Definition of Consideration
Q. 6 (a). What is consideration? Explain its essential ingredients with the help of suitable examples.
Or
"Consideration must move from the promise." Explain.
Or
What do you understand by consideration? Inadequacy of consideration does not render an agreement void. Explain with reasons.
Ans. Consideration constitutes the very foundation of the contract. An agreement not supported by consideration is void (Sec. 25, Contract Act). Consideration is the cause of the promise and in its absence the promise would only be a gratutious promise or bare promise. The fact that a promise has been made for consideration goes to show that parties contemplated the creation of a legal obligation.
Anson said that offer and acceptance bring the parties together and constitute the outward semblance of a contract; but most systems of law require some further evidence of the intention of the parties, which is provided by consideration and form. In lndia , this further evidence is provided by consideration only.
Definition of consideration.-
Blackstone
defined consideration as the recompense given by the party contracting to the
other. In other words, it is a price of the promise. Thus, Pollock defined
consideration as "the price for which the promise of the other is bought,
and the promise thus given for value is enforceable."
According to Lord Denning,L.J., "consideration is a cardinal necessity of the formation of the contract." Consideration is one of the essential ingredients of a contract. Section 25 affirms this proposition by laying down a general rule that, "an agreement without consideration is void."
Lush, J. in Currie v. Misa, (1875) LR 10 Ex 153, has defined the term "consideration" in the following words :
"A valuable consideration in the eye of law may consist either in some right, interest, profit or benefit accruing, to the one party, or some forbearance, and detriment, loss or responsibility given, suffered or undertaken by the other."
Consideration is the price of a promise, a return or quid pro quo, (something for something), something of value received by the promisee as inducement of the promise (Fazaladdin v Panchanam Das, AIR 1957 Cal92) .
Section 2 (d) of the Indian Contract Act
defines 'consideration' as follows:
"When at the desire of the promisor, the promisee or any other person has done or abstained 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."
Analysis of the Definition.-The definition provided under Section 2 (d) can be analysed as follows:
(1) When at the desire of the promisor.
(2) The promisee or any other person.
(3) (i) has done or abstained from doing, or
(ii) does or abstains from doing, or
(iii) promises to do or to abstain from doing something.
(4) Something.
Such act or abstinence or promise is called consideration for the promise.
1. At the desire of the promisor.-One of the essential ingredient of consideration is that the act or abstinence must be done at the desire of the promisor. If the act or omission is done at the desire not of the promisor, but of some other person, it would not be a good consideration according to Section 2 (d) of the Act.
-Dugra Prasad v. Baldeo, 16 Rr (1880) 3 All 221, - A market was built by the plaintiff not at the desire of the defendant but at the desire of the Collector of the district. The defendant had promised to pay certain commission on all goods sold through him in the market. The plaintiff's action to recover the commission was rejected on the ground that plaintiff's act was the result not of the promise but of the collector's order. It was held that the promise made by the defendant to pay the commission was without consideration and therefore, it could not be enforced.
On the other hand, an act done at the promisor's desire furnishes a good consideration for his promise even though it is of no personal significance or benefit to him. An act done at the request of another, express or implied, is sufficient consideration to support a promise. The Following cases illustrate the point.
Kedar Nath v. Gorie Mohamed (1886 lLR Cal 64) . In this case, a town hall was to be constructed for which subscriptions were invited from the public by the commissioners of Howrah municipality. The defendant was a subscriber to this fund for Rs.100. On the faith of the promised subscriptions the plaintiff entered into a contract with a contractor for the purpose of building the hall. The defendant failed to pay the amount and contended that there was no consideration for his promise.
The court held the defendant liable. The court observed that the persons were asked to subscribe knowing the purpose for which money was to be applied, they knew that on the faith of their subscription an obligation was to be incurred to pay the contractor for the work. The promise is: 'In consideration of your agreeing to enter into a contract to erect, I undertake to supply money for it'. The plaintiff's act in entering into contract with the contractor was done at the desire of the defendant (the promisor) so as to constitute consideration within the meaning d Sec.2(d).
2. The promisee or any other person.-Under Indian Contract Act, consideration may proceed from the promisee or any other person. But under the English law the consideration must proceed from the promisee. The definition of consideration under the Indian Contract Act is wider than it is in the English Law. However, both under the Indian and English law the general rule is that a contract can be enforced only by a person who is party to the Contract.
Chinnaya v. Ramaya (1882)4Mad 137)
In this case 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 plaintiff). On the same day the defendant made a promise with the plaintiff 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 plaintiff she contended that since the plaintiffs themselves had furnished no consideration, they had no right of action. The Madras High Court held that in this agreement (between the defendant and the plaintiff), the consideration has been furnished by the defendant's mother and is enough consideration to enforce the promise between the plaintiff and the defendant.
