The Indian Contract Act, 1872, forms the basis of contract law in India, outlining the basic principles that apply to agreements between individuals or entities. Section 25 of the Act stipulates a basic principle: agreements without consideration are void. This principle emphasizes the significance of consideration as an essential ingredient of any contract that can be enforced by law. Section 25 introduces some exceptions by which agreements without consideration are rendered valid. In effect, specific exceptions of consideration demonstrate how strict legal rules sometimes come together in maintaining moral or ethical obligations in the right measure.
What is Consideration?
As per Section 2(d) of the Indian Contract Act, 1872 “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.” In general, consideration is something of value that parties exchange when entering a contract. It can be either monetary, a promise, an act, or forbearance. It means that both parties will have a stake in the contract, and it is therefore enforceable by law. Section 25 reinforces this by saying that a valid agreement generally requires consideration. An agreement without consideration will be unenforceable unless one of the three exceptions mentioned in the section applies to it.
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Key Provisions of Section 25
Section 25 offers three major exceptions to the rule that agreements without consideration are void. Such exceptions enable certain agreements to be enforceable, even without consideration, under specific circumstances. This is a breakdown of the section and its elements.
General Rule
An agreement made without consideration is void.
Consideration is a necessary element for a valid contract under the general principles of the law of contract.
Exceptions
An agreement without consideration is valid if it falls within any of the three following exceptions:
(1) Agreement Based on Natural Love and Affection:
The agreement must:
Be in writing.
Be registered under the law applicable to the registration of documents.
Be out of natural love and affection.
Be between parties in a near relationship (such as parent and child, or brothers and sisters, or husband and wife).
Illustration:
A father promises in writing and registers the document to give Rs. 1,000 to his son. This is valid.
(2) Promise to Compensate for Past Voluntary Services:
A promise to compensate, wholly or partially, someone who has:
Already voluntarily done something for the promisor.
Performed something that the promisor was legally obligated to do.
Illustrations:
A finds B's lost purse and restores it. B undertakes to pay Rs. 50 to A. This is valid.
A looks after B's infant son. B undertakes to repay A for the cost incurred. This is valid.
(3) Promise to Pay a Time-Barred Debt:
A written and signed acknowledgement by the person liable, or by his agent authorised to make such acknowledgement, to pay, wholly or partly, a debt of which repayment cannot be enforced because time has run against it.
Illustration:
A owes B Rs. 1,000 but the debt is barred under the Limitation Act. A makes a written promise to pay Rs. 500. This is effective.
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Explanations to Section 25 of Indian Contract Act
Explanation 1 (Gifts):
This section validates the gifts even if there is no consideration involved. But they should be actually made.
Example: A father gives his son property. So, between the donor father and the donee son, the gift is valid.
Explanation 2 (Inadequate Consideration):
The consideration cannot make an agreement void just because of its inadequacy.
But such inadequacy can serve as evidence of the fact that whether the consent of the promisor has been given in a way that it is not free.
Courts may consider the sufficiency of consideration while deciding whether consent was given or obtained under duress or influence.
Illustration:
A agrees to sell a horse worth Rs. 1,000 for Rs. 10. The inadequacy of consideration does not invalidate the agreement if A's consent was given freely. But if A claims that he did not give his consent freely, the court will consider the fact of the inadequacy of consideration.
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Analysis of Section 25 of Indian Contract Act
Purpose: Section 25 ensures that the general rule of "no contract without consideration" has exceptions for situations rooted in natural love, voluntary services, and moral obligations.
Practical Implications:
Promises based on goodwill or moral duty can become enforceable contracts if they meet the outlined exceptions.
Courts carefully examine claims of inadequate consideration to identify undue influence, coercion, or fraud.
Cases Related to Section 25 of the Indian Contract Act
The following cases provide practical insights into how courts have dealt with agreements made without consideration and their validity under the exceptions mentioned in section 25:
1. Suresh Kumar Joon v. Mool Chand Motors, 2012
Facts: The plaintiff claimed to have advanced a loan of Rs. 35 lakhs to the defendants, formalized through an agreement executed on 08.05.1999.
Issue: The primary issue was whether the suit filed by the plaintiff was barred by limitation.
Contention: The plaintiff's counsel argued that the limitation period was preserved due to an acknowledgement of the loan made in writing by defendant no. 2 on 13.03.2007. However, this argument was dismissed as an acknowledgement made after the expiration of the limitation period does not revive the limitation. The plaintiff also contended that issuing a cheque towards repayment of a time-barred debt constitutes a valid contract under Section 25(3) of the Indian Contract Act, 1872.
Ruling: The court did not conclusively determine whether a dishonoured cheque constitutes a valid contract under Section 25(3) of the Indian Contract Act, 1872. Thus, the specific question of whether a cheque issued by a debtor to a creditor forms a contract under this provision was not addressed by the court.
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2. A.V Murthy v. B.S Nagabasavanna, 2002
Facts: The appellant filed a complaint before the Magistrate, alleging that the respondent committed an offence under Section 138 of the Negotiable Instruments Act, 1881. The appellant claimed that he, along with two friends, had advanced Rs. 7.5 lakhs to the respondent approximately four years earlier to help him establish a petrol pump. Despite repeated demands, the respondent failed to repay the amount. On 30-03-1998, at the appellant's request, the respondent issued a cheque in his favour. However, when the appellant presented the cheque for payment, it was dishonoured by the bank with the reason "account closed."
Issue: Whether the cheque issued by the respondent pertained to a debt or liability that was not legally enforceable.
Ruling: The court held that determining at this stage of the proceedings that the cheque was issued for a debt or liability that was not legally enforceable was both illegal and erroneous. Consequently, the court set aside the order of the learned Single Judge of the High Court, allowed the appeal, and remanded the matter to the Magistrate for further proceedings in accordance with the law. The court clarified that its observations on the enforceability of the debt or liability were limited to these proceedings, and the respondent retained the right to present any legally permissible defences.
Summary
Section 25 of the Indian Contract Act, 1872, deals with the issue of consideration in the contract law and makes provision for exceptions that reflect the moral, ethical, and practical realities. It has considered agreements based on love, voluntary acts, and time-barred debts as valid. Thus, it maintains the fairness and justice of contractual relationships. It provides for some promises that are enforceable without consideration if they fulfil specific conditions. This mix of strict legal principles with human values makes Section 25 a very important part of Indian contract law.
Section 25 of the Indian Contract Act, 1872: FAQs
Q1. What are the exceptions under Section 25?
Exceptions include love and affection, past voluntary services, and time-barred debts.
Q2. Are gifts valid under Section 25?
Yes, gifts are valid even without consideration.
Q3. Can a time-barred debt be enforced under Section 25?
Yes, if the promise to pay is written and signed.
Q4. Is a verbal agreement valid under Section 25 exceptions?
No, agreements under exceptions must be in writing and meet specific conditions.
Q5. Does Section 25 apply to family relationships?
Yes, it applies to agreements made out of natural love and affection between close relatives.
