Agreements without consideration

Agreements Without Consideration

Edited By Ritika Jonwal | Updated on Jul 02, 2025 05:49 PM IST

Section 10 of the Indian Contract Act, of 1872 states that an agreement is deemed legitimate if it is made with the free consent of legally competent parties, for a lawful consideration, and with lawful intent, and it is not specifically declared unlawful herein. The requirements for a legitimate contract are outlined in this section. Therefore, consideration is a crucial component of the agreement.

This Story also Contains

What is Consideration?
Rules on "No Consideration No Contract" Exceptional Circumstances
Characteristics of Consideration
Conclusion

Agreements Without Consideration

"No consideration, no contract" refers to a contract being null and invalid without compensation under Sections 10 and 25 of the Indian Contract Act. However, several circumstances listed in Section 25 of the Contract Act prevent a contract signed in exchange for nothing from becoming invalid.

For example: A pledged to paint B's house for five thousand rupees. Here, B is offering A Rs. 5,000 as payment for the latter's pledge to paint her home. This is not an instance of a considerationless agreement because each party is contributing something worthwhile to the other parties.

What is Consideration?

According to Section 2(d) of the Indian Contract Act, 1872, an act, abstinence, or promise made at the request of the promisor and performed or abstained from performing, or promised to perform or abstain from performing something, is considered a consideration for the promise.
To put it more simply, consideration is something of value that is pledged or provided by one party to another in return for fulfilling a commitment.
Although consideration is most often associated with money, it may also relate to a specific action or a pledge not to do a certain action.
Each participant must benefit in some manner from the other parties participating in this two-way street.

Rules on "No Consideration No Contract" Exceptional Circumstances

A contract that is executed without consideration is invalid. Section 25 of the Indian Contract Act, however, lists a few instances when an agreement without compensation is lawful. Among them are:

Voluntary Services

Agreements without consideration that are created when a person offers a service willingly and promises anything in return are legally binding. Furthermore, any promise associated with the performance of an activity that the promisor was legally required to undertake is deemed legitimate.

Example: Contract that is voidable due to lack of consideration - Assume that A and B are two people who live next door. One day, A saw the fire at B's house in time to prevent it from spreading. As a result, B agreed to give A Rs. 10,000 at a later time. A court will deem this to be one of the agreements without considering that is legitimate.

Natural Love and Affection

Agreements made out of love and affection between people who are closely related or directly related by blood are recognised under Section 25(1) of the Indian Contract Law without regard to consideration. Such agreements need to be in writing and properly registered in order to be enforceable.

For instance, C promised to give his brother D a specific amount of money each day for a year. A written contract was created and filed with the court. As a result, agreements without consideration arise in which C owes D that amount of money.

Gifts and Charity

Another exception to the general rule that an agreement is voidable without compensation is a gift or charity. Legally, even if there was no consideration involved, every gift or charity given between a donor and one will be regarded as a legitimate agreement. In addition, a pledge to contribute to the future is enforceable.

Promise to pay a Time-Barred Debt

Time-barred One sort of debt that results from someone borrowing money from another party and not paying it back on time is called debt. After a specific period, it can no longer be lawfully collected.

Even though it is an agreement without consideration, it will be deemed legally binding if the borrower, or his authorised representative, signed the document and made a written pledge to refund the entire sum, in whole or in part.

Creation of an Agency

The Indian Contract Act, 1872 states in section 185 that no compensation is required in order to establish an agency.

Past Voluntary Services

If the beneficiary agrees to make payments at a later time and the individual has already performed volunteer work, the agreement is legally enforceable as long as:

In the past, the service was provided voluntarily.
It was supplied to the guarantee.
When the volunteer service was performed, the promisor was already established (particularly when the promisor is an organisation)
The pledgee indicated his readiness to pay for the unpaid labour.

Bailment

The conveyance of commodities from one person to another for a specific purpose is defined as a bailment under Section 148 of the Indian Contract Act, of 1872. This delivery is based on an agreement that, after the goal is achieved, the items will either be returned or disposed of under the instructions of the person who delivered them. A contract of bailment can be executed without any compensation.

Charity

A contract is legitimate if one party accepts responsibility for another's pledge to make charitable contributions. The no consideration no contract rule is not applicable in this situation.

