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Nudum Pactum under the Indian Contract Act, 1872

February 7, 2022

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This article has been written by Sneha Mahawar. from Ramaiah Institute of Legal Studies. The article discusses the concept of Nudum Pactum under the Indian Contract Act, 1872.

Introduction

The Indian Contract Act, 1872, establishes the law governing contracts in India and is the most important piece of legislation governing Indian contract law. The Act is founded on English Common Law principles. It is relevant to all Indian states. It establishes the conditions under which commitments made by contracting parties are legally enforceable. The Indian Contract Act defines a contract as an agreement enforceable by law under Section 2(h). The Indian Contract Act was enacted by the Imperial Legislative Council on 25th April 1872 that came into force on 1st September 1872.

In India, an agreement becomes a valid contract when it is enforceable in a court of law. The enforceability of an agreement depends on the six essentials of a valid contract namely, offer and acceptance, intention to create a legal obligation, free consent given by parties, the competence of parties, consideration, and lawful objective. Thus, if any one of the single essentials of a valid contract is not satisfied the contract becomes invalid and unenforceable in a court of law.

Meaning

Nudum Pactum

The term ‘Nudum Pactum’ has been derived from Latin terminology which means a naked agreement.

The adage denotes an agreement made without any consideration. As per law, a contract is only enforceable when it is inclusive of the basic requirement of consideration. Consideration is defined as a promise to pay money, valuable things, or any other perk as discussed by the parties engaged in the contract or agreement. Where there is no consideration that is a nudum pactum, and hence such a contract is neither enforceable nor valid.

A nudum pactum might be made verbally or in writing. Since these agreements are unenforceable, they may not be pursued in court. This indicates that these agreements do not come under the categories of agreements that can lead to legal action. Such agreement may constitute a modification or exemption to an existing duty.

The contract, on the other hand, is regarded as legitimate if it is sealed. Furthermore, some contracts, such as bills of exchange, sealed documents, and promissory notes, bear consideration as a result of their forms. Even if there is no formal consideration inside them, they are regarded as genuine.

No nudum pactum is enforced under English law. Every day, an enormous number of agreements are formed, and it would be absurd to treat each one as a legally enforceable contract.

Anson states that when one understands the history of assumption it would be clear that even in ancient days there was speculation that an agreement which is without any consideration is legally binding and can parties be bound to perform such agreements.

In 1756 Lord Mansfield stated that “All such agreements which are without consideration are merely a moral obligation.” This means that if an agreement is without consideration then the performance of such obligation is mere moral duty and responsibility of the party performing it. But if the party does not perform such obligations they cannot be legally bound to perform such obligations.

Under English law contracts can be formed in two ways namely, contract with consideration and contract by a seal. Contract with consideration is an agreement that satisfies all the six essentials of a valid contract. Whereas, contract by the seal is an agreement formed under a seal but without consideration.

Section 25 of Indian Contract Act, 1872

Section 25 of the Indian Contract Act, 1872 states that any agreement which is formed without any consideration is considered void. It also states that an agreement without consideration cannot be termed as a valid agreement.

Exceptions

Natural love and affection

If an agreement is created without consideration on account of natural love and affection between persons standing in close connection to one other. Additionally, if it is stated in writing and recorded under the legislation for the time being in effect for the registration of documents then such an agreement can be considered valid.

In Rajlukhy Dabee v. Bhootnath Mookerjee, 1900, the husband was sued for failing to fulfil his end of a commitment by failing to provide his wife with a separate apartment and support, but the contract was found to be invalid. The Court held, “the parameters of the agreement between the husband and wife revealed that there was no love and affection between them and so, it was without consideration”. As a result, it was void ab initio.

Past service

A promise to reward a person who has already freely done something voluntarily for the promisor, or something that the promisor was legally compelled to perform, is a lawful agreement without consideration.

In Sindha Shri Ganpat Singhji v. Abraham, 1896, A rendered services to B during his minority at B’s request; which were continued after B ceased to be a minor. After attaining a minority, B promised to pay an annuity to A for the services rendered in the past. It was held that this was a good contract and A can recover the money.

Time barred debt

A time-barred debt without consideration can be enforced on satisfying three conditions:

There should be a written promise which should be signed by the individual or his chosen representative.
There must be a promise to pay the debt in whole or in part.
The creditor must have enforced the debt for the duration of the limitation period.

Even if the debt has not been enforced in the duration of the limitation period, it is still recoverable if:

It is a recoverable debt and legal promise.
It is a written promise which is signed by the individual or his chosen representative.
It contains a clear promise.

No consideration is necessary to create an agency

Section 185 of the Indian Contract Act, 1872 states that no consideration is required to create an agency.

Gift

A gift means transferring any movable or immovable property by an individual to another individual without any consideration from another individual. Such agreements are valid and enforceable.

Bailment

Bailment is defined in Section 148 of the Indian Contract Act, 1872 as the conveyance of commodities from one person to another for a certain purpose. This delivery is based on a contract that states that once the purpose has been fulfilled, the products will be returned or disposed of according to the instructions of the person who delivered them. A bailment contract does not need any consideration. Thus, a bailment is a lawful agreement without consideration.

Charity

The contract is lawful if a person assumes a responsibility based on the commitment of another to give to charity. The “no consideration, no contract” rule does not apply in this circumstance.

