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Without Consideration." 9 Nor is the theory mandated by judicial decisions. A number of courts
have adopted the bargain theory, to be sure, but many others have continued to use the term
"consideration" in its broader sense to embrace such elements as the seal, 0 reliance," and moral
obligation based on past benefit conferred.' 2 It is time to discard the restrictive bargain theory of
consideration in favor of an expansive conception that recognizes the enforceability of promises
on the basis of various elements, and directs inquiry toward determining those elements while
fashioning principles that reflect them in an appropriate way.
THE ELEMENT OF BARGAIN The determination of whether any given type of promise is
legally enforceable should turn on both substantive and administrative considerations. As a
substantive matter, the state (speaking through the courts) may justifiably take the position that
its compulsory processes will not be made available to redress the hurt caused by every broken
promise, but only to remedy substantial injuries, prevent unjust enrichment, or further some
independent social policy, such as promotion of the economy. As an administrative matter, the
state may fairly take into account the extent to which enforcement of a certain type of promise
would involve difficult problems of proof. Cutting .across both substantive and administrative
categories is the question of whether the type of promise at issue is normally made in a
deliberative manner, so as to accurately reflect the promisor's wants and resources. By these
standards, bargain promises clearly should be enforceable. The injury to the promisee is typically
substantial. Usually he will have relied upon the promise, and often he will have seen the
promisor enriched as a result of that reliance. The state has an independent interest in the
enforcement of such promises. Exchange creates surplus, because each party presumably values
what he gets more highly than what he gives. A modern free-enterprise system depends heavily
on private planning and on credit transactions that involve exchanges over time. The extent to
which private actors will be ready to engage in exchange, and are able to make reliable plans,
rests partly on the probability that bargain promises will be kept. Legal enforcement of such
promises increases that probability. Other criteria for enforceability point in the same direction.
For example, if the bargain has been half-completed, that a valuable performance has been
rendered to an unrelated party helps satisfy the administrative concern for evidentiary security.
Even if the transaction is wholly executory, bargains are not easy to fabricate from whole cloth.
And because bargain promises are typically rooted in self-interest rather than altruism, they are
likely to be finely calculated and deliberatively made. Ironically, however, the axiomatic school,
having adopted the bargain theory of consideration, stopped short of giving the bargain element
its full scope, and instead wrongly adopted rules that denied enforcement to several important
classes of bargain promises. Among the most significant of these classes are promises given in
bargains in- 1982] CORNELL LAW REVIEW volving either the performance of a legal duty or
an illusory counterpromise. A. The Legal-Duoy Rule The legal-duty rule is articulated as follows
in section 73 of the Restatement SecondPerformance of a legal duty owed to a promisor which is
neither doubtful nor the subject of honest dispute is not consideration; but a similar performance
is consideration if it differs from what was required by the duty in a way which reflects more
than a pretense of bargain. The rule as articulated covers both preexisting duties imposed by
contract and duties arising out of an official position. These two types of duty raise very different
issues, and in evaluating the role each type must be considered separately. 1. Preexisting Duties
Imposed by Contract The rationale of the legal-duty rule as applied to preexisting contractual
duties is stated in Comment a to section 73 of the Restatement Second A claim that the
performance of a legal duty furnishes consideration for a promise often raises a suspicion that the
transaction was gratuitous or mistaken or unconscionable. If the performance was not in fact
bargained for and given in exchange for the promise, the case is not within this Section: in such
cases there is no consideration under the rule stated in Section 71(l). Mistake, misrepresentation,
duress, undue influence, or public policy may invalidate the transaction even though there is
consideration. . . . But the rule of this Section renders unnecessary any inquiry into the existence
of such an invalidating cause, and denies enforcement to some promises which would otherwise
be valid. Because of the likelihood that the promise was obtained by an express or implied threat
to withhold performance of a legal duty, the promise does not have the presumptive social utility
normally found in a bargain .... 13 Three propositions can be parsed from this Comment: (1)
bargains involving the performance of a preexisting contractual duty are often gratuitous; (2) if
not gratuitous, they are often mistaken; and (3) if neither gratuitous nor mistaken, they are often
unconscionable. The proposition that bargains involving the performance of a preexisting
contractual duty are often gratuitous is empirically farfetched. Perhaps a few such cases could be
found, but I have never run across one. In any event, if such cases really do arise they neither
need nor
The first principle of the law governing the enforceability of promises is that an unrelied-upon
donative promise is normally unenforceable. This principle can be justified on several grounds,
the most important of which is the low level of injury resulting from breach. 48 If, however, a
donative promisee incurs demonstrable costs in reasonable reliance on the promise, the injury is
significant and the promise should be enforced to the extent of those costs.
