Contract- I. TheLegal.co.in. Marupaka Venkateshwarlu M.A,B.Ed,L.L.B

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1 M.A,B.Ed,L.L.B TheLegal.co.in Contract- I Question No. 1: Who is competent to contract Discuss the law relating to minor s agreement in India, with help of decided cases. Also brief about English Law Indian law in this context. OR Minor s agreements are void at-initio. In which case the above rule was established. Discuss in brief that case and also bring out the exceptions to the above rule. OR What do you understand by capacity to contract What is effect of Minor s agreement and when can it enforced. OR A minor s bind others but is never bound by others. Explain by giving illustrations. OR Discuss the nature and effects of Minor s Agreement.. Answer INTRODUCTION:- All agreements are not contracts. Only those agreements are contract which fulfil he conditions of section 10 and according to section 10 for a contract parties must be competent, the consent must be free. Therefore the competency of the parties to a contract is most essentials element of a contract. According to section 11 of Indian contract Act 1872 which provided, That every person is competent to contract who is of the age of majority according to law to which is subject and who is sound mind and not disqualified from contracting by any law to which he is subject. The following persons are competent to contract - i) Who is major. ii) Who is of sound mind. It is evident that minor s and unsound mind person cannot make a contract. A Major person means who has attained the age of 18 years. The age of majority has been decided by Indian majority act In case of guardian appointed by the court, the age shall be 21 years. An agreement made by a minor is void., from the above statement we find that the minor is not competent to contract. Indian contract act is silent about whether it will be void or voidable up to But it is decided by the Court that these are void. Agreement by a minor is void-ab-initio, such contract cannot be enforced by law. Further the minor cannot authorise any other person to do a contract. MA,B.Ed,LLB Page 1

2 Case Mohiri Bibi vs Dharamdass Ghosh (1903) A minor Mr. Dharamdass Ghosh executed a mortgage documents for Rs.20, in favour of a money lender Sh. Brahmo Dutt. The money lender actually paid Rs.8, to the minor. It is important that before this transaction the guardian of the minor informed the Attorney of Money lender that he (Dharamdass Ghosh) is minor. Later on a suit was instituted by the minor Dharmadass Ghosh against the money lender Sh. Brahamo dutt with the intention that the mortgage be set aside. This suit was opposed by Money lender by saying that the above contract being voidable, he has the right to receive the amount of the loan under section 64 and 65 of Contract Act i.e. minor is bound to return back the amount. Privy council held that, the contract is void ab-initio which cannot be enforced. It was also held that the minor could not be asked to repay the loan taken by him. It was further held that law of estoppels cannot be applied against the minor Shri Dharmodas Ghosh being mis-stated falsely his age because he was minor at the time of the agreement and the agreement was void. The law of estoppels as stand in section 115 of Indian Evidence Act was not applicable to the present case as the plaintiff was minor at the time of making agreement, this fact was also known to the agent of Brahmo Dutt defendant. Under Specific Relief Act 1877 Section 38 and 41 applies where party had the knowledge of minority age gets restitute degree. A new concept of beneficial has come into existence now. It has been held in various cases. A minor is bound for the beneficial contract. The beneficial contract are those contracts which are for the benefit of minor. The first case was S.Subramanyam v/s Subha Roy In this case transfer of inherited property of a minor affected by his guardian to pay off an in-herited debt was binding on him for his benefit. Here is a list of beneficial contract i) Contract of Insurance Such contracts are in the benefit of minors. ii) Contract to purchase the immoveable property Such contract are valid. iii) Contract of service - These are for the benefit for the monors iv) Contract of apprentice ship Training period of any minor who is taking training from any person, because of the training minor will case his livelihood. It is for his benefit and mono is liable to compensate hat person. v) Contract of Marriage When guardian made an agreement for the marriage of the minor then another party cannot enforce it, but minor can enforce it. If agreement is made jointly by guardian and minor, it can be enforced again on majority age. vi) Contract of Necessities- Under section 68 of the Contract Act-1872, minor is also liable for necessaries. Necessaries means the basic things of the life. These are mainly, ROTI KAPRA-AUR MAKAAN. If any person supplied necessaries to minor then the minor is liable o compensate the supplier. A case Chapple vs Cooper The court held that necessaries are not only food, shelter, clothes but also education or religious and any such things which are necessary for life, comes under the definition of necessaries. The following two conditions are necessary for liable 1. The supply must not be more than sufficient. 2. The supply must be according to the standard of minor. Case PETRESS VS FLEMING The supply of a watch to a minor whose study was considered as the necessity because to have a watch for graduate person is his necessity. RATIFICATION OF THE MINOR S AGREEMENT A minor s agreement being void ab-initio, it is incapable of being validated a subsequent ratification after the minor has attained the age of majority. Here is minor accepts the contract in some terms is entered during minority then also he is not liable. If a minor takes in minority and Rs after getting majority age and said major give back Rs then this is valid and with consideration. After getting majority age if minor uses his option to be a partner, he will be bound for all the responsibilities of minority period, which are against the firm. CONTRACT BY MINOR GUARDIANS MA,B.Ed,LLB Page 2

