Business Laws · The Indian Contract Act, 1872

Consideration and Capacity to Contract (CA Foundation Business Laws)

Updated 4 October 2026

Consideration is the 'something in return' that one party gives at the promisor's desire. Without it, an agreement is generally void, except in the cases listed in Section 25. Capacity means being of majority age, sound mind and not disqualified by law (Section 11). Solve questions by checking both, then concluding.

Understand Consideration and Capacity to Contract

A contract is a promise that the law will enforce. The law enforces it only when each side gives something. That 'something' is consideration. Section 2(d) says that when, at the desire of the promisor, the promisee or any other person has done, abstains from doing, or promises to do or abstain from doing something, that act, abstinence or promise is consideration.

From this definition you get the working rules. It must be given at the promisor's desire. It can move from the promisee or any other person. It can be past, present or future. It need not be adequate, but it must be real and lawful. Section 25 Explanation 2 says an agreement is not void merely because the consideration is inadequate. But the court may consider inadequacy when deciding whether consent was freely given.

Privity of contract means 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 his benefit. Note the difference: a stranger to the contract cannot sue, but a stranger to consideration can sue, because Section 2(d) allows consideration to move from any other person, provided he is a party to the contract. Well-known exceptions to privity include a beneficiary under a trust, a marriage settlement or other family arrangement, an acknowledgment of liability by the promisor (or estoppel), and an assignment of a contract. Agency is not a true exception: when an agent contracts for a principal, the principal is the real party to the contract.

The general rule is 'no consideration, no contract'. Section 25 gives exceptions. First, a written and registered agreement made out of natural love and affection between near relatives. Second, a promise to compensate a person who has already voluntarily done something for the promisor, or something the promisor was legally bound to do. Third, a written and signed promise to pay a time-barred debt, wholly or in part. Also, a completed gift between donor and donee stays valid without consideration.

Capacity is covered in Section 11. A person is competent if he is of the age of majority under the law he is subject to, is of sound mind, and is not disqualified by any law. Under the Indian Majority Act, 1875, majority is 18 years (21 if a guardian is appointed by a court). Section 12 defines sound mind: capable of understanding the contract and forming a rational judgment on its effect on his interests. A person usually of unsound mind but occasionally sound may contract when sound. A person usually sound but occasionally unsound may not contract while unsound. Delirium from fever and drunkenness are examples.

Section 11 says only a person of the age of majority is competent to contract. The rule that a minor's agreement is void ab initio, meaning void from the start, comes from the leading Privy Council decision, Mohori Bibee v. Dharmodas Ghose, read with Section 11. Because it is void, the minor cannot be made liable on it, and there is no ratification on attaining majority. Other points follow: a minor can be a promisee or beneficiary. For necessaries supplied to a minor, Section 68 makes the minor's property liable, but the minor is not personally liable.

Key rules to remember

Consideration (Section 2(d)): At the desire of the promisor + act, abstinence or promise + by promisee or any other person; It may be past, present or future. It must be lawful under Section 23.
General rule (Section 25): Agreement without consideration = void; Subject to the listed exceptions.
Exception 1: natural love and affection: Writing + registration + near relation + natural love and affection; All four conditions are needed. Illustration (b): a father's registered written promise of ₹1,000 to his son is a contract.
Exception 2: past voluntary service: Promise to compensate a person who has already voluntarily done something for the promisor, or something the promisor was legally compellable to do; Illustration (c): A finds B's purse and returns it. B promises ₹50. This is a contract.
Exception 3: time-barred debt: Written + signed by the person to be charged (or his authorised agent) + promise to pay wholly or in part a debt the creditor could have enforced but for limitation law; No registration is needed. A part promise is enough.
Inadequacy of consideration: Inadequate consideration does not make an agreement void if consent was free; The court may consider it while deciding whether consent was free (Section 25, Explanation 2).
Competence (Section 11): Age of majority + sound mind + not disqualified by law; All three must be present.
Sound mind (Section 12): Capable of understanding the contract + forming a rational judgment on its effect on his interests, at the time of making it; Test is applied at the moment of contracting.
Minor's agreement: Minor's agreement = void ab initio (Mohori Bibee v. Dharmodas Ghose, read with Section 11); No ratification on becoming major. Minor can be a promisee. For necessaries, only the minor's property is liable (Section 68).
Privity of contract: Only parties to the contract can sue or be sued; A stranger to the contract cannot sue. A person who is a party but did not himself give consideration can sue, as consideration may move from any other person.

