2. Legal Theory and Nature of Jurisprudence
No person shall be deprived of his life or personal
liberty except according to procedure established by
law.
– Constitution of India, Article 21
Legal theory is a systematic study of law. It is the
philosophy of law that studies the legal aspects in
the context of the society’s cultural, political,
economic, and other areas.
Jurisprudence, as against the theory, concerns itself
with the procedures and application of the law.
3. Definition, Scope and Classification of Law
Law refers to a kind of conduct or a prescribed
rule that is enforced by a controlling authority.
4. Definition, Scope and Classification of Law
Table below : Main areas of law
The Constitution and the fundamental
rights
Rights and Duties in all forms of social
relationships
Persons and kinds of persons and their
relationship
Ownership, possessions, tiles
Property, kinds of property, inheritance Commerce, contract, commercial liabilities
Banking and share markets Carriage, Transport
Taxation Labour, Trade unions, and reservation in
employment
Civil procedure, Criminal procedure Crime and criminal liabilities
Human rights Social security, livelihood, Insurance
Family, religion, culture Immigration, refugees, asylum
Public interest litigation Legal aid
Arbitration International law
5. Constituents of Law
(a) Society makes laws; (b) there is a system to
enforce law; and (c) law develops as does society
historically, culturally, economically, and politically.
(refer Shah Bano case)
Constituents or essential elements of law must be
derived from these sources
6. Origins of Indian Legal System
Common law (progressive: Constitutional, statutory, case
law
Civil law (Strictly codified law e.g. Ancient Roman Empire)
The study of origins of Indian Legal system must consider
the following:
• Law in Ancient India : e.g. Christians had Church
tradition & source is Bible, Islam follows Sharia &
source is Quran
• Law in Medieval India e.g. Muslim personal law, Jagir &
Zamindari system
• Law in Colonial India e.g. Govt of India Act 1857
• Law in Independent India
7. Administrative Structure of the Indian
Legal System contd..
Supreme court is the guardian of the
Constitution and ultimate interpreter of the
law of land. It is the highest appellate court
High Court , generally found in state capitals
Lower court : each HC has its subordinate courts
dealing with civil, criminal and revenue
matters at the district level
8. Relationship between Business and Law
Contingent contracts to do or not to do anything
if an uncertain future event happens cannot
be enforced by law unless and until that event
has happened. If the event becomes
impossible, such contracts become void.
The Indian Contract Act 1872, Chapter 3 , para 2
9. Principle of Commercial Jurisprudence
• To strive towards excellence in all spheres of
individuals and collective activity so that the
nation constantly rises to higher levels of
endeavor and achievement .
Constitution of India, Article 51,j
Economic well-being of the people is achieved
through every form of work and wealth creation.
The Constitution of India in article 51
enumerates the duties of every citizen
10. Business and legal Environment: No Business can operate
without being bound by laws
Conductive Factors
1. System of the rule of law
2. Federal structure that
helps uniformity
3. Based on provable
evidence and beyond
reasonable doubt
4. Lawyers belong to the
bar
5. HC and SC have benches
instead of jury
Non - Conductive Factors
1. Procedural delays
2. Non-availability of
specialized lawyers &
legal aid
3. Corruption
4. Costly-both in terms of
time and money
5. Problems of legal
jargon
Legal Environment
11. Manager’s role in legal matters
MATTER MANAGER’s ROLE
Police complaint If a complaint has to be lodged
a) Take advice from a sr. mgr
b) Appraise the lawyer
Police Investigation If police comes to investigate
a) Welcome them and gain time
b) Consult a sr. Mgr & Take advice from the lawyer
Choosing a lawyer Approach a senior lawyer in consultation with the sr. mgt
Employees Gain knowledge about
a) Employee rights
b) Working conditions, Wages allowances and bonus
c) Social security, Job security
d) Trade Union and Labour disputes
13. Contract: Inseparable Part of our Life
You………….
Buy groceries
Board a train
Hire a cab
Consult a doctor or solicitor
Give your any household gadget for repair
Ever realised!
In each of the above and numerous such situations
you enter into a contractual obligation.
