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1. LAWFUL CONSIDERATION
1
All agreements are contracts if they are made by the free consent of
parties competent to contract, for a lawful consideration and with a
lawful object, and are not hereby expressly declared to be void. Nothing
herein contained shall affect any law in force in India, and not hereby
expressly repealed, by which any contract is required to be made in writing
or in the presence of witnesses, or any law relating to the registration of
documents.
2
Indian Contract Act, 1872
1
“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;”
As per section 233, the consideration or object of an
agreement is lawful, unless –
3
Ibid.
2
undertaken to be done at the desire of the promisor is a
sufficient consideration.4
1.2ANALYSIS
4
Avtar Singh, Law of Contract and Specific Relief, 9th Edition, Eastern Book
Company, p. 85.
5
The word ‘act’, for the purpose of this definition, includes ‘abstinence’ also.
Bank of Baroda v. Kayenkay Agencies, (2003) 1 BC 59 (Delhi DB), in
connection with the grant of overdraft facility, fee of Rs 5000 for execution of
documents was held to be valuable consideration.
6
(1880) 3 ALL 221, OLDFIELD J at P. 228.
3
consideration7. The act was the result of not the promise
but of the collector’s order.
7
Refer to Raja of Venkatagiri v. Krishnayya, AIR 1948 PC 150 and Adaitya
Das v Prem Chand Mondal, AIR 1929 Cal 369. In this case, the defendant
promised to bring a thakur to the plaintiff’s house to preside over a dinner to
be given to the plaintiff’s guests. The defendant failed to bring the Thakur
and consequently the dinner was wholly wasted as no guest partook of it in
the absence of the Thakur. The plaintiff’s action for damages was dismissed
as he had done nothing on the desire of the promisor.
8
1886 ILR 14 Cal 64.
4
He was, however, held liable: persons were asked to
subscribe knowing the purpose for which the money was to
be applied; they knew that on 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 act of the plaintiff 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 of Section 2(d).
It was indeed a promise to pay for the performance of an
act and it could not have been revoked once the promise
entered performance. In England, also the ‘law for
centuries has been that an act done at the request of
another, express or implied, is sufficient consideration to
support a promise’.9
9
Rt. Hon. Sir Alfred Denning, Recent Developments in the Doctrine of
Consideration, (1952) 15 Modern Law Review, p. 1. Following authorities are
sited in support of the proposition: Lamleigh v. Braithwait, 1615 Hobb,
105:80 ER 255.
5
English common law, having been adopted by the Court of
King’s Bench as early as 1677 in Dutton v. Poole:10
A person had a daughter to marry and in order to
provide her a marriage portion he intended to sell a wood
of which he was possessed at the time. His son (the
defendant) promised that if “the father would forebear to
sell at his request, he would pay the daughter £ 1,000.”
The father accordingly forbore but the defendant did not
pay. The daughter and her husband sued the defendant for
the amount.
It is clear that the defendant gave his promise to his father
and it was the father alone who, by abstaining from selling
the wood, had furnished consideration for the promise. The
plaintiff was neither privy to the contract nor interested in
the consideration. But it is equally clear that the whole
object of the agreement was to provide a portion to the
plaintiff. It would have been highly inequitable to allow the
son to keep the wood and yet to deprive his sister of her
portion. He was accordingly held liable.
6
b. A contract cannot be enforced by a person who is not
a party to it even though it is made for his benefit. He
is a stranger to the contract and can claim no rights
under it.
These propositions were formed as a result of the Tweedle
v. Atkinson12 case, which laid the foundation of what
subsequently came to be known as ‘privity of contract’,
which means that a contract is a contract between the
parties only and no third person can sue upon it even when
avowedly he is benefited. Whitman J. considered it to be an
established principle “that no stranger to the consideration
can take advantage of a contract, although made for his
benefit”.
