Exceptions to No consideration No contract

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NO CONSIDERATION – NO CONTRACT: [Sec. 25]

The general rule is ex-nudopacto non oritur action i.e. an agreement made without consideration
is void. For example if A promises to pay B ` 1000 without any obligation from B. This is a void
agreement for want of consideration. However, the Act itself provides exceptions to this rule in
section 25 itself. As per section 25, an agreement made without consideration is not void in the
following circumstances:
1. Promise made on account of natural love and affection. [Sec. 25(1)]
2. Promise to compensate for voluntary services. [Sec. 25(2)]
3. Promise made to pay a time barred debt. [Sec. 25(3)]
4. Completed Gifts [Explanation 1 to Sec. 25]
5. Creation of agency [Sec. 185]
6. Contract of Guarantee [Sec. 127]
7. Remission [Sec. 63]
1. Promise made out of natural love and affection:
An agreement made without consideration is valid if it is in writing and registered and is made on account of natural love and affection between parties standing in a near relation to each other.
Thus, an agreement without consideration will be valid provided.
a. It is expressed in writing.
b. It is registered under the law.
c. It is made on account of natural love and affection.
d. It is between parties standing in near relation to each other.
Normally, these type of transfers are called gift.
2. Promise to compensate for voluntary services:
Voluntary service means service done without any request. An agreement made without
consideration is valid if it is a promise to compensate a person who has already voluntarily done
something for the promisor. To apply this rule the following essentials must exist.
a. The service should have been done voluntarily.
b. The service should have been done for the promisor.
c. The promisor must have been in existence at the time when the service was done.
d. The intention of promisor must have been to compensate the promisee.
e. The service rendered must also be legal.
Example:
A finds B’s purse and gives it to him. B promises to give A ` 50. This is a contract.
3. Promise to pay time-barred debt:
A promise by a debtor to pay a time-barred debt is also enforceable. But the promise must be in
writing. It must be signed by the promisor or his authorised agent. The promise may be to pay the
whole or part of the debt.
Example:
A owes B ` 1,000 but the debt is barred by the Limitation Act. A signs a written promise to pay` 500 on
account of the debt. The promise will be valid and binding without any fresh consideration.
4. Creation of Agency:
According to Section 185 of the Contract Act, no consideration is necessary to create an agency.
Thus when a person is appointed as an agent, his appointment is valid even if there is no consideration.
5. Completed Gifts:
Gifts once made cannot be recovered on the ground of absence of consideration. Absence of
consideration will not affect the validity of any gift already made. Thus if a person gives certain
properties as gift to another according to the provisions of the Transfer of Property Act, he cannot
subsequently demand the property back on the ground there was no consideration.
Example:
A gave a watch as a gift to B on his birthday. Later on A cannot demand the watch back on the
ground there was no consideration.
6. Contract of guarantee:
Under section 127, no consideration is needed for a contract of guarantee. In other words, contract of guarantee needs no consideration.
7. Remission:
Remission means lesser performance of the contract than what is actually to be performed.