In this case, the whole situation was this: the defendant's promise was given to the plaintiff, but consideration (gift of estate) was furnished by the plaintiff's sister. The court could have easily allowed the plaintiff to recover the annuity, as consideration given by "any other person" is equally effective (Sec. 2(d)) .
3. (i) Has done or abstained from doing (Past consideration). These words mean that something has already been done or abstained from doing and as a return of it, the promise is made therefor. In other words, the consideration for the promise is not furnished at present. The consideration precedes the promise. This is called as a past consideration.
Under the Indian Law as distinct from English law, a past consideration is good consideration. In England past consideration is no consideration. The use of the words "has done or abstained from doing" in the definition of "consideration" under Section 2 (d) of the Indian Contract Act shows that in India, past consideration is recognised as a proper consideration for the promise.
Sindha v. Abraham. 28 Bom. 725.-Services were rendered by the plaintiff at the desire of the defendant expressed during defendant's infancy and continued at the same request after his majority. It was held that the past services from a good consideration for the defendants subsequent express promise to pay an annuity to the plaintiff. Under English Law, general rule is that past consideration is no consideration, because in order to the binding every promise express or implied must be made in contemplation of a present or future benefit to the promisor. In England, there is only one exception to this general rule. When the past act is done at the request of the promisor and the request is virtually an offer of promise that can be treated as valid consideration. -Lampleigh v. Brathwait, (1915) Hob 105.-The defendant who was convicted of murder requested the plaintiff to obtain for him pardon from the King. The plaintiff several times went to King at his own expenses to obtain the pardon. Thereafter, the defendant promised him to pay £100. The promise was held to be good as the defendant had done something at the request of the promiser although promise was made subsequently. The time-barred debts have, always been deals to be a valid consideration for new contract the reason being that by lapse of time the debt is not destroyed though the remedy is lost. In India, Sec 25 (2) adequately covers a past voluntary service i.e. a service rendered without any request or promise and there is a subsequent promise to pay for the same. Thus, where A finds B's purse and gives it to him and B promises to give A Rs. 50, this is a contract. Similarly, where A supports B^ prime sir infant son and B promises to pay A's expenses in so doing, this is a contract".
Past service at request is not adequately covered by Sec. 2(d) and 25(b) . Sec.2 2(d) requires that the act should be done at the desire of the promisor. This presupposes the existence of a promise to pay for the act. But the provision can be construed to include an act which has been done at request and for which a promise to pay is given later. Even if no subsequent promise is given the courts can infer an implied promise. Every request for an act carries an inbuilt promise to pay.
(ii) Does or abstains from doing (Executed Consideration or Present consideration).-When at the desire of the promisor the promisee or any other person does or abstains from doing something, it would be a good consideration within the meaning of Section 2 (d) of the Act.
When one party has done or completed all that he promised or undertook to do when the promise was made by the other party, the consideration is said to be executed. When consideration consists in performance be it is present consideration.
The offer of a reward for information required acceptance by the supplier of information is an illustration of present consideration.
(iii) Promises to do or to abstain from doing (Future Consideration or Excutory consideration).-Where the promisee or any other person, at the desire of the promisor, promises to do or abstain from doing something, it will be a good consideration within the meaning of Section 2 (d) of the Act. Such consideration is called future or executory consideration.
An executory or future consideration is a promise made to do or to abstain from doing something in future, it is also called a promise for the promise. Thus a promise given in consideration of benefit to be received in future or promise to do work in return for a promise of payment or illustrations for future or executory consideration.
According to Anson. 'An executory consideration consists of a promise to do, forbear or suffer given in return for a like promise. Thus mutual promises to marry or a promise to do work in return for a promise of payment are illustrations of executory consideration."
4. Something.-Under English Law, consideration must be 'something' of some value in the eye of law.
Indian Contract Act, does not explicitly lay down that the consideration must be of some value in the eye of law, but this omission is not deliberate. It is accidental and the Indian Courts have followed the English practice in this respect.
There are the following essential points in this regard :
(a) Consideration must be legal.-Where the consideration or object of agreement is unlawful, the agreement is void and enforceable.
Where A asks B to beat C for which he promises to pay B Rs. 500, the consideration for this promise is not legal such type of considerations are prohibited under Section 23 of the Act.
(b) Consideration must be real, not illusory, uncertain, or impossible. It must have some substantial value-Where A buys books and gives B, the bookseller, a pronote signed by him (A) for the price of the books, the pronote here is a real consideration for the books. English common law has always insisted that "Consideration must be of some value in the eyes of the law." Thus where A promises to give his new car to B, provided B overline will fetch it from the garage, or where a promise made by the father in consideration that his son would not bore him, there is no legal consideration. In White v Bluett (1853)23 LJ Ex (36, a son used to complain to his father that his brothers had been given more property than him, the father promised that he would release the son from a debt if the latter stopped complaining. Held that the promise by the son not to bore his father with complaints in future did not constitute good consideration for the father's promise to release him. This case highlights the fact that a consideration should be real and should not be unsubstantial. Cases in which the consideration was held to be real and substantial.
