GENERAL PRINCIPLES OF CONTRACTS

Section 25, Indian Contract Act, 1872

Agreement without consideration

SUBMITTED BY: SUBMITTED TO:

ABHINAV SRIVASTAV, KASHISH VIDUSH PURI
I SEMESTER, B.A.LL.B.(H) ASSISTANT PROFESSOR
FACULTY OF LAW

Submitted on

August 21, 2017

National Law University, Jodhpur

Winter Semester (January- May 2014)
Contents
ACKNOWLEDGMENT................................................................................................................. 3

INTRODUCTION .......................................................................................................................... 4

STATUTORY PROVISION .......................................................................................................... 5

PROMISES WITHOUT CONSIDERATION ................................................................................ 6

ADEQUACY OF CONSIDERATION........................................................................................... 7

AGREEMENT ON ACCOUNT OF NATURAL LOVE AND AFFECTION .............................. 8

Relevant judicial precedents ....................................................................................................... 8

Question of law and circumstantial interpretation of Natural love and affection .................... 9

COMPENSATION FOR VOLUNTARY SERVICES ................................................................. 10

Promise ................................................................................................................................... 10

Person who has voluntarily done ........................................................................................... 11

For the Promisor ..................................................................................................................... 11

Past and Voluntary Service .................................................................................................... 12

PROMISE TO PAY A TIME-BARRED DEBT .......................................................................... 13

Debt ........................................................................................................................................... 13

Debt barred by limitation .......................................................................................................... 14

Promise to pay ........................................................................................................................ 14

Promise to pay and Acknowledgement of debt under the Limitation Act ...................... 14

Promise in writing ..................................................................................................................... 15

Agent Generally or Specifically authorized in that Behalf ....................................................... 15

Explanation 1 ................................................................................................................................ 15

Explanation 2 ................................................................................................................................ 16

CONCLUSION ............................................................................................................................. 17
 ACKNOWLEDGMENT

Upon completion of our project, we would like to thank the people who lent sincere
contributions, without whose aid, this project would not have seen the light of day. We would
like to thank our Contracts teacher, Vidushi Puri ma'am, for her continued support and
encouragement.

We would also like to thank the Librarian for providing necessary books and material for our
project, and also the IT department for making available the vast resources of the internet at our
disposal. Above all, we would like to thank our friends and batch mates for providing us the
much needed assistance, whenever needed.
 INTRODUCTION

Section 25 of the Indian Contract Act, 1872, opens with the declaration that an agreement
without consideration is void... In England also, promises without consideration are not
enforced, because they are gratuitous1

In Rann v. Hughes2, the lord Chief Baron SKYNNER observed:

It is undoubtedly true that every man is by the law of nature bound to his engagements. It is
equally true that the law of the country supplies no means nor affords any remedy, to compel the
performance of an agreement made without consideration.

The Calcutta High Court has observed in a case that consideration is the price of the promise, a
return or quid pro quo, something of value received by the promisee as inducement of the
promise.3 In section 2(d) of the Indian Contract Act, consideration is defined a follows:

When at the desire of the promisor, the promisee or any other person has done
or abstained from doing, promises to do or abstain from doing, or does or abstains
from doing something, such act or abstinence or promise is called consideration for
the promise.

In English law, a contract under seal is enforceable without such consideration. English law
recognizes only two kinds of contract, the contract made by deed under seal, which is called a
deed, or the simple contract.4 Such an exception is not recognized under the Indian law, however
the Indian Contract Act, lays down a few others. This project mainly deals with the exceptions to
the rule of consideration, and the conditions thereto.