3 1. If the agreement is on behalf of minor done by guardian. 2. With in his Power. 3. Guardian is capable to enter into contract. 4. The agreement will be in the interest of minor. A case of Raj Rani vs Prem - Father agreed with the Director of Film, and according to this agreement Director of Film will give a role to Indrani. It was held void because no consideration was therein. It this agreement is with the daughter then it is void abs-intro. If it is with his father then it has no value even to think over it. DOCTRINE OF RESTITUTION Restitution means if an agreement is declared void, benefit should be returned. Under section 64 & 65 of contract Act, that section 68 is applies only on voidable agreements, Section 56 is applies on the agreement which were valid at the time of formation but due to some circumstances(as under sec.56) it becomes void. Under the equitable doctrine of restitution minor has to restore back the benefit so received by him the exact things but it is applicable in case of goods and property not in the case of money. Restitution stop where repayments begins. A case of Leslie vs Sheill- (1914) - It was held by the court of Appeal that the money could not be recovered. If there were allowed that would amounts to enforcing the agreement to repay loan, which is void under Inflants Relief Act Section 39(3) specific Relief Act 1877 If the court thinks he may pass an order of restitution in any case, now a question arises whether he person did not know about the age of minor. If minor is also not know his age. In this stage plaintiff does not get compensation. If respondent misrepresent his age on this point there are different view of court. Case KHARGIL VS LAKHAN SINGH LAHORE HIGH COURT. The court ordered a minor to refund Rs which he had taken in advance for the sale of land. When he refused to complete the contract. The court was of the opinion that still the Specific Relief Act should apply whether the minor was the plaintiff or the defendant. The doctrine of restitution should apply whether the minor had taken the goods or money. Case Ajudhiya Parsad vs Chandan Lal 1937 Allahabad High Court refused to following, extended view of restitution and held that a minor who had taken money by mortgaging his home was not bound to restore the money. Now section 33(2)(b) added according to this section, when a plaintiff wants to dissolve the agreement and says that at the time of agreement he is minor than he can get back all his profits. DOCTRINE OF ESTOPPELS According to rules contained in Sec.115 of Indian Evidence Act 1872, if you make a statement today, which misleads another person, you are not allowed to deny the statement to-marrow when the question of your liability arises. A question whether a minor who has made a false representation about his age is stopped from pleading his minority, was raised, but it was not decided in this case of Mohiri Bibi. Privy Council held that where the party knows about the age of minor this principle could not apply. The question arises that whether minor can be stopped by false representation as to his age is now settled by this case. A Case Nawab Sadiq Ali Khan vs Bibi Jai Kishori It was held by Privy Council that if a minor makes a contract by fraudulently expressing his age more than actual then he cannot be stopped as per the rules of estoppels that he was minor at the time of contract. INDIAN AND ANGLO LAW It is difficult to differentiate between both the law in respect of contract by minor s but generally the difference in both the law is - 1. Contract by minor under Indian law is void ab-initio. 2. It is voidable under English Law, such contract can be declared void on the will of minor. If the contract is for the benefit or fulfilment of necessity of minor. Then it shall be binding. MA,B.Ed,LLB Page 3

4 Q. No 2:- State the difference between void agreement and illegal agreement OR All illegal agreements are void but all void agreement are not illegal. Comments Ans- INTRODUCTION Under section 2(g) of Indian Contract Act 1872, definition of void agreement has been given and according to it, Agreement in not only enforceable by law said to be void. For instance, an agreement by a minor has been held to be void. Section 24 to 30 of the Indian Contract Act 1872, make a specific mention of agreement which are void. Generally the following agreements are not enforceable by law. i) Whose parties are not competent to do a contract i.e. they are not adult and are unsound mind. ii) Whose parties do not have free consent i.e. they are under coercion, undue influence fraud & misappropriation etc. iii) Whose consideration and object has not been lawful iv) Which are immoral or against public policies. v) Which do not create valid (illegal) liabilities between the parties. vi) Which have been declared as void by the court etc. All above agreements are void because they cannot be enforced by law. ILLEGAL- AGREEMENTS Illegal agreements are such agreements whose consideration and object are not lawful i.e. they are illegal. Such agreements are mentioned in section 23 of the Indian Contract Act The following agreements are considered as illegal- 1. Which are prohibited by Law. 2. Which is of such a nature if followed would defeat the provisions of law. 3. Which is fraudulent. 4. Which is causing injury to body or property of any other person. 5. Which have been declared by the court as immoral or against public policies. After the definition of void and illegal agreements we have considered the following statements - That all illegal agreements are void agreements but all void agreements need not necessarily be illegal. It can be adjudged from the following - i) Illegal agreements are void ab-initio which cannot be enforced by law at any time whereas void agreement need not be void-ab-initio, such agreements could become unenforceable by law later. ILLUSTRATION An agreement takes place between the citizen of India and Pakistan which was enforceable by law at the time agreement, but later on in the event of war between India & Pakistan the agreement becomes un-enforceable whereas agreement to pay money by A to B for illegal intercourse is void ab-initio which cannot be enforced any time. This shows the illegal agreements are always void whereas void agreements are not always illegal. ii) Parties of illegal agreements can be punished whereas the parties of void agreements cannot be punished. ILLUSTRATION - An agreement to encourage any woman for prostitution by paying her money is punishable but an agreement by minor or without consideration is not punishable. This also proves the fact that every illegal agreement is void but every void agreement is not illegal because illegal agreement is of punishable nature whereas void agreement is not. Void agreement does not contain the element of illegal agreement whereas illegal agreement contains the elements of void agreement. MA,B.Ed,LLB Page 4

