Exceptions to Consideration under Indian Contract Act: An Analysis

By | December 23, 2018
Liberal theories of justice

What is a consideration?

Lawful consideration is an element of a contract according to section 10[1] of the Indian Contract Act. Consideration can be defined as valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment loss or responsibility given, suffered, or undertaken by the other.

Another definition approved extensively is the one given by Sir Frederick Pollock[2]: An act or forbearance of the one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.

Section 2(d) of the Indian Contract Act defines consideration as:

When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

Section 25 of the Indian Contract Act

Agreement without consideration, void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law. An agreement made 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 [3][documents], and is made on account of natural love and affection between parties standing in a near relation to each other; or unless
  • it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless
  • it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized 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.

In any of these cases, such an agreement is a contract.

This section lays down a few exceptions to consideration:

  1. Natural love and affection

An agreement which is expressed in writing and registered under the law and is made on account of natural love and affection between the parties standing in a near relation to each other is enforceable even if there is no consideration. But, the Act does not provide any idea about whom to consider a near relative. Another question is: What is meant by natural love and affection? Some degree of love and affection (arising out of instincts) is always there between parties who are nearly related. But, sometimes, this instinct may be overruled by external circumstances. For example, in Rajlukhy Dabee v. Bhootnath Mookerjee:[4]

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 and disagreements between the two.

The Calcutta High Court did not consider the agreement to be covered by the exception. The court could not find any trace of love and affection between the parties who were compelled to get separated because of their quarrels.

A decision contrasting to this was that of the Bombay High Court in Bhiwa v. Shivaram:[5]

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; B then agreed by registered writing to give A one half of the same property. The present suit was brought to obtain that share.

The plaintiff admitted that the relationship between him and his brother had always been bad. But in spite of the strained relations, the court held “that this is just the case to which Section 25(1) should be held to apply. The defendant had such natural love and affection for his brother that in order to be reconciled to him, he was willing to give him his property.”

  1. Compensation for voluntary service

If a promise has been made to compensate (wholly or partially) an act done in the past for the promisor, then that promise is enforceable. The act must have been done voluntarily and for the promisor. In a case where services were rendered for a company which did not exist at that time, a subsequent promise to pay for them could not be brought within the exception. But, a promise made, to pay for goods supplied to the promisor during minority, after the promisor has attained majority has been kept within the exception.[6] The court in that case said: “It is now settled law that a promise by an infant is in law a mere nullity and void, but we fail to see how an agreement made by a person of full age to compensate a promisee, who has already voluntarily done something for the promisor even at the time when the promisor was a minor does not fall within the purview of section 25(2) of the Indian Contract Act. As at the time when the thing was done the minor was unable to contract, the person who did it for the minor, must, in law, be taken to have done it voluntarily. But he has in fact done something for the minor, and if words mean anything at all, surely his case must be deemed to come within the scope of the Act.”

The act voluntarily done must be at the desire for the promisor. An act which is done at the request of the promisor is directly covered by the definition of consideration. The present provision ‘appears to cover cases where the person without the knowledge of the promisor, or otherwise than at his request does the latter service, and the promisor undertakes to recompense for it’.

In Durga Prasad v. Baldeo[7] the defendants promised by a written agreement to pay to the plaintiff, a commission on articles sold by the defendants in a market established by the plaintiff at his expense. The market was not established at the desire of the defendants, nor was it erected for them, but this was done at the request of the collector of the place. The only ground for making the promise was the expense incurred by the plaintiff in establishing the gunj (market). The court held that the promise could not be supported under the present sub-section.

  1. Promise to pay a time-barred debt

A debt becomes time-barred if it is not claimed for a period of three years from the date it becomes due. Where there is an agreement, made in writing and signed by the debtor to pay wholly or in part a time-barred debt, the agreement is valid even though it is not supported by any consideration.

It is not necessary that the promise should be given by the person who was liable for the original time-barred debt. The Bombay High Court holds the opinion that “a promise made by a person who is under no obligation to pay the debts of another…does not fall within the clause.”[8] But according to the Madras High Court “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.”

In Raja of Venkatagari v. Sri Krishnayya Rao Bahadur Zamindar,[9] a Privy Council case, B agreed to give his son in adoption, if A agreed to advance money to defray the expense of defending any suit challenging the adoption. There were litigation and A advanced money towards the cost. Thereafter A died, and A’s son advanced money to the adopted son. While the adoption suit was pending before the Privy Council, the adopted son passed a promissory note in favour of A’s son, who agreed that if the adopted son was unsuccessful before the Privy Council, the promissory note would not be enforced. The adopted son was successful, and A’s son filed a suit on the promissory note. It was held that s. 25(2) was not applicable, because to invoke the aid of that provision, it has to be proved that the payment had been made voluntarily, and this had not been established. It was held that the money was advanced to give effect to the undertaking originally made by A, not purely on the request of the adopted son.

Situations where section 25(3) is not applicable

An agreement between a creditor and debtor, entered into before the expiry of the period of limitation, whereby the date of payment is extended beyond the period of limitation is valid, though verbal if there is a consideration for the agreement for e.g., payment of interest up to the extended date. Such an agreement is not an acknowledgement within the meaning of section 18 of the Limitation Act, 1963 nor is it a promise to pay a barred debt; it may be enforced at any time within three years from the date on which it was made. An offer to pay compensation on certain terms which were not accepted by a party is not a promise under section 25(3) of the Contract Act.

Conclusion

In general, a contract is never complete without the presence of consideration. Consideration answers the questions “why are you entering into this contract” or “what are you getting for being a partner in this contract?” However, there are some exceptions to this rule according to the Indian Contract Act and a contract can be completed even without any consideration. These exceptions are helpful in some situations, like in situations involving love and affection where lack of consideration would have rendered the contracts void. These exceptions also help us in differentiating between the contracts where consideration is necessary and the contracts which can exist without consideration also.

–  By Rohit Ranjan

NUSRL Ranchi

FOOTNOTES

[1] Section 10 of the Indian Contract Act, 1872: All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

[2] Pollock, Principles of Contract, thirteenth edition, p. 133

[3] Substituted for “assurances” by Act 12 of 1891, S. 2 and Sch. II

[4] (1899-00) 4 CWN 488

[5] (1899) 1 Bom LR 495

[6] Karam Chand v. Basant Kaur, 1911 Punjab Rec No 31, p. 91

[7] (1881) ILR 3 All 221

[8] Pestonji Manekji Mody v. Bai Meherbai, AIR 1928 Bom 539

[9] AIR 1948 PC 150


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