Illustrations

The house is owned by Aman. Without any commitment to pay any fee, Aman engages Bob, a broker, to sell the house without any consideration to pay. Aman, on the other hand, sold the house on his own. In such a situation, Bob is not entitled to receive compensation since the agreement made to him was made without consideration.
X promises to transfer a property to his wife Y if she gives him divorce. After their divorce X denies transferring the property. Y cannot claim ownership of property as the agreement was nudum pactum.
Ram assures Sita that he would give her Rs. 50,000 and a ring for no consideration in return from her end. This is a mere promise, thus it cannot be enforced and amounts to nudum pactum.
Rahul who is Rohit’s father, promises to give Rohit Rs. 15,000 and has it written down and got it registered. This contract is based on natural love and affection, and as such, it is lawful under Section 25 of the Contract Act.
Soumya owes Bimal Rs. 41,000, but the Limitation Act prevents him from collecting. Soumya promises to pay Bimal Rs. 41,000 on account of the debt in writing. Because it fits within one of the exceptions listed in Section 25 of the contract statute, instead of being a mere promise (nudam pactum), it is legitimate and enforceable as a contract.

Case laws

Rann v. Hughes, 1778

Mary Hughes died, and Rann was the executor of her bequest. Isabella Hughes was the administratrix of John Hughes’s estate after he died intestate (not making a will before death). Mary and John had various disagreements while they were living, which were resolved through arbitration, with John agreeing to pay Mary £983 as a settlement. At the time of John’s death, this debt remained unpaid. Following Mary’s death, her executors demanded payment of the obligation on John’s inheritance, which they estimated to be worth at least £3000. Isabella pledged to pay the money, but she couldn’t since there was insufficient money in the estate.

The executors then sued Isabella, alleging that her pledge was made in her own right, not as administratrix, and thus not contingent on the estate having sufficient cash. The plaintiff was victorious at trial, and the verdict was maintained by the King’s Bench on appeal. This verdict was reversed in favour of the defendant on appeal to the Court of Exchequer. A writ of error was filed in response to this reversal. The defendant claimed that the commitment was made in her capacity as administratrix, but that even if it was a promise to be personally accountable, it was unenforceable due to the lack of a written contract or the lack of consideration.

This case was delivered by a single judge bench of Justice Skymer EB. The court stated that the submissions of the defendants held that agreements without consideration have no legal validity, and a promise or agreement not under seal is not actionable unless there be a consideration for the same, even if it is in writing.

Union of India v. F. Gian Chand Kasturi Lal, 1953

The plaintiffs in these instances filed three lawsuits seeking a return of salt duty that they had previously paid, claiming that they were salt stockists who had paid duty and were entitled to a refund under the notices. The Central Government challenged these lawsuits, claiming that they were not obligated to refund the duty and that any liability to pay, if any, was the responsibility of the West Punjab government.

Although the written assertions were not as precisely drafted as one would expect from the Union’s legal counsel, the matter of the Central Government’s duty to reimburse could not be dismissed. It was further claimed that the plaintiffs lacked standing.

In this case, the plaintiffs have not proven that they do not have any contract or legislation to back up their claim, and it is therefore unsustainable.

In this case, it was held by the High Court of Punjab-Haryana that “A consideration of some type or another is thus required to make a contract.” A ‘nudum pactum,’ or agreement on one side to do or pay anything without remuneration on the other, will not justify action in the eyes of the law, and a man cannot be forced to execute it.

In our system, the nakedness of a promise is defined by the lack of thought, not by the absence of formal criteria such as writing or registration. As a result, a bare promise, in our opinion, has no connection to the digest’s nudum pactum.

New Iraq Ahd Company (NIAC) case, 2014

In this case, NIAC signed a memorandum of agreement with the government to build a barrier for the 25th Infantry division, but the contract stipulated that:

This agreement will not become effective until the money is authorised and the contractor is told by the project officer to commence work.
This contract does not have funds accessible at this time.
The Government’s duty under this contract is conditional on the availability of allocated money from which to make contract payments.
The Government has no legal duty for any payment until funds are made available to the contracting officer for this contract and the Contractor receives the notification of such availability, which the officer must confirm in writing.

NIAC spent $175,440 on fence materials, but financing was never made available, and the contracting officer never gave notification that funds were available. NIAC requested reimbursement for the $175,440 it spent in anticipation of the fence’s construction, but the Board found that the contract was conditional on the availability of money, which never materialised, and therefore “the agreement never became binding.” NIAC was unable to collect anything since there was no contract to enforce and no consideration – it was a “nudum pactum” situation and thus, NIAC could not recover any amount.

Sympathy Katengeza Chisale v. Willie Mphoka Phiri, 2011

In this case, the plaintiff was legally entitled to require the defendant to deliver the three trucks to him under the defendant’s fiduciary obligations to the plaintiff. The plaintiff had instructed the defendant to deliver the trucks to him in Malawi. However, the plaintiff delivered the trucks to Mr. Lidamlendo without any such instruction given by the plaintiff. As a result, this delivery was a nudum pactum. As there was no agreement, the agreement isn’t enforceable.

Conclusion

Hence, a nudum pactum means a naked agreement. And no agreement is enforceable without consideration in a court of law until and unless it is formed out of love and affection, past services, time-barred debt, agency, or gift. Exceptions to the nudum pactum agreements are laid down in Section 25 of the Indian Contract Act, 1872.

The phrase ‘nudum pactum’ refers to an agreement made without any consideration. A contract is only legally binding if it includes the basic criterion of consideration. A commitment to pay money, valuable objects, or any other incentive as negotiated by the parties involved in the contract or agreement is referred to as consideration. A nudum pactum exists when there is no consideration, and hence such a contract is neither enforceable nor legitimate.

References

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Nudum Pactum under the Indian Contract Act, 1872

Introduction

Meaning

Nudum Pactum

Section 25 of Indian Contract Act, 1872