Consideration is one of the essential concepts in any contract law. As such, any individual studying contract law should possess a thorough understanding of the same. The Indian Contract Act of 1872 states that for any contract to be legally binding, consideration should be provided. An agreement without consideration is not considered valid.
Section 2(d) of this act defines consideration as a thing of value that one contracting party provides to another in exchange for the successful execution of the terms and agreement mentioned in the contract. On this note, consideration can be a promise to do something, to refrain from doing something or a guarantee of the payment of money.
For instance; A promised to paint B’s house for Rs.5,000. Here, B is providing A Rs.5000 as a consideration in exchange for the latter’s promise to paint her house. This is not an example of agreements without consideration, as each party is offering something of value to others.
A legally valid consideration should have the following features -
Consideration should be real
Consideration provided by the two parties in a contract must be real or believable since an agreement without consideration is void. It should not involve illegal activities. A consideration is unreal if the law forbids it; if it is a fraudulent or immoral activity or if it is something that can cause damage to a person or property.
Consideration should be at the desire of the promisor
In a contract, consideration must be provided only at the desire or request of the promisor. Any service provided by voluntarily will not be a consideration, and the person offering it cannot ask for any service in return. For instance, If A took care of B when she was sick voluntarily, she (A) cannot claim any consideration for the same. And there can be no contract without consideration.
It can involve a Third-party
Under the Indian Contract Act of 1872, a promisee can provide consideration to the promisor or a third party if the former holds no objection. However, in that case, the third party can sue the contracting parties.
Consideration can be in the past, present or future
Once a contract has been drawn up, there can be three types of considerations – past, present, and future. The present and future considerations are known as executed and executor, respectively. An executed consideration, as the name suggests, is a consideration which has already been carried out by the person who made the promise. On the other hand, an executory consideration is a service that has been promised by one of the contracting parties but has not been delivered yet.
Additionally, a past consideration can be an act or service or abstinence that took place before the contract agreement was drawn. However, in this case, one should note that the consideration is only legally valid if it was provided by the promisee at the request of the promisor.
An agreement without consideration is a null and void agreement. However, there are certain exceptions where agreement without consideration is valid according to section 25 of the Indian Contract Act. These include: -
If a promise was given to an individual who provided a service voluntarily, then, in that case, all agreement without consideration is legally enforceable. Aside from voluntary service, if a person performs an act which the promisor was legally compelled to do, then a promise made in exchange for that service is considered valid.
For instance, let’s consider an example of a contract without consideration is the void exception. Suppose that two individuals A and B are neighbours. One day there was a fire at B’s house which A spotted on time and stopped from spreading. Due to this, B promised to pay A a sum of Rs.10,000 at a later date. This is one of the agreements without consideration which will be considered valid by a court.
Love and Affection
Another exception to the statement an agreement made without consideration is void is love and affection. According to section 25(1) Indian Contract Law, an agreement made between two individuals who are directly related to each other through blood or are near relations of one another, where the deal is in writing and has been registered formally, will be enforceable under law.
For example - C agreed to pay his brother D a certain sum of money every day for a year. A formal agreement was drawn and registered in a court. This results in agreements without consideration, where C is liable to pay that sum of money to D.
Time Barred Debt
Time-barred Debt is a type of Debt which was created when one individual borrowed money from another party and did not repay on time. As a certain amount of time has passed, it is no longer legally collectable.
Nevertheless, if the borrower made a promise in writing to return the amount, in whole or part, and he or his authorised agent signed the agreement; then it will be considered legally enforceable, even though it is an agreement without consideration.
Gifts and Charity
Gift or charity is also an exception of the rule that agreement without consideration is Void. Any gift or charity exchanged between a donor and donee will be considered a valid agreement under the law even if there was no consideration involved. Furthermore, a promise to make a future gift is also binding.
Q1. What is a Contract?
Ans. A formal written agreement between two parties where both agree to conduct an act in exchange of consideration is called a contract. Usually, it is in written format, but oral contracts are recognised too in some cases. Additionally, one should remember that a contract without consideration is void. Some of the different types of agreements include – unilateral, bilateral, executory, executed, Quasi, implied, express, void etc.
Q2. Why is an agreement without Consideration considered void?
Ans. In legal terms, consideration refers to an act or service of value that all parties involved in an agreement provide to one another for the successful execution of the contract. Hence, consideration forms an essential aspect of a contract. Consequently, an agreement without consideration is void.
Q3. What is Time-barred Debt?
Ans. If there is a contract between two parties, where one party has availed a loan from the other, and there is a time limit to repay this said due, it is known as time-barred debt.