5 iii) Void agreement cannot be enforced at any time and illegal agreement is also never enforceable by law. Hence illegal agreement contains impliedly the element of illegal agreement. iv) Illegal agreement are those which are mentioned in Sec. 23 of contract act whereas void agreements included various other types of agreement, like agreement by minor or unsound mind persons, agreement without consideration etc. v) Void agreements include illegal agreements which are not enforceable by law, but illegal agreements need not contain all types of void agreement. This shows that all illegal agreements are void but all void agreements are not illegal. DIFFERENCE BETWEEN VOID AGREEMENT & ILLEGAL AGREEMENTS. VOID AGREEMENT ILLEGAL AGREEMENT 1. All agreements are not void-ab-initio but become void later due to circumstances 2 The reason of void agreement could be incompetency of parties, lack of consideration etc. 3 Parties of void agreements are not be punished. 4 Collateral agreement to void agreements can be enforced. 5 The area of void agreement is extremely void. It includes all illegal agreement. 1 Illegal agreements are void ab-initio. 2 The reasons of illegal agreement shall be those which are mentioned in sec.23 of the Contract Act., like prohibited by law. Immoral against public policies, fraudulent etc. 3 Parties of illegal agreement can be punished. 4 Collateral agreement to the illegal agreement can also not be enforced. 5 The area of illegal agreement is comparatively narrow. It does not include all types of void agreement. Question No 3 : All contracts are agreements but all agreements are not contracts? OR Discuss the rule for the formation of a valid contract when a contract becomes complete? Introduction : - i) MULLA :- Every agreement or promise enforceable by law is a contract. ii) SALMOND :-Contract is an agreement creating defining obligations between parties. A contract is an agreement enforceable by law. An agreement is the prime stage of the contract. If agreement is enforceable by law or if agreement is recognised by law then it will become a contract otherwise not. It is basically based upon British Law because the Contract Act was passed by British Indian Govt., in To make contract an agreement it is essential that no contract is possible without an agreement, but we cannot say that all agreements are contracts. Section 2(y) of contract Act says that, Contract is an agreement enforceable by law. All agreement e.g. to see cinema is not contract, if offer is accepted then it becomes promise. Promise is followed by consideration then it becomes agreement and if an agreement is enforceable by law then it becomes CONTRACT, see below :- i) Proposal + acceptance = PROMISE ii) Promise + consideration = AGREEMENT iii) Agreement+ Enforceability = CONTRACT AGREEMENT :- Agreement 2(e) promise or set of promises forming the consideration with each other, is an agreement. PROMISE :- Promise is an important part of the agreement. A proposal when accepted becomes promise. MA,B.Ed,LLB Page 5

6 PROPOSAL/OFFER :- According to section 2(a) when one person signifies to other his willingness to do or to abstain from doing anything with a view of obtaining the assent of that offer to such act or abstinence, he is said to make a proposal. ACCEPTANCE:- According to section 29(b) of contract act when the person to whom the proposal is made signifies his assent there to the proposal then it is said to be accepted. A proposal when accepted becomes promise. CONSIDERATION :- Section 2(d) of contract act defines consideration. Section 2 says that an agreement made without consideration is void unless :- a) Natural love and affection. Sec.25 of contract act, the parties to the agreement must be standing in a near relationship to each other. The promise should be made by one party out of natural love and affection for the other. The promise should be in writing and registered. b) Compensation for past voluntary services sec. 25(2) in case Sindha v.abrahim-1895 Bombay : The promise to compensate though without consideration is binding because of this exception. The exception also covers a situation where the promise is for doing something voluntarily c) Promise to pay time barred debt: Sec.25(3): The promise must be to pay wholly or in part a time barred debt i.e. a debt of which the creditor might have enforced payment but for the law for the limitation of suit. The promise must be in writing and signed by the person to be charged therewith. Case Gobind Das v. Sarju das-1908, Ganesh Prasad v.mt. Rambati Bai ENFORCEABLE BY LAW :- in Indian Contract Act 2(h) it says that contract is agreement enforceable by law. If an agreement is enforceable by law then it is CONTRACT, otherwise merely an agreement. To make an agreement a contract in Indian Contract Act section 10, the following conditions must be fulfilled :- 1. Competent Parties :- Section 11 says, contract should be made with person who must be major and sound mind not disqualified by law. 2. Free Consent :- Section 14, says that consent must be free, when it is not caused by coercion, undue influence under section 16, fraud under section 17, misappropriation under section 18 and mistake under section Lawful consideration & object :- According to section 23, when agreements consideration or object are unlawful, they are void. 4. Not expressly declare as void:- The such agreements which are made without consideration or expressly declared to be void as per section (25) are no contract, these are as under:- i) Agreement in restrain of marriage section-26. ii) Agreement in restrain of trade section-27. iii) Agreement in restrain of legal proceedings section -28. iv) Agreement which is ambitious and uncertain sec.29. v) Agreement by way of wages section-30. vi) Agreement to do an impossible act section FORMALTIES PERFORMED IF NEEDED BY LAW:- The person by whom the contract must be performed time and place and performance opportunity of payment. Thus when these conditions are fulfilled then an agreement is made contract because these are enforceable by law. But some agreements are not made contract because they are not enforceable by law. These are :- 1. Social Agreement :- When agreements based only social relationship and parties, we cannot enforce these agreements by law, for example:- A case Jones v/s Paday If A give invitation of dinner to B and B accept this but does not go to dinner then A suffers damage after this. But A cannot file a sue against B because it is Social Agreement which is not enforceable by law. FAMILY LAW:- Family law are not made contract as in the case of : MA,B.Ed,LLB Page 6

