No Consideration, No Contract

 

‘No Consideration No Contract’

By: Anjali Tiwari

Introduction

A legally binding contract must be taken into account because it is a crucial component. As a result, without consideration, a legitimate contract does not exist. We all know that when one side makes a promise, the other party must offer or sacrifice something in return. Consideration is referred to as a gift when someone makes a promise without expecting anything in return. But is we talk about a contract, it is a premise exchange of any consideration. As can be seen, in order for an agreement to be legitimate, its materiality and voidability must be considered. An agreement established without consideration is void unless it is expressed in writing and registered under the law for the time being in force for document registration and is made on the basis of natural love and affection between persons in close proximity. A written and registered agreement is required. Even if it arises from natural love and affection or parties are close relatives an oral or unregistered agreement, will not be valid even it is in written form.

CONSIDERATION: Section 2(d)

Consideration can be defined as the price paid by one party in exchange for the promise made by the other. Only when both parties agree to offer and receive something is an agreement legally enforceable. The price for the promise is called consideration, and it is anything that is offered or acquired. Only those factors that are legal are valid. Except under limited circumstances, an agreement without consideration is null and void. ".

For example, Vidhi offers to sell his necklace to Riya for Rs.10,000. The consideration for Vidhi commitment is Rs.10,000, while the only consideration for Riya guarantee is the bus.

 Essential of a valid consideration:

1) Consideration must move according to the promisor's wishes.

For example: Rakesh agrees to sell his land for Rs. 70,000 to Vinod. In this case, Vinod's promise to pay Rs. 70,000 is in exchange for Rakesh's promise to sell the land, and Rakesh's commitment to sell the land is in exchange for Vinod's promise to pay Rs. 70,000.

2) The promisor or any other individual may be the subject of consideration.

For example: If Fahad, who owes Rahim that sum, fails to pay it, Lofi pledges to pay him Rs. 10,000 at the end of seven months. Rahim vows to give Veena the time she needs. In this case, each party's promise is the consideration for the other party's promise.

3) The object of consideration could be from the past, present, or future.

a) A past consideration is one that was received prior to the date of the pledge.

b)  Present consideration occurs when consideration is combined with the promise.

c) Future consideration occurs when a decision is made at a later period. Executory consideration is another term for this.

4) There must be some worth in consideration.

There is still consideration on both sides if A offers B Rs.20,000 to buy B's mansion, expensive sports private jet. The mansion and jet are worth $200 to A, and the mansion, and aircraft are worth Rs. 20,000 to B.

5) Consideration must be lawful

The consideration cannot be illegal or unlawful, nor can it involve a violation of civil or public policy. For example: In exchange for the prospect of a knighthood, Rajesh donated Rs.3000 pounds to the charity. After the knighthood did not materialize, he sued, but the court declined to issue the order because the consideration was a promise to do anything to encourage public corruption, which was unconstitutional because it was against public policy.

6) Consideration must not be illusory

7) There must be definite consideration: The consideration must be so certain that a court can assign a legal value to it, regardless of how insufficient it may be.

Void Agreement: Sec 3(g)

 ‘An agreement which is not enforceable by law is called void agreement’.

There is no legal consequence to a void agreement. An agreement that lacks the essential ingredients of a contract is null and void. A void contract gives no rights to anyone and creates no obligations.

For Example: An agreement made by a minor is considered as void agreement.

Section 25 : “No Consideration No Contract”

Section 25 

A legal obligation cannot be created by a promise made without consideration. An agreement formed without consideration is void, according to the general rule. This rule is included in Section 25 of the Indian Contract Act, which states that "a contract entered into without consideration is void." This means that in all circumstances, consideration is required. However, under this Section, an agreement can be lawful even if there is no consideration. There are certain exceptional cases;

Section 25 (1): Agreement made on account of natural love and affection

1. An agreement established without consideration is valid if it is expressed in written form.

For Example: Due of natural love and affection, an older brother agreed to cover his younger brother's bills. The agreement was written down and registered. The agreement was found to be legitimate.