(i) The promise to give time to debtor.
(ii) The promise not to sue for a reasonable time.
(iii) A compromise of a disputed claim made bona fide is a valuable consideration for promise.
Case where consideration has been held to be of no substantial value Performance of a pre-existing obligation is no consideration. If in return for the promise one party does nothing more than what he is already bound to do, this performance has no consideration for the promise of the opposite party.
However, if persons do or promise something more than they were already bound to do, there is good consideration.
Stilk v. Myrick, (1809) 2 Comp. 317, - A promise given by a master of a ship to his sailors in the course of voyage, to give them extra wages if they continued service till the voyage was over was held to be without consideration, for the promisee merely undertook to fulfill conditions of an existing contract.
Kedar Nath v. Gorie Mohd. 14 Cal. 64. - On the promise of anybody if certain steps are taken in furtherance of the object and on the faith of the promise, the promisee can be said to have done some act at the desire of the promisor and the promise is supported by consideration.
Abdul Aziz v. Masum Ali, 36 All. 8.-B where nothing has been done in furtherance of the object of the fund raised a promised subscription is not legally recoverable.
Consideration need not be adequate
Explanation 2 to Sec. 25 lays down that "an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate. Thus, dA agrees to sell a horse works. 1,000 for Rs. 10 and A's consent to the agreement was freely given, the agreement is a contract notwithstanding the inadequacy of the consideration.
The parties are free to make any contract of their choice. If, with their consent, they striks a bargain where the consideration is too high or too little, the courts will not go into the question of adequacy or inadequacy of consideration. The adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the court when it is sought to be enforced. Thus, the transfer of the goodwill and the whole of the assets of a business for only Rs. 1,000 has been upheld (Devji Shivji v karsandas Ramji AIR 1954 Pat 280)
in De La Bere v Pearson (1908) 1 KB 280, the defendants, the newspaper proprietors, offered to answer inquiries from readers of the paper desiring financial advice. The plaintiff wrote to them asking for a safe investment and also for the name of a good stockbroker. The editor, unknowingly, recommended a person who was an undischarged bankrupt. The plaintiff's sums were misappropriated by that person. The question was whether there was sufficient consideration for the offer of the advice. Held that such publication have a tendency to increase the sale of the defendant's paper, this offer, when accepted, resulted in a contract for good consideration.
Explanation 2 to Sec. 25 further lays down that madequacy of consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given." A party seeking to set aside a transaction on the ground of inadequacy of consideration, must show such inadequacy as will involve the conclusion that he either did not understand what it was about. For "once a court is satisfied that a person has entered into an agreement freely and with knowledge of its purport and effect the agreement will be valid notwithstanding the inadequacy of consideration. Even where a transaction is avoided under this principle, it is not because of the inadequacy of consideration, but because of fraud or some other vitiating element. For inadequacy of consideration, may in circumstances suggest fraud, coercion, mistake etc." The same resut would follow where the consideration is so markedly inadequate as to be unconscionable and there is a serious inequality of bargaining power between the parties.
Abstinence etc.
Forbearance to sue has always been regarded as valuable consideration. It is a kind of abstinence. 'Forbearance to sue' means that the plaintiff has a certain right of action against the defendant or any other person and on a promise by the defendant he refrains from bringing the action. Thus, in kastoori Devi v Chiranji Lal (AIR 1960 All 446), the withdrawal of a pending suit by a wife against her husband was held to be a good consideration for his promise to pay her maintenance.
Compromise of a pending suit is a good consideration for the agreement of compromise. Where an agreement has been arrived at between certain members of a family that is designed to promote peace and goodwill, this by itself is a good consideration to support the transaction.
Q. 6. (b). Explain the doctrine of privity
of contract with exceptions.
Or
Explain the rule that stranger to contract
cannot sue with its exceptions.
Or
'A contract is a private relationship
between the Parties who make it and no other person can acquire rights or incur
liabilities under it.' Explain.
Ans. Strangers to Contract cannot sue.-"Privity of contract" means the relationship subsisting between the parties to a contract. Doctrine of privity of contract provides a general rule that no one but the parties to a contract be bound by it or be entitled under it.
According to Anson's Law of contract,-As promisee, he is unable to see because there is no privity of contract between him and the promisor.
Contract may be enforced by stranger to consideration.- According to the definition of the word "consideration" given in Section 2 (d) of the Indian Contract Act, 1872, the consideration for a contract may more from promisee himself or "any other person", i.e., a stranger to the consideration. Therefore, under the Indian Law a stranger to the consideration may also enforce the contract.