7 Balfour v/s Balfour:- In this case the defendant who was employed in Govt.,job in Ceylon went to England with his wife on love. For health reasons the wife was unable to return to Ceylon. The husband promised to pay 30 ponds per month to his wife as maintenance for the period she had to live abart. The husband failed to pay this amount. The wife filed a suit against her husband for this money. The court held that this agreement is not enforceable by law. Case : Jones v/s Padavllon : Where a girl left service to join legal education on the promise of her mother to stand the expenses. It was held to be a family matter and not a binding contract. Thus we can say that all the agreements are not contracts but all the contracts are not agreements. A Case LALMAN V/S GAURI DATT-1913 : The defendant s nephew absconded from home. The Plaintiff who was defendant servant was sent to search for the missing boy. After the plaintiff had left in search of boy, the defendant issued handbill announcing a reward of Rs to anyone who might find out he boy. The Plaintiff who was ignorant of this reward, was successful in searching the boy. When he came to know of the reward, which had been announced in his absence, he brought an action against he defendant to claim this reward. It was held hat since the Plaintiff was ignorant of the offer of reward, his act of bringing the lost boy did not amount to the acceptance of he offer, and, therefore, he was not entitled to claim the reward. If a person has the knowledge of the offer, his acing in accordance with the terms thereof amount to the acceptance of the same. In such a case, it is immaterial that at the time of accepting the offer, the acceptor does not intend to claim the reward mentioned in the offer. DIFFERENCE BETWEEN AGREEMENT AND CONTRACT AGREEMENT CONTRACT 1.Three important points for i) acceptance Two important points for contract are i) ii) Offer iii) and consideration agreement ii) enforcement By law 2.An agreement could be legal or Illegal 3.Agreement may or may not be Enforceable by law 4.Area of agreement is very wide As it can be any type legal, moral Etc. Any agreement even if not Enforceable by law remains an Agreement 5.The certain of valid liability is not Requires in all agreement like, moral Religious etc 6.Every agreement does not requires. Competency of parties, free consent, Sufficient consideration etc., because Agreement could be by un-enforceable 2. Agreement in contract to be law Ful and enforceable by law. 3. Contract is enforceable by law. E 4. Area of contract is limited as every agreement can t become contract 5. In contract the valid liability is created between the parties. 6. Contract requires the competency of parties, free Consent, sufficient consi duration etc. Law. Q. No 4 :- Discuss the meaning of consideration? When the consideration becomes unlawful? How does the Public Policy Effect he consideration? OR An Agreement without consideration is void. Discuss with Exceptions? OR Define consideration, Past Consideration, Contract without consideration and consideration by a person unknown to contract with suitable examples. OR Explain consideration. In what cases the consideration of an agreement are said to be unlawful under contract Act.? Illustrate with suitable examples. MA,B.Ed,LLB Page 7

8 Answer : INTRODUCTION : The consideration has important place in contract. It is important part of Contract. A valid contract requires a consideration. Agreement without consideration are void. The study of consideration in respect of the subject matter is required. Section 2 (d) of the Indian Contract Act defines consideration. It says, When at the desire of the promisor, the promise or any other person has done or abstained from doing or does or abstains from doing or promises to do or to abstain from doingsomething, such act or abstinence or promise is called a consideration for promise. In other words when a the desire of one person, another person does sense act or abstains from doing, then it consideration for the first person. ILLUSTATION :- A purposes B to buy his cycle for /rs B agrees to buy that cycle for Rs.1000/-. Here Rs.1000/- is the consideration for cycle. According to Pollock :- A party does or abstains from doing or promise to do or abstain from doing something, is a price for which the promise is bought, the promise thus given for value is enforceable. According to Auson :- Consideration is that which is to be done abstain from doing, to be bear or promises to do or which the promises abstains from doing in respect of promise or bears it. ELEMENS OF CONSIDERATION :- I) Consideration to be at the desire of promisor. II) Consideration can be given by the promise or any other person. III) Consideration may be past, future or present. IV) Consideration must be legally adequate and valuable. V) Consideration must be valid. A case : Mirahul Enterprises V/s Mrs. Vijaya Srivastav AIR 2003 : Delhi High Court said that a valid agreement requires the consideration to be definite. In a Case :-Durga Parsad v/s Baldev 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. Since the Plaintiff had spent money for the construction of market, the defendants in consideration thereof, made a promise to pay the plaintiff commission on the articles sold through their (defendant) agency in that market. The plaintiff 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 was the construction of the market by the plaintiff. Such construction had not been done at the desire of the defendants, but on the order of the Collector. It was therefore held that since the consideration did not moved 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. TYPES OF CONSIDERATION ;- There are three types of consideration which are as under :- i) Past consideration. ii) Present consideration. iii) Future consideration. Present consideration means such consideration which is paid to the promissory immediately. Example : A offers to B to sell his vehicle for Rs.50,000/-, B pays to A Rs.50,000/- at that moment, and A gives the possession of vehicle to B. This is present consideration. Past consideration is the consideration for the service or promise performed in past. Example :- A at the desire of B takes care of the family of B. After three years B promises o A that he shall pay him Rs.10000/- for his services given. Here, the services provided by A in the past to B shall be called past consideration. Future consideration means such consideration which shall be paid in future. Example:- A promises to sell his house for Rs.75,000/- to B on 5th.Feb 2003, and both parties decide that possession of house shall be delivered on 1st.Dec.2003 and on that day he payment of MA,B.Ed,LLB Page 8

