this link

Our second last exception to the rule is agency creation. Never heard of it? No worries our next subheading discusses the same in detail. 

Agency creation 

An agency cannot be made if there is no consideration. The same is mentioned in the Contracts Act under Section 185. Now a question may arise: what is an agency? When one party gives someone else the authority to act on their behalf, that person is the agent. The person who gives the authority is known as the principal. 

Mr Kapoor has appointed Rajiv as his agent. He has given the authority to Rajiv to sell this Mumbai flat. When the flat is being sold Rajiv does not have to give any consideration despite him selling the property as he is acting as an agent of Mr. Kapoor. 

Our last exception for the rule of no consideration, and no contract is bailment. 

Bailment

If goods are delivered from one person to another for a reason then it is considered as bailment as per Section 148 of the Indian Contract Act,1872. The parties have entered into the contract that as soon as the purpose is accomplished, the goods will be disposed of, returned or as per other direction given by the person. 

There is no requirement for consideration in bailment. When it comes to non-gratuitous bailments, there is a requirement of consideration to some extent between the bailee and bailor. For example, when you borrow a book from the library, then, in that case, there is consideration present in the form of library fees, as it is non-gratuitous bailment.

Now, that we know what contract and consideration mean, we have also seen the exceptions in a detailed manner along with examples, we shall now discuss the key judgements on the same line. These cases will help us understand consideration. 

Case laws

Let us now take a look at a few case laws to understand the concept of consideration and contract.

Karnataka Power Transmission Corporation Limited vs. JSW Energy Limited (2004)

Facts of the case

In this case, Karnataka Power Transmission Corporation Limited had filed an appeal against the High Court of Karnataka’s order. 

Issues raised

The main issue was whether there was an existing binding contract between Karnataka Power Transmission Corporation Limited and the appellants. Also, whether it was related to tariffs before the Karnataka Electricity Reform Act, 1999 was commenced.

Judgement of the case

When the High Court decided against the Karnataka Power Transmission Corporation Limited they approached the Apex Court of India. The court stated that a contract will only be considered concluded when all parties are Ad Idem on all the essential terms. Ad Idem means that all the parties have agreed to the same thing. For a contract to be concluded there must be a proposal made which has to be accepted. 

There must be a consideration present for the promise that is made. The court mentioned that it is a must to have a consideration. The court then decided to allow a few parts of the appeal made by the Karnataka Power Transmission Corporation Limited. The court set aside the impugned order. The Apex Court also decided to send the case back to the High Court to get a second look at it again. 

Ramachandra Reddy (Dead) Thr. Lrs. & Ors. vs. Ramulu Ammal (Dead) Thr. Lrs. (2024)

Facts of the case

In this case, a deed was executed between two uncles and their niece (Govindammal). As per the deed, ⅔ party of the property was transferred to the niece. It was a way of appreciating her efforts in looking after them. Both the uncles wanted their niece to continue taking their care and their charity work. The property included agricultural land as well. It was included in the deed that the niece would take care of the transferor and their charitable work.

Issues raised

The main issue in this case was whether this transfer of property would be counted as a transfer made out of love and affection or it is a settlement deed.

Judgement of the case

In this case, the Apex Court of India stated that it is not compulsory for the consideration to always be in money. As we have previously also discussed above in the article consideration can be of any type. The Supreme Court observed that in the present case, the property was transferred in favour of Govindammal. The same has taken place because she was the one who was taking care of the transferors. And moving forward she would also be the person to continue doing the charitable work. 

With this case, we can see the versatile nature of consideration. As per Section 2(d) of the Contract Act, it is simply mentioned that consideration can be any valuable benefit. The Supreme Court overturned the decision made by the Madras High Court. It also interpreted consideration which further provided clarity in family settlements and transfer of property disputes. 

The court stressed that consideration can very much be beyond the monetary aspect as well. So if there is a consideration and then a contract it does not matter whether the consideration is in monetary terms or not. The court declared that this transfer was due to love and affection for the niece in return for taking care of her uncles. 

Does this rule apply in 2024 too? We know how fast technology is developing in all fields. What is the position of consideration and the rule of no consideration no contract in 2024?

Let’s see the answer to these questions in the next heading. 

Presence of consideration in the digital age

Consideration is important in both contracts as well as digital contracts. The objective of consideration has always been to make sure that contracts are accepted by all parties invalid. Consideration is also seen in E-commerce. When a payment is made using a digital platform the consumers give consideration that is their information in exchange for availing the services of the online platform. 

