Agreements without Consideration

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Agreements without Consideration

Consideration

The term ‘consideration’ is used in the sense of “something in return”, i.e. quid pro quo. An agreement without consideration is a bare promise and exnudo pacto non aritio actio, i.e., cannot be held to binding on the parties. Sir Frederick Pollock has defined consideration, “It is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”

 In the case, Curie v. Misa the term was defined, “A valuable consideration in the sense of the law may consist either in some right, interest, forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other.

It is well established in English law as well as in Indian Contract Act that consideration is essential for an enforceable contract. It is an act or abstinence by the promisee or any other person, at the desire of the promisor. The consideration maybe past, future or executory. As per the Indian Contract Act, 1872 the definition of consideration in Section 2(d) states, consideration may be furnished by ‘the promisee or any other person’ as long as it is ‘at the desire of promisor[1].  Thus, the consideration may move from promisee, or some other person, if the promisor has no objection, from any other person.There are certain cases where contracts without consideration are enforceable.

English Law

The English Law allows contracts under seal enforceable without consideration. A contract under seal means a contract which is in writing and which is “signed, sealed and delivered” In the words of Anson English law recognizes only two kinds of Contract, the contract made by deed that is unless seal which is called a deed or speciality, and the simple conflict.

Indian Contract Act 

As per section 25 of the Indian Contract Act does not specify any exception similar to the common law but lays down a few exceptions. It states that an agreement without consideration is void, unless

(i.) it is in writing and registered,

(ii.) Or is a promise to compensate for past services,

(iii.) Or is a promise to pay a time debt barred.

Thus, The exceptions to the Doctrine of Consideration as per The Indian Contract Act are:

I. Natural love and Affection

A written and registered agreement which is based on natural love and affection between kins is enforceable without consideration. In Rajkukhy Dabee v Bhootnath Mookerjee[2].

The defendant promised to pay his wife a fixed sum of money every month for her separate residence and maintenance. The agreement was a registered document in which certain quarrels and disagreement between the two were mentioned. The Calcutta High Court refused to regard the agreement as one falling under this exception. The court could find no trace of affection between the parties whose quarrels had compelled them to separate. In this exception, it is necessary that the agreement is entered into with love and affection.

The decision of Bombay High Court in Bhiwav Shivaram[3], A sued B his brother for a share in certain lands. But the suit was dismissed as B solemnly affirmed that the property was not ancestral and agreed by registers writing to give A one-half of the same property. The present suit was born to obtain that share.  The plaintiff admitted that he and his brother had been on bad terms. But in spite of the strained relations, the court held that this is just a case to which section 25(1) should be applied. The defendant had such natural love and affection for his brother that in order to be cancelled by him was willing to give him his property

II. Past voluntary service

A promise to pay for a past voluntary service is binding and such agreements don’t require an exception. It is necessary that services are rendered voluntarily. For example, If A supports B’s infant son and B promises to pay A’s expenses in so doing. This is a contract. Noting that B was legally bound to support his infant son. As per this exception, the promise must be to compensate a person who has himself done something for the promisor and not to a person who has done nothing for the promisor.

Thus, where B treated A during his illness but refused to accept payment from A; being friendsA out of gratitude promises to pay ₹ 1,000 to B’s son D, the agreement between A and D is void for want of consideration as it is not covered under this exception.

III. Time-barred debt

A written promise to pay a debt barred by the Limitation Act is enforceable even without consideration. The agreement must be signed by the promisor or by his agent or any other person authorized by him.[4] For example, A owes B Rs 1,000. The debt is time-barred by the Limitation Act. A signs a written promise to pay B the sum of Rs 1,000. This is a valid contract and no consideration is required. A cheque issued for a time-barred debt falls under section 138 of the Negotiable Instruments Act[5] in the view of Sec 25(3)[6].

IV. Completed gift 

The gift presented by a donor and donee by the receiver will be a valid agreement even without consideration. Thus, in the agreements made by way of gift, consideration is not necessary. In Vasant Rajaram Narvekar v Ankusha Rajaram Narvekar[7] gift by mother to her minor son under gift deed with the right to property up to her lifetime. The son kept it with his father and did not repudiate on attaining majority. Thus, accepted and irrevocable.

V. Contract of agency

 Section 185 specifically states that no consideration is necessary to create a contract of agency. Thus, when a person is .appointed as an agent, his appointment agreement is valid without consideration. An agent gets the commission as remuneration, but no consideration is necessary at the time of appointment agreement is made.