9 Rs.755,000/- shall be made. This is future consideration, because the contract had originated on but its consideration was to be paid on 1st December, WHEN THE CONSIDERATION IS ILLEGAL A valid contract requires the consideration to be valid or legal contract with illegal consideration is not enforceable. Sec.23 of Contract Act mentions those situations in which the consideration shall be considered to be illegal. These situations are as under:- i) When it is prohibited by law. ii) When it is of such nature that if followed would defeat the provisions of law. iii) When it is fraudulent. iv) When it involves injury to the person or property of another. v) The court regards it as immoral or opposed to public policy. Consideration forbidden by Law:-Such agreements are void. An agreement or act forbidden by law is that which is not permitted by law to be followed or which is against the law. A case: Ram Sewak v/s Ramcharan : AIR 1982 Allahabad. : The partners of a partnership firm made an agreement for the concealment of profit for the purpose of deceiving tax. It was held illegal consideration or an agreement forbidden by law. Consideration to defeat the provisions of Law:- An agreement with such consideration is also void, whose purpose is to defeat the provisions of law. In other words, where an agreement is done with such consideration that if applied would defeat the provisions of law, then such consideration and agreement shall be considered void. ILLUSTRATION : A and B agrees with the intention that they shall be able to take any dispute related to a particular subject to the court, even though the limitation for it has been determined,. This agreement defeats the provisions of Limitation Act, and is therefore void. IN Nutan Kumar v/s Additional District Judge, Banda (AIR 1994 Allahabad): Allahabad High Court held that such an agreement between landowner and tenant which is inconsistent to the provision of Rent control Act shall be void. Such agreements cannot be enforced through court. Fraudulent Consideration: Agreement with such consideration which are fraudulent, are void. For example: A, B and C agrees for the partition among themselves of the profits obtained or to be obtained by fraud. Agreement is void because its object and consideration is against law. Consideration to cause injury to Body or property of any other person:- Such agreement is void whose object and consideration are illegal owing to be causing injury to body or property of any other person. A case : K.Abdul `Qader v/s The Plantation Corporation of Kerla. AIR 1983: Kerla High Court said that a contract made with the object to cause injury to body or property of any other person, is void and unenforceable. Immoral and Opposed to Public Policy:- Agreement with consideration being immoral and opposed to public policy are void and unenforceable. Several decisions of court in his respect have been made. Several judicial decisions have considered following object and consideration to be immoral and opposed to public policy :- a) Agreement to lent house on rent for prostitution. b) Agreement to lent vehicle to be used for prostitution. c) Agreement to provide money to have cohabitation with the wife of any other person. d) Consideration of earlier cohabitation. e) Agreement to give consideration for future illegal cohabitation. A case of Subhash Chandra v/s Narbada Bai (AIR of MP) A man made agreement for maintenance with a woman. It was the result of an earlier cohabitation with a woman with that man. Court held it to be void and unenforceable. Agreement with consideration being opposed to public policy are also void. The public policy does not have any universal definition, but several judicial decisions have considered following things to be against public policy :- I) Insurance conscience. II) Obstruction in freedom. III) Elements creating restrain to trade or natural or legal rights. MA,B.Ed,LLB Page 9

