Privity of Contract 141 Contracts Act 1950 no scholarship agreement shall be invalidated the ground that it lacks consideration. 8 PRIVITY OF CONTRACT 28.1 Privity rule [2.245] It isa fundamental principle of contract law that except for some special circumstances, a person who is not a party to a contract has no right to sue or be sued on the contract. The doctrine of privity of contracts affects contracis which confer benefit to strangers or impose liabilities on them. Thus, where A promises to do something for B and in return B promises to confer some benefit on C, C cannot enforce such a contract against B.** A contract between A and B cannot impose a liability upon Cand C is not bound by such liability. Neither A nor B can enforce » such liability against C.* Simply put, this doctrine means that only the original party to a contract may sue or be sued upon it. In other words, __ itis the original party that may enforce or be bound by the terms of the _ contract. While the doctrine of privity of contract denies the third party of any right, it also prevents the third party from being liable under the contract to which the third party is not a party. In Tweddle v Atkinson2” the Court laid down a singular principle of law to this effect: that no one may be entitled to or be bound by the terms of a contract to which he is not the original party thereto.%* This principle has been a keystone of - English contract law for the past 139 years-that is, until the Contracts (Rights of Third Parties) Act 1999 came into force in England, Wales and Northern Ireland in May 2000.*? [2.246] The case of Tweddle v Aikinson™ established the doctrine of privity of contract in its present form. In that case, John Tweddle and William Guy each agreed to pay a sum of money to the plaintiff (Tweddle’s son) 285 Tweddle v Atkinson (1861) 1B & $393; 121 ER 762; Duntop Pneumatic Tyre Co Ltd » Selfridge & Co Ltd [1915] AC 853 HL; Scruttons Ltd » Midland Silicones Ltd [1962] AC 446; Punca Kiastk Sdn Bitd v Foh Chong & Sons Sdn Bhd [1998] 1 CL] 601, HC. 285 Tulk v Moxhay (1848) 41 ER 1143; for a fuller discussion on this subject of privity of contracts, see Andrew Phang Boon Leong, Cheshire, Fifoot and Furmston’s Law of Contracts (1999, LexisNexis), Chs 15 and 16. 287 (1861) 1B & S393; 121 ER 762. 288 Double Acres Sdn Bad v Tiarasetia Sdn Bid {2001} 1 AMR 111; Syarikat Ong Yote Lin Sdn Bhat v Giant Cash & Carry Sdn Bhd & 3 Ors [2000] 4 AMR 4982; Joo Yee Construction Pte Ltd (Ir Tianidation) n Dis Ioduiteinn Din Tard FAOOAE NEE T Ce ae ON a142. Formation of a Contract in consideration of his marrying Guy’s daughter. Guy failed to pay and the plaintiff sought to enforce the promise against Guy's executor. It was held that the plaintiff could not enforce the promise despite the fact that the contract was for his benefit since he had given no consideration for it. Wightman J in the course of his judgment said: It is now established that no stranger to the consideration can take advantage of a contract although made for his benefit. [2.247] In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd”! Lord Haldane approved the doctrine of privity of contract when he said: In the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property, as for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract it personant. [2.248] Although the Malaysian Contracts Act 1950 makes no mention of the doctrine of privity of contract, itis beyond doubt that the doctrine is applicable in Malaysia as per the Privy Council’s decision in Kepong Prospecting Lid v Schmidt.” In Kepong Prospecting Lid,” one ‘Tan secured prospecting permits over certain state lands in Johore in November 983 As Schmidt had helped in the negotiations to secured the permit, ‘Tan executed a power of attorney in favour of Schmidt which conferred upon Schmidt wide powers to contract for the disposal of any of Tan's mining properties on such consideration or terms as Schmidt thought proper. The appellant company was incorporated on July 27, 1954 with a view of taking over the benefit of Tan’s prospecting permit-Schmidt and Tan being the first directors of the company. On July 31, 1954 an agreement was entered into between Tan and the appellant company and it was executed on behalf of Tan by his attorney, Schmidt. Subsequently Schmidt took out proceedings against the appellant company in respect of the 1954 agreement in his personal capacity. It was held that Schmidt, 2¢ donee af a power of attorney cannot sue on an agreement to enforce z ¥ ause he 1s not a party to the agreement in his personal capacity but executed the same on behalf on the donor, Tan. Lord Wilberforce delivering the judgment of the Board of the Privy 291 [1915] AC 847 at 853.Privity of Contract 143 Council remarked in regard to the applicability of the doctrine of privity of contract in these apt words: Their Lordships were not referred to any statutory provisions by virtue of which it could be said that the Malaysian law as to contracts differs in so important a respect from English law. It is true that s. 2(d) of the Contracts Ordinance gives a wider definition of “consideration” than that which applies in England particularly in that it enables consideration to move from another