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One of the essentials of a valid contract mentioned in Section 10 is that the parties should enter into contract with free consent. According to Section 14, Consent is said to be free when it is not caused by – coercion, as defined in Section 15, or undue influence, as defined in section16, or fraud, as defined in Section 17, or misrepresentation as defined in Section 18, or mistake, subject to the provisions of Section 20, 21 and 22. Consent is said to be caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake. If the consent of one of the parties is not free consent, i.e., it has been caused by one or other of the above stated factors the contract is not a valid one. When consent to an agreement is caused by fraud, coercion, misrepresentation or undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. If, however, the consent is caused by mistake the agreement is void.
According to Section 15, ―Coercion‖ is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever with the intention of causing any person to enter into an agreement. Coercion is said to be there when the consent of a person has been caused either by committing, or threatening to commit any act forbidden by the Indian Penal Code, or by unlawful detaining, or threatening to detain any property, to the prejudice of any person whatever.
B‘s consent in this case has been obtained by coercion. or at the place where. . ―it is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed.i. although his act is not an offence by the law of England. on board an English ship on the high seas. and although section 506 of the Indian Penal Code was not in force at the time when. A threatens to shoot B if B does not agree to sell his property to A at a stated price. the act was done. causes B to enter into an agreement by act amounting to criminal intimidation under the Indian Penal Code. the consent in such case is deemed to have been obtained by coercion. A afterwards sues B for breach of Contract at Calcutta.‖ The following illustration would explain the point : A. For instance. Explanation to section 15 makes it clear that to constitute coercion. For coercion to be there it is not necessary that the Indian Penal Code should be applicable at the place where the consent has been so caused. Act forbidden by the Indian Penal Code It has been noted that if a person commits or threatens to commit an act forbidden by the Indian Penal Code with a view to obtain the consent of the other person to some agreement. A has employed coercion.
J. the husband‘s dead body was not allowed to be removed from her house by the relatives of the adopted boy until she adopted the boy. In this case a Hindu by a threat of suicide induced his wife and son to execute a release deed in favour of his brother in respect of certain properties claimed as their own by the wife and the son. The question before the court was whether a threat to commit suicide could be considered to be an act forbidden by the Indian Penal Code. C. On the death of her husband. Chikkam Seshama (1918) the question before the Madras High Court was that whether coercion could be caused by a threat to commit suicide. Alwar Setti (1889) the question before the Madras High Court was regarding the validity of the adoption of a boy by a widow. and Seshagiri Ayyar.J. In Chikkam Ammiraju Vs. . It was held by Wallis. In Ranganayakamma Vs. aged 13 years. that a threat to commit suicide amounted to coercion within the meaning of Section 15 of the Indian Contract Act and therefore the release deed was voidable. It was held that the adoption was not binding on the widow.
ii. Joseph Hyam (1918) . Ltd. no coercion is caused in this case. ( Muthiah Chettiar Vs. with the intention of causing any per to enter into an agreement. any property. Vs. For example. if an outgoing agent refuses to handover the accounts books to the new agent until the principal executes release in his favour. Thus. there is nothing unlawful in it and. or threatening to detain. to the prejudice of any person whatever. it is coercion. Karupan (1927) If the detention of property is not unlawful there is no coercion. if a mortgagee refuses to convey the equity of redemption except on the terms dictated by him. (Bengal Stone Co. therefore. Unlawful detaining of property According to Section 15 coercion could also be caused by unlawful detaining.
whether such a decision between the Union of the workers and the Indian Tea Association could be declared void on the ground that there was coercion. Industrial Tribunal (1966) the demand of the workers for bonus was accepted after a threat of strike. any property. to the prejudice of any person whatever. nor was it unlawful detaining or threatening to detain any property and hence it did not amount to coercion. in order to coerce B to enter into agreement. any act forbidden by the Indian Penal Code. or threatening to detain.To the prejudice of a person Section 15 requires that there is committing or threatening to commit. A unlawfully detains B‘s friend C. The question which had arisen was. and as such the agreement was valid. It was held that because of the doctrine of collective bargaining under the Industrial Dispute Act the demand of the workers could be backed by a threat of strike. . with an intention of any person to enter into an agreement. If. it is enough that the act is to the prejudice of any person whatever. Such a threat was neither a threat to commit an offence under the Indian Penal Code. It means that the act causing coercion should not necessarily be directed against the contracting party. or the unlawful detaining. for example. the case would be covered within this section. and with the intention of any person to enter into an agreement. Threat to strike is no coercion In Workmen of Appin Tea Estate Vs.
1961. fraud. the agreement could not be said to be entered into by lack of free consent.P. In Andhra Sugars Ltd. Statutory Compulsion is no coercion When a Statue requires a contract to be entered into the consent in such a case is not deemed to be caused by coercion. and accordingly the agreement was entered into. the factory was bound to accept the offer under the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act. Vs. undue influence. State of A. (1968) if any cane grower offered to sell his sugarcane to a factory in a certain zone. . misrepresentation or mistake. and there was no coercion either. It was held that in such a case even though there was a legal compulsion for the factory to make the agreement.
child. “Duress” under English law Under common law duress consists in actual violence or threat of violence to a person. The provision is as under : ― A person to whom money has been paid. to commit a tort or a crime.Indian Contract Act. .e. It may be noted that Indian law also recognises an action for the recovery of money paid or goods delivered under coercion. through the provision contained in section 72. The consignee pays the sum charged in order to obtain the goods. The threat must be to do something illegal. He is entitled to recover so much of the charge as was illegally excessive. It only includes fear of loss to life or bodily harm including imprisonment. and not to his goods to constitute duress. and also caused by the party to the contract. or within his knowledge. It has been noted above that the common law recognises only a threat to a man‘s person. i. a railway company refuses to deliver up certain goods to the consignee. parent or other near relative. or his wife. The duress must be directed against a party to the contract.. must repay or return it ― For example. by mistake or undue coercion. Or anything delivered. except upon the payment of an illegal charge for carriage. but not a threat of damage to goods.
. or his wife. In England duress is constituted only by acts or threats against the person of a man and not against his property. Thus it may be an act or threat directed against a person or his property. may be a stranger to the contract. parent. or unlawful detaining or threatening to detain the property. child. Coercion in India means committing or threatening to commit an act forbidden by the Indian Penal Code.Difference between Coercion and Duress 1. 2. again. and it may also be directed against a person who. or other near relative. In England duress should proceed from a party to the contract and is also directed against the party to the contract himself. In India coercion may proceed from a person who is not a party to the contract.
—(1) A contract is said to be induced by ―undue influence‖ where the relations subsisting between the parties are such that one of the parties is In a position to obtain an unfair advantage over the other. a person is deemed to be in a position to dominate the will of another— (a) where he holds a real or apparent authority over the other . (2) In particular and without prejudice to the generality of the foregoing principle.2. Section 16 defines undue influence as under : “16. or (b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age. . Undue influence If the consent of a party to the contract has been obtained by undue influence the consent is not free consent which is needed for the validity of a contract and if the consent has been caused by undue influence. the contract is voidable at the option of the party whose consent had been so obtained. “Undue influence” defined. or where he stands in a fiduciary relation to the other . illness. or mental or bodily distress.
1872.‖ . on the face of it or on the evidence adduced. Nothing in this sub-section shall affect the provisions of Section 111 of the Indian Evidence Act. (3) Where a person who is in a position to dominate the will of another. and the transaction appears. the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. enters into contract with him. to be unconscionable.
By sub-section (2) a presumption arises that a person shall be deemed to be in a position to dominate the will of another if the conditions set out therein are fulfilled. Explaining the nature of the provisions contained in section 16.. may also remain in a position to suppress the requisite evidence in support of the plea of undue influence. Sub-section (3) lays down the conditions for raising a rebut table presumption that a transaction is procured by the exercise of undue influence. The doctrine applies to acts of bounty as well as to other transactions in which one party by exercising his position of dominance obtains an unfair advantage over another. (1963) ―The doctrine of undue influence under the common law was evolved by the courts in England for granting protection against transactions procured by exercise of insidious forms of influence spiritual and temporal. The reason for the rule in the third sub-section is that a person who has obtained an advantage over another by dominating his will. our Supreme Court has observed in the case of Ladli Parshad Vs. Karnal Distillery Co. The first Sub-section of Section 16 lays down the principle in general terms. Indian Contract Act and the adoption of English law in India. The Indian enactment is founded substantially on the rules of English Common law.‖ .
