ASSIGNMENT ON CONTRACT LAW-I

AMITY LAW SCHOOL

TOPIC- “AGREEMENT WITHOUT CONSIDERATION IS

VALID CONTRACT”

SUBMITTED BY: SUBMITTED TO:

AASHI WATS Prof. [Link]
LLM 2022-2023 PROFESSOR LLM
A90819322004
SEM-1

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ACKNOWLEDGEMENTS
I would like to express my gratitude to my teacher [Link] who gave me the golden opportunity
to do this wonderful project of CONTRACT LAW II, and also helped me in completing my project. I
also came to know about many new and different things and I am really thankful for giving me this
[Link] I am thankful to my parents and friends who helped me in finalizing this project
within a limited time frame.

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 CONTENTS

Table of Contents
SUBMITTED BY: SUBMITTED TO:.....................................................................................................1
LLM 2022-2023 PROFESSOR LLM.......................................................................................................1
A90819322004.............................................................................................................................................1
SEM-1..........................................................................................................................................................1
Introduction.........................................................................................................................................................4
 The exception to the ‘no consideration, no contract’ rule.....................................................................7
 Natural love and affection......................................................................................................................8
 Past voluntary service.............................................................................................................................9
 Time-barred debt..................................................................................................................................10
Inadequacy of consideration..........................................................................................................................12
Conclusion.........................................................................................................................................................15
BIBLIOGRAPHY............................................................................................................................................16

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Introduction 
According to Section 10 of the Indian Contract Act, 1872, agreements are considered a valid
contract if they are made by the free consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby expressly declared to be void. This
Section lays down the essentials of a valid contract. Thus, consideration is an integral part of the
contract. 

As per Sections 10 and 25 of the Indian Contract Act, the contract is void without consideration,
hence the rule is “No consideration, no contract”. However, under Section 25 of the Contract Act,
exceptions are mentioned whereby an agreement made without consideration will not be void. It is
a universal rule that there is no agreement without consideration and without considering the contract is
void. In this article we will discuss, the universal rule that is A CONTRACT WITHOUT
CONSIDERATION IS VOID” But, there are some exceptions of consideration to this rule.

CONTRACT:

contract is a legally binding agreement that defines and governs the rights and duties between or
among its parties.[1] A contract is legally enforceable when it meets the requirements of applicable
law. A contract typically involves the exchange of goods, services, money, or a promise of any of
those. In the event of a breach of contract, the injured party may seek judicial remedies such as
damages or cancellation.[2] In the Anglo-American common law, formation of a contract generally
requires an offer, acceptance, consideration, and mutual intent to be bound. Each party must be those
who are binding by the contract.[3] Although most oral contracts are binding, some types of contracts
may require formalities such as being in writing or by deed.[4] In the civil law tradition, contract law is
a branch of the law of obligations.[5] Each country recognised by private international law has its own
national system of law to govern contracts. Although systems of contract law might have similarities,
they may contain significant differences. Accordingly, many contracts contain a choice of law clause
and a jurisdiction clause. These provisions set the laws of the country which will govern the contract,
and the country or other forum in which disputes will be resolved, respectively. Failing express
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agreement on such matters in the contract itself, countries have rules to determine the law governing
the contract and the jurisdiction for disputes. For example, European Member States apply Article 4 of
the Rome I Regulation to decide the law governing the contract, and the Brussels I Regulation to decide
jurisdiction.

AGREEMENT:

An agreement is a manifestation of mutual assent by two or more persons to one another. It is a

meeting of the minds in a common intention, and is made through offer and acceptance. An agreement
can be shown from words, conduct, and in some cases, even silence. Agreements are often associated
with contracts; however, "agreement" generally has a wider meaning than "contract," "bargain," or
"promise. " A contract is a form of an agreement that requires additional elements, such as
consideration. Jurisdictions differ on their use of "agreement" in denoting a legally enforceable
contract. For example, the Supreme Court of Washington has stated that a contract is a promise or set
of promises which is protected under the law, whereas an agreement is a manifestation of mutual assent
which does not necessarily carry legal implications. However, in Pennsylvania, an agreeemnt has been
defined as a enforceable contract wherein the parties intend to enter into a binding agreeement.
However the agreeement'sessential terms need to be certain enough to act as a basis when determining
whether there has been a breach. Additionally, an agreement to agree is not enforceable. In California,
the distinction between a final agreement and an agreeement to agree is dependent on the objective
intent of the parties. Where an agreement is written, courts will determine the intent of the parties
through the plain meaning of the words of the instrument. In criminal law, the inchoate offense of
conspiracy requires an agreement to commit an unlawful act. An agreement in this context does not
need to be explicit; rather, a meeting of the minds can rather be inferred from the facts and
circumstances of the case.

