48925975 Consideration

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Consideration

Section 10Essentials of a valid contractSection 23What considerations and objects are lawful and whatnot

Section 24Agreements void if consideration and object arelawful in part

Section 25Agreement without considerationSection 2 (d)Definition


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Consideration English Law

Speciality contracts

Parol contracts

Quid pro quo


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Indian Law Consideration

Ex nudo pacto non oritur actio.

No action arises from a nude agreement.

Nudum Pactum.

Agreement without consideration.

Nudum pactum ex quo non oritur actioA bare agreement from which no action

arises.


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Mere writing not sufficient

Pillans v. Van Mierop (1765)

Rann v. Hughes (1778)

High Trees House Case (1947)


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Moral obligation is not sufficient

Lee v. Muggeridge (1813)

Eastwood v Kenyon (1840)


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Currie v. Misa

Avaluable consideration in the sense of law,

may consist either in some right, interest,profit or benefit to the one party, or someforbearance, detriment, loss or responsibility

given, suffered or undertaken by the other.


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Consideration Under ICA

Sec. 10 of ICA lays down essential of valid contract. One ofwhich is consideration.

Sec. 23 lays down that the agreements considerations andobjects of which are unlawful are void.

Sec. 24 lays down that the agreements are void ifconsideration and object are unlawful in part.

Sec. 25 opens with the wordings; An agreement withoutconsideration is void ab initio.


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Privity of Consideration

A stranger to a consideration cannot sue.

Dutton v. Poole (constructive

consideration).

Tweedle v. Atkinson.

Under ICA a consideration may move fromthe promisee or any other person.

Chinnayya v. Ramayya.


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Privity of Contract

A stranger to a contract cannot sue.

No jus quaesitum tertio (rights acquired

for a third party)

Dunlop Pneumatic Tire co. V. Selfridge &Co.

Beswick v. Beswick


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Exceptions to privity rule

Beneficiary to contract can sue for itsenforcement (i.E. Beneficiary under trust

or a charge on property). Khwaja Muhamad v. Husaini begum.

Acknowledgment or estoppel.

Devaraja Urs v. Ram Krishnaiah


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Privity of Contract

Family arrangements, marriagesettlements etc.

Rose Fernandez v. Joseph Gonsalves.

Daropti v. Jaspat Rai.

Covenants running with land.


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Definition

Sec. 2 (d) when, at the desire of thepromisor, the promisee or any other

person has done or abstained from doing,or does or abstains from doing, orpromises to do or to abstain from doing,

something, such act or abstinence orpromise is called a consideration for thepromise.


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Promissory Estoppel

Acts done at the request of the promisor

Kedarnath v. Gorie Mohamed

Doraswami Iyer v. Arunachala Iyer


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Kinds of Consideration

Executorypromise for a promise

Executedan act for a promise

Pastpromise independent andunconnected with an act already done.

Under English law such a pastconsideration is not valid and enforceable


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Exceptions to Past

Consideration.Act done at the request of the promisor

Lampleigh v. Brathwait (1615)

Kennedy v. Brown (1863)

Precedent debt

Negotiable instrument


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Past Consideration Under Indian

Law S. 2(d) clearly lays down the words has done

which suggest that past act done by the

promisee at the desire of the promisor is validand enforceable.

S. 25 (2) lays down that if a person has donesomething for another voluntarily and that other

has promised to pay him an amount for thesame, the promise is enforceable against such apromisor.


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Agreements Without

Consideration S. 10 & S. 25 Ex nudo pacto non oritur actio.

Out of a bare pact no action arises.

Promise to contribute money to acharitable purpose.


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Exceptions Under S. 25

Agreement without consideration is valid andenforceable if

It is in writing and registered, It is out of natural love and affection of parties,

Parties are in near relationship.

For example, a promise by a person in writingand registered to pay all the debts of hisbrother.