B. induces B to execute a bond for Rs. upon such terms and conditions as to the Court may seem just‖ For example. 200 with interest at 6 per cent per month. if the party who was entitled to avoid it has received any benefit there under. an agriculturalist. a . If B sues on this bond. or the party entitled to avoid the contract may have already received some benefit under the contract. ordering B to repay Rs. For example. Second para to Section 19-A incorporates the following provision in this regard : ―Any such contract may be set aside either absolutely. Effect of undue influence Section 19-A declares that when consent to an agreement is caused by undue influence. advances Rs. a money-lender. . The court in cases has been empowered to set aside the contract either absolutely or upon such terms and conditions as the Court may deem just. by undue influence. 100 to B. The court may set the bond aside. or. under threat of prosecuting A‘s son. for the amount of the forged note. Because of undue influence one party to the contract may take an undue advantage under the contract. the court may set the bond aside. the agreement is a contract voidable at the option of the party whose consent was so caused.100 with interest as may seem just. A‘s son has forged B‘s name to a promissory note. obtains a bond from A. and.
the contract is voidable at the option of the party whose will is so dominated.Essentials of undue influence In order to constitute undue influence it is necessary that : 1) the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other . and. It is manifest that both the conditions have ordinarily to be established by the person seeking to avoid the transaction : he has to prove that the other party to the transaction was in a position to dominate his will and that the other party had obtained an unfair advantage by using that position. . If the dominant party takes an undue advantage of his position in procuring a contract to the detriment of the other contracting party. 2) such a person uses his dominant position to obtain an unfair advantage over the other. Person in dominant position and obtaining of unfair advantage Sometimes one of the parties to the contract may be in such a dominant position in relation to the other that he has peculiar opportunity of exercising that position to the prejudice of the other party.
or.(1) (2) (3) In the following cases a person is deemed to be in a position to dominate the will of another – where he holds a real or apparent authority over the other. illness. where he stands in a fiduciary relation to the other. or mental or bodily distress. or. . where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age.
it is expected that he will not be betrayed. If a person betrays the confidence and trust reposed in him and gains an unfair advantage over the other party in any contract. or a licensing authority over the licence (2) Fiduciary relation Fiduciary relationship means a relationship of confidence and trust. . The principle of undue influence applies to every case. where influence is acquired and abused. where confidence is reposed and betrayed. An employer may be deemed to be having authority over his employee. an income-tax authority over the assessee. When a person reposes confidence in the other. the suffering party has an option to avoid the contract.(1) Real or apparent authority If a person has an authority over the other contracting party it is expected that he would not abuse that authority to gain an undue advantage from the other. a police or a judicial officer over the accused.
having advanced money to his son b. Umadat Pande. A. For example. by misuse of parental influence. 1877. (1890) the plaintiff. principal and agent. Soon after the execution of the said deed the plaintiff applied for the cancellation of the same by a suit brought by him under section 39 of the specific relief Act.Examples of fiduciary relationship are solicitor and client. guardian and ward. Bhagwat. master and servant. spiritual advisor and devotee. In MannuSingh Vs. parent and child. upon B‘s coming of age obtains. medical attendant and patient. lover and beloved. The only reason for the gift was his desire to secure benefits to his soul in the next world and also in view of the plaintiff having heard recitation of the holy book. an aged person executed a deed of gift in respect of whole of his property in favour of the defendant. land lord and tenant. . who was plaintiff‘s guru or spiritual adviser. A employs undue influence. creditor and debtor. a bond from B for a greater amount than the sum due in respect of the advance. husband and wife.. during his minority.
And since he failed to prove the same the plaintiff is entitled to obtain the cancellation of the deed. Indian Evidence Act. It was held that because of the fiduciary relationship between the parties. and the absurdity of the reason given by the plaintiff in the gift deed for executing the gift deed. who was a money lender of his village. 1872 was applied to this situation. the defendant must prove the absence of undue influence. the presumption of undue influence was raised. . Section 111. according to which in case of a person being in a position of active confidence. Similarly in Diala Ram Vs Sarga (1927) where there was a debtor-creditor relationship between the parties and the defendant signed a bond agreeing to pay exorbitant rate of interest on the loan taken from the plaintiff. Indian Evidence Act. the burden of proof lies on such a person who enjoys such a confidence. and in view of the provision contained in section 111.
B employs undue influence. or mental or bodily distress. . or mental or bodily distress. a man enfeebled by disease or age. and there is every possibility that such a person‘s position may be exploited and unfair advantage taken in such a situation. For example. If a contract is made to the prejudice of such a person.A. there is deemed to be undue influence in such a case. illness.Person in mental or bodily distress A person is deemed to be in a position to dominate the will of another also in a situation. to agree to pay B an unreasonable sum for his professional services. The law tries to afford protection to such persons also. by B‘s influence over him as his medical attendant. illness. where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age. A person‘s mental capacity may have been affected on account of his old age. is induced.
If a party has got exorbitant gain at the cost of the other party. the law raises a presumption of undue influence. for the dominant party to rebut the presumption of undue influence. and the transaction appears. . It is. the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. on the face of it or on the evidence adduced. in such a case. and 2. it is for him to prove that this advantage had not been gained by undue influence.Presumption of undue influence in Unconscionable Bargains In cases of unconscionable bargain between the parties on an unequal footing the law raises a presumption of undue influence. to be unconscionable. The transaction between the parties appears to be unconscionable. When--1. Where a person who is in a position to dominate the will of another. One of the parties who has obtained the benefit of a1 transaction is in a position to dominate the will of the other. enters into a contract with him.
took a fresh loan from the plaintiff and executed a bond. conferred a grant of her substantial property without any valuable consideration in favour of her confidential managing agent. It lies on B to prove that the contract was not induced by undue influence. and also to deliver some bhoosa (wheat husk) in addition thereto. who was already indebted to the plaintiff. illiterate. per annum. contracts a fresh loan on terms which appear to be unconscionable. a village money lender. a money lender of his village. the burden of proof was on the plaintiff to show that there was no undue influence in this case. The Privy Council held that it was incumbent on the grantee to show that he had made proper use of confidence reposed by the lady in him and there was no undue influence. wherein he agreed to pay interest up to 371/2 %. For example. who was herself incapable of transacting any business. In Wajid Khan Vs. A being in debt to B . In Diala Ram Vs. It was held that the position in this case was similar to that in illustration © to Section 16. therefore.the contract was unconscionable and. pardanashin lady. Sarga. . (1927) the defendant. Raja Ewaz Ali Khan (1891) an old.
Fraud When the consent of a party to the contract has been obtained by fraud. Fraud or deceit is also9 tort. the consent is not free consent. for which an action for damages can also lie. as a fact. to enter into the contract--(1) the suggestion. or with his connivance. or by his agent. Section 17 defines fraud as follows : ―Fraud‖ means and includes any of the following acts committed by a party to a contract. with intent to deceive another party thereto or his agent . of that which is not true by one who does not believe it to be true : the active concealment of a fact by one having knowledge or belief of the fact : (2) . or to induce him.3. In such a case the contract is voidable at the option of the party whose consent has been so obtained. which is necessary for the formation of a valid contract.
unless the circumstances of the case are such that.(3) a promise made without any intention of performing it : any other act fitted to deceive : any such act or omission as the law specially declares be fraudulent. or unless his silence is. regard being had to them. (4) (5) to Explanation :-. in itself. . it is the duty of the person keeping silence to speak.Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud. equivalent to speech.
Mere expression of opinion is not enough to constitute fraud. In order to constitute fraud it is necessary that there should be a statement of fact which is not true. there is only an expression of opinion and not a statement of fact. 1. The statement should be made with a wrongful intention of deceiving another party thereto and inducing him to enter into the contract on that basis.The essentials of fraud are : 1. . False statement of fact. 2. if while taking a policy of marine insurance. the insured communicates to the insurers a letter from the master of his vessel mentioning that in the master‘s opinion the anchorage of a place of destination of the vessel is safe and good. Thus. which could constitute fraud. There should be a false statement of fact by a person who himself does not believe the statement to be true.
Representation as to untrue facts may be made either by positively stating certain fats or by conduct. falsely represents that five hundred maunds of indigo are made annually at A‘s factory. While raising the loans the directors stated that the amount was needed by the company for its development. It was held that the directors has committed fraud.If A intending to deceive B . the contract is voidable at the option of B. The company raised the amount by issue of debentures. Fitzmaurice (1885) a company was in great financial difficulties and needed funds to pay some pressing liabilities. and thereby induces B to buy the factory. In Edington Vs. purchasing assets and completing buildings. .
A is entitled to succeed to an estate at the death of B. that can also be considered to be equivalent to a statement of fact and would amount to fraud. prevents the intelligence reaching A and thus induces A to sell him his interest in the estate. having received intelligence of B‘s death. B is enabled to buy the estate on an under value. ‗C‘. The sale is voidable at the option of A. 2. having discovered a vein of ore on the estate of A. the existence of the ore from A. Active concealment is different from merely keeping silent as to certain facts. By an active concealment of certain facts. Illustrations 1. and does conce4al. B. adopts means to conceal. there is an effort to see that the other party is not able to know the truth and he is made to believe as true which is in fact not so. The contract is voidable at the option of A.Active Concealment When there is an active concealment of a fact by one having knowledge or belief of the fact. . ―B‖ dies . Through A‘s ignorance.
as to facts is no fraud. regard being had to them. Active concealment has also been considered to be equivalent to a statement because in that case there is a positive effort to conceal the truth and create untrue impression on the mind of the other. Explanation to Section 17.Mere Silence Is No Fraud It has been noted above that for constituting fraud there should be representation as to certain untrue facts.‖ . unless the circumstances of the case are such that. equivalent to speech. or unless his silence is. incorporates the following provisions : ―Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud. it is the duty of the person keeping silence to speak. in itself. Mere silence. in this connection. however.
. it would be fraud. i. and there is no implied condition or warranty by the seller as to the quality or fitness of the goods for any particular purpose. If he makes false statement as to the quality of his goods. but if he merely keeps silence as regards the defects in them there is no fraud. Similarly. being traders. This not fraud in A . enter upon a contract A has private information of a change in prices which would affect B‘s willingness to proceed with the contract. If A sells. a horse which A knows to be unsound. A is not bound to inform B. to B . buyer be aware. by auction. which means that it is the duty of the buyer to be careful while purchasing the goods. If a person is to sell his goods he is under no duty to disclose the defects in his goods. if A and B.e..A contracting party is not obliged to disclose each and everything to the other party. A says nothing to B about the horse‘s unsoundness. In case of sale of goods the rule is caveat emptor.
