Business Laws and Ethics · Indian Contracts Act, 1872

Consideration and Capacity to Contract Under the Indian Contract Act

Updated 10 October 2026 · Fact-checked

Consideration is the price or return one party gives for the other's promise. Without it an agreement is generally void, subject to listed exceptions. Capacity means being an adult, of sound mind and not disqualified by law. Solve questions by testing both: is there valid consideration, and were the parties competent?

Understand Consideration and Capacity to Contract

A promise is enforceable only if the law sees a bargain behind it. That bargain is consideration. Under Section 2(d) of the Indian Contract Act, 1872, it is something done, abstained from, or promised, at the desire of the promisor, by the promisee or any other person. It is the 'something in return' that separates a contract from a gift.

The Indian definition is wider than the English one. Consideration can be past, present or future. Past consideration is an act completed before the promise was made, and Indian law accepts it if it was done at the promisor's desire. Present (executed) consideration is given at the time of the promise. Future (executory) consideration is a promise to act later. The consideration may move from the promisee or any other person, so a stranger to the consideration can still sue, but a stranger to the contract cannot.

The general rule in Section 25 is that an agreement without consideration is void. The exceptions are: (1) a promise made in writing, registered, out of natural love and affection between near relatives; (2) a promise to compensate for something already voluntarily done for the promisor; (3) a written promise to pay a time-barred debt, signed by the debtor or his authorised agent. Completed gifts (Explanation 1 to Section 25) are outside the rule, and no consideration is needed to create an agency (Section 185). Consideration must be real and lawful, but it need not be adequate. Courts do not weigh the value of the bargain. Performance of an existing legal duty, an illusory promise or an impossible act is not good consideration.

Privity of contract means only parties to a contract can sue or be sued on it. A stranger cannot enforce it. Common exceptions: a beneficiary under a trust, a family settlement or marriage arrangement where a provision is made for a person, an assignee of a contract, acknowledgement or estoppel, and a covenant running with land.

Capacity is covered by Section 11. A person is competent if he is an adult (18 years, or 21 where a guardian has been appointed by a court or the person is under a court of wards), of sound mind, and not disqualified by any law to which he is subject. A minor's agreement is void ab initio, that is, void from the start. The minor cannot be made liable under the agreement and cannot ratify it on becoming adult. Restitution is a separate question. The court may order restitution under Section 33 of the Specific Relief Act, 1963, of identifiable property still in the minor's hands, but the minor is not made to repay the price from other assets. A minor can be a promisee or beneficiary. A minor can also draw, indorse, deliver and negotiate a negotiable instrument so as to bind all parties except himself (Section 26, Negotiable Instruments Act, 1881). Necessaries supplied to a minor are recoverable from the minor's property under Section 68, which is a quasi-contractual claim and not a claim under the agreement. The minor is not personally liable. A person of unsound mind can contract during lucid intervals, but not while incapable of understanding the contract and its effect on his interests.

Key rules to remember

Definition of consideration: Consideration = act, abstinence or promise, at the desire of the promisor, by the promisee or any other person (Section 2(d)); Past, present and future consideration are all valid in India.
General rule: No consideration = no contract (agreement is void), Section 25; Exceptions: natural love and affection (written and registered, between near relatives), compensation for past voluntary service, written promise to pay a time-barred debt.
Adequacy: Consideration must be real and lawful, but need not be adequate; Courts do not measure the fairness of the bargain, unless free consent is affected.
Privity: Only parties to a contract can sue; a stranger to the contract cannot; Exceptions include trust beneficiaries, family settlements, assignment, estoppel and covenants running with land.
Competence to contract: Adult + sound mind + not disqualified by law (Section 11); Majority is 18 years, or 21 if a guardian is appointed by a court or the person is under a court of wards.
Minor's agreement: Minor's agreement is void ab initio; No ratification on majority, no specific performance, no estoppel against the minor, but a minor can be a beneficiary. Necessaries supplied are recoverable only from the minor's property (Section 68, quasi-contract).

How to solve Consideration and Capacity to Contract questions

Use this order for any problem or theory question on consideration and capacity.

1Identify the parties and list each promise made. Note who gave what to whom.
2Test for consideration: is there a promise, act or abstinence, at the promisor's desire, in return for the other promise? Classify it as past, present or future.
3If consideration is missing, check the three Section 25 exceptions one by one, including the conditions of writing, registration and signature.
4Check privity: does the person suing have a contract with the defendant? If not, look for a recognised exception.
5Test capacity of each party: age, soundness of mind, and any legal disqualification.
6If a minor is involved, apply void ab initio, no ratification, no estoppel, liability for necessaries only out of property, and the restitution rule.
7State the conclusion in one line: valid, void or enforceable, and who can sue.
8Quote the section number only where you are sure, and give the reason before the conclusion.

Quickest way: Three-gate check

When to use it: Use for MCQs and short problems where you have under two minutes.

Gate 1: Is there something given in return at the promisor's desire? If no, look for a Section 25 exception.
Gate 2: Is the claimant a party to the contract? If no, look for a privity exception.
Gate 3: Is each party an adult of sound mind? If a minor is involved, the agreement is void ab initio, and nothing can fix it.
Pick the option that matches the first gate that fails.

