LAW OF CONTRACT: UNIT II

CONSIDERATION

Consideration (Sec 2(d)) = quid pro quo = something in return

                                    = Something of value received by promisee as inducement of promise.

Eg: ‘A’ agrees to sell his immovable property to ‘B’ for Rs. 1 lakh. Here A’s promise to sell and B’s promise to pay are both consideration.

Ingredients of consideration:

1. Consideration must be at the desire of the promisor. (Promissory Estoppel)
2. Consideration should be done by promisee or any other person.
3. Past, present or future consideration.
4. Consideration must be of some value.

 

1. At the desire of the promisor only.

Else it is no consideration. Eg: ‘A’ sees B’s house on fire and helps in extinguishing it. He cannot demand payment for his services because B never asked him to come for help.

However liability arises only when the promisor had by doing some act, on the faith of the promise, altered his position. (doctrine of promissory estoppel)

 

Durga Prasad v Baldev (1880) 3 All 221

Where collector had passed an order that anyone using the market constructed by Zamindar should pay commission to the Zamindar. It was held that it was not a proper order since the consideration did not move from Zamindar but from a 3^rd party.

 

1. by promisee or any other person.

Even a stranger to the consideration can sue if he is a party to the contract.

Privity of consideration =  only parties to the consideration may sue

 

1. Applicable in English law                   2.   not applicable in Indian law

 

Chinnaya v Rammaya (1882) 4 Mad 137. ‘A’ (an old lady) granted her estate to ‘B’ (her daughter) with a direction that ‘B’ should pay annually a specific sum to ‘C’ (A’s brother). On the same day, ‘B’ made a promise (agreement) to ‘C’ to pay the annuity as directed by ‘A’ but failed to pay it. It was held that in this agreement, the consideration was furnished by defendant’s mother (‘A’) and it was enough consideration to enforce the promise between ‘B’ and ‘C’.

 

Tweeddle v Atkinson (1861) 123 ER 762. Plaintiff’s parents and his wife agreed together that each would pay the plaintiff a sum of money after the marriage. However they failed to pay and plaintiff sued his executors. England court held that plaintiff cannot sue because no stranger to the consideration can take advantage of the contract, although made for his benefit.

 

1. Past, present (executed) or future (executory) consideration.

English law

 

1. Present            2. future consideration

                  Indian law

 

1. Past                 2. Present                    3. Future

                  Eg: a promise to pay time-barred debt is valid.

Present consideration = where liability is outstanding on one side only.

Future consideration  = where liability is outstanding on both sides.

 

1. Must be of some value.

Consideration must be real and not illusory. It must of some value in the eyes of law. Eg;  where ‘A’ promises to give his new car to ‘B’ provided ‘B’ will fetch it from the garage  = no legal consideration.

Further Sec 25 enacts that consideration need not be adequate. Eg:  if ‘A’ agrees to sell his horse worth Rs. 1,000 for Rs. 10 and A’s consent was freely given, it is a contract.

Effect: an agreement without consideration= void.

Exception to Consideration (Sec 25)

(I)                Natural love and affection

A written and registered agreement based on natural love and affection between near relatives is enforceable without consideration.

 

Near relatives

 

1. Related by blood
2. Related by marriage

 

Rajlucky Dubey v Bhootnath Mukherjee (1900) 4 Cal WN 488. Defendant promised to pay his wife a fixed sum of money for her separate maintenance and residence but failed to do so. Their agreement mentioned certain quarrels and disagreements between them. The court found no trace of love or affection between the parties and held the agreement to be void for lack of consideration.

 

(II)             Past voluntary service

                                                                               

A promise to compensate a person

 

Who has already voluntarily done something for the promisor

 

Or something which promisrr was legally compellable to do

 

 Eg:  ‘A’ and ‘B’ are friends. ‘A’ treats ‘B’ during his illness but did not accept the payment of treatment. ‘A’ promises B’s son ‘C’ to pay him Rs. 1,000. Here ‘C’ did nothing for ‘A’ so A’s promise is not enforceable.

 

(III)          Time-barred debt

A promise (express promise) to pay a time-barred debt is enforceable. A mere acknowledgement of debt is not sufficient.  Eg: ‘A’ owes ‘B’ Rs.2,000 but the debt is barred by Limitation Act. ‘A’ signs a written promise to pay B Rs.1,000 on account of debt. This promise is enforceable.

