Basavashree College of Law

Law of Contract - I
UNIT - I

1.1 Definition of Contract

Section 2 (e) of the Indian Contract Act 1872 defines "every promise and every set of promises,
forming the consideration for each other, is an agreement". 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". Thus contract is a bilateral transaction
between two or more than two parties. Unless the acceptance is communicated, the contract
cannot be said to be concluded.

Section 10 of the contract Act provides "all agreements are contracts if they are made by the free
consent of parties competent to contract, for a lawful consideration and with a lawful object, and
are not hereby expressly declared to be void. According to section 10 says an agreement to be
enforceable must fulfill the following conditions:

1. The parties must be competent to contract

2. The agreement must be made by the consent of the parties
3. The agreement must be made for some consideration
4. The object of the consideration must be lawful
5. The agreement must not have been expressly declared to be void under the contract Act or
any other Act
6. The agreement should be in writing or in the presence of witness or should be registered.

1.2 Proposal or offer

Section 2 (a) of the Act provides 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 to such act
or abstinence, he is said to make a proposal.

Essential elements of a valid proposal

1. Every proposal must be communicated

Communication need not always be express and need not be expressed in words, 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.

A proposal can be accepted only when it comes to the knowledge of the person to whom
it is intended to be made. The communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made.

In Lalman Shukul v/s Guari Dutt

 In that case the defendant's nephew having absconded from home, he sent his servant to
find out him. Later on, he offered a reward of Rs. 501 to any one who discovered the boy. This
offer came to the knowledge of the servant only after he had already discovered the boy. In a suit
filed by the servant to claim the reward, it was held that he could successfully claim the reward
only on the basis of contract and in this case there was no communication of proposal to him. He
came to know of it after he had already discovered the boy which he was already under obligation
to do by nature of his calling.

2. The proposal must be made with a view to create legal relations

It is also essential that it must be made with a view to create relations.

Ex: If a father while going out of station promises to his daughter to bring a cameral for her, it
cannot be said to be valid proposal because he does not intend to bind himself legally nor does he
make it with a view to obtain the assent of his daughter.

When rejecting the claim

There are agreements between parties which do result in contracts within the meaning
of that term in our law. The ordinary example is where two parties agree to take a walk together,
or where there is an offer and acceptance of hospitability. They are not contracts because parties
did not intend that they shall be attended by legal consequences.

3. The proposal must be certain and definite

Its terms should not be so vague so as to prevent a contract being formed. It is the
function of the courts of law to interpret contract, to say whether a contract is or is not
reasonable, to say whether it is or is not void, but it is not the duty of courts to make contracts
between the parties.

Ex: A agrees to sell to B hundred tons of oil. There is nothing whatever to show what kind of oil
was intended. The agreement is void for uncertainty. Similarly, where, A agrees to sell to B "my
white horse for rupees one thousand", the agreement will be void because there is nothing to
show which of the two prices was to be given.

Kinds of offer or proposal

1. General and Specific Offers

An offer need not always be made to an ascertained person but it is necessary that an ascertained
person should accept it.

Ex: If a person offers a reward to anyone who finds his lost diamond ring, the finder can
successfully claim the reward. Where an offer is made to the whole world, acceptance of the offer
and performance of the contention will be sufficient for making it an enforceable contract.

Carlill v/s Carbolic Smoke Ball Company

 In this case, the defendants were proprietors and vendors of carbolic smoke ball. They
advertised a reward of 10,000 to any person who contracted influenza after using the smoke ball
for a certain period according to the printed directions. In order to show their sincerity, they also
deposited 1,00000 in a bank for the same purposes. The plaintiff, a lady, used the smoke ball
according to the printed directions yet she contracted influenza. She brought an action to claim
the reward. It was held that she was entitled to claim the reward.

Finally the court held that in advertisement cases, an offer may be made to the whole
world but it becomes a promise only when it is accepted by an ascertained person.

Section 8 of the Indian Contract Act provides performance of the conditions of a

proposal, or acceptance of any consideration for a reciprocal promise which may be offered with a
proposal, is an acceptance of the proposal.

2. Offer and invitation to offer

An offer, capable of being converted into an agreement by acceptance, must consist of a definite
promise to be bound provided that certain specific terms are accepted. The offer must have
completed his share in the formation of a contract by finally declaring his readiness to undertaken
an obligation upon certain conditions leaving to the offer the option of acceptance or refusal. He
must not merely have been feeling his way towards an agreement not merely initiating
negotiations from which an agreement might or might not result in time. He must be prepared to
implement his promise, if such is the wish of the other party.

