Section 25 of the Indian Contract Act, 1872

Section 2(e) of the Indian Contract Act of 1872 states that every promise and every pair of promises that form consideration for each other constitute an agreement. As a result, it is obvious that the establishment of consideration for a promise or promises is a critical basis for a promise to become an agreement. There can be no agreement without consideration. Section 25 of the legislation expresses the same point in more detail as well as providing three circumstances where an agreement without compensation is a legitimate contract −

Section 25: A contract without consideration is null and void unless

• It is written and documented, and the promise was made out of genuine love and affection between the individuals standing close to one another.

• It is a commitment to compensate, in whole or in part, someone who has willingly done something for the promisor or who was legally obligated to do something for the promisor.

• It is a pledge to repay a past-due obligation.

What is Consideration?

"Consideration" is defined in contract law as the response to the inquiry, "How do you profit by joining this contract?" For a contract to be legally binding, both parties must receive consideration. If you buy a jacket from your favourite retailer, the clothing is the consideration you receive, while your money is the consideration the store receives.

Consideration is often comprised of a promise to do something you are not legally compelled to do or a pledge not to do something you have the legal right to do.

Legal Elements of an Agreement

In cases where this is ambiguous, courts have established standards to help decide whether an agreement genuinely exists. First, whether verbal or written, an offer and acceptance must exist. In most circumstances, the person who receives the offer considers it carefully and frequently offers a counteroffer. The party who made the first offer may sometimes change or withdraw it. All of these circumstances have the potential to cause confusion and conflict.

Some deals have an expiration date, although they are not available for an extended period of time. What constitutes a decent period of time is up for debate. If a party wishes to evaluate your offer for a longer period of time than you feel reasonable, you can ask them to pay for the option because you won't be able to make it to anybody else during that time.

Accept an offer as quickly as possible because it might be cancelled at any time until you accept. The agreement is legally binding once you accept it and cannot be modified or withdrawn.

Features of Consideration

A legally valid consideration should include the following elements −

Consideration should Be Real

The consideration offered by the two parties in a contract must be genuine or credible, as an agreement without consideration is null and invalid. It must not entail any illicit actions. A consideration is unreal if the law prohibits it, if it is dishonest or unethical, or if it might bring harm to a person or property.

Consideration should be given to the Promisor's Desires

Only at the wish or request of the promisor must consideration be offered in a contract. Any service done freely will not be considered, and the individual providing it may not want anything in return. For example, if a willingly cared for B while she was ill, she (A) cannot seek compensation. And there can be no contract until there is consideration.

It can Involve a Third-Party

A promisee may offer consideration to the promisor or a third party under the Indian Contract Act of 1872 if the former has no objection. In that circumstance, the third party has the right to sue the contractual parties.

Consideration can be in the Past, Present, or Future

Once a contract has been drafted, three sorts of considerations can be made: past, present, and future. The terms "executed" and "executor" refer to current and future considerations, respectively. As the name implies, an executed consideration is one that has already been carried out by the person who made the commitment. On the other hand, an executory consideration is a service that one of the contractual parties has promised but not yet provided.

A previous consideration can also be an act, service, or abstention that occurred before the business agreement was drafted. However, it should be noted that in this scenario, the consideration is only legally acceptable if it was offered by the promisee at the request of the promisor.

Exceptional Circumstances

An agreement that lacks consideration is null and invalid. According to Section 25 of the Indian Contract Act, there are few instances where an agreement without compensation is lawful. These are some examples −

Voluntary Service

If a promise was made to an individual who willingly offered a service, then every agreement without compensation is legally enforceable. Aside from voluntary service, a promise made in exchange for such service is regarded as legitimate if a person executes an act that the promisor was legally obliged to perform.

Love and Affection

Love and affection are another exception to the rule that an agreement formed without consideration is null and invalid. According to Section 25(1) of the Indian Contract Law, an agreement formed between two persons who are closely related to each other by blood or are close relatives of one another, where the contract is in writing and has been properly registered, shall be legally enforceable.

Time-Barred Debt

Time-barred Debt is a sort of obligation that occurs when one person borrows money from another and fails to repay it on time. It is no longer lawfully collectible once a specific length of time has elapsed.

Nonetheless, if the borrower makes a written commitment to return the sum, in whole or in part, and he or his authorized representative signs the agreement, it will be regarded as legally enforceable, even though it is an agreement without compensation.

Gifts and Charity

A gift or charity is another exception to the rule that an agreement without compensation is null and void. Even though there is no compensation involved, each gift or charity given between a donor and recipient is regarded as a legal agreement under the law. A promise to make a future donation is also legally binding.

Conclusion

Section 10 of the Indian Contract Act discusses legitimate consideration, and Section 2(d) defines consideration, making it abundantly obvious that consideration is an essential component of a valid and enforceable contract. As a result, the majority of agreements made without contemplation do not result in the establishment of a genuine contract. However, in some cases, even insufficiency or an absence of thought results in the establishment of a legitimate contract. Section 25 of the Indian Contract Act specifies certain exclusions. Other times where the rule of "no consideration, no contract" does not apply are when an agency is formed under Section 185 of the Indian Contract Act; no consideration is necessary to form an agency.

FAQs

Q1. What does the Contract Act of 1960, Act 25, say about consideration?

Ans. The performance of an act or the promise to do an act may be adequate reason for another promise, even if that conduct is already forbidden by some legal duty, whether enforceable by the other party or not.

Q2. What are the exceptions to the rule that an agreement without consideration is void under Section 25?

Ans. A gift or charity is another exception to the rule that an agreement without compensation is null and void. Even though there is no compensation involved, each gift or charity given between a donor and recipient is regarded as a legal agreement under the law.

Q3. What are the exceptions to a valid contract?

Ans. As a result, according to the contract legislation, everyone except the following is competent to engage in a contract: It's a minor. A person who is mentally ill. A person who has been specifically ruled ineligible to enter into a contract under any law