 |
INTRODUCTION
A
contract is an agreement enforceable by law. All agreements are not enforceable
by law and, therefore all agreements are not contract.
For
Example, an agreement by a shopkeeper to sell a specific product to the
customer might be a contract but at the same time agreement to watch a movie
together might not be a contract. Thus, for an agreement to be a contract all
the essentials mentioned under section 10 of The Indian contract act,
1872 must be satisfied.
The
conditions that must be satisfies according to section 10 of The Indian
contract Act,1872 are as follows:
(a) An
agreement between two parties, i.e. offer by one party and its acceptance by
the other party,
(b) Agreement
should be between the parties who are competent to contract,
(c) There
should be lawful consideration and lawful object in respect of that agreement,
(d) There
should be free consent of the parties, when they enter into the agreement,
(e) The
agreement must not be one, which has been expressly declared to be void.
So
according to Section 10 of The Indian Contract Act,1872 one of the essential of
a valid contract is LAWFUL CONSIDERATION.
The
general rule of India is that “An agreement without consideration is
void.” But there are certain exceptions
to the same.
The
points covered further are:
· Consideration-
Definition, Kinds, Essentials, Privity of Contract
·
Capacity to Enter into a
Contract
·
Minor’s Position
·
Nature / Effect of
Minor’s Agreements
CONSIDERATION
Consideration
means something in return for the promise. Section 2(d) of The Indian
Contract Act, 1872 defines consideration as
“
When, at the desire of the promisor, the promise or any other person has done
or abstained from doing, or does or abstains from doing, or does or abstains
from doing, or promises to do or to abstain from doing something, such act or
abstinence or promise is called a consideration for the promise.”
Section
25 of The Indian Contract Act,1872 provides
that, “An agreement made without consideration is void.” Thus,
consideration is an essential element of a contract.
According
to Salmond and Winfield, “A promise without consideration is gift; one made
for consideration is a bargain.”
Illustration
– A agrees to sell his house to B for Rs.
10,000. Here B’s promise to pay Rs.10,000 is consideration for A’s promise to
sell the house, and A’s promise to sell the house is the consideration for B’s
promise to pay Rs. 10,000.
The
definition requires the following essentials to be satisfied in order that
there is a valid consideration –
I. Consideration to be given
‘at the desire of the promisor’
Section
2(c) of The Indian Contract Act, 1872 defines
‘Promisor’ as the person making the proposal. It is essential that the consideration
must have been given at the desire of the promisor, rather than merely
voluntarily or at the instance of some third party.
So,
this essential means that some consideration must be there at the desire of the
person who has made the proposal and no interference must be there from any
other party.
In
the case of Durga Prasad v. Baldeo, the plaintiff built at his own
expense certain shops at a place on the order of the collector. The defendants
(shopkeepers) made a promise to the plaintiff to pay him a commission on the
articles sold. The plaintiff’s action to cover the commission was rejected
because the plaintiff act was not the result of the defendant’s promise but of
the Collector’s order.
I.
Consideration by Promisee
or any other person (PRIVITY OF CONTRACT)
According
to Section 2 (d) of The Indian Contract Act, 1872 consideration for a
contract can be made either by the promise himself or by any other person.
Which means that it is not compulsory that only the promisee is bound to
provide the promisor with consideration of the contract, any other person on
his behalf can also make the consideration.
Illustration
– A promises to give his watch to B for a
consideration of Rs. 2000. But for this contract gives Rs. 2000 to A on behalf
of B. This is a valid contract according to The Indian Contract Act, 1872.
Chinnaya
v. Ramaya is a landmark case, in which A, an old
lady, granted an estate to her daughter (the defendant) with a direction that
the daughter should pay an annuity of Rs. 653 to A’s brother (the plaintiffs).
On the same day, the defendants made a promise with the plaintiffs that she
would pay the annuity as directed by A. The defendant failed to pay the
stipulated sum. In an action against her by the plaintiffs she contended that
since the plaintiffs themselves had furnished no consideration, they had no
right of action. The Madras HC held that in this agreement, the consideration
has been furnished by the defendant’s mother and that is enough consideration
to enforce the promise between the plaintiff and the defendant.
PRIVITY
OF CONTRACT
Meaning:
The
doctrine of privity of contract means that only those persons who are parties
to the contract can enforce the same. Which means that if a person who is not a
party to a contract then in that case, he/she cannot provide other party with
consideration.
This
doctrine is not followed in India but it is followed in England. Both the
countries have a different prospective regarding the doctrine.
POSITION
OF DOCTRINE OF PRIVITY OF CONTRACT IN:
Case
Laws:
(a) England
– Tweddle v. Atkinson
In
this case the plaintiff, A married a girl, B. After this marriage there was
contract in writing between A’s father and B’s father that each would pay a
certain sum of money to A and that A will have the power to sue for such sums.
After the death of the two fathers, A brought an action against the executors
of B’s father to recover the promised amount. It was held that A could not sue
for the same. In this case the plaintiff was both a stranger to the contract as
well as stranger to consideration and he could not enforce the claim.