A tender notice does not amount to an offer or proposal but merely an invitation to the
contractors for making an offer. An advertisement for tenders is not a proposal which would bind
the authority to sell to the person who makes the highest tender.

Distinction between offer and invitation to offer

1. In the offer, the offeror has intention or willingness to have the contract. But in the
invitation to offer, the party has no such intention or willingness to have the contract.
2. In the offer, the person making the proposal is called as the offeror or promisor or proposer.
But in the invitation to offer, the party, who has put or arranged the goods, or advertised in
any media, can not be termed as offeror or proposer or promisor.
3. An offer, when accepted, becomes a promise. But an invitation to offer may be charged as
offer, but can not become as a promise, it is only an equity.
4. In the offeror, the offeror must signify his intention or willingness. But in an invitation to
offer, the party need not signify his intention or willingness.
5. An offeror may be classified into general offer and specific offer. But there is no such division
among the invitation to offer.
6. An offeror contains legal requirements. But an invitation to offer does not contain legal
requirements.

In Pharmaceutical society of Great Britain v/s Boots cash chemists Ltd.

 In this case the court had to decide as to at what time the sale took place in a shop of the
defendant adopting 'self-service' system. It was claimed by the plaintiffs that once the customer
picked up an article and put it into the basket, the contract of sale was complete: the shop-keeper
then could not refuse to sell it. The court rejected this contention and held this was only an
invitation to offer.

3. Standing offer

Invitation to make tenders is not an offer. A tender in response to such invitation is an

offer. After its acceptance, it sometimes becomes what is known as a standing offer or continuing
offer.

In Bengal co. Ltd. v/s Homee Wadia and Company

In this case the defendants entered into an agreement to supply a kind coal from time to
time required by the plaintiff for a period of twelve months. The plaintiff, in pursuance of the said
agreement, placed certain orders and the defendants supplied the coal. But before the lapse of 12
months they withdrew their offer and refused to supply the coal any more. The plaintiffs
thereupon filed the suit against them for the breach of contract.

The court dismissed the suit on the ground that there was no contract. The court held
that it was simply a continuing offer and the contract took place only when a certain quality was
ordered.

Revocation of proposal

According to section 5 a proposal may be revoked at any time before the communication
of its acceptance is complete as against the proposer but not afterwards.

Ex: A proposes, by a letter sent by post, to sell his house to B. B accepts the proposals by a letter
sent by post. A may revoke his proposal at any time before or at the moment when B posts his
letter of acceptance, but not afterwards.

Mode of Revocation

1. By the communication of notice of revocation by the proposer to other party.

2. By the lapse of the time prescribed in such proposal for its acceptance or if no time is so
prescribed, by the lapse of a reasonable time, without communication of the acceptance.
3. By the failure of the acceptor to fulfill condition precedent to acceptance.
4. By the death or insanity of the proposer if the fact of his death or insanity comes to the
knowledge of the acceptor before acceptance.

1.3 ACCEPTANCE

According to section 2 (b) provides 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.
Conditions for valid acceptance

1. Acceptance must be communicated

An intention to accept or even a mental resolve to accept a proposal does not give rise to a
contract. There must be some overt or external manifestation of the intent by speech, writing or
other act. Even if the offeree has made up his mind to a final acceptance, the agreement is yet not
complete.

In Felthouse v/s Bindley

In this case the plaintiff wrote a letter to his nephew offering to buy his horse for $30,
15s. He also wrote in his letter, 'if I hear no more about him I shall consider the horse mine at $30.
15s'. the nephew did not give any reply of his letter. However, he told the defendant, an
auctioneer, not to sell the horse. Thus, he intended to reserve the horse for his uncle. But the
defendant sold the horse by mistake. The plaintiff, thereupon, sued the defendant, the auctioneer
for conversion of property. Dismissing the action, the court held that since the nephew did not
communicate his acceptance, no contract took place between the plaintiff and his nephew and
consequently he had no right to complain of the sale. The court held that the communication of
acceptance must be made to offerer himself or his agent. The communication of acceptance to
stranger will not be a valid communication.

2. Communication of acceptance must be by a person who has authority to accept

A communication of acceptance to be valid must be either by the offeree himself or by his

authorized agent. A communication of acceptance by any other person will not be valid.

In Powell v/s Lee

In this case the board of managers of a school passed a resolution selecting the plaintiff
for the post of headmastership but the decision about his selection was not communicated to
him. One of the managers, in his individual capacity, informed him of the said resolution.
Subsequently, the board of manager's rescinded their decision and consequently the plaintiff was
not appointed as headmaster. The plaintiff, thereupon, brought an action for the breach of
contract.