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CONSIDERATION
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. Features of
ConsiderationA legally valid consideration should have the following features - Consideration Should
be RealConsideration 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 [Link] Should be at the Desire of the PromisorIn a contract,
consideration must be provided only at the desire or request of the promisor. Any service provided
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 [Link] Can Involve a Third-
PartyUnder 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 FutureOnce 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 that 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 [Link], 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.

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  The exception to the ‘no consideration, no contract’ rule 
Section 25 of the Act lays down a few exceptions where the contract without consideration is not void.
According to Section 25, an agreement made without consideration is void unless:

1. It is the contract in writing and registered.

2. It is for compensating someone for his voluntary services toward the promisor in the past.

3.  It is a promise made in writing to pay a whole or part of a debt that is barred by the law of
limitation.
Note:

1. This Section does not affect its validity in the transfer of gifts from one person to another.

2. Inadequacy of consideration does not render the contract void under this Section. However,
to check whether the consent was freely given, the inadequacy of consideration would be
considered.
 The general rule is ex nudo pacto non orithur actio,i.e.,an agreement made without
consideration is void . Section 25 and148 and 185 deals with the exceptions to this [Link] such
cases the agreements are enforceable even theough they are made without consideration. These
exceptions are –
1. NATURAL LOVE AND AFFECTION
2. PAST VOLUNTARILY SERVICES
3. PROMISE TO PAY TIME BARRED DEBT
4. AGENCY
5. GIFTS AND CHARITY
6. BAILMENT

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  Natural love and affection 
Section 25(1) states that: “It is in writing and registered under the law for the time being in force
for the registration of [documents] and is made on account of natural love and affection between
parties standing in a near relation to each other”.

The question that arises under this Section is what is meant by natural love and affection? The
Contract Act provides no guidance regarding the ambiguous term, and neither the court nor anyone
can decide its exact interpretation. Those who are related by blood or marriage would find some
degree of instinctive love and affection between them. But this is not the same for all the
circumstances. The existence of near relations between the parties does not mean that there is
affection among them. Therefore, the term is subjective which cannot be appropriately defined, and
therefore anyone can easily take advantage of it.

In other words, if an agreement is made in writing and registered between the two or more parties
which are in close blood relation or spouse based on natural love and affection, such an agreement
is enforceable in the court of law even when there is no consideration to other parties.

Example: A wants to give his car to B as a gift. B is a grandson to A. Due to love and affection,
the agreement is valid in the eye of law even when there is no consideration in return.

In Rajlukhy Dabee vs Bhootnath Mukerjee (1900), the Defendant, Plaintiff’s husband, promised to

pay her sum of money every month for maintenance. This agreement was maintained under a
registered document that also stated certain quarrels and disagreements between the two. The
Calcutta High Court refused to treat the agreement as one of the exceptions of the said Section as
no traces of love and affection were found between them due to the quarrels which compelled them
to separate.

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  Past voluntary service
As section 25 (2) of the Contract Act, stated that "It is a promise to compensate, wholly or in part, a
person who has already voluntarily done something for the promisor, or something which the promisor
was legally compellable to do, or unless."
Here, it is another exception to the principles of English Law which shows that past consideration has
no value in the eye of law unless it's a promise or an act done on promisor's request.
If a person had done something in the past and the beneficiary promises to pay in future, then the
contract is binding when it fulfils;
[Link] service was voluntarily done in the past,
[Link] was rendered to the promisor,
[Link] promisor was in existence when the service was done,
[Link] promisor is willing to compensate for the service.
In other words, if a promise has been given to an individual who has been provided service voluntarily,
then, in this case, all agreements are enforceable without consideration.
It means that the promise to pay for the past voluntary service is binding. Some essentials of the
subsection include: the service provided should be voluntarily done in the past to attract the exception,
the service rendered should be to the promisor, the promisor existed when the service was rendered,
and the promisor willingly promises to compensate for the voluntary service. 
Example: Suppose, A and B are neighbours. And, B's house caught fire then A spotted that and
stopped it from spreading. After this B promised A to pay Rs. 50,000/- as a reward. Here, A acted
without consideration. This is an example of an agreement without consideration.
In T.V. Krishna Iyer v. Official Liquidator of Cape Comorin general traffic Co. (1951), the Kerala High
Court held that the payment of the bonus would not attract the exception under Section 25 because the
employees render the services in exchange for wages which was not voluntary. Thus, extra
compensation was not allowed on the grounds of past voluntary services.