Thus, although the sole object of the contract was to secure
a benefit to the plaintiff, he was not allowed to sue as the
contract was made with his father and not with him. This
principle was affirmed by the House of Lords in Dunlop
Pneumatic Tyre Co. v Selfridge & Co.:13
Plaintiffs (Dunlop & Co.) 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 a similar
undertaking to maintain the price list. Dew & Co. sold the
motor tyres to the defendants (Selfridge & Co.) who agreed
not to sell the tyres to any private customer at less than the
12
123 ER 762: 1 B&S 23, 393:30 LJ QB 218: 4 LT 468; The plaintiff was to be
married to the daughter of Mr. G and in consideration of this impending
marriage, G and the plaintiff’s father entered into a written agreement by
which it was agreed that each would pay the plaintiff a sum of money. G
failed to do so and the plaintiff sued his executors.
13
(1915) AC 847.
7
list prices. The plaintiffs sued the defendants for breach of
contract. It was held that assuming the plaintiffs were
undisclosed principals, no consideration moved from them
to the defendants and that the contract was unenforceable
by them.
8
furnished no consideration for the same. Briefly, the whole
situation was: the defendant’s promise was given to the
plaintiff, but consideration was furnished by the plaintiff’s
sister. The court could have easily allowed the plaintiff to
recover the annuity, as consideration can be given by “any
other person” and is equally effective. The court reached
the same result but on a somewhat different ground. Innes
J. tried to equate the situation with the facts of Dutton v.
Poole. In that case, the defendants sister would have gotten
the marriage portion but for the defendant’s promise. In
this present case also it appeared that the plaintiff was
already receiving from her sister an annuity of like amount
out of the estate and when the estate was handed over to
the defendant, it was stipulated that the payment to the
plaintiff should be continued and she promised accordingly.
That means that the failure to keep the promise would have
deprived the plaintiff of an amount which she was already
receiving and it is a legal commonplace that if a promise
causes some loss to the promise, that is sufficient
consideration for the promise. Thus, the plaintiff had given
consideration.15
15
Avtar Singh, Law of Contract and Specific Relief, 9th Edition, Eastern Book
Company, p. 94.
9
CHAPTER II
2. COMPETENT TO CONTRACT
2.2. ANALYSIS
10
is deemed to have attained the age of majority when he
completes the age of 18 years, except in case of a person of
whose person or property or guardian has been appointed
by the Court in which case the age of majority is 21 years.
In such cases, the majority does not arise till the
completion of 21years of age by the ward, and it is
immaterial whether the guardian dies or is removed or
otherwise ceases to act.17 In England, the age of majority is
18 years.18
It may be noted that the Indian Majority Act is being
amended to make the age of majority as 18 years for every
person, irrespective of the fact that in respect of them, any
guardian has been appointed.
17
Jaogana Ram Marwari v. Mahadeo Prasad Sahu, I.L.R. (1909) 36 Cal. 768,
p. 794.
18
Family Law Reform Act, 1969.
11
minor enters into agreement, it would be voidable at his
option or altogether void. These provisions had, therefore,
quite naturally given rise to a controversy about the nature
of minor’s agreement.19 The controversy was finally settled
in 1903 by the Judicial Committee of the Privy Council, in
their well-known pronouncement in Mohoribibi v.
Dharmodas Ghose.20
The plaintiff, Dharmodas Ghose, while he was a
minor, mortgaged his property in favour of the defendant,
Brahmo Dutt, who was a money lender to secure a loan. At
the time of the transaction the attorney who acted on
behalf of the money lender, had the knowledge that the
plaintiff was a minor. The minor brought an action against
the money lender stating that he was a minor when the
mortgage was executed by him and therefore, the
mortgage was void and inoperative and the same should be
cancelled. By the time of appeal to the Privy Council,
Brahmo Dutt died and the Appeal was prosecuted by his
executors.
The defendant (money lender), amongst other points,
contended that:-
i) The minor had fraudulently misrepresented
his age, the law of estoppel should be applied
against him. Basically, he should not be
allowed to plead that he was a minor at the
time of transaction and hence, no relief
should be given to the minor in case;
19
Raj Coomari v. Pero Madhub Nandi, 1 CWN 453; Boide Nath Dey v. Ram
Kishore Dey, 10 Bengal Law Reports 326.