In the English legal system a contract must consist of an offer, acceptance, intentions to create
legal relations, and consideration. If one of them is not available then a full contract has not been
demonstrated. As part of contract law, consideration is one of the most important parts of a legal
contract. This essay will be discussing what is consideration, look at the various types and reach
into a conclusion.
The crucial part of consideration is its absence and its presence. Consideration is concerned with
the bargain of the contract. A contract is based on an exchange of promises and a mutual
agreement without any duress. Each part in a contract must have a promisor and or promisee. A
promisor is the one who wants the product. A promisee is the one delivering the product for an
exchange of benefit. Benefits do not have to be in monetary terms and thus it can be a benefit of
the contract itself.
Wales (1997) defines Consideration as one of the most vital aspects of a contract. Consideration
is an assurance being made by one party to another party by promising not to do something that
has been agreed upon or to do something that has been agreed upon and showing that it has been
considered by the party. Therefore that assurance can help to create a legal bind between the two
parties and that has been considered or looked upon and pending to an agreement. It must be a
formal promise of assurance nominally or to show practically that the promise is going to be
fulfilled in the time provided to the agreement. However, if it is written agreement there is no
need to practically show that it has been considered by one party since it is sufficient enough that
it is written and can prove whether if it is legally bound. The great philosopher Aristotle has
cleared it already four hundred years ago BC by saying Good laws, if they are not obeyed, do
not constitute good governance. As part of good governance and to clarify the law a contract is
an agreement which is written or orally clarified. Written laws are not significant if they are not
said orally which makes it difficult for us to differentiate at this stage so it makes it hard for us to
either write it or orally mean it. These controversies amongst legal terminologies and doctrines
sometimes may coincide or contradict each other. In the coming paragraphs this essay will
explain and analyse by providing case law of the importance of consideration.
The case that brought into the definition of consideration is Currie v Misa (1875). In which
Justice Lush defined consideration as, A valuable consideration, in the sense of the law, may
consist either in some right, interest, profit or benefit accruing to one party, or some forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other. According to this
definition consideration consists in some benefit to the promisor, or some detriment to the
promise. That means even if one these is of the objectives of the contract then it can be sufficient
enough to say it has been considered. One of the early definitions of consideration was given by
Sir Fredrick Pollock and was approved by Lord Dunedin in Dunlop v Selfridge Ltd [1915], is as
follows:
An act or forbearance of one party, or the promise thereof, is the price for which the promise of
the other is bought, and the promise thus given for value is enforceable.
The British contract Act defines consideration as follows when at the desire of the promisor, the
promise or any other person has done or abstained from doing or does or abstains form doing, or
promises to do or to abstain from doing, something, such act or abstinence or promise are called
a consideration for the promise. Consideration need not necessarily be in cash or kind. It may be
an act or abstinence or promise to do or not to do something. It need not always be doing some
act. It cannot be doing an act also.
Consideration is something that moves from the promisee to the promisor, at the implied or express
request of the latter, in return for his promise. The item that moves can be a right, interest, profit, loss,
responsibility given or suffered, forbearance or a benefit which is of some value in the eyes of law.