A let his house to B which he knew was in a ruinous condition. a candidate for the LL. He also knew that the house is going to be occupied by B immediately. In Shri Krishan Vs. In Keates Vs. Kurushetra University 1976 SC. did not mention that fact himself in the admission form for the examination. . It was held by the Supreme Court that there was no fraud by the candidate and the University had no power to withdraw the candidature of the candidate. Neither the Head of the Law Department nor the University authorities made proper scrutiny to discover the truth. A did not disclose the condition of the house to B. It was held that he had committed nom fraud. Lord Cadogan (1851).B. Shri Krishan. Part I exam.. who was short in attendance.
which mentions the rule that mere silence is not fraud also mentions the following two exceptions : (1) (2) When there is a duty to speak. . When silence is. such silence is a fraud. Explanation to Section 17. keeping silence is fraud.Exceptions Although as a general rule mere silence or non-disclosure of facts do not amount to fraud. in itself. equivalent to speech. but in some exceptional cases keeping silence may de deemed to be an act of deception.
which ought to be disclosed. Since some of the facts may be in the in the sole knowledge of the insured. keeping silence in such a case amounts to fraud. By remaining silent one may be responsible for creating a false impression in the mind of the other..(1) Duty to speak When the circumstances of the case are such that. regard being had to them. is fraud. Contracts of insurance are contracts of utmost good faith. Withholding the facts. . he must make full disclosure to the insurer. it is the duty of the person keeping silence to speak. In such a case it is supposed that the party in whom good faith is reposed would make full disclosures and not keep silent. one should do so rather than to remain silent. When there is a duty to disclose fats. Certain contracts are uberrima fides . Suppression of truth in such cases is equivalent to suggestion of false hood. contracts of utmost faith. i.e.
Speaking half—truth may also amount to misrepresentation as regards those facts which have not been disclosed. Withholding a part of the information may be enough to convey a false impression and it amounts to fraud. Thus. this is a fraud. but in fact the document contains a clause giving him exemption from any damage however arising. if the cleaner of clothes makes a customer sign a document orally telling him that the terms exempt the cleaner from liability for damage to beads and sequins. (Curtis Vs. 1951) . Chemical Cleaning and Dyeing Co.
O’Flanagan (1936) a medical practitioner started negotiations in January. They brought an action for the rescission of the contract on the ground that the changed circumstances were not communicated to them. 1934 for the sale of his practice. Under these circumstances the plaintiff were entitled to rescind the contract . He stated that his average practice was worth 2000 pounds per annum. If the change is notifies to the other party it would amount to fraud (Briess Vs. It was held that the representation made in this case to induce the other party to the contract to enter into contract was a continuing one and it was the duty of the vendor to notify the change of circumstances to the purchaser if the same occurred before the contract was signed. Woolley. 1954) In with Vs. but by that time the position of his practice had changed as his practice had fallen considerably owing to his illness and consequent absence from practice. 1934. The contract for the sale of practice was signed on May1. before the other party acts upon it. there is a duty to disclose the change. but subsequently becomes false by the change of circumstances.Duty to disclose changes If a statement is true when made. These changed circumstances were not disclosed to the purchasers of the practice and when they took charge they found that the practice was non-existent.
‖ A says nothing. In such a case silence amounts to fraud. B says to A -. Here A‘s silence is equivalent to speech. I shall assume that the horse is sound.―if you don not deny it. For example. ..(2) Silence being equivalent to speech Sometimes keeping silent as to certain facts may be capable of creating an impression as to the existence of a certain situation. Here. the relation between the parties would make it A‘s duty to tell B if the horse is unsound.
but if the other party could have discovered the truth by ordinary diligence he cannot avoid the contract. Kurukshetra Univeersity ) In this case it was observed . In this connection the provision in the Indian contract Act is as under : ―If such a consent was caused by misrepresentation or by silence. the contract. the silence is fraudulent. nevertheless. in any case. is not voidable. if the party whose consent was caused had the means of discovering the truth with ordinary diligence.‖ (Case of Shri Krishan Vs.Means of discovering the truth Even if. fraudulent within meaning of section 17.
then the question of the appellant committing a fraud did not arise. It is obvious that during this period of four to five months it was the duty of the University authorities to scrutinise the form in order to find out whether it was in order. ―In the instant case the admission form of the appellant must have been forwarded in December 1971 where as the examination was to take place in April/May 1972. The appellant never wrote to the University authorities that he had attended the prescribed number of lectures. In these circumstances. There was ample time and opportunity for the University authorities to have out the defect.‖ . therefore. nor supressio veri. 1972. fraud is not proved. then by force of the University Statute the University had no power to withdraw the candidature of the appellant. for the University authorities acquiesced in the infirmities which the admission form contained and allowed the appellant to appear in Part I Examination in April. It is neither a case of suggestio falsi. If neither the Head of the Department nor the University authorities took care to scrutinise the admission form. Equally it was the duty of the Head of the Department of Law before submitting the form to the University to see that the form complied with all the requirements of law. It is well settled that where a person on whom fraud is committed is in a position to discover the truth by due diligence.
or active concealment. or a promise made without any intention to perform it have been declared to be fraudulent according to clauses (1). it does not amount to fraud. there is no such wrongful intention at the time of making of the contract. Clause (4) further provides that ―any other act fitted to deceive‖ will also amount to fraud. but the promisor does not perform the contract. however. Thus if a man takes a loan without any intention to repay. If there is no such intention when the contract is being made. or when he is insolvent. If. This clause is general and is intended to include such cases of fraud which would otherwise not come within the purview of the earlier three clauses. or purchases goods on credit without any intention to pay for them. (2) and (3) to section 17 respectively. Any other act fitted to deceive We have already noted that either a false statement of fact.Promise made without any intention to perform it When a person makes a promise there is deemed to be an undertaking by him to perform it. . there is fraud. it amounts to fraud.
section 55. and An omission to make the above stated disclosures is fraudulent. The seller of immovable property is bound to disclose to the buyer any material defect in the property or in the seller‘s title thereto of which the seller is. Transfer of property Act. failure to do which is expressly declared as a fraud. In some cases the law requires certain duties to be performed. aware. and the buyer is not. Any act or omission which the law declares as fraudulent According to section 17 (5) fraud also includes any such act or omission as the law specially declares to be fraudulent. . And 2. 1882 declares certain kinds of omissions on the part of the seller or the buyer as fraudulent. For instance. and which the buyer could not with ordinary care discover. but of which he has reason to believe that the seller is not aware and which materially increases the value of such interest. The buyer of immovable property is bound to disclose to the seller any fact as to the nature or extent of the seller‘s interest in the property of which the buyer is aware. It provides that : 1.
but did not inform the buyer about it. The defendant had. . sold this property to somebody else. It was held that the defendant had committed fraud and the contract was voidable at the option of the buyer. the defendant sold some property to the plaintiff stating in the sale deed that he would not be liable to the buyer if he suffered any loss owing to the seller‘s defective title. Hazarilal. earlier to this transaction. In Aktar Jahan Begam Vs.
who had to accord its sanction for the same. It was held by the House of Lords that since the statement had not been made with an intention to deceive there was no fraud. Wrongful intention In order to constitute fraud it is necessary that a person should intentionally make a false statement with an intent to deceive another party thereto to induce him to enter into the contract. If that intention to deceive the other party is absent there is no fraud. The respondent. be a mere misrepresentation as defined in section 18 of the Act. In Derry Vs. in such a case. The board of Trade refused the sanction and the company had to be wound up. . brought an action for the tort of deceit. In fact a plan had been submitted for the same and directors honestly believed that the Board of Trade.2. the directors of a company issued a prospectus stating that they had got the authority to run tramways with steam or mechanical power instead of animal power. Peek. would do so as a matter of course. It may. who had taken shares in the company on the faith of the representation by the directors in the prospectus.
‖ If a man. it is fair inference of fact that he induced to do so by the statement. This may be explained by the following illustration . said Lord Blackburn. there is fraud. ―If‖. or did not enter into the contract on that basis. there is no fraud. being induced by false statement enters into a contract which he would not have done otherwise.Contract on the basis of a false statement It is necessary that the false statement must have been made to induce the other party to enter into the contract. But if in spite of the false statement he was not misled. ―it is proved that the defendants with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract.
by a misrepresentation. B examines the accounts of the factory. . falsely represents that five hundred maunds of indigo are made annually at A‘s factory. After this B buys the factory. (a) A. The contract is voidable at the option of A. leads B erroneously to believe that five hundred maunds of indigo are made annually at A‘s Factory. which shows that only four hundred maunds of indigo have been made. intending to deceive B . The contract is not voidable on account of A‘s misrepresentation. (b) A. and thereby induces B to buy the factory.
PrakashDevi the Plaintiff. Under these circumstances it was held that there was no fraud in this case. Thegun was made for the defendant and supplied to him. The plaintiff was an educated man and had all the means to know the contents of the document. The defendant accepted two bills of exchange towards the payment for the gun. . Kamal Kant filed a suit against his mother. but the defendant never examined the gun and he started using it. There was a defect in the gun. Prakash Devi and some others seeking cancellation of a trust deed on the ground that his signatures to it were obtained by fraud by falsely telling him that it was attested by the plaintiff‘s father and advocate. Thomas the plaintiff contracted to manufacture a gun for the defendant and supply the same to him. and if the defendant had carefully examined the gun he could detect the same and then he would have been justified in rejecting it. In Horsfall Vs. In Kamal Kant Vs.
At this stage the defendant contended that because of a concealed defect in the gun it was weak and consequently it had burst and broken into pieces and thus it amounted to fraud. was paid by him. but when the second bill was not paid. the p-lainti9ff sued him for the same. On e of the bills of. After some time the gun burst flew to pieces. . as such he is not liable to pay. If there is a patent defect in an article supplied to a buyer and the buyer having an opportunity to examine the same neglects to do so. the supplier cannot be considered guilty of fraud for not pointing out the defect.
In Peek Vs. a person purchased some shares of a company from the market and then sued the promoters of the company for fraud on the ground that there were some false statements contained in the prospectus. who buys the shares subsequently from the original allot tee and therefore the promoters were not liable for fraud. Gurney (1873. . It was held that the prospectus is meant for an original allot tee of the shares by the company and not a person like the present appellant.Statement should be meant for the party misled It is necessary that the misleading statement should be meant for the party who is misled.