1
Heath J. in Lee v. Muggeridge, (1813) 128 ER 599.
2
House of Lords, (1778) 7 Term Reports 346.
3
Fazalludin v. Panchanam Das, AIR 1957 Cal 92.
4
Ansons PRINCIPLES ON THE LAW OF CONTRACT, 22 ND Edn, p.65.
 STATUTORY PROVISION

S.25. Agreement without consideration, void, unless it is in writing and

registered or is a promise to compensate for something done or is a promise to
pay a debt barred by limitation law.An agreement made without consideration
is void, unless An agreement made without consideration is void, unless"

(1) it is expressed 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; or unless

(2) 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

(3) It is a promise, made in writing and signed by the person to be charged

therewith, or by his agent generally or specially authorized 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 any of these cases, such an agreement is a
contract.
Explanation 1.Nothing in this section shall affect the validity, as between the donor and donee,
of any gift actually made.

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 whether the consent of the promisor
was freely given.
 PROMISES WITHOUT CONSIDERATION

Section 25 asserts that consideration, long after it has been defined in Section 10, is an essenetial
element of a binding contract. An agreement without consideration would thus be void and
unenforceable. However, there may be exceptional cases in which consideration may have to be
dispensed with, and thus, Section 25 saves them from the general rule. The section is quite
exhaustive, and an agreement made without consideration is either void in totality, or
enforceable only under this section. The Indian Contract Act, thus, prevents any confusion in that
regard.

A mere moral duty towards someone to perform a promise is without consideration and void5. In
Gopal Vinayak Deshmukh v. Trimbak Narayan Deshmukh6, it was held that a promise to pay to a
charitable institution is does not qualify as an enforceable one or a cause of action.

5
Firm Gopal Co. Ltd. v. Firm Hazari Lal Co. Ltd., AIR 1963 MP 37
6
AIR 1953 Nag 195
 ADEQUACY OF CONSIDERATION

The most obvious example of an agreement without consideration would be a purely gratuitous
promise, Nudum Pactum. Such promises do not have any legal standing, unless it comes under
the first exception given in Section 25. It must be noted that it is not that the act or promise
appear on the face of the transaction, or be in appearance or in fact of approximately equal value
with which the promise is exchange. The only requirement of the courts is that the consideration
must have some value in the eyes of law, and must not be illusory, so that its effect, on the
promisees position is real, though very small.7 In simpler words, consideration must be real and
not illusory, even though inadequate. It can be thus inferred that adequacy is purely a matter for
the contracting parties to decide upon. Thus, the courts do not generally inquire into the
adequacy of the consideration. There may even be a consideration without the accrual of any
benefit at all to the promisor. If the promisee has suffered any detriment, however slight, or,
though he has suffered no real detriment, if he has done what he was not otherwise bound to do,
in return for the promise, he has given a consideration; and the court will not ask whether the
promisor was benefited.8

Section 25 applies only to the situations where the transactions are contractual in nature.

7
Pollock&Mulla THE INDIAN CONTRACT ACT and SPECIFIC RELIEF ACT, 14th edn, p.603
8
Hitchcock v. Coker, (1837) 6 A&E 438
 AGREEMENT ON ACCOUNT OF NATURAL LOVE AND AFFECTION

Section 25(1) does not allow any form to dispense with consideration except when the promise
to do an act is in writing and registered along with motive of natural love and affection between
the parties contracting, and that they must stand in near relation to each other. The term near
relation is arguably vague, and hasnt been judicially construed or defined. A school of thought
in this regard is that the words near relation should be judicially construed uniformly without
regard to variation in the reckoning of degrees of kindred.9

Relevant judicial precedents

In the past, the judges have interpreted natural love and affection in contradictory ways.
Following are two such contradictory cases that support this argument.

In the case of Rajlukhy Dabee v. Bhootnath Mookerjee10, the defendant promised to pay his wife
a certain amount every month as maintenance. The promise was made in writing and the quarrels
the husband and wife had were also mentioned. A case was filed to recover the amount promised
to be paid as maintenance. However, the judge decided in favour of the defendant as although the
two were in a near relation, the court held that there was no natural love and affection between
them.