We can also see many types of clickwrap contracts and browsewrap contracts when they ask you to click on the ‘I accept’ button. This is nothing but us giving the consideration in exchange for the information available on the platform. 

Did you know that the Information Technology Act, 2000 (IT Act) recognises e-contracts? Yes, you read it right. The e-contracts are considered legally binding as per the IT Act, 2000 if all the essentials which are laid down in the Indian Contract Act, 1872 are fulfilled. After reading this article we are now already aware of how important consideration is for contracts to be considered valid. Similarly for e-contracts also consideration is considered as one of the significant aspects.

Lawmakers and the courts have to ensure and enforce new rules and regulations to address the challenges which might be faced due to considerations in today’s digital age. 

Is India the only country that uses this rule? Let’s find out!

Concept of consideration in the international aspect

We have discussed the rule of no consideration no contract in quite detail in the article above. This discussion mainly focused on the Indian perspective of the rule. Let us now dip our toes into the international aspect of this rule.

A this point in the article we know how important consideration is. The same is followed outside India as well. In all the countries that practice the common law, consideration is and has been since decades considered a vital aspect. Biggies like the United States of America, Australia, Canada and the United Kingdom adhere to the rule of no consideration, no contract. 

Let’s take an example. In the UK consideration is an important requirement when it comes to contracts. However the same is not required in cases of deeds. 

The common forms of consideration present globally are:

  • Monetary consideration,
  • Consideration through any type of goods or services,
  • Forbearance, 
  • Consideration in the form of promises.

In the international aspect as well consideration should be something of value. It is always advisable to consult your legal team before you enter into any contract with any party in a different country. 

Now as we reach towards the end of our articles let’s have a quick recap. 

Key takeaways 

The no consideration, no contract principle is one of the key principles in contract law in India. This rule helps each party to the contract to reap benefits or bear losses when a promise is made and such exchange of promise is voluntary in nature. The contract is considered valid when there is a consideration from both ends. 

The presence of consideration is very significant. However there are certain exceptions laid down in the Indian Contract Act of 1872 such as love and affection, charity, gift, promise to pay for past voluntary service done gratuitously, promise to pay a time-barred debt, or remission.

Frequently Asked Questions (FAQs)

What are the features of consideration?

The features that I am going to tell you now are very important. The consideration should always be real and legal. There can be chances where the consideration is inadequate but that works. The promisor must also have the desire to give consideration. If someone gives consideration to a thing which is their duty then it won’t be counted. Consideration can be in future, past or present. 

What are the different types of considerations in India?

There are three types of consideration that are accepted in India which are present consideration, past consideration and future consideration. 

The first type of consideration is called present consideration or executed consideration. We can know by the name itself what it means. This type of consideration is present when the promise is being made. 

Our next consideration is past consideration. Here the consideration is given before the promise is completed. For example, A has helped B with his car. B will pay for the same after 3 months. Now if there is a past and present, you might think there is a future consideration too right? You are not wrong. 

When there is a consideration that the promise will be fulfilled on a future date. 

What are the exceptions to the rule of no consideration, no contract?

The rule of no consideration, no contract has some exception where in spite of the absence of consideration the contract is considered valid. The exceptions are when an agreement is based on love and affection, gift, remission, promise to pay for past voluntary service done gratuitously, charity, or promise to pay a time-barred debt. 

Is it important to have consideration when creating an agency?

When an agency is created no consideration is required as per Section 185 of the Indian Contract, 1872.

Is past consideration considered under the Indian Contract Act1872?

Past consideration is considered valid in India. Section 2(d) of the Indian Contracts Act mentioned that consideration can be in the present, past and future. A past consideration is fully acceptable in India. 

Should consideration also be adequate?

In India, the contract is considered void if there is inadequate consideration. When the consideration is inadequate the courts look into the matter and find out if the consent was given freely or not. 

For example, my father had bought a car for 25 lakhs. After 2 years he agrees to sell the car only for 5 lakhs to his office assistant. Here as compared to the buying price the selling price is too low. If my father reaches the court and states that there was force used in making this contract. The court will look into it and find out whether there was free consent or not. 

Can consideration be implied?

Yes, consideration can be implied. The Indian Contract Act, 1872 considers implied consideration as valid consideration. For instance, Abhay and Shivang are two friends. Abhay has a food place, which Shivang visits regularly. Shivang is a plumber. Every time he visits in exchange for food he provides the plumbing service. 

Here there is no express contract signed. However, there has been an implied understanding that Abhay will give food and Shivang will in exchange look after the plumbing. This is beneficial for both and is an implied consideration. 

References

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