VALIDITY OF AN AGREEMENT WITHOUT CONSIDERATION

VALIDITY OF AN AGREEMENT WITHOUT CONSIDERATION

The general rule is that an agreement made without consideration is void (Section 25). In every valid contract, consideration is very important. A contract may only be enforceable when consideration is there. However, the Indian Contract Act contains certain exceptions to this rule. In the following cases, the agreement though made without consideration, will be valid and enforceable.

1. Natural Love and Auection: Conditions to be fulfilled under section 25(1)

(i) It must be made out of natural love and auection between the parties.

(ii) Parties must stand in near relationship to each other.

(iii) It must be in writing.

(iv) It must also be registered under the law.

A written and registered agreement based on natural love and auection between the parties standing in near relation (e.g., husband and wife) to each other is enforceable even without consideration.

Example: A husband, by a registered agreement promised to pay his earnings to his wife. Held the agreement though without consideration, was valid.

2. Compensation for past voluntary services: A promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, is enforceable under Section 25(2). In order that a promise to pay for the past voluntary services be binding, the following essential factors must exist:

(i) The services should have been rendered voluntarily.

(ii) The services must have been rendered for the promisor.

(iii) The promisor must be in existence at the time when services were rendered.

(iv) The promisor must have intended to compensate the promisee.

Example: P finds R’s purse and gives it to him. R promises to give P `10,000. This is a valid contract.

3. Promise to pay time barred debt: Where a promise in writing signed by the person making it or by his authorised agent, is made to pay a debt barred by limitation it is valid without consideration [Section 25(3)].

Example: A is indebted to C for `60,000 but the debt is barred by the Limitation Act. A signs a written promise now to pay `50,000 in final settlement of the debt. This is a contract without consideration, but enforceable.

4. Agency: According to Section 185 of the Indian Contract Act, 1872, no consideration is necessary to create an agency.

5. Completed gift: In case of completed gifts, the rule no consideration no contract does not apply.

Explanation (1) to Section 25 states “nothing in this section shall auect the validity as between the donor and donee, of any gift actually made.”Thus, gifts do not require any consideration.

6. Bailment: No consideration is required to euect the contract of bailment (Section 148).

7. Charity: If a promisee undertakes the liability on the promise of the person to contribute to charity, there the contract shall be valid. (Kadarnath v. Gorie Mohammad)