Under the Section 2(d) of Indian Contact Act 1950, Consideration is defined as to, When, at the desire of
the promisor, the promisee or any other person has done or abstained from doing, or does or abstains
from doing, or promises to do so or to abstain from doing something, such act or abstinence or promise is
called consideration of the promise
Consideration may be viewed as a sort of bargain, or price which one party pays to buy the promise or act
of the other. When the promisor promises to do or to abstain from doing something, the promisee must
pay a price for it. This price to be paid may be an act or abstinence or a price to perform a future act or
abstinence.
English Law
In the English law a contact under seal is enforceable without consideration while
the simple contracts need the presence of consideration. In the words of Anson:
English law recognizes only two kinds of contract, the contract made by deed that
is under seal, which is called deed or specialty, and the simple contract. 1 A
contract under seal means which is in writing and which id signed, sealed and
delivered. The English law says that there is no liability upon a contract, unless the
contract fulfils on of the two conditions, namely, either that it should be without
consideration or that it is a deed under seal. 2
Indian Law
Section 25 of the Indian Contract Act, 1872, generally declares that an agreement
without consideration is void. The Section, however, provides exceptions to the rule
stated as under:
a subsequent express promise by him in favor of the person who rendered the
services.
Wholly or in Part
Section 25(3) permits a promisee to pay the time barred debt wholly or in part. If
the person promises to pay only a part of the time barred debt then he cone only be
made liable for the part promised and not the whole amount. 10
note the defendant made the statement I accept this pronote and it is valid for the
next three years (translated to English). Here the Delhi High Court held that the
mere acknowledgment of presence of debt did not give the promise of payment and
the defendant could not be made liable.
Unreal Considerations: in the following cases, the consideration is not legal because
of physical or legal impossibility or uncertainty. The following are not real
considerations. 1) Physical impossibility: if a person agrees to perform an impossible
act for a consideration, the promise is not enforceable. The promise is unreal.
Discovering treasure by magic or making two parallel straight lines meet or putting
life back into a dead body cannot be enforced as promises because of impossibility.
2) Legal impossibility: whenever the performance of a promise is legally impossible,
consideration is not real. 3) Uncertain consideration: consideration is not real and is
not enforceable if it is uncertain or ambiguous. Examples: A engages B for doing a
certain work and promises to pay a reasonable sum. There is no recognized
14 A.I.R. 1998 Orissa 129
15 A.I.R. 2008 (NOC) 2532 (Mad.)
One of the main elements of a contract is consideration. Lack of consideration in contract law can
make a contract unenforceable when both parties do not receive a benefit from entering into an
agreement.
What is Consideration?
There are essentially six elements that must be present for a contract to be enforceable. There must
be an offer, acceptance of the offer, consideration, capacity, mutuality and the terms and conditions
must be legal and not in violation of any laws or ordinances. Our focus in this lesson is
on consideration, or the benefit each party to a contract receives by entering into a contract. In
other words, when two parties enter into an agreement, both parties must exchange one thing of
value for another.
Let's take a very simple example to demonstrate how consideration works. If Joe offers to sell his
scooter to Bill for $50, Bill can accept the offer. Once the offer is accepted, Bill must fork up the 50
bucks in order to secure the scooter. Consideration can take on two forms:
A promise to do something one is not legally bound to do is simply performing the acts, or following
through on the promises made in a contract, like the exchange between Joe and Bill in the scooter
sale. On the flip side, if there is a legal obligation to perform an act, one cannot view performing the
act a contract condition. For instance, a reward for information that leads to the arrest and conviction
of a criminal cannot be claimed by a police officer if the criminal is captured in the line of the officer's
duty. After all, it is his obligation to catch a slippery criminal.
A promise not to do something could be a promise not to sue a party after restitution has been
made. Let's revisit Joe and Bill. Once Bill took ownership of the scooter, he attempted to speed away.
Bill did not realize that the scooter was in reverse. As Bill tried to stop the scooter, he ran into Joe's
mailbox, knocking it to the ground. The mangled mailbox was in disrepair. Joe demanded $100 from
Bill in exchange for waiving his right to sue in small claims court. Once Bill coughed up the cash, Joe
could no longer sue for damages. The value of consideration must be determined objectively. Joe's
mailbox has a specific value regardless of how sentimental he feels toward it. Lack of consideration
in contract law means that one party to the contract had little or no imposing obligation to any terms
of the agreement.
