LAW OF CONTRACT-1

LLB 1ST SEMESTER, SESSION-2011

Faculty SHRADHA BARANWAL sbaranwal@ddn.upes.ac.in

Consideration
Nature of Consideration Could be an act, abstinence or promise.

Section 25 of the Indian Contract Act

An agreement not supported by consideration is void implies that consideration is mandatory for enforceability of a contract.

Quid pro quo (something for something) Something of value on exchange of promise. In the simplest terms consideration is something which a promisor desires as price of its promise.

Consideration as detriment or benefit A valuable consideration in the sense of law, may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance , detriment, loss or responsibility given, suffered or undertaken by the other.

Sir Frederick Pollock defined consideration as, An act of forbearance of one party or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.
BLACKS LAW DICTIONARY defines consideration as: Consideration is not to be confounded with motive. Consideration means something which is of value in the eye of the law, moving from the plaintiff, either of benefit to the plaintiff or of detriment to the defendant. A consideration in its widest sense is the reason, motive, or inducement, by which a man is moved to bind himself by an agreement. It is not for nothing that he consents to impose an obligation upon himself, or to abandon or to transfer a right. It is in consideration of such and such a fact that he agrees to bear new burdens or to forgo the

Indian Contract Act, 1872 section 2(d) CONSIDERATION 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. Ingredients of Consideration 1. The act or abstinence, which is to be a consideration for the promise, should be done at the desire of the promisor, 2. It should be done by promisee or any other person, 3. The act or abstinence may have been already executed or is in the process of being done or may still be executory i.e. it is promised to be done.

Section 2(d), 10, 23-25, 185 Section 2(d) Defines Consideration

Section 10- All agreements are contracts if they are made by the, for a lawful Consideration..
Section 23-what considerations and objects are lawful? by Law of such nature as to defeat the provision of any other law, or is fraudulent, Does not involve injury to the person or property of another The court does not regard it as immoral, or opposed to public policy.
Not forbidden Would not be

Section 24- Agreement is void, if consideration and objects unlawful in part Section 25- Agreements without consideration is void, unless. Section 185- No consideration is necessary to create an Agency

IMPORTANCE OF CONSIDERATION
Abdul Aziz v. Mazum Ali (1914) 36 All 268 Kedarnath v. Gori Mohamed (1886) 14 Cal. 64

AT THE DESIRE OF THE PROMISOR An act shall not be a good consideration for a promise unless it is done at the desire of the promisor. Durga Prasad v. Baldeo (1880) 3 All 221

Promise by third person to pay for construction of building which was built at the instance of collector.

Kedar Nath v. Gorie Mohammed (1886 ILR 14 Cal 64) Construction of townhall based on the consideration of promise of subscription.
Whether the Defendant is liable?

District Board of Ramnad v. Mohd. Ibrahim AIR 1933 Mad 524 Promise to pay 5000 Rs. For the construction of bridge In this case the above decision in Kedar Nath was upheld and the defendant was held liable to pay.

Doraswami Iyer v. Arunachala Ayyar (AIR 1936 Mad 135)

Work of temple was already in progress. Defendant promised subscription. Later refused to pay the same. Can the defendant be sued.

Hudson Re (54 LJ Ch. 811) The promise was to contribute large sum of money for the payment of chapel debts. The promisor died after paying large amount of debt in installments leaving some of the debt amount. The claim was not held sustainable as the promisee did not take any corresponding liability at the instance of the promisor as a part of bargain. Revocation of unilateral promises In case the promisee acts relying on the promise In case the promisee does not act relying on the promise

Errington v. Errington [1952] 1 KB 290

The owner of a mortgaged house asked his son and daughter to pay the mortgage debts and in return promised them the ownership of the house. Considering the same the promisee started making payments. Whether father now can revoke the promise?

Options available in such cases are Suit for damages Quantum meruit

THE PROMISEE OR ANY OTHER PERSON Although it is necessary that consideration must move at the desire of the promisor, it may be supplied either by the promisee or any other person. As per section 2(d) it is immaterial who has furnished the consideration.

