This article has been written by Ravi Shankar Pandey. He is currently pursuing B.A.LL.B. (Hons.) from Dr. Ram Manohar Lohia National Law University, Lucknow. In this article, he discusses Section 25 of ICA (Indian Contract Act, 1872) along with the exceptions to the general rule.

Introduction

Section 25 of the Contract Act reads- “Agreements without consideration, void unless it is writing and registered or is a promise to compensate for something or is a promise to pay a debt barred by limitation law”. This section after defining consideration in definition clause in Sec. 2(d) declares that “consideration is the vital part of a valid contract” and also states some exception to the rule that it establishes and in such exceptions, the contract cannot be rendered void even if it is without consideration.

The exceptions are:

1. When the contract is in writing and registered
2. When it is for compensating someone for his voluntary services for the promisor in the past.
3. When it is a promise, signed or made in writing by the person or his agent to pay whole or part of a debt which is barred by the law of limitation.

Note:

1. In case of transfer of any gift from one person to another, this section does not affect its validity.
2. Mere inadequate consideration in a contract does not render it to be void under this section. However, inadequacy may be taken into account to check whether the consent was free or not.

Illustrations

1. X agrees to sell his bicycle worth Rs. 5000 for Rs. 1000 to Z. The agreement is lacking adequate consideration but it is not void. However, it may be taken into account by the court to see whether the consent was free or not.
2. A Promises without consideration to give his car to B. This is a void agreement. However, if A out of natural love and affection promises and writes and registers it, to give his car to B, this is a contract.

Promises without consideration

According to Privy Council in Siqueria v Noronha[1], “Section 25 is exhaustive; and so it is able to cover every agreement within its ambit to qualify the enforceability of it. If it qualifies the agreement, it will be enforceable and if does not it will be not enforceable at all”. In addition, a mere duty which is moral in nature [2] or a promise to take membership or subscribe to a charitable institution is void [3].

Adequacy of consideration

The simplest agreement which is without consideration is that which is formed out of pure gratuity. Such a promise is not enforceable. The law on this point regarding the adequacy of consideration is simple and clear- that the consideration is not required to be of a particular fixed value or an approximation to the promise for which it is exchanged but it must be that have some values in the eyes of the law. It must change promisee’s position after the consideration is acted upon or transferred from promisee to the promisor.

Agreements on account of natural love and affection under the Indian Contract Act

With a different line of reasoning in different judgments on similar issues in the cases on contracts involving love and affection, the courts have shown that the English doctrine of “Solemnity of the deed” has been never received as it is, in India. Hence, a mere formal arrangement of a promise does not result in a valid binding agreement and other factors must be considered in the cases when there is a contract without consideration, gratuitously.

But, if the agreement emerges out of affection and is registered in written form, it will amount to a valid contract. When a husband formed and registered an agreement with his wife that he will give his earrings to her, it was held that there was a valid agreement.[4]

On the Contrary, the existence of the near relation between the parties is not sufficient to show that there is affection between them. On this line of reasoning in Rajlukhy Dabee v Bhootnath[5], where the husband was sued for not performing his part of a promise by not giving separate residence and maintenance to his wife, it was not held to be a valid contract. The court ruled in favour of the husband stating that “the terms of the arrangement between the husband and wife clearly show that there was no affection between them and so, it was without consideration. Thus, it was void ab initio.

As natural love and affection cannot be assumed every time when no other motive is known, the court presumes by considering the relation between the parties.

In Vijay Ramraj v Vijay Anand[6], the Court held the contract enforceable when the promisor who promised to pay a certain amount to his relative during his life died. The contract was held to be formed out of natural love and as the document of the contract was registered also, the heirs of deceased were made liable for specific performance of the terms of the contract by virtue of Sec. 25(1) and Sec. 37 of the Contract Act as it would have been done by the promisor if he had lived.

Compensation for voluntary services

This comes as another exception on the principles of English law which states that past consideration is no consideration at all unless it’s a promise or an act done on promisor’s request. Section 25 (2) covers this exception and there is no requirement of consideration if a person does an act or gives his service to the promisor without the knowledge of the promisor. And in turn, the promisor shows his willingness to compensate for it by an undertaking.

However, for an exception to fall under this category, some ingredients which are discussed below need to be fulfilled:

• Promise

Existence of promise to compensate in future must be there to form an exception under this section. If there is no promise, no contract arises in such a situation and thus suit for specific performance cannot be maintained.

• Voluntary service

In Hyderabad State Bank v Ranganath Roy[7], it was stated by the Court that “the term “voluntarily done” shows the performance of something based on one’s own impulses, will and choices. There should be no constraint or pressure or suggestion from anyone”.

Thus, there should be a voluntary service to seek remedy under this section. If someone else other than the plaintiff has provided the service, such contract is not enforceable by the plaintiff. In Bachhu Ram v Chunder[8] where the defendant agreed to pay B for teaching the defendant singing and dancing at her own cost and when it was discovered that she was B’s sister who had actually rendered the service, specific performance was not allowed by the court.