Lack of Consideration
Lack of consideration means that one of the parties to a contract is not obligated in any way, while
the other party holds all obligation to act. Generally, courts will not interfere with parties to a
contract. Adequacy of consideration is the doctrine of freedom in cutting a mutually beneficial deal
and means that parties are free to negotiate any way they see fit. A bad negotiation, like paying too
much for a car or hiring an inexperienced housepainter, is of no consequence. Bottom line: the buyer
and seller have full authority to negotiate as they please. However, there are several instances when
a court will declare a contract unenforceable because consideration was lacking:
When a party seeks payment for an act that they are already obligated to perform, the contract is
unenforceable. When Pugsley the Pit Bull went missing, his owners placed 'Reward for Lost Dog'
signs all over the neighborhood. They offered a hefty reward of $45 for the return of their prodigal
pooch. Richard, the local dogcatcher, noticed the sign and remembered picking up a canine with the
same characteristics that very day. He dialed in to announce that he was in possession of Pugsley
and demanded the reward. Although a reward was posted for Pugsley's safe return, the owners are
in no way obligated to pay Richard a dime. It is Richard's primary responsibility as city dogcatcher to
locate and secure stray dogs.
It is the considered view of the Government that in the materialistic world in which we are living, gifts are
not possible from non-relatives. In the past, frequently claims were successfully made by individuals
about receipt of huge amounts as gifts from other individuals even though the donor and the donee were
not related to each other but there was natural love and affection. Government has not accepted such
situations. We are also aware that recently Indian judiciary has recognized live-in relationships. Such
relations may be sometimes more intimate than recognized blood relations. But so far as income tax law
is concerned, such relations would not be recognized and gifts in such relations would also become
taxable. Government has started taxing gifts of sum of money. Then realizing the possible leakage in
cases of gifts in kind now virtually in every budget proposals Government has started thinking in terms of
roping in more items in the list of gifts in kind.
Since October 2009 gifts of immovable properties and specified immovable properties have been brought
within taxing purview. So far taxable entities for gifts were only individuals and HUFs. By Finance Act,
2010 first step has been taken to expand the scope of taxable entities also.
Provisions of section 56(2) : Reg. popularly known as gifts :
Section 56(2) of the Income Tax Act, 1961 inter alia deals with receipts without consideration. Since most
of such receipts tantamount to gifts, the provisions are popularly known for gifts and deemed gifts. Till 30
09 2009 only sum of money received without consideration was gift if the recipient is either an individual
or a HUF. By the Finance No.2 Act, 2009 with effect from 01 10 2009 the provisions were so much
expanded that they even included cases of immovable properties received for inadequate consideration
as compared to stamp valuation. The expanded provisions also include receipt of specified movable
properties either without consideration or at inadequate consideration as compared to fair market value.
Pertinent to mention that even under expanded provisions, gifts from relatives and under specified
exceptions continue to be beyond tax net.
Provisions as contained in section 50C taxing sales of land or building or both operative since 01 04 2002
affecting the vendors of such properties continue.
One cannot conclude like that Section 56(2) provides that gifts received from non- relatives are income
but no where in the Income Tax Act,1961 it is provided that gifts received from relatives are not income
and therefore tax free. Therefore, it is not a case that section 56(2) places the gift from relatives beyond
taxing provisions. If gifts are received from specified relatives, the recipient will have to prove
genuineness of such gifts with reference to identity of the donor, capacity of the donor, source of funds of
the donor, etc.
A company cannot receive a gift but can receive at inadequate consideration :
Further, so far section 56(2) of the Income Tax Act,1961 treats receipts without consideration as income if
the recipient is an individual or HUF. Other categories of assesses including a company and a firm have
been kept out of the taxing purview. Although in my considered view, a company cannot receive gift
under the general law as well as under the provisions of the Income Tax Act, 1961.
