Important Definitions under the Act –

1. Offer(i.e. Proposal) [section 2(a)]:-When one person signifies to another his

willingness to do or to abstain from doing anything, with a view to obtaining the assent
of that other person either to such act or abstinence, he is said to make a proposal.
2. Acceptance 2(b):- When the person to whom the proposal is made, signifies his
assent there to , the proposal is said to be accepted.
3. Promise 2(b) :- A Proposal when accepted becomes a promise. In simple words,
when an offer is accepted it becomes promise.
4. Promisor and promisee 2(c) :- When the proposal is accepted, the person
making the proposal is called as promisor and the person accepting the proposal is
called as promisee.
5. Consideration 2(d):- When at the desire of the promisor, the promisee or any
other person has done or abstained from doing something or does or abstains from
doing something or promises to do or abstain from doing something, such act or
abstinence or promise is called a consideration for the promise.
Price paid by the one party for the promise of the other, Technical word
meaning QUID-PRO-QUO i.e. something in return.
6. Agreement 2(e) :- Every promise and set of promises forming the consideration
for each other. In short, agreement = offer + acceptance.
7. Contract 2(h) :- An agreement enforceable by Law is a contract.
8. Void agreement 2(g):- An agreement not enforceable by law is void.
9. Voidable contract 2(i):- An agreement is a voidable contract if it is enforceable
by Law at the option of one or more of the parties there to (i.e. the aggrieved party),
and it is not enforceable by Law at the option of the other or others.
10. Void contract :- A contract which ceases to be enforceable by Law becomes void
when it ceases to be enforceable.
Meaning of Certain Terms
Voidable contract: An agreement which is enforceable by law at the option of one
or more parties thereto but not at the option of other is a voidable contract. Ex. Any
one of the essential element of valid contract is missing.
Void ab initio: The agreement which from the very beginning is null and void with
no legal enforceability is called void ab initio.
Void agreement: An agreement not enforceable by law is said to be a void
agreement. It is void ab initio.
Void contract: A contract which ceases to be unenforceable by law becomes void.
Void contract is initially a perfectly valid contract but subsequent development turns
it into a void contract.
DIFFERENT TYPES OF AGREEMENTS
Void Agreements
An agreement not enforceable by law is said to be void. For eg. an agreement by a
minor has been held to be void. Section 24 to 30 of the Indian Contract Act, 1872,
makes specific mention of agreements which are void. Those agreements include an
agreement without consideration, an agreement, in restraint of marriage, and an
agreement in restraint of trade.
Voidable Contracts
An agreement which is enforceable by law at the option of one or more of the parties
thereto, but not at the option of the other, is a voidable contract. Thus, a voidable
contract is one which could be avoided by one of the parties to the contract at his
option. For eg, when the consent of the party to a contract has been obtained by
coercion, undue influence, fraud and misrepresentation, the contract is voidable at the
option of the party whose consent has been so obtained.

VOID CONTRACT VOIDABLE CONTRACT

A void contract is an agreement A voidable contract is an agreement that is
that is not legally enforceable legally valid and enforceable but may be voided
due to a defect or illegality in its by one of the parties due to certain
formation. circumstances such as misrepresentation or
coercion.
A void contract is considered A voidable contract is initially considered valid
null and void from the and enforceable, but one or both parties have
beginning, meaning it has no the option to void the contract.
legal effect right from the start.
Since a void contract is It can result in legal consequences if voided.
inherently invalid, it has no legal
consequences.
A void contract lacks mutual A voidable contract is based on mutual consent
consent, due to factors like but can be voided due to certain factors.
incapacity or fraud.
A void contract provides legal It offers legal protection primarily to the party
protection to both parties since with the option to void.
it is invalid and unenforceable
from the start.
A void contract can be declared A voidable contract can be declared void within
invalid at any time, even after a specific time frame or until the party with the
the contract’s formation. option to void exercises their right
It cannot be ratified or validated. It can be ratified if the party with the power to
void affirms the contract.
 OFFER : MEANING, ESSENTIAL ELEMENTS FOR VALID OFFER AND CASE
LAWS RELATING TO THE OFFER

Meaning - An Offer is intimation by words or by conduct of a willingness to enter into

a legally binding Contract.
Definition - Section 2(a) of the Indian Contract Act, 1872 defines the term "Proposal"
as follows: “when one person signifies to another his willingness to do or to abstain
from doing something with a view to obtaining the assent of the other to such an act
or abstinence, he is said to make a proposal”.
The person making the 'proposal' or 'offer' is called the 'promisor' or 'offeror' and the
person to whom the offer is made is called the 'offeree'.
EXAMPLES
A is making an offer to buy a car from B for 10000 Rs. Here B accepts it.
Ramesh makes a proposal to purchase the house from Rakesh. Here Ramesh makes
an offer with the intention to creat a legal obligation. It is a valid offer.
Types or kinds of offers
 Offers come in various forms and there are essentially seven types of offers:
 Express offer
 Implied offer
 General offer
 Specific Offer
 Cross Offer
 Counter Offer
 Standing Offer
 TYPE OF DEFINITION EXAMPLE RESULT
OFFER

EXPRESS Clear, direct offer in A offers to sell a car for Creates potential
OFFER words, oral or written Rs.10,000 to B. contract.

IMPLIED Offer inferred from A leaves car with price tag Potential contract if
OFFER actions or at B’s shop. accepted.
circumstances

GENERAL Open offer to the public A offers a reward for Potential contract
OFFER or a wide audience finding a lost dog in a when accepted.
poster.

SPECIFIC Directed at a particular A offers to sell a car to B Creates potential

OFFER person or group for a specific price. contract.

CROSS Simultaneous identical A offers to sell a car to B No contract; mutual

OFFER offers by two parties while B offers to buy it. rejection.

COUNTER Response with A offers to sell a car for Rejects the original
OFFER modified terms to the $10,000; B offers $8,000 offer.
original offer

STANDING An offer open for A invites tenders for a Accepted orders form
OFFER acceptance over a year-long supply contract. contracts.
period

Express Offer and Implied Offer

 Section 9 :- Promises, express and implied.—In so far as the proposal or
acceptance of any promise is made in words, the promise is said to be express.
In so far as such proposal or acceptance is made otherwise than in words, the
promise is said to be implied.
 Express Offer: When a proposal or acceptance of a promise is made using
words, it is considered an express offer. In other words, it’s a clear and direct
offer communicated in spoken or written language.
On the other hand, when a proposal or acceptance is conveyed in a manner other
than using words, it is categorized as an implied offer. This means that the offer is not
explicitly stated but is inferred from the actions or circumstances of the parties
involved
Example of implied offer
 Upton-on-Severn RDC v. Powell (FIRE Service)
 involved a situation where the defendant called a fire brigade, assuming the
service was free. The court found that although no verbal offer was made, the
defendant’s actions implied a request for Upton’s services and Upton, by
responding and providing those services, created an implied promise to pay.
General offer - Louisa Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256
 A General Offer is an offer that is open to anyone, effectively made to the public
in general. The concept of a General Offer was established in the landmark
case of Carlill v. Carbolic Smoke Ball Co. (Influenza Case)
 In this case, the Carbolic Smoke Ball company advertised that they would pay
£100 to anyone who contracted influenza, colds, or any disease caused by colds
after using their medicine according to the prescribed instructions.
 They also stated that £1000 had been deposited in the Alliance bank to
demonstrate their sincerity in the matter. A customer, Mrs. Carlill, used the
medicine but still contracted influenza and sued the company for the reward.
 The company argued that their offer was not intended to create a legally
binding agreement but was merely a marketing ploy to boost sales. They also
contended that an offer must be made to a specific person and since this offer
was not directed at any specific individual, they were not obligated to pay Mrs.
Carlill.
 However, the court ruled in favour of Mrs. Carlill, stating that in cases of general
offers, there is no need for explicit acceptance communication. Anyone who
fulfils the conditions of the contract is considered to have accepted the offer.
Furthermore, the money deposited by the company in the bank demonstrated
their intent to create a legally binding relationship and therefore, the Plaintiff
was entitled to the reward.
An Indian case, Lalman Shukla v. Gauri Dutt (SERVANT CASE), also illustrates the
concept of a General Offer. In this case, a servant was sent by his master to find his
missing nephew and announced a reward for anyone who could locate the nephew.
Whilst searching for the missing nephew the plaintiff Lalman Shukla was merely
performing his duty as a servant, he was working as a servant and it was his duty to
trace and find the missing nephew and for that purpose he was sent from kanpur to
Haridwar. There was no acceptance hence there was no agreement which can be said
to be enforceable by law according to Section 2(h). Without the knowledge of the
offer before accepting a valid contract cannot be created between both the parties.
Lalman Shukla came to know about the reward after it was declared by the defendant
as a result the plaintiff had no possibility to accept the offer. Hence, according to Gauri
Dutt, Lalman Shukla was not entitled to get the reward and therefore he cannot claim
it. There did not exist a contract between Gauri Dutt and Lalman Shukla.
Judgement
The plaintiff Lalman Shukla was in the service of the defendant Gauri Dutt, Lalman
Shukla was sent to search for the missing nephew as a part of his obligation.
Therefore, it could not be said that performance of the act was consideration for
defendants promise. In order to constitute a contract firstly there must be an
acceptance of the offer and there can be no acceptance unless there is knowledge of
the offer.
A General Offer of a continuing nature, like the one in the Carbolic Smoke Ball case,
can be accepted by multiple people until it is revoked. However, in cases where the
offer relates to obtaining information about a missing item, it is typically closed as
soon as the first person provides the required information.
Specific Offer
It is a type of offer that is directed toward a particular, identified individual. This type
of offer can only be accepted by the person for whom it was intended. It is established
that in cases where a contract is made with a specific individual for personal services,
such as writing a book, creating a painting, or any service unique to that person, the
offer was meant for a specific person and couldn’t be transferred to someone else
without consent.
 A offers to sell his horse to B for Rs 5000/-. Then only B can accept such an
offer because it is specific to him.
Cross offers
Cross offers are those types of offers which occur when two parties independently and
unknowingly make identical offers to each other. However, it’s important to note that
cross offers are not considered valid offers and they do not lead to the formation of a
contract. Here are the basic essentials of a cross-offer.
Counter Offer
A Counter Offer occurs when the offeree responds to the original offer with a qualified
acceptance that includes modifications or variations to the terms of the original offer.
It’s important to understand that a counter offer is, in fact, a rejection of the original
offer. Here’s an example to illustrate this concept:
Suppose A offers to sell a car for 10 Lakhs to B. Instead of accepting the offer as is,
B responds by agreeing to buy the car for 8 Lakhs. This response by B amounts to a
counter offer and effectively rejects A’s original offer. If later on, B agrees to buy the
car for the original price of 10 Lakhs, A may refuse.
This principle is well illustrated by Sir Jenkins CJ in the case of Haji Mohd Haji Jiva
v. Spinner, where it was established that any departure from the original offer
constitutes a rejection. In other words, when an acceptance contains variations or
modifications, it is not a valid acceptance but rather a counter proposal. The original
offeror must agree to this counter proposal for it to form a contract.
A counter offer is a rejection of the original offer. An example of this would be if A
offers B a car for 10 Lakhs, B agrees to buy for 8 Lakhs, this amounts to a counter
offer and it would mean a rejection of the original offer. Later on, if B agrees to buy
for 10 Lakhs, A may refuse.
Hyde v. Wrench
 The defendant wrote to the claimant offering to sell his farm for £1000. The
claimant wrote back saying that he would buy the farm for £950. The defendant
responded that he would not sell for that price. Later, the claimant wrote again
saying that he would pay £1000 for the farm. By this time, the defendant had
decided not to sell his farm at all. The claimant sued, claiming that the
defendant was contractually bound to sell the farm for £1000.
 Decision: The Court held in favour of the defendant. The original offer had been
revoked by the claimant’s counter-offer. Therefore, there was no contract
between the parties.
Standing Offer
Perclval Ltd. v. London County Council Asylums and Mental Deficiency Committee
(1918) 87 L.JKB 677
 The plaintiffs advertised for tenders for the supply of stores. The defendant
made a tender to the effect that he undertook to supply the company for twelve
months with such quantities of special articles as the company may order from
time to time. The Company, by a letter accepted the tender and subsequently
gave various orders which were executed by the defendant. Ultimately the
Company gave an order for goods within the schedule, which the defendant
refused to supply.
 HELD: The Company succeeded in an action for breach of contract. The tender
was a standing offer, to be converted into a series of contracts by the
subsequent acts of the company and that an order prevented possibility of
revocation, and the defendant, though he might regain his liberty of action for
the future, was meanwhile bound to supply the goods actually ordered.
 LEGAL RULES OR ESSENTIAL ELEMENTS OF A VALID OFFER
 In the contract, the most important aspect is that whether a party has actually
made the proper offer is a common challenge. for a valid offer necessary to
have this essential element in the proposal.
 1. Intention to create legal relations B&b
 2. Offer must be communicated to the offeree lalman shukla
 3. offer must be expressed or implied offer S.9
 4. offer must be definite, certain and not vague or ambiguous
 5.Lapse of time
 6. Acceptance
1. Intention to create legal relations: the first and most important thing is that
offer must be made with the intention of creating a legal obligation or relation. offer
itself has a binding effect. if an offer does not make with the intention of creating legal
relations then it not consider a valid offer.
Example: if A made an offer to B without the intention to create a legal obligation it
does not consider a valid offer.
The offer must be made with the intention of creating a legally binding agreement.
Balfour v. Balfour (1919 2 K.B.571)
 Mr. Balflour was a civil engineer and worked for the government as the
Director of Irrigation in Ceylon(now Sri Lanka).
 In 1915 both of them came back to England when Mr. Balflour was on leave
but due to an illness(arthritis) of Mrs. Balfour, she was unable to come back
to Ceylon with her husband.
 The husband promised to pay 30 euros per month to his wife until she
rejoined him in Ceylon. The husband failed to pay her the said amount hence
the wife sued him for the amount. The court held that the husband was not
liable as there was no intention to create a legal relationship.
Jones v Padavatton(1969)
 Mrs. Violet Laglee Jones agreed with her daughter Mrs. Ruby Padavatton that
if she would give up her job in the USA and studied for the bar exam in
England, the mother would pay her an allowance of 200$ per month.
 In 1964 the mother bought a house and varied the agreement by giving the
daughter a part of the house to stay and a part to rent so as to cover her
expenses and her maintenance.
  In 1967 the parties had an argument and as a consequence, the mother
brought an action for the possession of the house. The mother based her
claim on the allegation that the agreement was not made with the intention
of creating a legal relationship. It was held that there was no intention to
create a legal relationship and gave possession to the mother.
2. OFFER MUST BE COMMUNICATED
 Section 2(a) of the Indian Contract Act, 1872 defines the term "Proposal" as
follows: “when one person signifies to another his willingness to do or to
abstain from doing something.
 The emphasis here is upon the willingness to make proposal should be
signified.
 the term “signify” means to communicate or to make known
 Communication: A most important part of the offer is the communication of
the offer. the offer must be communicated by one party to another.
communication of offer must be done in various ways like writing, orally, and
also by conduct.
Lalman Shukla v. Gauri Dutt (SERVANT CASE), also illustrates the
concept of a General Offer. In this case, a servant was sent by his master to find his
missing nephew and announced a reward for anyone who could locate the nephew.
Whilst searching for the missing nephew the plaintiff Lalman Shukla was
merely performing his duty as a servant, he was working as a servant and it was his
duty to trace and find the missing nephew and for that purpose he was sent from
kanpur to Haridwar. There was no acceptance hence there was no agreement which
can be said to be enforceable by law according to Section 2(h). Without the
knowledge of the offer before accepting a valid contract cannot be created between
both the parties.
Lalman Shukla came to know about the reward after it was declared by the
defendant as a result the plaintiff had no possibility to accept the offer. Hence,
according to Gauri Dutt, Lalman Shukla was not entitled to get the reward and
therefore he cannot claim it. There did not exist a contract between Gauri Dutt and
Lalman Shukla.
Judgement
The plaintiff Lalman Shukla was in the service of the defendant Gauri Dutt,
Lalman Shukla was sent to search for the missing nephew as a part of his obligation.
Therefore, it could not be said that performance of the act was consideration for
defendants promise. In order to constitute a contract firstly there must be an
acceptance of the offer and there can be no acceptance unless there is knowledge of
the offer.
 3. offer must be expressed or implied offer read S.9
Offer may be general or specific
When the offer is made to a specific or ascertained person, it is known as
specific offer. It can be only accepted by the person to whom the offer is made or to
the person duly authorized by him. When the same is made to any particular person
but to the public at large, it is known as general offer. A general offer can be accepted
by any person. Illustration ‘A’ advertises in the newspaper that whosoever finds his
missing son would be rewarded with 2 lakh. ‘B’ reads it and after finding the boy, he
calls ‘A’ to inform about his missing son. Now ‘A’ is entitled to pay 2 lakh to ‘B’ for his
reward. In Carlill v. Carbolic Smoke ball Co., The smoke ball company offered by
advertisement a reward of $100 as reward to anyone who contacted influenza after
having used the Smoke Ball with the printed directions. Mrs.Carlill (plaintiff) relying on
the advertisement purchased a smoke ball from a chemist, used the same in
accordance with the directions of the defendants, but still caught influenza. She sued
the defendant to claim the reward of $100 advertised by them. There may be general
offer and acceptance of the general offer may not be communicated. By fulfilling the
conditions of such offer the offeree is said to accept the offer.
4.Definiteness: offer must be definite, certain and not vague or
ambiguous
 Another important element is definiteness in offer. It means that the terms
and conditions which is mentioned in the offer must be definite, clear, and
specific. The most important thing is that there should not be any vagueness
and ambiguity in the terms and conditions of the offers.
 Example: Ramesh made a proposal to buy a car from Rakesh. Here Rakesh
has three cars. Here Ramesh did not mention a specific car that he want to
purchase. so this offer is not valid because it creates ambiguity.
5. Lapse of time
 Most important thing is that offer must be accepted within the time which is
given by the party. If an offer it not accepted within a time specified by the
offerer then an offer can lapse.
 Example: Shah made an offer to Manish and gave the time to accept within
two days. Manish accepted the offer after two days. so here, the offer should
be lapse because acceptance of the offer is not within the time limit.
6. Acceptance
 Another element is that the offer which is made by the offerer must be
capable enough to accept by the parties. Acceptance of the offer is one of the
necessary things in a contract. if the offer can not be accepted by the party
then both parties can not enter into the agreement.
  If the above elements are present in an offer, it can be considered as a valid
offer in India.