14. Contract Defined Under The Act
An agreement enforceable by law is a contract.
Section 2(h)
Agreement: Every promise and every set of promises,
forming the consideration for each other.
A proposal (offer) when accepted becomes a promise.
Thus, a promise implies an accepted…………………
Mutuality is the very base of an agreement.
Legal obligation: To become a contract , an agreement
must be enforceable by law.
15. Forming a Contract: Essential Steps
1. A contract, essentially , is an agreement.
2. An agreement is a set of two promises, one flowing
from the offeror and the other from the offeror’s
counterpart i.e. acceptor.
3. A promise is an accepted offer or proposal.
4. An offer is a promise of performance, which is,
however, contingent upon a return promise or an
act of forbearance being received in exchange of it.
Offer→ Acceptance→ Promise→ Agreement→Contract
16. Contract Distinguished From Agreement
Elements: An agreement consists of an offer and its
subsequent acceptance, whereas a contract is
composed of an agreement and its legal enforceability.
Essence of a legal relationship :An agreement may
not create legal relationship. Parties entering into a
contract essentially have a common intention of
entering into legal obligation
Scope: All agreements may not be contracts but all
contracts are primarily agreements.
Enforceability by law :A contract is legally enforceable,
whereas an agreement is not necessarily so.
17. Essential Elements of Establishing a Valid Contract
• Agreement : It is necessary to establish that there was consent between the
parties. An offer must be definitive, meaningful and duly communicated .
• Intention to create legal relations : is a necessary and independent element in the
making of a contract e.g domestic promise ( Balfaur vs Balfur)
• Legitimate consideration : An agreement to be enforceabale by law must be
supported by consideration unless the agreement is by means of written-deed.
• Capacity of parties : e.g has to be a major, mentally sound, not a convict
• Genuineness of consent : means the parties in contract should mean the same
thing
• Lawful object: An agreement made for any act which is prohibitable by law is
unenforceable e.g contract to supply smuggled goods
• Certainty : Section 29 provides , “agreements , the meaning of which is not certain
or capable of being made certain, are void.” terms of agreement must be clear
• Possibility of performance : Section 56 “An agreement to do an act impossible in
itslef is void”
• Agreements not expressly declared void : e.g agreement is restraint of marriage,
agreement is restraint of trade, agreement is restraint of legal proceedings.
18. Contracts where written document is necessary
1. An agreement to pay a time-barred debt
2. Transfer of share certificate
3. Hire-purchase agreement
4. An assignment of assignment of copyright
5. Cheques and promissory note under the NI
Act 1881
6. An agreement to sell land, building etc
19. Types of Contracts
Valid contracts : That fulfills all legal obligations e.g. intention for creating
legal relations etc
Void contracts : Has no binding effect on any party . Section 2 (j) “A Contract
which ceases to be enforceable by law becomes void, when it ceases to be
Enforceable” e.g. because of change of law, impossibility of performance
Voidable contract : One which is legally enforceable unless avoided i.e. a party to
the contract refuses to abide by it. E.g contracts brought about as a result of
coercion, made by minors etc
A contract becomes voidable in following two situations :
1. When contract contains reciprocal promises, and one party to the
contracts prevents the other from performing his promise, the contract becomes
voidable at the option of the latter (section 53) &
2. When a party to a contract promises to perform an obligation within a specified time
But fails to so within the fixed time, the contract becomes voidable at the option of the
promise (Section 55)
20. Difference Between Void and Voidable Contracts
S.
No.
Point of
difference
Void contract Voidable contract
1 Definition A contract, which ceases to be
enforceable by law, becomes
void when it ceases to be
enforceable [Section 2 (j)].
A voidable contract is an agreement
which is enforceable by law at the
option of one or more of the parties
thereto, but not at the option of the
other(s) [Section 2 (i)].
2 Nature &
validity
A void contract is valid and
binding upon the parties when
entered into, but subsequent
to its formation, it becomes
unenforceable due to certain
reasons.
A voidable contract is repudiable at
the option of the aggrieved party. It
remains a valid contract until it is set
aside or rescinded by the party
entitled to do so.