person than the promisee, but the appellant was unable to show how this affected the law as to the enforcement of contracts by third parties, and it was not possible to point to any other provision having this effect. On the contrary paragraphs (a), (b), (c) and (2) support the English conception of a contract as an agreement on which only the parties to it can sue. [2.249] In Badiaddin Mohd Mahidin & Anorv Arab Malaysian Finance Bhd®+ the appellants were the registered co-owners of a piece of Malay reserve land in Tampin. Their business associate, one Ismail Omar, was in need of a loan and to furnish security for the personal loan, the appellants assisted Ismail by charging the land to the respondent (the Bank). After the loan was disbursed, Ismail committed a breach of the loan agreement and the respondent foreclosed the third party security and obtained an order for sale of the property. The appellants successfully applied to have the charge and the order of sale declared null and void on the ground that they were in violation of the prohibition imposed by section 13 of the Malay Reservations Enactment. The respondents then filed an application before the same judge for a declaration that the appellants, having received a benefit from the respondent pursuant to section 66 of the Contracts Act 1950 were liable to repay the outstanding amount owing to the respondent. One of the issues was whether section 66 could be invoked against the appellants. The Federal Court held that section 66 could not be invoked against the appellants because they were not the recipients of the loan and they were not parties to the loan agreement with the respondents. [2.250] The question of privity of contract between a main contractor and subcontractors has been explained by Chow Kok Fong:”” 294 [1998] 1 AMR 909; [1998] 2 CL} 75, FC; Fima Palmbulk Services Sdn Bhd ? Suruhanjeya144 Formation of a Contract A subcontract executed between a main contractor and subcontractor cannot give rise to any privity of contract between the subcontractor and employer. This is because subcontracting operates as a subletting of the physical construction of the works only and does not constitute an assignment of rights and liabilities under the main contract. The main contractor thus continues tobe responsible to the employer for the whole of the works and to be liable for any defective work, delay or any other default committed by his subcontractors. There have been occasions in the past where it has been contended that this position may not apply to some situations, particularly, where the subcontractors have been nominated by the employer or where the employer (or his architect or engineer) has otherwise intervened in the choice of the subcontractors. This view was canvassed largely on the premise that the main contractor, in the placement of nominated subcontracts, acts as an agent for the employer. However, as noted by one leading commentator, such a result can only be produced by “the most special and unusual facts showing that the employer expressly or by his conduct authorized the main contractor or the architect so to contract ... [because it is] ... contrary to the sense of the usual main contract and the most universal practice in the building industry. (Hudson 10" ed (1970) p 742) [2.251] Although, there is an increasing trend to question the soundness of the privity rule. In criticising the doctrine of privity of contract, Steyn L] in Darlington Borough Council v Wiltshier Northern Ltd & Anor™ stated as follows: The case for recognizing a contract for the benefit ofa third party is simple and straightforward. The autonomy of the will of the parties should be respected. The law of contract should give effect to the reasonable expectations of contracting parties. Principle certainly requires that a burden should not be imposed on a third party without his consent. But there is no doctrinal, logical or policy reason why the law should deny effectiveness to a contract for the benefit of a third party where that is, the expressed intention of the parties. [2.252] In the Court of Appeal case of Razshah Enterprise Sdn Bhd v Arab Mirlaysiai Finatce Bhd? although couched in reluctance, the Court endorsed the stand of the Malaysian courts that the privity rule is here to stay. Abdul Malik Ishak JCA stated?"Privity of Contract 145 It is germane to mention that the doctrine of privity of contract is a creature of the common law. The doctrine means that a non-party cannot bring an action on the contract. But the doctrine is not universally acceptable. For instance in FC Seck Trading As Oversea Structural Company v Wong And Lee [1940] ML] 182 where the plaintiff there sued for money, paid to the defendants there under a mistake of fact, Terrell Acting CJ held that the doctrine of privity of contract should not apply. And the majority of the High Court of Australia (Mason CJ, Wilson J and Toohey J) were of the view in Trident General Insurance Co Lid v McNiece Bros Proprietary Lid (1988) 165 CLR 107 that the time had arrived for the rejection of the privity doctrine. Our Contracts Act 1950 (Act 136) has no express provision pertaining to the doctrine of privity of contract. In fact, Kepong Prospecting gives the