No Consideration No Contract.
According to Section 10 of the Act, consideration is an important element for a contract to be valid. It also states that all contracts have two parts, namely (a) the promise and (b) the consideration for the promise. It has been added in Section 25 of the Act that any contract without consideration is treated as void. The person who makes a promise to do or to abstain from doing something usually does so as a return for some loss damage, or inconvenience that may have or may have been occasioned to the other party in due ,respect of the promise. As per the law the consideration for the promises is regarded as the benefit so received or the loss, damage, inconvenience so caused. It is based on the principle of No Consideration No Contract.
The above argument is illustrated through a case of A v. B i, where a person verbally promised the Secretary of the Mosque Committee to subscribe Rs, 500 for rebuilding of a mosque. Later, he declined to pay the same amount. Therefore, it held that there was no consideration and thus the agreement was void. However, Section 185 of the Indian Contract Act states that there are certain exceptions to the above rule, that is, there are certain cases were a contract without consideration is treated as valid. And thus are enforceable by law.
These circumstances include:
Agreements in Writing and Registered: An agreement without consideration is considered valid if it is:
- Expressed in writing.
- Registered under the law currently in force.
- Made on account, of natural love and affection.
- Is between parties standing in a near relation to each other.
However, for the agreement to be valid under this clause the agreement must be the result of natural love and affection.
Promise to Compensate: According to Section 25(2) of the Act, a promise made without consideration is valid if:
- It is a promise to compensate (wholly or in Part).
- The person to be compensated has already done something voluntarily, or has done something which the promisor was legally compellable to do.
For example, A supports B’s infant son without asking. B promises to pay A’s expenses for doing so. This is treated as a contract.
Promise to pay a debt barred by limitation act: According to Section 25(3) of the Act states that a promise to pay a debt barred by Limitation Act shall be valid without consideration as legally it remain no longer claimable. If a debt is not claimed under a time frame of 3 years then it gets barred as per the Limitation Act. On the other hand, a promise to pay a time barred debt will be valid if:
- The promise is out into writing.
- Signed by the debtor or his agent.
- Related to a debt which the creditor might have enforced payment of but for the law of limitation.
For example, X owes Y Rs. 800, but the debt is time barred. X signs a writing promise to pay Rs. 600 on account of the debt. This is a valid contract under Section 23.
Completed Gifts: Complete gifts refer to gifts made and accepted. These need to be based on natural love and affection or near relation; however the gifts must be complete. A promise to gift is not valid.
Agency: No consideration is required for the creation of an agency. As without any consideration being passed on the agent he remains a gratuitous agent and is not bound to do work entrusted to him.
Charity: If a person promises to contribute to charity and on this faith the promisee undertakes a liability to the extent of the promised subscription, the contract is treated as valid.