Law o f Contract 5

(6) Statutory protection - The English Unfair Contract Terms Act, 1977
severely limits the right o f the contracting parties to exclude or limit
their liability through exemption clauses in the agreement. India lacks
such an Act; Indian Airlines v Madhuri Chowdhury (AIR 1965 Cal
252) highlights the inadequacy o f the Indian Contract A ct in providing
relief to the weaker party against the exemption clauses.
(Note: Government Contracts include tenders, auctions and standard form
contracts).

2. BASIC ELEMENTS OF A CONTRACT

The four basic elements o f a contract are: Offer, Acceptance, Consideration, and
Contractual capacity.

[I] O ffer (Proposal)

(1) The first essential for creating a contract is a valid offer or proposal (the
term ‘offer’ has been used in English law and the term ‘proposal’ under the
Indian law). A s per Sec. 2(a), an offer or p roposal has the follo w in g
ingredients:
(i) one person signifies to another,
(ii) his willingness to d o or abstain from d oin g anything,
(iii) with a view to obtaining the assent o f that other.
(2) A c c o r d in g to Sec. 3, to ‘s ig n ify ’ m ean s that the p ro p o sa l m ust b e
communicated to the other party. Sec. 9 provides that a valid proposal may
b e m ade by w ords (written or spoken) or b y conduct. Thus stepping into a
taxi and consum ing eatables at a restaurant, both create im plied prom ise to
pay for the benefits enjoyed. Similarly, a bid at an auction. In Upton Rural
District C ou n cil v P ow ell (1942) i All E R 220, a fire broke out in the
defendant’s farm. B elieving that he was entitled to the free service o f Upton
F ire B rigad e (which he w as not), he su m m on ed it. U p ton cla im ed
com pensation for its services. Held, the services were rendered on an im plied
prom ise to pay for them.
(3) Certainty o f offer- The terms o f the offer must b e certain and not vague (Sec.
29). A agrees to sell to B “m y white horse for Rs. 500 or Rs. 1000”. There
is nothing to show which o f the tw o p rices was to be given, thus it is not a
valid offer.
(4) Com m unication o f offer - A ccordin g to Sec. 4, the com m unication o f a
proposal is com plete when it com es to the know ledge o f the person to whom
it is made. A cting in ignorance o f an offer d oe s not amount to the acceptance
o f that offer. Thus, kn ow ledge o f an offer is must before the offer can be
accepted. In Lalman Shukla v Gauri Dutt (1913) 11 All LJ 489, the defendants
by handbills offered to pay Rs. 501 to anyone discovering the lost boy. The
6 Law Guide for Competitive Examinations

servant o f defendant came to know o f this offer only when he had already
traced the missing child and had informed the defendant. H is action to recover
the reward failed.
The court observed: “Where an offer has been accepted with knowledge o f the
reward, the fact that the informer was influenced by motives other than the reward
will be immaterial.” In Williams v Carwardine (1833) 2 U K B 101, where information
was given about the murderers o f her husband by a woman, not s o much for reward,
but to assuage her feelings, she was allowed to recover. The court further observed
that in the case o f public advertisements offering a reward, the ‘performance o f the
act’ raises an inference o f acceptance (Sec. 8). But, in the present case, the plaintiff
was already under an obligation to do what he did (acting under the servant’s duty)
and, therefore, the performance o f act cannot be regarded as a consideration for the
defendant’s promise.

In an Australian case, R. v Clarke (1927) 40 CLR 227, it was held that even
i f the acceptor had once known o f the offer but had com pletely forgotten about it at
the time o f acceptance, he would be in no better position than a person w ho had not
heard o f the offer at all (e.g. an accom plice giving the information to save himself,
completely forgetting the reward).

(5) General offers - There are two kinds o f offers - general and specific. The
specific offer is made to specific person, while the general offer is made to
the public or world at large. However, in case o f general offers, the contract
is made only with that person who com es forward and performs the conditions
o f the proposal as such performance amounts to acceptance o f performance
(Sec. 8).
A s stated by Anson, “An offer need not be made to an ascertained person, but
no contract can arise until it has been accepted by an ascertained person”. Thus, in
Carlill v Carbolic Smoke Ball Co. (1893) 1 Q B 256, the com pany offered £ 100
reward to anyone who caught influenza after using their sm oke ball accordin g to
printed directions. The plaintiff, who used the smoke ball, caught influenza. She was
held entitled to recover the promised reward. The court also noted that, in this case
as the transaction was advantageous to the Com pany (for increasing sale), this is
enough to constitute consideration for the prom ise (a requirement o f a valid contract).
(6) Cross-offers- When two parties make identical offers to each other, in
ignorance o f each other’s offer, the offers are ‘cross-offers’. Such offers do
not constitute acceptance o f one’s offer by the other and as such there is no
completed agreement [Tim v Hoffman & Co.(1873)29 LT 271]. For example,
A wrote to B offering to sell him certain goods. O n the same day, B wrote
to A offering to buy the same goods. The letters crossed in the post. There
is no concluded contract between A and B.

(7) Offer and invitation to treat [offer) - An ‘offer’ is the final expression o f
willingness by the offeror to be bound by his offer. Where a party, without
expressing his final willingness, proposes certain terms on which he is w illing
to negotiate, he does not make an offer but merely ‘invites’ the other party to
make an offer on those terms. For example, a book-seller sends catalogue o f
books indicating price o f various books to many persons. This is an ‘invitation
to treat’. The interested party may make an offer and the book-seller may
 Law o f Contract 7

accept or reject the offer. Similarly, bids/ tenders are only, an ‘invitation to
offer’. An auctioneer is not bound to accept even the highest bid (offer). Where
an auctioned sale was cancelled, the plaintiff cannot recover travel expenses, as
there was no contract. An offer can be withdrawn before it is accepted.
In M cPherson v Appana (AIR 1951 SC 184), it was held that m ere statement
o f the low est price at which the offeror w ould sell contains no im plied contract to sell
at that price. The Supreme Court relied on the principle enunciated in Harvey v F acey
(1893) A C 552. In that case the plantififs telegraphed to the defendants, writing: “Will
you sell us Bumper Hall Pen? Telegraph low est cash price”. The defendants replied,
also by a telegram: “Lowest price for Pen, £ 900”. The plaintiffs immediately sent
their last telegram stating: “We agree to buy Pen for £ 900 asked by you”. The
defendants, however, refused to sell the plot o f land at that price. The court observed
that the defendants had made n o offer. The plaintiffs’ last telegram w as an offer to
buy, but that was never accepted by the defendants.
In Pharm aceutical S ociety o f G.B. v B oots Cash Chemists Ltd. (1953) 1 All ER
482, held that the display o f g o o d s in a shop with price tags attached is not an offer
even i f there is a “self-service” system in the shop. The custom er by picking up makes
an offer to buy which is subject to acceptance by the shopkeeper. Likewise, an
inducement o f special discount by a shopkeeper is a “com m ercial p u ff’ or an invitation
to treat and not an offer. A banker’s catalogue o f charges is also not an offer.