(b) India
– Jamna das v. Ram Avtar
In
this case, A had mortgaged some property to X. A then sold this property to B,
B having agreed to A to pay off the mortgage debt X. X brought an action
against B to recover the mortgage money. It was held by the Privy Council that
since there was no contract between X and B, X could not enforce the contract
to recover the amount from B.
Exceptions
to the doctrine:
(a) Beneficiary
under trust or charge
Where
trust is created by a contract a beneficiary may enforce the rights which the
trust so created has given him though not a party to the contract. Similarly, a
beneficiary can enforce charge though not a party to the deed.
In
the case of Dunlop Pneumatic tyre company v. Selfridge & co. the exception of Beneficiary under trust or
charge was first recognised under this case by Lord Haldane.
(b) Marriage
settlement, partition or other family arrangements
In
case of family arrangement if a provision is made for the benefit of a person,
he may enforce the agreement although he is not a party to it. In the case of Shuppu
Ammal v. Subramaniam on partition of HUF, two brothers agreed to invest
Rs.300 each for the maintenance of their mother. The mother was held entitled
to sue to enforce the agreement though she was not a party to the contract.
(c) Acknowledgement
or estoppel
If
a person is required under the terms of a contract, to pay certain sum of money
to a third person and he acknowledges it to that person, he becomes bound to
pay the money to the third person.
II.
Consideration may be
Past, Present or future
(i)
Past consideration:
It
basically means that when the act has already been done but the promise for the
same is made afterwards.
For
example, A asked B to help him with his work,
then after the completion of the work A promised B that he will pay Rs. 100 to
B for helping him with his work. In this situation, the act was already
completed but the promise was made later on as well as the consideration is
made after the completion of the act. Thus, this is known as past
consideration.
In
the case of Sindha Shri Ganpat v. Abraham, the plaintiff rendered
services to the defendants at the desire of the defendant during defendant’s
minority and continued those services after the majority. The defendant after
attaining majority, promised to pay an annuity to the plaintiff for the
service. The agreement was held to be enforceable.
(ii)
Present consideration:
Present
consideration is also known as executed consideration. In the case of present
consideration, the consideration is provided along with the making of the
contract.
In
the case of, India v. Chaman Lal Loona & Co. a clear distinction between present and future
consideration was made as follows: “An executed consideration consists of an
act for promise. It is the act which forms the consideration. No contract is
formed until and unless the act is performed, e.g. the payment for a railway
ticket but the act stipulated for exhausts the consideration, so that any
subsequent promise, without any further consideration is merely a nudum pactum.
In an executed or present consideration, the liability is outstanding on one
side only; it is present as opposed to a future consideration.”
(iii)
Future consideration:
Future
consideration is also known as Executory consideration. In the case of future
consideration, one person makes a promise in exchange for the promise by the
other side.
Example
– A agrees to supply certain goods to B and B agrees to pay for them on a
future date, this is a case of executory consideration. In the case of Rajlucky
Dabee v. Bhootnath Mookerjee, it was
held that near relationship covers blood relations or those related through
marriage, but would not include those relations which are not near, but only
remotely entitled to inherit.
(1) Compensation
for past voluntary service
When
something has been done “At the desire of the promisor”, that constitutes a
good consideration in respect of a subsequent promise to compensate for what
has already been done. The second
exception of Section 25 covers where a person without the knowledge of the
promisor, or otherwise than at his request, does the latter some service, and
the promisor undertakes to recompense him for it.
Example
– When A finds B’s purse and gives it to him and then B promises to pay A
Rs.50, this is a contract.
(2) Promise
to pay a time barred debt
Section
25(3) requires the following essentials to be satisfied:
(i)
The promise must be to
pay wholly or in part a time barred debt, that is a debt of which the creditor
might have enforced payment but for the law for the limitation of suits.
(ii)
The promise must be in
writing and signed by the person to be charged therewith, or his duly
authorised agent.
It
was established in England Long Back (1602), that a precedent debt is a
good consideration for a subsequent promise to pay the same. This includes time
barred debt also.
Thus,
if an insolvent debtor has been discharged from the payment under the
insolvency law, a subsequent promise by him to pay that debt cannot be enforced
unless there is a fresh consideration for the same.
III.
There should be some act,
abstinence or promise by the promise, which constitutes consideration for the
promise.
This
statement basically means that consideration must be of some value in the eyes
of law. It means that if nothing is done in exchange for the promise, that is
when there is no act, abstinence or promise, there is no consideration.
EXCEPTIONS
WHEN AGREEMENT WIHTOUT CONSIDERATION IS VALID:
(3) Promise
due to natural love and affection
When
the promise is made in favour of a near relation on account of natural love and
affection, the same is valid even though there was no consideration for such a
promise. The following requirements are to be satisfied:
(i)
The parties to the
agreement must be standing in a near relationship to each other
(ii)
The promise should be
made by one party out of natural love and affection for the other
(iii)
The promise should be in
writing and registered
CAPACITY
TO ENTER INTO A CONTRACT
One
of the most essential elements of a valid contract is the competence of the
parties to make a contract. Section 11 of the Indian Contract Act, 1872,
defines the capacity to contract of a person to be dependent on three aspects
that is:
(i)
Attaining the age of
majority,
(ii)
Being of sound mind,
(iii)
Not disqualified from
entering into a contract by any law that he is subject to.