DEFINE ACCEPTANCE. DISCUSS THE RULES REGARDING A VALID ACCEPTANCE

WITH LEADING CASES.
A proposal when accepted, results in an agreement. It is only after the
acceptance of the proposal that a contract between the he parties can arise. According
to Section 2(b): "When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a
promise" The person making the proposal does not become bound thereby until its
acceptance. As soon as his proposal is accepted that is known as promise, whereby
both the parties become bound.

So as the definition states, when the offeree to whom the proposal is made,
unconditionally accepts the offer it will amount to acceptance. After such an offer is
accepted the offer becomes a promise.Say for example A offers to buy B’s car for
rupees two lacs and B accepts such an offer. Now, this has become a promise.

When the proposal is accepted and it becomes a proposal it also becomes

irrevocable. An offer does not create any legal obligations, but after the offer is
accepted it becomes a promise. And a promise is irrevocable because it creates legal
obligations between parties. An offer can be revoked before it is accepted. But once
acceptance is communicated it cannot be revoked or withdrawn.

When the proposal or acceptance is made in words, the promise is said to be

express. When the proposal or acceptance is made otherwise than in words, the
promise is said to be implied1.The offeree is not bound to accept the offer. He is free
to reject it or make it to lapse by non-acceptance. .

EFFECT OF ACCEPTANCE

A contract is created only after an offer is accepted. Before the acceptance is

made neither party is bound thereby. At that stage the offeror is free to revoke or
withdraw his offer, and the offeree is free not to accept the offer or to reject the same.

1
See Section 9 of the ICA, 1872
After the offer has been accepted, it becomes a promise which, if other conditions of
a valid contract are satisfied, binds both the parties to the promise. After acceptance,
each party becomes legally bound by the promise made by him through the medium
of offer and acceptance of it.

The effect of acceptance of an offer has been explained by Anson in the following
words:

“Acceptance is to an offer what a lighted match is to a train of gunpowder.It

produces something which cannot be recalled or undone. But the powder may have
lain until it has become damp, or the man who laid the train may remove it before the
match is applied. So an offer may lapse for want of acceptance or be revoked before
acceptance. Also the offeree may decide to reject the offer. Until an offer is accepted,
it creates no legal rights, and it may be terminated at any time.”

Just as when the lighted match comes in contact with gunpowder, there would
be an explosion and then it will not be possible to bring the things back to the original
position, similarly, after the offer is accepted, it creates a contract whereby both the
parties become bound and none of them can go back. What happens after explosion
or after acceptance cannot be undone. There is a possibility that in course of time the
powder may have become damp or the train of gunpowder may have been removed,
and in that event the damp powder or the one which has been removed, will not
create any explosion. In the same way, the offer lapses if the same is not accepted
within the prescribed time, or, if no time is prescribed, by remaining unaccepted until
the expiry of the reasonable time, or else the offer could be revoked by notice of
revocation by the offeree. Once the offer lapses or is revoked it is incapable of being
converted into a contract by being accepted. Thus the acceptance of the offer, while
same is still alive, would result in a contract

ESSENTIALS OF A VALID ACCEPTANCE

In order that acceptance of an offer can result in a contract, the acceptance

must satisfy the following requirements

1. Acceptance should be communicated by the offeree to the offeror

2. Acceptance should be absolute and unqualified

3. Acceptance should be made in some usual and reasonable manner unless the
proposal prescribes the manner of acceptance

4. Acceptance should be made while the offer is still subsisting

1. ACCEPTANCE SHOULD BE COMMUNICATED COMMUNICATED BY THE

OFFEREE TO THE OFFEROR.
The offeree must communicate the acceptance. The communication may be
express or implied. Sometimes the conduct of a person might indicate his assent. For
eg. when a passenger boards a bus and travels thereby, he impliedly assents to pay
the necessary fare. In order to create a contract, acceptance of the offer and
intimation of acceptance by some external manifestation, which the law regards as
sufficient is necessary. For a valid contract the acceptance must be communicated and
moreover, such communication should be made to the offeror.

In Felthouse v. Bindley, Felthouse wrote a letter to his nephew offering to

buy his horse for £ 30-15 sh. In the letter containing the offer it was also mentioned:
"If I hear no more about the horse I shall consider the same to be mine at £ 30-15
sh." The nephew did not reply this letter. He, however, told his auctioneer, Bindley,
that he wanted to reserve this horse for his uncle and, therefore, desired that the
horse be not sold by the auctioneer. The auctioneer (Bindley) disposed of the horse
by mistake. Felthouse sued Bindley for the tort of conversion on the plea that
Felthouse had become the owner of the horse which Bindley had disposed of. It was
held that since the nephew had not communicated the acceptance to Felthouse, no
contract had arisen in this case, and therefore, Felthouse had not become the owner
of the horse and as such his action for conversion failed.

This case also explains that the intention of the nephew to accept the offer of
his uncle, or the communication of his intention to the auctioneer, was not enough to
create the contract. Another point explained by this case is that the offeror cannot
impose upon the offeree a duty to reply, and therefore, an offeror cannot say that
failure to reply will be deemed to be the acceptance of the offer. The offeree has a
right to make the offer lapse by not being accepted within the prescribed time or the
reasonable time, as the case may be. Mere silence cannot be regarded as acceptance
of the offer.

A) Acceptance shall be communicated to the offeror himself:-

Facts: Powell v. Lee , Powell was one of the candidates for the post of
headmaster of a school. The Board of Managers passed a resolution selecting him for
the post. No communication about this decision was made to Powell by the Board.
One of the member of the board who had not been authorized to communicate this
decision, acting in his individual capacity, informed Powell about his selection for the
post. The board of managers met again and decided to cancel the appointment of
Powell and appoint another candidate. Powell sued for the breach of contract. It was
held that communication of acceptance was not valid. It was almost like overhearing.
Communication shall be made by offeree/acceptor himself

2. ACCEPTANCE SHOULD BE ABSOLUTE AND UNQUALIFIED

For a valid acceptance it is also essential that the acceptance should be absolute
and unqualified. When the letter of acceptance contemplates future negotiations for
finalization of the terms of contract, there arises no contract. It may be noted that the
conditional or qualified acceptance is not the proper acceptance for the creation of a
valid contract.

Read Section 7(1) of ICA, 1872.

If I offer to sell my radio to you for Rs. 500 and you convey that you are willing
to pay only Rs. 400 for the same, there is no contract in this case. Your willingness to
pay Rs. 400 is not acceptance of my offer, it is counter offer by you. By your counter
offer you are willing to purchase the radio for Rs. 400 instead of Rs. 500. A contract
can arise if I unconditionally accept your offer (counter offer). By conditional
acceptance or the counter offer, the original offer is deemed to be rejected. Once the
original offer is destroyed by counter offer, it is a dead offer and cannot be accepted
unless renewed. Thus, if in the above illustration, after making a counter offer of Rs.
400, you have a second thought and now you want to purchase my radio for Rs. 500
and you write about the same to me, this cannot be considered to be acceptance at
all because my original offer has already lapsed. This in fact is now another offer from
your side to purchase my radio for Rs. 500, which can result in a contract if I prefer
to accept your offer.