Illustrations

  1. A offers to sell his house to B for a sum of Rs. 50,000. B accepts the offer. In this contract, for A’s promise, the consideration is a sum of Rs. 50,000 while for B’s promise consideration is the house.
  2. A, out of his love and affection, promises to give his wife, Rs. 10,000. This promise is put into writing and is registered. It will be a valid contract without consideration.
  3. A owes B Rs. 2,000 but the debt is barred by the Law of Limitation. A sign written promise to pay B Rs. 1,000 on account of the debt. This is a valid contract without consideration.
  4. X treated Y during his illness and promised to pay Rs. 1,000 to Y’s son Z, the agreement between X and Z is void for want of consideration as it is not covered under this exception.
  5. After persistent quarrels and disagreement between husband and his wife, the husband promised in writing to pay his wife, a sum of money for her maintenance and separate residence. The agreement was also registered. It was held that the promise was not enforceable because it was not entered out of natural love and affection.

Frequently Asked Questions (FAQs)

  • Is Past Consideration a valid consideration?

Where the promisor had received the consideration before the date of the promise, the consideration is termed as “Past consideration.” It forms a valid consideration. 

Example: A teaches the child of B at B’s request. After six months B agrees to pay A the sum of ₹600/- for his teaching. For B’s promise the services of A will be taken as past consideration.

  • Is it necessary for the consideration to move from the promisee only?

As per the Indian Contract Act, 1872 the definition of consideration in Section 2(d) states, consideration may be furnished by ‘the promisee or any other person’ as long as it is ‘at the desire of promisor’.  Thus, the consideration may move from promisee, or some other person, if the promisor has no objection, from any other person. In, Venkata Chinnaya v. Venkataramaya Garu[8], an old lady gave the defendant, her daughter, and certainly landed property by way of gift deed. The terms being that a stipulated annuity of Rs. 653 should be paid every year to the plaintiff, the sister of the old lady. The defendant executed in plaintiffs favour and iqrarnama, agreeing to give effect to this stipulation. The plaintiff filed a suit upon the failure of the defendant to pay the annuity. Here, the consideration for the defendants promise to pay the annuity was the gift deed made by the old lady and the consideration was being furnished by the plaintiff.

The court relied on the judgment of Dutton v Poole[9], that the gift deed and the contemporaneous agreement between the plaintiff and the defendant may be considered as one transaction and the defendant obtained an estate from her mother that would suffice to constitute consideration under Section 2(d)[10].

Online References

http://www.preservearticles.com/2012012621491/exceptions-to-consideration-no-consideration-and-no-contract.html

https://kanwarn.wordpress.com/2014/03/20/consideration-part-2-of-3-contracts-without-consideration/

Case References

http://lawmantra.co.in/case-brief-a-v-murthy-v-b-s-nagabasavanna-appeal-crl-206-of-2002/

http://www.lawyerservices.in/Vasant-Rajaram-Narvekar-since-deceased-by-his-legal-heirs-Versus-Ankusha-Rajaram-Narvekar-and-others-1994-10-24

Other References

[1] The Indian Contract Act, 1872 § 2(d).

[2]RajkukhyDabee v. BhootnathMookerjee(1900) 4 Cal.WN 488.

[3]Bhiwa v. Shivaram (1899) 1 Bom LR 495.

[4]A.V. Murthy v. B.S. Nagabasavanna, Appeal (crl.) 206 of 2002.

[5] The Negotiable Instruments Act§ 138.

[6] The Indian Contract Act, 1872 § 25(3).

[7]Vasant Rajaram Narvekar v Ankusha Rajaram Narvekar1995 (3) BomCR 196

[8]Venkata Chinnaya v. VenkataramayaGaru ILR (1881) 4 Mad 137.

[9]Dutton v. Poole 2 Lev 211.

[10] The Indian Contract Act, 1872 § 2(d).

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Sakshi Agarwal
I am Sakshi Agarwal from Dr. Ram Manohar Lohiya National Law University, Lucknow pursuing B.A. L.L.B. (Hons.). Having no legal background, the inspiration to study law came from the society and with the support of my parents I became the path breaker of my family. Being in my initial years of college, all the subjects at present like Law of Contracts attract me but I always keep reading Constitutional Law. The economics arena has always been my strength and in my career I would like to link economics with law. Apart from this, I do adjudicating and mooting. I love to listen to people and when it comes to debate, it’s the best opportunity to learn by listening. At law school, I have developed a keen interest in researching. At all the times, whether it’s working, studying or just sitting idle I aim to find happiness. Something I love a lot apart from reading books and watching movies, is travelling. I’m always excited about it and never miss a chance to explore new places and be adventurous.