3. Factors
responsible
A valid contract may become
void due to supervening
impossibility; change of law; a
contingent contract due to
emergence of an uncertain
event etc.
Coercion, undue influence, error,
fraud, misrepresentation are the
main factors responsible for
rendering a contract voidable.
4 Enforceability It cannot be enforced by
either party.
It may be enforced or set aside at
the option of the aggrieved party.
21. Difference Between Void and Voidable Contracts
5. Relationship A void contract under no
circumstances results in a
voidable contract.
When a voidable contract is
rejected by the aggrieved party it
results in a void contract.
6. Rights of third
party
A void contract confers no
rights or legal remedies to
the third party.
Rights acquired under voidable
contract by an innocent third
party are not wiped out by such
subsequent avoidance of the
contract.
7. Compensation In case of void contract
question of compensation
or damages does not
arise on the non-performance
of such
contract.
In case of voidable contract, the
party rescinding the contract can
also claim damages.
8. Effect of lapse of
time
Lapse of reasonable time
does not render a void
contract enforceable. It
always remains void i.e.,
unenforceable.
If a voidable contract is not
rescinded by the aggrieved party
within reasonable time it may
become enforceable at the option
of the other party (i.e, who
induced the contract).
22. Types of Contracts contd..
Unenforceable contracts : When a contract is valid otherwise by cant’ be enforced
by court of law by one or both parties due to a technical flaw e.g unwritten contract,
unstamped
illegal agreement e.g contract killing. Loan for the transaction.
Void ab initio
Executed contract : e.g concluded car sale
Executory contracts : consideration yet to be carried out
Express contracts : which lucidly convey the purpose of agreement
Implied contracts : contract with non verbal conduct e.g doctor’s fee
Unilateral contracts : in which a one party performs it’s promise at the time of
making the contract and the other party promises to perform in future. E.g. offer to
sell an item to another person.
Bilateral contracts : Both parties are to perform their respective promises or
obligations at some future time but not necessarily at the same time. E.g agreement
to buy with a timeline
Quasi contracts : is an act of a person, permitted by law where he/she obligates
himself towards another without any agreement between them e.g case of wrong
delivery and consumption by receiver
23. THE INDIAN CONTRACT ACT, 1872
Offer And Acceptance
A contract is an agreement which is reducible to an
offer by one party and its valid acceptance by the
other.
24. DEFINING AN OFFER
An offer is a medium through which a person
expresses his intention to enter into a contractual
obligation against a promise or an act of
forbearance.
When one person signifies to another person his
willingness to do or to abstain from doing
anything, with a view to obtaining the assent of
that other to such an act of abstinence, he is said
to have made a proposal. Section 2(a)
25. Three Properties of an Offer
Expression of readiness ‘to do’ or ‘not to do’ something.
Thus, an offer may involve a positive act or forbearance.
Presence of second party. An offer by a person to
himself will ne a nullity.
Intention of obtaining a response. It is made with the
intention that the other person accepts it. Mere
expression of willingness will constitute no offer.
26. Characteristics of a Valid Offer
Must intend to create and be capable of creating
legal obligations
Its terms must be certain
Must be made to obtain the assent of the other party
Must be communicated
May be conditional
Must be distinguished from a query
27. Firm Offer Vs Invitation to Treat
Examples of Invitations to Treat
Auctions or requests for bids
Display of goods for sale in shelf
An invitation for tenders
Company prospectus for share
General advertisement of goods
e.g on-line ebay, jabong etc
28. Types of offer
• Express i.e oral or written
• Implied i.e inferred from the conduct (desire to sell a
computer)
• Specific offer
• General offer – an advertisement to public at large e.g
any competent person
• Cross offer – identical offers made by two persons or
parties to each other, neither side knowing of the
other’s offer when they make their own.
• Standing offer: offer kept open for acceptance over a
period of time is termed as “standing” e.g tender to
supply goods at a given price as and when required
• Counter offer
29. MODES OF TERMINATION OF OFFER:
Revocation/withdrawal/cancellation of offer before the
offeree accepts it
Failure to fulfil a condition precedent to acceptance
Death or insanity of either party
Refusal or counter-offer
Acceptance differs from the prescribed one
Subsequent illegality or destruction of subject matter
30. ACCEPTANCE
An acceptance is a manifestation of assent to the
terms of the offer.