[II] A cce p ta n ce
A proposal when accepted, results in an agreement. It is only after the acceptance o f
the proposal that a contract between the two parties can arise. W hen the person to
w hom the proposal is made, signifies his assent thereto, the proposal is said to be
accepted [Sec. 2(b)].
There are two essential requirements o f a valid acceptance: firstly, acceptance
should be communicated by the offeree to the offeror. Secondly, acceptance should
be absolute and unqualified.

(A) Communication o f A cceptance

(1) A cceptance express or im plied - A cceptance may b e in the form o f
express w ords (written or spoken) or may b e signified through conduct
(implied or tacit viz. cashing o f a cheque). In every case, there should
be som e external manifestation or overt act o f acceptance (e.g. fall o f
hammer in auction sale). A mere mental determination (or intent) to
accept is not enough (e.g. keeping agreement in a drawer) [Brogden v
M etropolitan Rail Co. (1877) 2 A C 666].

(2) When communication not necessary - In all cases o f general offers

(unilateral contracts), the acceptance is usually by conduct. Sec. 8 provides
that perfonnance o f the conditions o f a proposal is an acceptance o f
proposal (Carlill v C a rbolic Smoke B all Co.).
(3) Communication to offeror himself- A communication to any other person
is no communication in the eyes o f law. In Felthouse v Bindley (1863)
7 LT 835, the nephew intended his uncle to have the horse, but had not
8 Law Guide for Competitive Examinations

communicated this to the uncle, instead he told the auctioneer not to sell
the horse as it was already sold to his uncle. H eld that a com m unication
to a stranger, like the auctioneer in this case, w ill not do. In this case,
also.held that an offeror can’t im pose upon the o fferee the burden o f
refusal or ‘duty to reply’. The offeror cannot say that i f n o answer is
received within a certain time, the same shall be deem ed to have been
accepted. Mere silence is no acceptance o f offer.
(4) Communication by acceptor him self - Information received from an
unauthorized person is ineffective as it is like over-hearing from behind
the door [Powell v Lee (1908) 24 TLR 606]. In this case, the plaintiff’s
appointment as a teacher was communicated to him unofficially; later,
the managers o f school by a resolution cancelled h is appointment. The
plaintiff sued for breach o f contract, but failed.

(5) Mode o f communication - Sec. 7 provides that acceptance has to be

made in the manner prescribed by the proposer (if not prescribed, then
in some usual and reasonable manner). Further, a duty is cast on the
offeror to reject such acceptance within reasonable tim e and i f he fails
to do so, the contract is concluded.
(6) When communication o f acceptance com plete - W hen the parties are in
the presence o f each other, the contract is concluded w hen acceptance
is communicated to the proposer. This is the ordinary rule. H owever, an
exception has been engrafted upon this rule by Sec. 4. W hen the parties
are at a distance and are contracting through post or by m essengers, the
proposer become bound as soon as the acceptance is put in the course
o f transmission to him (e.g. when letter o f acceptance is p oste d by
acceptor). But the acceptor w ill b e c o m e b o u n d o n ly w h en the
communication o f acceptance is received by the p rop oser i.e. ‘co m e s to
the knowledge o f the proposer’ (Sec. 4). Under both the Indian and
English laws, a contract is made at a place where letter o f acceptance
is posted (rather than where it is posted). Under the English law, however,
when a letter o f acceptance is posted, both the offeror and acceptor
become bound.

When the acceptance is by telep h on e o r telex (i.e. direct/

instantaneous communication), the contract is complete only when the acceptan ce is
received (clearly heard and understood) by the offeror. A contract is deem ed to be
made at the place where acceptance is received or heard (offeror hears the acceptance
at his end, rather than when the acceptor speaks words o f acceptance) (B hagw andas
Kedia v Girdharilal & Co. AIR 1966 SC 543).

A ° ffer B B accepted ^
(Ahmedabad) on phone (Delhi) the offer (receives/ heard
the acceptance)
The majority view in this case, which is an exception to Sec. 4, is based on the
decision in Entores Ltd. v Miles Far East Corpn. (1955) 2 A ll E R 493. The court
observed: “Where the parties are in the presence o f each other, say, two persons
 Law o f Contract 9

across a river... one shouts an offer, but d o not hear another’s reply because o f an
aircraft noise. There is no contract at that m o m en t... to b e a contract, acceptance has
to b e shouted again and heard by the other. Similarly, in case o f a telephonic
conversation, if the line goe s ‘dead’ so that one do not hear other’s words o f acceptance,
there is n o contract at that moment.” The minority view in this case was that Sec. 4
covers telephonic communication also.
Just as when the lighted match com es into contact with gunpowder, there w ould
be an explosion and then it will not be possib le to bring the things back to the original
position, similarly, after the offer is accepted it creates a contract whereby both the
parties becom e bound and none o f them can g o back (Anson). However, an offer may
lapse for want o f acceptance or be revoked before acceptance. A lso the offeree may
d ecide to reject the offer. O n ce the offer lapses or revoked it is incapable o f being
converted into a contract by being accepted.
Sec. 4 o f the Contract A ct lays dow n that the communication o f acceptance is
com plete as against the proposer, when it is put in the course o f transmission to him
so as to be out o f the pow er o f the acceptor. T he proposer or offeror becom es bound
immediately on the posting o f the letter (correctly addressed) to him and it makes no
difference that the letter is delayed in transit o r it is even lost in the post and offeror
never receives it, or even where the offeror refused to recieve it. This is the position
under the Indian as w ell as English law. The position is advantageous to an acceptor
because he is not bound by the letter o f acceptance till it reaches the offeror. Thus
if the letter is delayed or lost in transit, he is at an advantage. In Bhagwan D as Kedia
it w as observed that the rule about ‘com m unication by p ost’ makes the position o f the
offeror m iserable as there is no consensus or “m eeting o f minds.”