In this regard the Indian Law is materially different from the present English Law according to which consideration must move from the promisee only. Therefore, under present English Law a party who wishes to enforce a contract must be able to show that he himself has furnished consideration for the promise of the other party.
Under Indian Contract Act the consideration may move from a stranger to the contract, i.e., who is not a party to the contract.
Dutton v. Poole, (1677) 22 Lev. 210: 83 ER 423.-Plaintiff's father decided to cut the family tree for the marriage of his daughter (the plaintiff). His son (the defendant) promises to pay marriage expenses under an agreement with his sister. Plaintiff asked his father not to cut the family tree. The son failed to provide the money agreed. Sister sued him. Defendant brother argued that the agreement with his sister was without consideration. It was held that the plaintiff could recover the money from his brother (defendant), although she was stranger to consideration.
The law laid down in Dutton v. Poole is still recognised in the Indian Contract Act, 1872. Reference may be also made hence to a well known case.
Venkat Chinnaya v. Venkat Rammaya, ILR (1881) 4 Mad. 137. -ln this case, a mother gifted her share in the Zamindari property by a registered deed of gift to her own daughter Rammaya with a direction to pay a certain sum of money annually to Chinnaya, her maternal uncle. On the same date Rammaya executed on agreement with Chinnaya agreeing to pay the amount annually. Latter on she refused to fulfil the said promise. A suit was brought to recover the amount due with interest by Chinnaya Rammaya (the defendant) resisted the suit on the ground that no consideration moved from the side of Chinnaya and hence the promise could not be enforced. It was held that there was sufficient consideration i.e. the property given to her by the sister of Chinnaya.
Gorakh Ram v. Laxmi, AIR 1953 SC .-Held , that even a stranger can be 'promisee' and enforce the contract, even though the stranger himself had not passed any consideration.
Illustrations. - A B and Center into an agreement under which A pays Rs. 500 to B and B agreed to build a house for C. Here C is a party to the contract but stranger to consideration and can enforce the contract.
Thus, generally stranger to the consideration can sue but stranger to the contract cannot sue.
The authority for the application of the rule in India is the decision of the Privy Council in Jamna Das v Ram Avtar (1911) 30 I.A.7. In that case A had mortgaged some property to X. A then sold this property to B, B having agreed with A to pay off the mortgage debt to X. X brought an action against B to recover. Held that since there was no contract between X and B, X could not enforce the contract with mortgagee and the purchaser is not personally bound to pay the mortgage debt. Similarly, in Subbu Chetti v Arunachalam Chettiar (AIR 1930 Mad 382), held that "where all that appears is that a person transfers property to another and stipulates for the payment of money to a third person, a suit to enforce that stipulation by the third party will not lie." In a sale-deed between A and B, the stipulation to pay a certain sum to C cannot be enforced by C.
In Krishna Lal v Promila Bala (AIR 1928 Cal 518), the court observed that the whole scheme of Sec. 2 of the Contract Act is that a promise come into existence when one person signifies to another his willingness to do..., and the person making the proposal is the promisor, the person accepting the proposal is the promisee and every promise forming the consideration for each other is an agreement between those two persons. Thus it is wrong to say that there is no provision in Indian law in support of this principle.
Differences between Indian and English Law regarding consideration.-
1. Under Indian Contract Act the consideration may proceed either from the promisee or any other person, if it be done at the desire of the promisor. But under English Law the consideration must move from the promisee. In other words under English Law a third person cannot sue but under Indian Law a third person can. But both under the Indian and English Law, a stranger to a contract cannot sue.
2. Under Indian Law consideration may be past, present or future. Under English Law consideration must necessarily be present or future. The general rule prevailing in England is that every promise, express or implied, in order to be binding must be made in contemplation of a present or future benefit to the promisor. However, under both laws, a time-barred debt has always been held to be a valid consideration, the reason being that by lapse of time the debt is not destroyed though the remedy is lost.
3. Under English Law, the consideration though inadequate to the promise, must have some value in the eye of law, that is, it must be real. The Indian definition of consideration does not specifically say that consideration must have some value.
Exceptions to the doctrine of privity of
contract
The exceptions to the doctrine of privity of contract are as follows:
(1) Trust.-Where a trust is created in favour of a stranger, such stranger can enforce the agreement of trust.
Candy v. Candy, (1880) 16 Ch. D. 125.-In which Golton, L. J. observed: "If the contract though in form, it is with A, is intended to secure a benefit to B; so that B is entitled, to say that he has a beneficial interest as cestui que trust under that contract, then B would, in a Court of Equity, be allowed to sue upon and enforce the contract."
The same view is held by the Indian Courts. (For example, Gorakh Ram v. Laxmi, AIR 1953 SC 443) .