(1) Attaining the Age of Majority
According
to the Indian Majority Act, 1875, the age of majority in India
is defined as 18 years. For the purpose of entering into a contract, even a day
less than this age disqualifies the person from being a party to the contract.
Any person, domiciled in India, who has not attained the age of 18 years is
termed as a minor. Thus, a Contract made with a Minor is Void
Since
any person less than 18 years of age does not have the capacity to contract,
any agreement made with a minor is void ab-initio.
Example
– A is a boy of 17 years and 6 months old. He needs some money to go on
vacation with his friends.
He approached a moneylender and borrows Rs 25,000. As security, he signs some
papers mortgaging his laptop and motorcycle. Six months later, when he attains
the age of majority, he files a suit declaring that the mortgage executed by
him when he was a minor is void and should be cancelled. The Court agrees and
relieves A of all liability
to repay the loan.
Also,
if a minor enters into a contract, then he cannot ratify it even after he
attains majority since the contract is void ab-initio. And, a void agreement
cannot be ratified.
(2) Person
of Sound Mind
According
to Section 12 of the Indian Contract Act, 1872, for the purpose of entering
into a contract, a person is said to be of sound mind if he is capable of
understanding the contract and being able to assess its effects upon his
interests.
If
there is a person who is usually of an unsound mind, but occasionally of a
sound mind, can enter a contract when he is of sound mind. No person can enter
a contract when he is of unsound mind, even if he is so temporarily. A contract
made by a person of an unsound mind is void.
(3) Disqualified
Persons
Apart
from minors and people with unsound minds, there are other people who cannot
enter into a contract. i.e. do not have the capacity to contract. The reasons
for disqualification can include, political status, legal status, etc. Some
such persons are foreign sovereigns and ambassadors, alien enemy, convicts,
insolvents, etc.
Nature
of minor’s agreement:
·
An agreement with a minor
is absolutely void.
·
The rule of estoppel does
not apply against a minor.
·
A minor’s agreement
cannot be ratified by him on attaining the age of majority.
·
A minor is liable for a
tort which is not directly connected with a contract.
·
A minor can be admitted
to the benefits of a partnership firm.
·
A minor can be appointed
an agent.
The
main case law related to this topic is, Mohiri Bibee v. Dharm Das Ghose.
Facts:
Plaintiff – respondent, a minor, mortgaged
his house in favour of a money lender to secure a loan of Rs.20,000 @ 12%
interest. A part of this amount was actually advanced to the plaintiff. The
money lender himself did not take part in the negotiation. On his behalf the
negotiation was made by his attorney. While considering the proposed advance
the attorney received information that the respondent was still a minor. On the
day on which the mortgage was executed the attorney got the infant to sign a
long declaration which he had prepared for him containing a statement that he
has turned into a major a month back. Relying on this the moneylender agreed to
advance to minor Rs.20,000. The attorney was fully aware at the time the
mortgage was executed of the minority of the respondent. After sometime the
minor If there is a person who is usually of an unsound mind, but occasionally
of a sound mind, can enter a contract when he is of sound mind. No person can
enter a contract when he is of unsound mind, even if he is so temporarily. A
contract made by a person of an unsound mind is void.
(4) Disqualified
Persons
Apart
from minors and people with unsound minds, there are other people who cannot
enter into a contract. i.e. do not have the capacity to contract. The reasons
for disqualification can include, political status, legal status, etc. Some
such persons are foreign sovereigns and ambassadors, alien enemy, convicts,
insolvents, etc.
Nature
of minor’s agreement:
·
An agreement with a minor
is absolutely void.
·
The rule of estoppel does
not apply against a minor.
·
A minor’s agreement
cannot be ratified by him on attaining the age of majority.
·
A minor is liable for a
tort which is not directly connected with a contract.
·
A minor can be admitted
to the benefits of a partnership firm.
·
A minor can be appointed
an agent.
The
main case law related to this topic is, Mohiri Bibee v. Dharm Das Ghose.
Facts: Plaintiff –
respondent, a minor, mortgaged his house in favour of a money lender to secure
a loan of Rs.20,000 @ 12% interest. A part of this amount was actually advanced
to the plaintiff. The money lender himself did not take part in the
negotiation. On his behalf the negotiation was made by his attorney. While
considering the proposed advance the attorney received information that the
respondent was still a minor. On the day on which the mortgage was executed the
attorney got the infant to sign a long declaration which he had prepared for
him containing a statement that he has turned into a major a month back.
Relying on this the moneylender agreed to advance to minor Rs.20,000. The
attorney was fully aware at the time the mortgage was executed of the minority
of the respondent. After sometime the minor
0 Comments