Common mistakes in Consideration and Capacity to Contract

Saying past consideration is invalid in India.
Students carry over the English rule.
Fix: Remember that Section 2(d) uses 'has done or abstained', so past consideration at the promisor's desire is valid in India.
Treating inadequate consideration as no consideration.
The idea of a fair price feels natural.
Fix: Write that consideration must be real but need not be adequate. Inadequacy matters only as evidence of fraud or lack of free consent.
Writing that a minor's agreement is voidable.
Confusion with agreements induced by coercion or fraud.
Fix: A minor's agreement is void ab initio and cannot be ratified after majority.
Dropping the conditions of the natural love and affection exception.
Students remember only the phrase, not the three conditions.
Fix: Always state: in writing, registered, and between near relatives, out of natural love and affection.
Making a minor personally liable for necessaries.
Students know necessaries are an exception and over-extend it.
Fix: Only the minor's property is liable, under Section 68 as a quasi-contractual claim. The minor has no personal liability.
Confusing a stranger to consideration with a stranger to the contract.
The two sound alike.
Fix: A person who is a party to the contract can sue even if the consideration was given by someone else. A person who is not a party to the contract cannot sue, subject to the recognised exceptions.

Worked examples

Example 1

Ramesh found Suresh's lost wallet and returned it. Later, out of gratitude, Suresh orally promised to pay him ₹5,000. Suresh now refuses to pay. Can Ramesh recover the amount?

Show the solution

Identify the promise: Suresh promised ₹5,000 after Ramesh returned the wallet.
Test for consideration under Section 2(d): Ramesh returned the wallet voluntarily, without any request from Suresh. The act was not done at the promisor's desire, so it is not past consideration under Section 2(d). The claim cannot rest on Section 2(d).
Without consideration, the promise would be void under Section 25 unless an exception applies.
Check the exception in Section 25(2): a promise to compensate a person who has already voluntarily done something for the promisor is enforceable. It does not need to be in writing.
Apply it: Ramesh voluntarily did something for Suresh, and Suresh later promised to compensate him. Section 25(2) applies because the act was done voluntarily, not at Suresh's desire. This is the contrast with past consideration under Section 2(d), where the act is done at the promisor's desire. The claim rests solely on the Section 25(2) exception.

Answer: Ramesh can recover ₹5,000. The act was voluntary and not at Suresh's request, so it is not past consideration under Section 2(d). The claim succeeds only because of the Section 25(2) exception, which applies to a voluntary act and makes the promise enforceable even though it is oral.

Example 2

Aman, aged 17, bought a motorcycle for ₹80,000 from Bharat on credit and signed a promissory note for the price. Bharat sues Aman after Aman turns 18 and Aman ratifies the contract. Is Bharat's claim valid? Can Bharat recover the motorcycle?

Show the solution

Check capacity: Aman was a minor on the date of the contract, so Section 11 is not satisfied.
Apply the rule: a minor's agreement is void ab initio.
Test ratification: a void agreement cannot be made valid by ratification, and a fresh promise at majority needs fresh consideration. The promissory note Aman gave for the price is void as against him, because the underlying agreement is void.
Check necessaries: a motorcycle bought for personal use is not a necessary, so the exception does not help.
Check restitution: this is a separate question from the void agreement. Under Section 33 of the Specific Relief Act, 1963, the court may order Aman to return the motorcycle if it is still in his hands and identifiable. Aman is not made to repay the ₹80,000 from his other assets.

Answer: Bharat cannot enforce the promissory note or recover the price. The agreement is void ab initio and cannot be ratified, and the note given for the price is void as against Aman. The court may order restitution of the motorcycle under Section 33 of the Specific Relief Act, 1963, if it is still with Aman and identifiable, but Aman is not made to repay the price from other assets.

Exam tips

Write section numbers only when you are sure. A correct rule with no section number earns more than a wrong number.
In theory answers, list exceptions as numbered points. Examiners award one mark per exception.
In problems, state the rule, apply it to the facts, and give the conclusion in that order.
For minors, always mention void ab initio, no ratification, and necessaries. These three points are the usual marking scheme.
In MCQs, watch for options that say 'voidable' for a minor or 'invalid' for past consideration. Both are wrong.

Practice questions from Indian Contracts Act, 1872

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 the difference between past and executed consideration?

Past consideration is an act completed before the promise was made, at the promisor's desire. Executed (present) consideration is given at the same time as the promise. Both are valid in India.

Why is a minor's agreement void ab initio?

Section 11 requires a person to be an adult to contract. Because a minor lacks that competence, the agreement has no legal effect from the start. It cannot be ratified later.

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

Yes, during intervals when he can understand the contract and judge its effect on his interests. A person who is usually of unsound mind may contract in lucid intervals. A person usually sound may not contract while delirious or very drunk.

What is privity of contract?

It is the rule that only parties to a contract can sue or be sued on it. A stranger cannot enforce it. There are exceptions such as trust beneficiaries and family arrangements.