Testing - 7 - Class 10 PDF Download

Rule in Pinnel's Case

 Overview of the Rule:  According to English law, as established in Pinnel's Case, an agreement to accept a smaller sum of money in place of a larger sum is not legally binding. This is because the agreement lacks consideration. In simpler terms, even if a promise is made to pay a lesser amount, the creditor can still demand the full amount owed.

 Exceptions to the Rule in Pinnel's Case 

 Payment in Kind

•  If a horse, hawk, or similar item is given in lieu of a monetary claim, it is considered valid. This is based on the idea that the item might be more beneficial to the plaintiff in certain circumstances. 

 Payment Before Due Date

•  Accepting a smaller sum before it is due can satisfy the entire debt. This is because early payment might be more advantageous to the creditor. 

 Part Payment by a Third Party

•  If a third party pays a portion of the debt, it can discharge the entire debt. If a creditor accepts partial payment from a third party, they cannot later demand the remaining balance. 

 Composition with Creditors

•  An agreement between a debtor and a single creditor to pay less than the full amount falls under the rule in Pinnel's case. However, an agreement among multiple creditors with the debtor is an exception. 

 Doctrine of Promissory Estoppel

•  This legal principle prevents someone from going back on a promise or representation they made earlier. If someone acts based on such a promise, the person who made it is bound by it, even without consideration. 

 Consideration in Indian Law

•  In India, a promisee can accept a smaller amount than the full debt in satisfaction of the whole debt without needing consent. 
•  According to Section 63 of the Indian Contract Act, a promisee can remit the performance of a promise, extend the time for performance, or accept something else in place of the original promise. 
•  Forbearance to sue, or abstaining from a claim, is not always consideration for a promise to pay or do something. It can constitute consideration if the delay in suing is beneficial to the promisor. 
•  In the case of Callisher v Bischoffsheim, the court ruled that the doubtfulness of an original claim is not relevant in determining consideration for a promise not to sue. 
•  If a party believes in good faith that there is a chance of success in a claim, forbearance to sue can be good consideration. 
•  It is important to recognize that there are two contracts involved: the initial contract in dispute and the second contract intended to settle the dispute. 
•  The consideration for the second contract and its impact on the obligations arising from the first contract are crucial in such cases. 

 Exceptions to the Rule of No Consideration, No Contract

 In contract law, it is generally understood that a contract requires consideration to be valid. However, there are exceptions where a contract can be enforceable even without consideration. These exceptions include promises made out of natural love and affection, compensation for past voluntary services, promises to pay time-barred debts, agency, and gifts.

 Promise Due to Natural Love and Affection 

•  A promise made in favor of a close relative out of natural love and affection is valid even without consideration. 
• Requirements for such a promise include: 
  •  Parties must be in a close relationship. 
  •  The promise should be made out of natural love and affection. 
  •  The promise must be in writing. 
  •  The agreement should be registered. 
•  The term "near relation" is not explicitly defined in the law, but it generally includes close relatives or those related by marriage. 
•  Cases like Rqilucky Dabee vs. Bhootnath Mookerjee illustrate that the absence of natural love and affection can invalidate the promise. 

 Compensation for Past Voluntary Services 

•  When a service is performed at the request of the promisor, it can be considered good consideration for a promise to compensate for that service. 
•  The exception to Section 25 applies when a person performs a service without the knowledge of the promisor, and the promisor promises to compensate for it. 
•  Examples include situations where A finds B's purse and returns it, or A takes care of B's child and B agrees to pay A for the expenses. 
•  The key is that the service must be rendered to the promisor and not to someone else. 

 Promise to Pay a Time-Barred Debt 

•  A promise to pay a time-barred debt can create a valid contract even without consideration. 
• According to Section 25(3), the following conditions must be met: 
  •  The promise must be to pay a time-barred debt, which is a debt that the creditor could have enforced but for the limitation laws. 
  •  The promise must be in writing and signed by the person making the promise or their authorized agent. 
•  It is important that the debt was one that the creditor could have enforced, and debts that are unenforceable for other reasons do not fall under this category. 
•  For example, a promise by an insolvent debtor to pay a debt from which they were discharged under insolvency laws cannot be enforced without new consideration. 

 Agency 

•  According to Section 185 of the Indian Contract Act, 1872, no consideration is required to create an agency relationship. 

 Gifts 

•  The rule of "no consideration, no contract" does not apply to gifts. 
•  Explanation (1) to Section 25 of the Indian Contract Act, 1872, states that an agreement without consideration is not void when it comes to gifts made by a donor and accepted by a donee. 

Understanding Unlawful Consideration and Its Effects

•  Definition of Consideration:  Consideration refers to something of value that one party offers to another in exchange for a promise. It represents the price paid by one party for the promise of the other.
•  Lawful Consideration and Object:  For a contract to be legitimate, both the consideration and the object (the aim) must be lawful. The consideration signifies the worth of the promise.

Unlawful Consideration and Object

The consideration or object of an agreement is deemed unlawful if it:

•  Is forbidden by law 
•  Undermines the provisions of any law 
•  Is fraudulent 
•  Causes harm to a person or property 
•  Is considered immoral or against public policy by the court 

 Agreements with unlawful consideration or object are void.

 1. Forbidden by Law

•  When the object or consideration involves an act prohibited by law, the agreement is void. Acts forbidden by law include those punishable under statutes or prohibited by the legislation of Parliament and state legislatures.
•  For example, selling excisable articles without a government license or selling liquor without a license is illegal under the Excise Act. Contracts violating statutory prohibitions, whether express or implied, are null and void.

 2. Defeating the Purpose of Provisions of Any Law

• Even if the object or consideration is not explicitly forbidden by law, it may still be unlawful if it defeats the purpose of a legal provision. Agreements with such objects or considerations are void.
•  If a legislative enactment prescribes certain acts or promises, performance of such acts or promises that contradict the enactment is forbidden.