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Characteristics of Consideration

An admissible consideration needs to possess the following characteristics:

Consideration Should be Actual: Since an agreement without consideration is void, the consideration given by the two parties in a contract must be genuine or credible. There shouldn't be any illicit activity involved. When something is illegal, fraudulent, unethical, or has the potential to harm someone or their property, it is considered an unreal consideration.
It May Involve a Third Party: If the promisor has no objections, the promisee may give consideration to the promisor or a third party in accordance with the Indian Contract Act of 1872. But then the third party has the right to sue the parties to the contract.
The promisor's desire should be the basis for consideration: In a contract, consideration can only be given at the promisor's request or wish. A voluntary service will not be considered a consideration, and the one providing it cannot demand another service in exchange. For example, if A willingly cared for B while she was ill, then A cannot be compensated for such care. Furthermore, a contract cannot exist without consideration.
Types of Consideration: Three categories of factors may be included in a contract after it has been draughted: past, present, and future. The terms "executed" and "executor" refer to the current and future considerations, respectively. As the term implies, an executed consideration is one that the party committing has already carried out. Conversely, an executory consideration is a service that one of the contractual parties has promised but has not yet provided.

Conclusion

The Indian Contract Act's Section 10 discusses lawful consideration, and Section 2(d) defines consideration in detail, making it abundantly evident that consideration is a crucial component of a legally enforceable agreement. As a result, the majority of agreements made without giving anything thought never come to be considered contracts. Nonetheless, there are situations in which a legitimate contract can be formed notwithstanding inadequate contemplation or its lack thereof. Section 25 of the Indian Contract Act lists certain exclusions. The Indian Contract Act's Section 185 allows for the establishment of agencies without the need for consideration, hence there are more situations in which the principle "no consideration, no contract" does not apply.

Frequently Asked Questions (FAQs)

1. What does "agreement without consideration" mean in Section 25?

Section 25: An agreement without compensation is null and void unless it is recorded in writing, contains a commitment to make good on anything done, or includes a pledge to pay off a debt that is prohibited by the statute of limitations. 26. Null and invalid agreement restricting marriage.

2. Does a contract have to be complied with?

A business contract will be deemed unlawful and unenforceable if there is no consideration. Because of this, it is vital that thought be exchanged within the first stages of contract draughting. It's crucial to remember that consideration is not dependent on equality to be legitimate.

3. What is Nudum Pactum, or an agreement without consideration?

India has a legal maxim known as "Nudum Pactum," which means the following: A nude contract, without consideration. In Latin, nudum pactum literally translates to "bare promise" or "naked promise." It describes a commitment that lacks thought and is therefore not enforceable under common law.

4. Is a contract that doesn't include consideration acceptable?

Section 185: Establishing an agency does not need consideration. A contract is void if there is no consideration, however, this is an exception to the norm. However, under this exemption, a contract without consideration is deemed to be enforceable. It implies that consideration is not required for the nomination of an agent.

5. Without consideration, what is an agreement?

Without consideration, an agreement is null and invalid: It must be made in writing, registered under the legislation now in effect for the registration of, and justified by the parties' natural love and affection for one another, or else it cannot be created.

6. How does the concept of "consideration" differ in common law and civil law systems?

In common law systems, consideration is generally required for a contract to be enforceable. In civil law systems, the concept of "cause" is often used instead, which is broader and doesn't always require an exchange of value. This means that some agreements without consideration in common law might be enforceable in civil law jurisdictions.

7. What is the role of nominal consideration in agreements?

Nominal consideration is a very small amount (like $1) used to satisfy the requirement of consideration in a contract. While courts generally don't inquire into the adequacy of consideration, extremely nominal consideration may be scrutinized if it appears to be a sham or pretense, especially in agreements without substantial consideration.

8. Can a unilateral contract be an agreement without consideration?

No, a unilateral contract is not an agreement without consideration. In a unilateral contract, one party makes a promise in exchange for an act by the other party. The act itself serves as consideration, making it a valid contract with consideration.

9. What is a gratuitous promise?

A gratuitous promise is a promise made without any expectation of receiving something in return. These promises are typically not legally enforceable unless they fall under specific exceptions or are made enforceable through other legal doctrines like promissory estoppel.