The point may be illustrated by referring to the case of Hyde v. Wrench, There
an offer was made by A to B for the sale of a farm for 1,000 pounds. B rejected this
offer and said that he will pay only £ 950 to which A did not agree. Thereupon B said
that he was willing to pay 1,000 pounds to which also A did not agree. B sued A and
contended that there was a contract by which A was bound. It was held that B had
once rejected A's offer by his counter offer to pay 950 pounds and this made the
original offer to lapse, and therefore, no contract had resulted in this case.

3. ACCEPTANCE SHOULD BE MADE IN SOME USUAL AND REASONABLE

MANNER UNLESS THE PROPOSAL PRESCRIBES THE MANNER OF
ACCEPTANCE
Read Section 7(2) of ICA, 1872.

Acceptance should be expressed in usual/prescribed manner. According to

Section 7(2), the acceptance must be "expressed in some usual and reasonable
manner, unless the proposal prescribed the manner in which it is to be accepted". It
means that if the manner of acceptance has been prescribed by the proposal, the
acceptance has to be in that prescribed manner, otherwise the same may be made in
some usual or reasonable manner.

Eliason v. Henshaw. In this case the offeror wanted that the acceptance should
be sent by wagon. The offeree, thinking that the acceptance sent by post will reach
earlier, despatched the acceptance by post. The letter in fact reached after the arrival
of the wagon. It was held that the offeror was entitled to treat the acceptance as
invalid.

4. ACCEPTANCE SHOULD BE MADE WHILE THE OFFER IS STILL

SUBSISTING
It has already been noted that the offeror is free to withdraw the offer or the
offer is revoked under various circumstances mentioned in Section 6. After the offer
has been withdrawn or has lapsed, there is nothing which can be accepted. It is,
therefore, necessary that the acceptance should be made while the offer is still alive
and subsisting. Acceptance after the lapse of the offer cannot give rise to a contract.
Similarly, the offer is deemed to have ended by rejection of the original offer or a
counter offer. In such a case also, once the offer has lapsed, an attempt to accept
the same would not give rise to any legal obligation.

REVOCATION OF OFFER AND ACCEPTANCE

Revocation of Offer

It is only after the acceptance of an offer that there arises a contract and then
both the parties become bound by their respective promises. Before the offer has been
accepted, it can be revoked. After the offer has been accepted it ripens into a contract
and then it cannot be revoked.

Modes of revocation of offer S.6 mentions various modes of revocation of offer

• Notice of Revocation

• Lapse of time,

• Failure to accept condition precedent

• Death or insanity of offeror

Revocation by Notice

It may be revoked at any time before it is accepted. The proposal may be

revoked by the communication of notice of revocation which has to be communicated
by the proposer or his agent and not by anybody else. In India, the notice of revocation
has to be communicated by the proposer only, whereas in England the offer stands
revoked even though the offeree comes to know about the revocation of the offer
through some other source and not by a notice by the offeror himself.

By lapse of time

A proposal is revoked by the lapse of the time prescribed in such proposal for
its acceptance, or, if no time is prescribed, by the lapse of a reasonable time.
Sometimes the party may expressly fix the time up to which the offer will remain open.
An offeror, who has mentioned that his offer is open until a particular time, is not
debarred from revoking the offer earlier than that time, if he so likes. For eg. if A has
made an offer to sell his property to B for certain price, also stating that the offer is
open till 12th June, 9:00 a.m. the offer would be revoked on 11th June if on that date
A disposes of the property to somebody else with notice to B. An attempt on part of
B to accept this offer on 12th June (before 9:00 a.m.) will be of no avail as the offer
has already been revoked. Similarly, expressly rejecting an offer even before the lapse
of a fixed or reasonable time makes the offer to lapse.

By failure to fulfill a condition precedent

When the offer is subject to some conditions precedent, such a condition has
got to be fulfilled by the acceptor before making the acceptance. If the acceptor fails
to fulfill the condition precedent to acceptance, the offer stands revoked. For example,
if the offer requires the deposit of some earnest money, or the execution of some
document, etc, this condition must be fulfilled. In State of M.P. v. Goberdhan Nath,
Tenders for the sale of certain goods were invited subject to the condition that 25%
amount was to be paid when the tender was accepted. A’s tender was the highest and
the same was accepted, but he failed to fulfill this condition. It was held that no
contract had arisen merely because A’s tender was accepted. Therefore, if A failed to
take the goods and pay for them, he could not be made liable for the breach of
contract.

By death or insanity of the offeror

An offer is revoked by the death or insanity of the offeror, if the fact of his
death or insanity comes to the knowledge of the acceptor before acceptance. In India,
the death or insanity of the offeror does not automatically make the offer to lapse.
The offer stands revoked if the fact of death or insanity comes to the knowledge of
the acceptor before acceptance. It means if the fact of death or insanity has not come
to the knowledge of the offeree while he accepts the offer, it is valid acceptance giving
rise to a contractual obligation. Under English Law, death of the offeror revokes an
offer even if acceptance is made in ignorance of the death.

Revocation of Acceptance
 S.5 “An acceptance may be revoked at any time before the communication of
the acceptance is complete as against the acceptor, but not afterwards”. It has already
been noted above that when the contract is created through post, according to S.4,
by the posting of the letter of acceptance:

• the proposer becomes bound when the letter of acceptance is posted to him,

• but the acceptor becomes bound when the letter of acceptance reaches the
proposer. Since the acceptor does not become bound immediately on posting his letter
of acceptance, he is free to revoke the acceptance by adopting speedier mode of
communication, whereby his communication of revocation of acceptance may reach
earlier than his letter of acceptance.

CONSIDERATION

Introduction

Section 25 an agreement made without consideration is void subject to certain

exceptions. Consideration means something in return for the promise. It may be either
some benefit conferred on one party or some detriment suffered by the other. It is
the price of the promise for each party

Definition of Consideration Section 2(d) of Indian Contract Act, 1872

 defines consideration as “when at the desire of the promisor, the promisee or
any other person has done or abstained from doing, or does or abstains from doing,
or promises to do or abstain from doing something, such act or abstinence or promise
is called a consideration for the promise”.

The definition requires the following essentials to be satisfied in order there is

valid consideration

1. Consideration to be given ‘at the desire of the promisor’.

2. Consideration to be given ‘by the promisee or any other person’.

3. Consideration may be past, present, future, in so far as the definition says

that the promise:

(i) Has done or abstained from doing, or

(ii) Does or abstains from doing, or

(iii) Promises to do or to abstain from doing, something.

5. There should be some act, abstinence or promise by the promise, which

constitutes consideration for the promise.

➢ Blackstone – “consideration is the recompense given by the party contracting

to the other”

➢ Cheshire and Fifoot – “a price for the promise”

➢ Sir Frederick Pollock- “consideration is the price for which the promise of the
other is bought and the promise is thus given for value is enforceable”.

➢ Patterson – “consideration means something which is of some value in the eye

of law. It may be some benefit to the plaintiff and some detriment to the
defendant.”

1.Consideration at the desire of the promisor

Consideration must have been given at the desire of the promisor, rather than
voluntarily or at the instance of some third party. Example: A saves B’s goods from
a fire without being asked to do so. A cannot demand payment for his service. In
Durga Prasad vs. Baldeo, Plaintiff constructed few shops in a market at the
instance of the collector of that place. Defendant occupied one of the shops in the
market. Money for the construction of the market was spent by the plaintiff, the
defendants, in consideration thereof, made a promise to pay to the plaintiff
commission on the articles sold in that market. Defendant failed to pay the
promised commission. Held: Consideration for promise to pay the commission for
construction of the market was not at the desire of the defendant but on the order
of collector. Therefore, held that since the consideration did not move at the desire
of the defendant they were not liable in respect of the promise made by them.

Subscription for a charitable purpose

A promise to contribute an amount for a charitable purpose may not be

enforceable because against this promise there may be no consideration. But a
promise to pay subscription becomes enforceable when definite steps have been
taken on the faith of the promised subscription. In Kedarnath v. Gorie
Mohammed, There was a proposal to construct a Town Hall at Howrah provided
sufficient funds would be available by way of subscription. The defendant was one
of the subscribers, having promised to pay Rs.100 by signing his name in the
subscription book for the purpose. On the faith of the promised subscriptions, the
plaintiff engaged a contractor for the purpose of the construction and started a
construction work. The defendant refused to pay his subscription on the ground
that he was not legally bound by his promise because there was no consideration
for the same. Held: That engaging a contractor and starting the construction on
the faith of the promise was sufficient consideration to enforce the promise and,
therefore, the defendant was bound to pay the amount promised by him.

2.Consideration by promisee or any other person

According to Indian law consideration may be given by the promisee or any

other person. In India there is a possibility that the consideration for the promise
may move not from the promisee but a third person, who is not a party to the
contract. Thus, as long as there is a consideration for a promise, it is immaterial
who has furnished it. It may move from the promisee or from any other person.
In English law, consideration should move from promisee only. In Chinnaya vs.
Ramaya, A, an old lady, granted an estate to her daughter (defendant) with a
direction that the daughter should pay an annuity of Rs. 653/- to A’s brother
(plaintiff). On the same day the defendant made a promise to the plaintiff that she
would pay the annuity as directed by A. The defendant failed to pay the stipulated
sum. In an action against her by the plaintiff she contended that since the plaintiff
himself had furnished no consideration, The Madras High Court held that in this
agreement between the defendant and plaintiff, the consideration has been
furnished by the defendant mother and that is enough consideration to enforce
the promise between the plaintiff and the defendant.

3.Consideration may be past, executed or executory

Indian Contract Act recognizes three kinds of consideration, viz., Past, Executed
and Executory. It says that when at the desire of the promisor, the promise and
the other person:

(a) Has done or abstained from doing, ( the consideration is past)

(b) Does or abstains from doing, ( the consideration is executed or present)

(c) Promises to do or to abstain from doing, ( the consideration is Executory or

future)

Past Consideration

Past Consideration means that the consideration for any promise was given
earlier and the promise is made thereafter. It is, of course, necessary that at the
time the act constituting consideration was done, it must have been done at the
desire of the promisor. For eg. I request you to find my lost dog. After you have
done the same, if I promise to pay you Rs.100 for that, it is a case of past
consideration. For my promise to pay you Rs.100 the consideration is your efforts
in finding my lost dog and the same had been done before I promised to pay the
amount. Here the consideration has been given at my request, because it is only
when I request you to find the dog.

Past services voluntarily rendered

Indian Contract Act recognises only such consideration which has been given
at the desire of the promisor, rather than voluntarily. If consideration has been
given voluntarily, it is no consideration. For example, if my dog has been lost and
without any request from me to find the same, you find that on your own and
deliver the dog to me. This is a case of past services rendered voluntarily. I promise
to pay Rs. 100 to you after you have rendered these services,- can such an
agreement been forced ? Yes it comes in the exception.

Executed or present consideration

When one of the parties to the contract has performed his part of the promise,
constituting the consideration for the promise by the other side it is executed
consideration. A advertises an offer of reward of Rs. 100/- to anyone who finds
out his lost dog and brings the same to him. B finds the lost dog and brings the
same to him. When B did his part of the job that amounted to acceptance of the
offer, resulting in a binding contract under which A is bound to pay Rs. 100/- to B,
and also simultaneously giving consideration for the contract. The contract in this
case is said to be “executed”. Executed consideration is different from past
consideration – executed consideration is the consideration provided
simultaneously with the making of the contract. In case of past consideration at
the time of providing of the consideration the promise is nonexistent.

Executory or future consideration

When one person makes a promise in exchange for the promise by the other
side, the performance of the obligation by each side to be made subsequent to the
making of the contract, the consideration is known as Executory. A agrees to
supply certain goods to B, and B agrees to pay for them at a future date, this is a
case of executory consideration.

Consideration need not be adequate

 A contract supported by consideration is valid even though it is inadequate.
Explanation II to section 25, “An agreement to which the consent of the promisor
is freely given is not void merely because the consideration is inadequate; but the
inadequacy of the consideration may be taken into account by Court in determining
the question whether the consent of the promisor was freely given.” The burden
is on the party pleading absence of free consent. Inadequacy of consideration is
by itself is not ground for treating the contract as invalid but it may be a factor
which the court may take into consideration to know whether the consent of a
party was free. For eg. A agrees to sell a horse worth Rs.1, 000 for Rs.10. A denies
that his consent to the agreement was freely given. The inadequacy of the
consideration is a fact which the court should take into account in considering
whether or not A’s consent was freely given.