Misrepresentation When a false statement is made with the knowledge that it is false and also with the intention to deceive the other party and make him to enter into a contract on that basis. to make a mistake as to the substance of the thing which is the subject of the agreement. in a manner not warranted by the information of the person making it. gains an advantage to the person committing it. of that which is not true. or any one claiming under him. (3) causing. by misleading another to his prejudice or to the prejudice of any one claiming under him . Section 18 defines misrepresentation as under : ―Misrepresentation‖ means And includes— (1) the positive assertion. it is known as fraud. When the consent of a party to a contract has been obtained by misrepresentation it is not free consent and the contract is voidable at his option. . though he believes it to be true : (2) any breach of duty which. A party to an agreement. without an intention to deceive. innocently. however.4. But when the person making a false statement believes the statement to be true and does not intend to mislead the other party to the contract it is known as ―Misrepresentation‖.
without any intention to deceive.e. Indian Easement Act. i. When there is a breach of duty whereby the person making a false statement gains some advantage at the cost of the other party. There should be a false statement made innocently. Positive assertion. For example. an explicit statement. of which the grantor is aware but the licensee is not. and the statement though false is made without an intention to deceive. Omission to make such a disclosure. which is likely to be dangerous to the person or property of the licensee. i. lays down that the grantor of a licence i8s bound to disclose to the licensee any defect. but he believes it to be true amounts to misrepresentation. Section 57. would amount to misrepresentation. . if it is without any intention to deceive. 1882.. of fact by a person of that which is not true.e. it also amounts to misrepresentation.
acting innocently. A sells his horse to B which is unsound but A himself does not know about this fact. there is said to be misrepresentation. In case of misrepresentation the person making the statement is innocent and he makes the statement without any intention to deceive the other party.If one party. causes another party to make a mistake as to the substance of the thing which is the subject of the agreement. . where the person making the false statement knows that the same is false but makes the same intentionally to deceive the other party and make him enter into an agreement which he would not have done otherwise. He tells B that the horse is sound. His statement is false although he himself believes that the same is true. For instance. It is known as innocent misrepresentation as against fraud. There is misrepresentation.
In fraud the intention of the person making a false statement is to deceive the other party and induce him to enter into the contract on that basis. was made without any intention to deceive it did not amount to fraud. It has been noted in Derry Vs. but in fraud the false statement is made by a person. Both in fraud and misrepresentation the statement distinguished is false. although false. Peek that when the statement. . whereas in misrepresentation the person making the statement believes the same to be true.Fraud and Misrepresentation 1. There is no such wrongful intention in case of misrepresentation. 2. who knows that it is false or does not believe in its truth.
when the consent of a party to the contract has been obtained either by fraud or by misrepresentation. or on other ground and it is not similar to the remedy of damages available to a victim of the fraud under the law of torts. According to section 19. Indian Contract Act.. the contract is voidable at the option of the party whose consent has been so obtained. whether on ground of misrepresentation or fraud. provides that ―a person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract‖ This remedy of damages is available in every kind of rescission. there is an additional remedy available to the victim of fraud.3. because fraud is also a tort. however. . No remedy under the law of torts is available if it is an innocent misrepresentation. In case of fraud. In other words the contractual remedy for both is the same.e. an action for damages under the law of torts. however. i.
Although when there is misrepresentation by one party the contract is voidable at the option of the other party. .4. but no such remedy is available if the party seeking to avoid the contract had the means of discovering the truth with ordinary diligence. a person obtaining the consent of the other party by fraud cannot be allowed to say that the other party could have discovered the truth with ordinary diligence. But except in case of fraudulent silence.
if he thinks fit. whose consent was caused by fraud or misrepresentation. or misrepresentation the agreement is a contract voidable at the option of the party whose consent was so caused. misrepresentation and fraud and section 19-A when the consent has been obtained by undue influence. may. . The relevant provision contained in these sections are as follows : 19. A party to a contract. Void ability of agreement without free consent -When consent to an agreement is caused by coercion.. insist that the contract shall be performed. and that he shall be put in the position in which he would have been if the representation made had been true. fraud.Effect of flaw in consent Section 19 deals with the effect of flaw in consent caused by coercion.
. the agreement is a contract voidable at the option of the party whose consent was so caused. the person whose consent has been so caused may also bring an action for damages because fraud is a tort also. When the consent of a party to the contract has been caused by coercion. Any such contract may be set aside either absolutely or. In case of fraud. apart from avoiding the contract.19-A Power to set aside contract induced by undue influence When consent to an agreement is caused by undue influence. if the party who is entitled to avoid it has received any benefit there under. upon such term and conditions as the Court may seem just. misrepresentation or fraud the contract is voidable at the option of such party.
In case of undue influence also the contract is voidable at the option of the party whose consent has been so caused. received by him under such a contract.. i. The two rights are discussed below. if the party who was entitled to avoid it has received any benefit there under. if any. Thus. 1. Any such contract may be set aside either absolutely or. the contract may be voidable at his option. he is bound to restore the benefit. upon such terms and conditions as to the Court may seem just.e. a right of recession of the contract. in case of the flaw in consent one party or the other may have either. or 2. a right to claim compensation.When a person at whose option the contract is voidable rescinds it. .
misrepresentation. a notice to the other party of the intention to avoid the contract would suffice. he affirms the contract then the contract will be binding on both the parties. The party entitled to rescind a voidable contract may do so by a notice to the other party. Ordinarily. If. rescission of the contract is the common remedy available in all these cases. If instead. fraud or undue influence. however. Right to Rescission of the contract It has been noted above that even when the consent of a party to a contract has been obtained by coercion. the other party is not available then taking necessary steps which may be possible under the circumstances of the case would be enough . A voidable contract will be avoided only if the party having a right to do so avoids it. or taking such steps as may be necessary under the circumstances of the case.1.
. Vs. but the buyer was not traceable. information to the police and the Automobile Association had resulted in the rescission of the contract and therefore. In the meanwhile the purchaser of the car sold it further to the plaintiffs. The question was whether the plaintiffs had purchased it after rescission of the contract by the seller. Ltd. who had been acting in good faith. Caldwell. The seller wanted to avoid the contract and regain the possession from the buyer. In Car and Universal Finance Co. the plaintiffs did not get a good title to the car. (1961) the purchaser of a car committed a fraud against the seller by making the payment through a cheque which was dishonoured. It was held that even though the seller could not communicate the rescission to the purchaser himself. The seller immediately informed the police and also the Automobile Association about the same. and if that was so the plaintiffs could not have a good title to the car.
In such situations the law may not permit the exercise of the right to rescind the contract.Limits to the rights of rescission The right of rescission of the contract is subject to the following limitations. which deals with the right of rescission of a contract where the consent of a party has been obtained by misrepresentation or fraud states : . or to affirm it. if it is affirmed then it is valid and binding contract against both the parties. If the contract is rescinded it becomes void and unenforceable. (i) When the contract is affirmed There are two alternatives open to a party having a right to avoid a contract. On the other hand. Section 19. either to rescind it.
Lloyd (1958) the defendant sold his lorry to the plaintiff by making a false representation that the lorry was in ―excellent condition. . ―A party to a contract. had affirmed the contract and he had now no right to rescind it. and shall be put in the position in which he would have been if the representation made had been true‖ The affirmation of the contract may be made either expressly.‖ On the lorry‘s first journey the plaintiff discovered serious defects in the lorry. In Long Vs. insist that the contract shall be performed. by accepting the offer of sharing the cost of repairs by the defendant and thereafter continuing using the car. may. if he thinks fit. It was held that the plaintiff. The lorry completely broke in the next journey and then the plaintiff wanted to rescind the contract. or impliedly or it could be inferred from a person‘s conduct. He did not rescind the contract. whose consent was caused by fraud or misrepresentation. but instead accepted the defendant‘s offer of half the cost of repairs.
Skinner . if a person purchasing a picture on the basis of an innocent but false representation that it has been painted by a particular renowned artist. 1950) . International Galleries. the right to retrieve the property comes to an end. (Allcord Vs. the rescission would not be allowed (Leaf Vs.(ii) Lapse of time A person having a right to avoid the contract must do so within a reasonable time. If a person transfer his property to another person while under a spiritual influence. wants to avoid the contract after five years of its purchase. but does not take steps to take back the property for six years after such influence has ceased. Failing to exercise this right in time may mean affirmation of the contract. 1887) Similarly.
but the contract has not been rescinded at the time of sale. 1872. contains the following provision in respect of a contract of sale of goods : ―When the seller of goods has obtained possession thereof under a contract voidable under section 19 or section 19A of the Indian Contract Act. provided he buys them in good faith and without notice of the seller‘s defect of title. Sale of Goods Act. A voidable contract is valid until avoided and it becomes void only after it has been avoided.‖ . Section 29.(iii) Acquisition of a right by a third party The right of rescission may be gone if before the contract has been rescinded some third party has acquired a right in the subject matter of the contract. there could be creation of an instrument in favour of a third party. 1930. the buyer acquires a good title to the goods. there is a possibility that so long as the contract has not been avoided.
If a shareholder is induced by misrepresentation to purchase shares. C has acquired a good title to the goods and A‘s right of avoiding the contract and taking back the goods has come to an end. while C is acting in good faith and he has no notice of the defective title of B. shareholder‘s right of rescission cannot be exercised because that wou8ld affect the interest of the creditors . In case the proceedings for winding up of the company starts. For example. he may rescind the contract. B sells those goods to C. in a contract of sale of certain goods between A and B. A‘s consent has been obtained by misrepresentation and so he has a right to avoid the contract.
In such a case buyer‘s only remedy is to claim compensation by treating the breach of condition as a breach of warranty. For example. A purchases a suit piece from B under a contract voidable at A‘s option. Section 13 (2). A‘s right to avoid the contract cannot be exercised because he will not be in a position to return the suit piece. A gets the piece converted into a suit. If restitutio in integrum is not possible there can be no rescission. of the Sale of Goods Act. 1930 makes the following provisions : . In a contract of sale of goods if the buyer has a right to avoid the contract because of breach of a condition. the buyer‘s right of rejecting those goods comes to an end if the buyer has accepted those goods.(iv) Inability to restore the goods When a party wants to avoid the contract he must do so. so long as the parties to the contract can be placed in the same situation in which they were before the contract was made.