 

PRIVITY OF CONTRACT= no 3^rd party can sue upon a contract even if it made for his benefit.

Applicable in Indian law                    

applicable in English law

but there are certain exceptions

Jamna Das v Ram Avtar (1911) 30 I.A.7. ‘A’ had mortgaged some property to ‘X’. ‘A’ then sold that property to ‘B’ having agreed that ‘B’ would pay off the mortgaged debt to ‘X’. It was held that since there was no contract between ‘B’ and ‘X’, ‘B’ is not personally bound to pay the mortgage debt.

Exceptions to privity of contract: (in Indian law)

1. Trust: a trust is a property held and managed by one or more persons for another’s benefit. Eg: ‘A’ was appointed by his father as his successor and put in possession of estate. In consideration thereof ‘A’ agreed to pay a sum and to give a village to ‘B’ (illegitimate son of his father) on attaining his majority. Held that the trust was created in favour of B thus B is entitled to sue.

 

1. Beneficiary: a person (beneficiary) in whose favour a charge or other in terest in some property is created may enforce it.

 

Khwaja Muhammad Khan v Hussaini Begum (1910) 37 IA 152.  There was an agreement between the father and father-in-law of ‘A’ that in consideration of her marriage with his son, he would pay to her Rs.500 per month for the betel-leaf expenses and some immovable property was charged for the payment of these expenses. In suit by ‘A’ for recovery of arrears, it was held that although she was not a party to the agreement, she was entitled to enforce her claim being the beneficiary.

 

1. Acknowledgment: where by the terms of a contract, a party is required to make a payment to a 3^rd person and he acknowledges it to that 3^rd person (while making a part-payment), a binding obligation is thereby incurred towards him.

 

 

 

CAPACITY TO ENTER INTO A CONTRACT

Sec 10: parties must be competent to contract.

Sec 11: competent parties                        

Major

Sound mind

Not disqualified from contracting by law                 

MINOR’S POSITION

The age of majority is 18, but where a guardian is appointed it is 21.

A minor cannot contract.

NATURE/ EFFECT OF MINOR’S AGREEMENT

1. It is void ab initio.

 

Mohri Bibi v Dharmodas Ghose (1903) 30 I.A. 114. A minor executed a mortgage for Rs.20,000 and received Rs.8,000 from the mortgagee. In a suit by the mortgagee for recovery of the mortgage money, it was held that an agreement by a minor is absolutely void and therefore the mortgagee cannot recover the money nor could have the minor’s property sold under the mortgage.

 

1. No estoppel against minor.

When a minor misrepresents while making a contract that he is a major, no estoppel lies against such minor. He is not estopped from setting up a defence of his minority even if he acted fraudulently.

 

Khan Gul v Lakha Singh AIR 1928 Lah 609. Held that the law of estoppel is a general law and it has to be read subject to the special law contained in Indian Contract Act. When law of contract lays down that a minor shall not be liable upon a contract entered into by him, he should not be made liable upon the same contract by virtue of general rule of estoppel.

 

 

1. No liability in contract or in tort arising out of contract.

He may be liable in tort but not in a tort arising out of a contract.

 

1. Doctrine of restitution.

Object = to restore back the ill-gotten gains taken by the minor, rather than enforcing the contract.

 

Mohri Bibi v Dharmodas Ghose (1903) 30 I.A. 114. A minor executed a mortgage for Rs.20,000 and received Rs.8,000 from the mortgagee. In a suit by the mortgagee for recovery of the mortgage money, it was held that an agreement by a minor is absolutely void. The mortgagee then relied upon doctrine of restitution. Held that doctrine of restitution does not cover cases of money and thus minor cannot be made to repay.

 

Khan Gul v Lakha Singh AIR 1928 Lah 609. It was held that the doctrine of restitution rests upon the salutary principle that a minor cannot be allowed by a court of equity to take advantage of his own fraud. A false representation by an infant that he was of full age gives rise to an equitable liability. The grant of such relief is not enforcing the contract but a restoration of the state of affairs as they existed before the formation of contract.

 

RATIFICATION OF MINOR”S AGREEMENT= to confirm an agreement formally= not allowed.

A person cannot after attaining majority ratify an agreement made by him during his minority. Ratification relates back to the date of contract, hence a contract which was then void cannot be made valid by subsequent ratification.