(B) Absolute and Unqualified A cceptance

Sec. 7 provides that in order to convert a proposal into a promise, the acceptance
must b e absolute and unqualified i.e. without any qualification or condition. For a
valid acceptance, there must be an ad idem “concurrence o f mind” i.e. agreeing on
the sam e thing in the same course/ sense and at the same time.
(1) Counter p roposals - An acceptance with a variation (e.g. introduction o f
new terms) is no acceptance: it is simply a counter proposal, which must
be accepted by the original prom isor before a contract is made. A counter
offer im plies that the stage o f negotiation has not yet passed. A counter
offer puts an end to the original offer and it cannot b e revived by
subsequent acceptance by the acceptor. Thus in H yde v Wrench (1840)
3 Beav 334, an offer to sell a farm for £ 1,000 was rejected b y the
plaintiff, w ho offered £ 950 for it. This was turned dow n by the offeror
and then the plaintiff agreed to pay £ 1,000. But, the defendant again
refused to sell. Held that the plaintiff’s offer w as a counter proposal and
it put an end to the offer previously m ade by the defendant, thus there
was no contract. I f he (offeror) repeats the original offer which then is
accepted by the offeree, then a contract arises.
A m ere inquiry into the terms o f a proposal is not the same thing as a counter
proposal. T o seek an explanation o f the terms is som ething different from introducing
new terms. Further, i f an acceptance carries a condition subsequent, it may not have
 10 Law Guide for Competitive Examinations

the effect o f a counter offer. Thus, where an acceptance said: “terms accepted, remit
cash down Rs. 25,000 by Feb. 5, otherwise acceptance subject to withdrawal”. This
was not a counter offer, but an acceptance with a warning.
(2) Provisional acceptance- An acceptance made subject to final approval
is called provisional acceptance. It does not ordinarily bind either party
until the final approval is given. Meanwhile, the offeror is at liberty to
cancel his offer unless there is a contrary condition supported by
consideration (Union o f India v S. Narain Singh A IR 1953 Punj 274).
(3) Tenders - A tender is in the same category as a quotation o f prices. It
is not an offer but an invitation to offer. When a tender is approved it
is converted into a ‘standing offer’ (an offer which is allowed to remain
open for acceptance over a period o f time is known as standing, open
or continuing offer). A contract arises only when an order is placed on
the basis o f tender. A standing offer thus can be revoked or withdrawn
before the order has been placed. Just as the tenderer has the right to
revoke his tender as to future orders, so also the acceptor o f the tender
has a right to refuse to place any order whatsoever. The offer o f the
tenderer and each successive order o f the acceptor o f tender together
constitutes a series o f contracts {Bengal C o a l Co. v H om ee Wadia & Co.
ILR (1899) 24 Bom 97). In fact, the acceptance o f a tender m ay result
into different types o f agreements dpending upon the terms o f the tender
notice {Union o f India v M addala Thathiah A IR 1966 S C 1724).

Revocation
The Contract Act gives both proposer and acceptor the option o f revoking their
communication, before a completed contract com es into existence. Thus, revocation
is an option given to the parties to stop the contract from com in g into existence.

(A) Revocation o f Proposal

Sec. 6 lays down the circumstances when an offer lapses i.e. m odes o f revocation. A
proposal is revoked under the follow ing circumstances:

(1 ) N otice o f revocation

Sec. 5 provides that “a proposal may be revoked at any time before the com m unication
o f its acceptance is complete as against proposer, but not afterwards”. A s against the
proposer, the communication o f acceptance is com plete “when it is put in a cou rse
o f transmission to him, so as to be out o f the pow er o f acceptor” (Sec. 4). Thus, for
the communication o f revocation to be effective, it must reach the acceptor b e fo re he
mails his acceptance and makes it out o f his power. N o question o f revocation can
possibly arise in case o f a contract over telephone.
Illustration: A proposes by letter sent by post, to sell his house to B. B accep ts the
proposal by a letter sent by post. A may revoke his proposal at any time b e fo re or
at the moment when B posts his letter o f acceptance, but not afterwards.
In Henthorn v Fraser (1892) 2 Ch 27. the court observed that a person w ho has
made an offer must be considered as continuously making it until he has brought to the
knowledge o f the person to whom it was made that it is withdrawn. Where an offeror
 Law o f Contract 11

giv es the offeree (acceptor) an option to accept within a fixed period, he may withdraw
it even before the expiry o f that period. In Alfred Schonlank v M. Chelli (1892) 2 Mad
LJ 57, the defendant left an offer to sell certain g o o d s at the plaintiff’s office allowing
him 8 days’ time to give his answer. On the 4th day, however, the defendant revoked
his proposal. The plaintiff accepted it on the 5th day. However, where the agreement
to keep the offer open for a certain period o f time is for som e consideration (even one
pound), the offeror cannot cancel it before the expiry o f that period.
N otice o f revocation shall be deem ed to have been served when it reaches the
a ccep to r’s address. In The Brimmes (1974) 3 All ER 88, a notice o f revocation was
sent by telex and was received by the plaintiff’s telex machine during normal business
hours, but the plaintiff read the m essage the next day. H e was, however, held bound
by the n otice when his machine received it.
Under the Indian law, it is necessary that the com m unication o f revocation
should be from the offeror or from his duly authorized agent. However, under the
English law, it is enough i f the acceptor knows reliably that the offer has been
withdrawn. Thus, in Dickinson v D odds (1876) 2 Ch D 463, the plaintiff was informed
by a third person that the properly (about which an offer was made) had already been
sold to another. H eld that a sale to a third person, which cam e to the know ledge o f
the person to whom the offer made was an effectual withdrawal o f the offer.

(2) Lapse o f tim e

An offer lapses on the expiry o f the time, i f any, fixed for acceptance. H owever it is
enough if the acceptor has ‘posted the acceptance before the stipulated time', even if
it reaches the offeror after the stipulated date. Where no time for acceptance is prescribed,
the offer has to be accepted within a reasonable time. Where the subject matter o f the
contract is an article, like gold, the price o f which rapidly fluctuates in the market, very
short period will be regarded as reasonable, but not so in reference to land.

(3) By failure to fu lfill a condition precedent

W here the offer is subject to a condition precedent, it lapses i f it is accepted without

fulfilling the condition (e.g. deposit o f earnest money).

(4) By death o r insanity o f offeror

An offer lapses on the death or insanity o f the offeror, provided that the fact com es
to the know ledge o f the offeree before he makes his acceptance. It means that i f such
fact has not com e to his know ledge while he accepts the offer, it is valid acceptance
g iv in g rise to contractual obligations. The A ct is silent about the effect o f death o f
the offeree. A s an offer can be accepted only by an offeree, where he died before
postin g the letter o f acceptance, the offer lapses.

