#7 No Consideration No Contract | Indian Contract Act 1872 | All lecture |
MEANING
Can you make a legal agreement without consideration? No. As per Section 10 and Section 25 of the Indian Contract Act, 1872, consideration is essential in a valid contract. In simple words, no consideration no contract. Hence, you can enforce a contract only if there is a consideration.
While considerations are integral to a contract, the Indian Contract Act, 1872 has listed some exceptions whereby an agreement made without consideration will not be void.
1.) Natural love & affection
2.) Past Voluntary Services
3.) Promise to pay a Time-Barred Debt
4.) Creation of an Agency
5.) Gifts
6.) Contribution to charity
1.) Natural love & affection . [Sec 25(2)] – is valid if it satisfies the following conditions :
It is in writing
It is registered under law
It is made out of love & affection
It is between parties standing in a near relation to each other.
X promises his son O give Rs. 1000 in writing & get it registered.
2.) Past Voluntary Services
If a person has done a voluntary service in the past and the beneficiary promises to pay at a later date, then the contract is binding provided:
a.) The service was rendered voluntarily in the past.
b.) It was rendered to the promisor.
c.) The promisor was in existence when the voluntary service was done.
d.) The promisor showed his willingness to compensate the voluntary service
Example - Peter finds Johns wallet on the road and returns it to him. John is happy to find his lost wallet and promises to pay Peter Rs 2,000. In this case, too, the no consideration no contract rule does not apply. This contract is a valid contract.
3.) Promise 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. The promise can be made to pay the debt wholly or in part.
Example - Peter owes Rs 100,000 to John. He had borrowed the money 5 years ago. However, he never paid a single rupee back. He signs a written promise to pay Rs 50,000 to John as a final settlement of the loan. In this case, the no consideration no contract rule does not apply either. This is a valid contract.
4.) Creation of an Agency
According to section 185 of the Indian Contract Act, 1872, no consideration is necessary to create an agency. Thus when a person is appointed as an agent his appointment is valid evenif there is no consideration is payed.
5.) Gifts
The rule of no consideration no contract does not apply to gifts. Explanation (1) to Section 25 of the Indian Contract Act, 1872 states that the rule of an agreement without consideration being void does not apply to gifts made by a donor and accepted by a donee.
6.) Contribution to charity
If a person undertakes a liability on the promise of another to contribute to charity, then the contract is valid. In this case, the no consideration no contract rule does not apply.
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