2. Registered under the law for the time being (Registered in documents).

For example: After referring to quarrels and arguments between himself and his wife in a registered document, a Hindu husband agreed to provide his wife a sum of money for her upkeep and separate residence, but the promise was found to be unenforceable.

3. Formed as a result of natural love and affection.

Rajlukhy Dabee vs. Bhootnath Mookherjee (1900) 4 CWN 488,

For Example: In the case of Rajlukhy Dabee vs. Bhootnath Mookherjee (1900), the husband committed to give his wife a set amount each month for her separate house and support. The agreement was included in the registered form, which also stated some of the two's quarrels and arguments. The court refused to uphold the agreement since there was no evidence of love and devotion between the parties whose quarrels had forced them to split up.

4. Made between parties who are in close relationship to one another.

For example: A vows to give his son B, Rs. 5,000 out of genuine love and care. A writes down and registers his promise to B. This is a legally binding agreement. The Indian Contract Act does not define the terms "close relatives" and "natural love and attachment." The term 'close relations', on the other hand, refers to parties who are linked through blood or marriage. There is also an implication of natural love and affection. However, external events can occasionally override love and affection.

Section 25 (2): Agreement to re-compensate for past voluntary services 

An agreement without consideration is binding if it is a promise to reimburse a person who has already voluntarily done something for the promiser, or something that the promiser was legally obligated to do.

A locates B's purse and hands it over to him. B promises to pay him a hundred dollars. This is a legal agreement. The following elements must be met in order for a commitment to pay for past voluntary services to be legally binding:

1) The services should have been provided on an uncompensated basis.

2) The services must have been rendered exclusively for the promiser.

Section 25 (3): Agreement to pay a time-barred debt 

Under this exemption, a promise to pay a time-barred obligation in whole or in part, if made in writing and signed by the debtor or his authorized representative, is enforceable. A debt that has been prohibited for a period of time cannot be collected; therefore a commitment to repay it is meaningless.

The following requirements must be met in order for this exception to be applied:

1) The promise must be written down.

2) The promiser or his authorized agent should sign it.

3) The debt must be time-barred, which means the statute of limitations for collecting the debt must have passed.

4) There must be a written commitment of payment. It could be used to pay off all or portion of the debt.

Completed gift: A present that has been made by a giver and accepted by the recipient is valid even if it has not been paid for. As a result, consideration is not required in the event of a genuine gift.

Section 185 of the contract of agency expressly indicates that no consideration is required to establish an agency. As a result, even if there is no consideration, a person's appointment as an agent is lawful. Although an agent is usually compensated in the form of a commission for the services provided, no payment is required at the time of the appointment.

Conclusion

"A contract without consideration is null and void." Unless section 2(e) of the Indian Contract Act 1872 states that every promise and group of promises that create a consideration for each other constitutes an agreement. As a result, we can see that for a promise to become an agreement, consideration for the promise or promises is required. As a result, if there is no thought, no agreement can be reached.

Section 25 of the act states the same point in more detail, as well as three exceptions to the rule that a contract without consideration is valid. The three exceptions are: An agreement without consideration is null and void unless it is in writing and registered, and the promise is made out of natural love and affection between people in close proximity. It is a commitment to compensate a person who has voluntarily done something for the promisor or who was legally obligated to do something for the promisor, in whole or in part. It's a commitment to pay up a past-due obligation. An agreement without consideration is void, according to the general rule of law. However, in a few rare instances, a contract can be enforced even if there is no consideration.

Consideration, as we all know, entails a concept of give and take. There are rules that govern what constitutes an exchange and what may be exchanged in order for a good consideration to be obtained. After we've gone over the offer and acceptance requirements, we'll look at these guidelines. The link between the rules of offer and acceptance on the one hand, and the rules of consideration on the other, is that the exchange that defines an offer's acceptance - in fact, an exchange of promises – is also the essential exchange that creates the consideration.

References:

1) Rajlukhy Dabee vs. Bhootnath Mookherjee (1900) 4 CWN 488

2)Contract Without Consideration Is Void, Upcounsel,