When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to
be accepted. A proposal, when accepted,
becomes a promise. Section 2(b)
Acceptance to an offer is what a lighted match to
is to a train of gunpowder.
Thus, an offer becomes irrevocable upon its
acceptance.
31. Legal Rules Governing a Valid Acceptance
Section 38
• Must be made by the offeree
• Must be unconditional
• Must be communicated to the offeror
• May be in any form, oral or written
• Must be in the mode prescribed by the offeror
e.g precise time, place and manner
• Must be given within a reasonable time, if no
time limit is set
• Must be given while the offer is in force
32. Legal Rules Governing a Valid Acceptance
• Silence is not acceptance
• Sec 4 states “The communication of an offer
is complete when it comes to the knowledge
of the person to whom it was made”
• Communication of acceptance
• Communication of revocation of offer or
acceptance
• Contracts over telephone, fax and e-mail
33. Agreements by Way of Wager
The term ‘wager’ literally means ‘a bet’. It implies an arrangement to
risk money on the result of an (uncertain) event. Therefore,
wagering agreements are ordinarily betting agreements.
A and B who are neighbors' bet as to whether a tremor would rock
their city on a particular day or not. A promises to pay to B Rs 5,000
if the city experiences a tremor, and B promises an equal amount to
A, if it does not. This is an arrangement by way of wager.
The Indian Contract Act has, however, nowhere defined a wager or
an agreement by way of wager. Let us now, examine the following
two definitions of a wagering contract given by two law experts to
understand the true nature of “wager”.
• ‘A wagering contract may be defined as a promise by A to pay
money to B on the happening of a given uncertain event, in
consideration of B paying money to A on the event not
happening. [COCKBURN C.J.]
34. Agreements by Way of Wager
‘A wagering contract is one by which two persons, professing to hold
opposite views touching the issue of a future uncertain event,
mutually agree that, dependent upon the determination of that
event, one shall win from the other, and that other shall pay or
handover to him, a sum of money or other stake, neither of the
contracting parties having any other interest in that contract than
the sum or stake he will win or lose, there being no other real
consideration for the making of such contract by either of the
parties. It is essential to a wagering contract that each party may
under it either win or lose, whether he will win or lose being
dependent on the issue of the event, and therefore remaining
uncertain until that issue is known. If either of the parties may win
but cannot lose, or may lose but cannot win, it is not a wagering
contract.’ [ HAWKINS J ]
35. Agreements by Way of Wager
An agreement by way of wager, therefore, implies
nothing but a promise to give money or money’s
worth upon the determination of an uncertain
event. The following are the common examples
of agreements by way of wager:
• Lottery
• Gambling
• Competitions where prizes depend upon chance
Section 30 of the Indian Contract Act states “Agreements by way of wager void.
-Agreements by way of wager are void; and no suit shall be brought for recovering
anything alleged to be won on any wager, or entrusted to any person to abide the
result of any game or other uncertain event on which any wager is made. “
36. Essentials of a Wagering Agreement
• Uncertain event A wagering transaction in fact is a game of
chance. The essence of a wager is the uncertainty of the event. To
constitute a wager, the performance of the bargain must depend
upon the ascertainment of an uncertain event.
• Mutuality There must be mutual chances of gain and loss (i.e.,
each party should stand to win or lose), according to the result of
the uncertain event. If either of the parties may win but cannot lose
or may lose but cannot win, it is not a wagering agreement.
• Neither party to have control over the event In order to effect an
agreement by way of wager, neither party should have control over
the happening of the event one way or the other.
• No proprietary interest in the event There being no other real
consideration for the making of such contract, neither party should
have any other interest in that contract other than the sum or stake
he will win or lose.
37. Consequences of Wagering Agreements
Agreements by way of wager are unenforceable, and are null and void as they
are considered being opposed to public policy.
