Exceptions to Consideration (No Consideration and No Contract)

The general rule of law is “no consideration, no contract”, i.e., in the absence of consideration there will be no contract. However, the law recognizes the following exceptions to the rule of consideration. The exceptions have been given in Sec. 25 of the Indian Contract Act. In these cases, agreements are enforceable even if these have been made without consideration.

1. A promise made out of material love and affection. [Sec. 25]:

An agreement 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 parties standing in a near relation to each other, is enforceable without consideration.

Example:

A agreed to pay Rs. 5000 to his younger brother out of natural love. This promise is in writing and registered. If A refuses to pay Rs. 5,000 to his younger brother, the latter can enforce the promise in the Court and A cannot refuse payment on the ground of absence of consideration. It should be noted that all the four conditions must be satisfied only then it will be valid without consideration, otherwise not.

Example:

An agreement was made between a husband and his wife after referring to quarrels to pay maintenance allowance. The court held that the agreement was not enforceable as it Was not made out of natural love and affection and hence it was void being without consideration. [Rejlukhy v. Bhoothnath]

It should be noted that nearness of relation does not necessarily mean that the agreement has been made out of natural love.

2. A promise made to compensate for voluntary services [Sec. 25]:

A promise to compensate, wholly or in part, a person who has voluntarily done something for the promisor, or something which the promisor was legally compellable to do, is enforceable without consideration.

This rule, in fact, recognizes past consideration which was given without request or desire of the promisor.

Example:

A found B’s purse and gave it to him. B promised to pay a reward of Rs. 50 to A. Later on, B cannot refuse payment on the ground that there was no consideration.

3. Written promise to pay a time-barred debt [Sec. 25(3)]:

A promise made in writing to pay a debt barred by the Law of Limitation is enforceable even without consideration.

Example:

A owes B Rs. 1,000 but the debt is barred by the Limitation Act. A signs a written promise to pay B the sum of Rs. 1,000. This is a valid contract.

4. Gift, etc. actually made:

Explanation I to Section. 25 provides that any gift actually made is valid.

Example:

A gave a watch as a gift to B on his birthday. Later on, A cannot demand his watch (gift) back on the ground that there was no consideration (as A did not get anything in return for the watch).

5. To create agency:

Under Sec. 185, no consideration is necessary to create an agency. Actually speaking, consideration is there even in an agency in the sense that the principal has agreed to be bound by the acts of the agent. Thus he undertakes the responsibility of the agent. We have seen earlier in Currie v. Misa’s case that suffering responsibility is a good consideration.