Example A owed Rs. 20,000 to B. He (A) persuaded C to sign a promissory note in favour of B. C promised B that he would pay the amount. On the faith of promise by C, B credited the amount to As account. National Bank of Upper India v. Bansidhar (1930) 5 Luck I

Chinnaya v. Ramayya (1882) 4 Mad 137 Mother promised to gift her estate to her daughter (defendant herein) in consideration of payment of Rs. 653 to the plaintiff (Sister of the mother) every year. The consideration furnished by the Plaintiffs sister (mother herein) was found to be sufficient to entitle the plaintiff to sue for the default in payment. Privity of contract and Privity of consideration

PRIVITY OF CONTRACT

INDIA The rule of Privity of Contract is also understood as secrecy of contract. As per the rule only those persons who are parties to the contract can enforce the same. Strangers cannot sue. The rule originated from the judgment in Tweddle v. Atkinson (1861) 30 LJ QB 218. A married B. After marriage As father and Bs father entered into a contract to give certain sum of money to A. After the death of fathers A sued executors of Bs father to recover the money.
Held, A could not sue as he was both a stranger to the contract as well as stranger to consideration.

Indian Courts have generally followed the rule of Privity of Contract despite the fact there is no such provision supporting the same. Jamuna Das v. Ram Avtar ILR 34 All 63 The Privy Council extended the rule of Privity of Contract to Indian Jurisdiction. A borrowed 40,000 from B by executing mortgage of property in favour of B. Later A sold the property to C for 44,000 and allowed him to retain 40,000 in order to redeem the mortgaged property. B sued C for the recovery of the money. Held, B not being the party to the contract hence cannot sue. Reasonability of the Judgment?

The applicability of Privity of Contract in Indian Jurisdiction is no more Res integra.

M.C. Chacko v. State Bank of Travancore AIR 1970SC 504 In this case the Privity rule was upheld by the court and the Court settled the discussion on applicability of Privity of Contract to Indian jurisdiction.

The Courts often tried to modify the principle to extend the benefit to the third party, which would have strictly unavailable on the application of the principle.

Refer Raymond Woollen Mills Ltd. V. Coal India Ltd. (1998) Cal HC POSITION UNDER ENGLISH LAW Dutton v. Poole (Court of KB 1677) In this case though the plaintiff and his wife was not party to the contract yet they were allowed to enforce the same on the ground of equity.

Tweddle v. Atkinson (1861) 30 LJ QB 218.

With this case Privity of Contract was introduced under English Jurisdiction. Dunlop Pneumatic Tyre Co. v. Selfridge & Co. [1915] AC 847 In the present case the plaintiff sold certain goods to one Dew & Co. and secured an agreement from them not to sell the goods below the list price and that if they sold the goods to another trader they would obtain from him similar undertaking to maintain the price list. The defendants undertook not to sell the goods below the list price yet they sold it to consumers below the listed price. Plaintiffs sued the defendants.

It was held that the plaintiffs cannot bring a case in this regard as there is no Privity of contract between the plaintiffs and the defendants. The ruling in Tweddle v. Atkinson was upheld in this case.

PRIVITY OF CONTRACT RULE SUBJECT TO SEVERE CRITICISM 6th Report of the Law Revision Committee 1937). Mostly criticized on the ground of sanctity of promises

PRIVITY OF CONSIDERATION it means that consideration has to move from the promisee. Refer the case of Chinnaya v. Ramayya (1882) 4 Mad 137

EXCEPTIONS TO THE RULE OF PRIVITY OF CONTRACT Why do we have exceptions?

A. Beneficiary under Trust The person in whose favour a charge or other interest in some specific property has been created, may enforce it though he is not a party to the contract. Case laws: Touche v. Metropolitan Railway Warehousing Co. (1871) 6 Ch 671

Khwaja Muhammad Khan v. Hussaini Begum 12 Bom LR 638 (Privy council Judgment)

Klause Mittelbchart v. East India Hotels Ltd. AIR 1997 Del 201

B. Family arrangement
In case of arrangements made in connection with marriage, partition or other family arrangements where a provision is made for the benefit of a person, he may take advantage of that agreement although he is not a party to the same.