• ‘Agreements by way of wager are void; and no suit shall be brought for
recovering anything alleged to be won on any wager, or entrusted to any
person to abide the result of any game or other uncertain event on which any
wager is made.’
• In India wagering agreements are simply void, but not illegal. However, the
States of Maharastra and Gujarat have, also, declared them as illegal.
Therefore, particularly in these two states, a wagering agreement being illegal
is void not only between the immediate parties, but taints and renders void all
the agreements collateral to it.
A borrows Rs 1,000 from C to pay to B, to whom he has lost a bet. The
agreement between A and C is invalid if the transaction took place in
Maharashtra or Gujarat. Accordingly C cannot recover the amount from A
because this is the money paid in connection with “a wagering agreement”
which is illegal in these two states. But as regards, rest of India such a
transaction (i.e., betting) being only void, the agreement between A and C
would be valid. Section 30
38. Exceptions to Wagering Agreements
1. Horse-race A subscription, contribution, or agreement to subscribe or
contribute, made or entered into for, or towards any prize or sum of
money of the value or amount of Rs 500 or upwards, to be rewarded to the
winner or winners of any horse race shall not be void.
(See proviso to Section 30). Simply put, contributions, or betting money in
horse races, in which there are cash rewards for the winner or winners is
not deemed illegal in the eyes of the law, provided the sum is Rs 500 or
more.
2. Prize competitions Prize competitions, which involve skill and intelligence
(i.e., where prizes do not depend upon chance) For example, picture
puzzles, literary competitions, athletic event etc., are not wagers provided
the amount of prize does not exceed Rs 1,000. Lord HEWARD CJ observed
in Cole vs Odhams Press , ‘If skill plays a substantial part in the result, and
prizes are awarded according to the merits of the solution, the competition
is not a lottery. Otherwise it is.’ An agreement to subscribe or contribute
towards a prize to be awarded to the winner of a lawful game would be
perfectly lawful and enforceable under the law though dependent on the
outcome of an uncertain event.
39. Exceptions to Wagering Agreements
3. Contracts of Insurance Despite bearing a resemblance
to wagering contracts, contracts of insurance cannot be
recognized as wagers. The law distinguishes between
the two for the simple reason that in a contract of
insurance the insurer’s object is to preserve himself
from financial loss–called insurable interest,– and not
to arrange that he should gain or someone else should
lose if an uncertain event turns out in a particular way.
Contracts of insurance have in fact become a necessity
with the development of trade, and are recognized as
contracts, which the law would enforce. An insurance
contract could sometimes turn out to be a wager if the
party insuring has no insurable interest.
40. Agreements To Do Impossible Acts
An agreement to do an act impossible in itself is void [S 56]. A
agrees with B to double treasure by magic. The
agreement is void.
The law disregards all the agreements to do impossible
acts, mainly because of the following two reasons.
Firstly, the persons who purport to agree to do such
obviously impossible acts are deemed to be either non-serious
as to performing such acts or unable to
understand what they are doing.
Secondly, A promise to do an act impossible in itself
cannot be of any value to the other party and therefore
such agreements lack consideration.
41. RESTITUTION OF BENEFITS RECEIVED UNDER VOID
AGREEMENTS
The term ‘restitution’ legally implies giving back or restoration of the money or
benefit received from the plaintiff under the agreement.
When an agreement is discovered to be void, or when a contract becomes
void, any person who has received any advantage under such an agreement or
contract is bound to restore it, or to make compensation for it, to the person
from whom he received it. [Section 65]
Thus, when a contract is no more enforceable, the party who has received any
benefit under such a contract from the other party must return it or make
compensation for the same to the other party.
Example 1. A pays B Rs 1,000 in consideration of B promising to marry C, A’s
daughter. C dies by the time of execution of the promise. The agreement is
void, but B must return A the Rs 1,000.
Example 2. A contracts with B to deliver him 250 bags of rice before the first
of May. A delivers 130 bags only by the specified date, and none after. B
retains the 130 bags after the first of May. He is bound to pay A for the bags
that he has kept.