―Where a contract of sale is not severable and the buyer has accepted the goods or part thereof.‖ The seeds supplied by the seller were of an inferior and a different variety known as ―Gaint sainfoin seeds. to that effect. There was no chance of avoiding the contract and rejecting the goods.‖ At the time of supply of seeds the buyer could not make out the defect as the two varieties were indistinguishable. . The buyer could claim compensation only.‖ In Wallis Vs. Pratt the buyer purchased seeds described as ―English sainfoin seeds. unless there is a term of the contract. the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated. express or implied. The defect could only known after the seeds had been sown and the crop was ready.
to rescind the contract. and he would be entitled.‖ The remedy of damages in lieu of recession provided here is in respect of innocent misrepresentation. if of the opinion that it would be equitable to do so. the aggrieved party may recover damages in addition to the of avoiding the contract. that the contract ought to be or has been rescinded. 1967 has given power to the English Courts to grant damages in lieu of rescission. having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract was upheld. Section 2 (2) of the Act which contain the above mentioned provision is as under : ―Where a person has entered into a contract after a misrepresentation has been otherwise than fraudulently. as well as to the loss that rescission would cause to the other party. the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission. because fraud is also a tort. by reason of the misrepresentation. (v) Damages in lieu of rescission of contract Misrepresentation Act. When the misrepresentation is fraudulent. if in the opinion of the Court it would be just and equitable to do so. .
. in cases where the consent of one of the parties has been obtained by coercion. the remedy of damages or compensation may also sometimes be available to the parties to the contract. misrepresentation. may seek rescission of the contract as a contractual remedy and may also claim damages under the law of torts. fraud or undue influence. (1) Damages in case of fraud : It has already been noted that fraud is a tort. a party whose consent has been obtained by a fraudulent statement. Therefore. 1967 empowers the court in case of other than fraudulent misrepresentation to allow damages in lieu of rescission of contract.2. (2) Damages in case of non-fraudulent misrepresentation It has already been noted that the Misrepresentation Act. Right to claim compensation Apart from the remedy of rescission of contract.
A.(3) Duty of a party rescinding the contract to pay compensation Sometimes a party entitled to rescind a voidable contract may have already received some benefit under the contract. The Court may set the bond aside. a money lender. he should also restore the benefit which he may have received from the other party. ordering B to repay Rs. an agriculturist. and by undue influence. Equity demands that if he avoids the contract. . induces B to execute a bond for Rs. 100 to B. 200 with interest at 6 percent per month. (refer to section 64 of the Act) For example. 100 with such interest as may seem just. advances Rs.
the court may require the party to whom such relief is granted to restore. Specific Relief Act. 1963 also empowers the court to order payment of compensation when ordering rescission of a contract. any benefi9t which he may have received from the other party and to make any compensation to him which justice may require. Section 30. so far as may be. It provides as follows : ―On adjudging the rescission of a contract.‖ .
the meeting of the two minds. probably they would not have entered into the agreement. Mistake in the mind of the parties is such that there is no genuine agreement at all. There may be a genuine agreement. it is not the free consent which is needed for the validity of a contract. One. . Mistake may work in two ways : 1. or both. The offer and acceptance do not coincide and thus no genuine agreement is constituted between the parties. Such contracts are said to be have been caused by mistake. i.e. They may be no consensus ad idem. 2. If such a misunderstanding or misapprehension had not been there. of the parties may be working under some misunderstanding or misapprehension of some fact relating to the agreement.Mistake When the consent of the parties is caused by mistake. but there may be mistake as to a matter of fact relating to that agreement.
or there may be no consensus ad idem. Mistake may work in two ways : For a valid contract both the parties should have given their consent and the consent should be free also. may not be there. According to section 13 : ―Two or more persons are said to consent when they agree upon the same thing in the same sense. In other words.‖ Sometimes even such a consent. In such case there is no contract which can be enforced .1. there may be absence of meeting of the minds of the parties. where two or more persons agree to the same thing in the same sense.
therefore. i. whereas the seller thought of the ship sailing in December.. one in October and the other in December. The buyer in mind Peerless sailing in October. and both were to sail from Bombay. Wichelhaus (1864) the buyer and the seller entered ito an agreement under which the seller was to supply a cargo of cotton to arrive ―ex peerless from Bombay”. There were two ships of the same name.e.a . In this case the offer and acceptance did not coincide and there was no contract and. Peerless. In Raffles Vs. it was held that the buyer was entitled to refuse to take delivery. The seller dispatched cotton by December ship but the buyer refused to accept the same.
(b) A agrees to buy from B a certain horse. It turns out that. It provides : 20. Mistake as to a matter of fact essential to the agreement Section 20 deals with such mistake. before the day of the bargain. the ship conveying the cargo had been cast away. and the goods lost.Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement is not to be deemed a mistake as to a matter of fact.-. Illustration (a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that the horse was dead at the time of the bargain. Agreement void where both parties are under mistake as to matter of fact. The agreement is void . Neither party was aware of these facts. The agreement is void. though neither party was aware of the fact.2.
3. B was dead at the time of the agreement. . Mistake should as regards a matter of fact. The fact regarding which the mistake is made should be essential to the agreement. agrees to sell it to C . the agreement is void. The agreement is void. Section 20 requires that : 1.c) A being entitled to an estate for the life of B . When the type of mistake contemplated is section 20 is present in an agreement. but both the parties were ignorant of the fact. Both the parties to the contract should be under a mistake and 2.
Since both the parties are under a mistake the agreement is void.1. A and B make an agreement for the sale and purchase of a particular horse. i. Unknown to both the parties the horse was dead at the time of the agreement. which reads as under : . This is made clear by section 22. For example. Mistake of both the parties Section 20 makes the agreement void if there is mistake on the part of both the parties.e. only one of the parties is having some misimpression. the validity of the agreement is not affected thereby. If the mistake is a unilateral one..
A.000 per year.A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to matter of fact In Ayekam Angahal Singh Vs.R.000.I. The Union of India. 22. 40000 being the rent for all the three years. 40. It was held that since the mistake was unilateral the contract was not affected thereby and the same could not be avoided .--. The rental in fact was Rs. The plaintiff sought to avoid the contract on the ground that he was working under a mistake and he thought that he ha made a bid of Rs. 1970 there was auction for the sale of fishery rights and the plaintiff was the highest bidder making a bid of Rs. Contract caused by mistake of one party as to matter of fact. The fishery right had been auctioned for 3 years. 40.
The validity of the contract is not affected by mistake of law. Every one is supposed to know the law of the land. Illustration A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation : the contract is not voidable. he will get no relief. Regarding mistake of law the provision contained in section 21 is as follows 21.(2) Mistake of fact There should be mistake of fact and not of law. Ignorance of law is no excuse. .A contract is not voidable because it was caused by a mistake as to any law in force in India : but a mistake as to law not in force in India has the same effect as a mistake of fact.--. If a person wants to avoid the contract on the ground that there was a mistaken impression in his mind as to the existence of some law while he entered into the contract. Effect of mistake as to law.
.(3) Mistake essential as to agreement It is also essential that the fact regarding which the mistake is made should be essential to the agreement. Whether the mistake is regarding a fact essential to the agreement or not depends on a particular contract.
loss or responsibility given. detriment. Consideration means something in return for the promise.‖ . Misa (1875) ― A valuable consideration in the sense of the law may consist either in some right. interest. the general rule in India is that ― an agreement without consideration is void. It may be either some benefit conferred on one party or some detriment suffered by the other.Presence of consideration is one of the essentials of a valid contract. In the words of Lush J. suffered or undertaken by the other. or some forbearance. Subject to certain exceptions. profit or benefit accruing to one party. In Curie Vs.
Definition under Section 2(d)
Section 2(d), Indian Contract Act, defines consideration as under : ―When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or promises to do or abstain from doing something, such act or abstinence or promise is called a consideration for that promise‖.
The definition mentions the following requirements to be satisfied in order that there is valid consideration :
Consideration must be given ‗at the desire of the promisor”. Consideration must be given ‗ by the promisee or any other person ‗. Consideration may be past, present or future in so far as the definition says that the promisee : (i) has done or abstained from doing, or (ii) does or abstains from doing, or (iii) promises to do or abstain from doing, something. There should be some act, abstinence or promise by the promisee, which constitutes consideration for the promise.
CONSIDERATION ONLY AT THE DESIRE OF THE PROMISOR
It is essential that the consideration must have been given at the desire of the promisor, rather than voluntarily or at the instance of some third party.
In Durga Prasad Vs. Baldeo (1880) the consideration for the promise had not moved at the desire of the promisor but some other person, and that was held not to be sufficient consideration to support the promise. The facts of the case are The Plaintiff constructed certain shops in a market at the instance of the collector of that place. Subsequently the defendants occupied one of the shops in the market. The money for the construction of the market having been spent by the plaintiff, the defendants, in consideration thereof, made a promise to pay to the plaintiff commission on the articles sold through their agency in that market. The defendants failed to pay the promised commission. In an action by the plaintiff to recover the commission it was observed that the consideration for the promise to pay the commission for the construction of the market was not at the desire of the defendants, but on the order of the collector. It was, therefore, held that since the consideration did not move at the desire of the defendants (promisors) in this case, this did not constitute valid consideration and therefore the defendants were not liable in respect of the promise made by them.
. there was no consideration in this case and. therefore. If there is a promise to contribute on the part of one of the parties but no act done in exchange thereof by the other. The defendant refused to pay the amount.Subscription for a charitable purpose A promise to contribute an amount for a charitable purpose may not be enforceable because against this promise there may be no consideration. In Abdul Aziz Vs. the defendant was not liable to pay the subscription promised by him. It was held that since nothing was done on the faith of the promise. Masum Ali (1914) The defendant promised to pay a sum of Rs. Nothing was done to carry the repairs and reconstruction of the mosque.as donation for the repair and reconstruction of a mosque. there is no consideration in such a case. 500/.
