The general rule under Section 25 of the Indian Contract Act, 1872 is that an agreement made without consideration is void. In simple terms, for a contract to be enforceable by law, there must usually be a "give and take" something of value must be exchanged between the parties. Without consideration, the agreement is not legally binding. However, the Act also provides certain important exceptions where an agreement without consideration can still be valid and enforceable.
Exceptions to the “No Consideration No Contract” Rule
Section 25 identifies a few scenarios where even if there is no consideration, the agreement will still be legally valid. These exceptions are critical for ensuring fairness and justice in specific situations.
Agreement Based on Natural Love and Affection
If an agreement is made in writing, registered, and is between parties standing in near relationship (like between husband and wife or siblings), it is enforceable even without consideration. For example, in Bhiwa v. Shivaram, even though two brothers were not on good terms, the Bombay High Court enforced a registered promise made out of natural love and affection.
Compensation for Past Voluntary Services
A promise to compensate someone who has already voluntarily done something for the promisor is enforceable under Section 25(2). However, certain conditions must be fulfilled: the service must have been done voluntarily for the promisor, and the promisor must have existed and intended to compensate. For instance, if A voluntarily supports B’s child and B later promises to pay A for the expenses, the promise is enforceable.
Promise to Pay a Time-Barred Debt
According to Section 25(3), if a debtor makes a written and signed promise to pay a debt that has become barred by limitation, it is valid even without fresh consideration. For example, if A owes B Rs. 1,000 and the claim becomes time-barred, A's written promise to pay is legally binding.
Additionally, if a cheque is issued for a time-barred debt, Section 138 of the Negotiable Instruments Act may come into play, treating it as a valid enforceable promise.
Agency
Under Section 185 of the Indian Contract Act, no consideration is needed to create an agency relationship. An agent is appointed without needing consideration at the time of agreement, although the agent may later receive commission or remuneration.
Completed Gifts
The rule of "no consideration no contract" does not apply to gifts. As explained in Section 25, if a gift is actually made, it is valid without consideration. The case of Vasant Rajaram Narvekar v. Ankusha Rajaram Narvekar highlights that once a gift is accepted, it becomes irrevocable even without any exchange of value.
Conclusion
Although the general rule is that an agreement without consideration is void, Section 25 carves out thoughtful exceptions that allow agreements to be valid even without consideration in special cases like natural love and affection, past voluntary services, time-barred debts, agency, and completed gifts. These exceptions strike a balance between the strictness of legal formalities and the practical realities of human relationships and social duties. Through these exceptions, the Indian Contract Act ensures fairness and encourages moral and ethical behavior while upholding the sanctity of lawful agreements.