A trust is the property held or managed by one or more persons for another's benefit. In Rana Uma Nath Bakhsh Singh v Jang Bahadur (AIR 1938 PC 245), 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, the illegitimate son of his father, on his attaining majority. Held that a trust was created in favour of B for the specific amount and the village, thus he (B) is entitled to sue. Similarly, in a English case, A was indebted to both B and C. A assigned all his property to B in satisfaction of his debt and B promised to pay A's debt to C. He failed to pay. But he was held liable to pay C in terms of his promise with A.
(2) Marriage settlement . -ln cases of marriage settlements the doctrine of privity of contract does not apply.
Where a girl's father entered into an agreement for her marriage with the defendant, it was held that the girl could sue the defendant for damages for the breach of the promise of marriage even though she was not a party to the agreement (Rose v Joseph AIR 1925 Bom 97).
(3) Partition or family arrangement.-Where provision is made in a partition or family arrangement for maintenance or marriage of a female member, such female member can sue to enforce the agreement. [Dhan Kaur v. Sarla Devi, ILR (1946) All.756].
Where two brothers, on a partition of joint properties, agreed to maintain their mother, she was held entitled to sue. Where the defendant executed an agreement with his father-in-law to pay his wife monthly maintenance, she was held entitled to enforce the promise (Daropti v Jaspat Rai(1905) PR171).
(4) Charge. Where a charge is created in favour of a stranger, the stranger can sue to enforce the contract.
Khwaja Mohd. Khan v. Hussaini Bibi, (1910) 37 IA 52,-ln this case the parents of the bride and the bridegroom agreed that the plaintiff (bride) would be entitled to Rs. 100 per mensem as Kharchaipandan, and the contract was held binding upon the defendant and the plea that the third party cannot sue upon the contract was negatived.
(5) Acknowledgment.-This covers cases in which the promisee agrees directly to pay a third party.
Venkatareddi Naidu v. Narasimharao, 1935 Mad. 115.-The purchaser of a mortgaged property undertook to pay the mortgagee, it was held that the mortgagee could recover from the purchaser.
Acknowledgement may be express or implied. Thus in Devaraja Urs v Ram Krishniah (AIR 1952 Mys 91) , A sold his house to B and left a part of the sale-price in his hands desiring him to pay this amount to C. Subsequently B made part payments to C, but failed to remit the balance. B while making part payments had informed C that they were out of the sale price left with him and the balance would be remitted soon. Held that though originally there was no privity of contract between B and C, B having subsequently acknowledged his liability, C was entitled to sue him.
(6) Covenants running with land - A person who purchases a land with notice that the owner of the land is bound by certain duties created by an agreement or covenant affecting the land, shall be bound by them although he was not a party to the agreement (Tulk v Moxhay (1919) 88 LJKB 861).
(7) Law regarding negotiable instruments.-The doctrine of privity of contract does not apply in respect of law relating to negotiable.
Q6. (C)
What are the three main exceptions to the requirement of consideration in contract?
State clearly.
Or
Explain the circumstances under which an
agreement without consideration can be enforced.
Ans. Agreement without consideration is void.-Consideration is an essential ingredient of a contract. The general rule is, therefore, that an agreement without consideration is void and is unenforceable except in certain cases. This rule has been clearly, provided in Section 25 of the Act which lays down that an agreement without consideration is void.
Exceptions as to general rule contained in Section 25.-As a general rule Section 25 of the Contract Act incorporate that an agreement made without consideration is void. But Section 25 also specifies the cases where agreements are valid without consideration.
These exceptions are as follows:
1. Agreement made on account of natural love and affection [Section 25 ( 1)].- - An agreement without consideration is valid if it:
(i) is expressed in writing;
(ii) is registered under the law for the time being in force for the registration of document; and
(iii) is made on account of natural love and affection between the parties standing in a near relation to each other.
A, for a natural love and affection, promises to give his daughter B Rs. 1,000. A puts his promise to B writing and registers it. This is a valid contract.
The agreement must be shown to have been entered into on account of natural love and affection, this is not to be inferred in every case merely because no other motive for the promise is shown. Husbands and wives, parents and children, brothers and brothers or sisters, parents-in-law and daughters-in-law are near relations. However, only nearness of relation does not necessarily import natural love and affection. Where no natural love or affection.
Raj Lukhy Devi v. Bhoot Nath Mukharjee, (1900) 1 CWN 488.- The husband promised to pay a certain sum of money per month to the wife as maintenance in order to get rid of her and the agreement was reduced to writing and registered, it was held that the agreement could not be enforced because it was not made out of natural love and affection.
In England the mere fact of registration, i.e., solemnity of a deed, is of itself enough to make the promise valid; but it is not so in India.