In England the position is different. In an action against her by the plaintiff she contended that since the plaintiff himself had furnished no consideration.to A‘s brother (plaintiff). the consideration has been furnished by the defendant‘s mother and that is enough consideration to enforce the promise between the plaintiff and the defendant.2. In India there is a possibility that the consideration for the promise may move not from the promisee but a third person. . an old lady. Ramaya (1882) In this case A. who is not a party to the contract. he had no right of action. On the same day the defendant made a promise to the plaintiff that she would pay the annuity as directed by A. The position in India may be explained by referring to the case of Chinnaya Vs. 653/. The defendant failed to pay the stipulated sum. The Madras High Court held that in this agreement between the (defendant) and (the plaintiff). granted an estate to her daughter (defendant) with a direction that the daughter should pay an annuity of Rs. CONSIDERATION BY PROMISEE OR ANY OTHER PERSON According to Indian law consideration may be given by the promisee or any other person.
It has been noted above that a person may not have himself given any consideration but he can enforce the contract if he is a party to the contract. X cannot file a suit to enforce the contract because A and B are the only parties to the contract whereas X is only a stranger to the contract. . If in a contract between A and B some benefit has been conferred upon X.Privity Of Contract The doctrine of privity of contract means that only those persons who are parties to the contract can enforce the same. The rule that a stranger to contract cannot sue has to be distinguished from the rule discussed above that in India a person who is stranger to consideration can sue. A stranger to the contract cannot enforce a contract even though the contract may have been entered into for his benefit. That does not affect the rule of privity of contract. because according to the Indian Law consideration may be given either by the promisee or even a third party.
but the plaintiff. who was a beneficiary in the contract was nearly related to the promisee. Poole (1678) A intended to sell his wood to make a provision for the marriage expenses of his daughter. In Dutton Vs.e. has a right of action. her father. the plaintiff. .000 pounds to A‘s daughter. It was held that even though there was no contract between the plaintiff and the defendant. who is not a party to the contract but is intended to be the beneficiary under the contract and is nearly related to the promisee. i. The father forebore to sell the wood but the defendant did not pay the promised amount to the plaintiff.English Law Under the English law old view was that a person. The defendant. she was entitled to recover. A‘s son requested A not to sell the wood and in return made a promise toi his father that he would pay 1.
Atkinson (1861) In that case the plaintiff married a girl. After this marriage there was a contract in writing between the plaintiff‘s father and the girl‘s father that each would pay a certain sum of money to the plaintiff and the plaintiff would have a right to sue for such sums. It was held that the plaintiff could not sue for the same. . After the death of the two fathers. The above mentioned view was rejected in Tweddle Vs. the plaintiff brought an action against the executors of the girls father to recover the promised amount. Wightman J observed : ―Some of the old decisions appear to support the proposition that a stranger to the consideration of a contract may maintain an action upon it. although made for his benefit.‖ In the above stated case the plaintiff was both a stranger to the contract as well as stranger to consideration and he could not enforce the claim. On the contrary it is now established that no stranger to consideration can take advantage of a contract. that he may be considered a party to the consideration …………. if he stands in such a near relationship to the party from whom consideration proceeds.
One is that only a person who is a party to a contract can sue on It. with an agreement between Dew & Co. . Ltd. who were manufacturers of motor-car tyres. Our law knows nothing of a Jus quaesitum territo arising by way of a contract. (1921) in the following words : ―In the law in England certain principles are fundamental. The respondents sold some tyres below the list price. Such a right may be conferred on a stranger to a contract as a right to enforce the contract in personam. and the respondents that they shall observe conditions as to price and the respondents also promised that they would pay to the appellants a sum of 5 pounds for every tyre sold below the list price. sold some tyres to one Dew & Co. The rule of privity of contract was reaffirmed by the House of Lords in Dunlop Pneumatic Tyre Co. Vs. Ltd. in their turn sold some of those tyres to the respondents. with an agreement that these tyres will not be sold below the list price. Selfridge & Co.‖ In Dunlop‘s case the appellants. Dew & Co. the appellants brought a action against the respondents to recover damages for the same.
. could not bring an action against Selfridge and Co. the latter still cannot maintain an action as there was no consideration between Dunlop & Co and Selfridge & Co. since the whole of the purchase price was paid by Selfridge & Co. were acting as agents for Dunlop & Co. because there was no contract between the two parties. The House of Lords held that Dunlop & Co. to Dew & Co. . It was further observed that even if it is taken that Dew & Co.
that only a party to th3e contract is entitled to enforce the same. X could not enforce the contract to recover the amount from B. B having agreed with A to pay off the mortgage debt. In that case A had mortgaged some property to X. . with the effect. Even though under the Indian Contract Act the definition of consideration is wider than in English Law.. yet the common law principle is generally applicable in India. The authority for the application of the rule in India is the decision of the Privy Council in Jamna Das Vs. A sold this property to B .Indian Law Stranger To A Contract Cannot Sue The rule that ―privity of contract‖ is needed and a stranger to contract cannot bring an action is equally applicable in India as in England. Ram Autar. X brought an action against B to recover the mortgage money. It was held by the Privy Council that since there was no contract between X and B.
While it was mentioned that only a party to a contract can sue on it and no such right is conferred on a third party. Selfriidge & Co. . For example. in a contract between A and B .Exception to the rule that a stranger to contract cannot sue (1) Trust of contractual rights One of the exceptions to the doctrine of privity of contract was recognised by Lord Haldine in Dunlop Pneumatic Tyre Co. beneficial right in respect of some property may be created in favour of C. Vs. for example. as. it was also stated that ―such a right may be conferred by way of property.‖ The basis of an action by the third party is actually not enforcing the contract but the right conferred by a particular contract in favour of a third party in the form of trust etc. under a trust. In such a case C can enforce his claim on the basis of the right conferred upon him.
It was also mentioned that a certain property had been set aside by the defendant and this allowance would be paid out of the income of that property. Husaini Begum (1910) has recognised this exception. In this case there was an agreement between the fathers of a boy and a girl that if the girl (plaintiff in this case) married a particular boy. . the common law rule is not applicable to the facts and circumstances of the present case. The plaintiff married the defendant‘s son but the defendant failed to pay the allowance agreed to by him. and as such. It was held that in this case the basis of the plaintiff‘s claim being a specific charge on the immovable property in her favour she is entitled to claim the same as a beneficiary. the boy‘s father (defendant in this case) would pay certain personal allowance known as Kharch-i-pandan (betel-box expense) or pin money to the plaintiff. The Privy Council in the case of Khwaja Muhammad Khan Vs. The plaintiff therefore brought an action against the defendant.
had earlier called upon the plaintiff to executive certain documents in this connection. but if one of them by his conduct. acknowledgement. he may be liable on the basis of the law of estoppel against him. the question of the right of the plaintiff to sue to defendants had arisen. Tagore Commercial Corporation Ltd. when the said contract was entered into. and had thereafter asked for the extension of time to pay. It was.(2) Conduct. (1973) where there was no contract between the plaintiff and the defendants but the defendants in their agreement with the plaintiff‘s husband had agreed to pay certain amounts to the plaintiff‘s husband during his life time and thereafter to the plaintiff. therefore held that the defendants have created such privity with the plaintiff by their conduct and by acknowledgement and by admission. after her husband‘s death. Apart from that it was found that the defendants. In the case of Narayani Devi Vs. Acknowledgement. or admission recognises the right of the other to sue him. by their admission. or Admission Sometimes there may be no privity of contract between the two parties. in pursuance of the agreement. It was established that the defendants had made certain payments to the plaintiff. which implies that they considered the plaintiff to be entitled to certain rights. that the plaintiff is entitled to her action even though there was no privity of contract between the plaintiff and the two defendants. .
. on the partition of joint family property between the male members. Such an action has been allowed in many cases where. The basis of the recognition of such an action is the application of the rule laid down in Khwaja Muhammad Khan Vs. Husaini Begam to such situations. under a family arrangement. the contract is intended to secure a benefit to a third party he may sue in his own right as a beneficiary.(3) Provision for marriage expenses or maintenance under a family arrangement Where. a provision is made for the maintenance of the female members of the family.
In Veeramma Vs. The daughter being a beneficiary under the compromise agreement. . it was held that she was entitled to sue for the specific performance in her favour. Appayya ( 1957) under a family arrangement the father conveyed his house to his daughter and the daughter undertook to maintain him in his life time.
in return for the promise. the consideration is Executed. then consideration is past.(3) CONSIDERATION MAY BE PAST. Executed or Executory. 3. the consideration is Executory or future. EXECUTED OR EXECUTORY Indian Contract Act recognises three kinds of consideration.. Whether the consideration is past. 2. viz. When. . Does or abstain from doing. Promises to do or abstains from doing. it is essential that it must have been given ―at the desire of the promisor‖ 1. or present. Past. Executed and Executory. the promisee or other person : Has done or abstained from doing.
for that.(1) Past Consideration As noted above. For my promise to pay you Rs. and therefore the promise is enforceable. I promise to pay you Rs. had been done before I promised to pay the amount. necessary that at the time the consideration was given that must have been done at the desire of the promisor. because it is only when I requested you that you found out the dog. it is a case of past consideration. . of course. I request you to find out my lost dog. It is. In this case the consideration had been given at my request. 100/.100/the consideration is your efforts in finding my lost dog and the same. Indain Contract Act recognises past consideration. For example. It means that the consideration for any promise was given earlier and the promise is made thereafter. When you have done the same. This constitutes valid (past) consideration under Section 2(d).