(B) Revocation o f A cceptance

In India, unlike the English law, acceptance is generally revocable. Sec. 5 provides
that ‘an acceptance may be revoked at any time before the communication o f the
acceptance is com plete as against the acceptor, but not afterwards’. A s against the
acceptor, the communication is com plete when the acceptance com es to the know ledge
o f offeror i.e. when the letter o f acceptance reaches the offeror (Sec. 4). Thus, an
acceptor m ay cancel his acceptance by a speedier m ode o f communication, w hich will
reach earlier than the acceptance itself.
12 Law Guide for Competitive Examinations

Illustration: A proposes, by letter sent by post, to sell his h ouse to B. B accepts the
proposal by a letter sent by post. B may revoke his acceptance at any time before or
at the moment when the letter communicating it reaches A, but not afterwards.
Thus, if the letter o f acceptance and the letter o f revocation reach together, then
also the acceptance will be deemed to have been revoked. However, some authors are
o f the view that in such a case, the formation o f contract wall depend on the fact that
which o f the two letters is opened first; if letter o f acceptance is opened first, the
revocation is not possible, and, if letter o f revocation is opened first, revocation is
valid. Thus such contracts are called ‘accidental form o f contracts’.

[Ill] Consideration
Consideration constitutes the very foundation o f the contract. A n agreement not
supported by consideration is void (Sec. 25, Contract Act). Consideration is the
cause o f the promise and its absence would make the prom ise a gratutious or bare
promise (nudum pactum). The fact that a promise has been made for consideration
goes to show that parties contemplated the creation o f a legal obligation. A nson said
that the offer and acceptance bring the parties together and constitute the outward
semblance o f a contract; but m ost systems o f law require som e further evidence o f
the intention o f the parties, which is provided by consideration and form. It m ay be
noted that consideration is a cardinal necessity o f the formation o f a contract, but no
consideration is necessary for the discharge or m odification o f a contract.
Blackstone defined consideration as the recompense given by the party contracting
to the other. In other words, it is a price o f the promise (Pollock). A valuable consideration
in the sense o f the law, may consist either in som e right, interest, profit or benefit
accruing to the one party, or some forbearance, detriment, loss or responsibility given,
suffered or undertaken by the other. This is the most com m only accepted definition.
Consideration is a return or quid p ro quo (something for something), something o f
value received by the promisee as inducement o f the promise.
Section 2(d) o f the Indian Contract A ct defines consideration as follow s: “when
at the desire o f the promisor, the promisee or any other person has don e or abstained
from doing, or does or abstain from doing, or prom ises to d o or to abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise.”

This definition is wider and more comprehensive then is accepted in English courts.
The three ingredients o f this definition o f consideration are:
(1) that the act or abstinence, which is to be a consideration for the promise,
should be done at the desire o f the promisor,
(2) that it should be done by promisee or any other person,
(3) that the act or abstinence may have been already executed or is in the process
o f being done or may still be executoiy i.e. it is promised to be done.

(A) At the Desire o f the Promisor (Promissory Estoppel)

An act shall not be a good consideration for a promise unless it is don e at the desire
o f the promisor. Thus in Durga Prasad v Baldeo (1880) 3 All 221, the plaintiff built
a shopping com plex on the order .of the Collector. The shops cam e to b e occu p ied by
the defendants who, in consideration o f the plaintiff having expended m on ey in the
 Law o f Contract 13

construction, promised to pay him com m ission on articles sold by them. The plaintiff's
action to recover the com m ission was rejected on the ground that plaintiff’s act was
the result not o f the prom ise but o f the C ollector’s order.
In Kedar Nath v G orie Mohd. (1886) ILR 14 Cal 64, on the faith o f the
prom ised subscription the plaintiff entered into a contract with a contractor for the
purpose o f building a town hall. Held that the plaintiff’s act in entering into contract
with the contractor was done ‘at the desire o f the defendant (the promisor)’ s o as to
constitute consideration. In Doraswam y Iyer v A. Ayyar (AIR 1936 Mad 135), the
tem ple repairs were already in progress when the subscription were invited. Held that
the action w as not induced b y the prom ise to subscribe but was rather independent
o f it. Thus, the subscriber (defendant) who had prom ised to pay but had later refused
was not held liable. A mere prom ise to subscribe to a charitable institution cannot be
sued upon if nothing has been done in furtherance o f the fund raised.

(B) Promisee or Any O ther Person

A prom ise is enforceable i f there is som e consideration for it and it is quite immaterial
that it m oves from the prom isee or any other person.This is som etim es called as
‘Doctrine o f Constructive Consideration’. Under English law, however, there is a
privity o f consideration i.e. consideration must m ove from the prom isee and prom isor
only, a stranger or third person cannot furnish consideration [Tweedle v Atkinson
(1861) 1 All ER 762],
In Chinnaya v Ramaya (1882) 4 M ad 137, A, a landlord, executed a gift deed
o f certain lands in favour o f his son B, with a direction that he should pay to his uncle
C an annuity o f Rs. 8,000 for a period o f three years. O n the same day, B also
executed a separate undertaking in favour o f C agreeing to pay the annuity. B
subsequently refused to keep his promise. C sued B to recover the amount due under
the agreement. H eld that the consideration (gift o f lands) furnished by A is enough
to enforce the agreement between B and C. I f there w as no agreement between B and
C, though B agreed with A to pay annuity to C, then the case falls under ‘privity o f
contract’: a stranger or third person cannot sue upon a contract between the two
parties unless the contract benefits a third person (by way o f trust, charge or under
a family arrangement). Thus, C will succeed in this situation also.
In Dutton v P oole (a 1677 case), a person intended to sell a w ood in order to
provide his daughter a marriage portion. His son (defendant) promised that if he (father)
abstains from selling he would pay the daughter £ 1,000. The father accordingly forbore
but the defendant did not pay. The daughter and her husband (plaintiffs) sued the
defendants for the same. Held that ...as the consideration m oved indirectly from the
plaintiff to the defendant and the action o f defendant operated to shut out the plaintiff
from a certain benefit, the plaintiff can sue. It is a legal com m on place that i f a promise
causes som e loss to the promisee, that is sufficient consideration for the promise.