The court held that no contract was c concluded because a communication of acceptance
to be valid must be made by the offeree himself or his authorized agent. A communication of
acceptance from an unauthorized person will not be valid.

3. Acceptance must also be inferred from the conduct of parties

Acceptance need not always be express; it may also be implied or inferred from the
conduct of the parties.

In Brogden v/s Metropolitan Railway Co.

 In this case the respondents were being supplied coal and coke for their locomotives by
the appellants for sometime without any formal agreement for the same. They decided to enter
into a formal agreement for the same. The respondents sent a draft agreement to the appellant
leaving some blanks to be filled and signed by the appellant. The appellant filled in the blanks,
changed certain words in the agreement and after signing and signifying his approval returned it
to the respondents. The respondent's agent kept it in the drawer and thus no acceptance was
communicated. The appellant, supplied coal on the terms and conditions of the said agreement.
Subsequently, there arose some dispute between the appellants and the respondents. The court
held that mere silence does not constitute acceptance but it may be implied from the conduct of
the parties.

4. Communication may be waived by the offerer

An acceptance of an offer made ought to be notified to the person who makes the offer, in order
that the two minds may come together. Unless this is done the two minds may be apart, and
there is not that consensus which is necessary to make a contract.

In Bhagwandas v/s Girdhari Lal and Co.

In this case the Supreme Court held that "acceptance must be communicated to the
offerer, unless he has waived such intimation, or the course of negotiations implies an agreement
to the contrary".

5. Acceptance must be absolute and unqualified and must correspond to terms of the offer.

According to section 7 (1) of the contract Act provides that in order to convert a proposal
into a promise, the acceptance must be absolute and unqualified. Acceptance must correspond to
the terms of the offer.

In Hyde v/s Wrench

In this case, the defendant offered to sell his farm to the plaintiff for $ 1, 000 but the
plaintiff said he would buy it for $950 only. Later on he agreed to buy the farm for $ 1,000. But the
defendant refused to sell the farm. The plaintiff sued the defendant for specific performance of
the contract for plaintiffs offer of $ 950 was in fact a counter-offer which destroyed the original
offer.

Mode of communication

1. Where no mode prescribed

Section 7 (2) of the Act provides where no manner is prescribed the acceptance may be expressed
in some usual and reasonable manner.

Ex: If an offer is made by post and no mode is prescribed the acceptance may also be made by
post. But if A in Lucknow sends a proposal to B in Calcutta and B send a man with a letter of
acceptance to walk down from Calcutta to Lucknow to communicate it to A, it will not be usual
and reasonable.
2. Where mode is prescribed

Where the offerer prescribes the mode or manner in which the offer is to be accepted, the
acceptance must be made in the manner prescribed. The acceptance will not be valid if there is
any departure or variance from the mode prescribed.

In Eliason v/s Henshaw

In this case, the plaintiff made an offer to the defendant to buy some flour. He sent his
offer through a wagon and requested the defendant to send the answer by the same wagon.
Instead of sending his acceptance by the said wagon, he sent the letter of acceptance by mail
thinking that it would reach earlier. But the letter reached after the arrival of the wagon. The
plaintiff refused to purchase the flour.

The Supreme Court held that it is an undeniable principle of the law of contract, that an
offer of a bargain by one person to another imposes no obligation upon the former until it is
accepted by the letter, according to the terms in which the offer was made. Any qualification of or
departure from, these terms, invalidates the offer unless the same be agreed to by the person
who made it.

A. Acceptance by post

In case of acceptance by post a difficult question arises as to when the acceptance is complete
and the contract is concluded.

Adams v/s Lindsell

In this case, the defendants made an offer to sell wool to the plaintiff by letter dated
September 2, 1817. This letter reached on September 5, 1817. The plaintiff posted his letter of
acceptance on the same day, i.e., on the 5th September, which the defendants received on
September, 9, 1817. But the defendants had already sold the wool to some other party having
waited up to 8th September. In an action brought against them by the plaintiff for the breach of
contract, the court held that defendants liable.

B. Acceptance by telephone or telex

When the parties are in each other's presence or though separated in space yet are in
direct communication as by telephone, the contract is not complete until the offerer comes to
know of the fact of acceptance.

In Entores Ltd. v/s Mills Far East Corporation

In this case, the plaintiff made an offer from London by telex to the agents in Holland of
the defendants of purchase of certain goods, and the offer was accepted by a communication
received on the plaintiff's telex machine in London. On the allegation that breach of contract was
communicated by the defendant corporation, the plaintiff sought leave to serve notice of a writ
on the defendant corporation claiming damages for the breach of contract. The defendant
corporation contended that the contract was made in Holland.
 Finally the Court held that the rule about instantaneous communications between the
parties is different from the rule about the post. The contract is only complete when the
acceptance is received by the offerer, and the contract is made at the place where the acceptance
is received.