In another case, Bhiwa vs Shivaram11 two brothers quarrelled regarding some property. One of
them lost, upon which the other brother promised through a written and duly registered
agreement that he would give half his property away to him. He later backed out. When taken to
court, however, the court held that, in spite of the earlier property dispute, Section 25(1) applies
since the brother had made the promise out of natural love and affection for someone who was a
near relative, and therefore the brother was held liable to comply with his promise.

9
Nisar Ahmed Khan v. Rahmat Begum, AIR 1927 Oudh 146 (A muslim wifes parents stand in near relation to her
husband.)
10
(1900) 4 Cal WN 488
11
(1899) 1 Bom LR 495
 Question of law and circumstantial interpretation of Natural love and
affection

Who is near relative? The Act provides no guidance nor has the expression been judicially
construed. The expression will without doubt include parties related by blood or marriage.

Again, what is meant by natural love and affection? There is always some degree of instinctive
love and affection between nearly parties related. But this instinct may sometimes be overruled
by external circumstances, for example in the aforementioned case Rajlukhy Dabee v.
Bhoothnath Mukherjee.12

In the second case, Bhiwa v. Shivaram,13 as natural love and affection cannot be inferred as a
fact merely because no other motive of the promise is shown, it would seem that the court
presumed it from the relation of the parties. A desire for a reconciliation prompted by love and
affection for the plaintiff, is not anyway evident by the defendants conduct in declining to
perform the contract and subsequently driving his brother to the suit.14

Whatever it may be, it appears as a safe assumption that a promise by one brother to another,
unsupported by any consideration, and made solely with the view to purchase peace, can be
enforced in the court of law, on a mere supposition that the reconciliation was prompted by
natural love and affection, in the first instance.

12
(1900) 4 CAL WN 488
13
(1899) 1 Bom LR 495
14
Pollock&Mulla, THE INDIAN CONTRACT AND SPECIFIC RELIEF ACTS, 14 th edn, p.606.
 COMPENSATION FOR VOLUNTARY SERVICES

Under English law, past consideration is no consideration, unless it is an act done or promise
given at the request of the promisor.15 Section 25(2) gives an exception allowed in English
common law, to the principle, that the past consideration is no consideration at all.

The language of our law, The Indian Contract Act, anyhow, is quite clear in this regard, and thus
preventing the need to refer to English law, and thus must be taken as a deliberate policy. Section
25(2) covers cases where a person, without the knowledge of the promisor, or in cases with not
at his request, does the promisor some service and the promisor, later, undertakes to compensate
for such service.

Again, the essence of the Section is, no consideration is required for it. 25(2) says: it is a

promise to compensate, wholly or in part, a person which has already voluntarily

done something for the promisor, or something which the promisor was legally
compellable to do. The voluntary act should be otherwise than the desire of the promisor16

Promise
Obviously, there must be a promise in the first place. An example to illustrate upon this
condition could be found in Ahmed Jubilee S&M Co v. Chottalal Chagganlal17. A clause in a
memorandum and articles of association of a company providing for payment to a promoter does
not constitute a promise on the part of the company to the promoter. Hence, a claim against the
company for remuneration by a promoter of the company cannot be supported under this section,
where such a claim is based merely upon the provisions of the memorandum and articles of
association of the company.

15
Chitty on Contracts, 28th Edn., p.183, Ansons Law of Contracts 29 th Edn, p.98.
16
Pollock&Mulla THE INDIAN CONTRACT AND SPECIFIC RELIEF ACT, 14 th Edn, p.606.
17
(1908) 10 Bom LR 141
 Person who has voluntarily done

It should further be noted that the promise would be enforceable under Section 25(2) only if it
promises to compensate that very person, and no one else, who has already and voluntarily done
something for the promisor. A agreed to pay an amount to B who had trained As son in the art
of singing and dancing at his own cost. It was found that Bs sister, not B had rendered those
services. In a suit filed by B, it was held that since B had not done anything for the promisor or
his son in this case, there was no consideration for the agreement18