Consideration must be real, of some value

Although it is not necessary that consideration should be adequate, it is,

however, necessary that it should be real and should not be unsubstantial. In
White v. Bluett A son used to complain to his father that his brothers had been
given more property than him. The father promised that he would release the son
from a debt if the latter promised stopped complaining. After the father’s death an
action was brought by the executors to recover the debt. The son contended that
the father had made a contract to release him from the debt in consideration for
his promise not to bore his father. Held: Promise by son not to bore his father with
complaints in future did not constitute good consideration for the father’s promise
to release him, and, therefore, the son continued to be liable for the debt. Promise
not to bore the promisor is not enough to constitute consideration

NO CONSIDERATION NO CONTRACT – EXCEPTIONS

Promise due to natural love and affection [ S.25(1)]

When the promise is made in favour of a near relation on account of natural

love and affection, the same is valid even though there was no consideration for such
a promise. The following are requirements:
• The parties to the agreement must be standing in a near relationship to each other.
• The promise should be made by one party out of natural love and affection for the
other.

• The promise should be in writing, and

• The agreement is registered.

What is near relation has neither been defined in the Act, nor in any judicial
pronouncement. But, from the various decided cases it appears that it will cover blood
relations or those related through marriage, but would not include those relations
which are not “near”, but only remotely entitled to inherit. “Natural love and affection”
between the parties so nearly related is also needed. “Near relation” does not
necessarily imply natural love and affection. In Rajlucky Dabee Vs. Bhootnath
Mookerjee - after lot of disagreements and quarrels between a Hindu husband and
his wife they decided to live apart and husband executed a registered document in
favour of wife whereby he agreed to pay for her separate residence and maintenance
and agreement also mentioned about quarrels and disagreements between the two.
Held that from the recitals in the document it was apparent that the document had
been executed not because of natural love and affection between the parties but
because of the absence of it, and therefore the wife was not entitled to recover the
sums mentioned in the document.

Compensation for past voluntary services [S.25(2)]

When something has been done “at the desire of the promisor”, that constitutes
a good consideration in respect of a subsequent promise to compensate for what has
already been done. The second exception to Section 25 covers “cases where a person
without the knowledge of the promisor, or otherwise than at his request does the
latter some service, and the promisor undertakes to recompense him for it. The
promise to compensate, though without consideration, is binding because of this
exception. The exception also covers a situation where the promise is for doing
something voluntarily “which the promisor was legally compellable to do.” When A
finds B’s purse and gives it to him and then B promises to pay A Rs.50, or A supports
B’s infant son and B promises to pay A’s expenses in so doing, there is a valid contract
in such cases although A’s act was a voluntary one. The exception covers situations
where the service is rendered voluntarily and without the promisor’s knowledge. It is
also necessary that the service must have been rendered to the promisor and nobody
else.

Promise to pay a time barred debt

Another situation when an agreement is a valid contract even without any

consideration is a promise to pay a time-barred debt. Section 25 (3) requires the
following essentials to be satisfied in such a case.

▪ The promise must be to pay wholly or in part a time barred debt, i.e. a debt of which
the creditor might have enforced payment but for the law for the limitation of suits.

▪ The promise must be in writing and signed by the person to be charged there with,
or his duly authorized agent.

It is necessary that the debt must be one of which the creditor might have
enforced payment but for the law for limitation of suits. It, therefore, does not cover
such debts which are unenforceable for some other reasons. Thus if an insolvent
debtor has been discharged from payment under the insolvency law a subsequent
promise by him to pay that debt cannot be enforced unless there is a fresh
consideration for the same. Similarly, if the payment of the debt cannot be enforced
because the debt was contracted by a person during his minority, the same is not now
enforceable if, on attaining majority, a promise is made to pay the same, because a
minor’s agreement which is void is incapable of being validated by ratification.

Agency

According to section 185 of the Indian Contract Act, 1872, no consideration is

necessary to create an agency.

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 the rule of an agreement
without consideration being void does not apply to gifts made by a donor and accepted
by a donee.
Doctrine of Privity of
Contract

This article defines Section 2(d) of the Indian Contract

Act of 1872 which deals with the definition of
consideration. This article also points out the general rule
of the doctrine of Privity of contract. This article also
points out the exceptions to the general rule of the third
party. Some landmark cases and other important cases
are also incorporated in this article to explore the doctrine
of Privity of contract and consideration in a more efficient
manner.

1.1 INTRODUCTION TO CONSIDERATION

One of the valid essentials of a valid contract is the

presence of consideration. The final decree in India under
certain circumstances is that “an agreement without a
consideration is void”.
Consideration in simpler words means something which
has some value within the eyes of the law, moving from
the plaintiff. Section 2(d) of the Indian Contract Act of
1872 deals with the definition of consideration. Without a
valid and legitimate consideration, the transaction made is
just recognized as a voluntary gift.

2. INTRODUCTION TO PRIVITY OF CONTRACT

The doctrine of Privity of Contract is a general principle of

law. This doctrine provides that a contract cannot confer
rights or impose allegations upon any individual who is not
a party to the contract.

A party “A” promised “B” to pay Rs. 100 to the third party
“C”. Just in case of any breach of contract, “A” and “B” can
sue each other. But, “C” cannot sue the parties. This
illustration throws light on the doctrine of Privity of
Contract.

The doctrine of Privity of consideration is of the view that

only that person who has provided consideration can
enforce a contract and take up any action against it. In the
above mentioned illustration, “C” has not paid any
consideration on his part, so he cannot sue the parties in
case of breach of contract.

There are some aspects of the doctrine:

(i) An individual cannot enforce rights under a contract to

which he is not a party;
(ii) A person who isn’t party to a contract cannot have
contractual liabilities imposed on him;

(iii) Consensual remedies are designed to reimburse

parties to the contract, not third parties or strangers.

2.1 Privity of Contract in English law

The modern day third party rule or the doctrine of Privity

of Contract was established in the year 1861, in the
famous case of Tweddle v. Atkinson. Let us understand
the existence of the doctrine of Privity of contract.

2.1.1 Tweddle v. Atkinson case

The famous case of Twiddle v. Atkinson[1]is recognized

as one of the foremost significant decisions made to the
doctrine of Privity of contract. In this said case, it had
been held that only parties to the contract can sue each
other. Some facts of the case are mentioned below:

1. The plaintiff, “A” married a lady “B”.

2. After their marriage, a contract was made in writing

between the plaintiff’s father and his father-in-law.

3. The contract said that both the fathers would pay a

particular sum of cash to the plaintiff on marriage.

4. After their duly marriage, B’s father died before his

portion of cash could have been paid.
5. “A” brought an action against the executors of B’s father
to recover the promised amount.

In this case, it was held that the plaintiff was both a

stranger to the contract as well as a stranger to the
consideration. Therefore, he couldn’t enforce the claim
nor he couldn’t sue for the same.

2.1.2 Other landmark case

Dunlop Pneumatic Tyre Co. Ltd. V. Selfridge & Co. Ltd[2],

the rule of Privity of contract was reaffirmed by the House
of Lords. It was held that until there exists a contract
between two parties, nobody can sue a case against the
opposite party. If a party acts as an agent for another
party, the party acting as an agent is not prone to pay for
the recovery of damages or consideration.

2.2 Privity of Contract in Indian Law

The rule of Privity of contract is not a very well established

doctrine in India. Though under the Indian Contract Act,
the definition of consideration is much wider than that of
the definition in English law, the common law principle of
Privity of Contract is only applicable in India, with the
effect that only a party forming a contract is entitled to
enforce the same.

2.2.1 Jamna Das v. Ram Avtar

In the landmark case of Jamna Das v. Ram Avtar[3], it was

seen that A had mortgaged some property to X. A then
sold his property to B. B having agreed with A to
discharge the mortgage debt to X. X brought an action
against B to recover the mortgage money. It had been
held by the Privy Council that since there was no contract
between X and B, X couldn’t enforce the contract to
recover the cash from B.

It was held by Lord Macnaghten in observing that the

undertaking to pay back the mortgage money being only
by the purchaser of the property in favor of the seller,
thereof he stated:

“The credit holder has no liberty to avail himself of that.

He was no party to the sale. The purchaser entered into
no contract with him, and therefore the purchaser is not
personally bound to pay this mortgage debt.”

2.2.2 Other landmark cases

Advertising Bureau v. C.T. Devaraj[4], in this case, the

circus owner placed an order with the plaintiff-appellant
for creating advertisements for the circus. The plaintiff-
advertiser did not make any agreement with the financer
of the circus. The advertiser was not a party to the
contract between the financer and the owner of the
circus. There being no Privity of contract between the
advertiser and also the financer, the suit by the advertiser
made against the financer was, therefore, dismissed.

3. Exceptions to the rule of Privity of contract

Any stranger or a person who is not a party to the
contract can sue on a contract in certain cases. Following
are some exceptional cases where a stranger can sue a
case against other parties to the contract:

3.1 Trust of contractual rights or beneficiary under a

contract

Indian law recognized this exception. It had been stated

that, if a contract is created between the trustee of a trust
and another party, then the beneficiary of the trust can
sue by enforcing his right under the trust, whether or not
he is a stranger to the contract. In Narayani Devi v. Tagore
Commercial Corporation Ltd.[5], the plaintiff was the
widow of A, who came into contract with B. C stood as
surety of B. After the death of A, some payments were
made by C to the plaintiff. But after sometime, the
payments were stopped. The plaintiff brought an action
against B and C to recover the amount. One of the
defendant pleaded that she was not legally entitled to
bring any suit. The Calcutta High Court keeping in view
the facts and circumstances of the case held that the
plaintiff was entitled to sue although she was not a party
to the contract.

3.2 Provision for marriage expenses or maintenance under

a family arrangement

If under a family arrangement, any contract is formed, and

that contract is meant to secure a benefit to the third
party or a stranger, then the stranger can sue his own
right as a beneficiary of the court. It mostly happens in
such cases, where there occurs partition in joint family
property between the male members, a provision is
created for the maintenance and upkeep of the female
members of the family.

In Veeramma v. Appayya[6], under certain family

arrangement, the father’s house was to be conveyed to
his daughter and therefore the daughter undertook to
maintain him in his lifetime. The daughter being a
beneficiary under the compromise arrangement, it had
been held that she was entitled to sue for the specific
performance in her favour.

3.3 Conduct, Acknowledgement or Admission

In certain cases, there may be no Privity of contract

between the two parties, but if one of them by his
conduct, acknowledgement or admission recognizes the
right of the other to sue him, he could also be held
answerable on the ground of the law of estoppel.

In case of Narayani Devi v. Tagore Commercial

Corporation Ltd.[7], even there was no contract between
the plaintiff and defendants, the defendants had created
such Privity with the plaintiff by their conduct and by
acknowledgement and by admission, that the plaintiff was
entitled to her action.

3.4 Contract through an Agent

In some cases, where an individual enters into any
contract through an agent, where the agent acts within
the scope of his authority and in the name of his principal,
he can sue or can also be sued.

The doctrine of Privity of contract states that a contract

cannot confer rights or impose those obligations arising
under that, on any person except the parties to the
contract. It is that legal rule which states that only parties
to a contract can sue for breach of contract.

Different courts in India have different sayings regarding

the concept of Privity of contract. For this reason, the rule
of Privity of contract still remains to be regarded as an
excellent topic for debate amongst scholars.

- Dr. R.K. Bangia, Contract-I 69-77 ( Allahabad Law

Agency, Faridabad {Haryana}, 6th Edition, 2009, Reprint-
2016)

- Elaboration of the consideration and Privity of Contract,

available at https://blog.ipleaders.in (last visited January
14, 2021)

- Privity of contract and consideration, available at

www.legalbites.in (last visited January 13, 2021)

[1] (1861) 1 B. & S. 393 [2] (1915) A.C. 847 [3] (1911) 30
I.A. 7 [4] A.I.R 1995 S.C. 2251 [5] A.I.R. 1973 Cal. 401 [6]
A.IR. 1957 A.P. 965 [7] A.I.R. 1973 Cal. 401
 PRIVITY OF CONTRACT

The doctrine of privity of contract means that only those persons who are
parties to the contract can enforce the same; a stranger to the contract cannot enforce
a contract even though the contract may have been entered into for his benefit.
Example: If in a contract between A and B some benefit has been conferred upon X,
X cannot file a suit to enforce the contract because A and B are the only parties to the
contract whereas X is only a stranger to the contract. In India a person may not have
himself given any consideration but he can enforce the contract if he is a party to the
contract, because according to the Indian Law consideration may be given either by
the promisee or even a third party. That does not affect the rule of privity of contract.
English Law

• Dutton Vs. Poole, A intended to sell his wood to make a provision for the
marriage expenses of his daughter. The defendant, A’s son requested A not to sell the
wood and in return made a promise to his father that he would pay 1,000 pounds to
A’s daughter, The father forebore to sell the wood but the defendant did not pay the
promised amount to the plaintiff. Held: It is true that the defendant, promised to
father and father furnished consideration for the promise. The plaintiff, was neither
privy to the contract nor to the consideration. But it was equally clear that the whole
object of the agreement was to provide a portion to the plaintiff. It would have been
highly inequitable to allow the son to keep the wood and yet to deprive his sister of
her portion. He was accordingly liable. A person, who is not a party to the contract
but is intended to be the beneficiary under the contract and is nearly related to the
promisee, has a right of action.

