Exception to the rule of consideration
Consideration is an integral part of the contract. The rule of consideration states that it is essential to have consideration for a contract. But there are few exceptions to the “no consideration, no contract” rule.
Section 25 of the Indian Contract Act,1872 opens with the declaration that ” an agreement made without consideration is void”. In England “the promises made without consideration are not enforceable because they are gratuitous in nature”.
In the case of Rann v. Hughes (1778, 7 T.R. 350 n.)
Lord chief Baron Skinner observed :
“It is undoubtedly true that every man is by the law of nature bound to fulfil his engagements. It is equally true that the law of the country supplies no means, nor affords any remedy, to compel the performance of an agreement made without sufficient consideration”.
Pollock defines the consideration as “the price for which the promise of the other is brought, and the promise thus given for values is enforceable”.
In Curie v. Misa (1874) LR 10 EX 153
Lush J. explains the consideration as “a valuable consideration in the sense of law, may not consist either some right, interest, profit or benefits occurs to the party or some forbearance detriment loss or responsibility given, suffered or undertaken by other”.
Under Section 2(d) of the Indian Contract Act,1872
” When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstain from doing, or do or abstain from doing, something, such act or abstain or promise is called a consideration for the promise”.
Exceptions to the consideration under Indian Contract Act, 1872
Section 25 of the act deals that the agreement made without consideration is void. Unless,
(1) Natural love and affection
When the promise is made without consideration due to natural love and affection, such kind of promise will be considered as valid but the promise must be in writing and registered under the law for the time being in force. The agreement will not become void even if it is made without consideration.
Essential Ingredients :
- Agreement must expressed in writing;
- It must be registered under the law for time being in force for registration;
- Promise is made on account of love and affection;
- Agreement should be between parties and standing in near relation to each other.
Related cases :
Rajlukhy Dabee v. Bhoothnath Mookherjee,(1899-00)4 CWN 488
The agreement has written and registered by the husband regarding separate residence and maintenance to his wife and the reason that the agreement was described the quarrels between them.
Calcutta high court held that since agreement was not made due to natural love and affection and it was declared as invalid agreement. The court refused to consider the agreement as one covered by exceptions.
Bhiwa v. Sivram(1899)1 Bom LR 495
There was a litigation relating to the property between two brothers. Later the elder brother agreed by the registered deed to give one-half portion of the property to his younger brother but he denied the agreement because there was lack of consideration for that agreement and it was held by the court of law that the agreement made by the elder brother was valid for the reason that he was made on account of natural love and affection.
(2) Post voluntary service
A promise to compensate wholly or in part, a person who has already voluntarily done something for which the promisor is enforceable.
- A service should have been rendered voluntarily for the promisor, if it is involuntarily rendered at the desire of promisor then such service will not cover under this exception.
- Promisor must be in existence at the time the service was rendered.
- The promise must be to compensate a person who has done something for the promisor and not to a person who has done nothing for the promisor.
- The intention of the promise ought to be to compensate the promisee. Promise given for any motive other than the desire to compensate the promisee would not fall within this exception.
- The promisor to whom the service has been rendered need not be competent to the contract at the time service was rendered.
- The service was rendered must not be illegal.
Related cases :
Sindha Shri Ganapati Singhji v. Abraham, ILR(1896)20 Bom 755
The Bombay High court held that, the rendered at the desire of minor expressed during his minority and continued at the same request after his majority from a good consideration for a subsequent express promise by him favor of the person who was rendered services.
Another situation covered by the exception where, the promise has done something for the promisor “which the promisor was legally compellable to do”. A subsequent promise to pay for the act is enforceable.
Doongaramal v. Shambhoo charon Pande, AIR(1964)28 Cal 853
The court held that if the promise is made for the maintenance for a lady for her voluntary services and a promissory note in written for voluntary service rendered by a man, such promises are valid.
(3) A promise to pay time barred debt
A time barred debt cannot be recovered as per law of limitation. However, a promise to repay such debt without consideration is valid under section 25 (3) of the act.
- The debt must be such of which the creditor might have enforced payment but for the law of limitation of suits.
- The promisor himself must be liable for the debt.
- There must be an express promise to pay a time barred debt as distinguished from a mere acknowledgement of liability in respect of debt.
