Exceptions to Consideration under Indian Contract Act | Civil Law for Judiciary Exams PDF Download

Introduction

• According to the Indian Contract Act 1872, consideration is a fundamental requirement for a valid contract. In essence, without consideration, a contract lacks enforceability.
• While consideration is typically necessary, there are exceptions outlined in the Indian Contract Act where agreements without consideration may still be valid.

Understanding Consideration in the Indian Contract Act

• Consideration in the Indian Contract Act refers to something of value exchanged between parties in a contract. It is vital for the formation of a legally binding agreement. Consideration can take the form of an action, refraining from an action, or a promise.
• As per Section 2(d) of the Indian Contract Act 1872, consideration is defined as the exchange where one party does, abstains from, promises to do, or promises to abstain from doing something at the desire of the other party. This mutual exchange forms the basis of a contract.
• Consideration signifies the intention of each party to be bound by the contract through the mutual exchange of benefits or detriments. Without consideration, a contract is typically deemed unenforceable, except in specific circumstances specified in the Indian Contract Act.

Features of Consideration

Consideration Should be Genuine

• Both parties must provide consideration that is sincere and believable.
• A contract without genuine consideration is considered void.
• Consideration should not involve any illegal, fraudulent, or immoral activities.

Consideration Should be at the Promisor's Request

• It should be given at the request or desire of the promisor.
• Voluntary services or actions cannot be considered valid consideration.
• For instance, if someone voluntarily helps another person, they cannot demand consideration.
• Without proper consideration, a contract cannot be legally binding.

Involvement of Third Parties

• Under the Indian Contract Act of 1872, the promisee can offer consideration to a third party if agreed upon.
• In such cases, the third party holds the right to sue the parties involved in the contract.

Types of Consideration

• Consideration can be categorized into three types based on timing: past, present, and future considerations.
• Present consideration refers to a service already completed by the promising party.
• On the other hand, future consideration represents a service promised but not yet fulfilled.

Exceptions to Consideration

• Natural Love and Affection: When parties with close relationships, like relatives or spouses, make agreements out of love and affection, it can be enforced without traditional consideration. Example: Peter and John, brothers, made an agreement out of love. Despite Peter not fulfilling the promise, the court upheld John's right due to natural affection.
• Past Voluntary Services: Contracts formed when a service is voluntarily provided in the past and acknowledged by the promisor can be legally binding. Example: Peter returning John's lost wallet voluntarily and John promising a reward is a valid contract without traditional consideration.
• Promise to pay a Time-Barred Debt: Promises to pay debts past their due date remain valid, even without fresh consideration. Example: Peter promising to pay John a time-barred debt is enforceable despite the lack of consideration.
• Creation of an Agency: Section 185 of the Indian Contract Act allows agency contracts without consideration.
• Gifts: Gifts are exceptions to the consideration rule, requiring no formal consideration for validity.
• Bailment: Delivery of goods under specific conditions does not require consideration for enforceability.
• Charity: Contracts based on charitable promises are valid even without traditional consideration. Example: Peter's contract for constructing a pond based on public contributions is legally binding, even without consideration.

Exceptions under the Indian Contract Act

Consideration under Indian Contract Act

• Natural love and affection
• Past voluntary services
• Promise to pay a time-barred debt
• Creation of an agency
• Gifts
• Bailment
• Charity

Examples

• Natural love and affection: A contract between family members based on love and affection without any monetary value.
• Past voluntary services: A situation where someone voluntarily performs a service without any prior agreement for payment.
• Promise to pay a time-barred debt: A promise to pay a debt that is legally unenforceable due to exceeding the statute of limitations.
• Creation of an agency: When one party authorizes another to act on their behalf in legal matters.
• Gifts: Transferring ownership of something without expecting anything in return.
• Bailment: Temporarily handing over possession of goods to someone else for a specific purpose.
• Charity: Contracts made for charitable purposes where no consideration is involved.