Acceptance is valid only when made before the offer lapses

An acceptance can be validly made only before the offer lapses. An offer may lapse in any
of the following ways:

1. Failure of a condition subject to which the offer was made or not being accepted in the
mode prescribed

An offer, no less than an acceptance, may be conditional and not absolute, and if the condition
fails to be satisfied, the offer will not be satisfied, the offer will not be capable of acceptance.

By the failure of the acceptor to fulfill a condition precedent to acceptance

The offer does not prescribe any method; the offeree is free to communicate the
acceptance in any usual and reasonable manner. In case the offerer suggests that the reply should
be sent by post, it is not essential that the reply should be sent by letter only. It may be sent by
telegram which may reach earlier.

2. by not being accepted within the time prescribed

An offer may also lapse if it is not accepted within the time prescribed for its acceptance. By the
lapse of the time prescribed in such proposal for its acceptance, or if no time is so prescribed, by
the lapse of a reasonable time, without communication of the acceptance.

3. by rejection or counter-offer

An offer may also lapses if it has been rejected or if in its reply a counter-offer has been made.

4. By the Death or Insanity of the offerer

An offer also lapses on the death or insanity of the offerer. The death of either party before
acceptance may cause an offer to lapse. It would seem that, in principle, an offeree cannot accept
after he is informed of the death of the offerer. An acceptance communicated to the offer's
personal representatives will not bind them, unless the offer is one which could not have been
revoked by the offerer during his lifetime.

5. by revocation

A proposal is revoked by the communication of notice of revocation by the proposer to

the other party.

Time of revocation
 An offer can be revoked at any time before the communication of acceptance is posted
but not afterwards. A proposal may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards. An acceptance may be
revoked at any time before the communication of the acceptance is complete as against the
acceptor, but not afterwards.

Notice of printed terms

1. The notice must be contemporaneous with the contract

A term of a contract can be binding only when it was brought to the notice of the contracting
party at the time when he entered into the contract, that is to say, it must be contemporaneous
with the contract. If the contacting party is informed or the term after the time when contract was
made, he will not be bound by it.

2. The terms of the contract should be communicated to the offeree .

Unless and until he has been made aware with the nature and effects of the terms of
contract he will not be bound by them. In the nature and effects of the terms of contract also, the
principle relating to communication of terms applies but the principle has been adopted and
modified in view of the modern needs and requirements.

Important points

1. If the person receiving the ticket did not see or know that there was any writing on the
ticket, then he is not bound by the conditions.
2. If he knew there was writing, and knew or believed that the writing contained conditions,
and then he is bound by the conditions, even though he did not read them and did not
know what they were.
3. If he knew that there was writing on the ticket, but did not know or believe that the writing
contained conditions, nevertheless he will be bound if the parry delivering the ticket has
done that entire can reasonably be considered to give notice to the person of the class to
which he belongs.

3. The notice should be reasonably sufficient under the circumstances of the case

It involves the question whether the notice given was reasonably sufficient under the
circumstances of the case.

In Parker v/s S.E. Railway Co.

In this case, the plaintiff on depositing his bag at the cloak-room was given a ticket which
on its face contained the words "see back" and on its back number of conditions was printed, one
of which being that the company would not be liable for the loss exceeding $ 10. A similar notice
was hung in the cloak-room. The plaintiff's bag having been lost, he brought an action to recover
the loss. He admitted that he knew that something was written on the ticket but he did not know
that it contained conditions. His action failed because the court held that the notice given to him
of the said terms was reasonably sufficient.

4. Strict construction of the exemption clauses

This is based on the principle that where a person is under a legal liability and wishes to
exempt himself from that liability, he may do so only by using clear words to effect.

Ex: where a person excludes his liability for a warranty in respect of a sale of particular goods, he
will nevertheless be liable if there is a breach of condition implied by law.

1.4 CONSIDERATION

Under the law of contract consideration is necessary for all formation of contract,
because without the consideration the contract is void. Section 2 (d) of the Act defines
consideration. According to the section when, at the desire of the promiser, the promise or any
other person has done or abstained from doing, or does, or abstains from doing, or promises to
do or to abstain from doing, something, such act or abstinence or promise is called a
consideration for the promise.

Essential elements

1. at the desire of the promisor

An act or abstinence must be done at the desire of the promisor. An act done at the desire of a
third person will not constitute a good consideration.