- The promise must be in writing and signed by the debtor and his agent.
- An oral promise to pay time barred debt is not enforceable.
Related cases :
Pestonji Manekji Mody v. Bai Meherbai, AIR 1928 Bom 539
A plaintiff and his brother was engaged in very flourishing in partnership business. Later brother of plaintiff died. After his death plaintiff has left his house and received promissory note by the defendant who inherited the estate of her deceased husband. Hence the brother of the plaintiff filed suit on the basis of execution of promissory notes. It is agreed by the defendant that these loans are long-time barred.
The court of law held that, these words imply that the person making the promise is the person against whom the liability might have been enforced and if that is the case, a promise made by the person who is under no obligation to pay the debts of another, even though they are time barred is deadly not within this exception to this general rule. Hence, a promissory note executed by the defendant in her personal capacity in payment of time barred debt of her husband cannot be brought within this exception.
Adivelu v. Haryanchari, AIR 1956 SC 3940
Section 25(3) requires a promise to pay a time barred debt. It thereby becomes a new contract. It is not just merely acknowledgement of existing liability. The promise need to be in expressed manner.
R. Suresh Chandra and Co. v. Vandnere chemical works, AIR 1991 Bom 44
In this case it was held that an acknowledgement by the partner of a firm on behalf of the firm is sufficient to extent the limitation period. If a promise is given to pay the time barred debt of another person, it is void being without consideration but a promise made by Hindi son to pay such debt of his father is valid to the extent he has ancestral property in his hands.
Exception when gift actually made
- A gift does not require consideration in order to be void.
- Between donor and donee any gift actually made will be valid and binding even though without consideration.
- In order to attract this exception there need to be natural love and affection or nearness of relationship between the donor and donee but the gift must complete.
- Gift of property must be registered date and attested by two witnesses is binding on the donor and it cannot be questioned by him thereafter.
K. Balakrishna v. K.kamalam, AIR 2004 SC 1257
In this case the court held that when a minor donee receives gift from his parents, no acceptance can be expected and it may implied through the conduct of donee or his natural guardians. The silence or the conduct of not disapproving or rejection the gift indicates that the gift was accepted and hence it has become irrevocable.
Inadequacy of consideration
An inadequacy of consideration according to section 25(2) does not render an agreement void if the consent of the promisor is freely given but it is factor to be taken into account as to whether the consent of the promisor was freely given.
Exception under section 185 of Indian Contract Act,1872
- Under chapter 10, section 185 of the act titled ‘Agency’ mentioned that “no consideration is necessary to create an agency”.
- Remission by the promisee of performance of the promise.
- Compromising their debt due if the parties agreed to accept lesser than what is due no consideration is necessary for that subsequent to promise.
- Similarly, an agreement to extend time for performance of contract need not be supported by consideration.
Related cases :
S.G. Guha v. Emperor, AIR 2003 NOC 436
Justice Banguley observed that, there is nothing in law which would prevent an agent undertaking to be an insurer of goods consigned to his care provided that thesis consideration for his insurance and this consideration would have something outside the term of the employment at the ordinary rate.
Contribution to Charity :
A promise to contribute to charity do gratitude us would be unenforceable. If on the feet of promise to subscription if the promise it takes definite steps in furtherance of the object and undertakes a liability to the extent of liability in the card not exceeding the promised amout of subscription.
Abdul Aziz v. Masum Ali, AIR 1914 All 22
The defendant promised rs.500 to find started to rebuild mosque but nothing had been done to carry out the repairs and reconstructions. Then the court says that the subscriber held not liable.
Consideration as defined under section 2(d) of the Indian Contract Act,1872 it could be past, present or future and must only concern the parties to the contract and not at the third party. But there are various exceptions present under this section 25 of the act. These exceptions are made keeping in view of various circumstances, so that the interest of the parties of the contract or even the third parties is not compromised. Moreover, the consideration need not be adequate. However it should be valuable according to the contract.
- Singh Avatar, Contract and Specific Relief (Eastern book company, Lucknow, 12th edn. 2018).
- Vardhan Yashodh R. Pollock and Mulla The Indian Contract Act, 1872,(Lexis Nexis, Wadhwa Nagpur, 15th edn. 2018).
Author: Namrata Gudi,
Karnataka State Law University's Law school Hubballi