A gift necessarily involves a contract because the gift to be valid and complete has to be accepted by the
donee. Section 25 of the Indian Contract Act, 1872 lays down a very basic law that a contract without
consideration is void ab initio. Relevant exception for the contract to be valid without consideration is for
an agreement in writing, registered under the provisions of the Registration Act, 1908 and such an
agreement is on account of natural love and affection. The section does not affect to the gift actually
made by the donor to the donee.
A claim of gift by a company cannot sustain as natural love and affection is not possible towards an
artificial person. Further, as far as gift of the property is concerned section 122 of the Transfer of the
Property Act, 1882 requires that transfer of property by way of gift must be accepted by the donee and
inter alia such acceptance must be made during life time of the donor and before the donee dies. The
provisions using the words like death of donee are logically in the context of an individual and not in the
context of an artificial person. In such a view of the matter, it is not possible for a company to claim gift
and therefore receipts of sums of money without consideration may not escape taxation in the hands of a
company under other provisions of the Income Tax Act, 1961. Similarly, receipt of immovable property or
movable properties without consideration also may not escape taxation in the hands of a company.
However, if the company receives specified movable properties at a price less than fair market value, the
new provisions concerning deemed undervaluation of properties would not cover such company and
therefore taxation u/s. 56(2) would not be attracted. None the less, the new provisions of the receipt of
specified movable properties for inadequate consideration do not cover a company or a firm.
Firm and closely held company brought within purview :
Finance Act, 2010 makes a starting point to tax a firm and a company in a specified situation. The
Finance Act, 2010 has provided to tax a firm or a closely held company when it receives shares of a
closely held company either without consideration or at a consideration less than the fair market value.
The provisions will not apply if such shares are received in the course of amalgamations, mergers,
demergers and re-organisations. When afterwards such company or firm transfers such shares the
valuation whereof either fully or partly subject to income tax, then at the time of subsequent transfer of
such shares, the cost of acquisition would be the fair market value which was earlier taken into
consideration for taxation u/s. 56(2). It is pertinent to mention here that as far as this category is
concerned, the Act does not distinguish between receipt as capital asset and receipt as stock in trade.
Gifts received from non relatives in specified circumstances :
Gifts received from non relatives are generally taxable. However, there are certain exceptions under
which gifts received from non relatives are also not taxable.
Gifts received on the occasion of marriage of an individual even from non relatives are not an income.
Further following receipts without consideration are also not income :
i. under a Will or by way of inheritance;
ii. in contemplation of death of payer;
iii. from local authority as defined in Explanation to section 10(20);
iv. educational or medical institution or fund etc. referred to u/s. 10(23C);
v. trust or institution registered u/s. 12AA.
Gift in contemplation of death :
A gift is said to be made in contemplation of death when the donor is ill and he expects to die shortly out
of such illness and delivers to another possession of the movable property to be kept by another person
as gift in case a donor dies of that illness. A gift in contemplation of death can be made of any movable
property which the donor could dispose off under a Will. It is possible for the donor to resume such a gift
before he dies. Further in a case where donor recovers from the illness during which he made the gift
then such a gift will not take effect. Further if the donor survives the person to whom such gift was made
then also such gift does not take place.
If such property instead of being given away in contemplation of death is made subject matter of the Will
then the bequest under a Will would require executors assent to perfect the title of the legatee and will be
subject to probate, when applicable. Gifts in contemplation of death can be made only of a movable
property.
relatives are excluded from the purview of this section and are therefore treated as not taxable. The
definition of relative as given in this sub-clause is only in relation to an individual and not in relation to a
HUF.
It is therefore proposed to amend the provisions of section 56 so as to provide that any sum or property
received without consideration or inadequate consideration by an HUF from its members would also be
excluded from taxation.
This amendment will take effect retrospectively from the 1st day of October, 2009.
Evaluate the role and purpose of the doctrine of consideration in contract law. Particularly in
light of
section 25 of the Indian Contract Act which sets out the exceptions to the consideration
requirement.
