Analysis On Contract Without Consideration Under Contract Law In India
What is a consideration in Indian Contract Act,1872?
Section 2 of the Indian Contract Act, 1872 mentions the following consideration in a contract,
“ 2 Interpretation-clause.—In this Act, the following words and expressions are used in the following senses, unless a contrary intention appears from the context:— —In this Act the following words and expressions are used in the following senses unless a contrary intention appears from the context\:—"
(d) 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;
(e) Every promise and every set of promises, forming the consideration for each other, is an agreement;
(f) Promises which form the consideration or part of the consideration for each other, are called reciprocal promises; ” (THE INDIAN CONTRACT ACT, 1872, 1872)
What is the importance of consideration in an agreement?
Consideration is one of the 3 important prerequisites other than a reasonable offer and acceptance. Consideration is nothing but the trading of goods and services of some value. For example, in a contract where the trading of goods is done, the party which is getting the apples has to give something in return for value for the apples. This return in value is normally in money. The consideration isn’t mandatory to be in money only, it can even be in terms of goods or services... Consideration is an essential part of a promise is without any consideration there won’t be any sort of burden or obligation on the parties in performing the promise. Without this burden or obligation, the promise would just be considered as a gift and the agreement without consideration would be void. In the case of Gopal Parshottam vs Morar Punja [1], the appeal was made by the defendant against the first suit where it was redeemed and the judge declined the appeal on two grounds saying that the agreement was not registered and had no stamp and the second ground was that the agreement had no consideration and hence the agreement is void. In another case of The Secretary Of State For India vs Bhaskar Krishnaji Samant [2], The tender is not revocable according to these terms. It is clear that, notwithstanding the express terms of the tender, the agreement not to withdraw would be revocable before approval under Section 5 of the Indian Contract Act and that the agreement not to withdraw would be without consideration and, thus, invalid under ordinary law, hence the contract is void. The explanation that only certain commitments made for consideration are implemented by law is that free or voluntary pledges are often made rashly and without proper deliberation. Consideration is necessary since all parties are required in an arrangement to have some kind of duty or burden that will make them meet the commitment made. The agreement could only become a gift without thought.
What are the essentials of a valid consideration?
The following are the essentials or requirements of a valid contract:-
Preference of the promisor- Section 2(d) of the Indian Contract Act, 1872 states that the consideration has to be chosen at the preference of the promisor.
Can progress from the promisee or third party – In Indian Contract law, it's irrelevant of the consideration that who has given. And in the case of Chinnaya vs. Ramayya [3] the consideration can also progress at the preference of the IIIrd party but only where the third party is the recipient of the contract.
Should be an act, refrain, or even can be a promise- If at his will, the promisor does something or refrains from doing something for the promisor, it will be a reasonable consideration.
Can be passed, present or future:
PAST- When consideration is given before the promise. For instance, A saves B at the request of the latter. B will agree to pay A after a month. For the payment made by B, the act of A would amount to past consideration.
PRESENT- If the consideration is given at the same time as the commitment made, then this is the present consideration or consideration executed. For example—sales of cash. (Rai, 2019)
FUTURE – This consideration is valid for contracts performed on future dates such as paying the amount after the newspaper is received, giving money after service rendered, etc.
What are the exceptions to the ‘No Consideration No Contract’ Rule?
Section 25 lists the exceptions to which the non-contractual law of no consideration does not apply, as follows:
Nature, love, and affection – If the two parties between whom a contract is signed are relatives, have blood relations, or are in love, the contract signed between them is valid though there is no proper consideration.
Past Voluntary Services - If a person has in the past performed a voluntary service and the client promises to pay at a later date, then the contract is binding:
1. The service was given voluntarily in the past.
2. It was given to the promisor
3. When the voluntary service was over, the Promisor remained
4. The Promisor demonstrated his ability to pay for the voluntary service (Agreements without Consideration)
Promise to pay a Time-Barred Debt - If a person commits to pay a time-barred debt in writing signed by him or his designated agent, then it is valid despite no consideration being given. The commitment to pay the debt in full or in part may be made.
Creation of an Agency - No consideration is required to establish an agency under section 185 of the Indian Contract Act, 1872.. (Agreements without Consideration)
Gifts - The legislation on no-contract consideration does not apply to gifts. Section 25 of the Indian Contract Act, 1872 states that, without regard to being invalid, the law of an arrangement does not extend to gifts made and approved by a donor.
Charity - If a person undertakes a liability to donate to charity on the promise of another, then the contract is valid. In this case, no contract law is valid without consideration.
In Manali Singhal v. Ravi Singhal [4], A family settlement was made between a man and his wife to provide the wife with maintenance. As it was meant to derive satisfaction and peace of mind from family harmony, this was held to be enforceable. It could therefore either be interpreted as love and affection or consideration.
In Ranganyakamma v. K S Prakash [5], A sister was executed by a power of attorney, relinquishing her right to share in common family property on behalf of her brother on the token of Re 1, but out of love and affection for the brother also authorizing the brother on her behalf to enter into a partition agreement. The document was registered and written in writing. She was held to be bound by her promise, the exception being entirely covered by it.
In Daulat Ram v. Som Nath[6] , The landlord's demand for rent, including time-barred rent, was present. The tenant answered that it was possible to collect the rent by cash or cheque, but did not specify any sum. This was not treated as a commitment to settle a time-barred debt by the tribunal.
CONCLUSION
The above research work clearly explains what exactly is considered under the Indian Contract Act, 1872, its importance in contract law, essentials required for consideration to become a valid contract. It also mentions various exceptions to ‘no consideration no contract’ where a contract can still be valid when there is no proper consideration. The research work also explains why we need considerations, its legal requirements, its exceptions, and past, present, and future considerations by giving examples and case laws. Many journal articles, books, case laws, and sources from the internet have been into consideration to gain more insight into the given topic which is Contract without Consideration in Indian Contract Law. The researcher has got keen knowledge about the topic consideration in a contract law while doing this research paper.
CONTENT WRITER:
NAME: By S Chinmayee
COLLEGE: Symbiosis law school, Hyderabad
[1] Gopal Parshottam vs Morar Punja , (1913) 15 BOMLR 555 [2] The Secretary Of State For India vs Bhaskar Krishnaji Samant , (1925) 27 BOMLR 973 [3] Chinnaya vs. Ramayya , ILR (1876-82) 4 Mad 137 [4] Manali Singhal v. Ravi Singhal , AIR 1991 Del 156. [5] Ranganyakamma v. K S Prakash , (2008) 15 SCC 673 [6] Daulat Ram v. Som Nath , AIR 1981 Del 354
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