Business Management · Sources of Indian law and valid contracts

Consideration and Capacity to Contract under Indian Contract Act

Updated 11 October 2026 · Fact-checked

Consideration is the price or return one party gives for the other's promise. Under section 2(d) of the Indian Contract Act 1872 it can be past, present or future. Capacity means being an adult, of sound mind and not legally disqualified. A minor's agreement is void from the start. Subject to the section 25 exceptions, without consideration or capacity there is no valid contract.

Understand Consideration and Capacity to Contract

A contract is more than a promise. Indian law enforces a promise only when something is given in return. That 'something' is consideration. Section 2(d) of the Indian Contract Act 1872 says consideration exists when, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, or does or abstains, or promises to do or abstain. The act or promise must be at the promisor's desire.

Two features make the Indian rule different from English law. First, consideration can move from the promisee or any other person. So a stranger to the contract can supply it. Second, consideration can be past, present or future, because the words 'has done' appear in section 2(d). English law generally rejects past consideration. Consideration must be real and lawful, but it need not be adequate in value. A court does not weigh whether the price was fair. Consideration must also not be illegal, immoral or against public policy, and it must not be impossible or illusory.

Privity of contract says only the parties to a contract can sue or be sued on it. A stranger to the contract cannot enforce it, even if the contract was made for their benefit. Indian law has some recognised exceptions, for example a beneficiary under a trust, a family settlement or charge on property, an assignment of the contract, and acknowledgement or estoppel. Note the difference: a stranger to the consideration can still sue if they are a party to the contract, but a stranger to the contract generally cannot.

Section 25 says an agreement without consideration is void, with three exceptions: a written, registered agreement made out of natural love and affection between near relatives; a promise to compensate for something already voluntarily done for the promisor; and a written promise to pay a time-barred debt, signed by the debtor or an authorised agent.

Capacity comes from section 11. A person is competent to contract if they are of the age of majority, of sound mind and not disqualified by any law. The age of majority is 18 years under the Indian Majority Act 1875, or 21 where a guardian has been appointed by a court or the minor's property is under a court of wards. A minor's agreement is void ab initio, as held in the Privy Council decision Mohori Bibee v Dharmodas Ghose. A minor cannot ratify it on becoming an adult. The general rule under Mohori Bibee is that a minor cannot be made to restore benefits under a void agreement. Section 33 of the Specific Relief Act, 1963 is a statutory limit on this: it lets the court require a minor who obtained a benefit under a void agreement to restore it to the extent they have benefited. Fraudulent misrepresentation of age is one case where restoration has been ordered (Khan Gul v Lakha Singh). A refund of an advance that a minor paid to the other party is a separate restitution question, dealt with under section 65 of the Contract Act. A minor can still be a promisee or beneficiary, and can be held liable for necessaries supplied, but only out of their property, not personally. A person of unsound mind can contract during lucid intervals but not while incapable of understanding the contract. Disqualified persons include alien enemies, insolvents in respect of their estate, convicts in prison, and bodies with only limited legal powers.

Finally, keep the terms straight. A void contract has no legal effect. A voidable contract is valid until the party entitled to avoid it chooses to do so, for example under coercion, undue influence, fraud or misrepresentation. Lack of capacity of a minor makes the agreement void, not voidable.

