Consideration & Privity of Contract — KSLU Contract I Notes

Consideration

The law will not enforce a bare promise to give you a gift — but it will enforce a promise to sell you a phone for ₹1. The difference is consideration: the law asks every promise, “what are you getting in return?” A promise with nothing in return is a nudum pactum — a naked promise — and the courts leave it naked. This is the single most-asked topic in Unit 1, so it repays real mastery.

The price of a promise

Consideration (s.2(d)): when, at the desire of the promisor, the promisee or any other person does or abstains from doing, or promises to do or abstain from doing, something — such act, abstinence or promise is the consideration. Sir Frederick Pollock’s classic phrase: consideration is “the price for which the promise of the other is bought.”

A. Essentials of valid consideration.

It must move at the desire of the promisor — an act done at a stranger’s desire, or voluntarily, is no consideration (Durga Prasad v Baldeo (1880)).
It may move from the promisee or any other person — this is the Indian rule that lets a stranger to the consideration sue (Chinnaya v Ramayya (1882)), different from English law.
It may be past, present (executed) or future (executory) — Indian law recognises past consideration, unlike English law.
It need not be adequate, but must be real and of some value (Explanation 2 to s.25) — courts do not weigh the fairness of the bargain, only its existence.
It must be lawful (s.23) — see below.

B. “No consideration, no contract” — Section 25 and its exceptions.

The general rule (s.25) is that an agreement made without consideration is void. But s.25 itself and other provisions carve out important exceptions, where a promise binds even without consideration:

Natural love and affection — a written and registered promise between parties in near relation (s.25(1)).
Past voluntary service — a promise to compensate someone who has already voluntarily done something for the promisor (s.25(2)).
Time-barred debt — a written, signed promise to pay a debt barred by limitation (s.25(3)).
Completed gift (Explanation 1 to s.25) — a gift actually made is valid.
Agency (s.185) — no consideration is needed to create an agency.
Bailment, charity acted upon, and a guarantee in some readings.

C. Unlawful consideration and object — Section 23.

Even where consideration exists, the agreement is void if the consideration or object is unlawful — that is, if it is (a) forbidden by law; (b) of such a nature that it would defeat the provisions of any law; (c) fraudulent; (d) involves injury to person or property; or (e) is regarded as immoral or opposed to public policy. (Public policy and legality of object are developed in Unit 2.)

D. E-contracts — a modern note.

A contract formed electronically — by email, website “I agree” click-wraps, or shrink-wraps — is as valid as any other; the offer, acceptance and consideration rules apply online too, and s.10A of the Information Technology Act, 2000 confirms that a contract is not unenforceable merely because it was made electronically.

💡 EXAM TIP — “no consideration” needs its exceptions.

The trap. Stating only the s.25 rule (“an agreement without consideration is void”) and stopping there. What to write. The rule plus all five exceptions, each with a one-line illustration — natural love + registered writing (s.25(1)), past voluntary service (s.25(2)), time-barred debt (s.25(3)), completed gift, and agency (s.185). Why it scores. This question recurs almost every year, and the marks sit in the exceptions, not in the bare rule.

🧩 WORKED EXAMPLE — a registered promise out of love.

Facts. A, out of natural love and affection, promises in a registered document to give his son B ₹1,000. A later refuses. Is it a valid contract?

Rule. A promise without consideration is void (s.25), except a written and registered promise made out of natural love and affection between parties in near relation (s.25(1)).

Apply. The parties are father and son (near relation), the promise is out of natural love and affection, and it is in a registered document.

Conclusion. The agreement is valid and enforceable under s.25(1).

Section 2(d), Indian Contract Act, 1872: “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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”

In Simple Terms: consideration is what each side gives to get the other’s promise — the “something in return” without which the law treats a promise as a mere gift it will not enforce.

flowchart TD
    CON["Consideration (s.2d) — the price of the promise"]
    CON --> E1["At the promisor's desire (Durga Prasad)"]
    CON --> E2["From promisee OR any other person (Chinnaya v Ramayya)"]
    CON --> E3["Past / present / future — need not be adequate but must be real"]
    CON --> RULE["s.25: no consideration = VOID"]
    RULE --> EX["Exceptions: love+registered (25-1); past voluntary service (25-2); time-barred debt (25-3); completed gift; agency"]

Case Laws

[C-3] Chinnaya v Ramayya (1882) — consideration may move from a third party, so a stranger to the consideration can enforce the promise in India.
Durga Prasad v Baldeo (1880) — consideration must move at the promisor’s desire; an act done at a third party’s request is no consideration.
Kedarnath v Gorie Mohamed (1886) — a promised subscription became enforceable once the promisee incurred liability on its faith (consideration by acting on the promise).

Privity of Contract

Two people sign a deal that is meant to benefit you — but you never signed it. If they break it, can you sue? The doctrine of privity says the contract is a private affair between the people who made it, and outsiders — however much they stood to gain — usually cannot enforce it. The twist that trips students is that India separates privity of contract from privity of consideration.

A contract is a private affair

The doctrine of privity of contract means that only a party to a contract can sue or be sued on it; a stranger to the contract, even a beneficiary, cannot enforce it (Dunlop Pneumatic Tyre Co. v Selfridge (1915); in India, Jamna Das v Ram Autar).

But note the crucial Indian distinction:

Privity of consideration — India does not require it; consideration may move from a third party, so a stranger to the consideration may sue (Chinnaya v Ramayya (1882)).
Privity of contract — India does apply it; a stranger to the contract cannot sue. Hence the exam line: “a stranger to consideration may sue, but a stranger to the contract cannot.”

A. Exceptions — when a stranger to the contract CAN sue.

Beneficiary of a trust or charge on property.
Marriage settlement, partition or other family arrangement made for the benefit of a person (Chinnaya v Ramayya (1882)).
Acknowledgement or estoppel — where a party admits liability to the third person by conduct.
Assignment of a contract (the assignee may sue).
Agency — a principal may sue on a contract made by his agent.

🧩 WORKED EXAMPLE — the gift-deed annuity.

Facts. An old lady gifts land to her daughter on condition that the daughter pay an annuity to the lady’s sister. The daughter later refuses. Can the sister (who gave no consideration and did not sign) sue?

Rule. Consideration may move from a third party, and a beneficiary under a family/marriage arrangement is an exception to privity (Chinnaya v Ramayya (1882)).

Apply. The sister is a beneficiary of a family arrangement; though a stranger to the consideration and the deed, she falls within the exception.

Conclusion. The sister can sue to enforce the annuity.

On privity (Dunlop v Selfridge, 1915): “Only a person who is a party to a contract can sue on it.” Read in India together with s.2(d), which allows consideration to move from “any other person.”

In Simple Terms: you must be in the contract to sue on it — but in India you need not have personally paid for the promise, so long as someone did.

flowchart TD
    PR["Privity"]
    PR --> PC["Privity of CONTRACT — applies in India: stranger to contract CANNOT sue"]
    PR --> PCon["Privity of CONSIDERATION — NOT required: stranger to consideration CAN sue (Chinnaya v Ramayya)"]
    PC --> EX["Exceptions: trust/beneficiary; marriage/family settlement; acknowledgement/estoppel; assignment; agency"]

Case Laws

[C-3] Chinnaya v Ramayya (1882) — a beneficiary under a family arrangement may sue though a stranger to the consideration; the leading Indian exception.
Dunlop Pneumatic Tyre Co. v Selfridge (1915) — a stranger to the contract cannot sue on it, even if it was made for his benefit (the doctrine of privity).

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