10. Can a promise to perform a pre-existing duty be considered valid consideration?

Generally, a promise to perform a pre-existing duty is not considered valid consideration because it doesn't involve giving up anything new. However, there are exceptions, such as when the promise involves doing something beyond the pre-existing duty or when it settles a genuine dispute about the duty.

11. Are all agreements without consideration unenforceable?

No, not all agreements without consideration are unenforceable. There are specific exceptions where the law recognizes certain agreements as valid even without consideration, such as certain promises made under seal, promises to pay a debt barred by the statute of limitations, or promises made in recognition of a moral obligation.

12. What is the doctrine of promissory estoppel?

Promissory estoppel is a legal principle that can make a promise enforceable even without consideration. It applies when one party reasonably relies on another's promise to their detriment, and enforcing the promise is necessary to avoid injustice.

13. What is an agreement without consideration?

An agreement without consideration is a contract where one party promises to do something without receiving anything in return. In most cases, these agreements are not legally enforceable because consideration (something of value exchanged) is typically required for a valid contract.

14. Can a promise to make a gift be enforced?

Generally, a promise to make a gift is not enforceable because it lacks consideration. However, if the promisee relies on the promise and takes action based on that reliance (known as promissory estoppel), the court may enforce the promise to prevent injustice.

15. What is the difference between a gift and an agreement without consideration?

A gift is a voluntary transfer of property from one person to another without any expectation of receiving something in return. An agreement without consideration, on the other hand, involves a promise to do something without receiving anything in return, but it may still create certain legal obligations under specific circumstances.

16. What is the "bargain theory" of consideration and how does it relate to agreements without consideration?

The bargain theory of consideration states that consideration exists if it was bargained for – that is, if it was sought by the promisor in exchange for the promise. This theory helps explain why some agreements without apparent consideration might still be enforceable if they were part of a bargained-for exchange.

17. How does the concept of "good consideration" differ from "valuable consideration"?

"Good consideration" is an older term that refers to consideration based on natural love and affection or moral duty. "Valuable consideration" refers to something of economic value. Modern contract law generally requires valuable consideration, with good consideration only being relevant in specific exceptions or historical contexts.

18. How does the concept of "consideration" apply in multi-party agreements?

In multi-party agreements, consideration must flow from each party to each other party they're making promises to. This can sometimes create complex situations where some parties' promises might lack consideration, potentially making parts of the agreement unenforceable.

19. What is the role of "nominal consideration" in option contracts?

Nominal consideration (like $1) is often used in option contracts to make them enforceable. While courts generally don't inquire into the adequacy of consideration, extremely nominal consideration in option contracts may be scrutinized if it appears to be a sham.

20. How do courts interpret "consideration" in the context of settlement agreements?

In settlement agreements, courts often find consideration in the mutual promises to forgo legal claims. Even if one party's claim seems weak, the promise to forgo it is usually seen as valid consideration, distinguishing settlements from simple agreements without consideration.

21. What is a "seal" in contract law, and how does it relate to consideration?

A seal is a mark or impression traditionally used to authenticate documents. In some jurisdictions, a contract made under seal (also known as a specialty contract or deed) is enforceable without consideration. However, the use of seals in modern contract law has largely been abolished or reduced in significance.

22. How does the statute of frauds affect agreements without consideration?

The statute of frauds requires certain types of contracts to be in writing to be enforceable. While it doesn't directly address consideration, it can impact agreements without consideration by requiring them to be in writing if they fall under the statute's categories, such as promises to pay another's debt.

23. How do courts view promises made "in consideration of marriage"?

Promises made in consideration of marriage are typically enforceable, but they must be in writing to satisfy the Statute of Frauds in most jurisdictions. The act of marriage itself is considered valuable consideration, distinguishing these from agreements without consideration.

24. What is the "duty to mitigate" and how does it relate to agreements without consideration?

The duty to mitigate requires a party to take reasonable steps to minimize their losses in case of a breach. While not directly related to consideration, it can affect the enforceability and damages in cases where agreements without consideration are found enforceable through other doctrines.

25. Can a promise to perform a "conditional gift" be enforced?

A conditional gift is a promise to give something if a certain condition is met. While gifts generally don't require consideration, if the condition requires significant action by the recipient, courts may treat it as a unilateral contract with the action serving as consideration.