In Durga Prasad v/s Baldeo

In this case the plaintiff built a market at the desire of the collector of the district. The
defendant who subsequently occupied one of the shops in market agreed to pay a certain
commission on all goods sold through him in the market. An action brought by the plaintiff on the
breach of the said promise was dismissed on the ground that the plaintiff built the market at the
desire of the collector and not that of the defendant and hence the promise was without
consideration and could not be enforced.

2. Promisee or any other person

The consideration may be given by the promise or any other person.

In Dutton v/s Poole

In this case, plaintiff's father decided to cut the family tree for the marriage of his
daughter, the plaintiff. His son promised to pay $ 1,000 for plaintiff's marriage and asked his
father not to cut the family tree. The plaintiff's father did accordingly. Subsequently, the father,
the plaintiff, sued the defendant to recover the money. It was held that although the plaintiff was
not a party to the contract between the father and the son, yet she was entitled to recover the
promised sum from the defendant.
Doctrine of Privity of contract

A contract cannot confer any rights on one who is not a party to the contract, even
though the very object of the contract may have been to benefit him. As promise, he is unable to
sue because there is no privity of contract between him and the promisor. The inability of one
who is not a party to the contract to acquire rights under it follows from the view which our law
has adopted to the operation of contract generally; it has no particular connection with the
doctrine of consideration.

In Jamuna Das v/s Ram Autar

In this case, the purchaser of property contracted with the seller to pay off the mortgage
debt. In an action brought by the mortgagee against the purchaser to recover the mortgage debt,
it was held by the Privy Council that he was not entitled to force the contract so as to compel the
purchaser to pay off the debt because he was not a party to the contract.

Exceptions to doctrine of privity of contract

1. Trust or Charge

A well-recognized exception to the doctrine of privity of contract is that of a trust or charge

created in some property in favour of third person.

Khwaja Mohammad v/s Hussaini Begum

In this case, the suit was brought by a Mohammedan lady against her father-in-law to
recover arrears of certain allowance called Kharcha-i-pandan under the terms of an agreement
executed by the father-in-law in consideration of her marriage with his son at the time when she
and her husband were minors. The defendant disclaimed liability on the following two grounds:

1. That the plaintiff was not a party to the agreement in question and hence not entitled to
enforce it.

2. That she had forfeited her right to the allowance by her misconduct and refusal to live with her
husband.

2. Partition of Hindu Family, Marriage Settlement, Family Arrangement etc.

The courts in India have applied the same principle regarding the maintenance of a
female member of Hindu family in the partition of joint family property among the female
members. If on the partition of joint-family property among the male members a provision is
made for the marriage expenses of a female member then such a female member can sue to
enforce the agreement.

3. Acknowledgement
Where under a contract a party undertakes an obligation to make a payment to a third party and
he acknowledges it to the said third party, the third party, though not a party to the contract can
enforce the contract.

4. Covenants attached or running with the Land

A person buying land is bound by covenants or agreement affecting the land although he may not
be a party to the said covenants or agreements.

5. Law relating to Negotiable Instruments

It is also an exception to the doctrine of privity of contract.

Ex: A has an account in central bank. A draws a cheque of Rs. 1,000/- in favour of B. B goes to
bank to encash the cheque. Although there is no contract between the bank and B, yet the bank
will be liable to pay Rs. 1,000/- to B. B amy also endorse the cheque to C and then C will be
entitled to receive Rs. 1,000 /- from the bank although there is no privity between bank and C.
similarly the rule of privity of contract does not apply in case of promissory note and bill of
exchange.

3. Has done or abstained from doing something

A consideration may be executory, a promise given for the promise, or it may be

executed, an act or forbearance given for the promise: but it must not be past, for in that case it is
a mere sentiment or gratitude or honour prompting return for benefits received in other words, it
is no consideration at all.

4. Or does or abstains from doing something

When, at the desire of the promisor or any other person does or abstain from doing something, it
will constitute a good consideration within the meaning of section 2 (d) of the contract Act..
Where the consideration is a present performance and not a promise. the determent may consists
either in actually parting with something of value or in understanding a legal responsibility or in
foregoing the exercise of a legal right.

5. Or promise to do or to abstain doing something

If the promise or any other person, at the desire of the promisor, promises to do or to abstain
from doing something it will constitute a good consideration. It is called an executory
consideration.

6. Such act or abstinence or promise is called a consideration for the promise

A. Consideration need not be adequate

The word is qualified by the word adequate it makes consideration stronger so as to

make sufficient and valuable having regard to the fact, circumstances and necessities of the case.
An agreement to which the consent of the promisor is freely given is not void merely because the
consideration is inadequate, but the inadequately of consideration may be taken into account by
the court in determining the question whether the consent of the promisor was freely given.