How to solve Consideration and Capacity to Contract questions

Use this order for any problem question on consideration or capacity. Write it as provision, facts and conclusion so you earn step marks.

1Identify the issue. Is it about consideration, privity or capacity? Some questions have two issues.
2State the rule in one or two lines. For consideration, quote Section 2(d). For capacity, quote Section 11 and, if needed, Section 12.
3Check the parties. For capacity, ask for age, mental state and any legal disqualification at the time of making the contract.
4For consideration, ask whether anything was given at the promisor's desire. Check if it is past, present or future, and whether it is lawful.
5If consideration is missing, test each Section 25 exception one by one: love and affection, past voluntary act, time-barred debt, and completed gift.
6If the claimant is not a party, apply privity and check the exceptions such as trust beneficiary, family arrangement, acknowledgment and assignment. If an agent made the contract, remember the principal is the real party.
7Apply the rule to the facts using the names in the question. Do not just repeat the law.
8End with a clear conclusion: valid contract, void agreement, or enforceable only to a stated extent.

Quickest way: Three-question check

When to use it: Use when you have limited time for a short-note or case-based answer.

Question 1: Who are the parties and can they contract? Check age, mind and disqualification.
Question 2: What did each side give or promise? If one side gave nothing, look at the Section 25 exceptions.
Question 3: Is the claimant a party? If not, check privity exceptions.
Write the answer as Provision, Facts, Conclusion in three short paragraphs.
Memory aid for Section 25: 'LPT' for Love (registered, written), Past voluntary act, Time-barred debt (written, signed).

Common mistakes in Consideration and Capacity to Contract

Saying a minor's agreement is voidable.
Students mix it up with agreements by persons under coercion or fraud, which are voidable.
Fix: Write 'void ab initio' for a minor's agreement, citing Mohori Bibee v. Dharmodas Ghose. A voidable contract is valid until the party chooses to avoid it. A minor's agreement is void from the start.
Saying a minor can ratify the agreement after turning 18.
Students assume that ratification works like it does elsewhere in contract law.
Fix: A void agreement cannot become valid by ratification. The adult may make a fresh promise, but it needs fresh consideration.
Treating inadequate consideration as no consideration.
Students think the price must be fair.
Fix: Quote Explanation 2 to Section 25. The law needs real consideration, not adequate consideration. Inadequacy only matters when judging free consent.
Leaving out registration for the love and affection exception.
Students remember 'natural love and affection' and forget the other conditions.
Fix: Remember all four conditions: written, registered, near relation, natural love and affection. A mere oral promise to a son is void.
Applying the time-barred debt exception to an oral promise.
Students remember the rule as 'a barred debt can be revived' and miss the formalities.
Fix: The promise must be in writing and signed by the debtor or his authorised agent. No registration is needed.
Confusing privity of contract with privity of consideration.
Both phrases sound similar.
Fix: In India, consideration can move from the promisee or any other person (Section 2(d)). But a person who is not a party cannot sue on the contract, subject to the exceptions.

Worked examples

Example 1

A promises, orally and without receiving anything, to give his friend B ₹10,000. B sues to recover it. Decide. Would your answer change if A, out of natural love and affection, had promised the same sum to his son by a written registered document?