42. THE INDIAN CONTRACT ACT, 1872
Consideration
Consideration is elemental to a contract. A promise is
not binding unless made for something in return -
consideration. For instance the seller of goods
undertakes to transfer ownership in the goods for a
price to be paid by the buyer for acquiring the
ownership.
43. CONSIDERATION DEFINED
Consideration simply means that both the contracting parties are
bound to give something (of value) to each other.
Legal Definition:
‘When at the desire of the promisor, the promisee or any other
person has done or abstained from doing, or does or abstains from
doing, or promises to do or to abstain from doing, something, such
an act or abstinence or promise is called a consideration for the
promise.’ Section 2 (d)
Thus, the term ‘consideration’ is used in the sense of quid pro quo,
meaning thereby something in return. It may involve a positive act
(i.e., doing something) or an abstinence (i.e., something given up).
Consideration may be in the form of some right, interest, profit, or
benefit accruing to one party, or some forbearance, detriment, loss,
or responsibility given, suffered or undertaken by the other.
44. EXAMPLES ON CONSIDERATION
1. A offers to sell his plasma TV set to B for Rs 50,000. B accepts the
offer. Here, B’s promise to pay Rs 50,000 is the consideration for A’s
promise to sell the TV and A’s promise to sell the TV is the
consideration for B’s promise to pay Rs 50,000.
2. X applies for a loan from Y, who is unwilling to advance the amount,
unless S guarantees the repayment of the loan if X defaults and thereupon
Y advances money to X. In this case, the benefit conferred on X by Y at the
surety of S is a sufficient consideration on the part of Y as against the
promise of S to repay the loan. In other words, the detriment which Y may
not suffer by advancing loan to X due the guarantee of S is sufficient
consideration on the part of Y in respect of the promise of S to repay the
loan.
3. A promises to maintain B’s child, and B promises to pay A Rs 1,000
annually for the purpose. Here, the promise of each party is the
consideration for the promise of the other party. (Illustration appended to
Section 23)
4. A promises Y, his debtor, not to file a recovery suit against him on B’s
agreeing to repay the amount of loan along with a compound interest @
12% p.a. within a year. A’s abstinence is the consideration for Y based on
B’s promise to pay.
45. RULES GOVERNING CONSIDERATION
1. Simple Contracts must be supported by Consideration
In the absence of a valid consideration passing between
the parties the general rule is that the agreement they
have made will be of no legal effect. The purpose of the
requirement of consideration is to put some legal limits
on the enforceability of agreements even when they are
intended to be legally binding otherwise and are not
vitiated by factors such as, mistake, misrepresentation,
and illegality etc. The existence of a consideration
implies that the parties have devoted some reflection to
the matter, and seriously desire their promises to have
legal consequences.
46. Contd….
2. Consideration Must Move at the Desire of the
Promisor (Promissory Estoppels)
Whatever is done must be done at the desire or request of
the promisor and not voluntarily or at the desire of a third
party. For instance, if A rushes to the rescue of B whose
house has been trapped in fire, it is not a consideration but
a voluntary act on the part of A. He cannot ask B to
compensate him for the services rendered by him as B had
never requested him to help. However, if A goes to B’s
rescue at the latter’s express request, this will be regarded
as consideration as A did not wish to do the act voluntarily.
Estoppel is a legal constraint. E.g A minor cannot be
constrained or stopped from pleading minority.
47. Consideration At Desire Of Third Person Not Valid
• In Durga Prasad vs Baldeo, ‘D’ the plaintiff had constructed,
at his own expense, a market at the instance of the
Collector of the District. The occupants of the shops i.e.,
shopkeepers in the market promised to pay the plaintiff a
commission on the articles sold through their shops.
Subsequently the shopkeepers refused to pay any
commission. ‘D’ sued the shopkeepers against their alleged
default. It was held that there was no consideration
because the plaintiff (the promisee) had constructed
market not at the desire or request of the defendants (the
promisors), but at the desire of a third person (i.e., the
Collector) to oblige him and thus, the contract between D
and the shopkeepers was void
48. Rules Governing Consideration
3. Consideration May Move From the Promisee or Any Other
Person
The second rule as to consideration as contained in the
definition of Section 2 (d) is that the act, which is to
constitute a consideration, may be done by ‘the promisee or
any other person’. This means that as long as there is a
consideration for the promise, it is immaterial who has
furnished it. This is sometimes referred to as Doctrine of
Constructive Consideration. It may proceed from the
promisee, or if the promisor has no objection, from any
other person who is not a party to the contract.