gloom picture that the doctrinestill applies in Malaysia. Indeed Mohamed Dzaiddin J (who later rose to be the Chief Justice of Malaysia) relied on Kepong Prospecting and aptly said in Fima Palmbulk Services Sdn Bhd v Suruhanjaya Pelabuhan Pulau Pinang & Anor [1988] 1 MLJ 269 at p 271, “Itis clear that the English doctrine of privity of contract applies to our law of contract.” [2.253] On the question of privity the following cases are helpful: Woolley Development Sdn Bhd v Mikien Sdn Bhd2” Anika Insurance Brokers Sdn Bhd v Public Bank Bhd; Ramli bin Shahdan v Motor Insurer's Bureau Bacom Enterprise Sdn Bhd v Jong®? and Ngan & Ngan Holdings v Central Mercantile Corp (M) Sdn Bhd” 2.8.2 Exceptions to the privity rule [2.254] The special circumstances where'a stranger toa contract cansue can be broadly divided into six categories: (1) Q) (@) 4) > the trust exception; the statutory exception; the agency exception; the contractual exception;146 Formation of a Contract (5) the assignee exception; (©) the tort of procuring the breach of a contract. (a) The trust exception [2.255] To illustrate the trust exception to the privity rule: Where A makes a promise to B for the benefit of C, C can enforce the promise if B has expressly or impliedly constituted himself a trustee for C. Provided it can be shown that B intended to create a trust, Ccan sue A to enforce the promise if he joins B in the action. As a general rule, Cis then beneficially entitled to the benefit of that promise. [2.256] Lord Wright in Vendepitte 0 Preferred Accident Insurance Corporation of New York stated as follows: ... The action should be in the name of the trustee, if, however, he refuses to sue, the beneficiary carrsue, joining the trustee as a defendant. [2.257] The courts, unless there are clear words in the contract to that effect, would not find a party as constituting himself a trustee. It is in line with well established principles of trust Jaw that a person will not be regarded as having declared himself as a trustee in the absence of words showing a clear intention to do so. [2.258] In the Court of Appeal case of Ramli bin Shahdan & Anor v Motor Insurers’ Bureau of West Malaysia & Anor*® PS Gill JCA (as he then was) discussed the issue of the locus of the appellants to sue when the appellants were not parties to the agreement and had not given any consideration to the said agreement. This involved a case where the issue was whether an accident victim could sue the Motor Insurers’ Bureau (“MIB”) directly. The MIB had entered into an agreement with the Minister of Transport to provide compensation to victims who were knocked down by uninsured motor vehicles and though the compensation was meant for the victim. he/she was not privy to the agreement. The Court of Appeal held that when a contract was made between first respondent and second respondent, that is, the MIB and the Ministry of Transport for the benefit of the appellants (the victim), the second respondent (the Minister of Transport) could sue on the contract for the benefit of the appellants and recover all that the appellants would have recovered as of the contract had been made by the appellants themselves. ImplicitPrivity of Contract 147 in this proposition was the fact that if the second respondent failed in his duty, the appellants as beneficiaries under the implied trust, may successfully maintain an action against the first respondent and second respondent as joint defendants. His Lordship relied on Lord Denning’s views expressed in Garner v Circuit,” when he said: To this issue, we universally adopt the views propounded by the erudite judge Lord Denning, who we note treated the relationship and position of a Motor Insurers’ Bureau as a unique entity, a league of its own, so to speak, which goes against conventional wisdom, in area of privity of contract. In Garner » Circuit (1968) Vol 1, Lloyd’s Law Reports 171 (CA) at p 176, Lord Denning held: “Then the plaintiff will be able to come down on the Motor Insurer’s Bureau and call upon them to pay because they have madea solemn agreement that they will pay ...” It is true that the injured person was not a party to that agreement between the Bureau and the Minister of Transport and he cannot sue in his own name for the benefit of it. Buf the Minister of Transport * can sue for specific performance of it. He can compel the Bureau to honour its agreement by paying the injured person, see Beswick v Beswick [1967] 3 WLR 932. If the Minister of Transport obtains an order for specific performance, the injured person can enforce it for his own benefit, see by Lord Pearce in [1967] 3 WLR, at p 952 E to G. If the Minister of Transport should hesitate to sue, I think it may be open to the plaintiff to make him a defendant: and thus compel performance (Emphasis added). On our part we are aware that the doctrine of privity, while not an irrational doctrine from the nature of the contract, has in particular incidence caused injustice and proved inadequate to modern needs. In such circumstances, it is not surprising that various attempts have been made to induce courts to sanction evasions of the doctrine. Reported case laws have indicated a considerable measure of success in this respect. It has been