• Tweddle Vs. Atkinson, After the marriage of the plaintiff, there was a
contract in writing between the plaintiff’s father and the girl’s father that each would
pay a certain sum of money to the plaintiff and the plaintiff would have a right to sue
for such sums. Plaintiff brought an action against girl’s father to recover the promised
amount. Held: Plaintiff could not sue for the same. As the plaintiff was both a stranger
to the contract as well as stranger to consideration and he could not enforce the claim.
It laid foundation for doctrine of “privity of contract” which means that a contract is a
contract between the parties only and no third person can sue upon it even if it is
made for his benefit.

Two fundamental principles

• Consideration must move from promisee and promisee only. If consideration

moved from any person other than promisee then promisee becomes stranger to the
contract as such he cannot enforce the contract

• A contract cannot be enforced by a person who is not a party to contract even

though it is made for his benefit. He is a stranger to contract and hence can claim no
rights under it.

INDIAN LAW – PRIVITY OF CONTRACT

The rule that “privity of contract” is needed and a stranger to contract cannot
bring an action is equally applicable in India as in England. Even though under the
Indian Contract Act the definition of consideration is wider than in English Law, yet
the common law principle is generally applicable in India, with the effect, that only a
party to the contract is entitled to enforce the same. In Jamnadas vs. Ramavtar ,
A had mortgaged some property to X. A sold this property to B. B having agreed with
A to pay off the mortgage debt. X brought an action against B to recover the mortgage
money. It was held by the Privy Council that since there was no contract between X
and B, X could not enforce the contract to recover the amount from B.

EXCEPTIONS TO PRIVITY OF CONTRACT

Trust or Charge

While only a party to a contract who can sue on it and no such right is conferred
on a third party, it was also stated that “such a right may be conferred by way of
property, as, for example, under a trust.” The basis of an action by the third party is
actually not enforcing the contract but the right conferred by a particular contract in
favour of a third party in the form of trust etc. For example, in a contract between A
and B, beneficial right in respect of some property may be created in favour of C. In
such a case C can enforce his claim on the basis of the right conferred upon him. In
Khwaja Muhammad Khan vs. Husaini Begum, An agreement between the
fathers of a boy and a girl that if the girl married a particular boy, the boy’s father
would pay certain personal allowance known as Kharch-i-pandan (betel-box expense)
or pin money to the plaintiff. It was also mentioned that a certain property had been
set aside by the defendant and this allowance would be paid out of the income of that
property. The plaintiff married the defendant son but the defendant failed to pay the
allowance agreed to by him. Plaintiff brought an action against the defendant. Held:
The basis of the plaintiff’s claim being a specific charge on the immovable property in
her favour she is entitled to claim the same as a beneficiary, and as such, the common
law rule of privity is not applicable.

Conduct, acknowledgement, or admission

If a party by conduct, acknowledgement, or admission recognizes the right of

other to sue him, he may be liable on the basis estoppel. In Narayani Devi vs.
Tagore Commercial Corporation Ltd., in a contract between the plaintiff husband,
and defendant, defendant agreed

➢ to pay certain amounts to the pt.’s husband during his lifetime&

➢ thereafter to pay the same to plantiff. for her life.

➢ On death of plaintiff husband, defendant –

• made certain payments to the pt., in pursuance of the agreement,

• had asked for the extension of time to pay, and

• called the plaintiff, to execute certain documents in this connection.

➢ On suit for recovery of the same defendant take the plea of privity of contract!

Held: Defendant have created such privity with the plaintiff, by their conduct, by
acknowledgement and by admission, that the plaintiff is entitled to her action even
though there was no privity of contract between the plaintiff, and the defendant,
Marriage settlement, partition or family arrangement Where, under a family
arrangement, the contract is intended to secure a benefit to a third party he may sue
in his own right as a beneficiary. Eg., on the partition of joint family property between
the male members, a provision is made for the maintenance of the female members
of the family. Eg., agreement of marriage by father of a girl, Two brothers agreeing
to invest a sum for the benefit of mother, a daughter and her husband agreeing with
her father to provide maintenance to mother on receipt of property, promise by a
husband to his wife’s father to treat her well and to provide separate dwelling house
in case of default.

Covenants running with the land

Rule of privity is modified by the principles relating to transfer of immovable property

A person purchasing a land with the notice that the owner of the land is bound by
certain duties created by an agreement affecting the land shall be bound by them,
although he was not a party to it. In Smith & Snips Hall Farm ltd., v. River
Douglas Catchment Board, Defendant agreed with certain land owners adjoining
a stream to improve the banks of the stream and to maintain them in good condition
and landlords paid costs and subsequently one of the landlords sold it to plaintiff and
board negligently maintained banks, which burst and flooded plaintiff land. Held:
Board was liable. Whole arrangement was to benefit the lands whoever be the owners.

UNLAWFUL CONSIDERATION AND ITS EFFECT

Consideration means something reciprocally it’s actually a price which might be in sort
of some benefits paid by one party for the promise of another party. For legitimate
contract considerations and objects should be lawful. Object means the aim.
Consideration means the worth of the promise. The consideration or object of an
agreement is lawful, unless-

-it is forbidden by law; or

-is of such nature that, if permitted, it might defeat the provisions of any law; or

-is fraudulent; or

-involves or implies injury to the person or property of another or;

-the Court regards it as immoral, or against public policy.

Every agreement of which the object or consideration is unlawful is void.

1.Forbidden by Law
 Where the object or the consideration of an agreement is that the performance
of an act which is forbidden by law, the agreement is void. Acts or undertakings
forbidden by law are those punishable under any statute also as those prohibited
(expressly or implicitly) by special legislation of Parliament and state legislatures. For
example, the assembly or sale of excisable articles is prohibited under the Excise Act
except upon a Government license. Sale of liquor without a license is prohibited for
this reason under the Excise Act and is, therefore, illegal. A contract entered into in
contravention of a statutory prohibition is going to be null and void whether such
prohibition is express or implied.

2. Defeat the purpose of Provisions of any Law

Though the thing or consideration for the agreement, sometimes indirectly

forbidden by law, they’re still forbidden if nature defeats the aim of the provision of
law. Agreement with such an object or consideration is void. Where a legislative
enactment provides penalty for an act or promise, the performance of such an act or
promise would amount to the defeat of that enactment, because it is implicit that the
statute intends to forbid that act. In Rajat Kumar Rath v. Government of India,
the Orissa High Court has explained the distinction in the following words: “A void
contract is one which has no legal effect. An illegal contract through resembling the
void contract in that it also has no legal effect as between the immediate parties has
this further effect that even transactions collateral to it became tainted with illegality
and we, therefore, in certain circumstances not enforceable. If an agreement is merely
collateral to another or constitutes an aid facilitating the carrying out of the object of
the other agreement which though void is not prohibited by law, it may be enforced
as a collateral agreement. If on the other hand, it is part of a mechanism meant to
carry out the law actually prohibited cannot countenance a claim on the agreement,
it being tainted with the illegality of the object sought to be achieved which is hit by
the law. Where a person entering into an illegal contract promises expressly or by
implication that the contract is blameless, such a promise amounts to collateral
agreement upon the other party if in fact innocent of turpitude may sue for damages".

In Rajat Kumar Rath v. Government of India, the Orissa High Court has
explained the distinction in the following words: “A void contract is one which has no
legal effect. An illegal contract through resembling the void contract in that it also has
no legal effect as between the immediate parties has this further effect that even
transactions collateral to it became tainted with illegality and we, therefore, in certain
circumstances not enforceable. If an agreement is merely collateral to another or
constitutes an aid facilitating the carrying out of the object of the other agreement
which though void is not prohibited by law, it may be enforced as a collateral
agreement. If on the other hand, it is part of a mechanism meant to carry out the law
actually prohibited cannot countenance a claim on the agreement, it being tainted
with the illegality of the object sought to be achieved which is hit by the law. Where
a person entering into an illegal contract promises expressly or by implication that the
contract is blameless, such a promise amounts to collateral agreement upon the other
party if in fact innocent of turpitude may sue for damages".
 UNIT 2

MEANING AND DEFINITION OF FREE CONSENT

Consent exists when one person voluntarily acknowledges the proposal or desire of
another person. The definition of free consent under the Indian Contract Act is consent
that is free from coercion, undue influence, fraud, misrepresentation, or mistake.

According to Section 13, “Two or more persons are said to be in consent when they
agree upon the same thing in the same sense (consensus-ad-idem)”. Free consent means
consent given to an individual for the performance of an act on his will.

Thus, consent involves identity of minds in respect of the subject matter of the
contract. In English Law, this is called 'consensus-ad-idem'. If the parties are not ad-
idem on the subject matter of the contract, then there is no real agreement between
them. When two pesons enter into a contract concerning a particular person or a thigg
and it turns out that each of them had a different person or thing in mind, no contract
would exist between them. For example, A has two Maruti cars, one is blue and the other
red. He wants to sell his red Maruti car. B who knows of only A's blue car, offers to buy
A's car for Rs. 60,000. B accepts the offer thinking it to be an offer for his red Maruti car.
Here the two parties are not thinking in terms of the same subject matter. Hence, there
is no consent and the contract will not be valid. In Foster v. Mackinnon, the defendant
has purported to endorse a bill of exchange which he was told was a guarantee. The
court held that he was not liable as his mind did not go with that writing and he never
intended to sign a bill of exchange. There was no consent and consequently no
agreement arose.

Free consent under the Indian Contract Act has been defined in Section 14. The
section says that consent is considered free consent when it is not caused or affected by
the following:

 Coercion

 Undue influence

 Fraud
  Misrepresentation

 Mistake

Importance of Free Consent

 Protects the validity and enforceability of an agreement

 It protects parties from coercion, undue influence, misrepresentation, fraud and

mistake.

 The principle of consensus-ad-idem is followed.

UNDUE INFLUENCE

When one party is in a position to dominate the will of others and actually misuses
the power, then it is a case of undue influence, and the contract becomes voidable. When
all the following three conditions are fulfilled then only the situation is considered as an
undue influence:

i. One person is in a position to dominate the will of others.

ii. He misuses his position.
iii. He obtains an unfair advantage.

The word ‘undue’ means unnecessary, unwarranted, or more than required. ‘Influence’
means convincing the mind of another through changing his mind or changing his will,
but this influence must be undue i.e it is not required. Undue influence applies to a
relationship which may be blood relation or some other kind of relation i.e fiduciary or
relation based on trust. It may also arise where the parties are in a relation of
confidence or dependence which puts one of them in a position to exercise over the
other an influence which may be perfectly natural and proper in itself, but is capable
of being unfairly used.

Ability to dominate the will of other

The dominant position is not defined in the Indian Contract Act but Section 16(2)
provides certain conditions when a person is in a position to dominate the will of
another. Cases, where a person is in a position to dominate the will of others, are as
follows: There must be a relation between the parties: a) Real or apparent
authority/relation in which one party can be dominated by the other party. b) Fiduciary
relation is the relation which is made upon the belief and trust between the parties.
Example of real or apparent authority:

1. A Father exerts undue influence upon his son to do something on the will of his
father. Otherwise, he will part his relation with a son.

2. A factory owner exerts undue influence upon his employee to make a certain
agreement with him. If not he (employee) will be drawn from his job.

Example of fiduciary relation: an advocate asks his client to give him extra money to
fight the case from his side. Doctor and patient relationship

2. Mental or bodily distress means the mental capacity of a person is affected. It can
be either permanently or temporarily affected. The reason behind such health
condition can be age, illness, mental or bodily distress. Consent under pressure means
when consent is obtained forcefully. In this manner, consent is not lawful, so it had
no binding effect.

Relations which involves domination

All cases where there is an active trust and confidence between the parties and both
parties are not on equal footing. The principle of undue influence applies to all the
cases where influence is acquired and abused. It applies to all relations where
domination can be exercised by one party over another. The existence of a dominating
position along with its use is mandatory to invoke an action. Merely a dominant
position does not lead to undue influence. It arises only when this position is used for
gaining an undue advantage. Undue advantage means any kind of advantage which
is not warranted by circumstances in which the contract was entered.

Real or Apparent authority

Section 16(2) of the Indian Contract Act states that Undue Influence can arise
wherever the donee stands in a fiduciary relationship to the donor or holds a real or
apparent authority. In this type of influence, there is a real authority like a police
officer or an employer who uses his dominance for his enrichment. Apparent authority
is pretending as a real authority without its existence.
Mental distress

An only mental distress state of mind does not amount to undue influence until the
defendant has used this opportunity to take unfair advantage from another party.
Similarly, instigating a person to enter into a contract who has just attained majority
amounts to undue influence under this category due to a lack of the plaintiff ‘s
experience. A case of undue influence is established more easily when there is
evidence to establish to show that the person influenced was of feeble mental capacity
or in a weak state of health.