Privity o f C o n tra ct
T he doctrine o f privity o f contract means that a contract is a contract between the
parties only and no third party (i.e. stranger to contract) can sue upon it even if it is
avow edly made for his benefit. Similarly, the third person is not bound by the contract
as there is n o mutuality (doctrine o f mutuality). The doctrine is rooted in the English
 14 Law Guide for Competitive Examinations

com m on law especially in the famous case o f Tweddle v Atkinson (1861) 123 E R 762,
and Dunlop Pneumatic Tyre Co. Ltd. v Selfridge <6 Co. (1915) A.C. 847. In the latter
case, the plaintiff (Dunlop Co.) sold goods to one Dew & Co. and secured an agreement
from them not to sell good s below the list price and i f they sold goods to another
trader they would obtain from him a similar undertaking to maintain the price list.
D ew & Co. sold good s to the defendants (Selfridge & Co.) w ho agreed n ot to sell
good s at less than list price. On their not doing so, the plaintiffs sued them for the
breach o f contract, but failed as there was no privity o f contract between them and
the plaintiffs.
The rule o f privity o f contract has been generally criticized. One o f the criticism
is that the general rule that ‘no third person can sue’ is only a rule o f procedure. It
goes to the form o f remedy, not to the underlying right. Indian law expressly negatives
the English doctrine o f ‘privity o f consideration’. However, there is no provision in
the Indian Contract Act either for or against the rule o f ‘privity o f contract’. But the
common law doctrine o f privity o f contract is generally applicable in India.
The authority for the application o f the rule in India is the decision o f the Privy
Council in Jamna Das v Ram Avtar (1911) 30 l.A.7. In that case, A had m ortgaged
som e property to X. A then sold this property to B, B having agreed with A to pay
o ff the mortgaged debt to X. X brought an action against B to recover, but failed as
there was no contract between X and B. Similarly, in Subbu Chetti v Arunachalam
Chettiar (AIR 1930 Mad 382), held that "where all that appears is that a person
transfers property to another and stipulates for the payment o f m oney to a third
person, a suit to enforce that stipulation by the third party will not lie.”
The Supreme Court o f India has approved the rule o f privity o f contract in
M. C. Chacko v State Bank o f Travancore (AIR 1970 SC 504). In this case, the creditor
bank was not allowed to recover its debt from the debtor bank; the form er sought to
rely on an agreement between the debtor bank’s manager and his family members.

Exceptions to Privity Rule

In. the course o f time, the courts have introduced a number o f exceptions in which the
rule o f privity o f contract does not prevent a person from enforcing a contract, which
has been made for his benefit but without his being a party to it (Besw ick v Beswick
(1966) 3 ALL ER 1).
(1) Trust or Charge - A trust is the property held and m anaged by one or
more persons for another’s benefit (See C h im aya case).
A person in whose favour a charge or other interest in som e sp e cific property
has been created may enforce it. In Khwaja Muhammad Khan v H ussain i Begum
(1910) 37 IA 152, there was an agreement between the lady’s father-in-law and her
father that in consideration o f her marriage with his son, he would pay to her Rs. 500
per month in perpetuity for the betel-leaf expenses. Som e im m ovable property was
specifically charged for the above purpose. A suit by the wife (not a party to the
agreement) for the recovery o f arrears o f annuity was upheld.

(2) Marriage settlement. Partition or other Family arrangem ents - Where

a girl’s father entered into an agreement for her m arriage with the
defendant, it was held that the girl could sue the defendant for damages
 Law o f Contract 15

for the breach o f the prom ise o f marriage even though she was not a
party to the agreement {Rose v Joseph A IR 1925 B om 97). Agreem ent
between tw o brothers to maintain their mother has been upheld.
(3) Acknowledgement o r E stoppel - W hereby the terms o f a contract a party
is required to make a payment to a third person and he ackn ow ledges
it to that third person (viz. while m aking a part-payment), a binding
obligation is thereby incurred towards him. A cknow ledgem ent can be
express o r implied.
(4) Covenants running with lan d - A person w ho purchases a land with
notice that the owner o f the land is bound by certain duties created by
an agreement or covenant affecting the land, shall b e bound by them
although he was not a party to the agreement [Talk v M oxhay (1919)].

(C) Has D one o r Abstained from D oing

Under Sec.2 (d), consideration is an act, which has already been done at the desire
o f the prom isor (past consideration), or is in progress (executed or present consideration
i.e. consideration is p rovided simultaneously with the m aking o f the contract) o r is
prom ised to be done in future (executory or future consideration i.e. a sim ple exchange
o f promises). Thus consideration m ay consist o f a past, present or a future a c t

Past Consideration

I f the act has been done before any prom ise is made, it is called past consideration.
It means that the consideration for any p rom ise was given earlier and the prom ise is
m ade thereafter. Under English law, a past consideration is no consideration; the
consideration and the prom ise ought to g o together. However, a past act don e at
request will be g o o d consideration for a subsequent promise. Further, a prom ise to
pay time-barred debt and a negotiable instrument issued for a past consideration are
both valid.
In India, Sec. 25 (2) adequately covers a past voluntary service i.e. a service
rendered without fcny request or prom ise and there is a subsequent prom ise to pay for
the same. Thus, where A finds B ’s purse and giv es it to him and B prom ises to giv e
A Rs. 50, this is a contract. Similarly, where A supports B ’s infant son and B prom ises
to pay A’s expenses in s o doing, this is a contract.

(D) Such Act, Abstinence or Promise is called Consideration

Consideration Must be Real a n d N o t Illusory

W here consideration is physically im possible, illegal, uncertain or illusory, it is not

real. English com m on law has always insisted that "Consideration must b e o f som e
value in the eyes o f the law.” Thus where A p rom ises to giv e his new car to B,
provided B will fetch it from the garage, or where a prom ise made by the father in
consideration that his son w ould not bore him, there is no legal consideration. The
position is the sam e in India.

Consideration N e e d N o t be Adequate

Explanation 2 to Sec. 25 lays dow n that "an agreement to which the consent o f the
prom isor is freely given is not v oid m erely because the consideration is inadequate."
 16 Law Guide for Competitive Examinations

Thus, if A agrees to sell a horse worth Rs. 1,000 for Rs. 10 and A’s consent to the
agreement was freely given, the agreement is a contract notwithstanding the inadequacy
o f the consideration.
In D e La Bere v Pearson (1908) 1 KB 280, the defendants, the newspaper
proprietors, offered to answer inquiries from readers o f the paper desiring financial
advice. The plaintiff wrote to them asking for a safe investment and also for the name
o f a good stockbroker. The editor, unknowingly, recommended a person w ho was an
undischarged bankrupt. The plaintiff’s sums were misappropriated b y that person.
The question was whether there was sufficient consideration for the offer o f the
advice. Held that such publication have a tendency to increase the sale o f the defendant’s
paper; this offer, when accepted, resulted in a contract for g o o d consideration.
Explanation 2 to Sec. 25 Anther lays down that “inadequacy o f consideration
may be taken into account by the court in determining the question whether the
consent o f the promisor was freely given”. For “inadequacy o f consideration, may in
circumstances suggest fraud, coercion, mistake, etc.”