26. What is the "doctrine of incorporation" and how does it relate to consideration in agreements?

The doctrine of incorporation allows a signed document to incorporate other documents by reference, making them part of the agreement. This can affect consideration by including terms or promises from other documents, potentially turning what appears to be an agreement without consideration into an enforceable contract.

27. How does the concept of moral obligation relate to agreements without consideration?

In some cases, a moral obligation can serve as a substitute for consideration, making an agreement enforceable even without traditional consideration. This typically applies to promises to pay debts that are no longer legally enforceable due to bankruptcy or the statute of limitations.

28. Can past consideration make an agreement without consideration enforceable?

Generally, past consideration is not sufficient to make a new promise enforceable. Past consideration refers to something that has already been done before the current promise was made. However, there are exceptions, such as when the past act was done at the promisor's request with an understanding that it would be compensated.

29. How does the concept of "love and affection" factor into agreements without consideration?

In most jurisdictions, love and affection alone are not considered sufficient consideration to make a promise legally binding. However, in some cases involving family relationships, courts may be more lenient in finding consideration or may apply other doctrines to enforce promises made based on love and affection.

30. What is the difference between a void agreement and an agreement without consideration?

A void agreement is one that is not legally binding from the outset, often due to illegality or impossibility. An agreement without consideration may or may not be enforceable, depending on whether it falls under any exceptions. Some agreements without consideration are voidable, meaning they can be enforced unless the party against whom enforcement is sought chooses to void it.

31. What is the role of intent in agreements without consideration?

Intent plays a crucial role in determining whether an agreement without consideration should be enforced. Courts often look at whether the parties intended to create legal relations. In some cases, a clear intention to be bound can help enforce an agreement even without traditional consideration.

32. How do courts interpret charitable pledges in the context of agreements without consideration?

Courts often treat charitable pledges as an exception to the consideration requirement. Many jurisdictions enforce charitable pledges even without consideration, based on public policy favoring charitable giving. Some courts use theories like detrimental reliance or moral obligation to justify enforcement.

33. What is the "peppercorn theory" of consideration?

The "peppercorn theory" refers to the idea that courts generally don't inquire into the adequacy of consideration as long as some consideration exists. Even a peppercorn (a trivial item) could theoretically serve as consideration. However, this theory has limits, especially when the consideration is so nominal that it appears to be a sham.

34. How does the concept of "illusory promises" relate to agreements without consideration?

An illusory promise is a promise that appears to be a commitment but actually imposes no real obligation on the promisor. While not exactly the same as an agreement without consideration, illusory promises often fail for lack of consideration because one party hasn't actually committed to anything of value.

35. Can a promise to accept less than the full amount owed (accord and satisfaction) be enforced without new consideration?

Traditionally, a promise to accept less than the full amount owed required new consideration to be enforceable. However, many jurisdictions now recognize exceptions to this rule, especially in cases of genuine disputes or financial hardship, even without new consideration.

36. How does the concept of "mutual promises" relate to consideration in agreements?

Mutual promises can serve as consideration for each other in bilateral contracts. Each party's promise is the consideration for the other's promise. This is different from agreements without consideration where only one party is making a promise without receiving a promise or performance in return.

37. What is the "benefit-detriment theory" of consideration?

The benefit-detriment theory states that consideration exists when the promisor receives a benefit or the promisee suffers a detriment. This theory helps explain why some agreements without apparent consideration might still be enforceable if they involve a benefit or detriment to the parties involved.

38. How do courts view promises to keep offers open (option contracts) in terms of consideration?

Promises to keep offers open typically require consideration to be enforceable. Without consideration, such promises are generally revocable. However, in some jurisdictions, option contracts may be enforceable without consideration if they are in writing and signed, or if reliance can be shown.

39. Can a promise to perform a public duty serve as consideration?

Generally, a promise to perform a public duty (like reporting a crime) cannot serve as consideration because it's already legally required. However, if the promise goes beyond the public duty or involves a specific benefit to the promisor, it might be considered valid consideration.

40. How does the concept of "past consideration" differ from "executed consideration"?

Past consideration refers to actions that have already been completed before a promise is made and generally cannot serve as consideration for that promise. Executed consideration, on the other hand, refers to an exchange that has already taken place at the time of contract formation and is valid consideration.