Burden of proof

Generally, the party bringing a claim has the burden to prove the truth of the facts on
which he or she is relying. The burden of proof is on the claimant to show that undue
influence was exerted by a stronger party over the weaker party, and the latter could
not exercise free choice when entering the agreement. However, this burden can be
shifted to the defendant in an undue influence case if the plaintiff can demonstrate
that a confidential relationship existed between the testator and defendant, and that
suspicious circumstance surrounded the preparation and execution of the will. When
this occurs, the burden shifts totally on the defendant to prove that undue influence
did not occur. When a person is found to be in a position by which he can dominate
the will of the other or a transaction appears to be affected due to dominance, the
burden of proof that no undue influence was exercised in the transaction lies on the
party who is in a position to dominate the will of others.

Presumption of undue influence

There are some cases in which the Honourable Courts of India presume the existence
of undue influence between the parties:

1. Where one of the parties to a contract is in a position to dominate the will of the
other and contract is prima facie unconscionable i.e unfair, the court presumes the
existence of undue influence in such cases.

2. Where one of the parties to a contract is a Pardanashin Woman, the contract is

presumed to be induced by undue influence. In relation to Pardanashin Woman,
 Bombay High Court made an opinion that a woman becomes Pardanashin because
she is totally exempted from ordinary social intercourse not because she is the
seclusion of some degree

DEFINITION OF COERCION (SECTION 15)

Coercion means forcibly compelling a person to enter into a contract i.e., the
consent of the party is obtained by use of force or under a threat. Section 15 of the
Contract Act defines 'coercion' as Coercion is (i) the cqmmitting or threatening to commit,
any act forbidden by the Indian Penal Code; or (ii) the unlawful detaining or threatening
to detain, any property, to the prejudice of any person whatever, with the intention of
causing any person to enter into an agreement. In other words, the consent is said to
be caused by coercion when it is obtained by exercising some pressure by either
committing or threatening to commit any act forbidden by the Indian Penal Code or
unlawfully detaining or threatening to detain any property. Coercion, thus, implies
committing or threateriing to commit some act which is contrary to law. Let us now
analyse the implications of this definition.

Illustration

‘B’ gives his car, causing his agreement to be coerced. ‘A’ threatens to hurt ‘B’ if he
doesn’t give his son, ‘C’ a large sum of money. ‘B’ believes the threat and gives ‘C’ the
money. This agreement is believed to be coerced.

Essential Ingredients of Coercion:

a) Committing or threatening to commit any act forbidden by Indian Penal Code

or, b) The unlawful detaining or threatening to detain any property to the prejudice of
any person whatever. c) With the intention of causing any person to enter into an
agreement.

Chikkam Ammiraju V. Chickam Seshamma, in this case, the husband by a

threat of suicide, induced his wife and son to execute a release deed in favor of his
brother in respect of a certain proprieties claimed as their own by the wife and son. Court
held that to commit suicide amounted to coercion within the meaning of Section 15 of
the Indian Contract Act and therefore release deed was voidable.

Committing or threatening to commit any act forbidden by IPC Act

forbidden by IPC-

The word act forbidden by Indian Penal Code make it necessary for the court to
decide in a civil action, whether the alleged act of coercion is such as to amount to an
offence. A threat of bringing a false charm with the object of making another do a thing
amount, to blackmail or coercion. In the case of Ranganayakamma v Alwar Setti, where
the widow was obstructed from removing the corpse of her husband until she consented
for the adoption. The court held that her consent was not free and it was coerced. It is
clear that coercion is committing or threatening to commit any act which is contrary
tolaw.

Unlawful Detaining of Property:

A consent can be said to be caused by coercion, if it is caused because of unlawful

confining or detaining of a property, or a risk to do as such. Coercion and Duress Under
the English law, actual or threatened violence to the victim’s person has long been
recognized to amount to duress. Duress is a term applied under English Contract Law &
Coercion is a term applied under Indian Contract Law. In coercion even third party can
perform the act but in duress only the party to contract should perform the act. In Duress,
it is only applied for person and cannot detain property. Also coercion can be seen as the
practice of putting someone under duress (i.e almost like stress.) Coercion is the act of
forcing, while duress is more the consequence (or stressful feeling} that happens as a
result of coercion. In this way the extent of coercion is more extensive than duress.

FRAUD

According to Section 17 of the Indian Contract Act, 1872 “FRAUD” means and
includes any of the following acts committed by a party to a contract, or by his agent,
with intent to deceive another party thereto or his agent, or to induce him to enter into
the contract:
 • The suggestion, as a fact, of that which is not true, by one who does not believe
it to be true.

• The active concealment of a fact – is known as suppresio veri or suppression of a

fact.

• A promise made without any intention of performing it • Any other act fitted to
deceive.

• Any such act or omission as the law specially declares to be fraudulent.

Explanation – Mere silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case are such that, regard
being had to them, it is the duty of the person keeping silence to speak, or unless his
silence is, in itself, equivalent to speech.

Essentials of Fraud:

▪ There should be a false statement of fact by a person who himself does not believe
the statement to be true.

▪ The statement should be made with a wrongful intention of deceiving another

party thereto and

• inducing him to enter into the contract on that basis.

False statement of fact

In order to constitute fraud, it is necessary that there should be a statement of fact

which is not true. Mere expression of opinion is not enough to constitute fraud. For
example – A person, who is aged over 60 years and thus beyond insurable age,
deliberately makes a false statement that his age is 48 years in order to take out an
insurance policy, it amounts to fraud, and the insurer is entitled to avoid the policy. In
Edington vs. Fitzmaurice, a company was in great financial difficulties and needed
funds to pay some pressing liabilities. The company raised the amount by the issue of
debentures. While raising the loan, the directors stated that the amount was needed by
the company for its development, purchasing assets and completing buildings. It was
held that the directors had committed a fraud.
 Mere silence is no fraud

It has been noted above that to constitute fraud; there should be a representation
as to be certain untrue facts. Mere silence is no fraud, unless there is duty to speak, or
his silence is, in itself, equivalent to speech. In Keates v Lord Cadogan, A let his house
to B which he knew was in ruinous condition. He also knew that the house is going to be
occupied by B immediately. A didn’t disclose the condition of the house to B. It was held
that he had committed no fraud. In Shri Krishan v. Kurukshetra University, Shri
Krishan, a candidate for the L.L.B. exam, who was short of attendance, did not mention
that fact himself in the admission form for the examination. Neither the head of the law
department nor the university authorities made proper scrutiny to discover the truth. It
was held by SC that there was no fraud by the candidate and the university had no power
to withdraw the candidate on that account.

Active Concealment [Section 17(2)]

When there is an active concealment of a fact by one having knowledge or belief

of the fact, that can also be considered to be equivalent to a statement of fact, that can
also be considered to be equivalent to a statement of fact and amount to fraud. By active
concealment of certain facts, there is an effort to see that the other party is not able to
know the truth and he is made to believe as true which is in fact not so. Active
concealment of a fact has also been considered as amounting to fraud because in that
case there is a positive effort to conceal the truth from the other party. He is made to
believe as true that fact which false. This is what is known as suppresio veri –But if he
merely keeps silence it will not constitute fraud subject to certain exceptions. In case of
sale of goods, the rule which is applicable is caveat emptor – or the doctrine of let the
buyer beware. It means that it is the duty of the buyer to be careful while purchasing
the goods as there is no implied condition or warranty as to quality or fitness of goods.

Promise Made Without Any Intention to Perform It [Section 17(3)]

When a person makes a promise, there is deemed to be an undertaking by him to

perform it. If there is no such intention when the contract is being made, it amounts to
fraud. Thus, if a man takes a loan without any intention to repay, or when he is insolvent,
or purchases goods on credit without any intention to pay for them, there is fraud. If,
there is no such bad intention at the time of making contract, but the promise doesn’t
perform the contract, it doesn’t amount to fraud.

Any act or omission which any other act fitted to deceive’[Section 17(4)]

Clause (4) provides that ‘any other act fitted to deceive’ will also amount to fraud.
This clause is general and is intended to include such cases of fraud which would
otherwise not come within the purview of the earlier three clauses.

Any act or omission which the law declares as fraudulent [Section 17(5)]
According to this Section 17(5), fraud also includes any such act or omission as the law
specially declares to be fraudulent. In such cases, the law requires certain duties to be
performed, failure to do which is expressly declared as a fraud. In Akhtar Jahan Begam
v Hazarilal, A sold some property to B stating in the sale deed that he won’t be liable to
B if he suffered any loss owing to A’s defective title. A had, earlier to this transaction,
sold this property to somebody else, but didn’t inform B about it. It was held that A had
committed fraud and the contract was voidable at the option of B.

MISREPRESENTATION

The word representation means a statement of fact made by one party to the other,
either before or at the time of making the contract, with regard to some matter essential
for the contract, with an intention to induce the other party to enter into contract. A
representation, when wrongly made, either innocently or intentionally, is called
'misrepresentation'. When the wrong representation is made willfully with the intention
to deceive the other party, it is called fraud. But, when it is made innocently i.e., without
any intention to deceive the other party, it is termed as 'misrepresentation'. In such a
situation, the party making the wrong representation honestly believes it to be true. For
example, A while selling his car to B, informs him that the car runs 18 kilometers per litre
of petrol. A himself believes this. Later on, B finds that the car runs only 15 kilometers
pr litre. This is a misrepresentation by A.

Essentials of Misrepresentation

1. The representation should be made innocently, honestly believing it to be true

and without the intention of deceiving the other party.
 2. Misrepresentation should be of facts material to the contract. A mere expression
of one's opinion is not a statement of facts.

3. The representation must be untrue, but the person making it should honestly
believe it to be true.

4. The representation must be made with a view to inducing the other party to
enter into contract and the other party must have acted on the faith of the!
Representation. A party cannot complain of misrepresentation if he had the means of
discovering the truth with ordinary diligence.

5. The false representation must have been made by one party to the contract to
the other who is misled. If it is not addressed to the party who is misled, then it is not
misrepresentation.

Effect of Misrepresentation

Section 19 of Contract Act provides that when consent to an agreement is caused

by misrepresentation, the agreement is voidable at the option of the party whose consent
was so caused. Thus, the aggrieved party has the following two rights:

a) He can rescind the contract. This right is available only in such cases where he
was not in a position to discover the truth with ordinary diligence.

b) If the aggrieved party thinks it proper, he may accept the contract and insist
upon its performance. He may compel the other party to pay damages. You have seen
that the party whose consent was caused by misrepresentation can avoid or rescind the
contract. However, this right is lost in the following cases:

i) If he could discover the truth with ordinary diligence.

ii) If his consent is not induced by misrepresentation.

iii) If he, after coming to know about the misrepresentation, expressly affirms the
contract or acts in such a manner which shows that he has accepted it.

iv) If, before the contract is rescinded, the third party acquires some right in the
subject-matter in good faith and for some consideration.

v) If the parties cannot be restored to their original position.

 MISTAKE

Mistake may be defined as the erroneous belief concerning something. Whenever

an agreement is made under a mistake, there is no consent, and the agreement is not
valid. Broadly speaking,

Mistake may be of two types-mistake of law and mistake of fact.

Mistake of law can be further classified into

(a) mistake of Indian law, and (b) mistake of foreign law.

Similarly, mistake of fact can be (a) bilateral mistake or (b) unilateral mistake.

Mistake of Law (Section 21)

Mistake of law can be further classified into (a) mistake of Indian law, and (b) mistake
of foreign law.

Mistake of fact under Indian Law

The general rule is that mistake of law of the land is no excuse. Section 21 lays down
that a contract is not voidable because it was caused by a mistake as to any law in
force in India. It is because everyone is supposed to know the law of the country and
if a person does not know the law of his country, then he must suffer the
consequences,

Mistake of Foreign Law

A person is supposed to know the laws of his country but he cannot be expected to
know the laws of other countries. Therefore, the rule that 'ignorance of law is no
excuse' cannot be applied to foreign law. A mistake of foreign law is treated as a
mistake of fact.

Mistake of Fact (Section 20)

Mistake of fact may be classified into two groups.viz., (a) Bilateral mistake, and (b)
Unilateral mistake.
Bilateral Mistake

When both the parties to an agreement are under a mistake of fact essential to the
agreement, the mistake is known as bilateral mistake of fact. In such a situation, there
is no agreement at all because there is complete absence of consent. Section 20 of
the Act provides where both the parties to an agreement are under a mistake as to a
matter of fact essential to the agreement, the agreement is void. Thus, for declaring
an agreement void under this Section, the following three conditions must be satisfied.