But the English Law on this point is different. In the United Kingdom a person to
whom a promise was made can enforce it only if he himself provided the
consideration for it. He cannot sue of the consideration for the promise moved
from a third party.
49. Rules Governing Consideration
4. Consideration must have some Value
Another notable feature of valid consideration is the idea
of reciprocity. ‘Something of value’ must be given for a
promise in order to make it enforceable as a contract.
An informal gratuitous promise therefore does not
amount to a contract. A person or body to whom a
promise of gift is made from purely charitable or
sentimental motive gives nothing for the promise.
Justice Patterson observed in Thomas vs Thomas -
Consideration means something which is of some value
in the eyes of the law. It may be some benefit to the
plaintiff or some detriment to the defendant
50. Rules Governing Consideration
• A bare promise (nudum pactum) is not
binding. For example if A promises to gift a
diamond ring to B, his fiancée, but
subsequently changes his mind, B cannot sue
him for breach of promise. B cannot show that
she gave some advantage to A in return for
the promise, which was bare.
51. Rules Governing Consideration
Benefit and Detriment
LUSH J. in Currie V. Misa concentrated on the requirement that
‘something of value’ must be given, and accordingly stated that
consideration is either some detriment to the promisee (in that he
may give value) or some benefit to the promisor (in that he may
receive value). Thus payment by a buyer is consideration for the
seller’s promise to deliver and can be described as a detriment to
the buyer or as a benefit to the seller. Conversely, delivery by a
seller is consideration for the buyer’s promise to pay and can be
described either as a detriment to the seller or as a benefit to the
buyer. In a suit on a contract, the plaintiff must show that he give or
promised to give some advantage to the defendant in return for his
promise.
52. Rules Governing Consideration
5. Past, Present or Future Consideration
Depending upon the circumstances and facts of each case
in India consideration may be in the past, present or future.
• Past Consideration
In Section 2 (d), the expression, ‘has done or abstained
from doing’ is recognition of the doctrine of past
consideration. Past consideration means a past act or
forbearance which took place and is complete (wholly
executed) before the agreement is made. Past
consideration may consist of services rendered at request
but without any promise at the time or it may consist of
voluntary services. Box 3.4 presents some examples of past
consideration.
53. Rules Governing Consideration
6. Consideration Need not be Adequate But It Must Be
Sufficient
Sufficiency of consideration is not the same thing as
adequacy of consideration, at least in law. The word
adequate in this context refers to fairly equal to the
promise given. On the contrary, sufficiency is used here
as a legal term, and it means that what is promised
must be real, tangible and have some actual value. The
courts do not exist to repair bad bargains (Haigh vs
Brooks). Adequacy will be decided by the parties
themselves.
54. Rules Governing Consideration
7. Present or Executed Consideration : The expression in Section
2 (d) ‘does or abstains from doing’ refers to present or
executed consideration. It is an act or forbearance, which
moves simultaneously with the promise. In other words a
consideration, which consists in the performance of an act or
forbearance, is said to be executed at present.
For instance A pays Rs 1000 to B, and B promises to deliver a
certain quantity of wheat the following day. In this case, A
pays the amount but B has merely made a promise.
Therefore, the consideration paid by A is executed, whereas
the consideration promised by B is executory. If A pays the
price and B delivers the goods at the same time, consideration
is said to be executed by both the parties
55. Rules Governing Consideration
• Future or Executory Consideration : The
expression ‘promises to do or to abstain from
doing’ in Section 2 (d) refer to future. Here the
bargain consists of mutual promises. An example
is an agreement in which the seller promises to
deliver goods next week, and the buyer agrees to
pay for them on delivery. However, consideration
on part of one party may be executed and in
respect of the other executory. Consider the
following illustration in this behalf.
