A Contract Without Consideration is Void. Are there any Exceptions to this Rule? If so, Explain.
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 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 [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 love and affection,
- Between 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.
Agreement to compensate for past voluntary services [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 compellable to do.
Example: A finds B’s purse and gives it to him. B promises to give him Rs. 500. 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 promisor and not anybody else.
Agreement to pay time-barred debt [Section 25 (3)]: According to the exception a promise to pay a time barred debt is enforceable if such promise is in writing and signed by the debtor. 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 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. The intention should not be unexpressed. It may be to pay whole or part of the debt.
Example: A owes B Rs.20,000 but the debt is barred by the Limitation Act. A signs a written promise to pay B Rs.10,000 on account of the debt. This is a contract.
Completed gift: The gift actually made by a donor and accepted by the donor are 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.