20
(1903) 30 IA 114: 30 Cal 539
12
ii) If the mortgage is cancelled as requested by
the minor, the minor should be asked to
refund the loan of Rs. 10,500 which had been
taken.
However, the defendant’s contentions were rejected and
the minor’s agreement was held void. Hence, the minor
could not be asked to pay back the loan. Sir Lord North
observed:
“Looking at section 11, their lordships are satisfied
that the Act makes it essential that all contracting parties
should be competent to contract and expressly provides
that a person who by reason of infancy is incompetent to
contract cannot make a contract within the meaning of the
Act. The question whether a contract is void or voidable
presupposes the existence of a contract within the meaning
of the Act, and cannot arise in case of an infant.”
Ever since this decision it has not been doubted that a
minor’s agreement is absolutely void. The ruling of the
Privy Council in the Mohoribibi v. Dharmodas Ghose case
has generally been followed by the courts in India and
applied both to the advantage and disadvantage of minors.
Another decision of the Privy Councl in line is Mir
Sawarjan v. Fakhruddin Mohd Chowdhury21.
A contract to purchase certain immovable property
had been made by a guardian on behalf of a minor and the
minor sued the other party for a decree of specific
21
(1912) 39 Cal 232 (PC). Also followed in Ma Hn It v. Hashim, (1920) 22
Bom LR 531 PC.
13
performance to recover possession. His action was
rejected.
The court said that it was not within the competence either
of the manager of the minor’s estate or of the guardian of
the minor, to bind the minor or the minor’s estate by a
contract for the purchase of immovable property; that as
the minor was not bound by the contract, there was no
mutuality and that consequently the minor could not obtain
specific performance of the contract.
However, in today’s world it is not very feasible to
declare minor’s agreement absolutely void- minors are
appearing in public life more frequently than ever before.
He/she has to travel and deal with educational institutions
and purchase so many things for the facilities of life. In
such cases, if the other party to the contract could brush
aside the minor on the ground that the agreement is void,
the legal protection against contractual liability would be
too dear to minors. The Privy Council, therefore, modified
its earlier decisions in Srikakulam Subrahmanyam v Kurra
Subba Rao.22 In order to pay off the promissory note and
mortgage debt of his father, the minor son and his mother
sold a piece of land to the holders of the promissory note in
satisfaction of the note and he also was to pay off the
mortgage debt. He paid off the mortgagee accordingly and
the possession of the land was given over to him.
Afterwards, the minor brought an action to recover back
the land. It was found a fact that the transaction was for
the benefit of the minor and the guardian had the capacity
22
(1949) 75 IA 115: ILR 1949 Mad 141 PC.
14
to contract on his behalf. The contract, being for the
benefit of the minor and within the power of his mother,
was set to be binding on him.
23
AIR 1957 Pat 491.Also Jyotirinda Bhattacharya v. Sona Bala Bora, AIR 1994
Gau 99. In this case, the person in question filed cases against family
members, remained away for long period of time, transferred family
properties to the extent of making the family homeless and the court said
that all this is sufficient to indicate the vendor was not normal and was not
mentally sound at the time of sale.
15
CHAPTER III
3. FREE CONSENT
16
3.2. ANALYSIS
3.2.1. “Coercion”
As per section 1524, "Coercion" includes the follwing:
i) Act forbidden by the Indian Penal Code
For instance, if A threatens to shoot B if B does not sell
his property to A at a stated price, B’s consent in this
case has been obtained by coercion.
24
Indian Contract Act, 1872.
25
ILR (1889) 13 Mad. 214.
26
As per Pollock and Mulla, Indian Contract and Specific Relief Acts, 9 th
Edition, p. 134, by obstructing the removal of the corpse the possible offence
tried to be committed was under section 297, Indian Penal Code. Also, the
authors think that the case could have well been tried under section 16 of the
Indian Contract Act since the consent was obtained by undue influence.
27
ILR (1918) 41 Mad. 33.
17
Penal Code and therefore, the release deed signed by the
plaintiff was voidable.