• Service for the promisor

It is a prerequisite under Section 25 that the act is done or service rendered should be voluntary in nature and specifically for the promisor- without his knowledge or at his request. In addition, there must be a promise by the promisor to compensate for volunteer’s service in the future. It must be also kept in mind that if there is a request from the promisor to take a service, this will be directly affected by Sections 2 (a) and 2(d) and will be not entertained under Section 25.

Some important points which are to be considered in these cases are as follows:

• The promisor must be competent at the time when he promises to compensate in the future. If a minor for example, in case of voluntarily done service, promises that he will repay a sum or will do anything for the plaintiff, such cases cannot be entertained on the ground that the party to the contract was incompetent and thus the contract is void ab initio [9].
• When the defendant promises to pay the plaintiff for his voluntary service and further service is rendered at someone else’s request for which no promise was made by the plaintiff, such promise could not be supported under this section.[10]

Promise to pay a time-barred debt

This type of no-consideration contract falls under Section 25(3) and for invoking it, some essentials must be satisfied:

• There should be a written promise signed by a person or his appointed agent.
• A promise must be there, either to pay a whole or a part of the debt.
• The debt must have been enforced by the creditor for the limitation period.

A debtor can enter into a written agreement under Section 25 (3) for paying a part of the complete debt and a suit can lie in such cases when there is a written promise for paying it.

1. Debt barred by limitation

The term “debt” denotes an ascertained amount of money which is payable in respect of money demand and by action, may be recovered. Section 25 (3) only applies when there is the applicability of the law of limitation and with its aid, the debt is enforceable against the defendant. Section 25 (3) is not applicable when the defendant is not bound to pay the debt for other reasons.

2. The debt of the Promisor

This exception comes into picture only in cases when a promisor is a person liable for the debt and it does not extend to situations when the promise is to pay the debts of a third person.[11] In addition, a Hindu son’s agreement to pay for his father debts can only be enforced against the joint family property which he inherited.[12]

3. Promise to pay

This is a condition precedent for the application of this section. The promise must be expressed and it must not be qualified to result in any kind of confusion i.e. it must be equivocal.[13] Section 25 (3) is not applicable when there is a suit relating to arrears beyond limitation period, of a rent. In addition, for an endorsement to comply with the exception under Section 25 (3), the promissory note must consist of an undertaking to pay.

4. Promise in writing

The promise must comply with all the norms under Article 299 of the Indian Constitution relating to the contractual power of the Government. The promise must be in written form. A proposal becomes a promise when it is accepted and in this case, there may be a proposal by the promisor which may be accepted before an action lie.

5. To pay wholly or in part

The promise to pay a debt barred by the law of limitation can restrict itself to pay a part or may extend for the whole debt. But, when only a part of the debt is time-barred and the promisor takes an undertaking to pay all the arrears, the landlord is entitled to repayment of the whole amount.[14]

Non-Applicability of Section 25(3)

When by forming an agreement, both the parties to the contract fix a date for repayment of the loan/debt which is after the period of limitation, in such cases, the Limitation Act does not acknowledge the debt within the meaning of Section 18 of the limitation law. In addition, when the offer of performance was not accepted by one of the parties, it is not considered as a promise within the ambit of Section 25 (3) of ICA.[15]

Conclusion

While concluding it may be said that as Section 10 which talks about lawful consideration and section 2(d) which states the definition of consideration make it very clear that it is an important requirement for the formation of a valid and binding contract. But, in certain events, even when there is any inadequacy of consideration or its total abstinence, there may be a valid contract formation. These exceptions are provided for easier implementation of law in order to cover unusual events.

References

[1] Siqueria v. Noronha AIR 1934 PC 1934.

[2] Firm Gopal Company Ltd v Firm Hazari Lal & Co AIR 1963 MP 37.

[3] T v Kameshwar Singh AIR 1953 Pat 231.

[4] Poonoo Bibee v Fyez Buksh (1874) 15 Beng LR App 5.

[5] (1900) 4 Cal WN 488.

[6] AIR 1952 All 564.

[7] AIR 1958 AP 605.

[8] AIR 1916 Pat 80.

[9] Suraj Narain Dubey v Sukhu Aheer AIR 1928 All 440.

[10] Durga Prasad v Baldeo (1881) ILR 3 All 221.

[11] Tulsibai v Narayan Ajabrao AIR 1974 Bom 72.

[12] Asa Ram v Karam Singh AIR 1929 All 586.

[13] Girdhari Lal v Vishnu Chand AIR 1932 All 461.

[14] Kapaleeshwarar Temple v Tirunavukarasu AIR 1975 Mad 164.

[15] Union of India v Bikaner Textiles AIR 1961 Raj 211.