Abstinence, etc.
Forbearance to sue (or compromise o f a pending suit) has always been regarded as
valuable consideration. It is a kind o f abstinence. Thus, in K astoori D ev i v Chiranji
Lai (AIR 1960 All 446), the withdrawal o f a pending suit by a w ife against her
husband was held to be a g ood consideration for his promise to pay her maintenance.

Perform ance o f Existing Duties

(1) Perform ance o f le g a l obligation - In order to con stitu te p ro p e r
consideration there should be a promise to do something m ore than what
a person is already bound to do. Doing o f something, which a person is
already legally bound to do, is no consideration. For instance, where a
person having received summons to give evidence in a case; a prom ise
to pay to such person for appearing in case is no consideration (Collins
v Godefroy). Similarly, a promise to pay a sum o f m oney to a p olice
officer for investigating into a crime will b e without consideration.
However, where the police authority provides a special form o f protection
outside the scope o f their public duty (e.g. performing an extraordinary
act) they may demand payment o f it.
(2) Performance o f contractual obligations
(a) Pre-existing contract with promisor- If A is already bound to perform
a particular contractual duty owed to B, B ’s promise to pay something
additional for the same promise is no consideration. Likewise, a
promise to pay a special reward to a pleader (apart from usual fee)
if the suit decided in the prom isor’s favour, does not constitute
consideration. Similarly, held in Lalman Shukla's case.
On the same principle, a promise to pay less than what is due under a contract
cannot be regarded as a consideration (Pinnel's case, 1602). However, there are
certain exceptions to the Pinnel's rule. Thus, part-payment by a third party may be
g oo d consideration for the discharge o f the whole debt. In India, the prom isee may
 Law o f Contract 17

accept in satisfaction o f the w hole debt an amount smaller than that. N o consideration
is needed for such a prom ise (Sec. 63, Contract Act).
(b) Pre-existing con tract with third p arty - W here a p erson has
contracted to d o an act, and a third person p rom ises to pay him a
sum o f m oney i f he w ould g o ahead with the performance, is there
a consideration for the prom ise? In Shadw ell v Shadw ell (1860)
9CB (NS) 159, the plaintiff A had already prom ised to marry one
M iss Nicholl. A’s uncle sent him a letter: “I am glad to hear o f your
intended marriage with N icholl; and as I prom ised to assist y ou at
starting, I w ill pay to you £ 150 yearly during m y l i f e ...” Thereafter,
A married Nicholl. The m ajority judgm en t was that there is a
sufficient consideration for the promise. T he prom ise o f the annuity
m ight’ve intended as an inducement to the marriage.
In Scotson v P e g g (1861) 30 LJ E x 225, it has been held that there is a
possibility that A may m ake a prom ise to d o som ething in favour o f B and then A
m ay make another prom ise to d o the sam e thing in favour o f C. A can enforce the
agreement against C. But, i f a person contracts with another to d o a certain thing, he
cannot make the performance o f it a consideration for a n ew prom ise to the sam e
individual.
The position in India is also the same. In G op al Co. Ltd v Hazarilal Co. (AIR 1963
M.P. 37), held that the second agreement brings into existence a new contract between
different parties and ‘herefore a prom ise to d o a thing, which the promisee is already
bound to do, under a contract with a third party can be g o o d consideration to support a
contract. Thus, where A contracts with B to build a fence between their premises; C, a
neighbour, also interested in the idea o f fence, promises B that i f he will carry out his
contract with A, he will pay him Rs. 1,000. B can recover Rs. 1,000 from C.

E x cep tion s t o C on sid e ra tio n

A ccordin g to English law, contracts are o f tw o kinds - sim ple contracts and contracts
under seal, or in the form o f a deed. There, consideration is required only as regards
sim ple contracts. A contract under seal (formal or real i.e. w hich is in w riting and
which is signed, sealed and delivered) is enforceable without consideration.
Indian law, however, d oes not recogn ize any such exception. But Sec. 25 o f the
Contract A ct lays dow n a few exceptions, w hen an agreem ent m ade w ithout
consideration is not void. It may be noted that even in the case o f negotiable instruments,
where the consideration is presum ed under Sec. 118, they w ould b e v o id i f it is
proved that no consideration has passed betw een the parties.
Explanation 1 makes it clear that Sec. 25 d o e s not apply to the ca ses o f gifts.
A gift (which is not an agreement) d oe s not require consideration in order to b e valid.
There need not be natural love and affection or nearness o f relationship betw een the
donor and donee. The gift must, however, be ‘com p lete’ i.e. it has been delivered; a
prom ise o f gift, being without consideration, is void.
Explanation 2 makes it clear that the consideration must have som e value in the
eyes o f law, even though it need not b e adequate.
18 Law Guide for Competitive Examinations

Exception I. Natural Love and A ffection

A written and registered agreement based on natural love and affection betw een near
relatives is enforceable without consideration. The expression ‘near relative’ w ill
include parties related by blood or marriage. In Rajlucky D abee v Bhootnath M ookerjee
(1900) 4 Cal WN 488, held that near relation between the two parties d o e s not
necessarily imply natural love and affection between them. In this case, the defendant
promised to pay his wife a fixed sum o f money every month for her separate residence
and maintenance. The court could find no trace o f love and affection betw een the
parties. The agreement was held to be void for lack o f consideration.

Exception 2. Past Voluntary Service

A promise to compensate a person, who has already voluntarily done som ething for
the promisor, or something which the promisor was legally com pellable to do, is
enforceable. However, such service should have been rendered voluntarily and without
promisor’s knowledge, and for the promisor only. This im plies that the act must have
been done for a person who is in existence at the time o f the doin g o f the act. In
Karan Chand v Basant Katir (1911) PR 31, a promise made after attaining majority
to pay for goods supplied to the promisor during minority was held to b e within the
exception.
It may be noted that as per the exception the prom ise must be to compensate
a person who has him self done something for the prom isor and not to a person who
has done nothing for the promisor. An illustration- A and B are friends. B treats A
during A’s illness. B does not accept payment from A for the treatment and A prom ises
B ’s son, C, to pay him Rs. 1,000. Here, C, to whom the prom ise was made, did
nothing for A, so A’s promise is not enforceable.

Exception 3. Time-barred Debt

A promise to pay a time-barred debt is enforceable. The prom ise referred to in Sec.
25 (3) must be express. Thus a debtor’s letter to his creditor “to com e and receive”
what was due to him, was held to disclose no express promise. W here a tenant in a
letter to the landlord referred to the arrears o f time-barred rent and said: “I shall send
by the end o f Vysakh month”, it was held that the document satisfies the requirements
o f Sec. 25 (3). The Bombay High Court has held that a statement in the balance sheet
o f a film signed by a partner showing that the firm was indebted to the plaintiff in
respect o f the stated sum became an implied promise to pay.

