Exceptions to the Rule of No Consideration: Natural Love and Affection, Past Voluntary Services, Time-Barred Debt, Completed Gifts, Agency under Section 185 and Remission under Section 63

The three exceptions in Section 25 are only part of the picture. A promise may bind without consideration in at least six recognised situations, three inside the section and three outside it, and the ones outside are commercially the more important. This topic takes each exception as a working provision: what must be pleaded and proved, what defeats it, and how it differs from the neighbouring exception it is most often confused with. The rule in Section 25 itself, and the reasoning behind it, is set out in its own topic.

1. The Six Exceptions at a Glance

2. Section 25(1): Natural Love and Affection

All four conditions must coexist, and the absence of any one defeats the claim. Writing and registration are questions of fact easily proved. The two that are litigated are near relation and natural love and affection, and they are separate requirements. Near relation identifies the class of persons within which the exception may operate; love and affection must then be shown to have been the actual reason for the promise.

• Near relation is not defined and is judged by the personal law and the social context of the parties. Spouses, parent and child, brothers and sisters are clearly within it. Remote relations by marriage, or persons related only by long friendship, are not.
• Natural love and affection is a question of fact drawn from the document and the surrounding circumstances. Where the recitals show that the promise proceeded from discord, the exception fails, as in Rajlukhy Dabee v. Bhootnath Mookerjee. Where they show that it was made to restore goodwill, the exception is satisfied, as in Bhiwa v. Shivaram.
• Registration is mandatory and cannot be dispensed with. An unregistered written agreement founded on natural love and affection falls outside the exception entirely, and the agreement is void for want of consideration.

3. Section 25(2): Compensation for Past Voluntary Services

The second exception fills a gap that Section 2(d) cannot. Past consideration is good in India, but only where the past act was done at the desire of the promisor. Where it was done without any request, Section 2(d) does not help, and Section 25(2) steps in to validate a subsequent promise to pay for it.

Five conditions are applied. The act must already have been done; it must have been voluntary, without request; it must have been done for the promisor, or must be something the promisor was legally compellable to do; the promisor must have been in existence when it was done, which excludes a promise by a company to pay for pre-incorporation services; and the person doing the act must have intended to be compensated rather than to confer a gratuitous benefit.

4. Section 25(3): Promise to Pay a Time-Barred Debt

The third exception rests on the principle that limitation bars the remedy and not the right. The debt survives the expiry of the limitation period; what is lost is the action. A written and signed promise to pay it therefore does not create a debt out of nothing, it revives the remedy for a debt that still exists, and that is why no fresh consideration is needed.

1. The debt must have been legally enforceable at some point. A sum that was never due, or that has been discharged by payment or by an accord, cannot be revived.
2. The promise must be in writing and signed by the person to be charged or by his agent generally or specially authorised in that behalf. An oral promise is outside the exception.
3. It must be a promise to pay, and not a bare acknowledgment. This is the most common error. An acknowledgment made before the period expires extends limitation under Section 18 of the Limitation Act, 1963 and gives a fresh starting point. A promise made after it has expired creates a fresh enforceable obligation under Section 25(3). The two operate at different times and produce different results.
4. The promise may be partial, in which case recovery is limited to the amount promised.
5. The promise may be conditional, and the creditor must then prove that the condition has been satisfied.

5. Explanation 1: Completed Gifts

Explanation 1 provides that nothing in Section 25 affects the validity, as between donor and donee, of any gift actually made. The distinction is between a gift that has been completed and a promise to make one. A completed gift stands notwithstanding the absence of consideration and cannot be impeached on that ground; a mere promise to give is an agreement without consideration and is void unless it satisfies Section 25(1).

The Explanation must be read with the law governing the property in question. A gift of immovable property is completed only when made by a registered instrument signed by the donor and attested by two witnesses, under Section 123 of the Transfer of Property Act, 1882; a gift of movable property is completed by registration or by delivery. Section 122 of that Act requires acceptance by the donee during the lifetime of the donor and while he is still capable of giving. Until the transfer is complete in the manner the law requires, there is no gift actually made and the Explanation does not assist.

6. Section 185: Agency Without Consideration

Section 185 provides in terms that no consideration is necessary to create an agency. The rule is a practical necessity, since a large proportion of agencies are gratuitous: a friend asked to collect a document, a relative given a power of attorney, a director acting for a company. Three consequences follow.

• The agent's authority is fully effective against third parties although he receives nothing. Acts done within the scope of his authority bind the principal under Section 226.
• The agent still owes the duties in Sections 211 to 218, including the duty to conduct the business according to directions, to act with reasonable skill and diligence, to render accounts and to pay over sums received. Gratuitousness does not reduce these duties, though the standard of care expected may be affected by the circumstances.
• The principal's obligations differ. Section 219 makes remuneration payable only where it was agreed, and Section 220 denies remuneration for business misconducted. But Section 222 requires the principal to indemnify the agent against the consequences of lawful acts, and that obligation applies to a gratuitous agent as much as to a paid one.

7. Section 63: Remission Without Consideration

Section 63 is the most far-reaching of the exceptions and the clearest Indian departure from English law. It provides that a promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for performance, or may accept any satisfaction he thinks fit instead of performance. No consideration is needed for any of these, and once made the remission binds the promisee.

English law reached the opposite result in Pinnel's Case, on the reasoning that payment of a lesser sum cannot discharge a greater, because the debtor gives nothing new. Section 63 displaces that reasoning entirely. In India a creditor who agrees to accept a reduced amount in full settlement, or who grants time, cannot afterwards resile for want of consideration.

7.1 The limits of Section 63

1. The remission must be by the promisee, that is by the person entitled to performance. A remission by someone else is ineffective.
2. Acceptance must be of the condition as well as the money. A creditor who wishes to preserve his claim must decline the payment or expressly reserve his rights before accepting, as the reasoning in Kapur Chand Godha shows.
3. Section 63 does not validate a remission obtained by coercion or undue influence. The promisee's act is a voluntary one, and Sections 15 to 19A apply to it as to any other.
4. It operates on performance, not on the contract itself. A remission discharges the obligation remitted; it does not rescind the contract, for which Sections 62 and 64 to 66 provide.

8. The Position Stated Shortly

1. Six exceptions exist: three in Section 25 and three elsewhere in the Act.
2. Section 25(1) requires writing, registration, near relation and natural love and affection in fact; all four must be present and registration cannot be dispensed with.
3. Section 25(2) covers a promise to pay for a past act done voluntarily for the promisor, and Sindha Shri Ganpatsingji shows it extends to services rendered during the promisor's minority.
4. Section 25(2) is distinct from Section 70, which imposes an obligation without any promise and measures recovery by the benefit conferred.
5. Section 25(3) requires a written signed promise to pay a time-barred debt, and is different from an acknowledgment under Section 18 of the Limitation Act, 1963.
6. Explanation 1 saves a gift actually made, which for immovable property means a registered and attested instrument under Section 123 of the Transfer of Property Act, 1882.
7. Section 185 requires no consideration to create an agency, though the agent's duties and the principal's indemnity under Section 222 remain.
8. Section 63 permits remission, extension of time and acceptance of any satisfaction without consideration, displacing the rule in Pinnel's Case.
9. Kapur Chand Godha: a creditor who accepts payment offered in full satisfaction cannot afterwards sue for the balance.

9. Related Topics and Provisions