NO CONSIDERATION NO CONTRACT

NO CONSIDERATION NO CONTRACT

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NO CONSIDERATION NO CONTRACT

A promise without consideration cannot create a legal obligation. The general rule is that an agreement made without consideration is void. This rule is contained in Section 25 of the Indian Contract Act, which declares that ‘an agreement made without consideration is void’. This means that consideration is a must in all the cases. But this Section provides certain exceptions where an agreement is valid even without consideration. These cases are:

AGREEMENT MADE ON ACCOUNT OF NATURAL LOVE AND AFFECTION: UNDER SECTION 25 (1)

An agreement without consideration is enforceable if, it is

  • expressed in writing and
  • registered under the law for the time being in force for the registration of documents, and is
  • made on account of natural rove and affection, (iv) between the parties standing in near relation to each other.

The following conditions must be satisfied for the application of the exception:

  • The agreement is in writing
  • It is registered.
  • It is made on account of natural love and affection
  • It is between parties standing in near relation to each other.

Example: A, out of natural love and affection, promises to give his son B 5,000. A puts his promise to B in writing and registers it. This is a valid contract.

The expressions ‘near relations’ and ‘natural love and affection’ have not been defined in the Indian Contract Act.

However, the expression ‘near relations’ will include parties related by blood or marriage. Some kind of natural love and affection is also implied. But love and affection may, sometimes, be overruled by external circumstances. The following case validate the same:

CASE: RAJLAKHI DEVI VS. BHOOTNATH

A husband promised to pay his wife a fixed sum of money every month for her separate residence and maintenance. The agreement was contained in the registered document which mentioned certain quarrels and disagreements between the two. The court refused to hold the agreement valid as it could not find any love and affection between the parties whose quarrels had compelled them to separate.

AGREEMENT TO COMPENSATE FOR PAST VOLUNTARY SERVICES: UNDER SECTION 25 (2)

An agreement without consideration is enforceable, if it is a promise to compensate wholly, or in part a person who has already voluntarily done something for the promisor, or something which the promisor was legally bound to do. 

Example: A finds B’s purse and gives it to him. B promises to give him 100. This is a contract.

In order that a promise to pay for past voluntary services be binding, the following conditions must be satisfied :

  • The services should have been rendered voluntarily.
  • The services must have been.rendered for the promiser and not anybody  else

AGREEMENT TO PAY TIME-BARRED DEBT: UNDER SECTION 25(3)

According to this exception, a promise to pay a time-barred debt wholly or in part is enforceable if such promise is in writing and signed by the debtor or his authorized agent. A time barred debt-cannot be recovered and, therefore, a promise to repay such debt is without consideration.

The following conditions must be satisfied for the application of this exception: 

  • The promise should be in writing.
  • It should be signed by the promisor or his authorized agent.
  • The debt must be time-barred i.e., the limitation period for the recovery of the debt must have expired
  • There must be an express promise to pay. It may be to pay whole or part of the debt.

COMPLETED GIFT

The gift actually made by a donor and accepted by the done will be valid even without the consideration. So in case of a gift actually made, consideration is not necessary.

CONTRACT OF  AGENCY

Section 185 specifically states that no consideration is necessary to create an agency. Thus, when a person is appointed as an agent, his appointment is valid even if there is no consideration. Although, generally, an agent gets remuneration by way of commission for the services rendered, but no consideration is immediately necessary at the time of appointment.

REMISSION: UNDER SECTION 63

No consideration is required for an agreement to receive less then what is due. This is called remission in the law. 

CHARITY

If a person undertakes a liability on the promise of another to contribute to charity, then the contract is valid. In this case, the no consideration no contract rule does not apply.

Example: Peter is the trustee of his town’s charity organization. He wants to build a small pond in the town to enhance greenery and offer the residents a good place to walk around in the evenings. He raises a charity fund where he appeals to people to come ahead and contribute to the cause. Many people come forward as subscribers the fund and agree to pay Peter their share of the amount once he enters into a contract for constructing the pond.

After raising half the amount, Peter hires contractors for building the pond. However, 10 people back out at the last moment. Peter files a suit against them for recovery. The Court ordered the 10 people to pay the amount to Peter since he had undertaken a liability based on their promise to pay. Even though there was no consideration, the contract was valid and enforceable by law.

BAILMENT

Section 148 of the Indian Contract Act, 1872, defines bailment as the delivery of goods from one person to another for some purpose. This delivery is made upon a contract that post accomplishment of the purpose, the goods will either be returned or disposed of, according to the directions of the person delivering them. No consideration is required to effect a contract of bailment.

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