Past services voluntarily rendered
Indian Contract Act recognises only such consideration which has been given at the desire of the promisor, rather than voluntarily. If consideration has been given voluntarily, it is no consideration. For example, if my dog has been lost and without any request from me to find the same, you find that of your own and deliver the dog to me. This a is case of past services rendered voluntarily. In case I promise to pay Rs. 100 to you after you have rendered these services, the question which arises in such a case is , can such an agreement be enforced ? It has been noted above that rendering of such voluntary services does not constitute valid consideration to support the promise. A valid contract is created in such a case also because the situation is covered by sec. 25 (2) of the Indian Contract Act, which contains an exception to the rule that an agreement without consideration is void. The provision is as under :
―Sec 25 An agreement made without consideration is void unless— (2) It is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do‖ The point may be further explained by the following illustrations. (i) A finds B‘s purse and gives it to him. B promises to give A Rs.50. This is a contract. (ii) A supports B‘s infant son. B promises to pay A‘s expenses in so doing. This is a contract.
English Law regarding past consideration
According to English law past consideration is no consideration. A promise in lieu for a past act is deemed to be only expression of gratitude for the benefit already received, rather than any consideration motivating the other side to make the promise. A promise after the consideration has already been given and independent of it, is not enforceable for want of any consideration in exchange for the promise.
we hereby agree that the executors shall repay to you from the said estate. in accordance with the will of a father. It was held by the Court of Appeal that since the expenditure had been incurred before the document was signed. signed a document in her favour. the consideration was past and therefore the promise could not be enforced. stating that ―in consideration of your carrying out certain alterations and improvements to the property. During the mother‘s lifetime one of the testator‘s son and his wife lived in that house. the sum of 488 pounds in settlement of the amount spent on such improvements. who were to inherit the house. Subsequently all the five children. The case of Re Mc-Ardle (1951) explains the point. but except her husband all the other promisors refused to pay. In that case. At that time the wife made some improvements to the house. his five children were entitled to an equal share in a house after their mother‘s death. incurring an expense of 488 pounds. .‖ On the mother‘s death the promisee claimed 488 pounds from the executors on the strength of the above promise.
The authority for this point is the case of Lampleigh Vs. The question was. . consideration in the form of efforts by the plaintiff to obtain the pardon. at his own expense. requested Lampleigh.Past consideration at the promisor’s request Past consideration though given prior to the promise but at the request of the promisor is deemed to be a good consideration for the promise. It was held that the plaintiff had a right to enforce the promise and recover the said amount because for this promise. In consideration for these efforts the defendant promised to pay 100 pounds to the plaintiff. The previous request and the subsequent promise are not considered to be independent of one another but part of the same transaction. It is deemed that when the previous request was made the promisor had in mind his promise which he expresses afterwards. the plaintiff to make all efforts to obtain pardon for him from the King. going from one place to another. had been there at the earlier request of the defendant. whether the plaintiff Had a legal right to recover this amount. Bratwait (1615) Thomas Bratwait. who was guilty of having committed a murder. the defendant. The plaintiff made his efforts to secure the pardon.
which constitutes the consideration for the promise by the other side. . In case of executed consideration. 100/.(2) Executed Or Present Consideration Executed consideration is there when one of the parties to the contract has performed his part of the promise.to B. In such a case at the time of providing of the consideration the promise is non-existent. which results in a binding contract under which A is bound to pay Rs.to any one who finds out his lost dog and brings the same to him. 100/. the consideration is provided simultaneously along with the making of the contract. Performance of the promise by the other side is the only thing now to be done. For example. When B did his part of the job that amounted to both the acceptance of the offer. and also simultaneously giving consideration for the contract. B finds out the lost dog and brings the same to him. The contract is case is said to be “executed” Executed consideration may be distinguished from past consideration. a advertises an offer of reward of Rs.
. and B agrees to pay for them at a future date. the consideration is known as Executory. A agrees to supply certain goods to B. the performance of the obligation by each side to be made subsequent to the making of the contract. this is a case of Executory consideration.(3) Executory or future consideration When one person makes a promise in exchange for the promise by the other side. For example.
Abstinence or promise According to the definition of consideration contained in Section 2 (d). the promisee or any other person has done or abstained from doing.(4) There should be some Act. or does or abstains from doing. such act or abstinence or promise is called consideration for the promise. or promises to do or to abstain from doing something. . when at the desire of the promisor.
Consideration need not be adequate A contract which is supported by consideration is valid irrespective of the fact that the consideration is inadequate. but the inadequacy of the consideration may be taken into account by Court in determining the question whether the consent of the promisor was freely given. According to Explanation 2 section 25 : ―An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate .‖ .
For example. 1.000 for Rs. they strike a bargain where the consideration is too high or too little. The adequacy of the consideration is a fact which the Court should take into account in considering whether or not A‘s consent was freely given. If. Although inadequacy of consideration by itself is not a ground for treating the contract as valid but it may be a factor which the court may take into consideration to know whether the consent of a party was free or not. The agreement is a contract notwithstanding the inadequacy of the consideration.000 for Rs. A‘s consent to the agreement was freely given. 10. not for the court when it is sought to be enforced. A agrees to sell a horse worth Rs. the courts will not go into the question of adequacy or inadequacy of consideration. For example. A agrees to sell a horse worth Rs. A denies that his consent to the agreement was freely given. with their free consent. 10. The parties are free to make any contract of their choice. . The adequacy of the consideration is for the parties to consider at the time of making the agreement. 1.
therefore. the son continued to be liable for the debt. Promise not to bore the promisor is not enough to constitute consideration. .Consideration must be real Although it is not necessary that consideration should be adequate. and. It was held that the promise by the son not to bore his father with complaints in future did not constitute good consideration for the father‘s promise to release him. however. The father promised that he would release the son from a debt if the latter promised stopped complaining. After the father‘s death an action was brought by the executors to recover the debt. In white Vs. Bluett (1853) a son used to complain to his father that his brothers had been given more property than him. necessary that it should be real and should not be unsubstantial. it is.
In Collins Vs. It was held that the plaintiff having received the subpoena was already under a public duty to give evidence. . Godefry (1831) the plaintiff received a subpoena to give evidence in a case.Performance of an existing duty is no consideration In order to constitute proper consideration there should be a promise to do something more than what a person is already bound to do. Doing of something what a person is already legally bound to do is no consideration. Thereafter the defendant promised to pay to the plaintiff some money for the trouble which was to be taken by him in appearing in that case. the promise by the defendant to pay did not constitute consideration for the promise. and therefore.
the captain of the ship promised to distribute the wages of those two sailors amongst the other members of the crew if they would work the ship home.Promise to perform an already existing contractual duty If the plaintiff is already bound to perform a particular contractual duty owed to the defendant. Myrick(1809) Two sailors having deserted in the course of a voyage. defendant‘s promise to pay something additional for the same promise is no consideration. In Stilk Vs. It was held that the members of the crew being already duty bound to work the ship home. . there was no consideration to pay the additional amount and hence the promise to pay that amount could not be enforced.
and. as I promised to assist you at starting. Shadwell (1860) The plaintiff had already promised to marry one Miss Nicholl. of which your own admission shall be the only evidence that I shall receive or require‖ . I am happy to tell you that I will pay to you 150 pounds yearly during my life or until your annual income derived from your profession of a Chancery barrister shall amount to six thousand guineas.Performance of an existing duty owed to a third party Whether performance of an existing duty towards a third party constitutes consideration for a promise or not came for consideration in the case of Shadwell Vs. The plaintiff‘s uncle wrote a letter to the plaintiff as under : ―I am glad to hear of your intended marriage with Ellen Nicholl .
It was decided by a majority that the promise was enforceable as it was supported by consideration. . and also detriment to the plaintiff as he might have incurred pecuniary liabilities on the faith of the promise. Thereafter the plaintiff married Miss Nicholl. After his uncle‘s death he brought an action against his executors to recover the amount promised to be paid by his uncle to him. Consideration in this case being a benefit to the uncle as marriage of a near relative could be of interest to him. He could not earn 600 guineas from his profession but no annuity was paid by his uncle to him.
can this promise to treat the payment of lesser amount in lieu of the whole amount bind the parties ? English Law --. 1. 500 instead and you agree to the same. .000 and if pay or promise to pay you Rs. This rule was laid down in Pinnel’s case.The Rule in Pinnel’s Case According to English law such an agreement is not binding because there is no consideration for the same.Promise to pay less amount than due The question which sometimes arises is that : If I am bound to pay you Rs.
stated that the original debt could be discharged only by introduction of a new element in the contract at the creditor‘s request e. The facts of this case are as follows : A sum of 8 pounds and 10 shillings was due to be paid on November 11. however. and Pinnel accepted this smaller amount in full payment of the original debt. On October 1. 2 shillings . It was held that he was entitled to succeed. It was. The rule laid down is as under : . Subsequently Pinnel brought an action against Cole to enforce the payment of the full amount on the basis of the bond. or payment at a fresh place or at an earlier date.g. on the ground that mere partial performance of the original contract would not discharge the original contract. 1600 Cole paid 5 pounds . and 6 pennies to Pinel. tender of a chattel in lieu of cash. 1600 on the basis of a bond executed by Cole in favour of Pinnel.
or otherwise the plaintiff would not have accepted it in satisfaction…. for pre-adventure parcel of it before the day would be more beneficial to him than the whole at the day. etc. and the value of the satisfaction is not material‖ . But the gift of a horse. The payment and acceptance of parcel before the day in satgisfaction of the whole would be a good satisfaction in regard of circumstances of time. For it shall be intended that a horse. hawk or robe. might be more beneficial to the plaintiff than the money in respect of some circumstances. etc. because it appears to the judges that by no possibility can a lesser sum be a satisfaction to the plaintiff for a greater sum. ―Payment of a lesser sum on a day in satisfaction of a greater sum cannot be any satisfaction for the whole. hawk or robe. in satisfaction is good.
etc. hawk or robe.‖ When the promise is made to deliver some chattel in lieu of a sum due. which are as follows : 1. might be more beneficial to the plaintiff than the money in respect of some circumstance. or otherwise the plaintiff would not have accepted it i9n satisfaction. etc.Various exceptions to the rule in Pinnel’s case have been recognised in England. Payment in kind :- It was held in Pinnel‘s case itself that ―the gift of a horse. or robe. the promise is valid even if the chattel is worth a smaller sum than the amount due. hawk. For it shall be intended that a horse. . in satisfaction (of a claim for money) is good.
before the payment is due. Payment before the due date :- Another exception. .2. which has been recognised in Pinnel‘s case is the payment and acceptance of the smaller sum of money than originally due in satisfaction of the whole.
the assent to receive the composition discharges the debt. Part payment by a third party :Payment of a part of the sum due by a third party has been recognised to be enough to discharge the whole of the debt.3. in Cook Vs. So. because otherwise fraud would be committed against the rest of the creditors. If one party has accepted part payment from a third party he cannot subsequently sue for the balance of the amount.‖ . because it would be a fraud on the stranger to proceed. in the case of a composition made with a body of creditors. The reason for such a discharge has been explai9ned by Willes J. Lister (1863) ―If a stranger pays a part of the debt in discharge of the whole. the debt is gone.