For the Promisor

It is essential that the act must have been done only for the promisor, without his knowledge, or
otherwise than at his request. If it is done at his request, then the situation is directly covered by
the definition of consideration in s.2(d) of the Indian Contract Act, 1872. The present provision
appears to cover cases where the person without the knowledge of the promisor, or otherwise
than at his request does the latter some service, and the promisor undertakes to compensate for
it.19

Another dimension to this condition is that the person for whom the voluntary act was done must
have been in existence when such act was done. Hence, work done by a promoter of a company
even before the establishment of the company cannot be covered under this Section.20

Further, the act must have been done for the promisor, who was competent to contract when such
act was done. Therefore, for example, a promise by a person that on attaining majority, he will
repay the money lent to him during his minority would probably not come under this exception,
the promisor not being competent to contract when the loan would have been made to him.

18
Bacchu Ram v. Chunder Tawaif, AIR 1916 Par 80
19
Ganjpatisinghji v. Abraham (1895) 20 Bom 755
20
Ahmed Jubillee Co. v. Chhotalal Chhaganlal
 Past and Voluntary Service

Its important, for the application of this sub-Section that the act is done entirely voluntarily.
Cases in the past have elaborated on the use and applicability of Voluntarily. The Andhra
Pradesh High Court in State Bank of Hyderabad v. Ranganath Rathi21 held that Voluntarily
done used in the section denotes something performed or done of ones own will, impulse and
choice, and not under constraint, prompting or suggestion of another.

Another dimension of this sub-Section, which the Act does not, however, mention explicitly, but
whose importance is realised with the help of the judicial enterprise, is the intention of the
promisor. The intention of the promisor must be to compensate for the past voluntary services. In
Abdalakkhan v. Purushottam22, a son had lent money to his father from time to time, not
intending to make a loan on him. When the father was heavily indebted, he transferred some
immovable property in favour of the son. The transaction was held to fall not under this sub-
Section as it was not to compensate the son for his service, but to defraud the Fathers creditors.

21
AIR 1966 AP 215
22
(1947) Bom 807
 PROMISE TO PAY A TIME-BARRED DEBT

For the application of Section 25(3), the following conditions must be satisfied:

1. It must refer to the debt which the creditor but for the period of limitation, might have
enforced;
2. There must be a distinct promise to pay wholly or in part such debts;
3. The promise must be in writing signed by the person or by his duly appointed agent.

Under s.25(3), a debtor can enter into an agreement, in writing to pay the whole or part of a debt,
which the creditor might have enforced if the limitation period had been active. A suit can lie on
a written promise to pay the barred the barred debt as it is a valid contract23. Such a promise
constitutes novation24, and hence, can form a basis of a suit independently of the original debt.

The reason for this provision is that the debt is not extinguished; only the remedy gets barred by
the passage of time. This provision does not revive a dead right but merely resuscitates
enforceability of the right, which already exists.25

Debt
The term debt means an ascertained sum of money. A debt must subsist notwithstanding its
recovery being barred by limitation. The debt must be otherwise recoverable but for the law for
the limitation of suits.

The expression Debt, here, also includes judgement debts. Therefore a promise to pay the
amount of a decree barred by limitation does not require any consideration to support it.26

23
David Clarke v. Rose Grimshaw, AIR 1923, Lah 481.
24
Lalji v. Ghasi Ram, AIR 1930, Oudh 456
25
Pollock&Mulla, INDIAN CONTRACT AND SPECIFIC RELIEF ACTS, 14 th edn, p.607.
26
Heera Lall v. Dhanpat Singh, (1878) ILR, Cal 500.
 Debt barred by limitation

An important condition is that the debt must have been barred by the Law of limitation of suits.
A debt owed by an insolvent does not come under the purview of s.25(3). An insolvent would be
under no obligation to pay a debt incurred, and any promise to pay such debt would be
unenforceable. Such a debt would be said to be barred by insolvency, and s.25 contains no
exception in favour of such debts.27

Promise to pay
A condition precedent for a time barred debt is a distinct promise to pay, and for application of
s.25(3), in the sense that the payment would be paid in the future. The promise must be express
and unequivocal.28

