can contracts be formed without consideration? we know that consideration is an essential element of a contract. in fact, it is the main purpose of contracting. we may wonder why one would enter into a contract id he/she is not receiving any benefit from it. to answer all this we must understand what the Sec.25 of the Indian Contract Act,1872 has to say about this.
The section 25(2) of the Indian contracts act,1872 explains about compensation for past voluntary services. It is important for us to understand the meaning of the term consideration to further proceed with the topic. The sec2(d) of the Indian Contracts act ,1872 states that “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;” .
From the basics of the contract law or the sec.10 of the Indian Contracts act,1872 we know that Consideration is an essential element of a contract and therefore it is an important part of the contract. And an agreement without a consideration is therefore void. Then why do we need to have a separate section in the contracts act for the same purpose? This is because the section 25 of the Indian Contracts Act, 1872 mainly focusses on the exceptions to the rule that there cannot be contracts without consideration.one of the exceptions is compensation for past voluntary services. This means that a contract can be formed without consideration when the consideration of one part is considered to be delivered in the past for which the other party is gives the consideration in the present. To understand in deep, we can analyse sec25. Of the Indian contracts act,1872.
The sec25 of the Indian contracts act,1872 states:-
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—
(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.
The sec25 of the Indian contracts act,1872 says that agreements without consideration are considered to be void. It also gives a few exceptions to this rule.
The section clearly says that agreements without consideration are void unless: –
- It is in writing and registered
- Promise to compensate for something done
- Is a promise to pay time barred debt by limitation law
This topic will be mainly focussing on promise to compensate for something done.
The sec.25(2) says that somebody must have done something to the promisor and the promisee must have received a benefit from this act or omission. The promisor considers this as a compensation from the side of the promise and gives his part of the compensation to the promise in return. In such a contract the promise may not know that he would be receiving a benefit or something in return for the cat he has committed or for the consideration he has given to the promissor. In such cases the promise may not know at the time of giving his consideration that he is giving a compensation for a contract for which he will receive the consideration in the future. The promise may also not know that he is entering into a contract and he is the promisee. The promisor may pay back a part or the complete consideration to the promisee. It becomes binding on the promisor to pay for the voluntary service of the promisee in the past becomes binding on the promisor.
To give an example if Alia lost her pet dog and Ravi finds it. Ravi gives it to Alia and Alia gives Rs 1000 to Ravi in return. In this case Alia and Ravi did not get into any contract initially. Ravi did not know that Alia would give him some money if he found her dog but he did it out of his voluntary. In this case there was no offer or no acceptance. But this will be considered as a valid contract as per sec. 25(2) of the Indian Contracts Act,1872.
Another example can be Maya has voluntarily funded the education of Keshav’s son. Keshav promises to pay the money that Maya had paid for Keshav’s son. In this case Maya did not expect anything in return from Keshav but it is Keshav who is willing to pay for the expenses incurred by Maya on his son. In this case Maya is the Promisee and Keshav is the promisor. There are many other cases which fall into this exception.
Another exception is when the court held that if promisee has done something for the promisor and the promisor was legally compelled to do and a subsequent promise to pay for the act or omission is enforceable.
In the case of Karam Chand v. Basant Kaur[1], services that were rendered for a company that was not in existence was but a promise to pay for the services rendered was not bought as an exception under section 25(2) of the Indian Contracts Act,1872.
Therefore, a compensation for past services can be a valid consideration. Such considerations can make valid contracts according to Section. 25 of the Indian Contracts Act,1872.
[1] Karam Chand v. Basant Kaur,1911 Punj Rec No 31,p 91.
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