2. Promise to compensate wholly or in part for something voluntarily done [Section 25(2)],-An agreement without consideration is valid, if it is a promise to compensate wholly or in part, a person who has already voluntarily done:
(i) something for the promisor, or
(ii) something which the promisor, was legally compellable to do... Illustration.-A finds B`s purse and gives it to him. B promises to pay A Rs. 50. This is a valid contract.
A promise to compensate a person who has already voiuntarily done something for the promisor, is enforceable in other words, a promise to pay for a past voluntary service is binding. However, such service should have been rendered voluntarily and without promisor's knowledge, and for the promisor only. This implies that the act must have been done for a person who is in existence at the time of the doing of the act, and, therefore, it does not cover expenses incurred by the promoter of a company before the company came into existence. In Karan Chand v Basant Kaur ( 1911) PR31 (1911), a promise made after attaining majority to pay for goods supplied to the promisor during minority was held to be within the exception.
3. Promise made to pay a time-barred debt [Section 25 (3)].-An agreement without consideration is valid, if it is a promise:
(i) made in writing, and
(ii) signed by the person to be charged therewith or by his agent generally or specially authorised in that behalf, and
(iii)to pay, wholly or in part, a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
Illustration. - A owes B Rs. 1,000 but the debt is barred by the Limitation Act. A signs a written promise to pay B Rs. 500 on account of the debt. This is a contract.
The promise to pay the time-barred debt must be an express one.
A promise to pay a time-barred debt is enforceable. Is it necessary that the promise should be given by the person who was liable for the original time-barred debt? The Bombay High Court (Pestanji M. Modo v Bal Meharbai (1928) 30 Bom LR 1407). has held that "a promise made by a person who is under no obligation to pay the debts of another... does not fall within the clause". But, according to the Madras High Court(P P.Govinda Nair v P. Achutan Nair, AIR 1940 Mad 678). "the words by the person to be charged therewith' in Sec. 25(3) are wide enough to include the case of a person who agrees to become liable for the payment of a debt due by another and need not be limited to the person who was indebted from the beginning.
The promise referred to in Sec. 25(3) must be express. Thus a debtor's letter to his creditor" to come and receive" what was due to him, was held to disclose no express promise. Where a tenant in a letter to the landlord referred to the arrears of time-barred rent and said: "I shall send by the end of the Vysakh month", it was held that the document satisfies the requirements of Sec. 25(3) . In a recent case, R. Suresh Chandra & Co. v Vadnese Chemical Works (AIR 1991 n overline 44 ), held that a statement in the balance-sheet of a firm signed by a partner showing that the firm was indebted to the plaintiff in respect of the stated sum became an implied promise to pay. Thus, the Bombay High Court has given a new turn to this exception.
4. Completed gift [Explanation 1 to Section 25].-According to Explanation 1 to Section 25 nothing in this section shall affect the validity as between the donor and the donee, of any gift actually made.
5. For the creation of agency, consideration is not necessary [Section 185]. In addition to the above exceptions contained in Section 25 of the Act, Section 185 of the Act lays down more exception to necessity of consideration for the validity of an agreement. It says: - “ No consideration is necessary to create an agency."
Effect of Inadequacy of Consideration - According to Explanation 2 of Section 25, an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate.
But the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.
Illustration. - A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A's consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.
Lawful Objects and Lawful Consideration
Q.6 (d)
What do you understand by lawful consideration? When is the
consideration or object of an agreement unlawful? Explain.
Or
What is lawful object and lawful
consideration ? State in brief the effects of unlawful objects and
considerations on contracts.
Or
Explain the objects which have been
declared as unlawful by the Indian Contract Act.
Ans. Essential conditions of validity of consideration and object of an agreement as provided under Section 23.-According to Section 23, the consideration or object of an agreement is lawful only when : (1) He is not forbidden by law; or
(2) It is not of such a nature that if permitted, it would defeat the provisions of any law; or
(3) It is not fraudulent; or
(4) It does not involve or imply injury to the person or property of another; or
(5) The Court does not regard it as
(a) immoral, or
(b) opposed to public policy.
Every such agreement of which object or consideration is not lawful is void.
The words 'object' and 'consideration' in this section are not synonymous. They are distinct in meaning. The word 'object' means purpose or design.
Illustrative Case.-Joffer Mehar Ali v. Budge Budge Mills, (1909) 33 Cal. 702-There may be nothing objectionable so far as the consideration for an agreement is concerned and yet the purpose for which it was entered into may be unlawful and the agreement would be void.
1. Forbidden by law.-A contract is illegal if it be in contravention of Statute or opposed to its general policy and intent or forbidden by law or legislative enactments. When something is forbidden by law an agreement to do that is unlawful, viz sale of liquor without licence, an agreement to pay money if a person commits a crime or tort, an agreement for the sale of jaggery powder above control price, etc. However, merely because a person does not observe statutory requirements does not mean that the agreement is void, especially when the intention of the legislature is to regulate an act by prescribing certain terms and conditions. In other words, the object of the statute is not to forbid certain transactions, but only to impose a penalty.