Do the exceptions to consideration nullify the purpose and role of the consideration doctrine in
contract
law? Do you think that consideration should remain an essential part of contract law?
Introduction:
In simple words contract is an agreement or exchange of promises made between two or more
parties,
which is competent in the eyes of law. In contract a legal relationship plays an important role. In
contract the parties must have an intention to form a legal relationship. Suppose if there is no
intention
to form a legal relationship, which agreement cannot be treated as a valid or a legal contract.
Usually
there is no intention to form a legal relationship in social and domestic agreements like Invite
someone
for dinner does not form a legal relationship. Some agreements and commitment between father
and
mother, father and son and husband and wife does not form a legal relationship. A contract is
valid only
when the acts are legal. Prohibited works like killing someone for money, work like immoral for
that
society does not agree or unlawful acts are cannot be treated as a valid agreement. So,
illegitimate
works will not come under the contract act. An agreement wherein it is clearly stated that "This
agreement is not intended to create formal or legal agreement and shall not be subject to legal
jurisdiction in the law of courts." cannot be treated as a contract and not valid.
According to The Indian Contract Act, 1872 Contract is:
Section 2(h), an agreement enforceable by law is a contract;
Section 2(e), every promise and every set of promises, forming the consideration for each other,
is an
agreement;
Section 2(b), when the person to whom the proposal is made signifies his assent thereto, the
proposal
is said to be accepted. A proposal, when accepted, becomes a promise.
According to The Indian Contract Act, 1872 Consideration is:
Section 2(d), when, at the desire of the promisor, the promise or any other person has done or
abstained from doing, or does or abstain from doing, or promises to do or to abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise;
Section 2(f), promises which form the consideration or part of the consideration for each other,
are
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 take into
account by the Court in determining the question whether the consent of the promisor was freely
given.
Importance of Consideration:
Consideration is one of the most essential element of contract. Consideration is a technical term
in the
sense of quid pro quo i.e. something in return. When a party to an agreement promises to do
something he must get something in return also. In short consideration is something; which is
of
some value in the eyes of law. Suppose there an agreement without any consideration, the
agreement
is not a valid contract. Lets take an example, suppose As uncle C is very rich. C promises to A
that he
will give him a brand new luxury car with no strings attached. Now suddenly C changed his
mind, now A
cant force him for that. Because it was one-sided contract only and A has not done or promised
to do
anything in exchange. Therefore, consideration is very necessary in contract. We can say that
contract
is legal when both parties to a contract give and take something from each other so this is called
the
contract and it enforceable by law also.
Role of Exception to Consideration:
As I mentioned above also that in consideration some exceptions are there, but it has some
conditions
to enforce the contract:
It should be in writing.
It should be register with the proper authority.
All people who all are included in the contract must be near relatives.
Here near relatives means related by blood or marriage or family members.
In that contract, there should be natural love and affection.
But sometimes natural love also overruled by external situations. For example:
Natural love and affection
Rajlukhy Dabee v. Bhootnath Mokerjee:
In this case defendant Mr. Bhootnath had a fight with his wife, Mrs. Rajlukhy Dabee. After they
signed
a registered contract that he will pay her a certain sum of money for her maintenance. Later on
he
changed his mind and he refused to give her money. The wife filed a case against his husband
and
claimed the maintenance amount.
It was held by Calcutta High Court that the agreement was void for want of consideration.
Because at
that time there was no presence of love and affection to make the contract effective.
Intro
Rules of consideration
There are various rules governing the law of consideration:
to the copyright holders of the ordinary retail selling price and paid
them 6.25% of this. Nestle gave notice stating the ordinary selling
price was the 1 shilling 6d and three chocolate bar wrappers. The
question for the court was whether the chocolate bar wrappers
formed part of the consideration. If they did it was impossible to
ascertain the value they represented and therefore Nestle would not
have complied with their obligation to give notice of the ordinary
retail selling price. If the wrappers were a mere token or condition
of sale rather than constituting consideration, then the notice would
be valid and Nestle could sell the records.