10 IV) Against good conduct etc. The following agreements have been considered to be against public policy : a) Agreement to cause injury to public service. b) Transfer of decree for the purpose of avoiding the effect of decree to other creditors. c) Agreement to pay money in return of marriage. d) Agreement to bribe for adoption etc.. A case : SBI v/s Aditya Finance and Leasing co Delhi) It was held that the land spotted or embarked for residential purposes is used for commercial purposes by an agreement which shall be void by being against public policy. Thus the agreement with such consideration that adversely effect over the interest of common people or which are not proper in respect of public shall unenforceable by being void. AGREEMENT WITHOUT CONSIDERATION ARE VOID As we have seen above that Consideration is essential for a valid contract. Agreement without consideration cannot be imagined. Section 25 of Indian Contract Act-1872 clearly provides that Agreement without consideration is void. ILLUSSTRRATION :- A promises B to pay him Rs.2000/- without any consideration. This is void agreement. Exceptions :- But the above rule have some exceptions also i.e. an agreement without consideration in following situation is valid and enforceable :- 1. Agreement Under Natural Love and Affection:- Agreement without consideration due to Natural Love and Affection are valid and enforceable provided that they are written and registered. ILUSTRATION : A promise to pay his son B a sum of Rs under the Natural Love and Affection. A writes his promise toward B and gets it registered. This is contract. Natural love and affection includes relation between father-son husband-wife, brothers etc. Such relations do not require consideration for a valid agreement. A case : Manali Singhal V/s Ravi Singhal-1999-Delhi), It was said by Delhi High Court that where any family agreement in relation to the amount of maintenance has been made for love and affection, family peace, harmony and satisfaction there consideration shall not be required. Such agreement shall be enforceable by Court. 2. Agreement to pay compensation for past service Where any person without the knowledge of promisor or otherwise than his prayer, does any service or has done service and the promisor promise to compensate him, there consideration shall not be required, with the following thing which are necessary :- i) An act has been voluntarily done already for the promisor ii) At the time of commission of that act, promisor was competent to contract. ILLUSTRATION A at the desire of B does service for the relatives of B. Later B agrees to pay Rs.1000/- to A for the service. This agreement been result of earlier service is valid and enforceable. Such consideration is also called past consideration. 3.Agreement for payment of Time Barred Debt. Such an agreement for payment of a debt barred by time under limitation act, is considered to be lawful because a time barred debt is also a good consideration as the debt remains ever after the completion of time of recovery. A case: Tulsiram v/s Samey Singh AIR-1981 Delhi Delhi High Court held that an agreement for the payment of a time barred debt can be made under Se.25(3) but it requires that the agreement shall mention that consent has been given for the payment of time barred debt. UNIT III Question No. 5. Discuss contingent contract. Elaborate with suitable illustrations. How are such contract is different from Agreements? Answer :- INTRODUCTION : Contingent contract is special types of contract. Generally in most contracts rights of parties are enforced immediately after the execution of contract, but MA,B.Ed,LLB Page 10

11 sometimes there are contracts whose enforcement depends upon happening or nonhappening of an event. DEFINITION :- Section 31 of Indian Contract Act 1872 defines that Contingent Contract according to it : A contingent contract is a contract to do or not to do something, if some event, collateral to such contract does or does not happen. ILLUSTRATION :- A contracts with B that if the house of B destroyed by fire then he shall pay Rs.10,000/- to B. It is contingent contract because the enforcement of contract depends on the happening or non happening of an event. Thus the contingent contract depends upon the happening of a uncertain event. If the event is of certain nature, then it shall not be contingent contract. ELEMENTS OF CONTINGENT CONTRACT These are as under:- 1. The contingent contract depends upon the happening or non-happening of an event. 2. Such event shall be of uncertain nature i.e. it may or may not be happen. 3. Such event is not the part of mutual promises of parties. 4. Happening or non happening of the event does not depend on the will of the parties. 5. The future uncertain even is collateral to the main contract. In case : Ranchoddas V/s Nathmal Hirachand and company 1951 (Bombay) In this case the court decided and did not accepted the contention and said that reaching of cloth to India was a method of delivery. This cannot be said contingent contract. NATURE OF CONTINGENT CONTRACT:- Section 32 to 36 of Act mention that various forms of contingent contract like:- i) According to Section 32. Contingent contract to do or not to do be anything if an uncertain event happens cannot be enforced by law unless and until that event has happened. If the event becomes impossible such contract becomes void. ILLUSTRATION :- A contract to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void. ii) Section 33 says : contingent contract to do or not to do anything, if an Uncertain future even does not happens can be enforced by law when the happening of that event becomes impossible. ILLUSTRATION :- A agrees to pay to B a sum money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks. iii) Section 34 says : that if future event on which a contract is contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies. ILLUSTRATION :- A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be considered impossible, though it is possible that D may die, and that C may afterwards marry B. iv) Section 35 says that :- contingent contacts to do or not to do anything if a special uncertain event happens within as fixed time become void if, the expiration of the time fixed, such event has snot happened, or if, before the time fixed, such becomes impossible. ILLUSTRATION :- A promises to B to pay a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within a year, and becomes void if the ship is burnt within the year. v) Section 36 says that : contingent contract to do or not to do anything if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreements at the time when it is made. ILLUSTRATION: - A agrees to B, a sum or Rs , if two straight lines should on close a space. The agreement is void. MA,B.Ed,LLB Page 11

