Introduction:
When we buy a ticket for a concert, a ticket for an adventure park, buying aeroplane’s ticket, buying groceries, purchasing milk, buying a car, scooter, or any other vehicle, or if we are buying a new house, furniture, clothes, accessories, or staying in a hotel, paying road taxes and anything to everything we are paying and in return we are getting something or services etc is forming a contract with buyers, suppliers, shopkeepers, owners. A contract is nothing but an acceptance of a proposal, with the presence of legal consideration.
According to law or in legal terms contract is defined under section 2(h) of Indian contract act, 1872 as an agreement which is enforceable by law. To enter into a contract there must be a proposal and acceptance includes consideration. The contract is a vast terminology. A Contract consists of so many terms. To understand it easier:-
PROPOSAL [S.2(a)] + ACCEPTANCE [S.2(b)] = PROMISE [S.2(b)]
+
CONSIDERATION [S.2(d)] = AGREEMENT [S.2(e)]
Agreement further divides into:
(A) If enforceable by law= Contract [S.2(h)]
(i) Void contract (ii) Voidable contract
(B) If not enforceable by law= Void agreement [S.2(g)]
Let us talk about the important ingredients of contract.
Proposal or often said offer if defined as if one person shows his willingness to do or not to do something/abstain with a view to gain ascent of that other to such act or omission, he is said to make a proposal. For instance A told B that he wants to sell his car to B in 2 lakh rupees. It is a proposal.
Essentials of Proposal
- Number of people: As no one can make a proposal to himself it is necessary to have two or more than two people. The no. can of people can be countless.
- The proposal must be communicated: There should be communication between the one makes a proposal and the one with whom the proposal is been made. Otherwise, there will be no acceptance of the same. [Lalmannshukl Vs. Goridutt]
- Offer must be made with the intention to legally bind each other: Proposal must be made with the intention to legally bind each other. There should be no wage thing. Otherwise, it will result in a proper contract. For instance, A invites B to a dinner party, B promised but didn’t go. In this case, A cannot sue B for breach of contract. [Kalaihaldar Vs. Sheikh]
- The proposal must be certain, definite, and not vague:- If any proposal is vague its acceptance does not lead to the formation of any contract. For instance, if A agrees to sell his dog to B for rs.2000 or rs.500. here, in this case, its nothing clarifies the particular price results in void agreement.
- One should request for proposal and not to order: One should not order the opposite party neither can force to accept the proposal. [Felthouse Vs. Bindly]
Types of Proposal
- Express and implied proposal: A proposal which is in written or oral form are implied proposals but other than those which can be conveyed pr expressed by behaviour are expressed proposals.
- General and specific proposal: When the proposal is made to the whole community of people is called general proposal and the one which is made to the specific person and accepted via specific person or countable people is called a specific proposal.
- Counter and cross proposal: When two parties make an exactly the same proposal to one another neglecting the proposal of the other party is called a cross proposal. Also, when there is no binding contract in such case as one’s proposal can’t be constructed as acceptance by other while when the offer offers the qualified accept. To the offer subject to modification and variation in terms of original offers, he is said to be a counteroffer. It amounts to rejection.[Tenn Vs. Holfman]
“An Agreement Without Consideration is Void”
Consideration is one of the most important elements of a valid contract. When a person or party agrees to do something he must get something in return. If that person does not get something in return the contract is not valid or void.
Agreement without consideration is known as “NADUM PACTUM.”
For instance, if Aman agrees with Riya to give Rs.1000 without consideration it is void.
But there are few exceptions, i.e. in a few cases agreement without consideration is still valid.
- Natural love and affection
- Past voluntary service
- Time barred debt
- Gift
- Free bailment
- Agency
Privity of Contract
“Only parties to contract can sue or can be sued”
The statement can be discussed under the PRIVITY OF CONTRACT. The doctrine of privity of contract law provides that a contract cannot grant rights or urge obligations arising under it on any person or agent except the parties to it.
It makes sense, that only parties to contract should be able to sue to enforce their rights or claim damages.
Also, the doctrine of privity of contract has verified problematic due to its implications upon contracts made for the benefit of third parties who are unable to enforce the obligations of the contracting parties.
According to the English laws, the privity of consideration is well-recognized consideration and must move from the promisee and the promiser only.
In Dutton vs Poole (1677) 83 LR523 “A” was prepared to cut down timber on his estate to provide a marriage portion to his daughter, “B”. His son “C”, promised to give a certain sum to his sister on her marriage if “X” did not cut the timber. When “C” failed to pay the amount, B sued his for the same.
The suit was held maintainable on grounds of the close relationship between A & B as father and child; the relationship made B party to the consideration though if she was a stranger to the contract. English law recognizes the privity of contract. Thus the contract cannot be enforced by a person who is not a part of it even if the contract was made for his benefit. A stranger to the contract cannot claim any rights.
The doctrine was introduced in 1861. Tweddle vs Atkinson (1861) 1 B & S 393. The father and father in law of a groom decided and agreed to pay some amount of money to the groom. However, the contracting parties died without completing contract.
The groom sued the executors of the father in law for the amount due. The principle of the near relationship of the contracting parties was held not applicable. The groom was not allowed to sue as he was a stranger to the contract though the contract was going to benefit him.