41. What is the "pre-existing duty rule" and how does it relate to agreements without consideration?

The pre-existing duty rule states that performing a duty you're already legally obligated to perform cannot serve as consideration for a new promise. This rule often comes into play in agreements without consideration, as it can invalidate attempts to create new obligations without new consideration.

42. How do courts treat promises made in recognition of a moral obligation?

Some courts recognize moral obligation as a substitute for consideration in specific circumstances. This often applies to promises to pay debts that are no longer legally enforceable due to bankruptcy or statute of limitations. The rationale is that the moral duty to pay creates a form of consideration.

43. Can a promise to refrain from doing something serve as consideration?

Yes, a promise to refrain from doing something you have a legal right to do (forbearance) can serve as valid consideration. This is different from agreements without consideration because the promisor is giving up a legal right, which courts recognize as valuable.

44. How does the concept of "adequacy of consideration" apply to agreements?

Courts generally don't inquire into the adequacy of consideration, focusing instead on whether any consideration exists. However, in cases of agreements without substantial consideration, courts may scrutinize the agreement more closely to ensure it's not a sham or unconscionable.

45. How do courts treat promises made in a business context versus a social or family context?

Courts are generally more likely to find enforceable contracts in a business context, even with minimal consideration. In social or family contexts, courts may be more skeptical of enforcing promises, often requiring clearer evidence of intent to create legal relations or falling back on doctrines like promissory estoppel.

46. Can a promise to perform a voidable obligation serve as consideration?

Yes, a promise to perform a voidable obligation can serve as valid consideration. This is because a voidable contract is still valid until it's voided, so promising to perform it can be seen as giving up the right to void the contract, which courts recognize as valuable.

47. Can a promise to accept partial payment of a debt in full satisfaction be enforced without new consideration?

Traditionally, such promises required new consideration to be enforceable under the "pre-existing duty rule". However, many jurisdictions now recognize exceptions, especially in cases of genuine disputes or financial hardship, allowing enforcement even without new consideration.

48. How do courts interpret "performance of a pre-existing duty" in the context of consideration?

Generally, performance of a pre-existing duty cannot serve as consideration for a new promise. However, if the performance goes beyond the pre-existing duty or involves a benefit to the promisor not required by the original duty, it may be considered valid consideration.

49. What is the role of "reliance" in enforcing agreements without consideration?

Reliance plays a crucial role through the doctrine of promissory estoppel. If one party reasonably relies on a promise to their detriment, courts may enforce the promise even without traditional consideration to prevent injustice.

50. How does the concept of "mutuality of obligation" relate to agreements without consideration?

Mutuality of obligation requires that both parties to a contract be bound to perform. In agreements without consideration, this mutuality is often lacking, which is one reason they may be unenforceable. However, exceptions like promissory estoppel can sometimes create enforceable obligations even without strict mutuality.

51. Can a promise to perform an illegal act serve as consideration?

No, a promise to perform an illegal act cannot serve as valid consideration. Such agreements are void as against public policy, regardless of whether consideration is present.

52. How do courts interpret "consideration" in the context of contract modifications?

Contract modifications typically require new consideration to be enforceable. However, many jurisdictions now recognize exceptions, especially for good faith modifications in long-term or complex contracts, even without new consideration.

53. How do courts view promises made to third party beneficiaries in terms of consideration?

Promises made for the benefit of third parties can be enforceable if there's consideration between the promisor and promisee. The third party beneficiary doesn't need to provide consideration, distinguishing these from simple agreements without consideration.

54. Can a promise to perform a "moral duty" serve as consideration?

Generally, a promise to perform a moral duty alone is not considered valid consideration. However, in some jurisdictions, moral obligation can serve as a substitute for consideration in specific circumstances, such as promises to pay debts barred by bankruptcy or statute of limitations.

55. How does the concept of "adequacy of consideration" apply to agreements involving the sale of property?

While courts generally don't inquire into the adequacy of consideration, in property sales, gross inadequacy of price combined with other factors (like fraud or undue influence) might lead a court to set aside the agreement. This differs from agreements without consideration, where the issue is the absence, not inadequacy, of consideration.