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Promise to compensate

Promise to compensate wholly or in partto a person who has already done

somethingVoluntarily for the promisor, or

Something which the promisor was legally

bound to do.


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Promise to pay a time barred

debtA promise to pay a time barred debt is

enforceable by law.

Such a promise is an acknowledgment ofthe debt which gives rise to a new cause

of action.


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Adequacy of consideration

Laesio enormisprice to be fair andserious.

Bailmentno consideration is required.Adequacy may be used to determine the

free consent of the parties.

Consideration to be real and not illusory ormere moral obligation.

Consideration to be certain and lawful.


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Forbearance to sue and

compromise A forbearance to to sue for a time period is a

good consideration. As it is a detriment to the

creditor and a benefit to the debtor. Alliance Bank v. Broom (1864)

A compromise of a doubtful claim is similar tothe forbearance to sue and therefore is a good

consideration.

Callisher v. Bischoffsheim (1870)


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Pre existing obligations

Duty imposed by law not a goodconsideration.

Collins v. Godefroy (1831). Duty owed to the promisor not a good

consideration.

Stilk v. Myrick (1809). Contractual duty to third party.

Shadwell v. Shadwell (1860).


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Accord and Satisfaction

If the party bound performed something otherthan that which was required by the originalpromise and the promisee consented to that,

that will act as a valid discharge for thepromisors obligation.

No executory consideration was allowed but nowit is allowed.

Pinnels case rule that a part payment of a debtcannot operate as a satisfaction of the wholedebt.


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Modern Trend

London Property Trusts Ltd. v. High Trees HouseLtd. (1947)

Principle of accord and satisfaction applies onlywhere the

Promise is intended to create legal relations;

Promise is intended to be acted upon bypromisee;

Promise is in fact acted upon.


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Accord and Satisfaction

Under English law to remit theperformance in the original contract a

satisfaction (consideration) must be given.

S. 63 of ICA does not accept the rule and

it requires no consideration for remittingthe performance by the promisee.


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Exceptions to Pinnels Case

Composition with the creditors.

Part payment by a third party.

Welby v. Drek


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Incapacity to Contract

Political Professional Artifiacial Married

Status

Minority Idiocy Lunacy Drunkenness

Mental Deficiency

Incapacity to contract may arise


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Political Status

Foreign Sovereign Alien Enemy Felons

Political status


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Political Status

Foreign Sovereigns and Ambassadors.

Mighell v. Sultan of Johore (1894).

Three principles are laid down in the case: A foreign sovereign cannot be sued,

This privilege may be waived by him, if he sochooses,

The time for waiving this privilege is after theserving of summons i.e. when he is called uponin the court.


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Diplomatic Privileges Act, 1964

It repealed the earlier Act of 1708.

Immunity under this Act is available to

Diplomatic Agents,

Administrative and technical staff,

Service staff, i.e. members of mission indomestic service.


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Diplomatic Privileges Act, 1964

The conclusive proof of the status of aperson is a certificate issued by or under

the authority of the Secretary of State. In India, Section 86 of C.P.C. lays down

that if a suit is to be instituted against a

foreign sovereign, the consent of theCentral Government is required.


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Alien Enemy

If, however, the war continues for a longperiod of time, such a right is lost on the

ground of impossibility of performance. If the alien enemy is registered and

permitted to stay under Aliens Restrictions

Act, in England, he will be entitled to sueand be sued in the court of law.


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Indian Position

Sec. 83 of C.P.C. Alien enemies residing inIndia with the permission of the Central

Govt. can sue and be sued in the court ofLaw. However if they are not residing withsuch permission they will not be entitled

to sue or be sued.


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Professional Capacity

Barristers were not entitled to sue for theenforcement of the contract. Their

services were considered to be purelyhonorary in nature.

With the enactment of Bar Councils Act,

1927, they were held to be entitled to suefor the fees for the services rendered bythem.


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Artificial StatusCorporations

Physical impossibility i.e. natural ornecessary limitationsContracts of

personal nature cannot be entered into bythe corporations. For example, marriage.

