CONSIDERATION – IMPORTANCE + PREVIOUS YEAR QUESTION DISCUSSED
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4 questions has been asked and the same has been discussed below
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PREVIOUS YEAR QUESTION 1999 | PAPER II | Question 5 b (ii) | 10 MARKS
A owes B Rs.1,000 but the debt is time barred, C signs a written promise to pay B Rs. 500 on account of the above barred debt. Is B entitled to enforce the promise against C ?
Answer line : Introduction – How consideration mandatory for valid contract – exception – time barred debt – what is time barred debt.
Body – Explain section 25 ICA – conditions on contract to pay time barred debt – explain the term “by the person to be charged therewith, or by his agent” – narrow interpretation – Bombay HC – Pestonji Manekji Mody Vs Bai Meher Bai – 3rd party cannot contract to pay time barred debt- B not entitled to sue C – Wider meaning – Madras HC – Paliyath Govinda Nair Vs Parekalalhil Achutan Nair – person to be charged include voluntary liability by 3rd party – B can sue C.
Conclusion – which meaning would be better for today’s scenario – your analysis.
Introduction : The above question is about time barred debt – time barred debt is one that is barred by limitation act thereby the creditor is barred from suing on it. Generally consideration is mandatory for a contract to be valid but a contract to pay time barred debt it an exception as per sec: 25 of Indian Contract Act (ICA )
Section 25 explained ! To be a valid contract to fall under sec : 25 – the promise to pay time barred debt
Condition 1 : Must be writing
Condition 2 : It must be signed by person to be charged with or his authorized agent
Relaxation : The promise can be made to pay the debt wholly or in part.
Discussion : Is B entitled to enforce the promise against C ?
· Condition 1 is satisfied as the agreement to pay B by C was written one
· C agreed only to pay part of the debt – part payment is valid again as per sec: 25
Now the controversial part in on 2nd condition – “signed by person to be charged with” – whether C is person to be charged with ?
Narrow view : In the case of Pestonji Manekji mody Vs. Hai Meher Bai – it was held that the term cannot be interpreted to include 3rd party – a promise made by a person who is under no obligation to pay the debt of another does not fall under the clause” Thus any 3rdparty to the debt cannot enter into a contract to pay such debt when time barred and it is not validated under sec: 25.
Therefore ! contract signed by C to repay B is not valid and B cannot sue C based on it.
Wider view : On the other hand in the case of Paliyath Govinda Vs Parekalahil Achutan Nair it was stated that the words – by the person to be charged therewith are wide enough to include the case of a person who agrees to become liable for the payment of a debt due by another and need not be limited to person who was indebted from the beginning .
By this view C’s contract to pay B would be valid and thus B can sue C.
Conclusion :Analyze which view is apt give reasons
PREVIOUS YEAR UPSC LAW QUESTION | YEAR 2013 | PAPER II | QUESTION 5 b | 10 MARKS
Privity of contract is no longer a rule but only an exception – Explain in the context of modern transactions
Answer line – what is privity of contract – concept + reason for such rule – statement explain - Exceptions + concept + example( modern examples) / case – need for exceptions on modern era.
Privity of Contract: The general rule is that only the person entitled to the benefits or bound by the obligations of a contract are entitled to sue or be used upon it. Thus, a stranger to contract, cannot file a suit to enforce any of the rights arising out of the contract.
EXAMPLE :Therefore, if A for good consideration agrees with B that he will not sue for C’s negligence, the latter will not be able to set up the promisee of A to be as defense.
EXCEPTIONS TO THE DOCTRINE OF PRIVITY OF CONTRACT- Due to modern era transactions exceptions cropped up
(a) Beneficiaries in the case of trust: A beneficiary under an agreement to create a trust can sue upon the agreement, though he was not a party to the contract between the settler and the trustees.
LX EXPLAINS: A creates a trust for the benefit of B, and appoints X, Y and Z as trustees. B can sue for benefits available to him under the trust though he is not a party to the contract.
(b) In case of provision in marriage settlement of minors: A child in a contract of marriage is treated as a party who has given consideration, and he is entitled to enforce any contract to settle property, which a marriage settlement may contain.
(c) In case provision is made for the marriage or maintenance of a female member of the family on the partition of Hindu Undivided family: The female members though not parties to the contract, possess an actual beneficial right which places them in the position of beneficiaries under the contract, and can, therefore, enforce the promise.
(d) Assignee of a contract: An assignee under an assignment made by the parties, or by the operation of law, e.g., in case of death or insolvency, can sue upon the contract for the enforcement of his rights and interests.
(e) Where a charge is created on certain specific immovable property in favor of certain person: Such charge is enforceable at the instance of the beneficiary entitled, though he may be a stranger to the document creating the charge.
(f) Estoppel: Where one party has by his words or conduct made to the other a promise or assurance which was intended to affect the legal relations between them, then once the other party has taken him on his words and acted upon them, the party who gave the promise shall be estopped from denying his liability arising from the promise.
(g) Contracts which are entered into through an agent, can be enforced by the principal.
CONCLUSION – give importance of such excepts on present day scenario.