Ex: P agrees to sell his land worth Rs. 10,000/- for Rs. 1,000/- consent to the agreement is freely
given. Later on P denies selling the land to Q for Rs. 1,000/- on the ground that the consideration
is inadequate.

B. Consideration must be real

The consideration must be of some value in the eye of law. The court will not denounce an
agreement merely because it seems to be unfair. The promise must, indeed, have been procured
by the offer of some return capable of expression in terms of value. The Indian Contract Act does
not expressly say that the consideration must be of some value in the eye of law but the courts
have generally followed the English law on this point. That is to say in India also, the consideration
must be valuable in the eye of law and not that must be real and not illusory.

C. Act, abstinence or promise to be good consideration, must be something more than what
the promisor is already bound to do.

To do something which a person is already bound to do, is no good consideration. A

person may be bound to do something in the following two different ways:

1. by law:

According to English law, performance of a legal duty is to consideration for a promise.

But when a person has done something more than what he was bound by law, to do, then that
would be a good consideration.

In Glassbrook Brothers Ltd. v/s Glamorgan country council

In this case due to strike in the colliery, a colliery manager requested for police
protection for his colliery. For proper and efficient protection he wanted quartering a police force
in the premises of the colliery. The police superintendent required the colliery manager to pay for
this. The police protection was provided only when the colliery manager agreed to pay for the
same. The court had to decide whether the agreement was legal or not for the colliery manager
contended that the police was already bound to protect the life and property of the persons.

Finally the court held that the agreement in question was neither illegal nor void for want
of consideration. Although the police was bound to protect the life and property of the people but
if a person wanted any special type of protection which was usually not provided by the police,
the person concerned must pay for it.

2. by contract

A person may also be already bound to do something under a pre-existing contract. This
pre-existing contract may either be with a third party or with the promisor himself.

Pre-existing with the third party

 There was a controversy for a long time as to whether a promise for the performance of
an existing duty would constitute a good consideration.

Ex: A wife deserted her husband. He entered into an agreement by which he promised to pay her
Rs. 300/- per month if she would maintain herself and undertake not to pledge his credit. He was
sued by the wife when he fell into arrears with the payments, and pleaded in defence that there
was no consideration for the agreement at that time. Since she was in desertion she was bound to
maintain herself.

Pre-existing contract with the promisor himself

A promise to do a particular thing which the promise is already bound to do under a pre-
existing contract with the promisor will not constitute a good consideration.

In Ramchandra Chintaman v/s Kalu Raju

In this case, the defendant engaged the plaintiff as lawyer in a suit and signed the
vakalatnama which was accepted by the plaintiff. Later on the defendant promised to pay a
certain sum as reward to the plaintiff if he won the suit. The plaintiff was able to win the suit for
the defendants yet the defendant did not pay the promised reward. The plaintiff, therefore,
brought the suit to recover the sum promised as reward.

Finally the court held that the promise for the reward was without consideration for the
plaintiff as a lawyer of the defendant was already bound to do his best to win the suit. There being
no fresh consideration for the sum promised, the agreement was void

Exceptions to consideration

1. Natural love and affection

Section 25 (1) provides that an agreement without consideration is void. Unless it is expressed in
writing and registered under the law for the time being in force for the registration of documents
and is made on account of natural love and affection between parties standing in a near relation
to each other, the agreement will not be void for want of consideration.

Ex: A, for natural love and affection promises to give his son B Rs. 1,000/- A puts his promise to B
into writing and registers it. This will not be void for want of consideration and will be a valid
contract.

Essential elements

A. The agreement must be in writing.

B. It must be registered under the law for the time being in force for the registration of
documents.

C. It must be out of natural love and affection

D. The parties must be standing in a near relation to each other.

2. Promise to compensate for something done voluntarily

Section 25 (2) provides an agreement without consideration is void. Unless it is a promise to

compensate wholly or in part, a person who has already voluntarily done something for the
promisor, or something which the promisor was legally compellable to do will not be void for
want of consideration.

Ex: A finds B's purse and gives it ti him. B promises to pay A Rs. 50. This promise can be enforced.
Similarly, if A has supported B's son and subsequently b promises to pay A's expenses in so doing
A is entitled to sue and get the said promise enforced.

3. Promise to pay a time-barred debt

Section 25 (3) provides that agreement without consideration is void. Unless it is a

promise made in writing and signed by the person to be charged therewith, or by his agent
generally or specifically authorized in that behalf, to pay wholly or in part a debt which the
creditor might have enforced payment but for the law for the limitation of suits.