Legal limitationsUltra-vires acts, not

within the power of the company i.e. notmentioned in the memorandum ofassociation.


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Married Woman

Before 1883, in England, a marriedwoman was not entitled to sue or be sued

for contracts or even torts. But now there is no such restriction in

England or even in India.


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Mental Deficiency

S. 10 parties must be competent to enter into acontract.

S. 11 competent means Major according to the law to which he is

subjected;

Who is sound mind;

Not disqualified from entering into a contract.

S. 12 what amounts to unsoundness of mind.


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Minority

Infants Relief Act, 1874.

Family Reforms Act, 1969.

Minors Contracts Act, 1987.

Contract with a minor cannot be enforcedagainst him.

Indian Majority Act, 1875, Sec. 3.


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Contracts for Necessaries

Ryder v. Wombwell (1867).

Nash v. Inman (1908).

Sec. 2 of SOGA, 1893, defines necessariesgoods suitable to the condition in life of suchinfant or minor or other person and to his actualrequirements at the time of sale and delivery.

Executory contract for purchase of goods.


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Contract for Minors Benefit

Roberts v. Gray (1913).

Contracts of apprenticeship and of theemployment for the minor are held to bevalid and binding on the minor.


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Contracts Valid until Avoided

Contracts of continuing or recurringliability.

For example, partnership agreements.

The repudiation of a contract must bedone within a reasonable time period.


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Ratification of Contracts

Contracts entered into by the minor canbe ratified by him after attaining the

majority. However, under Indian law no such

ratification is allowed and minors

agreement is void ab initio.


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Restitution under Void

AgreementValentini v. Canali (1889).

Restitution is possible only when there is

total failure of consideration on the part ofother party.

Steinberg v. Scala (Leeds Ltd.) (1923).


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Liability of Minor in Tort

Ballett v. Mingay (1799). Tort of Detinue

Jennings v. Rundall (1863).

Burnard v. Haggis (1863). Tort ofTrespass as if no hiring.


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Indian Law on Minors

Indian Majority Act, 1875.

Mohoribibi v. Dharmodas Ghosh, (1903)

Raj Rani v. Prem Adib (1949)

S. 68 contracts for necessaries.


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Indian Law on Minors

Specific performance of contract is allowedonly if it is entered into by the guardian,

having competence to do so, for thebenefit of minor.

No estoppel can be pleaded against the

minor, i.e. against the statute. Sadik Ali Khan v. Jai Kishore (1928)


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Restitution

Infants are no more entitled than adultsto gain benefits to themselves by fraud.

Leslie v. Sheill,

Restitution stops where repayment begins.


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Indian Law

S. 31 to S. 33 of Specific Relief Act.

Khan Gul v. Lakha Singh(1928 Lahore)

Ajudhia Prasad v. Chandan Lal (1937 All.)


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Lunatic

A contract is voidable only if

The person pleading insanity proves that

he was insane at the time of entering intocontract so as not in a position tounderstand the effect of the contract, and

That the other party had a knowledge ofhis insanity at the time of entering into thecontract.


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Indian Law

Sec. 12 defines who is of unsound mind,as a person incapable of understanding

the contract at the time of entering intocontract and who is incapable of forming arational judgment as to its effects on his

interest. Such a contract entered into by a lunatic is

void ab initio.


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Insanity

A subsequent insanity of a party does notaffect the contract except in certain

contracts e.g. marriage contract.


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Drunkenness

Under English law a contract is merelyvoidable at the option of the person who

pleads the drunkenness as a defense if hecan prove

His incapacity at the time of entering intocontract,

Knowledge of the other party about hisincapacity.


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Indian Law

A contract by a drunken person is void.

Illustration (b) to S. 12 of ICA.

In American law, a drunken person isdeemed to have ratified the contract, if hedoes not disaffirm it within a reasonable

time.

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48925975 Consideration