Key rules to remember

Consideration, section 2(d): Consideration = act, abstinence or promise, at the promisor's desire, by the promisee or any other person; past, present or future; Apply the three tests: at desire of promisor, from promisee or anyone else, and may be past, present or future.
No consideration, no contract: Agreement without consideration = void (section 25); Exceptions: natural love and affection (written and registered, near relatives), compensation for voluntary past service, and a written promise to pay a time-barred debt. Only the love and affection exception and the time-barred debt exception require writing. The compensation exception under section 25(2) does not.
Adequacy of consideration: Consideration must be real and lawful, but need not be adequate; Courts do not check fairness of price. Inadequacy may still suggest fraud or lack of free consent.
Privity: Only parties to a contract can sue or be sued on it; Recognised exceptions include trusts, family arrangements, assignment, charge on property and estoppel.
Competence to contract, section 11: Competent = age of majority AND sound mind AND not disqualified by law; All three conditions must hold. Majority is 18, or 21 if a court-appointed guardian or a court of wards applies.
Minor's agreement: Minor's agreement = void ab initio; No ratification on reaching majority. A minor can be a beneficiary, and necessaries can be recovered from the minor's property.
Void and voidable: Void = no legal effect; Voidable = valid until avoided by the aggrieved party; Voidable arises from lack of free consent, not from minority.

How to solve Consideration and Capacity to Contract questions

Use this method for any scenario question on consideration, privity or capacity. Work through the elements in order and state the legal result at each step.

1Identify the parties and what each promised or did. List who is the promisor and who is the promisee.
2Test for consideration under section 2(d): was the act or promise at the promisor's desire, and is it real and lawful? Note whether it is past, present or future.
3If consideration is missing, check the section 25 exceptions before concluding the agreement is void.
4Check privity: is the claimant a party to the contract? If not, look for a recognised exception.
5Check capacity of each party: age, soundness of mind at the time of contracting, and any legal disqualification.
6Classify the result as valid, void or voidable, and say who can enforce or avoid it.
7State consequences, such as restitution or liability for necessaries, and finish with a clear one-line conclusion.

Quickest way: Four-question screen

When to use it: Use this for multiple-choice questions and short scenarios where you have about two minutes.

Ask: is there something given in return at the promisor's desire? If no, check the three section 25 exceptions.
Ask: is the claimant a party to the contract? If no, privity usually blocks the claim.
Ask: is any party under the age of majority (18, or 21 where a court-appointed guardian or court of wards applies), of unsound mind at the time, or disqualified? A minor means void, not voidable.
Ask: is the problem lack of free consent? Then the contract is voidable, not void.
Pick the option that matches the legal label exactly: void, voidable or valid.

Common mistakes in Consideration and Capacity to Contract

Calling a minor's agreement voidable
Students mix up minority with fraud or coercion, which make a contract voidable.
Fix: Remember that a minor's agreement is void ab initio. Voidable arises only from defective consent.
Saying consideration must be adequate
Students confuse fairness with validity.
Fix: Say consideration must be real and lawful but need not be adequate. The court does not weigh the price.
Applying the English rule that past consideration is invalid
Textbooks from other jurisdictions are mixed with Indian law.
Fix: Quote section 2(d): 'has done or abstained' covers past acts, if done at the promisor's desire.
Thinking a stranger to the consideration cannot sue, when in India only a stranger to the contract is barred.
The two rules sound alike.
Fix: Indian law lets consideration come from any person, so a party to the contract can sue even if someone else supplied the consideration. Only a stranger to the contract is barred, subject to the recognised exceptions.
Letting a minor ratify the agreement at 18
Students treat it like ratification by an agent.
Fix: A void agreement cannot be ratified. A fresh contract with fresh consideration is needed after majority.
Ignoring lucid intervals for persons of unsound mind
Students assume unsound mind always bars contracting.
Fix: Check the state of mind at the time of making the contract. A person who is usually of unsound mind may contract in a lucid interval.

Worked examples

Example 1

Asha, aged 17, signs an agreement to buy a motorcycle from Ravi for ₹60,000 and pays ₹10,000 as advance. Ravi refuses to deliver. Asha sues for delivery. Advise.

