Exceptions for the requirement of having Consideration in a Legally Enforceable Contract

Consideration is quid pro quo, i.e., “something in exchange” and it is a key aspect in determining the parties’ real desire to form a legal relationship. A legitimate contract must have consideration as a component. The contract’s price is taken into account. Except in limited circumstances, an agreement without consideration is void and consequently not enforceable by law. In Sir Frederick Pollock words, “Consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.” An agreement without consideration would constitute a simple promise and won’t be enforceable under law. Even though consideration is regarded as one of the most important elements of a contract, there are circumstances when a contract can exist without a consideration. These exceptions are explained under section 25 of the Indian Contracts act 1782. Such exceptions mentioned are:

EXCEPTION UNDER NATURAL LOVE AND AFFECTION

This first exemption specifies that a written and registered agreement can be created, but it must be created out of love and affection. Furthermore, the parties to a contract should be close relatives. Natural love and affection is the degree of instinctive love and affection between the parties who are nearly related, though it is not defined specifically. Near relative includes those bonded by blood and marriage, and natural love and affection is the degree of instinctive love and affection between the parties who are nearly related.[1]

During the partition of family property, a sister gave up the right to her share of the property and in turn, created a power of attorney to gift her share to her younger brother without consideration out of love. After a while, she wanted to cancel the document on grounds of absence of consideration and acquire her share but the court held that this case fell under the exception under Section 25 of the Act.[2]

But mere relationship between the parties is not a proof of love and affection. If a husband decides to provide a sum of money for the maintenance of his wife in a different house, the contract cannot be considered to be out of love and affection if the reason for the separate residence is quarrel and disagreement.[3] But in the same situation, if the reason for separate residence is for finding satisfaction and family congruence, then it would be considered as an exception under this rule.[4]

EXCEPTION UNDER PAST VOLUNTARY SERVICE

A commitment to compensate the promisor in full or in part for volunteer service is enforceable. It is critical that the service be provided voluntarily, as well as for the promisor. Certain requirements must be met in this exception: the service must have been rendered voluntarily in the past, it must have been rendered to the promisor, the promisor must have been alive at the time the voluntary service was performed, and the promisor must have demonstrated his willingness to compensate the voluntary service. Voluntary service includes the execution of anything based on one’s own desires, will, and decisions. No one should put any restrictions, pressure, or suggestions on anyone to perform the particular act.[5]

To qualify as an exemption under this rule, there must be a promise to compensate in the future. In such a case, there is no contract because there is no guarantee, and hence the claim for particular performance cannot be sustained. It is also important to understand that the service should be provided by the plaintiff.

EXCEPTION OF TIME-BARRED DEBTS

A commitment to pay off a past-due obligation is enforceable as a contract. Such a promise, however, should be made in writing and signed by the promisor or his agent on his behalf. The commitment can be made to pay the entire debt or just a portion of it. This debt must be one that “of which the creditor might have enforced payment but for the law for the limitation of suits”. Section 25(3) requires an express promise, which cannot be ruled sufficient if the desire to pay is not declared and must be inferred from a variety of circumstances. Before the instrument may be regarded to fall under the criteria of the clause, there must be a clear promise to pay.

Section 25(3) governs this form of no-consideration contract, and certain requirements must be met in order to invoke it. A written pledge should be signed by the person or his chosen representative. There must be a pledge to pay the obligation in full or in part. The creditor must have enforced the debt for the duration of the limitation period. Under Section 25 (3), a debtor can engage into a written agreement to pay a portion of the total amount, and a suit can be filed in such circumstances if there is a written pledge to pay it. For example, if A owes B 40,000 that was borrowed five years ago, and A gives a written promise to B that he would pay 20,000 of the debt, this contract is binding even without consideration under the exceptions mentioned under Section 25(3) of the Act. But it is important to note that a written agreement is necessary. If a landlord asks for a time-barred rent claim and the tenant promises to pay the amount, the contract won’t fall under the exceptions because there isn’t a written promise to pay and the payable amount is also not mentioned.[6]


[1] Siqueria v. Noronha AIR 1934 PC 1934.

[2] Ranganyakamma v. K S Prakash (2008) 15 SCC 673

[3] Rajlukhy Dabee v. Bhootnath Mookkerjee’s  (1900) 4 Cal WN 488.

[4] Manali Singhal v. Ravi Singhal AIR 1991 Del 156.

[5] Hyderabad State Bank v Ranganath Roy AIR 1958 AP 605.

[6] Daulat Ram v. Som Nath AIR 1981 Del 354

Aishwarya Says:

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