18
held that under the doctrine of collective bargaining under
the Indian Disputes Act, the demand of threat of strike by
the workers is valid action and hence, such a threat was
not an offence under the IPC, hence did not amount to
coercion.
19
A person is said to be in a position to dominate the will of
another when-
31
(1890) 12 All. 523
20
c) He makes a contract with a person whose mental
condition is temporarily or permanently affected by
reason of age, illness or mental or bodily distress.
3.2.3. “Fraud”
32
AIR 1998 Kerala 280.
33
Section 17, Indian Contract Act, 1872.
34
(1885) 29 Ch. 459.
21
financial difficulties and needed funds to pay some
pressing liabilities. The company raised the amount by
issue of debentures. While raising the loan, the directors
stated that the amount was needed by the company for
its development, purchasing assets and completing
buildings. It was held the directors had committed fraud.
3.2.4. “Misrepresentation”
35
AIR 1976 SC 376.
36
(1889) 14 AC 337.
22
Section 18 of the Indian Contract Act includes the
following types:
i) Unwarranted Statements
37
(1890) 14 ILR Bom 241.
38
(1900) 4 Cal WN 369.
23
Any breach of duty which brings an advantage to the
person committing it by misleading the other to his
prejudice is a misrepresentation. In the case of Oriental
Bank Corporation v. John Fleming 39, the plaintiff, having no
time to read the contents of a deed, signed it as he was
given the impression by the defendant that it contained
nothing but formal matters already settled by them. The
deed, however, contained a release in favour of the
defendants. Accordingly, the plaintiff was allowed to set
aside the deed. Since the plaintiff had placed confidence in
them, it was their duty to state fully without concealment,
all that was essential to the knowledge of the contents of
the document.
39
(1879) 3 Bom 242
40
Section 18(3) of the Indian Contract Act, 1872.
41
ILR (1880) 5 Bom 92.
24
3.2.5. “Mistake”
42
AIR 1998 SC 1400.
25
ii) There may be a genuine agreement but there may
be mistake as to a matter of fact relating to that
agreement.
CHAPTER IV
26
permitted it would defeat the provisions of any law or is
fraudulent; of involves or implies, injury to the person or
property of another; or the Court regards it as immoral, or
opposed to public policy.
In each of these cases, the consideration or object of an
agreement is said to be unlawful. Every agreement of
which the object or consideration is unlawful is void.”
4.2. ANALYSIS
27
toll from pilgrims and vehicle and animals. It had no power
to authorise collection of fees from pilgrims.The whole
transaction was held to be void.
46
(1900) 4 Cal WN 488.
28
(b) Avoids all such contracts as tend to the deceit and
injury, or encourage artifices and improper attempts to
control the exercise of free judgment;
(c) Discountenances secret contracts made with prevents
and guardians, whereby on a marriage, they to receive a
benefits
(d) Renders invalid certain agreements in restraint of
marriage.
In Hermann v. Charlesworth47, Charlesworth
promised to introduce young men to Ms Hermann and in
return she was to pay £52 in advance and £250 on the day
of marriage. He made his efforts to procure the marriage
but he was unsuccessful. Ms Hermann who had paid the
advance brought an action against him to recover back that
money and she was successful. If, however, the marriage
had been solemnized, the money already paid would not
have been recovered back.
47
(1905) 2 KB 123
29
4.2.4. Section 28: Agreement in restraint of legal
proceedings.
Every agreement, by which any party thereto is restricted
absolutely from enforcing his right under or in respect of
any contract, by the usual legal proceedings in the ordinary
tribunals, or which limits the time within which he may
thus enforce his rights, is void to that extent.
In Baroda Spinning Ltd. vs. Satyanarayan Marine and
Fire Ins. Co. Ltd48, in the contract of fire insurance, it was
provided that if a claim is rejected and a suit is not filed
within three months after such rejection, all benefits under
the policy shall be forfeited. The provision was held valid
and binding and the suit filed after three months was
dismissed.
48
(1914) 38 Bom 344.
30
year, at a salary to be mutually agreed upon is a void
agreement.
31