Show the solution

Identify the issue: capacity of Asha, who is a minor, as the age of majority is 18.
Under section 11, a competent person must be of the age of majority. Asha is not.
A minor's agreement is void ab initio, as held by the Privy Council in Mohori Bibee v Dharmodas Ghose.
Because the agreement is void, it cannot be enforced by specific performance against Ravi.
Asha cannot ratify it later on turning 18. A motorcycle is also not a necessary.
The agreement itself creates no enforceable right. Whether Asha can get back the ₹10,000 advance is a separate restitution question under section 65 of the Contract Act, which deals with benefits received under an agreement found to be void. Ravi cannot rely on the void agreement to keep the advance, but the outcome is for the court. Section 33 of the Specific Relief Act, 1963 lets a court require a minor who obtained a benefit under a void agreement to restore it to the extent they have benefited. Asha has received nothing from Ravi, so it gives Ravi no claim against her on these facts.

Answer: Asha's suit fails. The agreement is void ab initio because she is a minor, so Ravi cannot be compelled to deliver the motorcycle. Her claim for the ₹10,000 advance is a separate restitution question under section 65 of the Contract Act, and the court decides it. Section 33 of the Specific Relief Act gives Ravi no claim against her because she obtained no benefit from him.

Example 2

Meera is Neha's neighbour. Without being asked, Meera repaired Neha's gate last month. Yesterday, Neha promised in writing to pay Meera ₹5,000 for it. Assume Neha was an adult of sound mind when the repair was done. Is Neha bound?

Show the solution

Start with consideration. Meera repaired the gate without Neha's request, so the act was not at the promisor's desire. It is therefore not consideration under section 2(d), and the promise is void under section 25 unless an exception applies.
Check the section 25 exceptions. The second covers a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor.
Test its conditions. The act must have been done voluntarily and for the promisor: Meera repaired Neha's own gate, so it was done for Neha. The promisor must also have been competent to contract when the act was done: we assume Neha was an adult of sound mind then.
Neha has made a promise to compensate Meera for that act. This exception does not require the promise to be in writing or to state a definite sum. Here the promise happens to be written and for ₹5,000.
The conditions are met, so the exception applies even though no fresh consideration passes now. Neha is bound only to the extent of the compensation she promised, which is ₹5,000.

Answer: Neha is bound to pay ₹5,000 under the section 25 exception for compensation of voluntary past services. The act was done voluntarily for her, she was competent to contract when it was done, and she promised compensation. She is bound only to the extent of her promise.

Exam tips

Quote section 2(d) and section 11 by number, then apply the wording to the facts in your own words.
In scenario questions, label every agreement as valid, void or voidable. A missing label loses easy marks.
For minors, state the rule, the Privy Council authority and the practical result in that order. Add necessaries if relevant.
Multiple-choice options often differ only by void versus voidable. Read the cause of the defect before you choose.
When a stranger claims under a contract, name privity first, then test for any exception.

Practice questions from Sources of Indian law and valid contracts

Consideration and Capacity to Contract in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Consideration and Capacity to Contract: frequently asked questions

What is consideration under section 2(d) of the Indian Contract Act?

It is an act, abstinence or promise made at the promisor's desire by the promisee or any other person. It can be past, present or future. It must be real and lawful, but need not be adequate in value.

Is a minor's agreement void or voidable in India?

It is void from the start, based on the Privy Council decision in Mohori Bibee v Dharmodas Ghose. The minor cannot ratify it after turning 18. A minor can still be a beneficiary, and necessaries supplied can be recovered from the minor's property.

What is the difference between a void and a voidable contract?

A void contract has no legal effect and cannot be enforced by anyone. A voidable contract is valid until the aggrieved party chooses to avoid it, usually because of coercion, undue influence, fraud or misrepresentation.

What does privity of contract mean in India?

Only the parties to a contract can sue or be sued on it. A stranger cannot enforce it, even if it was made for their benefit. Recognised exceptions include trusts, family arrangements, assignment, charges on property and estoppel.

Can a person of unsound mind make a valid contract?

Yes, but only when they are of sound mind at the time of contracting, for example in a lucid interval. Soundness is judged by whether they can understand the contract and form a rational judgement about its effect on their interests.