Calcutta National Bank case, Rangoon, AIR 1969 Cal. 579.-Where a penalty is imposed for contravention of a prohibition of law, it can be taken as an indication that such a transaction is prohibited and hence illegal e.g., mortgage created in contravention of DIR is illegal and mortgagee cannot recover money from the mortgagor.
S. L. Fernandes v. V. M. Fernandes, AIR 1981 Goa 18.-It was held that the agreement to sell liquor without a licence, when a licence, is essential to sell the same, is void.
In Raj Kishore Sahay v Binod Kumar (AIR 1989 Pat 111), the plaintiff intending to purchase an American car made payment to one of his relatives living in America, in Indian currency. As he did not receive the car, he filed a suit to recover back the payments and also compensation. The defendant contended that the agreement to purchase the car was void as for such payments the permission of the RBI was not obtained and thus there was contravention of the Forex Act provisions. Held that the FERA did not totally prohibit such payments to persons outside the country. Thus the contract was not void ab initio. The suit filed by the plaintiff was maintainable. Likewise, in Abdul Jabbar v Abdul Muthaliff (AIR 1983 P & H 80) , where a rice mill had been constructed with monies remitted by the plaintiff in contravention of the FERA, it was held that although the remittances were illegal, the construction of the rice mill by itself did not involve the execution of any unlawful object, and thus the plaintiff was entitled to the relief sought by him i.e. an injunction to restrain the defendants from interfering with his possession of rice mill.
2. Would defeat the provisions of any law. The term 'law' in the clause refers to
(i) legislative enactment;
(ii) Rules of Hindu and Mohammedan Law,
(iii)such other rules as have the force of law:
Sometimes the object of, or the consideration for, an agreement is such that, though not directly forbidden by law, it would, if permitted, defeat the provisions of any law.
(i) Defeat the provisions of legislative enactment.-A promises to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of thing taken. The agreement is void as its object is unlawful for it defeats the provisions of criminal law. In Ram Sewak v Ram Charan (AIR 1982 All 177), the parties agreed to carry on business in partnership. The agreement provided that they would conceal some part of their business activity and would not enter certain items in the books of accounts with a view to evading payment of income tax and sales tax. One of the partners brought an action against others for accounts and also for the recovery of the amount due to him. His action was dismissed and it was held that the agreement was aimed at defeating the provisions of tax laws and thus not enforceable.
(ii) Defeat the provisions of Hindu Law.-If a natural father agrees to give his son in adoption in consideration of an annual allowance to be paid by the adoptive father, the agreement is void as it is against the tenets of Hindu law because a father can give to his son in adoption only out of love and not because of monetary considerations. Likewise, accepting a son in adoption in consideration of money is unlawful [Narayen v Gopalrao (1922 24 Bom LR 414].
(iii) Defeat the provision of Mohammedan Law - An agreement entered into before marriage between the Mohammedan wife and her husband that the wife would be at liberty to live with her parents all the time after marriage is void and cannot afford an answer to a suit for restitution of conjugal rights filed by the husband.
According to the Mohammedan law it is now competent to parties contracting a marriage to enter into a separation deed by which the husband convenanted that his wife might live with her parents [Abdu P.Khan Nobab v Hussenbi (1904) 6 Bom LR 728].
However, an agreement contemporaneous with marriage stipulating payment of customary maintenance allowance by the husband in case of strained relations between husband and wife is not void under any provision of law (Jamila Khatoon v Abdul Rashid AIR 1939 Lah 165)
(iv) Defeat the provision of such other rules which have the force of law in lndia.-A Receiver is an officer of the Court, and the Court alone can determine his remuneration and parties can neither increase nor decrease the same without the permission of the Court.
3. Fraudulent.-The object or consideration of an agreement is vitiated by fraud. For example, A being an agent for a landed proprietor, agrees for money, without the knowledge of his principal, to obtain for B a lease of land belonging to his principal. The agreement between A and B is void, as it implies a fraud by concealment by A, on his principal.
Similarly, if A, B and Center into an agreement for the division among them of gains acquired, or to be acquired by fraud, such agreement would be void, as its object is unlawful.
if the object of an agreement is to manage to procure contract for one party which would otherwise be refused, the object is fraudulent. In Manni Ram v Purshottam Lal (AIR 1930All 732) , A knew that the railway company would not grant him a contract. He entered into a contract with B that B should put forward an application for the contract and after the contract was granted A shall serve as the real contractor. A brought an action to put his claim as the real contractor. Held that the object of the contract was to commit fraud upon the railway company and thus the agreement was void
4. Involves an injury to the person or property of another. The consideration or object which involves or implies injury to the person or property of another is unlawful and therefore void. For Example, A asks B, an editor of a newspaper, to publish a defamatory article against C and promises to pay Rs. 1,000 for the work. The agreement between A and B is void as involves injury to the person of C and therefore, a suit cannot be brought to recover Rs. 1,000 by B.
