Introduction. The foundational rule of contract law stated in Section 25 of the Indian Contract Act, 1872 is that an agreement without consideration is void. The doctrine “No consideration, no contract” emphasizes that consideration is the essential element that transforms a mere promise into a legally enforceable obligation. Consideration ensures reciprocity, seriousness of intention, and fairness between the parties. Without consideration, a promise remains a moral duty rather than a legal one. This principle reflects the traditional Latin maxim Ex nudo pacto non oritur actio, meaning “no action arises from a bare promise.”
Meaning of Consideration (Sec. 2(d))
Section 2(d) defines consideration as an act, abstinence, or promise performed at the desire of the promisor. This act may be executed by the promisee or by any third person. Consideration may be past, present, or future and represents something of value that each party brings to the agreement. It may be monetary, an act, abstention, or even a promise to undertake a future obligation. Thus, consideration forms the basis of mutuality between contracting parties.
Essentials of Valid Consideration
- Must move at the desire of the promisor: Only acts performed at the promisor’s request are valid consideration. If the act is voluntary or initiated by a stranger, it does not constitute consideration.
- May move from the promisee or any other person: Indian law departs from English law by allowing consideration to move even from a third party, provided the promisor has desired such act.
- May be past, present, or future: Indian law accepts voluntary past services, simultaneous consideration, and future obligations as valid forms.
- Must be real and lawful: Consideration must possess some measurable value in the eyes of law. Illusory, impossible, or unlawful consideration renders the agreement void.
- Adequacy is immaterial: Courts do not examine adequacy of consideration. A minor or unequal exchange does not affect validity as long as the consent is free.
General Rule — “No Consideration, No Contract”
Section 25 categorically declares that agreements without consideration are void. This rule preserves the sanctity and seriousness of contractual relationships. It prevents frivolous, emotional, or casual promises from being taken to court. Only promises supported by an exchange of value become legally enforceable contracts.
Exceptions to the Rule (Section 25)
Despite the rigidity of the doctrine, the law acknowledges that certain promises deserve legal recognition even without consideration. Therefore, Section 25 creates specific statutory exceptions to uphold justice, equity, and genuine obligations.
1. Promise Made on Account of Natural Love and Affection
This applies when the promise is motivated by genuine natural love and affection between parties who share a close relationship. To be enforceable, the promise must be in writing, registered, and made voluntarily. Courts require evidence of harmonious relations; mere blood relation is insufficient.
Illustration: A father executes and registers a written document promising to give his daughter ₹50,000. The promise becomes enforceable.
2. Promise to Compensate for Past Voluntary Services
When a person voluntarily performs an act for another, and the benefiting party later promises to compensate, such a promise becomes valid. The voluntary act must be for the promisor’s benefit and not gratuitous.
Illustration: A saves B’s goods during a flood. B later promises to pay A ₹10,000. The promise is binding.
3. Promise to Pay Time-Barred Debt
Under the Limitation Act, creditors cannot recover debts after expiration of the limitation period. However, if the debtor voluntarily issues a written and signed promise to repay such debt, the promise becomes legally enforceable.
Illustration: A signs a written promise to repay an old debt of ₹5,000 after it becomes time-barred. The promise is valid.
4. Completed Gifts
Once a gift is completed, it does not require consideration. Transfer of ownership through a completed gift remains valid even though the donor receives nothing in return.
Note: The promise to give a gift in future is not enforceable.
5. Agency (Section 185)
Consideration is not required to create an agency. Appointment of an agent may be valid even without payment or reward.
6. Guarantee
A contract of guarantee is valid even without consideration between the creditor and the surety. The benefit received by the principal debtor is treated as sufficient consideration.
Extended Explanation and Importance
Consideration is essential because it ensures reciprocity and mutual obligation. The rule prevents misuse of courts for enforcing merely moral or social promises. At the same time, the exceptions under Section 25 strike a balance by recognising obligations arising from affection, past benefits, and equitable considerations. These exceptions uphold fairness, family obligations, and justice.
The principle also ensures that parties cannot enforce promises that lack seriousness or contractual intention. Thus, it acts as a safeguard against fraudulent or frivolous claims.
Conclusion: The doctrine “No consideration, no contract” forms the backbone of Indian contract law. While consideration is generally essential, Section 25 recognises important exceptions where promises may be enforced even without consideration. These exceptions uphold equity, fairness, and genuine obligations while maintaining the integrity of the contractual framework.