observed for instance that an undisclosed principal could sue ona contract made by another. By the rules governing negotiable instruments, it has long been established, first by custom of law merchant, then by judicial decision, and finally by statute thata third party may sue on abasis of exchange or a cheque. Equally, we find in the sphere of insurance, there are several situations where a policy may avail for the benefit of persons who have not themselves effected the policy. Further, the usage of trade and commerce have modified the rigours of common law doctrine of privity of contract.148 Formation of a Contract Outside this scope, litigants have from time to time been able to invoke the assistance of equity. As early as 1753, Lord Harwicke indicated the possibilities of a trust situation being created. His Lordship was prepared, in a case where for example A promised to B to pay money to, to regard Bas trustee for C for the benefit of the contract (see Toutlin v GUI (1756) Amb 330). In 1917, Sir William Grant affirmed the concept of the possibilities of a trust in the case of Gregory and Parker » William (1817) 3 Mer 582. In this case, Parker owed money to both Gregory and Williams. He agreed with Williams to assign to him the whole of his property, if Williams would pay the debt due to Gregory, but Williams failed to implement his promise. Gregory and Parker filed a bill in equity to compel performance of the promise and succeeded. It was held that Parker must be regarded as a trustee for Gregory, and he (Gregory) derived an equitable right through the mediation of Parker’s agreement. Against this backdrop we can say with equanimity that when a contract as in our present instance is made between first respondent and second respondent for the benefit of the appellants, then second respondent can suc on the contract for the benefit of the appellants, and recover all that the appellants would have recovered as if the contract had been made by the appellant himself. Implicit in this proposition of ours, is the fact that if the second respondent fails in his duty, the appellants as beneficiaries under the implied trust, may successfully maintain an action against the first respondentand second respondentas joint respondents. This issue of locus of the appellants, to sue, is for purposes of this appeal cadit quaestio. [2.259] In Takako Sakao (f) v Ng Pek Yuen (f° the Federal Court ruled that trusts are an exception to the common law rule of privity of contract. (b) The statutory exception [2.260] Some examples of certain provisions in statutes conferring the right of strangers to a contract to sue are as follows: 1) Q) Under the Road Transport Act 1987, an authorised driver of a motor car is accorded the same rights and privileges of the motor insurance policy as the owner. An injured third party can take proceedings to recover any judgment sum directly against the insurer.*!° Under section 23 of the Civil Law Act 1956, when a man takes out life insurance and expresses it for the benefit of his spouse and/orPrivity of Contract 149 children, a trust is created in their favour and they can enforce their right to the policy moneys directly against the insurer?" Under section 29 of the Bills of Exchange Act 1949, a party into whose ~ hand a negotiable instrument comes, can sue on it even though he was not the original party to whom it was negotiated. A person covered under a group life policy can recover directly against the insurer under paragraph 11(3) of Schedule 8 of the Financial Services Act 2013 subject to certain conditions. (c) The agency exception [2.261] When anagent contracts with a person on behalf of his principal, he is not liable under the contract but the principal is. An agent, therefore, cannot personally enforce contracts entered into by him on behalf of the principal, nor is he personally bound by them” However under section 183 of the'Contracts Act 1950 the agent can personally enforce or be sued under such contracts in the following cases: (1) where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;5"3 (2) where the agent does not disclose the name of his principal" and (3) where the principal, though disclosed, cannot be sued. [2.262] The doctrine of undisclosed principal was explained by VC George J (as he then was) in MAA Holdings Sdn Bhd & Anor » Ng Siew Wah & Ors: Itis not uncommon that in mercantile transactions one party actsas agent for an undisclosed principal. The law recognizes that and the rights of the parties to a contract made by an agent of an undisclosed principal have been codified in ss 183-186 of the Contracts Act. Section 184 goes to the extent of providing that the undisclosed principal may require the performance of the contract even though the other party to the contract neither knew or had reason to suspect that the person he had dealt with was in fact an agent.150 Formation of a Contract [2.263] Abdul Malik Ishak J in Double Acres Sdn Bhd v Tiarasetia Sdn Bhd,* illustrated the doctrine of undisclosed principal as follows: IfAli has made a contract with Bala, Chan may intervene and take Ali's place if Chan can show that Ali was acting throughout as his agent, and itis irrelevant that Bala entered into the contract in