An agreement between two persons to injure the person or property of another is unlawful, viz. an agreement to commit a crime or civil wrong, for example, to assault or beat a person or to publish a libel against him. If the borrower of money is made to execute a bond to do manual labour and until repayment, and in default agrees to pay exorbitant rate of interest, the agreement was held to amount to slavery and thus opposed to public policy and, therefore, void [Ram Sarup v Bansi Mandar (1915 ) 42 Cal 742].
In Ramalingam v Natesa (AIR 1967 Mad 461), B, whose title to the property was doubtful, was persuaded by A to sell the same to him with a view to creating trouble to the real owner. A, not succeeding in his objective, filed a suit claiming to be indemnified against B. A could not succeed since the object of the agreement was to cause injury to the property and person for the real owner.
5. The Court does not regard it as.-(a) Immoral.- The law does not allow an agreement tainted with immorality to be enforced. What is "immoral" depends upon the standards of morality prevailing at a particular time and as approved by the courts. For instance, A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is immoral though the letting may not be punishable under the I.P.C. [Illustration (k) to Sec.23]. Similarly, where a married woman was given money to enable her to obtain divorce from her husband, the lender promising to marry her subsequently, the money was not allowed to be recovered (Baivijli v. Nansa Nager 10 Bom 152).
. In case of Gherulal Parekh v. Mahadeodas Maiya, (1959) 2 SCR 42.-Subba Rao J, gave the following examples of agreements which are void on the ground of immorality. "Settlements in consideration of concubinage, contracts of sale or hire of things to be used in a brothel by a prostitute for purposes incidental to her profession, agreements to marriage for consideration, or contract facilitating divorce are held to be void on the ground that the object is immoral."
R. K. Rath v. Government of India, AIR 2000 Orissa 32.-Under Section 23, contracts opposed to public policy and immoral is void and not illegal and in that respect Indian Law seems to deviate from English Law.
Pearce v. Brooks, (1866) LR 1 Ex 213.-The defendant prostitute was sued for the hire money of a carriage in which she used to go every evening to attract customers. The suit was dismissed on the ground that the plaintiff contributed towards the performance of an immoral act and hence she was liable to suffer. It was held that if a person contributes to the performance of an illegal act by supplying anything, he cannot recover the value of the thing.
A promise to marry a married woman after the death of her husband or after she obtains a divorce from him is immoral. It may be noted that what is immoral is 'interference with marital status'; thus where a married man his wife was made absolute (the decree had been pronounced), but he promised to marry a woman (plaintiff) as soon as the decree of divorce with committed breach of this promise by marrying another woman, the plaintiff was allowed to recover (Fender v. St. John Mildmay(1938)AC 1)
(b) Opposed to public policy.-The term 'public policy' has not been defined in this Act but it has been used in its broadest sense.
In case of Central Inland Water Transport Corpn. Ltd. v. Brajonath Ganguly, AIR 1986 SC 157.-Suprem Court of India expressed the view that in fact the act of defining the term 'public policy' is an uphill task or it is rather difficult to give a satisfactory definition of the term.
However the Apex Court explained the scope of public policy as follows:
It is thus clear that the principles governing public policy must be and are capable, on proper occasion, of expansion or modification. Practices which were considered perfectly normal at one time have today become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a case, then the Court must in consonance and in keeping with public good and public interest declare such practice to be opposed to public policy. Above all, in deciding any case which may not be covered by authority our Courts have before them the bacon light of the Preamble of the Constitution. Lacking precedent, the Court can always be guided by that light, and the principles under the Fundamental Rights and the Directive Principles enshrined in our Constitution.
In Case of -Ratanchand Hirachand v. Askar Nawaz Jang, AIR 1976 AP 112.-The Andhra Pradesh High Court explained the scope public policy as follows: of the "The twin touchstone of public policy are advancement of the public good and prevention of public mischief."
Secretary-cum-Chief Engineers Chandigarh v. H. O. Sharma, AIR 1998 SC 2909.-An agreement that if a person is promoted to the higher post, he would not claim higher salary is against public policy and is unenforceable in view of Section 23.
In Gherulal Parekh v. Mahadeodas, AIR 1959 SC 781, the Apex Court observed "though the heads (of public policy) are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is advisable in interest of stability of society not to make any attempt to discover new heads in these days."
References
Avtar Singh – Law of Contract and Specific relief .
Mulla --- Law of Contract and Specific relief.
Dr. H.K. Saharay- Law of Contract.
Dr R.K. Bangia—Law of Contract.
https://www.slideshare.net/shrinivas1648/law-of-contract-business-law
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