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  Time-barred debt
As section 25 (3) of the Contract Act, stated that "It is a promise, made in writing and signed by the
person to be charged therewith or by his agent generally or specifically authorised in that behalf, to pay
wholly or in part a debt of which the creditor might have enforced payment but for the law for the
limitation of suits."
In other words, the time-barred debt was created when one individual borrowed money from another
party and did not repay on time. As a certain amount of time has been passed, then it is no longer
collectable.
This type of agreement without consideration falls under section 25 (3) and for invoking it, some
essentials must be satisfied:
1. A written promise should be signed by a person or his appointed agent.
2. A promise must be there, to pay wholly or partly debt.
[Link] debt must have been enforced by the creditor for the limitation of the period.
A promise to pay a time-barred debt is enforceable. A time-barred debt is typically a debt that has
passed the statute of limitation and cannot be collected. The person or his agent should sign the same.
The intention to pay the debt should be expressed and not gathered from the surrounding
circumstances. Even though the word “express” is not used in clause (3) of Section 25, it is essential
that the promise to pay must be clear and expressed. 
Example: A owes B Rs. 5000/- And the debt is timebarred by the Limitation Laws. Later, A sign to
pay Rs. 5000/- to B.
In Tulsi Ram vs Same Singh (1980), a brief note at the back of the promissory note was written by the
promisor accepting that he has taken the loan. However, the promisor did not expressly mention his
agreement to pay the debt on the expiry of the limitation period. It was held that the brief note
acknowledging the debt unaccompanied by any words promising or undertaking to pay was not
sufficient to attract Section 25. 

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  Agency
Section 185 of the Contract Act, provided that no consideration is required to form a contract of
agency. Therefore, when an individual person is appointed as an Agent, his appointment agreement
can be without consideration and the agreement of appointment is valid. Whereas, the consideration
to an agent is the remuneration but, no consideration is required at the time of appointment of an
agent.

 Gifts and Charity

In any of these cases, such an agreement is a contract. 
Section 25: Explanation [Link] in this Section shall affect the validity, as between the donor and
donee, of any gift actually made. 

The rule of ‘no consideration, no contract’ does not apply to gifts. The validity of the movable gift once
delivered and immovable gift perfected by the registration cannot be questioned on the ground of lack
of consideration. However, it may be questioned on other grounds. 

When a gift deed was made and attested by the two witnesses, the Bombay High Court did not allow
the donor to question the witness on the ground that she was the victim of fraud which was not able to
be established. (Vasant Rajaram Narvekar v Ankusha Rajaram Narvekar and Ors., 1994)

In [Link] vs [Link]. & Ors (2003), the question was raised whether the Appellant who
was a minor during the execution of the gift deed could be held to have legally accepted the property.
The minor son kept the property with the father who on his son’s behalf never repudiated the property.
The son himself was sixteen years old and could understand the nature of beneficial interest conferred
on him. Having the knowledge of the gift and not repudiating it even after attaining the majority age
infers that he had impliedly accepted the gift. Thus, the gift deems to be accepted and becomes
irrevocable.

Similarly, charity is also an exception to this rule. Any transfer in the way of gift or charity exchanged
between donor and donee will be considered as valid agreement even there is no consideration.

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  Bailment

Section 148 of the Contract Act, defines bailment as the delivery of goods from one person to another
for some purpose. This delivery is made upon a contract that post accomplishment of the purpose, the
goods will either be returned or disposed of, according to the directions of the person delivering them.
No consideration is required to effect a contract of bailment.

 Inadequacy of consideration
In any of these cases, such an agreement is a contract.

Section 25: Explanation 2.—An Agreement to which the consent of the promisor is freely given is not
void merely because the consideration is inadequate, but the inadequacy of the consideration may be
taken into account by the Court in determining the question of whether the consent of the promisor was
freely given.

According to explanation 2, the inadequacy of the consideration should be taken by the court on
account in determining whether the consent of the promisor was freely given. As long as the court is
satisfied that a person has entered into an agreement through his free will and has adequate knowledge
of its effects the agreement would stand valid notwithstanding the inadequacy of the consideration. 

For example, B agrees to sell a horse worth Rs. 10,000 to C for Rs. 1,000. Considering that B’s consent
was given freely then the agreement between the parties is a contract notwithstanding the inadequacy
of the consideration. However, if B’s consent was claimed to not be freely given then the court would
take into account the fact of the inadequacy of the consideration in determining whether or not B’s
consent was freely given. 

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  Explanation Case Study Example:

The lack of compensation might be considered into account by the court in finding out whether the
consent given by the promiser was given out of willingness and no false or unfair means. Also just
because the consideration is lacking doesn’t mean the consent given by the promiser for signing the
agreement is freely given and is not void.