Rose Fernandez v. Joseph Gonsalves AIR 1925 Bom 97

Daropti v. Jaspat Rai [1905] PR 171 Sundarraja Aiyangar v. Lakshmiammal [1915] 38 Mad 788

C. Estoppel
Under certain circumstances where one party by his conduct, acknowledgement or admission recognizes the right of other, then the such person though may not be a party to the contract is still entitled to sue.

Devaraj Urs v. Ram Krishnaiah AIR 1952 Mys 109

Narayani Devi v. TCC Ltd. AIR 1973 Cal 401 Khirodbehari Dutt v. Mangobinda Panda AIR 1934 Cal 682

D. Covenants running with Land The principle that a person is bound by the covenants running with the land was laid down in the case of Tulk v. Moxhay. According, to this principle, where a person 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, they shall bind him although he was not a party to the agreement. Smith & Snipes Hall Farm Ltd. V. River Douglas Catchment Board [1940] 2 KB 500

INDIA In India this principle is statutorily recognized by the Easement Act and Transfer of Property Act.

Steel Authority of India Ltd. V. State of M.P. AIR 1999 SC 1636

CONSIDERATION MAY BE PAST, PRESENT OR FUTURE Section 2(d) ..has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing,

PAST CONSIDERATION
The Indian Contract Law recognizes past promises. Thus an act done at the request of promisor without any contemporaneous promise from the other party, that may form consideration for a future promise.

Difference between Indian and English Law with respect

Re McArdle (1951) 1 All ER 905 Mother given her property to her sons. During mothers life time one sons wife made certain improvement in the property and incurred some expenses. Subsequently, the sons signed a document promising to pay some amount on account of alterations done in the past. Action to enforce promise was rejected. Past services at the request of promisor Non enforceability of past services is subject to this exception.

Lampleigh v. Brathwait 80 ER 255 Past services done voluntarily section 25(2), illustration C Promise to pay in part or wholly for a past service is a contract.

EXECUTED CONTRACT (does or abstains from doing) When one party has performed his part of contract and the other party has to perform his part of contract..

EXECUTORY CONTRACT (promises to do or to abstain) Where the performance of promise is at a future date from both the parties. Difference between executory and executed contract: UOI v. Chaman Lal Loona & Co. AIR 1957 SC 652

INADEQUACY OF CONSIDERATION AS A FACTOR IN DETERMINING FREE CONSENT. Section 25 Explanation 2

As a general rule it is not mandatory that the consideration must be adequate, yet it is a factor to determine free consent of the parties.
Pridmore v. Calvert (1975) In this case a lady was injured as a result of the defendants negligent driving. Finally she settled her claim with the insurer for just $331. it was held that the lady is not bound by the contract as she was in a weaker position as compared to the insurer.

CONSIDERATION TO HAVE SOME VALUE IN THE EYES OF LAW EXCEPTION TO CONSIDERATION section 25 1. Agreement out of natural love and affection. 2. Promise to pay for past voluntary services. 3. Promise to pay for something, which the promisor was legally compellable to do. 4. Promise to pay a time barred debt.

AGREEMENT OUT OF NATURAL LOVE AND AFFECTION section 25 (1) A written and registered agreement between near relations made on account of natural love and affection is valid though made without consideration. Rajlukhy Dabee v. Bhootnath Mukerjee (1900) Murli Singhal v. Ravi Singhal AIR 1999 Del 156

Ram Charan Das v. Girja Nandini Dev AIR 1966 SC 323

PROMISE TO PAY FOR PAST VOLUNTARY SERVICES sec 25(2) illustration C This exception operates only when the service has been done voluntarily and to the promisor. There is no question of services if there is no promisor. Reason: the person who was not there to accept/ recognize the act when it was done cannot later on ratify the same.

PROMISE TO PAY FOR SOMETHING, WHICH THE PROMISOR WAS LEGALLY COMPELLABLE TO DO Voluntary services to minor for necessity.

PROMISE TO PAY A TIME BARRED DEBT section 25 (3) If a promise is made in writing duly signed by the person to be charged therewith, or by his agent, generally or specially authorized in that behalf, 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, then such a promise is enforceable even though there is no legal consideration to support the same. Intention to pay should be there.