Consideration (Part 2 of 3 – Contracts without Consideration)

 

Consideration is one of the essential features of a contract as per Section 10 of the Indian Contract Act, 1872. Section 25 further provides that an agreement made without consideration is void.

A promise to donate towards the construction of a mosque was held unenforceable as the promise was merely gratuitous and without valid consideration as in Abdul Aziz vs. Mazum Ali. But where the promise on the faith of such a promise suffers a liability, the gratuitous promise will be enforceable by law as held in the case of KedarNath vs. Gorie Mohd.

25.Agreement without consideration, void, uncles it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law.-An agreement made without consideration is void, unless-

(1) 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 love and affection between parties standing in a, near relation to each other ; or unless

(2) 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 compellable to do ; or unless

(3) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

In any of these cases, such an agreement is a contract.

Explanation 1.-Nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made.

Explanation 2.-An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.

Illustrations

(a) A promises, for no consideration, to give to B Rs. 1,000. This is a void agreement.

(b) A, for natural love and affection, promises to give his son, B, Rs. 1,000. A puts his promise to B into writing and registers it. This is a contract.

(c) A finds B’s purse and gives it to him. B promises to give A Rs. 50. This is a contract.

(d) A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a contract.

(e) A owes B Rs. 1,000, but the debt is barred by the Limitation Act. A signs a written promise to pay B Rs. 500 on account of the debt. This is a contract.

(f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

(g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies that his consent to the agreement was freely given.

The inadequacy of the consideration is a fact which the Court should take into account in considering whether or not A’s consent was freely given.

Section 25 also lists the exceptions to the rule that an agreement without consideration is void as given below:

1) Natural Love and Affection

2) Promise to Compensate or Past Voluntary Debts

3) Time Barred Debts

4) Gifts

5) Agency

 

1) Natural Love and Affection

A registered written agreement made on account of natural love and affection between near relatives is valid even though it is without consideration. ‘Near relatives’ includes persons related by blood or marriage.

Illustration: X, brother of Y, agreed to give share in property to Y through a registered document after Y’s case for share in X’s property was dismissed. When X failed to fulfil his promise, X filed a suit for recovery of share in the property. It was held that though X and Y had strained relations, natural love and affection and lead to a reconciliation whereby X had agreed to give share in his property. Thus, Y had a right to recover the same. The facts of the same are similar to that of Bhiwa vs. Shivaram[1].

In the case of Rajlukhy Dabee vs. Bhootnath Mookerjee[2], the husband promised to pay his wife a certain sum of money per month for her separate residence and maintenance. The agreement also mentioned quarrels and disagreements between them. It was held that the agreement was without consideration and void for there was no love and affection between parties as evidenced by their separation because of quarrels and other conflicts.

2) Promise to Compensate or Past Voluntary Debts

Section 25 (2) lays down that a promise to pay whether wholly or in part for the past voluntary service is binding as long as the following requirements are met:

a)     the act was done or service was performed voluntarily

b)     that act or service was to promisor

c)     the promisor was in existence at the time when the act or service was done

d)     the promisor agreed to compensate the promisee’s voluntary service.

Illustration: X helps put out a fire in the house of Y. Later, Y promises to give him Rs. 1000. This is a valid contract even if the consideration did not move at the desire of the Promisor.

For example, work done by a promoter of a company before its formation cannot be claimed as work done for the company (Ahmedabad Jubilee, S&W Co. vs. Chottalal Chaganlal[3]).

3) Time Barred Debts

A promise to pay a time-barred debt is enforceable as long as it is in writing and signed by the promisor or his agent. Section 25(3) envisions an express promise and not implied or vague intentions. For example, an acknowledgement of a debt with an undertaking to pay interest is valid under Section 25(3)[4].

In R.Suresh Chandra & Co. vs.  Vadnese Chemical Works[5], it was held that  a statement in a balance sheet (of a firm) which is signed by a partner will make the firm liable in respect of the stated sum the same transforms and acts like an implied promise to pay.

Section 25(3) is applicable only where the promisor was liable himself for the time-barred debt and not a promise to pay a time-barred debt owed by a third party. As clarified In Prasad vs. Dayal[6], Section 25(3) applies when the promise is to pay an ascertained sum and not otherwise.

4) Gifts

Explanation 1 to Section 25 makes it abundantly clear that the rule ‘a contract without consideration is void’ does not apply to gifts made by the Donor and accepted by the Donee.

5) Agency

No consideration is needed to create a valid agency.

English Law: A contract under seal (a signed, written contract that is sealed and delivered) can be enforceable without consideration.

 

 


[1] (1899) 1 Bom.LR 495

[2] (1900) 4 Cal.WN 488

[3] (1908) 10 Bom.L.R. 141

[4] Debi Prasad  vs.  Bhagwati Prasad AIR 1943 All.63

[5] AIR 1991 Bom.44

[6] (1901) 23 All.502

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