The promise to pay may be absolute or unconditional. If is absolute, and there is no but or if,
it will uphold a suit. If, for example, the promise to pay a time barred debt is within a month,
the promisee must wait for a month before he can sue on the promise.29

Promise to pay and Acknowledgement of debt under the Limitation Act

Another thing of great importance is the difference between Promise to pay and
Acknowledgement of Debt under s.18 of the Limitation Act, 1963. While an acknowledgement
under the Limitation Act is required to be made before the expiration of the period of limitation,
a Promise to pay under the meaning of s.25(3) is to be made after the expiration of the
limitation period only. After the expiration of the period of limitation, nothing short of an
express promise to pay shall qualify as one under s.25(3).30

As the language of s.25(3) required, a distinct promise to pay must have been made. For
example, if there are two debts, one barred and the other not barred, the promise to pay the latter
is not a promise to pay the time-barred one.

27
Toonthi v. Kazi Mirza, (1896),ILR 20 Bom 636.
28
Baru Mal v. Daulat Ram, AIR 1936 Lah 164.
29
Muhammad Abdullah v. bank instalments co. (1903) 31 All 495
30
Maganlal Harjibhai v. Amichand Gulabji (1928) 52 Bom 521.
 Promise in writing

Again, the language of the statute requires that the Promise made must be made in writing, in
order to be enforceable.

Agent Generally or Specifically authorized in that Behalf

As can be read from the language of s.25(3), the promise to pay the time barred debt must be
signed by the promisor himself, or an agent generally or specifically authorized. For example, an
executor may promise to pay the time-barred of the deceased.31 A pleader, similarly, cannot bind
his client, unless he is specifically authorized in that behalf32

Explanation 1

Nothing in this section shall affect the validity, as between the donor and donee, of any gift
actually made.

Where a document in form and substance is a gift, no consideration is necessary. Transfer of

propert through gift is governed by s.122 of the Transfer of Property Act, 1882. This permits
transfer of property without an consideration. And thus, s.25, ICA, does not apply to such
transactions.

31
PestonjiManekji v. Bai Meherbhai (1928) 30 Bom LR 1407
32
Bansidhar v. Babulal (1923) 50 Cal
 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 whether the consent of the promisor was freely
given.

Explanation 2 cites familiar principles of reasonableness and equity. The court leaves to parties
to decide their own bargains; freedom is given by not setting up a standard of exchangeable
values.

Further, Explanation 2 opines that lack of adequate consideration can anyway be used as a
ground to challenge the free consent given to a contract by either of the parties. It may be
material evidence of any coercion, undue influence, fraud, mistake or misrepresentation that
might have vitiated free consent to the contract.

The party seeking to set aside the contract on ground of absence of free consent must plead or
prove so.33

33
Debi Prasad v. Bhagwati Prasad, AIR 1943 All 63
 CONCLUSION

Having perused and traced the history of Section 25 of the Act from the perspective of the parties
making promises with lack of consideration and the concept of natural love and affection, near
relation, validity of promises to pay time barred debts, and to compensate for voluntary services,
the authors have comprehensively presented in various segments the growth and evolution of the
said section in its present form.

The project explains the now settled guidelines regarding transfer of property amongst persons
standing in near relation in a contract and the wording of such clauses as decided by the Rajlukhy
Dabee v. Bhoothnath Mukherjee34 and Bhiwa v. Shivaram35 decisions. They presents the original
form of the section, judicial cases regarding natural love and affection and near relation and
the influential decision of the Bombay High Court in the case. The project analyses critically, the
dichotomy that arose between the two judgements and the complications that followed them.

The project further explains the essentials of the term Voluntary Services by citing several
important judicial precedents, and the necessary essence of privity in such arrangements or
promises.

The project has also, in depth, explained the concept of time barred debts and whether promises
to pay such debts can be used as remedy to even debts and further the law and its regard in the
eyes of equity.

34
supra
35
supra