Question 1
Define consideration. What are the legal rules regarding consideration under the Indian Contract Act 18722.
Answer: Consideration [Section 2(d) of the Indian Contract Act, 1872]: 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 oe promises to do or abstain from doing something, such an act or abstinence or promise is called consideration for the promise.
Legal Rules Regarding Consideration
(i) Consideration must move at the desire of the promisor: Consideration must be offered by the promisee or the third party at the desire or request of the promisor.
Durga Prasad vs Baldeo: D constructed a market at the instance of District Collector. Occupants of shops promised to pay Da commission on articles sold through their shops. Held, there was no consideration because money Was not spent by Plaintiff at the request of the Defendants, but instance ofa third person viz. the Collector and, thus the Contract was void.
(ii) Consideration may move from promisee or any other person: In India. consideration may proceed from the promisee or any other person who is not a party to the contract. In other words, there can be a stranger to a consideration but not stranger to a contract.
(iii) Executed and executory consideration: A consideration which consists in the performance of an act is said to be executed. When it consists in a promise, it is said to be executory.
(iv) Consideration may be past, present or future:
Past Consideration: The consideration which has already moved before the formation of agreement. For Consideration to be treated as past it must move by a previous request.
Example: X renders some service to Y at Y's request in the month of May, In June. Y promises to pay X Rs. 1,000 for his past services. Past services amount to past consideration. X can recover Rs. 1,000 from Y.
Present Consideration Executed Consideration (consists in the performance): The consideration which moves simultaneously with the promise, is called present consideration.
Future Consideration or Executory consideration(consists in a promise): The consideration which is to be moved after the formation of agreement is called future consideration.
(v) Consideration need not be adequate: Provision is given below
(vi) Performance of what one is legally bound to perform: The performance of an act by a person who is legally bound to perform the same cannot be consideration fora contract Because a promise to do what a promisor is already bound to do adds nothing to the existing obligation. Hence, a promise to pay money to a witness is void, for it is without consideration. Hence such a contract is void for want of consideration. But where a person promises to do more that he is legally bound to do, such a promise provided it is not opposed to public policy, is a good consideration.
Example: X promises Y, his adyocate, to pay an additional sum if the suit was successful. The suit was declared in favour of X but X refused to pay additional sum. It was held that Y could not recover additional sum because the promise to pay additional sum was void for want of consideration as Y was already bound to render his best services under the original agreement.
(vii) Consideration must be real and not illusory: Consideration is not valid if it is - (i) physically impossible (e.g. to discover treasure by magic), (i) legally not permissible (e.g. to murder a person), (1) uncertain (e.g. to pay a "reasonable" salary for services rendered), or (iv) illusory (e.g. fulfilment of a pre-existing obligation.
(viii) Consideration must not be unlawful, immoral, or opposed to public policy. Only presence of consideration is not sufficient it must be lawful. Anything which is immoral or opposed to public policy also cannot be valued as valid consideration.
Related Question: Mr. Balwant, an old man, by a registered deed of gift, granted certain landed property to Ms. Reema, his daughter. By the terms of the deed, it was stipulated that an annuity of Rs. 20, 000 should be paid every year to Mr. Sawant, who was the brother of Mr. Balwant.
On the same day Ms. Reema made a promise to Mr. Sawant and executed in his favour an agreement to give effect to the stipulation. Ms. Reema failed to pay the stipulated sum. In an action against her by Mr. Sawant, she contended that since Mr. Sawant had not furnished any consideration, he has no right of action.
Examining the provisions of the Indian Contract Act, 1872, decide, whether the contention of Ms. Reema is valid?
Answer: 1. In India, consideration may proceed from the promise or any other person who is not a party to the contract.
2. The definition of consideration as given in section 2(d) makes the above statement clear. According to the definition, when at the desire of the promisor, the promisee or any other person does something such an act is consideration. In other words, there can be a stranger to a consideration but not stranger to a contract.
In the given problem
1. Mr. Balwant has entered into a contract with Ms. Reema, but Mr. Sawant has not given any consideration to Ms. Reema but the consideration came from Mr. Balwant to Ms. Reema and such consideration from third party is sufficient to the enforce the promise of Ms. Reema, the daughter, to pay an annuity to Mr. Sawant.
Further the deed of gift and the promise made by Ms. Reema to Mr. Sawant to pay the annuity were executed simultaneously and therefore they should be regarded as one transaction and there was sufticient consideration for it.
Thus、astranger to the contract cannot enforce the Contract but a stranger to the consideration mav enforce it. Hence, the contention of Ms. Reema is not valid.
Related Ouestion: “To form avalid contract consideration must be adequate." Comment.