In Beswick vs Beswick (1960) 3 AII ER 1 CA, A man transferred his business to his nephew on the condition that the latter maintain the man till his death and his widow thereafter. After the death of the man, nephew did not keep up his end of the bargain and the widow sued him. It was held that widow was not only suing as beneficiary under the contract but also the heir of her deceased husband who was the party to contract.
Indian Law
There are not as such provisions in Indian contract law 1972, either in favour of or against privity of law.
Section 2(d) of the act states that “when, at the desire of the promisor, the promisee or any other person has done or abstain from doing, or promises to do or to abstain from doing, something, such act or abstain or promise is called a consideration for the promise.”
It is very much clear from this section that the consideration for a contract can proceed from any person and its not necessary to be done by the parties to the contract.
A promise is enforceable if there is some consideration for it and it is quite not so important or irrelevant whether it moves from the promise to any other person. However, there is no specific provision in the Act which either for or against the Doctrine of privity of contract.
In case of Jamna Das vs Ram Avtar, (1911) 30 IA 7 X
In this case, person “A” mortgaged some property to “B” and then sold it to “Z” and then sold it to “Z” who agreed with “A” to pay the mortgage debt to “B”.
“B” sued “z” for the recovery of the mortgaged money. It was held that “B” could not succeed as he wasn’t a party to the agreement between A and B.
In M.S. Chacko vs The State Bank OF Travancore (1969) 2 SCC 343X
Bank was indebted to the state bank of Travancore under an overdraft.
A was the manager of it and said X bank and his father B, had guaranteed the repayment of the same.
B gifted his properties to the members of the family. The gift deed provided that any liabilities under the guarantee should be met by A or from a bank or from the share of the property gifted to him.
The state bank of Traven core sought to hold a liable on the basis of the gifted deed. It was held that the state was not a party to the deed and could not enforce it.
Exceptions to the Privity Rule
A party or a person who is not a party to the contract may sue upon in the following cases:
1. Trust or Charge: When the trust is built for the benefit of a person, he can sue upon the agreement to create the trust even if he is not a party to it.
In case of, father and father in law of X, entered into an agreement where for the consideration of X marrying Y, the father in law would pay her Rs 500 per month for perpetuity as betel leaf expenses. After marriage, X and Y separated. X bought a suit for recovery of arrears of annuity.
It was held that X could enforce the promise in her favour and that she was claiming as the beneficiary under such settlement to provide for her.
In the case of Bakhsha Singh vs Jang Bahadur, AIR 1938 PC 245
Example, ‘A’ was appointed successor by his father and put in possession of his estate. In consideration, ‘A’ agreed with her father to pay the amount of money and property. His illegitimate son, upon his attaining majority. When ‘B’ questioned for his share in land and money when he reached the stage of majority, ‘A’ denied for the same.
It was later observed that there was a breach of trust that was created in favour of ‘B’ for a specific amount and property and the suit was maintainable.
2. Family Agreement: If a contract or agreement under a family arrangement is planned to secure or achieve a benefit through it to the third party, he may sue in his own right as a beneficiary.
In Rose Fernandez vs Joseph Gonsalves ILR (1924) 48 BOM 673
X entered into an agreement with A for the marriage of her daughter. It was observed that girl can sue A for damages for breach of promise of marriage.
‘A’ claimed that the girl was not a part of the agreement and did not hold any ground. In this case, the provision was made for the marriage expenses of the female member of a joint Hindu family.
When the family partition was taking place the girl sued them for the marriage expenses. It was observed that she was held that she was entitled to sue for the same.
3. Acknowledgement or Estoppel: When a contract requires to pay to the third party and he acknowledges it to it, he will suffer through excess of obligation.
The acknowledgment may be expressed or implied.
Example: ‘A’ receives rs.3000 from ‘B’ for paying ‘C’ ‘A’ acknowledges the receipt of funds to pay him. Now, ‘C’ can sue ‘A’ for the recovery of the amount of 1000rs.
4. Assignment of a Contract: A profit under a contract may be assigned either by an act of the parties or by operation of law (in case of death and insolvency) and the one who assigned it can sue upon the contract for the enforcement of his rights.
However, in another case, it was held that a mere nominee, the person for whose benefit the deceased insured his or her life, can’t sue on the policy because such person is not an assignee.
5. Covenants Running With the Land:
IN Tulky vs Moxhay(1919) 88 LJKB 861 IN this case the person was held bounded by obligations connected to a land via a contract when he has purchased the land with the notice that the agreement that is affecting the land tie him up though he was not a party to contract.
Conclusion
The act does not clarify the privity of contract also however as we read various cases and facts and case laws the doctrine as laid in Tweddle vs Atkinson is now applicable in the India with respect to various exceptions.
Along with that the reference to consideration of contract the position of India and England are different.
Under English laws, one party to the contract can pay consideration. If that person does not pay the consideration he becomes unknown to the agreement.
Under Indian law, it is not needful that consideration should be moved from the one who promised only. Even an unknown can also enforce a contract if the contract was made asserted for his benefit though not a party to the original contract.
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