Exceptions to the rule “No consideration, no contract”

Section 25 provides that an agreement made without consideration is void. A promises for no consideration to give B Rupees one thousand. This is a void agreement. But the same Section lays down a few exceptions which are as follows,

1. Promise made on account of natural love and affection, Section 25(1) provides that an agreement without consideration is void unless “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 the parties standing in near relation to each other”. For example, A for natural love and affection promises to give his son, Rupees one thousand. A puts his promise to B into writing and registers it. This is a contract. Thus Section 25(1) lays down the following four requirements for the validity of an agreement made without consideration. They are as follows,

1. The agreement must be in writing.
2. The agreement must be registered.
3. The agreement must be made on account of natural love and affection.
4. The agreement must be between the parties standing in a near relation to each other.

The expression “the parties standing in near relation to each other” means parties related by blood or marriage. Nearness of relationship does not necessarily imply natural love and affection. In Rajlukhy Dabee Verses Bhootnath Mookerjee, the defendant promised to pay his wife a fixed sum of money every month for her separate residence and maintenance. The agreement was contained in a registered document which mentioned certain quarrels between the two. The court held that the case was not covered by the exception because the agreement was made not on account of natural love and affection.

In Bhiwa Verses Shivaram, A sued B, his brother, for a share in certain lands. But the suit was dismissed as the property was not ancestral. B then agreed by registered agreement to give A one half of the same property. It was held that the agreement was enforceable under Section 25(1). The court said, “The defendant (B) had such natural love and affection for his brother (A) that in order to be reconciled to him he was willing to give him his property”. In Venkataswamy Verses Rangaswami, a person promised to discharge the debts of his brother by a registered agreement. It was held that the latter was entitled to sue the former in case of breach of agreement.

2. Promise to compensate for past voluntary service,* Section 25(2) provides that a “promise to compensate, wholly on in part, a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do” is enforceable although made without consideration. For example, A finds B’s purse and gives it to him. B promises to give A Rupees 50. This is a contract. Similarly if A supports B’s infant son. B promises to compensate A’s expenses in so doing. That is a contract. The followings conditions must be satisfied for the application of this clause, (a) The act must have been done voluntarily and not at request. If the act is done at request it comes under Section 2(d) amounting to past consideration.

1. The act must have been done for the promisor. If it is done for any other person the promise does not come within the provision of Section 25(2). as it is done is per, Durga Prasad Verses Baldeo case.
2. The act must have been done for a promisor who was in existence at the time when the act was done. The work done by a promoter of a company before its formation cannot be said to have been done for the company.
3. According to Pollock and Mulla (10th Edition page 301) “The act done must have been done for a promisor who is competent to contract at the time when the act was done. Hence a promise by a person on attaining majority to repay money lent and advanced to him during his minority does not come within the exception, the promisor not being competent to contract when the loan was made to him”. It has been so held by Madras High Court in Indran Ramaswami Verses Anthappa Chettian and Allahabad High Court in Suraj Narain Verses Suraj Ahir . But a different view has been taken by Calcutta High Court in Musammat Kundan Bibi Verses Sree Narain and Punjab High Court in Karam Chand Verses Basant Kuar.
4. The intention of the promisor should be to compensate the promisee. If the intention is not to compensate, the promise will not come within this clause. Abdulla Khan Verses Purshottam, a person, who was highly indebted transferred some immovable property to his son in consideration of the son having sent money to him from time to time, not intending to make a loan. The transaction was held not to fall within this exception as the real intention was not to compensate the son but to defraud the creditors of the father. (f) The service rendered must be legal. In Alice Verses William, it was held that a promise to pay for past cohabitation with a woman whose husband is alive is adulterous. But divergent views are held by High Courts in India on the question whether the same principle could be applied to a promise to pay a woman for past cohabitation which is not an infringement of the penal law.

3. Promise to pay a time-barred debt, Section 25(3) provides that “a promise made in writing and signed by the person to be charged therewith, or by his agent generally or specially authroised in that behalf to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits” is enforceable. For example, A owes B Rupees one thousand, but the debt is barred by the Limitation Act. A signs a written promise to pay B Rupees five hundred on account of the debt. This promise is enforceable under this clause. The following are the requirements for application of Section 25(3),

1. The debt must be such of which the creditor might have enforced payment but for the law of limitation of suits.
2. A mere acknowledgement of the debt is not sufficient. There must be promise to pay the debt.
3. The promise must be in writing and signed by the debtor or his authorised agent.
4. The promise must be given by the person to be charged therewith and not by any third party.

A promise made by a person who is under no obligation to pay the debts of another does not fall within the clause. But Madras High Court in P. Govinda Nair Verses P. Achutan Nair, held that the words “by the person to be charged therewith” in Section 25(3) are wide enough to include the case of a person who agrees to become liable for the payment of a debt due by another and need not be limited to the person who was indebted from the beginning.

4. Gift actually made, Explanation I attached to section 25 provides that absence of consideration shall not affect the validity, as between the donor and donee, of any gifts actually made.

5. Creation of agency, Section 185 of the Indian Contract Act provides that “no consideration is necessary to create an agency”.

In case of executed consideration, the consideration is provided simultaneously along with the making of the contract. It is the act which forms the consideration. For example, A makes an offer of reward of Rupees 100 to anyone who finds out his lost dog. When B finds the lost dog, that constitutes not only the acceptance of the offer but that also provides the consideration in respect of the contract. In the case of past consideration, on the other hand, consideration is provided prior to the making of the contract.

There may be a simple exchange of promises and each promise is a consideration for the other. In other words, the consideration is ‘a promise for a promise.’ For example, A agrees to sell and B to buy a quantity of goods. In other words, A has promised to sell and B has promised to pay. Thus, in mercantile contracts, executory consideration is usually given. Unlike ‘executed’ consideration (where liability is outstanding on one side only), in ‘executory’ consideration, the liability is outstanding on both sides.