Answer: Consideration Need not be adequate:
(a) Adequacy of consideration should be decided from the view-point of the Promisor.
(b) Explanation to Sec.25 provides that an agreement to which consent of the party is freely given is not in void merely because consideration is inadequate.
(c) However, inadequacy of consideration may be taken into account by Court to determine wvhether the Promisors consent was freely given.
(d) Example: Kpromises to sell a house worth Rs8 Lakhs for Rs2Lakhs only. The transaction is valid even if the consideration is inadequate. But, where a party pleads coercion, undue influence or fraud 3. to avoid a transaction, inadequacy of consideration will also be taken as a piece of evidence.
Question 2
“Only a person who is party to acontract can Sue on it. Explain this statement and describe its exceptions. if any.
Answer: Though under the Indian Contract Act. 1872, the consideration for an agreement may proceed from a third pary、the third party cannot sue on contract. Only a person who is party to a contract can sue on it..
Thus, the concept of stranger to consideration is valid and is different from stranger to a contract.
The aforesaid rule, that stranger to a contract cannot sue is known as a"doctrine of privity of contract” is however. subject to certain exceptions. In other words, even a stranger to a contract may enforce a claim in the following cases:
1. In the case of trust, a beneficiary can enforce his right under the trust, though he was not a party to the contract between the settler and the trustee.
2. In the case of a family settlement, if the terms of the settlement are reduced into writing, the members of family who originally had not been parties to the settlement may enforce the agreement.
3. In the case of certain marriage contracts, a female member can enforce a provision for marriage expenses made on the partition of the Hindu Undivided Family.
4. In the case of assignment of a contract, when the benefit under a contract has been assigned, the assignee can enforce the contract.
5. Acknowledgement or estoppel where the promisor by his conduct acknowledges himself as an |agent ofthe third party、 it would result into a binding obligation towards third party.
6 In the case of covenant running with the land, the person who purchases land with notice that the owner of land is bound by certain duties affecting land, the covenant affecting the land may be enforced by the successor of the seller.
7. Contracts entered into through an agent: The principal can enforce the contracts entered by his agent where the agent has acted within the scope of his authority and in the name of the principal.
Related Question: Mr. Sohanlal sold 10 acres of his agricultural land to Mr. Mohanlal on 25th September 2018 for Rs. 25 Lakhs. The Property papers mentioned a condition, amongst other details, that whosoever purchases the land is free to use 9 acres as per his choice but the remaining I acre has to be allowed to be used by Mr. Chotelal, son of the seller for carrying out farming or other activity of his choice.
On 12th October.,. 2018, Mr. Sohanlal died leaving behind his son and life. On 15th October, 2018 purchaser started construction of an auditorium on the whole 10 acres of land and denied any land to the son.
Now Mr. Chotelal wants to file a case against the purchaser and get a suitable redressed. Discuss the above in light of provisions of Indian Contract Act, 1872 and decide upon Mr. Chotelal's plan of action
Answer: 1, Problem as asked in the question is based on the provisions of the Indian Contract Act, 1872 as contained in section 2(d) and on the principle ‘privity of consideration'.
2. Consideration is one of the essential elements to make a contract valid and it can flow from the promisee or any other person.
3.As the clear language used in definition of 'consideration’in Section 2(d).it is not necessary that consideration should be furnished by the promisee only.
4. A promise is enforceable if there is some consideration for it and it is quite immaterial whether it moves from the promisee or any other person.
5.In case of the Chimaya Vs. Ramayya,held that the consideration may move from a third party and is an accepted principle of law in India.
In the given problem
1. Mr. Sohanlal has entered into a contract with Mr. Mohanlal, but Mr. Chotelal has not given any consideration to Mr. Mohanlal but the consideration came from Mr. Sohanlal to Mr. Mohanlal on the behalf of Mr. Chotelal and such consideration from third party is sufficient to enforce the promise of Mr. Mohanlal to allow Mr. Chotelal to use I acre of land.
2. Further the deed of sale and the promise made by Mr. Mohanlal to Mr. Chotelal to allow the use of l acre of land were executed simultaneously and therefore they should be regarded as one transaction and there was sufficient consideration for it.
3.Moreover,it is provided in the law that “in case covenant running with the land,where a person purchases land with notice that the owner of the land is bound by certain duties affecting land, the covenant affecting the land may be cnforced by the successor ofthe seller”
Conclusion : 1. In such a case, third party to a contract can file the suit although it has not moved the consideration. 2. Hence, Mr. Chotelal is entitled to file a petition against Mr. Mohanlal for execution of contract. Expected question based on suit by third party to contract.
