Q. "No Consideration No Contract": State the exceptions of this rule.


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Answer

Consideration is one of the most essential elements to conclude a contract.  Consideration means "something in return". Section 2(d) of the Indian Contract Act, 1872 defines Consideration as:

"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 or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise".

 

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The General rule is that an Agreement without Consideration is Void. Section 25 of the Indian Contract Act, 1872 deal with the exception to this rule. In such cases, the agreements are enforceable even though they are made without considerations. These cases are as follows:

1.      Natural Love and Affection

If an agreement is in writing and registered between two parties in close relation (like blood relatives or spouse), based on natural love and affection, then such an agreement is enforceable even without consideration.

Example: Aayush, in natural love and affection, promises to give his son Shivansh, Rs. 1,000. Aayush puts his promise into writing and registers it. This is a contract.

 

In the case of Rajlakhi Devi V. Bhootnath: Husband promised to pay to his wife, after constant quarrels between them, a fixed monthly amount for her maintenance and separate residence without any consideration. The promise was in writing and registered. When he refused to pay, the wife filed a case.

The agreement was declared void by the Court on the ground that the exception was not applicable as there was no natural love left between them.

 

2.      Compensation for Voluntary services:

According to Section 25(2), A promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, is enforceable, even though without consideration.

Example: Aayush finds Shivansh’s purse and gives it to him. Shivansh promises to give Aayush Rs. 500. This is a contract.

 

3.      Promises to pay a time barred debt:

If a person makes a promise in writing, signed by him, or his authorized agent about paying a time-barred debt, then it is valid despite there being no consideration.

Example: Aayush owes Rs 100,000 to Shivansh. He had borrowed the money 2 years ago. However, he never paid a single rupee back. He signs a written promise to pay Rs 50,000 to Shivansh as a final settlement of the loan. This is a valid contract.

 



4.      Gifts:

Gift is transfer of property without consideration. In order to be valid a gift does not require consideration. As per Explanation 1 to section 25, gifts given by donor to donee are valid.

 

5.      Creation of an Agency:

According to section 185 of the ICA, 1872, no consideration is necessary to create an agency.

 

6.      Bailment

Section 148 of the ICA, 1872, defines bailment as the delivery of goods from one person to another for some purpose. This delivery is made upon a contract that post accomplishment of the purpose, the goods will either be returned or disposed of, according to the directions of the person delivering them. No consideration is required to effect a contract of bailment.

 

7.      Charity

If a person undertakes a liability on the promise of another to contribute to charity, then the contract is deemed valid.

 

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