Ex: A owes B Rs. 1,000/- but the debt is barred by the limitation Act. A signs written promises to
pay B Rs. 500 on account of the debt. This will be a valid contract and shall not be void for want of
consideration.

Essential conditions

1. the promise to pay must be in writing and signed by the person concerned or his agent
generally or specifically authorized in that behalf.
2. The promise may be either for the whole of the debt or a part thereof.
3. The promise to pay must be in respect of the debt which the creditor might have enforced
payment but the law for the limitation of suits.

1.5 LEGALITY OF OBJECT

Unlawful Agreements

Section 23 provides that the object of an agreement is lawful, unless

1. It is forbidden by law

Section 23 provides that any agreements, the object or consideration of which is forbidden by law
is unlawful and therefore void.

In Pearce v/s Brooks

In this case, plaintiff agreed to supply the defendant with a brougham on hire, till the
purchase money was paid by installments in a period which was not to exceed twelve months.
The plaintiff had the knowledge that the defendant was a prostitute and the brougham was to be
used by her as a prostitute and to assist her in carrying on her said immoral vocation. The jury
found that the carriage was used by the defendant as a part of her display to attract men and the
plaintiff knew that it was supplied for that purpose. In this case, Pollock C.B., observed, it is a
settled law that any person who contributes to the performance of an illegal act by supplying a
thing with the knowledge that it is going to be used for that purpose, cannot recover the price of
the thing so supplied.

Section 23 is founded on the principle that no one shall be allowed to trade on felony. In
case the accused person is innocent, the law will be abused for the extortion and in case he is
guilty, the law will be eluded by a corrupt compromise screening the criminal for a consideration.
The legislature did not lay down under section 23 the conditions or qualifications as to what are
forbidden by law or what would default the provisions of any law. One has to go to law itself
which is the subject matter of the interpretation to see if the Act contained of is prohibited by law
or it would defeat the provisions of any law so as to pronounce it as void.

2. Agreements which defeat the provision of any law

Section 23 provides that if an agreement is of such a nature that if permitted, it would defeat the
provisions of any law, the consideration or object of such agreement is said to be unlawful and
every agreement the object or consideration of which is unlawful is void.

Ex: A promise B to drop a 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,
for it defeats the provisions of criminal law. A person who is guilty of the crime of robbery must
be dealt with according to law.

3. Fraudulent

Section 23 of the Act provides the consideration is unlawful if it is fraudulent.

Ex: A, B and C enter into an agreement for the division among them of gains acquired, or to be
acquired by fraud. The agreement is void, as its object is unlawful.

Exceptions

1. Where the illegal purpose has not yet been substantially carried into effect before it is
sought to recover money paid or goods delivered in furtherance of it.
2. Where the plaintiff is not in pari delicto with the defendant
3. Where the plaintiff does not have to rely on the illegality to make out his claim.

4. Injury to person or property of another

Section 23 of the Act provides the consideration or object which involves or implies injury
to the person or property of another is unlawful and therefore void. If parties enter into a sham
transaction and their object is to deceive a third party, no legal right or duties will follow or in
other words the contract would be void. Thus an agreement which involves injury to the
properties of other persons is void under section 23 of the contract Act.
5. Immoral or Opposed to Public Policy

Section 23 of the Act says the object of an agreement is unlawful if the court regards it is
immoral or proposed to public policy.

Meaning of Public Policy

It means an agreement which is injurious to the public or is against the interest of the
society is said to be opposed to public policy.

Ex: A contract of marriage brokerage is void.

A contract enforcing bonded labour is void.

A waging contract is void.

Meaning of Immoral

What is immoral at a a material time depends on the fact and circumstances of the case
and the prevailing standards of morality in the society.

In Pearce v/s Brooks

In this case, a coach builder had let out a brougham on hire to a prostitute for the
purpose of enabling her "to make a display favorable to her immoral purposes." The coach
builder subsequently sued the prostitute for moneys payable under the agreement. It was held by
the Court of Exchequer that he could not recover the moneys. The rule which is applicable to the
matter is, ex turpi causa non oritur action, and whether it is an immoral or an illegal purpose in
which the plaintiff has participated, it comes equally with the terms of that maxim, and the effect
is the same; no cause of action can arise out of either in the one or the other.

Various Existing Heads of Public Policy

1. By tending to the prejudice of the state

The head may further divide into the following two sub-heads.

1. Trading with the enemy

Since the bargains with the enemy help the enemy, they are clearly against the public policy; they
are clearly against the public policy. A very common illustration of such contracts is the contracts
with the alien enemy during the war.

2. Sale of public offices and appointments

Sale of public offices is also opposed to public policy.