Both the parties must be under a mistake:

The mistake must be mutual. For example, A, having two cars, one Fiat and another
Maruti, offers to sell his Fiat car to B and B not knowing that A has two cars, thinks of
the Maruti car and - agrees to buy it. In this case, there is no consent whatsoever.
Therefore, the agreement shall be void.

Mistake must be of fact and not of law: a. Mistake must relate to as essential
fact: The mistake must relate to a matter of fact which is essential to the agreement.
In other words, only such mistake of fact that goes to the root of the agreement,
renders the agreement void. For example, A agrees to buy from B a certain horse. It
turns out that the horse was dead at the time of the bargain, though neither party
was aware of the fact. The agreement is void, because the mistake relates to
something i.e., the horse, which is essential to the contract. A bilateral mistake may
be (a) Mistake as to the subject-matter, or (b) Mistake as to the possibility of
performance.

Unilateral Mistake

The term 'unilateral mistake' means where only one party to the agreement is under
a mistake. Generally, a unilateral mistake does not make the agreement void.
According to Section 22, a contract is not voidable merely because it was caused by
one of the parties to it being under a mistake as to a matter of fact. If a man due to
his own negligence or lack of reasonable care does not ascertain what he is contracting
about, he must bear the consequences. For example, A sold oats to B by sample and
thinking that they were old oats, purchased them. In fact, the oats were new. It was
held that B was bound by the contract, (Smith v. Hughes). In some cases, however,
a unilateral mistake may be fundamental and may affect the character of the contract.
In such a situation, the agreement is void. In the following cases, even though the
mistake is unilateral, the agreement is void.

LEGALITY OF OBJECT

In most of the cases, the words 'Object' and 'Consideration' mean the same thing. But
in some cases they may be different. For example, where money is borrowed for the
purpose of the marriage of a minor, the consideration for the contract is the loan and
the object is the marriage. An agreement will not be enforceable if its object or the
consideration is unlawful. According to Section 23 of the Act, the consideration and
the object of an agreement are unlawful in following cases:

If it is forbidden by law

If the object or the consideration of an agreement is the doing of an act forbidden by

law, the agreement is void. An act or an undertaking is forbidden by law when it is
punishable by the criminal law of the country or when it is prohibited by special
legislation derived from the legislature.

Illustration i) A loan granted to the guardian of a minor to enable him to celebrate

the minor's marriage in contravention of the Child Marriage Restraint Act is illegal and
cannot be recovered back (Srinivas v. Raja Ram Mohan).

ii) A promises to drop prosecution which he has instituted against B for robbery, and
B promises to restore the value of the things taken. The agreement is void, as its
object is unlawful.

If it defeats the provisions of any law

If it is of such a nature that if permitted, it would defeat the provisions of any law. In
other words if the object or the consideration of an agreement is of such a nature
that, though not directly forbidden by law, it would defeat the provisions of the law,
the agreement is void. For example, A's estate is sold for arrears of revenue under the
provisions of an Act of the Legislature, by which the defaulter is prohibited from
purchasing the estate. B, upon the understanding with A, becomes the purchaser and
agrees to convey the estate to A for the price which B has paid. The agreement is void
as it renders the transaction, in effect, a purchase by the defaulter, and would so
defeat the object of the law.

If it is fraudulent

An agreement with a view to defraud others is void. For example, A, B and C enter
into an agreement for the division among them of gains acquired or to be acquired,
by them by fraud. The agreement is void as its object is unlawful.

If it involves or implies injury to the person or property of another

If the object of an agreement is to injure the person or property of another, it is void.

For example, A borrowed Rs. 100 from B. A executed a bond promising to work for B
without pay for 2 years and in case of default agreed to pay interest at a very 1
exorbitant rate and the principal amount at once. Held, the contract was void (Ralm
Saroop v. Bansi).

Immoral

An agreement whose object or consideration is immoral is void. What amounts to

immorality depends upon the standards of morality prevailing at a particular time and
approved by courts. For example, A let a cab on hire to B, a prostitute, knowing that
it would be used for immoral purposes. The agreement is void (Pearce v. Brooks) The
scope of the word ‘immoral’ has been explained in Gherulal Parakh v Mahadeodas, as
follows: The case law both in England and India confines operation of the doctrine to
sexual immorality. To cite only some instances: settlements in consideration of
concubinage, contracts of sale or hire of things to be used in a brothel or by a
prostitute for purposes incidental to her profession, agreement to pay consideration
for future illicit cohabitations, promise in regard to marriage for consideration or
contracts facilitating divorce are held to be void on the ground that the object is
immoral.

Opposed to Public Policy

It is very difficult to define the term 'public policy' with any degree of precision because
public policy, by its very nature, is highly uncertain and fluctuating. It keeps on varying
with the habits and fashions of the day, with the growth of commerce and usage of
trade. In England, Lord Halsbury in case of Janson v. Drieftein Consolidated Mines
Ltd, observed "that categories of public policy are closed, and that no court can invent
a new head of public policy." Section 23 of the Indian Contract Act, however, leaves
it open to court to hold any contract as unlawful on the ground of being opposed to
public policy. In simple words, it may be said that an agreement which conflicts with
morals of the time and contravenes any established interest of society, it is void as
being against public policy. Thus, an agreement which tends to be injurious to the
public or against the public good is void as being opposed to public policy.

VOID AGREEMENTS

There are certain agreements which have been expressly declared void under
certain provisions of the contract Act or any other law. The following types of
agreements have expressly been declared void under various Sections of the Indian
Contract Act.

1. Agreement, the consideration or object of which is partly unlawful (Section

24).

2. Agreement made without consideration (Section 25).

3. Agreement in restraint of marriage (Section 26).

4. Agreements in restraint of trade (Section 27).

5. Agreements in restraint of legal proceedings (Section 29).

6. Wagering agreement (Section 30).

7. Impossible agreement (Section 56).

Agreement, the consideration or object of which is partly unlawful/

Partial Illegality

Section 24 of the Indian contract Act provides that if any part of a single
consideration for one or more objects, or any one or any part of any one of several
considerations for a single object, is unlawful, the agreement is void. For example, A
promises to supervise the business on behalf of B, a licensed manufacturer of some
permissible chemicals and some contraband items. B promises to pay A a salary of Rs.
10,000 per month. The agreement is void, the object of A's promise and the
consideration for B's promise being in part unlawful. It is well settled that if several
distinct promises are made for one and the same lawful consideration, and one or
more of them be such as the law will not enforce, that will not of itself prevent the
rest from being enforceable. The test is whether a distinct consideration which is
wholly lawful can be found for the promise called in question.

In Gopalrao v Kallappa, a license was granted to a person for the sale of

opium and ganja with the restriction that he would not partner with anyone in the
ganja business without the permission of the collector. He admitted a partner into the
whole business by accepting some capital without such permission. The admitted
partner filed a suit for dissolution of the firm and refund of his money. But the court
held that it is impossible to separate the contract and say how much capital was
advanced for the opium and how much for ganja. The whole transaction was held to
be void.

Agreement made without consideration Section 25 declares that an

agreement without consideration is void subject to certain exceptions.

Agreement in restraint of marriage

According to Section 26 of the Indian Contract Act, every agreement in

restraint of the marriage of any person, other than a minor, is void. The restraint may
be general or partial. Thus the party may be restrained from marrying at all, or from
marrying for a fixed period, or from marrying a particular person or a class of persons.
For example, A promised to marry none else except B, and in default pay her a sum
of Rs. 2,000. A married someone else and B sued A for recovery of Rs. 2,000. Held,
the agreement was in restraint of marriage and as such void in Lowe v. Peers. A
penalty upon remarriage may not be construed as a restraint of marriage. Thus, an
agreement between two co-widows that if one of them remarried she should forfeit
her right to her share in the deceased husband's property has been upheld in Rao
Rani v. Gulab Rani. Similarly, a provision in Nikah Nama (marriage agreement) by
which a Muslim husband authorises his wife to divorce herself from him in the event
of his remarrying a second wife is not void. Thus, if the wife divorces herself from the
husband on his marrying a second wife, the divorce shall be valid, and she will be
entitled to maintenance from him as held in Badu v. Badarannessa.

Agreement in restraint of trade

Freedom of trade and commerce is a fundamental right protected by Article

19(g) of the Constitution of India, Just as the Legislature cannot take away individual
freedom of trade, so also the individual cannot barter it away by an agreement. Public
policy requires that every man shall be at liberty to work for himself and shall not be
at liberty to deprive himself or the state of his labour, skill or talent, by any contract
that he enters into. Courts, therefore, do not allow any tendency to impose restrictions
upon the liberty of an individual to carry on any business, profession or trade. Thus,
all agreements in restraint of trade, whether general or partial, qualified or unqualified,
are void.

Cases:

a. In Patna city, 29 out of 30 manufacturers of combs agreed with R to supply

him combs and not to anyone else. Under the agreement R was free to reject the
goods if he found there was no market for them. Held, the agreement amounted to
restraint of trade arid was thus void in Sheikh Kalu v. Ramasaran Bhugat.

b. A and B carried on business of braziers in a certain locality in Calcutta. A

promised to stop business in that locality if B paid him Rs. 900 which he had paid to
his workmen as advance. A stopped his business but B did not pay him the promised
money. Held, the agreement was void and, therefore, nothing could be recovered on
it. (Madhab v. Raj Coomar).

Agreements in restraint of legal proceedings

Section 28 of the Indian Contract Act regards the following two restraints of legal
proceedings as void.

Restriction on Legal Proceedings: An agreement by which a party is restricted

absolutely from enforcing his legal rights under, or in respect of any contract by the
usual legal proceedings in the ordinary tribunals is void. For example, a contract
contains a stipulation that no action should be brought upon it in case of breach. Such
a stipulation would be void because it would restrict both parties from enforcing their
rights under the contract in the ordinary tribunals. But, a contract whereby it is
provided that all disputes arising between the parties should be referred to the
arbitration, whose decision shall be accepted as final and binding on both parties of
the contract, is not invalid. The courts have power, in spite of such a stipulation, to
set aside the decision of the arbitrator on grounds of misconduct on the part of the
arbitrator. A contract may contain a double stipulation that any dispute between the
parties should be settled by arbitration, and neither party should enforce his rights
under it in a court of law. Such stipulation would be valid as regards its first branch.
(i.e., all disputes between the parties should be referred to arbitration, because that
stipulation itself would not have the effect of ousting the jurisdiction of the courts. But
the latter branch of the stipulation (i.e, neither party should enforce his rights under
it in a court of law) would be void because by that the jurisdiction of the court would
be necessarily excluded. Further, it should be noted that the restriction imposed upon
the right to sue should be absolute in the sense that the parties are precluded from
pursuing their legal remedies in the ordinary tribunals. Thus, where there are two
courts, both of which have jurisdiction to try a suit, an agreement between the parties
that the suit should be filed in one of those courts alone and not in the other, does
not contravene the provisions of Section 28.

Limitation of Time: Another type of agreement rendered void by Section 28 is where

an attempt is made by the parties to restrict the time within which an action may be
brought so as to make it shorter than that prescribed by the law of limitation. For
example, according to the Indian Limitation Act, an action for breach of contract may
be brought within three years from the date of breach. If a clause in an agreement
provides that no action should be brought after two years, the clause is void.

Uncertain Agreements

An agreement is called an uncertain agreement when the meaning of that agreement

is not certain or capable of being made certain. Such agreements are declared void
under Section 29.
Illustration i. A agrees to sell to B "one hundred tons of oil". The agreement is void
for uncertainty since there is no clarity in the agreement what kind of oil was intended.
ii. A agrees to sell B "my white horse for Rs. 5,000 or Rs. 10,000". There being nothing
to show which of the two prices was to be given, the agreement is void.

Wagering Agreement

Agreements entered into between parties under the condition that money is
payable by the first party to the second party on the happening of a future uncertain
event, and the second party to the first party when the event does not happen, are
called Wagering Agreements or Wager. There should be mutual chance of profit and
loss in a wagering agreement. Generally wagering agreements are void.

Wager means a bet. It is a game of chance where the probability of winning or

losing is uncertain. The chance of either winning or losing is wholly dependent on an
uncertain event. Parties involved in a wagering contract mutually agree upon the
nature of the agreement that either one will win. Each party stands equally to win or
lose the bet. The chance of gain or the risk of loss is not one sided. If either of the
parties may win but not lose, or may lose but cannot win, it is a wagering contract.
The essence of a wagering contract is that neither of the parties should have any
interest in the contract other than the sum, which he will win or lose. Parties to a
wagering contract focus mainly on the profit or loss they earn. Illustrations A and B
agree with each other that if it rains on Tuesday, A will pay Rs. 100 to B and if it does
not rain on Tuesday, B will pay A Rs. 100. Such an agreement is a wagering agreement
and hence is void.

