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CMA Foundation · Fundamentals of Business Laws and Business Communication

Consideration and Legality of Object for CMA Foundation

Consideration is the price or return one party gives for the other's promise. Under the Indian Contract Act, 1872, an agreement without consideration is generally void, and consideration or object must be lawful. To solve MCQs, test the facts against the definition, the exceptions, and the unlawful grounds, then eliminate options.

What this chapter covers

This chapter answers two questions about any agreement: what did each side give in return, and is the purpose allowed by law? The first is consideration. The second is legality of object. Together they decide whether a promise becomes an enforceable contract.

You will study the meaning and essentials of consideration, who can sue on a contract (privity), the rule that no consideration means no contract, and the exceptions to that rule. Then you move to the rules on adequacy, and finally to lawful consideration and object, and what happens when only part of the consideration is unlawful.

This chapter sits right after offer and acceptance and capacity to contract. It links forward to free consent, void and voidable agreements, and the discharge and performance of contracts. Many MCQs mix these chapters, so a clear grasp here helps you answer questions elsewhere in Paper 1.

Consideration questions are very common in objective papers because the rules are short and the answer options are easy to frame as scenarios. With 50 MCQs in one hour and no negative marking, you gain by knowing each rule and exception cold, so you can decide in under a minute. The chapter is mostly concept-based with no calculation, so careful reading earns reliable marks. It also supports your answers on void agreements and contract performance.

Consideration and Legality of Object: topics in the order to study them

  1. 1Meaning and Essentials of Consideration (Section 2(d))Start with the definition, because every later rule builds on what counts as consideration.
  2. 2Privity of Contract and Stranger to ContractIt follows naturally: once you know who gives consideration, you see who can sue and who cannot.
  3. 3No Consideration, No Contract and Its ExceptionsLearn the general rule after the basics, then the exceptions that make a promise binding without consideration.
  4. 4Adequacy of Consideration and Other RulesThese refine the definition, so they are easier once the main rule and exceptions are clear.
  5. 5Lawful Consideration and Object (Section 23)Shift from the existence of consideration to its legality, which is a separate test.
  6. 6Agreements Void for Partly Unlawful Consideration (Section 24)Finish with this special case, which only makes sense after the general rule on unlawful consideration.

How to prepare Consideration and Legality of Object

This chapter is rule-based, so your goal is to recall each rule and its exception quickly and apply it to a short scenario.

  1. Read the definition of consideration slowly and note its parts: at the desire of the promisor, by promisee or any other person, past, present or future.
  2. Make a one-page list of the essentials of valid consideration and test each with a simple Indian example, such as a shop sale or a gift.
  3. Write the general rule of no consideration, no contract, and list each exception beside it with a one-line example.
  4. Separate the ideas that students confuse: privity of contract versus consideration, and adequacy versus existence of consideration.
  5. List the grounds on which an object or consideration is unlawful, then write one example for each ground.
  6. Practise scenario MCQs. For each, ask: is there consideration, is it lawful, and who is suing? Eliminate options that break any one rule.
  7. Revise the exceptions and the partly unlawful case in the last two days, since options often hinge on them.

Common mistakes in Consideration and Legality of Object

  • Treating inadequate consideration as no consideration

    Fix: Remember that the courts do not weigh the price. Only the existence of consideration matters, though it must be real.

  • Letting a stranger to the contract sue

    Fix: Ask first whether the person is a party to the contract. Then check whether any recognised exception applies.

  • Forgetting the exceptions to no consideration, no contract

    Fix: Keep a separate exceptions list and revise it daily, with one example for each.

  • Confusing unlawful consideration with lack of consideration

    Fix: Treat them as two tests: first existence, then legality. Name the test before choosing an option.

  • Mixing up the effect of a partly unlawful consideration

    Fix: Read the exact rule of Section 24 and apply it to the facts. Do not assume the lawful part survives; it can be separated only where the Act and case law allow.

  • Skipping close reading of scenario MCQs

    Fix: Underline the parties, the promise and the purpose in each question before looking at the options.

Last-day revision: Consideration and Legality of Object

  • Consideration is something in return for a promise, given at the desire of the promisor.
  • It may come from the promisee or any other person under Indian law.
  • It can be past, present or future.
  • It must be real and lawful, not illusory, impossible or vague.
  • Consideration need not be adequate, but it must have some value in law.
  • Only a party to the contract can generally sue on it; a stranger to the contract cannot.
  • No consideration means no contract (Section 25), except where an exception applies. Section 25 gives three: a written and registered promise made out of natural love and affection between near relatives; a promise to compensate a person who has already voluntarily done something for the promisor, or something the promisor was legally compellable to do; and a promise, in writing and signed by the debtor (or an authorised agent), to pay a time-barred debt. A completed gift is saved by Explanation 1 to Section 25, because the rule does not affect a gift already made. Separately, no consideration is needed to create an agency (Section 185).
  • Section 23 makes a consideration or object unlawful if it is: forbidden by law; of such a nature that, if permitted, it would defeat the provisions of any law; fraudulent; involves or implies injury to the person or property of another; or the court regards it as immoral or opposed to public policy. Impossibility is not a Section 23 ground; it is dealt with under Section 56.
  • An agreement whose consideration or object is unlawful is void (Sections 2(g) and 23).
  • Under Section 24, the agreement is void as a whole if any part of a single consideration for one or more objects is unlawful, or if any one or any part of any one of several considerations for a single object is unlawful. A lawful part can be separated and enforced only where the Act and case law allow it, so do not assume it survives.
  • Always check the scenario for who gave what, and whether each part is lawful.

Consideration and Legality of Object practice questions

Consideration and Legality of Object 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 Legality of Object: frequently asked questions

What is consideration under the Indian Contract Act?

It is something given or promised in return for a promise, at the desire of the promisor. It can be an act, an abstinence or a promise, and it may be past, present or future.

Is this chapter important for the CMA Foundation exam?

Yes. It is a core part of the contract law portion of Paper 1 and tests rules through short scenarios. Since it needs no calculation, it is a reliable scoring area if you know the rules.

Does consideration have to be adequate?

No. The law does not require the consideration to match the value of the promise. It must however be real, lawful and of some value in the eyes of the law.

Can a person who is not a party to the contract sue on it?

Generally no, because of the rule of privity of contract. There are limited exceptions, so check each scenario carefully before choosing an answer.

What happens if only part of the consideration is unlawful?

Under Section 24, the agreement is void if any part of a single consideration for one or more objects is unlawful. It is also void if any one or any part of any one of several considerations for a single object is unlawful. Read the question to see how many considerations and objects are involved, and whether any of them is unlawful.