Held:
The wrappers did form part of the consideration as the object was to
increase sales and therefore provided value. The fact that the
wrappers were simply to be thrown away did not detract from this.
Therefore Chappel were granted the injunction and Nestle could not
sell the records as they had not complied with the notice
requirements under s.8.
consideration did not move from him. Therefore he was not entitled to
enforce the contract.
If a party has an existing contractual duty to do an act, this act can not be
used as consideration for a new promise:
Stilk v Myrrick [1809] EWHC KB J58
If the existing contractual duty is owed to a 3rd party this may be used as valid consideration for
a new promise:
stevedores unless any claim was brought within one year of the
action giving rise to the cause of action. The stevedores were
independent contractors who were engaged to load and unload the
ship by the ship owner. A stevedore damaged the machine whilst
unloading it. The owner of the machine brought an action against
the stevedore after the limitation period specified in the contract.
The stevedore sought to rely upon the clause in order to escape
liability. The owner of the machine argued that the stevedores could
not rely on the clause as they were not privy to the contract and
had not provided them with any consideration.
Held:
The stevedores had provided consideration in the form of services of
unloading the machine. Relying on the case ofScotson v Pegg, there
is nothing to prevent consideration owed to a 3rd party being valid
consideration for a new promise to another party. Therefore the
stevedores had protection from the limitation clause. The claimant's
action was unsuccessful.
The general rule of law is "no consideration, no contract", i.e., in the absence of consideration there
will be no contract. However, the law recognizes the following exceptions to the rule of consideration.
The exceptions have been given in Sec. 25 of the Indian Contract Act. In these cases, agreements are
enforceable even if these have been made without consideration.
1. A promise made out of material love and affection. [Sec. 25]:
An agreement 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, is enforceable without consideration.
Example:
A agreed to pay Rs. 5000 to his younger brother out of natural love. This promise is in writing and
registered. If A refuses to pay Rs. 5,000 to his younger brother, the latter can enforce the promise in
the Court and A cannot refuse payment on the ground of absence of consideration. It should be noted
that all the four conditions must be satisfied only then it will be valid without consideration,
otherwise not.
Example:
An agreement was made between a husband and his wife after referring to quarrels to pay
maintenance allowance. The court held that the agreement was not enforceable as it Was not made
out of natural love and affection and hence it was void being without consideration. [Rejlukhy v.
Bhoothnath]
It should be noted that nearness of relation does not necessarily mean that the agreement has been
made out of natural love.
2. A promise made to compensate for voluntary services [Sec. 25]:
A promise to compensate, wholly or in part, a person who has voluntarily done something for the
promisor, or something which the promisor was legally compellable to do, is enforceable without
consideration.
This rule, in fact, recognizes past consideration which was given without request or desire of the
promisor.
Example:
A found B's purse and gave it to him. B promised to pay a reward of Rs. 50 to A. Later on, B cannot
refuse payment on the ground that there was no consideration.
3. Written promise to pay a time-barred debt [Sec. 25(3)]:
A promise made in writing to pay a debt barred by the Law of Limitation is enforceable even without
consideration.
Example:
A owes B Rs. 1,000 but the debt is barred by the Limitation Act. A signs a written promise to pay B
the sum of Rs. 1,000. This is a valid contract.
4. Gift, etc. actually made:
Explanation I to Section. 25 provides that any gift actually made is valid.
Example:
A gave a watch as a gift to B on his birthday. Later on, A cannot demand his watch (gift) back on the
ground that there was no consideration (as A did not get anything in return for the watch).
5. To create agency:
Under Sec. 185, no consideration is necessary to create an agency. Actually speaking, consideration is
there even in an agency in the sense that the principal has agreed to be bound by the acts of the
agent. Thus he undertakes the responsibility of the agent. We have seen earlier in Currie v. Misa's
case that suffering responsibility is a good consideration.
Section 25 of Indian Contract Act, 1872 deals with Agreement without consideration, void, unless 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..
Contents
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1.1 Illustrations
2 Notes
5 Related Acts
6 Related Topics
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.
Notes
Defines exceptions for Considerations