According to Sec 2(d) of this act ,” When at the desire of promisor, promise or other person has done or abstained from doing, does or abstains for doing or promises to do or to abstain from doing something, such act, abstinence or promise is called consideration for the promise” Consideration must be clear, specific and not illusory. The rule is “no consideration, no contract”. The consideration may be inadequate if the parties agree. Consideration should not be illegal, immoral or opposed to
public policy

Nature of Consideration

There are mainly two natures of consideration as derived from the types of contracts given on the basis of nature of consideration. They are as follows:

• Unilateral

After the contract, if the consideration is to move in only one direction, then it said to be unilateral consideration and the contract so formed is known as unilateral contract.

• Bilateral

After the contract, if the consideration is to move in either direction, then it is said to be bilateral consideration and the contract so formed is known as bilateral contract.

ESSENTIALS OF VALID CONSIDERATION:

1.) Form of consideration: The consideration will always be in the form of some act or abstinence or a promise for doing or not doing something.
2.) Consideration must be moved or given at the desire of promisor: In agreement there are two parties i.e. promisor and promise. The consideration is generally given by the promise to promisor. According to this rule any act or promise will be valid consideration if such act has been done or promise is made at the desire or request of the promisor.
3.) Consideration may be past, present or future: Promisor makes a promise and consideration is given to him for his promise. If these two act of making promise and getting consideration are done simultaneously, the consideration is known as present consideration. If the consideration has been given to the promisor before he makes a promise, it is known as past consideration. Consideration may be in the form of promise to be performed in future, such consideration is known as future
consideration.

4.) Consideration may be moved or given by promise or any other person: Generally in every agreement consideration is given by promise to the promisor. But it is not necessary. Any other person on behalf of promise may give consideration. Such consideration will also be valid.

5.) Consideration need not be adequate: According to Indian Contract Act it is not necessary that the value of promise should be equal to the value of consideration. Even if the value of consideration is less than the value of promise, the contract is valid.
6.) Consideration must be real and not be illusory: Consideration given must be real and must have some value in the eyes of law. It must not be illusory, factious, fraudulent, uncertain and illegal.
7.) Consideration must be lawful: Agreement to be enforced in the court must be made for lawful consideration. Any act which is illegal, immoral and against public policy will not constitute valid consideration for the contract.

A CONTRACT WITHOUT CONSIDERATION IS VOID

The general rule is “An Agreement made without consideration is void”. Sec 25 & 185 deals with the Exceptions to this rule. These cases are:
1) Love & Affection: A written & registered agreement based on natural love & affection between near relatives is enforceable even if it is without consideration.
Ex: X, for natural love & affection, promises to give his son, Y, Rs 1000. X puts his promise to Y in writing & registers it. This is a contract.
2) Compensation for voluntary services: A promise to compensate wholly or partly, a person who has already voluntarily done something for the promisor, is enforceable even without consideration.
Ex: A finds B’s purse & gives it to him. B promises to give Rs 50 to A. This is a contract.
3) Promise to pay a Time barred debt: A promise by a Debtor to pay a time-barred debt if it is made in writing & is signed by the debtor or by his agent is enforceable.
4) Completed gifts: There need not be consideration in case of completed gifts.
5) Agency: No consideration is necessary to create an Agency.
6) Contribution to Charity

STRANGER TO A CONTRACT
Though a stranger to consideration can use because the consideration can be furnished or supplied by any person whether he is the promises or not, but a stranger to a contract cannot sue because of the absence of privity of contract (i.e. relationship subsisting between the parties to a contract.

Nudum Pactum:

It is a Latin maxim whose literal meaning is ‘Naked Agreement’. It basically defined as an agreement without consideration is no agreement as it is not dressed in the required essential consideration and hence not enforceable by law and will be termed as a void agreement.

For example – A told B that he wants to sell his refrigerator but A didn’t told B the selling price of the refrigerator which should be mentioned as a corresponding offer with the offer to sell the refrigerator.

Doctrine of Privity to Contract:

Doctrine of privity is a common law doctrine which prevents a stranger to the contract that means a person who is not involved as a party to the contract to sue or to be sued or from enforcing a term of that contract.

For ex. A has borrowed some money from B and A owns a car which he sold to C and asked C to pay to A. Here A cannot sue C if he does not pay B because he is no party to contract or a stranger to contract.

The leading case of Tweddle v. Atkinson(1861), 1 B&S 393, 121 ER 762 immediately got the doctrine of privity into effect and showed it by defying the intent of the parties. But there are some common law principles which acted as exceptions for the doctrine such as agency, negligence etc.

Exceptions to Doctrine of Privity to Contract

A Stranger can sue in following cases –

• Trust

Contract made between trustee of a trust and another party, then the beneficiary of trust can sue enforcing his right under the trust.

• Family Settlement

Contract between a family, then any member of the family can sue provided he/she should be a member of the family.

• Contract through an agent

If an agent has done a contract under his authority or his principal, he can be sued under the contract.

• Assignment of a contract

If a contract is made for the benefit of a third person, then the third person can sue the parties even being a stranger.

• Acknowledgement or Estoppel

If in the contract it is needed for a party to pay a certain amount to third party then it become an obligation to do so. Then the third party can sue being a stranger. The acknowledgement can also be applied.

• A Covenant running with the land

If a contract of a land is made in which a person buys a land with a notice that the owner is responsible for all the duties and liabilities of the land, then he can sue the previous land owner and settler even if they are strangers to the contract.

Conclusion:

Consideration must be clear, specific and not illusory. The rule is “no consideration, no contract”. The consideration may be inadequate if the parties agree. Consideration should not be illegal, immoral or opposed to public policy. The basis of all contractual obligations, is consideration and without consideration, the contract becomes void and unenforceable in the courts.