Agreement to do impossible acts

Agreements to do impossible acts Section 56 of the Indian Contract Act declares

that an agreement to do an act impossible in itself is void. Thus, where A agrees with
B to discover treasure by magic, the agreement is void. We may say that parties who
purport to agree to the doing of something obviously impossible must be deemed not
to be serious or not to understand that they are doing. Moreover, law cannot regard
a promise to do something obviously impossible as of any value and such a promise
is, therefore, no consideration. An agreement to do an act impossible in itself should
be contrasted from a contract which becomes impossible of performance. Subsequent
impossibility renders a contract void when the act becomes impossible.

CONTINGENT CONTRACTS

The word contingent means when an event or situation is contingent, i.e. it

depends on some other event or fact. In simple words, contingent contracts are the
ones where the promisor perform his obligation only when certain conditions are met.
The contracts of insurance, indemnity, and guarantee are some examples of
contingent contracts. A contingent contract is a contract to do or not to do something
if some event, collateral to such contract, does or does not happen (Section 31). For
example, A contracts to pay B Rs. 10,000 if B's house is burnt. This is a contingent
contract.

Essential features of a contingent contract

1. The performance of a contingent contract is made dependent upon the

happening or non-happening of some event.

2. The event on which the performance is made to depend, is an event collateral

to the contract i.e., it does not form part of the reciprocal promises which constitute
the contract. For example, where A agrees to deliver 100 bags of wheat and B agrees
to pay the price only afterwards, the contract is a conditional contract arid not
contingent, because the event on which B's obligation is made to depend is a part of
the promise itself and not a collateral event. Similarly, where A promises to pay B Rs.
10,000 if he marries C, it is not a contingent contract.

3. The contingent event should not be dependent on the will of the promisor.
For instance, if A promises to pay B Rs. 1,000 if he so chooses, it is not a contingent
contract. However, where the event is within the promisor's will but not merely his
will, it may be a contingent contract.

Rules Regarding Enforcement of Contingent Contracts

The rules regarding contingent contracts are summarized hereunder (Sections

32 to 36)
 1. Contracts contingent upon the happening of a future uncertain event cannot
be enforced by law unless and until that event has happened. And if, the event
becomes impossible, such contract becomes void (Section 32).

Illustration A makes a contract with B to buy B's horse if A survives C. This

contract cannot be enforced by law unless and until C dies in A's life time.

2. Contracts contingent upon the non-happening of a certain future event can

be enforced when the happening of that event becomes impossible, and not before
(Section 33). Illustration A agrees to pay B a sum of money if a certain ship does not
return. The ship is sunk. The contract can be enforced when the ship sinks.

3. If a contract is contingent upon as to how a person will act at an unspecified

time, the event shall be considered to become impossible when such person does
anything, which renders it impossible that he should so act within any definite time,
or otherwise than under further contingencies. (Section 34). For example, A agrees to
pay B a sum of money if B marries C. But C marries D. The marriage of B to C must
now be considered impossible, although it is possible that D may die and that C may
afterwards marry B.

4. Contracts contingent upon the happening of an uncertain specified event

within a fixed time become void if, at the expiration of the rime fixed, such event has
not happened or if, before the time fixed, such event becomes impossible (Section
35). For example, A promises to pay B a sum of money if a certain ship returns within
a year. The contract may be enforced if the ship returns within the year, and becomes
void if the ship is burnt within the year.

5. Contracts contingent upon the non-happening of a specified event within a

fixed time may be enforced by law when the time fixed .has expired and such event
has not happened, or before the time fixed expired, if it becomes certain that such
event will not happen (Section 35). For example, A promises to pay B a sum of money
if a certain ship doesn’t return within a year. The contract may be enforced if the ship
does not return-within the year, or is burnt within the year.

6. Contingent agreement to do or not to do anything, if an impossible event

happens, are void, whether the impossibility of the event is known or not to the parties
to the .agreement at the time when it is made. Illustration A agrees to pay B Rs.'1,000
if two parallel straight lines should enclose a space. The agreement is void.
MS EDUCONZ PVT. LTD. LAW& AUDIT

CAPACITY TO CONTRACT

Parties unable to Enter into a contract

Minor A person of unsound mind Person disqualified by law

Lunatic Idiot Drunken and Intoxicated

Alien enemy Foreign Sovereign Convict Corporation and Company Insolvent

1. Who is competent to make a contract:-

Section 11. Every person is competent to contract who is of age of majority according to the
Law to which he is subject, who is of sound mind and not is disqualified from contracting by
any Law to which he is subject.

Age of majority:- According to section 3 of Indian majority Act-1875 every person domiciled
in Indian attains majority on the completion of 18 years of age.

Exception: - 21 years- in the following cases.

a. Where a guardian of a minor’s person or property is appointed under the Guardian and wards
Act, 1890.

b. Where minor’s property has passed under the superintendence of the court of words.

Position of Agreements by Minor:-

1. Validity: - An agreement with a minor is void-ab-initio

[ Mohoribibee v. Dharmodas Ghose]
Example :
Mr. D, a minor, mortgaged his house for Rs.20000 to a money – lender, but the
mortgagee, i.e. the money – lender, paid him a sum of Rs.8000. Subsequently, the minor
sued for setting aside the mortgage. Held that the contract was void, as Mr. D was minor
and therefore he is not liable to pay anything to the lender.

2. A minor’s has received any benefit under a void contract, he cannot be asked to return
the same.

3. If a minor has received any benefit under a void contract, he cannot be asked to return
the same.

4. Fraudulent representation by a minor- no difference in the status of agreement. The

contract remains void.

5. A minor with the consent of all the partners, be admitted to the benefits of an existing
partnership.

6. Contracts entered into by minors are void-ab-initio. Hence no specific performance

can be enforced for such contracts.

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7. Minor’s parent/guardians are not liable to a minor’s creditor for the breach of
contract by the minor.

8. A minor can act as an agent but not personally liable. But he cannot be principal.

9. A minor cannot become shareholder of a the company except when the shares are
fully paid up and transfer by share.

10. A minor cannot be adjudicated as insolvent.

11. Can enter into contracts of Apprenticeship, Services, Education, etc:

(a) A minor can enter into contract of apprenticeship, or for training or instruction in
a special art, education, etc.
(b) These are allowed because it generates benefits to the Minor.

12. Guarantee for and by minor

A contract of guarantee in favour of a minor is valid. However, a minor cannot be a
surety in a contract of guarantee. This is because, the surety is ultimately liable under a
contract of guarantee whereas a minor can never be held personally liable.

13. Minor as a trade union member

Any person who has attained the age of fifteen years may be a member for registered
trade union, provided the rules of the trade union allow so. Such a member will enjoy all
the rights of a member.

EXCEPTION

• Contract for the benefit of a minor.

• Contract by Guardian
Benefit of a minor by his guardian or manager of his estate.

a. within the scope of the authority of the guardian.

b. Is for the benefit of the minor.

• Contract for supply of Necessaries.

Example :
Food, clothes, bed, shelter, shoes, medicines and similar other things required for the
maintenance of his life or for the life of his dependents, expenses for instruction in grade
or arts; expenses for moral religions or intellectual education, funeral expenses of his
deceased family members, marriage expenses of a dependent female member in the
family; expenses incurred in the protection of his property or personal liberty, Diwali
pooja expenses, etc. have been held by courts to be necessaries of life. However, the
things like earrings for a male, spectacles for a blind person or a wild animal cannot
be considered as necessaries.
• Liability for tort: A minor is liable for a tort, i.e., civil wrong committed by him.
Example :
A, a 14 – year – old boy drives a car carelessly and injures B. He is liable for the accident
i.e., tort.

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A person of unsound mind

Lunatic Idiot Drunken and Intoxicated

Person of Unsound Mind

A person who is usually of unsound mind, but occasionally of sound mind can make a contract
when he is of sound mind. Similarly, a person who is usually of sound mind, but occasionally of
unsound mind, may not make a contract when he is of unsound mind.

⇒ At time of entering into a contract, a person must be sound mind. Law presumes that
every person is of sound mind unless otherwise it is proved before court. An agreement
by a person of unsound mind is void. The following are categories of a person
considered as person of a unsound mind.

⇒ An idiot
An idiot is a person who is congenital (by birth) unsound mind. His incapacity is
permanent and therefore he can never understand contract and make a rational judgment
as to its effects upon his interest. Consequently, the agreement of an idiot is absolutely
void ab initio. He is not personally liable even for the payment of necessaries of life
supplied to him.

⇒ Delirious persons
A person delirious from fever is also not capable of understanding the nature and
implications of an agreement. Therefore, he cannot enter into a contract so long as
delirium lasts.

⇒ Hypnotized persons
Hypnotism produces temporary incapacity till a person is under the effect of artificial
induced sleep.

⇒ Mental decay
There may be mental decay or senile mind the to old age or poor health. When such
person is not capable of understanding the contract and its effect upon his interest, he
cannot enter into contract.

⇒ Lunatic is not permanently of unsound mined. He can enter into contract during lucid
intervals i.e., during period when he is of sound mind.

Generally of Occasionally of Capacity to Example

Contract
Unsound Sound Mind Can enter into a A patient in a lunatic asylum,
Mind Contract when he who is at intervals of sound
is of Sound Mind. mind, may contract during
those intervals.
Sound Mind Unsound Mind Cannot make a A sane man, who is delirious
Contract when he from fever or who is so drunk
is of Unsound that he cannot understand terms
Mind. of a contract or form a
judgment, cannot contract

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while such delirium or

drunkenness lasts.

⇒ Drunken person
An agreement made by intoxicated person is void.

Person Disqualified by law

Alien enemy Foreign Sovereign Convict Corporation and Company Insolvent

Person Disqualified by Law

⇒ Body corporate or company or corporation

Contractual capacity of company is determined by object clause of its memorandum of
association. Any act done in excess of power given is ultra – virus and hence void.

⇒ Alien enemy
• An ‘alien’ is a person who is a foreigner to the land. He may be either an ‘alien
friend’ or an ‘alien enemy. If the sovereign or state of the alien is at peace with the
country of his stay, he is an alien friend. An if a war is declared between the two
countries he is termed as an alien enemy.

• During the war, contract can be entered into with alien enemy with the permission of
central government.

(Discuss in class)

⇒ Convict can’t enter into a contract while he is undergoing imprisonment. But he can
enter into a contract with permission of central government while undergoing
imprisonment. After the imprisonment is over, be becomes capable of entering into
contract. Thus the incapacity is only during the period of sentence.
⇒ Insolvent
When any person is declared as an insolvent, his property vests in receiver and therefore,
he can’t enter into contract relating to his property. Again he becomes capable to enter
into contract when he is discharged by court.

⇒ Foreign sovereigns, diplomatic staff and representative of foreign staff can enter into
valid contract. However, a suit cannot be filed against them, in the Indian counts without
the prior sanction of the central Government.

Third party to a contract cannot sue or a stranger to a contract cannot sue.

Only those persons, who are parties to a contract, can sue and be sued upon the contract.
This Rule is called “Doctrine of privities of contract.” Exception.

i. Trust:- In case of trust a beneficiary can sue upon the contract.

Example:
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A transferred certain properties to B to be held by him in trust for the benefit of C. In this
case, C although not a party to the trust, can sue for the benefits available to him under
the trust.
This exception to the rule of Privity of contract has been recognised in a well known case
of khwaja Mohd. Khan v. Hussaini Begum (1910) 32 All 410.

ii. Family settlement / Marriage contract:- In case of family settlement members who
were not originally party to the contract can also sue upon it.
A female members cone force a provision for marriage expenses made on partition of
HUF.
Example:
H sued her father – in – law K to recover Rs.15,000 being arrears of allowance called Pin
money payable to her by K under an agreement between K and H’s father, consideration
being H’s marriage to K’s son D. Both H and D were minors at the time of marriage.
Held, the promise can be made enforceable by H.

Provision of marriage expenses of female members of a Joint Hindu Family, entitles the
female member to sue for such expenses on a partition between male members.,

Two brothers, on partition of family joint properties, agreed to invest in equal shares for
their mother’s maintenance. Held, the mother was entitled to require her sons to make
the investment.

iii. Acknowledgement of liability:- Where a person admits his Liability thereafter if he

refused be will be stopped from denying his liability.
Example
X receives money from Y for paying it to Z. X admits the receipt of that amount to Z. Z
can recover the amount from X, even though the money is due from Y.

iv. Assignment of contract. Assignee (the person to whom benefits of contract are
assigned) can enforce upon the contract..

v. Contract entered into through an agent.

vi. Covenants running with land.

Stranger to consideration:- “Stranger to contract” must be distinguished from a

stranger to consideration need not necessarily be provided by the promises if may flow
from a third party also such a person is ‘ stranger to consideration,.
( Chinnaya Vs Ramayya).

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