ignorance of the fact, Itcan easily be discerned that the doctrine of undisclosed principal runs counter to the common law doctrine of privity (d) The contractual exception [2.264] To illustrate the contractual exception to the privity rule: A, an insurer, promises the insured B, for value (premium) to pay the policy moneys to a named beneficiary, C. There is a perfectly valid contract between A and B but C cannot sue A on the policy because C is not a party to the contract. But B or his personal representatives can sue A to enforce the promise to pay C. [2.265] In the cage of Beswick v Beswick” PB, a coal merchant agreed to transfer his business, assets and goodwill to his nephew JB in return for [B's promise to pay PB £6 10s. a week as consultant until he died and then to pay his widow an annuity of £5 per week for the rest of her life PB died after a year and JB made one payment of £5 to his widow and refused to pay anymore. The widow took out letters of administration to PB’s estate and brought an action daiming arrears and a declaration that JB was bound to pay her the annuity and seeking specific performance of the agreement. The House of Lords held that the widow in her capacity as personal representative of PB, one of the parties to the contract, had the right. [2.2661 A party to a contract can specifically enforce an obligation by the other party to confer a benefit to a third party subject to fulfilling the strict conditions required to obtain such an order. Alternatively, one party can obtain a declaration that the other party do so.3!¥ However, if for some reason, B or his personal representative does not do so, C cannot on his own enforce the contract in his fav Re trator and the party to whom the benefit one and the same person. to accrue were 316 [2001] 1 AMR 111 at 139; Mohamed Din bin Aliv The Trustees of the Negri Sembilan, Scholarship Burn fe Hinline EtAccord and Satisfaction: Section 64 of the Contracts Act 1950 151 =(é): The assignee exception [2.267] To illustrate the assignee exception to the privity rule, the liabilities imposed or the benefits or rights acquired under a contract between A and B can be transferred to C, who was not a party to the riginal contract, by way of an assignment. An assignee can either on his own (in the case of an absolute assignment)? or jointly with the assignor (in the case of an equitable assignment) sue or be sued under = the contract. = (f) Procuring the breach of a contract [2.268] Knowingly procuring or inducing a third party to break his contract to the damage of the other contracting party without reasonable justification or excuse is a tort. Where A procures B to break his contract with C, it has been held that C can sue A based on this tort. In Greig v _ Insole? where the cricket authorities imposed a ban aimed at persuading ~ players who had entered into contracts with a promoter to withdraw = from the contracts, the promoters brought an action under this tort.” 2.9 ACCORD AND SATISFACTION: SECTION 64 OF THE CONTRACTS ACT 1950 [2.269] In Malaysia, payment of a lesser sum can satisfy the obligation to pay a larger sum or the promise can do away with the performance of the promise wholly or in part. The general rule under English law, however, is that payment of a smaller sum is not satisfaction of an obligation to pay a larger sum. This was established in Pinnel’s Case? There are, however, certain exceptions to the general rule: The gift of a horse, hawk or robe ... in satisfaction is good. For it shall be intended that a horse, hawk, or robe ... might be more beneficial ... than money. [2.270] It was also held in that case that payment of part of the debt before the due date or at a place other then the agreed place for repayment, in satisfaction of the whole debt would be full satisfaction as it would be beneficial for the creditor to get the money earlier and he need not have to incur the expense to travel to the agreed place of repayment. The rule152 Formation of a Contract in Pinnel’s Case*° has no application under section 64 of the Contracts Act 1950 which states as follows: Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. ILLUSTRATIONS (b) A owes B $5000. A pays to B, and B accepts, in satisfaction of the whole debt, RM2,000 paid at the time and place at which the RM5,000 were payable. The whole debt is discharged (c) AowesB $5000. C pays to B $1000 and B accepts them, in satisfaction of his claim on A. This payment is a discharge of the whole claim. [2.271] Scrutton LJ in British Russian Gazette and Trade Outlook Ltd o Associated Newspapers Ltd?