12 Contingency dependent on the behaviour of the parties. It is important that if the performance of the promise depends on the mere will and pleasure of the promisor, it is no promise at all but promise to pay what a third party decide is valid promise. DIFFERENCE BETWEEN CONTINGENT CONTRACT & WAGER CONTRACT Contingent Contract Wager contract 1. All contingent contract are 1. All wager contract have the element of Not wager. Contingent contract. 2. The interest of the parties 2. The interest of the parties is vested upon Is vested on the happening wining or losing sum of money. Or non-happening of event. 3. The future event is collateral 3. The future event is the base of decision. To the contract. 4. Only one party shall give 4. Parties give reciprocal promises. Promise. 5. Win or loss of the parties is 5. One party has to win and other has to Not important. Lose. 6. Contingent contract are 6. Wager contract are void with few Valid. Exceptions. Question No.6 : Define Fruad? Distinguish between Fraud and Misrepresentation. Whether silence amounts to fraud? OR 2. What are the factors which vitiate consent and make the Agreement Void or voidable? OR 3. What is consent? When is consent said to be free under Indian Contract Act? OR Distinguish between coercion and undue influence. Answer : INTRODUCTION :- An agreement becomes contract if it fulfils the conditions of /section 10. According to sec. 10 for an agreement becomes contract with law full object and consideration. It means free consent is not free then the contract is invalid. But it is voidable not void. Voidable means a contract which can be declared void by the court at the option of other party. under sec.2(1). Section 198, 10(a) also deines the term voidable. Section 13 : Consent : According to Indian Contract Act 1872:- Two or more persons are said to consent when they agree upon something in the same sense. In the above definition it shows that (i) At least two persons are must (ii) for the same thing and same sense. ILLUSTRATION : At least two persons are must:- A agrees to sell his house to B for Rs.50,000/- B accepts this proposal. For same thing and same sense:- A have two cars; one Maruti and the other is Fiat. He agree to sell to B. A might be thinking to sell Maruti car while B might be thinking to purchase fiat car. In this example A & B do not agree upon the same thing in the same sense, hence there is snot contract in this case. MA,B.Ed,LLB Page 12

13 A Free Consent :- under sec.14 Consent: is said to be free when it not caused by : i) Coercion Sec (ii) Undue influence sec..16 (iii) Fraud sec..17 (iv) Misrepresentation.18 (v) Mistake In other words consent is free if it is not affected by coercion, undue influence, fraud and misrepresentation. In case of consent taken by mistake the consent shall be void. 1. COERCION ( 5.15) : Coercion means by force or compulsion. Coercion is a method of doing consent. This method is against the law. When any person by doing an illegal act gets the consent of any other person on an agreement it is called coercion. It means: Explanation : It is immaterial whether the IPC-1860 is or is not in force in the place where the coercion is employed. (a) Threading to commit any act forbidden by IPC: If consent obtained by threat of committing act forbidden by SC it called is coercion. Example : A kidnapped a son of B, A says you give me your scooter in Rs.50/- then I will give you your child. B agreed, it is a coercion. Case : Masjidi v/s Ashiya 1880: It was held that it cannot be simple upon these facts that the consent of such person was caused by coercion. Case:- Raganayaswami V/s Alyar Sette A Madrasi man died leaving behind a widow. The relative of the dead threaded the widow to adopt a boy otherwise they will not allow her to remove the dead body of her husband. The widow adopted the boy and subsequently applied to cancel the adoption. The court held the adoption is not valid. Muthiah Chettiar V/s Karupan Chettiar A was an agent of B. A at the end of his services denied to give account to other agent. He said to B to release him from liabilities otherwise he shall not give the account book. It held by coercion. (b) Threat to commit suicide: It comes under sec.15. Case: Ammiraja V/s Seshamma A person held out a threat to commit suicide to his son and wife, if they refused to execute a release deed in his favour. They executed the deed in his favour. It was held by the court that this coercion. According to old filled J threat to commit suicide no body can be punishable under IPC, and suicide itself not a crime under IPC, because after suicide no body can be punished. Only attempt to commit suicide is punishable. (c) Un lawful detaining of any property : According to sec.15 coercion could also be caused by unlawful detaining or threatening to detain any property to the prejudice of any person whatsoever with the intention of causing any person to enter into an agreement. Property may be moveable or immovable. If one person detains unlawfully, it is coercion. (d) To Prejudice of a person : Coercion may be against a party as well as against any person. (e) Legal Threatening not coercion:- A commits accident with B. B says you give me Rs.500 otherwise I shall sue against you. It is not coercion. (f) Place of coercion: coercion may be committed at any place. It may also be committed even outside India. (g) Burden of proof on Plaintiff: (h) Remedies: Voidable or restitution.8 Andhra Sugar Ltd. v/s State of Andhra Pradesh 1968 : It was held that the agreement cannot be said to be by lack of free consent. 2. UNDUE INFLUENCE : SEC.( 16) Undue influence means unreasonable influence or improper or not right influence. When consent is taken by way of unreasonable influence or improper way then it is not free. The consent can be declared void on this ground. Section 16 says that when any person has such position over the other person as to dominate his will, the person who dominates the will of the other must have superiority over the other. This is done under the following conditions. 1. Relationship superior or inferior may be real or apparent relationship as MA,B.Ed,LLB Page 13

