Agreements without Consideration are void unless they are in writing and registered a promise to make restitution or a pledge to pay a debt that is legally excluded from collection, according to Section 25 of the Indian Contract Act.
Section 25 of the Indian Contract Act, after defining Consideration under Section 2(d) of the Indian Contract Act, asserts that “consideration is the key component of a legal contract” and also lists several exceptions to the norm that it sets, in which cases a contract cannot be declared void even if it lacks Consideration.
These are the exceptions:
- When a written and registered contract is used.
- When a person is being paid for prior volunteer services, they provide them to the promisor.
- When a person or his agent makes a written commitment to pay all or a portion of a debt that is legally forbidden by a statute of limitations.
Efficacy of the Consideration
The law on this matter is straightforward and unambiguous as provided under Section 25 of the Indian Contract Act: the Consideration need not be of a certain set value or a close approximation to the promise for which it is traded, but it must have some values in the eyes of the law.
Agreements based on natural love and affection under Section 25 of the Indian Contract Act
The courts have shown that the English notion of “Solemnity of the deed” has never been accepted as it is in India by using a different line of reasoning in several judgments on identical difficulties in situations involving contracts, including love and passion.
Therefore, a simple formal arrangement of a promise does not result in a legitimate binding masters service agreement, and additional considerations must be taken into account when there is a contract made gratuitously and without compensation.
Payment for services provided voluntarily
This exemption is covered by Section 25 of the Indian Contract Act that there is no necessity for Consideration if someone acts on the promisor’s behalf or renders services without the promisor’s knowledge. And in response, the promisor demonstrates his readiness to make amends by making an undertaking.
However, several requirements—discussed below—must be met for an exemption to fall within this category as provided under Section 25 of the Indian Contract Act.
- There must be a Promise.
- This promise must be for Volunteer service provided.
- The Assistance must be given to the promisor.
Under Section 25 of the Indian Contract Act, it is necessary for the act or service to be performed to be particularly for the promisor, without his knowledge or at his request. The promisor must further pledge to pay the volunteer in the future for their services.
It must be remembered that Sections 2(a) and 2(d) will immediately apply to any request from the promisor to accept service, and Section 25 of the Indian Contract Act will not be applicable.
Promise to settle a debt that is barred by limitation under Section 25 of the Indian Contract Act
The following conditions must be met in order to use Section 25 of the Indian Contract Act with regard to this kind of no-consideration contract:
- There should be a formal commitment signed by the individual or his designated representative.
- There has to be a commitment, either to pay the loan in whole or in part.
- The creditor must have pursued the obligation within the statute of limitations.
Under Section 25 of the Indian Contract Act, a debtor may enter into a written masters service agreement to pay a portion of the total amount. In such circumstances, a lawsuit may be admissible given the written commitment to pay the obligation.
1) A constraint on debt
A determined sum of money that is due in response to a demand for payment and that may be recovered via legal action is referred to as a “debt.”
Only when the statute of limitation is applicable and with its help is the debt recoverable from the defendant under section 25 of the Indian Contract Act. When the defendant is exempt from the need to pay the debt for another reason, Section 25 of the Indian Contract Act does not apply.
2) The promisor’s obligation
This exemption only applies in instances where the promisor is a party to the obligation; it does not apply where the promise is to settle a third party’s obligations as provided under Section 25 of the Indian Contract Act.
A Hindu son’s promise to settle his father’s debts may also only be enforced against the joint family property he inherited.
3) A guarantee to pay
This is a prerequisite before applying Section 25 of the Indian Contract Act. The guarantee must be unambiguous, without any qualifiers that might cause any form of misunderstanding.
When a lawsuit involving rent arrears outside the statute of limitations is filed, section 25 of the Indian Contract Act does not apply. Additionally, a promise to pay must be included in the promissory note for an endorsement to qualify under Section 25 of the Indian Contract Act.
4) A written commitment
All requirements outlined in Article 299 of the Indian Constitution regarding the government’s contractual authority must be met by the commitment. The pledge must be put in writing as provided under Section 25 of the Indian Contract Act.
When a proposal is accepted, it turns into a promise, and in this situation, the promisor may make a proposal that is approved before any further actions are required.
5) Make a full or partial payment
The pledge to pay a debt that is legally banned by the statute of limitations may be limited to paying only a portion or may extend to paying the whole obligation. However, if just a portion of the obligation is time-barred and the promisor agrees to pay all of the arrears, the landlord is entitled to total payback.
Section 25 of the Indian Contract Act provides that there may be a legitimate contract formed in certain circumstances even if the Consideration is insufficient or absent altogether. These exclusions are offered to make the law’s application simpler and to account for exceptional situations.
It is recommended to take legal advice from an advocate when entering into any contract. Taking legal advice would be beneficial as any advocate would go through all the pros and cons of the agreement and may suggest the right way out.