* explained what is meant by “accord and satisfaction” as follows: Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actu eof the o The accord is the agreement by which the obligation is discharged, The satisfaction is the consideration which makes the agreement operative. [2.272] There is no necessity, at all, that the consideration should be executed; the consideration on each side might even be in the category of an executory promise. The question of whether an executory satisfaction is sufficient to discharge the original obligation depends entirely on the construction of the contract or arrangement. Halsbury’s Laws of England states as follows:”* It is clear that whether executory satisfaction is sufficient to discharge the original obligation depends entirely upon the construction of the contract, though in older cases such satisfaction was never considered sufficient. Thus, a creditor may agree to accept as satisfaction the promise of the substituted obligation; or he may agree to accept only the actual performance of the substituted obligation. In the former case the originalAccord and Satisfaction: Section 64 of the Contracts Act 1950 153, obligation will be discharged the moment of the new agreement; in the latter case it will not be discharged until the substituted obligation has been performed. =— [2.273] In Lee Kuan Yew v Seow Khee Leng*” it was held as follows: The importance of ascertaining the exact terms of compromise or “obligation” as Roskill J puts it, is that it determines the question of whether or not the plaintiff can rely on his original cause of action. If, for instance, the promised or actual forbearance to pursue the claim is construed as being in return for the promised performance of some act by the other, or whom I would call the offending party, the agreement will be regarded as one involving the immediate discharge of the claim. But if the promised or actual forbearance is construed as being in return for actual performance of some act by the offending party, the claim forborne will not be discharged until such performance takes place, (see, British Russian Gazette's case, supra); and if in this respect the offending party fails to perform the terms of the compromise, the other party has an option to cither accept the offending party’s repudiation of the compromise and re-start his original claim or affirm the compromise and sue upon it [2.274] In Kerpa Singh v Bariam Singh the judgment creditor accepted tender of a smaller sum by a third party on behalf of the judgment debtor. It was held that by cashing the cheque and retaining the money he must be taken to have discharged the liability of the judgment debtor for the actual amount due. [2.275] The effect of a compromise agreement was explained in the case of Tan Chizo Tho v Tee Kim Kuay.® Pech Swee Chin FCJ stated as follows: A compromise of a dispute is always in the forefront of a disputed transaction with a background of a pending, or on-going or even an unspoken likelihood of litigation, such that parties would resort toa law Court should the negotiation for a compromise fail. The consideration for such a compromise is often therefore one’s promise to refrain or forbear from litigating a claim in exchange for a promise from the other ofa promise to give up a bit of or part of that which the former promisor claims. fe Now, if the said claim is actually good and enforceable, the consideration is no doubt sufficient or valid. If such a claim, on the other hand, is a doubtful one, the consideration is still valid or sufficient and this position154 Formation of a Contract owes much inter alia, to the dictum of Bowen LJ in Miles v New Zealand Alford Estate Co (1886) 32 Ch D 266, 291 as follows: “Tt seems to me that if an intending litigant bona fide forbears a Tight to litigate a question of law or fact which it is not vexatious or frivolous to litigate, he does give up something of value. It is a mistake to suppose it is not an advantage, which a suitor is capable of appreciating, to be able to litigate his claim, even if he turns out to be wrong. It seems to me it is equally a mistake to suppose thatit is not sometimes a disadvantage to a man to have to defend an action even if in the end he succeeds in his defence; and J think therefore that the reality of the claim which is given up must be measured, not by the state of the law as it is ultimately discovered to be, but by the state of the knowledge of the person who at the time has to judge and make the concession. Otherwise you would have to try the whole cause to know if the man had a right to compromise it, and with regard to questions of law it is obvious you could never safely compromise a question of law at all.” -- After anxious considefation, we are of the view that the words, “bona fide" should be translated to mean the “consent” that leads to a compromise agreement has not been vitiated by fraud ete. as mentioned earlier in connection with free consent to an agreement and that would be incidentally a sense though broader but more definitive than the traditional meaning of the words, “bona fide” of absence of either fraud or unfair dealing. In other words, so long as the claim in a compromise agreement is not frivolous or vexatious even though it is doubtful, and subject to an absence of mala fides just explained, such a claim will make the consideration for the compromise agreement valid orsufficient. Examples of sucha frivolous or vexatious claim are a gaming debt, or a claim which is clearly statute-barred and there are others, of course. [2.276] As long as the compromise agreementis bona fide and is not based on a frivolous or vexatious claim, the consideration, that is, to forbear from proceeding with the claim or the acceptance of = lesser amount etc. would be valid and/or suffi 2.10 OBLIGATIONS OF A PERSON ENJOYING BENEFIT OF ANON- GRATUITOUS ACT lan ML nf ehn In 9771 «.