Show the solution

Issue: Is an agreement without consideration enforceable?
Rule: Under Section 25, an agreement made without consideration is void, unless it falls within the listed exceptions.
Facts: A's promise to B is oral and nothing was given at A's desire. A and B are friends, not near relations. It is not compensation for past voluntary service and not a time-barred debt.
Application: None of the exceptions applies, so the agreement is void and B cannot recover the money. Section 25, illustration (a) is similar.
Variation: If A promises ₹10,000 to his son out of natural love and affection, in writing and registered, all conditions of Section 25(1) are met.
Conclusion for the variation: it is a valid contract, as in illustration (b).

Answer: B cannot recover. The oral promise to a friend is void for want of consideration. In the variation, the written, registered promise to a son out of natural love and affection is a valid contract under Section 25(1).

Example 2

Rohan, aged 17, buys a motorcycle on credit from a dealer for ₹80,000 and signs a promissory note. He pays nothing. The dealer sues Rohan and his father. Separately, Rohan was supplied food and clothing worth ₹5,000 by a shopkeeper. Discuss the liability.

Show the solution

Issue: Can a minor be bound by a contract, and what about necessaries?
Rule: Under Section 11, only a person who has reached the age of majority is competent to contract. Under Mohori Bibee v. Dharmodas Ghose, a minor's agreement is void ab initio, so no one can enforce it against the minor.
Facts: Rohan is 17, so he is a minor. The motorcycle purchase is an agreement by a minor.
Application: The agreement is void ab initio. The dealer cannot enforce it against Rohan. The father is not a party to the agreement and did not guarantee it, so he is not liable either.
Necessaries: Under Section 68, a minor's property is liable for necessaries supplied to him, such as food and clothing suited to his condition in life. The minor is not personally liable.
Conclusion on necessaries: The shopkeeper can recover ₹5,000 only out of Rohan's property, if he has any. If Rohan has no property, nothing can be recovered.

Answer: The dealer cannot recover the ₹80,000 from Rohan or his father, because a minor's agreement is void ab initio and the father is not a party. The shopkeeper can recover ₹5,000 for necessaries only from Rohan's property, not from Rohan personally.

Exam tips

For case-based questions, always write the section number and a one-line rule before the facts. Examiners give separate marks for provision, application and conclusion.
Learn the three Section 25 exceptions with their conditions. A common question asks you to list them and give an example each, so use the illustrations from the Act.
When a minor is involved, state 'void ab initio' and add the necessaries rule (Section 68). Mention that a minor can be a promisee, which is a frequent point.
Do not guess a case name. Use case names only if you are certain of the holding. Mohori Bibee v. Dharmodas Ghose is the case to cite for minors' agreements.
Short notes on privity of contract need the rule, one reason and at least two exceptions.

Practice questions from The Indian Contract Act, 1872

Consideration and Capacity to Contract: frequently asked questions

What is consideration under the Indian Contract Act?

Section 2(d) defines it as an act, abstinence or promise made at the desire of the promisor, by the promisee or any other person. It can be past, present or future. It need not be adequate but it must be lawful.

What are the exceptions to 'no consideration, no contract' in Section 25?

There are three. A written and registered promise made out of natural love and affection between near relations; a promise to compensate someone who has already voluntarily done something for the promisor; and a written, signed promise to pay a time-barred debt. A completed gift is also valid between donor and donee without consideration.

Why is a minor's agreement void ab initio?

Section 11 says only a person who has reached the age of majority is competent to contract. The rule that a minor's agreement is void from the very beginning comes from the Privy Council decision in Mohori Bibee v. Dharmodas Ghose, read with Section 11. So it cannot be enforced against the minor and cannot be ratified later.

Can a person of unsound mind ever make a valid contract?

Yes, in one case. Under Section 12, a person who is usually of unsound mind but occasionally of sound mind may contract when he is of sound mind. A person who is usually sound but occasionally unsound cannot contract while unsound, for example during delirium or heavy drunkenness.

Who is competent to contract under Section 11?

A person who has reached the age of majority under the law he is subject to, who is of sound mind, and who is not disqualified from contracting by any law. All three conditions must be met.