By- Bhavya Priyadarshni Tripathi
(Mohanlal Sukhadiya University, college of law)
Meaning
“Ex nudo pacto actio non oritur” means “An agreement made without consideration is void.”
This Maxim is related to the Indian Contract Act, 1872. There are various elements which are essential to form a valid contract. One of them is Consideration.
To get a better understanding of this Maxim, we must first understand the meaning of Consideration and why it is a necessity, when forming a contract.
What is Consideration?
One of the essential components of a contract is Consideration. It means 'something for something' or 'something in return'. When someone promises to do or not to do something for someone else, he also needs some reciprocal gesture from the other party in return which in common parlance we mean consideration. It maybe a benefit given to one party, or some damage suffered by other. It can be in form of a promise, act or abstinence.
For example, if A agrees to sell to B goods, for a price of Rs 10,000. The amount is the consideration for A for parting with the goods, similarly the consideration for B to pay Rs 10,000 is goods sold by A.
Section 2(d) of the Indian Contract Act defines consideration as, “ When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains, or promises to do or to abstain from doing something such act or abstinence or promise is called a consideration for the promise.”
This definition of consideration provides that consideration may be past, present or future.
Past Consideration is something done before making the agreement. For instance, A rendered some services to B at the desire of B during his minority. Person B after attaining majority promised to pay an annuity to A for his services.
Present Consideration is something which is given simultaneously at the time of promise. For example, X sells his car to Y for Rs 50,000, Y pays the amount and X delivers the car to Y. This is the case of present Consideration.
Future consideration is a promise to do something in future. For example, A promises to deliver his car to Y after one week and Y promise to pay the price after ten days. This is the case of future consideration.
Section 25 of the Indian Contract Act provides, “An agreement made without consideration is void” thus, consideration is very important for a valid contract.
Also according to section 23 of the contract act, the consideration and object of the contract must be lawful.
In the case, Sreenivasa General Traders & Ors. v. the State of Andhra Pradesh, 1983 A.I.R. 1246., it was held by the Supreme Court that there should be a presence of consideration for each service rendered in the sphere of a contractual relationship.
Explanation
An agreement without consideration is void:
An Agreement without consideration is unenforceable and is therefore void. The reason why law enforces only those promises which are made for consideration is that, gratuitous or voluntary promises are often made rashly and without speculation. To prevent the parties seeking legal course for dispute arising when the conditions of such rash contractual obligations which lack consideration are not met, it is essential to put consideration as one of the essential element in order to be seen as a binding contract.
Illustration
If A promises to pay B Rs. 1000 without any obligation from B. This is a void agreement.
In the case of Prahlad v. Laud Devi, A.I.R 2007, Rajasthan 166., during cross examination the seller told that, he has not received any consideration, although it has been mentioned in the sale deed. An amount of Rupees 15 lakhs is due to be received by the seller from the buyer considering it an agreement without consideration, it has been declared as void.
Exceptions
There are some exceptions also that makes an agreement without consideration, valid and enforceable.
These are as follows:
An agreement in writing and registered, even without Consideration is valid, and which is made out of Natural love and affection is also valid:
If an agreement 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 having near relation to each other, it is valid even without consideration. The expression parties standing in near relation to each other means the parties are related to each other by blood relations. Nearness of relations does not always mean natural love and affection. It includes relation between father-son, husband-wife, brothers etc. such relations do not require consideration for a valid agreement.
In the case of Bhiwa v. Shivaram, 1899 Bom. LR 495., A Sued his brother B for a share of certain lands. The case was initially dismissed on the ground that the property was not ancestral. B later on by registered agreement agreed to give half of the property to A. The court held that the defendant B had such natural love and affection for his brother and in order to reconcile was willing to give him half of the property. Hence the agreement was held to be enforceable.
In Rajlukhy Dabee v. Bhootnath Mookerjee, (1900) 4 Cal WN 488., the defendant promised to pay his wife a fixed sum of money every month for her separate residence and maintenance. The agreement was duly registered and mentioned some domestic quarrels between the parties. The court held that the case is not covered under exception rules as there was no natural love and affection between the parties.
A promise to compensate for something done for past service:
If it is a promise to reimburse, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally bound to do, it is a valid agreement even without consideration from other party.
Example 1: B's purse was found by A, who returned the same to B. B promised to pay him rupees 500. The act of A is voluntary act this is covered under exception rule and B’s promise to pay rupees 500 is enforceable.
Example 2: A supported B’s minor son for years. B in return promised to compensate A for the expenses incurred in doing so. This is a valid contract.
In order to Claim exemption under section 25 the following conditions must be satisfied:
- The act must have been done willingly and not at the request of any party.
- The act must have been done for the promisor, who must be in existence at the time when the promise was done.
- The act must have been done for the promissory, who must have the capacity to contract at the time when the act was done.
- The intention of the promisor should be to reimburse the promisee.
- The services rendered must be legal.
Promise to pay a debt barred by limitation law:
If it is a promise made in writing and signed by the person to be charged therewith, or by his agent generally or especially authorized in their behalf to pay wholly or in part or debt of which the creditor might have enforced payment but for a limited period.
For example: A owes B rupees 1000, but the debt is barred by the Limitation Act. A sign a written promise to pay B Rupees 500 on account of the debt. This is a contract.
Legal Rules Regarding Consideration
1. The act must be at the desire of the promisor, and not at the desire of any third party.
2. Consideration must move from the promisee or any other person, as per the Indian law.
3. It must have some value in the eyes of the law.
4. Consideration may be an act, abstinence or a return promise.
5. It may be in Past, Present or Future.
6. It must be lawful.
7. It must be adequate & valuable in the eyes of law.
8. It must not be opposed to public policy.
Conclusion
“Ex Nudo Pacto Actio Non Oritur” is a Latin Maxim which explains the general rule, that is, the vitality of the presence of Consideration in order to form a valid contract, this simply means that, an agreement made without consideration is unenforceable and therefore is void.
In order to form a valid contract, an agreement must fulfill the requirements that are essential for its formation. The essential elements of a valid contract are mentioned under Section 10 of Indian Contract Act, 1872. According to which there must be an agreement, (which in turn, is again composed of offer and acceptance), there must be a Free Consent of the parties, the parties must competent to contract and the consideration and object of the contract must be lawful. This clearly shows that the presence of consideration is considered to be essential when forming a contract. Section 25 of the Indian Contract Act highlights that, “an agreement without consideration is void” thus, consideration is the life blood of a valid contract. Hence, there are certain legal rules regarding consideration that must be satisfied to form a good/ valid consideration. Also, there are some exceptions for the above rule, when an agreement without consideration is considered valid (mentioned above). The definition of consideration given in the act under section 2(d) provides that the consideration may be Past, Present or Future. Hence, in majority of the cases to consider any contact as binding, consideration is a necessary element.
References
· The Indian Contract Act, 1872
· Law Times Journal
· Advocatespedia.com
· http://dcomm.org/wp-content/uploads/2019/04/Paper-3.pdf
· https://www.coursehero.com/file/p17digc/vii-Agreement-in-restraint-of-trade-Sec27-Every-agreement-by-which-anyone-is/
· https://dokumen.pub/tulsians-business-law-for-ca-foundation-3rd-edition-3nbsped-9789353163150.html
[DISCLAIMER: This article is for general information only. We have tried to include as much information as possible but there are chances that some important information may have been missed .It is NOT to be substituted for legal advice or taken as legal advice. The publishers of the this article shall not be liable for any act or omission based on this note].
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