Guide to Indian Contract Act, 1872 with FAQs

As per Section 10 of the Indian Contract Act, 1872, presence of consideration is an essential element for a valid contract. Therefore, where in a contract of guar- antee, there is a failure of consideration between the creditor and the principal debtor, the surety is discharged.

As per Section 25 of Indian Contract Act, 1872, an agreement made without consideration is void. The following are the exceptions to this rule:

1. Written and registered agreements arising out of love and affection: An agreement made without consideration is valid if, — It is expressed in writing and registered and is made on account of nature love and affection between parties standing in a near relation to each other.
2. Promise to compensate for voluntary services: A promise made without consideration is valid if it is a promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor or something which the promisor was legally compelled to do.
3. Written promise to pay time-barred debt: A promise to pay wholly or in part, a debt which is barred by the law of limitation can be enforced if the promise is in writing and is signee by the debtor or his authorized agent.
4. Completed gifts i.e. gifts given and accepted: If a person gives certain properties to another according to the provisions of the Transfer of Property Act, he cannot subsequently demand the property back on the ground that there was no consideration:

1. • No consideration is required to create an agency
   • Bailment
   • Charitable subscription

In these circumstances, in-spite of the fact there is no consideration the contract shall still be valid.

• Be absolute & unqualified: If the parties are not ad idem on all matters concerning the offer and acceptance, there is no contract. An invitation with variation is no acceptance; it is simply a counter proposal which must be accepted by the original proposer before any contract is made. A counter offer puts an end to the original offer and cannot be revived by subsequent acceptance unless it is renewed. It must be unqualified and absolute and must correspond with all terms of the offer.
• Be accepted in prescribed or reasonable manner: If a particular method of acceptance is prescribed, the offer must be accepted in the prescribed manner. If no manner is prescribed than in reasonable manner.
• Specific offer must be accepted by specific person: If an offer is made to a specified person then that specific person can only accept the offer to make it valid.
• It may be express or implied or oral or written: The proposal or acceptance of any promise is made in words, the promise is said to be express. Insofar as such proposal or acceptance is made otherwise than in words, the promise is said to be implied. It can be inferred from the conduct of the parties.
• Be in whole not in parts: Acceptor should accept the whole proposal in total and not in parts. Part acceptance is no acceptance binding upon the proposer.
• Communication of acceptance is must: A mental determination to accept unaccompanied by any external indication will not be sufficient acceptance. To constitute an acceptance such acceptance must be communicated to the offeror or his authorized agent. Mere silence on the part of the offeree does not amount to acceptance.
• It must be given before the time lapses: Acceptance must be given before the offer lapses by expiry of time fixed or by expiry of reasonable time if no time is so fixed or before it is withdrawn or revoked by the offeror.

As per Section 2(d) of the Indian Contract Act, 1872, consideration to be valid must be move at the desire of the promisor.

Moreover, as per Privity of Contract, a third party can sue any party, if the third party is the beneficiary.

As per exceptions to Section 25 of Indian Contract Act, 1872, agreement can be made without consideration if it is a promise to compensate a person who has already voluntarily done something for the promisor. Thus as per the exception the promise must be to compensate a person who has himself done something for the promisor and not to a person who has done nothing for the promisor.

In given case, the agreement between Tania and Anita is not a contract in the absence of consideration. Tania’s mother Sonali, voluntarily treats Anita during her illness.

Now, as per exception of Section 25, Sonali’s daughter, Tania to whom the promise was made, did nothing for Anita, so Anita’s promise is not enforceable even under the exception.

No, Tania cannot recover the money from Anita. She can’t even sue Anita as she is not a third party benefitting to it.

The doctrine of privities of contract means that a contract is between the parties only and no third person can sue upon it. It means that a stranger to contract cannot sue upon it. A person who is not a party to a contract cannot subject to certain well recognized exceptions, enforce the terms of the contract. In India the common law doctrine of privities of contract is applicable.

Consideration for an agreement may proceed from a third party, but the third party who is a stranger to the agreement cannot sue on the agreement. A person who is a party to the contract alone can enforce the legal rights arising there from. So a stranger to contract as a rule cannot sue upon the contract.

In the course of time, the courts have introduced a number of exceptions to rule of privities of contract as follows:

• Beneficiary of a trust: A trust is created for the benefit of a beneficiary. Hence, the beneficiary can enforce the provisions of the trust even though he is a stranger to the contract.
• Provision in marriage settlement: A stranger to the contract can sue on the contract where a provision is made for him in marriage settlement.
• Provision for maintenance or marriage expenses of female members under a family arrangement: In case a provision is made for the marriage or maintenance of a female member of the family on the partition of a Hindu undivided family, the female member can enforce the promise though she may be a stranger to a contract.
• Assignee of a contract: The benefits of a contract may be assigned. The assignee of a contract can enforce the benefits of a contract though he is not a party to it.
  Example: ‘A’ assigns his insurance policy in favour of his wife. The wife can enforce it although she is not a party to it.
• Acknowledgement of liability: Where the promisor either by his conduct or acknowledgement or by part payment or by estoppel creates privity of contract between himself and the stranger, the stranger can sue.
  Example: A pays B ` 500 to be given to C, B acknowledges to C that he holds that amount for him. C can recover the amount from B.
• Agency contract: Contracts which are entered into by the agent on behalf of the principal can be enforced by the principal even though he is not a party to the contract.

As per Section 25 of Indian Contract Act, 1872, an agreement made without consideration shall be void.

As per Section 25(1) of Indian Contract Act, 1872, it shall be valid only if it is made out of natural love and affection between parties standing in a near relation to each other through a written and registered document. Mere nearness of relation or relationship does not impart natural love and affection.

In given case, although there is a written & registered document made between near parties but the promise to transfer property is made after reference to quarrels & disagreement not out of love & affection.

Thus, the wife will not succeed in enforcing the contract as natural love and affection was absent.

As per few points stated in legal rules regarding consideration, we can say that:

• The consideration must move at desire of the promisor.
• It must be something of value.
• It need not be adequate.

In given case, Mr Amar agreed at his own motion i.e. with free consent to sell at
` 5 lakhs. The consideration amount was stated by the promisor & wasn’t forced by offeree. The consideration was also something in value i.e. in money. Moreover, the inadequacy cannot be questioned.

As per Section 25 of Indian Contract Act, 1872, no contract can be made without consideration. But nothing is stated about its inadequacy. So in this case, the house was sold for consideration. Even if the consideration is inadequate, the sale will be valid. The agreement is valid contract notwithstanding the inadequacy of the consideration.

This agreement is not void or invalid.

As per Section 25(2) of Indian Contract Act, 1872, an agreement made with- out consideration is void unless it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do.

In given case, Asim voluntarily extinguishes the fire for which Nemai promises to pay amount for his treatment. So, inspite of lack of consideration, the contract is valid. Therefore, Asim can seek enforcement of promise of Nemai & recover the amount.

Ans. As per Section 10 of Indian Contract Act, 1872, the essential condition of contract is that consideration must exist. The consideration must be of some value.