PREVIOUS YEAR UPSC LAW OPTIONAL QUESTION| YEAR 2006 | PAPER II | QUESTION 5 a | 20 MARKS
Insufficiency of consideration is immaterial but an agreement without consideration is void- comment
Answer line – Define consideration – sec: 2 (c) – as per sec: 10 consideration is mandatory for a valid contract. Sec 2(C ) and 10 only talks about existence of consideration – adequacy not demanded – explain + example + case + reason for such rule.
Section 2 (c) defines consideration as some act, abstinence or promise done at the desire of promisor . Section 10 mandates that a lawful consideration is necessary for a valid contract. As per sec : 25 explanation 2 consideration must have some value in the eyes of Law though it need not be adequate
Inadequacy of consideration will not invalidate a contract. It is open to the parties to fix their own price.
EXAMPLE : If A voluntarily agreed to sell his car for Rs. 500/- to B, it will be a valid contract despite the inadequacy of the consideration.
It is to be noted here that though inadequacy of consideration will not invalidate a contract but may be taken into account by the court in determining the question whether the consent of the promisor was freely given.
ADEQUACY OF CONSIDERATION: Consideration need not necessarily be of the same value as of the promise for which it is exchanged. But it must be something which can be inadequate as well. Inadequate consideration would not invalidate an agreement but such inadequate consideration could be taken into account by the court in deciding whether the consent of the promisor was freely given.
In Chijjitumal Vs. Rampal Singh AIR, 1968, the Supreme Court reiterated that consideration need not be material and may be even absent. In the said case, the father had died leaving his house to two sons. They had agreed to partition the house which did not admit the division in exactly equal parts and one of the sons had agreed not to construct a door at a certain place in his portion of the house. In a dispute, the agreement was challenged on the ground that it was without adequate consideration.
The Supreme Court came to the conclusion that the motive for the said agreement at the time when it was made, was to avoid any dispute in future, and held that it was sufficient consideration.
The above view is in tune with explanation 2 to section 25 of the Act, which provides that an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate. Where there is valuable consideration, Court will not interfere and inquire into the adequacy of it but leave the matter to the parties to make their own bargain. But inadequate consideration might raise suspicion about the free will of the promisor. Promisor could be treated as victim of some imposition but this would not render the agreement void.
Conclusion – Own analysis and need for such rule.
PREVIOUS YEAR UPSC LAW OPTIONAL QUESTION | YEAR 2001 | PAPER II|QUESTION: 5b | Marks 20
An act done at the promisor’s desire furnishes a good consideration for his promise even though it is of no significance or personal benefit to him - Discuss
Answer line : Introduction – On how a consideration should be only act desired by promisor and no other person – explain + example + This statement was given in the famous case of Kedar Nath V. Gorie Mohamed.
Body – Promisor shall not necessarily be the ultimate beneficiary – explain + cases – donations to charitable institutions on desire of promisor + promise contemplated on such faith of promisee + cases
Conclusion – Transactions shall not strictly be confined with 2 parties alone – an obligation can be created to benefit 3rd party also to suit the needs to practical life – examples – importance of such need etc.
INTRODUCTION : Consideration = Promise / Performance that parties exchange with each other. As per definition given under 2 (c) consideration is doing or not doing something, which the promisor desires to be done or not done.
Consideration must be at the desire of the promisor. Consideration may move from one person to any other person Consideration may be past, present or future
Statement explained ! - An act done at the promisor’s desire furnishes a good consideration for his promise even though it is of no significance or personal benefit to him. This statement was given in the famous case of Kedar Nath V. Gorie Mohamed.
The most important condition for consideration is that it should be demanded by the promisor – any voluntary service or act requested by other persons can never be a valid consideration.
Further even if such act does not benefit the promisor it becomes a valid consideration, thus finally he may not be the ultimate benefiter of his demanded act still it constitutes valid consideration for him.
CASE LAW EXPLAINED : KEDAR NATH V. GORIE MOHAMED
The Commissioners of Howrah municipality planned to obtain necessary funds by public subscription.
The defendant was a subscriber to this fund for Rs. 100. On the faith of the promised subscription, the plaintiff entered into a contract with a contractor for the purpose of building the hall. But the defendant failed to pay the amount .
HELD : Reasons : The act of the plaintiff in entering into contract with the contractor was done at the desire of the defendant (the promisor) so as to constitute consideration within the meaning of Section 2(d) and it would not be invalid for simply it does not benefit him.
This includes donations to charitable institutions etc. On faith of such donations if such charitable institutions take up any obligation then the promisee would be bound by the same even if the promise to pay such institution does not benefit the promisor ultimately but the prime condition that the payment must be at the desire of promisor.
RATIONALE : A third party beneficiary is allowed in contracts just to satisfy the needs of complex transactions. Contract cannot be restricted between two parties alone ( privity of contract ) at this present era of global transactions.
Example :Company B ( promise ) spending its relief fund for Cancer Institute of India would constitute valid consideration if Company A ( promisor ) desire for the same.
Conclusion –Kindly give your own classic conclusion.
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