Ex: If A agrees to pay some money to B, a public servant to include him to retire so as to make way
for A's appointment. This is a void agreement for being opposed to public policy.

2. By tending to the perversion of or interference with the administration of justice

1. An agreement the object of which is perversion of or interference with the administration of

justice is opposed to public policy and is therefore void.

Ex: P entered into a contract with Q whereby P undertook to perform "Pooja" for the success of Q
in litigation with the consideration that if Q won the case, he would give one-tenth of the decree
money to P. P cannot succeed against Q because the object of the agreement was to interfere
with the administration of justice.

Since the object of the agreement is interference with the administration of justice, the
agreement is opposed to public policy and comes under the existing and well recognized head,
"by tending to the perversion of or interference with the administration of justice." Such an
agreement is therefore unlawful and void. It may take the following forms:

1. Maintenance

It means providing money to another person to start litigation in which he has no interest.

2. Champerty

It means rendering assistance to other in recovering some property and he may have
interest in it and is to share in the proceeds of the recovered property.

In a leading case

In this case, G an advocate entered into an agreement with his client. Under this
agreement the said advocate was engaged by the client for a sum of Rs. 9,400. The agreement
also provided that the advocate would get 50% of the amount recovered. This agreement was
held to be void as it was opposed to public policy and amounted to professional misconduct.

2. Agreement to stifle prosecution

An agreement to stifle prosecution is clearly opposed to public policy and is therefore void. It is in
the interest of the public as a whole that criminals should not go unpunished. The criminal law of
this country makes a difference between various classes of offences. With regard to some it allow
the parties to come to an agreement and either not to take proceedings or to drop the
proceedings after institution in a few instances even without the leave of the court.

In V. Narasimha Raju v/s Gurumurthi Raju

In this case, a non-compoundable criminal case was pending in the court. The parties
entered into an agreement to refer it to arbitration and for the withdrawal of the case from the
court. The Supreme Court held that the agreement was void as being hit by section 23 of the
Contract Act.
The Supreme Court observed in this case, if a person sets the machinery criminal law into action
that the opponent has committed a non-compoundable offence by the use of this coercive
criminal process he compels the opponents to enter into an agreement, that agreement would be
treated as invalid for the reason that its consideration is opposed to public policy. Once the
machinery of the criminal law is set into motion on the allegation that the non-compoundable
offence has been committed, it is for the criminal court alone to deal with the allegation and to
decide whether the offence alleged has in fact been committed or not. The decision of the
question cannot wither directly or indirectly be taken out of the hands of the criminal courts and
dealt with by private individuals.

3. Interference with the cause of justice

An agreement, the object of which is to obstruct justice is void as it is opposed to public

policy.

Ex: If A is an accused in a criminal case filed against him by the state and B is a state witness. If
they enter into an agreement that B shall not state the facts correctly in the court and in
consideration of this A shall pay him some money. This agreement is void as being opposed to
public policy. Besides this, B may also be prosecuted for perjury if in fact he gives the false
evidence in pursuance of the said agreement.

3. Violation of Public Decency

There are two types of Agreements. Those are:

1. Marriage brokage agreement

2. Agreement against material relations.

Consequences of Illegality

1. Such a contract is void and the courts will not enforce it at the instance of either party.

2. Money paid or goods delivered in pursuance of an illegal contract cannot be recovered except
in the following cases:

a) Where one of the parties is innocent, it may recover back money or goods delivered under the
contract.

b) Where no more has been done that the payment of money and no part of illegal purpose has
been carried out, can be recovered.

Principle of Severability

Thus if the illegal consideration constituted a subsidiary or a minor part of the total
consideration and if the illegality did not involve a criminal act or one contra bonus mores, the
legal part of the consideration may be enforced and in such a case the principle of severability is
applied.
 Section 57 of the Act provides that where persons reciprocally, promise, firstly, to do
certain things which are legal, and secondly under specified circumstances, to do certain other
things which are illegal, the first set of promises is a contract but the second is a void agreement.

Ex: A and B agree that A shall sell B a house for 10, 000 rupees, but that if B uses it as a gambling-
house, he shall pay A 50,000 rupees for it. The first set of reciprocal promise, namely, to sell the
house and to pay 10,000 rupees for it is a contract. The second set is for unlawful object, namely,
that B may use the house as a gambling-house, and is void agreement.

In the case of an alternative promise, one branch of which is legal and the other illegal, the legal
branch alone can be enforced.

Ex: If A and B agree that A shall pay B 1,000 rupees, for which B shall afterwards deliver either rice
or smuggled opium. That is valid contract to deliver rice, and void agreement as to the opium.