14 (a) Money lender or borrower. (b) Income Tax Officer and shopkeeper. (c) Income Tax Officer and assessee. (d) Police and thief. Case :- J.R.Bhatt v/s State of U.P. Pt. Was employed in the court of UP. He wants a leave. Registrar said leave can be granted on the condition if you will not come in service after the end of leave. He wrote it. It was held by servant under undue reference influence. (B) Fiduciary Relationship :- 1. Advocate & Client. 2. Master & Servant. 3. Guru and chela 4. Father and children 5. Teacher & student. 6.Doctor & Patient. 7. Creditor and Debtor. 8. Trustier and benefishes. Case : Manu Singh v/s Umadat Pandey : An old Hindu woman gifted the whole property to her religious guru to get peace in heaven. It held undue influence. Parda-Nashin women : contract with parda-nashin women is presumed to have been induced by undue influence. She can avoid the contract unless he other party can show that it was her intelligent and voluntary act, A case : Ismiel v/s Amir Bibi 1902 : It was held that the women does not become parda-nashin women. Mental sickness:-if one party is not in position to think his interest due to mental sickness. Case : Rani Annpurna v/s Swami Nath. A widow who did not have any mental fitness went to creditor, she got Rs.1500/- or 100% interest. It was held voidable because she was not in a position to give free consent. The Party attempted to influence the will of other party. A state of mental fear is not undue influence. If a party is in a position to influence other s will it is not undue influence whether other party gets damaged. 2. Real Damage :- If no damage is done to the Pt. Then it will not be undue influence. Remedies : 1. Voidable u/s Restitution u/s 64 3.damages u/s 73. The court under section 19 can declare the whole agreement as void or the court may be declared it void on reasonable condition. Burden of Proof. : Pt. Will have to prove that the def. Was in a position to dominate the will of the pt. Thus if such relationship is proved by the pt. The court will presume the undue influence. Now burden to disprove this presumption comes on defendant, that there was no undue influence. He should prove that he did not try to dominate other will. He paid sufficient consideration to aggrieved. That the plaintiff had opportunity to take free advice. Effect of Undue Influence:- Section 19A says when consent to an agreement is caused by undue influence, the agreement is a contract, voidable at the option of the party whose consent was so caused. FRAUD UNDER SECTION (17):- Section 17 defines that Fraud includes any of the following act committed by a party to a contract or with his connivance or by his agent with intent to deceive another party there or his agent or to include him, to enter into the contract( whenever a person obtains any material advantage from another by unfair and wrongful means. It is said that he has committed fraud. Fraud is the wilful representation made by a party to contract with the intent to deceive the other party or to induce such party to enter into a contract. ESSENTIALS OF FRAUD :- (1) To give a suggestion that a fact is true, while it not true: (false suggestion) such suggestion, which is not true. Case : Mithu Lal v/s LIC of India :- In this case the court held that Devlata committed fraud. i) Active concealment of a fact which is in the knowledge of the person: Every body has the duty to disclose the defects in the material or the property while entering to the contract, if it is not done then the agreement is based on fraud. Example :- A agrees to transfer his land to B but the land is already mortgaged to C, A does not disclose this fact. It is a fraud. ii) To do such promise without intention of perform(false promise ) iii) Any other act fitted to deceive. iv) Any act which is declared by law as fraudulent : such as in slavery act for companies it has been specified that certain type of transfer of property is fraud. MA,B.Ed,LLB Page 14

15 v) Fraud committed by partner or agent of the firm: such as River silver mining v/s Smith AIR 1869: The court held that this act was done by the Agent of company u/s liabe. vi) There must be a false representation i.e. A shopkeeper tells B that these goods are fresh. It is A option to reject it. It will not be fraud. vii) Representation must have been made by the Party or by his agent: The representation must have been made knowing that it is false without knowing its truth. In both cases it will be fraud. viii) The representative must have been an intention to deceive. ix) Mere silence is no fraud: under sec.17: A contracting party is not obliged to disclose each and everything to the other party. Merely because a person does not disclose the defects in the goods sold by him, there is no fraud. Shri Krishan v/s Kurukshetra University : It was held that there was no fraud by the candidate and the University has no power to withdraw the candidature of the candidate on that account. x) There are two exceptional cases where mere silence may amount to fraud :- 1. Duty to speak : when the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak. Keeping silence in such case amounts to fraud. Case : Srinivasa Pillai v/s LIC of India, AIR-1977 : It was held that the claim is not maintainable against the insured corporation. 2. Duty to disclose changes :- If a statement is true when made, but subsequently becomes false by the change of circumstances, there is duty to disclose the change before the other party acts upon it. xi) Ratification : When even after the knowledge committing fraud party ratifies agreement now he cannot repudiate. Damage, Restitution. Prof of Fraud Fraud is essentially a question of fact and has to be proved by the person who alleges that the fraud was done on him. MISREPRESENTATION (UNDER SEC. 18) 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 enter into a contract on that basis, it is known as Fraud, But when the person making a false statement believe the statement to be true and does not intend to mislead the other party to the contract, it is known as Misrepresentation it is somewhat different from fraud. example : A while selling his watch tells B that his watch is made in Switzerland, A does not know that the watch is not made in Switzerland. It is fraud because the watch is made in India. A is guilty of misrepresentation. It includes :- 1) The positive assertion, in a manner not warranted by the information of the person making it of that which is not true, though he believes it to be true. 2. Any breach of duty which without an intention to deceive gains an advantages to the person committing it. ESSENTIALS 1. The positive assertion of material fact: When one party believes that his statement is true but it is not true, it is called misrepresentation. Case: The Ocean steam Navigation comp. v/s Sunderdas Dharmsay: A sold ship telling it is of 28 tons but it was of less tons. A did not know about it. It held misrepresentation. 2. Any Breach of duty : When on Party without intention of committing fraud breaches duty and if he also takes benefit from the agreement it will be misrepresentation. Case : Bamarsi Dass v/s New India Assurance : Actually one liability of party released in that deed held misrepresentation. There was the duty of the party to disclose the fact of deed. B could not read it but he did not. It means he trusted on A and it is his false statement, which held then it is Misrepresentation. MA,B.Ed,LLB Page 15