Related Ouestion: A was appointed by his father as his successor. A was put in possession of the entire estate of his father. It was agreed between A and his father that he (A) would give certain sum of money and a village to B (an illegitimate son ofA's father), on his attaining majority. A is refusing on attainment of majority of B. Advice B.
Answer: Only those persons, who are parties to a Contract, can sue and be sued upon the contract. This Rule is called "'Doctrine of Privity of Contract". A Third Party to a Contract cannot sue upon it, even though the Contract may be for his benefit.
One of the exception of such doctrine is "Trust”
The beneficiary (i.e. the person for whose benefit the trust has been created) may enforce the right under the trust, though he was not a party to the contract between the settler and the trustee.
Trust was created in favour of B for the specific amount and a village, therefore he was entitled to receover it from A.
Question 3
State the exceptions to the rule "An agreement without consideration is void".
OR
No Consideration No Contract, Comment.
Answer: No consideration, no contract
1. Every agreement, to be enforceable by law must be supported by valid consideration. An agreement made without any consideration is void.
2. No consideration, no contract is a general rule.
3. However, Section 25 of the Indian Contract Act, 1872 provides some exceptions to this rule, where an agreement without consideration will be valid and enforceable.
4. These exceptions are as follows:
(i) Agreement made on account of natural love and affection Section 25 (1): If an agreement is
a) in writing
b)registered under the law and
c) made on account of natural love and affection\
d) between the parties standing in a near relation to each other
It will be enforceable at law even if there is no consideration. re Thus, where A, for natural love and affection, promises to give his son, B, 1, 00,000 in writing and registers it. This is a valid contract.
(ii) Compensation for past voluntary services Section 25(2):
a) A promise to compensate, wholly or in part. a person who has already voluntarily done something for the promisor, is enforceable.
b) Thus, when A finds B's purse and gives it to him and B promises to give A Rs. 5,000, this is a valid contract.
(iii) Promise to pay time-barred debts Section 25 (3):
a) Where there is an agreement, made in writing and signed by the debtor or by his agent, to pay wholly or in part a time barred debt, the agreement is valid and enforceable even though there is no consideration.
b) IfA owes B Rs. 1,00,000 but the debt is lapsed due to time-bar and A further makes a written promise to pay Rs. 50,000 on account of this debt, it constitutes a valid contract.
(iv) Contract of agency (Section 185): No consideration is necessary to create an agency.
(v) Completed gift (Explanation 1 to Section 25): A completed gift needs no consideration. Thus, if a person transfers some property by a duly written and registered deed as a gift, he cannot claim back the property subsequently on the ground of lack of consideration.
(vi) Bailment (Section 148): No consideration is required to effect the contract of bailment.
(vii) Charity: If a promisee undertakes the liability on the promise of the person to contribute to charity, there the contract shall be valid.
Expected question based on natural love & affection
Related Question: X, a Hindu husband executed a registered document in favour of Y, his wife, whereby he promised to pay her Rs. 1,000 per month. Later. X did not pay. Can Y recover from X (a) if this promise was made without any disagreement and quarrels between them? (b) if this promise was made after disagreement and quarrels between them?
Answer: The agreement though made without consideration, will be valid and enforceable in the following situation Natural Love and Affection: Conditions to be fulfilled under section 25(1)
(i) It must be made out of natural love and affection between the parties.
(ii) Parties must stand in near relationship to each other.
(iii) It must be in writing.
(iv) It must also be registered under the law.
A written and registered agreement based on natural love and affection between theparties standing in near relation (e.g., husband and wife) to each other is enforceable even without consideration.
Case (a)
Therefore, Y could recover from X because the agreement was valid because it was made on account of natural love and affection between X and Y.
Case (b)
Therefore, Y could not recover from X because the agreement was void because it was not made an account of natural loveand affection between X and Y. [Leading case: Rajlakhi Devi v. Bhoot Nath Mookherjeel
Question 3 :
X owes Y Rs. 10,000 but this debt is timne barred. In a birthday party of Z, who is a friend of X and Y, X promises Y to pay this debt. Later, X refuses to Y. Can Y recover the promised amount from X?
Answer: Promise to pay time-barred debts Section 25 (3):
Where there is an agreement, made in writing and signed by the debtor or by his agent. to pay wholly or in part a time barred debt, the agreement is valid and enforceable even though there is no consideration.
In the instant case Y cannot recover anything from X because X's promise was neither in writing nor signed by him or his agent.
Related Question: Mr. Y given loan to Mr. G of INR 30,00,000. Mr. G defaulted the loan on due date and debt became time barred. After the time barred debt, Mr. G agreed to settle the full amount to M: Y. Whether acceptance of time barred debt Contract is enforceable in law?
