Agreements Without Consideration

Section 10 of the Indian Contract Act, of 1872 states that an agreement is deemed legitimate if it is made with the free consent of legally competent parties, for a lawful consideration, and with lawful intent, and it is not specifically declared unlawful herein. The requirements for a legitimate contract are outlined in this section. Therefore, consideration is a crucial component of the agreement.

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This Story also Contains

1. What is Consideration?
2. Rules on "No Consideration No Contract" Exceptional Circumstances
3. Characteristics of Consideration
4. Conclusion

"No consideration, no contract" refers to a contract being null and invalid without compensation under Sections 10 and 25 of the Indian Contract Act. However, several circumstances listed in Section 25 of the Contract Act prevent a contract signed in exchange for nothing from becoming invalid.

For example: A pledged to paint B's house for five thousand rupees. Here, B is offering A Rs. 5,000 as payment for the latter's pledge to paint her home. This is not an instance of a considerationless agreement because each party is contributing something worthwhile to the other parties.

What is Consideration?

• According to Section 2(d) of the Indian Contract Act, 1872, an act, abstinence, or promise made at the request of the promisor and performed or abstained from performing, or promised to perform or abstain from performing something, is considered a consideration for the promise.

• To put it more simply, consideration is something of value that is pledged or provided by one party to another in return for fulfilling a commitment.

• Although consideration is most often associated with money, it may also relate to a specific action or a pledge not to do a certain action.

• Each participant must benefit in some manner from the other parties participating in this two-way street.

Rules on "No Consideration No Contract" Exceptional Circumstances

A contract that is executed without consideration is invalid. Section 25 of the Indian Contract Act, however, lists a few instances when an agreement without compensation is lawful. Among them are:

Voluntary Services

Agreements without consideration that are created when a person offers a service willingly and promises anything in return are legally binding. Furthermore, any promise associated with the performance of an activity that the promisor was legally required to undertake is deemed legitimate.

Example: Contract that is voidable due to lack of consideration - Assume that A and B are two people who live next door. One day, A saw the fire at B's house in time to prevent it from spreading. As a result, B agreed to give A Rs. 10,000 at a later time. A court will deem this to be one of the agreements without considering that is legitimate.

Natural Love and Affection

Agreements made out of love and affection between people who are closely related or directly related by blood are recognised under Section 25(1) of the Indian Contract Law without regard to consideration. Such agreements need to be in writing and properly registered in order to be enforceable.

For instance, C promised to give his brother D a specific amount of money each day for a year. A written contract was created and filed with the court. As a result, agreements without consideration arise in which C owes D that amount of money.

Gifts and Charity

Another exception to the general rule that an agreement is voidable without compensation is a gift or charity. Legally, even if there was no consideration involved, every gift or charity given between a donor and one will be regarded as a legitimate agreement. In addition, a pledge to contribute to the future is enforceable.

Promise to pay a Time-Barred Debt

Time-barred One sort of debt that results from someone borrowing money from another party and not paying it back on time is called debt. After a specific period, it can no longer be lawfully collected.

Even though it is an agreement without consideration, it will be deemed legally binding if the borrower, or his authorised representative, signed the document and made a written pledge to refund the entire sum, in whole or in part.

Creation of an Agency

The Indian Contract Act, 1872 states in section 185 that no compensation is required in order to establish an agency.

Past Voluntary Services

If the beneficiary agrees to make payments at a later time and the individual has already performed volunteer work, the agreement is legally enforceable as long as:

• In the past, the service was provided voluntarily.

• It was supplied to the guarantee.

• When the volunteer service was performed, the promisor was already established (particularly when the promisor is an organisation)

• The pledgee indicated his readiness to pay for the unpaid labour.

Bailment

The conveyance of commodities from one person to another for a specific purpose is defined as a bailment under Section 148 of the Indian Contract Act, of 1872. This delivery is based on an agreement that, after the goal is achieved, the items will either be returned or disposed of under the instructions of the person who delivered them. A contract of bailment can be executed without any compensation.

Charity

A contract is legitimate if one party accepts responsibility for another's pledge to make charitable contributions. The no consideration no contract rule is not applicable in this situation.

Characteristics of Consideration

An admissible consideration needs to possess the following characteristics:

1. Consideration Should be Actual: Since an agreement without consideration is void, the consideration given by the two parties in a contract must be genuine or credible. There shouldn't be any illicit activity involved. When something is illegal, fraudulent, unethical, or has the potential to harm someone or their property, it is considered an unreal consideration.

2. It May Involve a Third Party: If the promisor has no objections, the promisee may give consideration to the promisor or a third party in accordance with the Indian Contract Act of 1872. But then the third party has the right to sue the parties to the contract.

3. The promisor's desire should be the basis for consideration: In a contract, consideration can only be given at the promisor's request or wish. A voluntary service will not be considered a consideration, and the one providing it cannot demand another service in exchange. For example, if A willingly cared for B while she was ill, then A cannot be compensated for such care. Furthermore, a contract cannot exist without consideration.

4. Types of Consideration: Three categories of factors may be included in a contract after it has been draughted: past, present, and future. The terms "executed" and "executor" refer to the current and future considerations, respectively. As the term implies, an executed consideration is one that the party committing has already carried out. Conversely, an executory consideration is a service that one of the contractual parties has promised but has not yet provided.

Conclusion

The Indian Contract Act's Section 10 discusses lawful consideration, and Section 2(d) defines consideration in detail, making it abundantly evident that consideration is a crucial component of a legally enforceable agreement. As a result, the majority of agreements made without giving anything thought never come to be considered contracts. Nonetheless, there are situations in which a legitimate contract can be formed notwithstanding inadequate contemplation or its lack thereof. Section 25 of the Indian Contract Act lists certain exclusions. The Indian Contract Act's Section 185 allows for the establishment of agencies without the need for consideration, hence there are more situations in which the principle "no consideration, no contract" does not apply.