B gets Rs. 1,000, for no consideration from the promiser party  A. This type of case is considered a
void agreement.

B the son of A receives a house as a token of love and affection from his father A. The promiser party
A puts his consideration into writing and even registers the same. Thus this type of giving and take is a
contract.

B lost his purse and the other party A found the purse and returned it to party B. This party B promises
to give Rs. 200 to party A. This type of deal is a contract

Cases:

1. Considerations Appear to be Misappropriated:Sometimes, we feel many deals are unfair. Yet many
times the court passes judgment based on the quality consideration that has been made between the two
parties even if the consideration has been made disproportionately without negotiating the process
whether it was conducted under good or bad faith. During the verdict, if the court feels the
consideration has been made on an unfair basis, the contract falls apart then and there. This happens
because the consideration is made disproportionately which indicates that one party acted unfairly and
made the deal appear fair to the other party by hiding some information from them. Thus this lack of
consideration, makes the contracts made fall apart in the eyes of the court. But there might be a case
where the value of money is more for one party but it may be worthless to the other. Hence many times
courts don’t judge such cases based on the relative worth or specific promises until and unless they feel
it has been made under unfair modes. The last scenario for such deals is a negotiation between the two
clients and fairly getting enough of their rights to them.

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 2. Worth of the Word “ Consideration” in the Contract:The contract being made is generally entered
into “ For valuable and good consideration” which is rationally a word describing the importance of
acknowledgement or something that might affect the case. For this purpose, a statement of the
beginning of the contract provides the main consideration points. This statement at the beginning of the
contract giving information of the compensation and promises for good values is referred to as recital.
It is believed by many writers that by just mentioning the word consideration the contract justifies the
reason and terms of the client. But in major states, these recitals have zero value and are considered
non-entity as they aren’t able to justify the consideration made between the two people. To justify in
another way, we can't state that the consideration is valid until it has been proved and approved by both
parties on a fair mean [Link] grads and the experienced folks generally came on terms that the
contract need not include anything other than the statement on which both the clients agree. Also, the
statement made here needs to be done on a fair basis without hiding any information from any of the
other parties. Exceptions for such cases are agreements that are generally signed by one party only.
These agreements or contracts could be assignments, promissory contracts or option agreements. In
such contracts in the recital part, a statement justifying that the consideration is sufficient should be
included as it’s evident that a bargained-for exchange has taken place already with the client.

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Conclusion
Section 10 of the Indian Contract Act talks about lawful consideration and Section 2(d) lays down the
definition of consideration making it absolutely clear that consideration forms an important part of a
valid and binding contract. Thus, most of the agreements entered into without consideration do not lead
to the formation of a valid contract. However, under certain circumstances, even inadequacy of the
consideration or its abstinence leads to the formation of a valid contract. These exceptions are
mentioned under Section 25 of the Indian Contract Act. Other circumstances where the rule of ‘no
consideration, no contract’ does not apply are during the creation of an agency under Section 185 of the
Indian Contract Act; no consideration is required to create an agency. Under Section 148 of the Act,
which defines bailment, when goods are delivered from one person to another for some purpose and
after the accomplishment of that purpose, the goods will either be returned or disposed of, according to
the directions of the person delivering them. Thus, no consideration is required to bring the contract of
bailment into effect. Therefore, all these exceptions result in the easier implementation of the law in
order to cover unusual circumstances and events. So that An agreement without consideration is void and
also a contract without consideration is void. The term consideration has been defined under section 2 (d) of the
Contract Act, and under section 23 of the Act, the provisions have been provided relating to lawful
consideration. It is very clear that consideration is a very important and crucial part of the formation of a valid
contract. And, this is the general rule that there is no agreement without consideration. But, they are certain
exceptions to this rule which are provided under sections 25(1) to 25(3) of the Indian Contract Act, 1872.

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BIBLIOGRAPHY

BOOKS NAME:
• Law of Contract - Bare Act 2021 Edition Professional
• The Indian Contract Act 1872 Bare Act 2021 Edition
• Law of Contract & Specific Relief Dr Avtar Singh Latest Edition-2020
• Pollock & Mulla - The Indian Contract Act, 1872
• CONTRACT Paper I - By R.K. Bangia [Edtion 2019 - 2020]
• CONTRACT Paper-II - By R. K. Bangia
• NOTES ON INDIAN CONTRACT ACT 1872: BEST NOTES FOR LAW STUDENTS

[Link]
Exceptions_when_agreement_without_consideration_is_valid 

The legality of agreements without consideration - iPleaders

[Link] the-legality-of-agreements-wit...

Contract without Consideration:Exception to No ... - Toppr

[Link] indian-contract-act-1872-part-i

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