Answer: Promise to pay time-barred debts Section 25 (3):
a) Where there is an agreement, made in writing and signed by the debtor or by his agent, to pay wholly or in part a time barred debt, the agreement is valid and enforceable even though there is no consideration.
b) If A owes B Rs. 1,00,000 but the debt is lapsed due to time-bar and A further makes a written promise to pay Rs. 50,000 on account of this debt, it constitutes a valid contract.
In the instant case: G agreed to settle the full annount to Mr. Y of time barred debt. If such promise is in writing & signed by G or by his authorised agent then acceptance of such time barred debt is enforceable otherwise not enforceable.
Question 4 :
X supports Y's infant son without being asked to do so. Y promises to pay X Rs. 10,000 for doing so. Later, Y refuses to pay. Can X recover the promised amount from Y?
Answer: Compensation for past voluntary services Section 25(2):
A promise to compensate, wholly or in part. a person who has already voluntarily done something for the promisor, is enforceable.
In order that a promise to pay for the past voluntary services be binding, the following essential factors must exist:
(i) The services should have been rendered voluntarily.
(ii) The services must have been rendered for he promisor.
(iii) The promisor must be in existence at the time when services were rendered.
(iv) The promisor must have intended to compensate the promisee.
Related Question: Anita and Sonali are friends, Sonali treats Anita during Anita's illness. Sonali does not accept payment from Anita for treatment and Anita promises Sonali's daughter Tania to pay her Rs. 75,000. Anita, being in poor circumstances is unable to pay. Tania sues Anita for the money.
Can Tania recover?
Offer vour views based on provisions of the Indian Contracts Act. 1872.
Answer: No, Tania cannot recover the money from Anita. The agreement between Tania and Anita is not a contract in the absence of consideration. In this case, Tania's mother Sonali, voluntarily treats Anita during her illness. Apparently it is not a valid consideration because it is voluntary whereas consideration to be valid must be given at the desire of the promisor-Section 2(d).
The question now is whether this case is covered by the exception given in Section 25(2) which provides.
"If it is a promise to compensate a person who has already voluntarily done something for the promisor"
Thus as per the exception the promise must be to compensate a person who has himself done something for the promisor and not to a person who has done nothing for the promisor. As Sonali's daughter, Tania to whom the promise was made, did nothing for Anita, so Anita's promise is not enforceable even under the exception.
Question 5 :
X promises to donate Rs. 10,000 towards the repairs of a temple. X does not pay. Can the trustees recover the promised amount from X (a) if they have not incurred any liability on the faith of the X's promise, (b) if they have incurred any liability on the faith of this promise.
Answer: Charity: If a promisee undertakes the liability on the promise of the person to contribute to charity, there the contract shall be valid. (Kedarnath v. Gorie Mohammad)
Case (a) The trustees cannot recover the promised amount from X because the agreement is void in the absence of any consideration. [Leading case: Abdul Aziz v. Masum Ali]
Case (b) The trustees can recover the promised amount from X as the agreement is valid because it was supported by consideration in the form of a detriment to the trustees who had incurred liability on the faith of the promise made by X. [Leading case: Kedar Nathv. Gorie Mohammad]
Question 6 :
X gifted Rs. 50,000 to Y his neighbour's wife by executing a registered gift deed without any consideration. There is no near relation between X and Y. Is this gift valid?
Answer: Section to which the given problem relates: Explanation I to Section 25. Decision: The gift is valid because a completed gift needs no consideration and need not be a result of natural love and affection or near relation.
Related Question: X promises to make a gift of Rs. 50,000 to Y, his neighbour's wife. Is this promise valid?
Answer: Section to which the given problem relates: Explanation I to Section 25 because a promise to gift is not valid.
This agreement is void for want of consideration and at the same time, there is only a promise to gift and not a completed gift.
##.. Miscellaneous Question 4:
Explain the type of contracts in the following agreements under the Indian Contract Act, 1872:
(i) X promise to sell his scooter to Y for Rs. 1 Lac. However, the consent of X has been procured by Y at a gun point.
(ii) A bought goods from B in 2015. But no payment was made till 2019.
(iii) G agrees to give tuitions to H, a pre-engineering student, from the next month and H in consideration promises to pay G RS. 5,000 per month.
Answer: (i) In the instant case, X is an aggrieved party and the contract is voidable at his option but not at the option of Y. It means ifX accepts the contract, the contract becomes a valid contract then Y has no option of rescinding the contract.
(ii) B cannot sue A for the payment in 2019 as it has crossed three years and barred by Limitation Act. A good debt becomes unenforceable after the period of three years as barred by Limitation Act.
(iii) Where, G agrees to give tuitions to H, a pre-engineering student, from the next month and H in consideration promises to pay G Rs. 5.000 per month. the contract is executory because it is yet to be carried out.
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