56. Rules Governing Consideration
8. Consideration must be Legal
Consideration may not be adequate but must invariably be
legal i.e., it must not involve an illegal act. For example,
promising to pay money to a witness to turn hostile. An
illegal consideration makes the whole contract invalid. It
should be noted that attempting to enter into an illegal
contract might itself give rise to criminal liability.
Moreover, consideration should not be physically
impossible or illusory. For example, promise to double the
money by magic or to make a dead man alive, are
impossible acts and therefore such promises constitute no
consideration. Similarly, a son’s promise to ‘stop being a
nuisance’, or an agreement to ‘perform an existing
obligation made with the promisor being illusory with no
considerations.
57. STRANGER TO A CONTRACT AND STRANGER TO CONSIDERATION
A stranger to a contract is one who is not a party to the contract. The
rule that consideration ‘may move from the promisee or any other
person’ implies that the consideration is permitted to be supplied
by a third person (i.e., stranger) as well, thereby need not
necessarily be supplied by the promisee himself. In other words, as
long as there is a consideration in exchange of a promise, it is
immaterial who has furnished it. Thus, a stranger to the
consideration may maintain a suit. From this arises the doctrine of
privity of contract, discussed below.
Privity of Contract
The doctrine of Privity implies that, in general, a person who is not
privy to a contract, that is a third party, can neither sue nor be sued
on the contract. The rule prevents the burden of a contract being
imposed on a third party. Therefore, a stranger to the consideration
must be distinguished from a stranger to a contract. The instances
in Box 3.5 will help understand the concept better.
58. Examples on Strangers to Contracts
1. A is indebted to B. A sells his property to C who undertakes to
discharge his debt vis-à-vis B. In case C fails to keep his promise, B has
no right to sue C because of privity of contract between B and C. C is a
stranger to the contract (between A and B) the example is based on
Jamna Das vs Ram Autar.
2. In the famous English case of Tweedle vs Atkinson, A promised B to
pay a certain amount to B’s son C on C’s marriage to A’s daughter, as
the young man was to take up the new responsibilities of marital life.
After the demise of both the contracting parties, ‘C’ sued the executors
of A (his father-in-law) upon the agreement between A and his father.
It was held that ‘C’ could not maintain the suit against the defendant
being stranger to the contract.
59. VALIDITY OF AGREEMENTS WITHOUT CONSIDERATION
The Indian Contract Act contains certain exceptions, which make a promise
without consideration valid and binding, stated as under.
Natural Love and Affection
• An agreement without consideration is valid if it is
• made in writing,
• registered,
• made out of natural love and affection, and
• between the parties standing in near relation to each other [Section 25
(1)]
• In Rangaswamy an elder brother, on account of natural love and
affection, promised to pay off the debts of his younger brother. The
agreement was put into writing and was registered. The court held the
agreement as valid and binding.
Promise to Compensate for Past Voluntary Services
As per Section 25 (2) a promise to compensate, wholly or in part, a person
who has already done something voluntarily for the promisor, or
something, which the promisor was legally compellable to do, is
enforceable.
60. VALIDITY OF AGREEMENTS WITHOUT CONSIDERATION
Illustrations: Compensation for Past Voluntary Services
Example 1
A finds B’s purse and, gives it to him. B promises to give A Rs 50.
This is a valid contract.
Example 2
A supports B’s infant son. B promises to pay A’s expenses in doing
so. This is a valid contract.
Promise to Pay Time-barred Debt
A promise made in writing and signed by the person to be charged
therewith, or by his agent to pay a debt (wholly or in part) barred
by the law of limitation is valid without consideration [S 25 (3)].
61. VALIDITY OF AGREEMENTS WITHOUT CONSIDERATION
Completed Gift
In case of completed gifts (i.e., gifts actually made), the
rule no consideration no contract does not apply. Here
nearness of relation between the parties is immaterial
and even if it, there may not be any natural love and
affection between them.
Agency
As per Section 185 of the Indian Contract Act, no
consideration is required to create an agency.
Guarantee
In a contract of guarantee there is no consideration
between the creditor and the surety [Section 127].