4. Composition with the creditors : A compromise between the debtors and his
creditors, according to which the creditors agree to be satisfied with a certain percentage of the amount due in satisfaction of the whole debt, has been recognised to be valid contract. The reason behind this exception appears to be ―that no creditor will be allowed to go behind the composition agreement, to the prejudice either of the other creditors or of the debtor himself, because this would be a fraud upon all the parties concerned.‖ Thus, an agreement between a debtor and a single creditor for payment of lesser amount than due will come under the ban in Pinnel‘s case but an agreement between a debtor and his creditors will come under this exception.
5. Doctrine of Promissory Estoppel :- This is an equitable estoppel preventing a person from denying what
he asserted earlier. The doctrine was invoked by Denning J. in Central London Property Trust Vs. High Trees House, Ltd. (1947) The facts of the case are: The plaintiffs leased a block of flats to the defendants in 1937 for 99 years on a ground rent of 2,500 pounds. In January 1940 because of wartime conditions the plaintiffs could not let many of the flats, and because of these conditions they agreed in writing to reduce the rent of the defendant‘s flats to 1,250 pounds. In 1945 the situation became normal and all the flats were let again but the defendants continued to pay the reduced rent. The plaintiffs brought an action against the defendants to recover full original rent for the last two quarters of 1945 as well as in future. It was held that the intention of the parties was that the reduction of the rent was a temporary measure until the flats could be fully let, the plaintiffs were therefore entitled to full rent as claimed. It was also stated by Denning J. that had an action been brought to claim full rent between 1940 to first two quarters of 1945. the action would have failed because of the estoppel against the plaintiffs due to their agreement to accept lesser amount.
In India promisee may accept in satisfaction of the whole debt an amount smaller than that. No consideration is needed for such a promise. The law on this point is stated in Section 63, which is as under :―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.”
000 rupees. under a contract. . accepts the sum of 2. (2) A owes B 5. and B. and is also indebted to other creditors. and B accepts them in satisfaction of claim on A.. This is a discharge of the whole debt.000 rupees were payable.000 rupees. The whole debt is discharged. (3) A owes B .000.e. and B accepts. 2. whether the payment is made by the debtor himself as in illustration (1) above. to pay them compensation of eight annas in a rupee (I. A without ascertaining the amount gives to B. including B.000 rupees. the amount of which has not been ascertained . in satisfaction thereof. This payment is a discharge of the whole claim. Payment to B of 1000 rupees is a discharge of B‘s demand.The position is further explained by the following illustration : (1) A owes B 5.000 rupees paid at the time and place at which 5. as in illustration (2) above. 50%) upon their respective demands. a sum of money. in satisfaction of the whole debt. or by a third party. whatever may be its amount. (4) A owes B 2. It may be noted here that the part payment discharges the debtor of the whole claim. C pays to B 1.000 rupees. A pays to B . A makes an arrangement with his other creditors.
mentions three exceptions. . such an agreement is a contract. The provision is as under : 25. or unless (3) It is a promise.Exceptions when agreement without consideration is valid. Section 25. to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitations of suits. however. when there is no need of any consideration for the validity of the contract. The section. a person who has voluntarily done something for the promisor. In any of these cases. as a general rule declares. that an agreement without consideration is void. made in writing and signed by the person to be charged therewith. An agreement made without consideration is void unless – (1) It is expressed in writing and registered under the law for the time being in force for registration of documents and is made on account of natural love and affection between parties standing in a near relation to each other : or unless (2) It is a promise to compensate . or by his agent generally or specifically authorised in that behalf. or something which the promisor was legally compellable to do . wholly or in part.
the same is valid even though there was no consideration for such a promise. 4. The following requirements have got to be satisfied in order that the case is covered under this exception. The promise should be in writing. . But from the various decided cases it appears that it will cover blood relations or those related through marriage. but only remotely entitled to inherit. The parties to the agreement must be standing in a near relationship to each other. The parties should be nearly related to one another in such an agreement. The promise should be made by one party out of natural love and affection for the other. What is near relationship has neither been defined in the Act. but would not include those relations which are not ―near‖.(1) Promise due to natural love and affection :1. 2. and The agreement is registered. 3. nor in any judicial pronouncement. When the promise is made in favour of a near relation on account of natural love and affection.
It was held that from the recitals in the document it was apparent that the document had been executed not because of natural love and affection between the parties but because of the absence of it. that is deemed to have been done out of natural love and affection. and such an agreement is binding. although not legally bound to do so. Shivaram) 1899 In Rajlucky Dabee Vs. If one brother. (Bhiva Vs. In that agreement mention was also made about quarrels and disagreements between the two.―Natural love and affection‖ between the parties so nearly related is also needed. Bhootnath Mookerjee (1900) it has been held that relations between the two parties does not necessarily imply natural love and affection between them. transfers half of his property in favour of another brother. It is further necessary that the agreement should be in writing and registered under the law relating to registration of documents . and therefore the wife was not entitled to recover the sums mentioned in the document. so that they have cordial relations. At this stage the husband executed a registered document in favour of the wife whereby he agreed to pay for her separate residence and maintenance. In this case after lot of disagreements and quarrels between a Hindu husband and his wife they decided to live apart.
The exception also covers a situation where the promise is for doing something voluntarily ―which the promisor was legally compellable to do.(2) Compensation for past voluntary services :When something has been done ―at the desire of the promisor‖. and the promisor undertakes to recompense him for it. or otherwise than at his request does the latter some service. is binding because of this exception. The second exception to Section 25 covers ―cases where a person without the knowledge of the promisor. though without consideration. that constitutes a good consideration in respect of a subsequent promise to compensate for what has already been done.‖ . The promise to compensate.
there is valid contract in each case although the promisor‘s act was a voluntary one. The exception covers situations where the service is rendered voluntarily and without promisor‘s knowledge.. It is also necessary that the service must have rendered to the promisor and nobody else. .Thus. or. A supports B‘s infant son and B promises to pay A‘s expenses in so doing. It is further necessary that at the time of doing of the act the promisor must have been competent to contract. 50. when A finds B‘s purse and gives it to him and then B promises to pay A Rs.
2. .e. Section 25 (3) requires the following essentials to be satisfied in such a case. 1. The promise must be to pay wholly or in part a timebarred debt.(3) Promise to pay a time barred debt Another situation when an agreement is a valid contract even without any consideration is a promise to pay a time-barred debt. or his duly authorised agent. i. a debt of which the creditor might have enforced payment but for the law for the limitation of suits. The promise must be in writing and signed by the person to be charged therewith.
if the payment of the debt cannot be enforced because the debt was contracted by a person during his minority. .It is necessary that the debt must be one of which the creditor might have enforced payment but for the law for limitation of suits. It has been held in Arumugan Vs. Duraisinga (1914) a promissory note to pay the sum received minority is not enforceable. therefore. It. the same is not now enforceable if. Similarly. because a minor‘s agreement which is void is incapable of being validated by ratification. Thus if an insolvent debtor has been discharged from payment under the insolvency law a subsequent promise by him to pay that debt cannot be enforced unless there is a fresh consideration for the same. on attaining majority. a promise is made to pay the same. does not cover such debts which are unenforceable for some other reasons.
but the debt is barred by limitation Act. A owes B Rs.000. Section 25 (3). A signs a written promise to pay B Rs.Debt due by whom ? In Pestonji Vs. . permits a promise to pay wholly or in part a time barred debt. he can only be sued for that portion alone and not for the whole debt. If. 1. Under this contract A is bound to pay Rs. however. Bai Meherbai (1928) the Bombay High Court has expressed the view that under this exception the promise should be to pay time-barred debt due from the promisor. 500. 500 on account of the debt. the promise to pay the whole debt is there then the whole of the amount can be claimed. and not a promise to pay time-barred debts due from other persons. If a person promises to pay a portion of a barr4ed debt. it may be further noted.
In Appa Rao Vs. Suryaprakasa Rao (1900) the defendant wrote a letter duly signed by him to the plaintiff after the debt had become time— barred mentioning the periods for which the rents were due was held that the document contained the ingredients mentioned in Section 25 (3) and the defendant was entitled to enforce his claim. It has been held in Debi Prasad Vs.There should be express promise The promise to pay the time-barred debt must be an express one and cannot be held to be sufficient if the intention to pay is unexpressed and has to be gathered from a number of circumstances. Bhagwati Prasad (1943) that when the acknowledgement (of the time barred debt) is coupled with an agreement to pay interest. it cannot be regarded as a mere acknowledgement and it should be regarded as an agreement with a promise to pay (the debt) within the meaning of Section 25 (3). .
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