Law of Contract (1872):Nature of contract; Classification; Offer and acceptance; Capacity of parties to contract; Free consent; Consideration; Legality of object; Agreement declared void

Validity of an Agreement without Consideration/Agreement without consideration-Exceptions

An agreement without consideration is void. Not only that, even inadequate consideration would render the enforceability of the contract quite difficult as the free consent of the parties would become suspect. The Act however contains certain exceptions to this important rule. These are:

i. On account of natural love and affection:

According to Section 25, “An agreement made without consideration is void unless 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.”

It follows, therefore, that the following four elements are essential for such agreement:

a)The agreement must be written.

b)The agreement must be registered under the prevailing law.

c)The parties to the agreement must be intimately related

d) There must be love and affection between the parties.

ii. Compensation paid for past voluntary services:

 A promise to compensate wholly or in part for past voluntary services rendered by someone to promisor does not require consideration for being enforced. However the past services must have been rendered voluntarily to the promisor. Further the promisor must have been in existence at that time and he must have intended to compensate.

iii. Promise to pay debts barred by limitation:

 Where there is a promise in writing to pay a debt, which was barred by limitation, is valid without consideration.

iv. Creation of Agency:

 In term of section 185 of the Act, no consideration is necessary to create an agency

v. In case of completed gifts, no consideration is necessary.

This is clear from the Explanation (1) to section 25 of the Act which provides that “nothing in this Section shall affect the validity as between donor and donee of any gift actually made.

Legality of object

According to section 10 of The Indian Contract Act, all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to void. It should be for lawful consideration and with a lawful object.

What consideration and objects are lawful and what not (Section 23)

The consideration or object of an agreement is lawful, unless:

1. It is forbidden by law

When something is forbidden by law, an agreement to do that is unlawful. An agreement to do what has been prohibited by the Indian Penal Code or by some other law cannot be enforced.

2. Defeat the provisions of law

If the object or consideration of an agreement is of such a nature that, if it is permitted, it would defeat the provisions of any law, such an agreement is void. Certain acts may not be expressly forbidden by law, but if they result in circumventing any law, they cannot be encouraged

3. Is fraudulent

If the consideration or object of an agreement is to commit a fraud, the agreement is void. An agreement to avoid competition with one another cannot be considered to be either fraudulent or opposed to public policy.

4. Agreement injurious to the person or property of another

If the consideration or the object of an agreement is to cause an injury to the person or property of another, the agreement is unlawful, and therefore void. Injury here means harm which is unlawful, for example, an agreement to commit fraud or a tort

5. Immoral or opposed to public policy

If the consideration or object of an agreement is regarded by a court to be immoral or opposed to public policy, the agreement is unlawful and void. Public policy means the policy of the law at a stated time. An act which is injurious to the interest of the society is against public policy. If an agreement is prejudicial to social or economic interest of the community, it will be against public policy to enforce such an agreement. On the one hand a persons right of contractual freedom should be maintained, on the other hand if the contract is against public policy the law must not allow that to be enforced.

 Agreement declared void

As per Section 2(g) of The Indian Contract Act , 1872 “An agreement not enforceable by law is said to be void”, and as per Section 2(j) of The Act “A Contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”.

Types of agreements expressly declared void:

1. Agreements by or with persons incompetent to contract.

A contract can also be void due to the impossibility of its performance. E g: If a contract is formed between two parties A & B but during the performance of the contract the object of the contract becomes impossible to achieve (due to action by someone or something other than the contracting parties), then the contract cannot be enforced in the court of law and is thus void.

2. Agreement entered into through a mutual mistake of fact between the parties.

Any agreement with a bilateral mistake is void.(Section 20) :- Where both the parties to an agreement are under a mistake as to matter of fact essential to agreement , the agreement is void.

Agreement , the object or consideration of which is unlawful(Section 23)

A consideration is unlawful if-

  • It is forbidden by law
  • It would defeat the provisions of any law.
  • It is fraudulent
  • It causes injury to the person or property of another
  • The court regards it as immoral
  • The court regards it as opposed to Public Policy.
  • Agreement made without consideration

4. Agreement in restraint of marriage

Every agreement in restraint of marriage of any person other than a minor, is void(Section 26)

5. Agreement in restraint of trade.

Every agreement by which anyone is restrained from exercised a Lawful profession, trade or business of any kind is void(Section 27)

6. Agreement in restraint of legal proceedings.(Section 28)

Every Agreement:

  1. by which any party is restricted absolutely from enforcing his legal rights under any contract is void.
  2. which limits the time within which an action may be brought is void.

7. Wagering agreements(Section 30)

An agreement between two persons under which money or money’s worth is payable by one person to another on the happen or non happening of a future uncertain event is called a wagering agreement.(Section 30)

8. Impossible agreements(Section 36)

Such an agreement can not be enforced since it is void whether the impossibility of the event was known to the parties or not is immaterial.

Law of Contract (1872):Nature of contract; Classification; Offer and acceptance; Capacity of parties to contract; Free consent; Consideration; Legality of object; Agreement declared void

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