No Consideration, No Contract: Key Principle in Contract Law Explained

No Consideration, No Contract – A Fundamental Principle of Contract Law

Introduction

The principle of "No Consideration, No Contract" is one of the most fundamental doctrines in contract law. It states that for an agreement to be legally enforceable, there must be consideration—something of value exchanged between the parties. Consideration can be money, goods, services, or even a promise to do or not do something.

Under Section 25 of the Indian Contract Act, 1872, an agreement without consideration is void unless it falls within specific exceptions. This principle ensures that contracts are made with genuine intention and mutual obligation, preventing one-sided or gratuitous promises from becoming legally binding.

This article will explore the meaning, importance, legal provisions, exceptions, and case laws related to the principle of "No Consideration, No Contract" in Indian law.

Understanding Consideration in Contract Law

Definition of Consideration

According to Section 2(d) of the Indian Contract Act, 1872, consideration is defined as:

"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 or promise is called a consideration for the promise."

In simpler terms, consideration is the price paid for a promise. Without it, a contract cannot be legally enforced.

Essentials of Consideration

1. It must be given at the desire of the promisor – A voluntary act does not qualify as consideration unless the promisor requests it.

1. It may come from the promisee or any other person – In India, even a third party can provide consideration, making the contract valid.

1. It can be past, present, or future – Consideration can be something already done (past), currently being done (present), or promised to be done later (future).

1. It must have value in the eyes of the law – Consideration must be real and measurable, though its adequacy is not questioned.

1. It must not be unlawful – If consideration involves an illegal act, the contract becomes void.

Legal Principle: No Consideration, No Contract

Section 25 of the Indian Contract Act, 1872

The Indian Contract Act, 1872 states that an agreement made without consideration is void. Section 25 explicitly mentions that a contract cannot be enforced unless it has valid consideration, except in certain exceptional cases.

This principle ensures that gratuitous promises or one-sided agreements do not become legally binding, thereby protecting parties from unjust obligations.

Exceptions to the Rule of No Consideration, No Contract

While consideration is an essential element, Indian law recognizes certain exceptions where an agreement without consideration remains valid. These include:

1. Agreements Made on Natural Love and Affection

Under Section 25(1), a written and registered agreement made between close family members out of love and affection is valid, even without consideration.

Example: A father promises to gift his son ₹1,00,000 and registers the agreement. The contract is enforceable despite no consideration.

2. Promise to Compensate for Past Voluntary Services

According to Section 25(2), a promise to compensate someone for voluntary services provided in the past is valid if:

• The service was provided voluntarily.

• The promisor benefited from the service.

• The promisor later promises to compensate the service provider.

Example: A person saves another from drowning. Later, the rescued person promises to pay a reward. The contract is enforceable.

3. Promise to Pay a Time-Barred Debt

Under Section 25(3), if a person makes a written and signed promise to pay a debt that is legally unenforceable due to the lapse of the limitation period, it becomes binding.

Example: X owes Y ₹50,000, but Y fails to claim it within the limitation period. If X later writes and signs a promise to pay, the contract is enforceable.

Judicial Interpretations of Consideration

1. Chinnaya v. Ramayya (1882)

Facts: A mother gifted land to her daughter with the condition that she would pay an annuity to her uncle. The daughter later refused, arguing that there was no consideration between her and the uncle.

Held: The court ruled that consideration could move from a third party, making the contract valid.

2. Abdul Aziz v. Masum Ali (1914)

Facts: A person promised to donate money for building a mosque but later refused.

Held: Since there was no consideration, the contract was void.

3. Kedarnath v. Gorie Mohammad (1886)

Facts: A person promised to donate money for constructing a town hall, and work began based on this promise. Later, he refused to pay.

Held: The court ruled that since the Promisee acted on the promise, it constituted valid consideration, making the contract enforceable.

Importance of Consideration in Contract Law

1. Ensures Fairness – Prevents people from being legally bound by mere verbal promises.

1. Encourages Reciprocity – Ensures both parties contribute something valuable.

1. Reduces Fraud – Protects against false claims based on unenforceable promises.

1. Provides Legal Certainty – Defines clear rules for contract enforceability.

When Consideration is Inadequate or Unlawful

1. Inadequacy of Consideration

Courts do not question the adequacy of consideration as long as it exists. However, if one party is forced into an unfair bargain, the contract may be set aside.

Example: If A sells a house worth ₹50 lakhs for ₹5 lakhs under undue influence, the court may intervene.

2. Unlawful Consideration

If the consideration is illegal, the contract is void under Section 23 of the Indian Contract Act, 1872.

Examples:

• A contract to smuggle goods is void.

• A contract to commit fraud is unenforceable.

Comparative Analysis: India vs. English Law

Aspect	Indian Law	English Law
Consideration from a Third Party	Valid	Not valid
Past Consideration	Valid	Not recognized
Moral Obligation	Sometimes enforceable	Not enforceable

This comparison highlights that Indian law provides broader protection, especially in cases involving past consideration and third-party involvement.

Conclusion

The doctrine of No Consideration, No Contract is a fundamental principle that ensures contracts are based on mutual obligations. While consideration is generally required, Indian law provides exceptions for agreements based on natural love and affection, past voluntary services, and time-barred debts.

Judicial interpretations further clarify the scope of consideration, ensuring fairness and preventing unjust claims. Ultimately, this principle safeguards contractual obligations, promotes reciprocity, and enhances legal certainty in commercial and personal transactions.

FAQs

1. Can a contract be valid without consideration?

Generally, no. However, exceptions include natural love and affection, past voluntary services, and promises to pay time-barred debts.

2. What is past consideration?

Past consideration refers to an act done before the promise is made. It is valid in India but not in English law.

3. Can consideration be something other than money?

Yes, it can be an act, abstinence, promise, or anything of value agreed upon by the parties.

4. Is a gift a valid contract?

No, unless it is a registered gift deed, as gifts do not involve consideration.

5. What happens if consideration is illegal?

If the consideration is illegal, the contract is void and unenforceable.