O ther Exceptions

Some other instances where a consideration is not required to make a contract valid
are- a contract o f agency; remission by the promisee, o f performance o f the prom ise;
an agreement to extend time for performance o f a contract; a prom ise to contribute
to charity in certain circumstances.

[IV] Capacity to C on tract

Section 10 o f the Contract Act requires that the parties must be com petent to contract.
Sec. 11 defines who are competent to contract: “Every person is com petent to contract
who is the age o f majority according to the law to which he is subject, and w ho is
o f sound mind, and is not disqualified from contracting by any law to w hich he is
 Law o f Contract 19

subject.” Thus minors, persons o f unsound mind and persons disqualified by law are
incom petent to contract. The age o f the majority is 18, but where a guardian is
appointed it is 21. However, by an amendment in 1999 to the Indian M ajority A ct
1875, the age o f majority is fixed as 18 years for every person (irrespective o f the
fact o f appointment o f a guardian).

N atu re o f M in or’s A g r e e m e n t
Neither Sec. 10 nor Sec. 11 makes it clear whether, if a minor enters into an agreement,
it w ould b e voidable at his option or altogether void. However, after the d ecision in
M ohoribibi case, it is n ow w ell settled that a m inor’s agreement is absolutely void.
A m inor cannot make a prom ise enforceable in law (Raj Rani case). The ‘specific
perform ance’ o f a contract (actual carrying out o f the contract as agreed) is not
possib le in the case o f an agreement by a minor. Law acts as the guardian o f minors
and protect their rights, because their mental faculties are not mature.
It is important to note that the parents or guardian o f a minor can contract on
behalf o f the minor. I f the contract is within the com peten ce o f the guardian and it
is for the benefit o f the minor it is specifically enforceable. The m inor w ill be bound
with such contract and could obtain specific perform ance o f the contract.

Effects o f M inor’s A g r e e m e n t
A m inor’s agreement being void, ordinarily it should b e w holly devoid o f all effects
(except where the contract is for the benefit o f minor). A s there is no contract, all the
effects o f a m inor’s agreement must be w orked out independently o f any contract.

(1) No Estoppel against Minor

W hen a minor misrepresents at the time o f the contract that he is a major, the question
arises- does the law o f estoppel apply against him, so as to prevent him from alleging
that he was a minor when the contract was m ade? It is n ow w ell settled that there is
no such estoppel against the minor even i f he has acted fraudulently. There can b e no
estoppel against a statute. The p olicy o f the law o f contract is to protect persons
below the age from contractual liability and naturally the doctrine o f estoppel cannot
b e used to defeat that policy. In Khan G u l v Lakha Singh (AIR 1928 Lah 609), held
that the law o f estoppel, which is the rule o f evidence, is a general law and this has
to be read subject to the special law contained in the Indian Contract Act.

(2) No Liability in Contract o r in Tort arising out o f Contract

T he m inor w ill not b e liable for a tort arising out o f contract, for the reason that such
liability is an indirect way o f enforcing his agreement. But where the tort is independent
o f the contract the mere fact that a contract is also involved, w ill not absolve the
m inor from liability.
Thus where an infant borrow ed a mare for riding only, he was held liable when
he lent her to one o f his friends w ho ju m ped and killed her [Barnard v H a ggis (1863)
4 C B N S 45], Here the defendant was liable on the ground that the act resulting in
injury to the mare was quite outside the contract. In Jennings v Rundall (1799) 8 TR
335, on the other hand, where an infant had hired a horse to b e ridden for a short
journ ey and took it on a much longer journey, with the result that it was injured, the
court held him not liable on the ground that the action was founded in contract.
20 Law Guide for Competitive Examinations

(3) Doctrine o f Restitution

The proposition that “the lack o f capacity goes to the root o f the contract and invalidates
it completely” is subject to the equitable doctrine o f restitution and the beneficial
contracts in the case o f a minor.
English Law: If the minor has unjustly enriched himself, equity demands that such
property or goods be restored. The English courts developed the equitable ‘doctrine
o f restitution’ to deal with the matter. In Leslie (R) Ltd. \ S h e ill (1914) 3 KB 607,
the court laid down the three main propositions o f this doctrine:

(i) If an infant obtains property or g oo d s by misrepresenting his age, he can

be com pelled to restore it, but only so lon g as the same is traceable in
his possession.

(ii) Where the infant has sold the g oo d s or converted them, he cannot be
made to repay the value o f goods, because that would amount to enforcing
a void contract.
(iii) The doctrine o f restitution is not applied where the infant has obtained
cash instead o f goods, for ‘restitution stopped where repayment began’.
Indian Law: The English doctrine o f restitution is contained in the Indian law, though
with som e modifications:
(a) M ohoribibi v Dharmodas G hose (1903) 30 Cal 539- In this case, a
minor executed a mortgage for Rs. 20,000 and received Rs. 8,000 from
the mortgagee. The mortgagee filed a suit for the recovery o f his mortgage
money and for the sale o f property in case o f default. The Privy Council
held that an agreement by a minor was absolutely void as against him,
thus the mortgagee could not recover the m ortgage m oney nor cou ld he
have the minor’s property sold under his mortgage. The court observed
that Secs. 64 and 65 o f the Contract A ct (‘Restoration o f benefits received
under a voidable or void contract’) starts from the basis o f there being
a contract between competent parties, while in a m inor’s case there
ne\er was and never could’ve been any contract.
(b) Khan Gul v Lakha Singh (AIR 1928 Lah 609)- In this case, the court
observed that the doctrine o f restitution w ould not be o f any help unless
it was extended in India to cover money cases also. The learned C h ief
Justice, Sir Shadilal, found sufficient reason for the extension as he said:
‘‘While in India all contracts made by infants are void, there is no such general
rule in England. There should therefore be a greater scope in India than in England
for the application o f the doctrine o f restitution. The doctrine rests upon the salutary
principle that an infant cannot be allow ed by a court o f equity to take advantage o f
his own fraud.”
i
(c) Sec. 33, The Specific R elief Act, 1963 clears the position- T he Law
Commission o f India (9th report) preferred the view enunciated in Khan
Gul case and accordingly the controversy has n ow been set at rest by the
new Specific R elief Act, 1963. The principle o f restitution is contained
in Sec. 33 o f the new Act:

(1) Where a void or voidable contract has been cancelled at the instance
 Law o f Contract 21

o f a party thereto (i.e. minor g o e s to the court as p lain tiff for

cancellation o f contract), the court may require him to restore such
benefits as he has received under the contract and to make any
compensation to the other party which justice may require.
(2) Where the minor is defendant in a case and he resists the enforcement
o f the suit on the ground that he is incompetent to contract, the
court may ask him to restore such benefits to the other party, to the
extent he or his estate has benefited thereby (Clause b).
The object o f sub-sec. (1) is to restore the parties to their original position, as far
as possible. But the court will not com pel any restitution by a minor even i f he is a
plaintiff, where the other party w as aware o f the infancy so that he was not deceived,
or where the other party has been unscrupulous in his dealings with the minor, or where,
though the minor has misrepresented his age, the other party was so zealous to enter into
the transaction that the false representation exerted no influence on him.
Through sub-sec. (2) the parties are tried to be put to the pre-contract position.
Moreover, compensation in terms o f m oney (excluding interest) is also permitted. A
minor (as a defendant) can be com pelled to account for such portion o f m oney or
anything else received by him as has gon e to benefit him personally, such as education
or training, or has resulted in an accretion to his estate (viz. buying the assets, o r deposit
in bank account). The phrase ‘estate has benefited’ means som e permanent benefit as
opposed to a transient one (viz. entertainment, eating, gifts to friends, etc.). Thus m oney
spent by the minor on watching a film cannot be said to benefit his estate.

Beneficial C on tra cts

The meaning o f the proposition that an infant is incompetent to contract o r that his
contract is void is that the law will not enforce any contractual obligation o f an infant.
The decision in M ohoribibi case is confined to cases w here a m inor is charged with
obligations and the other contracting party seeks to enforce those obligation s against
him. Accordingly, a minor is allow ed to enforce a contract, w hich is o f som e benefit
to him and under which he is required to bear n o obligation. A m inor w ill have the
option o f retiring from a beneficial contract on attaining majority.
The follow ing are the instances o f contracts ben eficial to a minor:
(i) I f a minor has advanced m ortgage m oney and there is a m ortga ge in his
favour, he can sue for enforcem ent o f the contract.
(ii) Similarly, a minor can sue on a P rom issory Note executed in his favour.
(iii) A contract for the m arriage o f a m inor is also prim a facie for his o r her
benefit. W hile the contract o f marriage cou ld b e en forced against the
other contracting party at the instance o f the minor, it cannot b e en forced
against the minor.
(iv) A m inor can also be supplied with “n ecessaries suited to his con dition
in life” (e.g. food, lodging, education) and the supplier o f such necessaries
is entitled to be reimbursed from the property o f the minor.
(v) A lease to a minor is void.

(vi) Trade contracts are not included in beneficial contracts. Thus when a
22 Law Guide for Competitive Examinations

minor, while carrying on business, enters into a trade contract such

contract, will not be binding on him.

(vii) A minor is bound by the contract o f apprenticeship under the Indian

Apprenticeship Act, 1850. Under English law, infant is bound by the contract
o f apprenticeship as well as contract o f service because such contracts are
beneficial to him and help him in earning his livelihood. Unlike English law,
contracts o f service entered into by a minor are void in India.
In Raj Rani v Prem Adib (AIR 1949 Bom 215), the father o f Raj Rani, who was
a minor, entered into a contract on her behalf with Prem Adib, a film producer. According
to the contract, Raj Rani was to act as a film actress on payment o f a certain amount.
Raj Rani was not given any work. She sued the producer for the breach o f contract. The
Bombay High Court held that neither she nor her father could have sued on the promise.
I f it was a contract with the plaintiff, she being a minor, it was a nullity. I f it was a
contract with her father it was void for being without consideration.
A minor cannot be a partner in a partnership firm, but under Sec. 30 o f the
Indian Partnership Act, he can be admitted to the ‘benefits o f partnership’. The minor
shall not share losses except when liability to third parties has arisen but then too upto
his share in the partnership assets; he cannot be made personally liable. Where a
minor and an adult jointly enter into an agreement with another person, the minor has
no liability but the contract as a whole can be enforced against the adult [Jamna Bai
v Vasanta Rao (1916) 39 Mad 409 (PC)].
A minor can be an agent, but the liability will be o f the principal. A minor
cannot be adjudicated an insolvent, for, he is incapable o f contracting debts. It may
be noted that the parents o f a minor are not liable for agreements made by a minor,
whether the agreement is for the purchase o f necessaries or not. The parents can be
1'p'd liable only when the minor is contracting as an agent for the parents.

Ratification o f the Minor's A g r e e m e n t

A person cannot on attaining majority ratify an agreement made by him during his
minority. Ratification relates back to the date o f the making o f the contract and,
therefore, a contract, which was then void, cannot be made valid by subsequent
ratification. If it is necessary, a fresh contract should be made on attaining majority.
And a new contract will also require a fresh consideration.

In Suraj Narain v Sukhu Aheer (AIR 1928 All 440), a person b o rro w ed som e
money during his minority and then made a fresh promise, after attaining majority, to
pay that sum plus interest thereon. Held that the consideration received b y a person
during his minority cannot be called consideration within the meaning o f S ec. 2(d),
and there is no question o f that consideration being considered valid for a fresh
promise. A person can always make a fresh promise after attaining m ajority in terms
o f the promise made during minority. All that is necessary is that there sh o u ld be
some fresh consideration for it.

Persons o f Unsound Mind

A ccording to Sec. 12, “a person is said to be o f sound mind for the purpose o f m ak in g
a contract if, at the time when he makes it, he is capable o f understanding it an d o f
 Law o f Contract 23

form ing a rational judgm ent as to its effect upon his interests. A person, w ho is
usually o f unsound mind, but occasionally o f sound mind, may make a contract when
he is o f sound mind. A person who is usually o f sound mind, but occasion ally o f
unsound mind, may not make a contract when he is o f unsound mind.”
Illustrations: (a) A patient in a lunatic asylum, w ho is at intervals o f sound mind, may
contract during those intervals.
(b) A sane man, who is delirious from fever, or w ho is s o drunk that he cannot
understand the terms o f a contract, or form a rational judgm ent as to its effect on his
interests, cannot contract whilst such delirium or drunkenness lasts.
Under English law, a person o f unsound mind is competent to contract, although
he may avoid his contract if he satisfies the court that he was incapable o f understanding
the contract and the other party knew it. The contract is voidable at his option.
An agreement by a person o f unsound mind is absolutely v oid as against him but
he can derive benefit under it Further, the property o f an insane person is always liable
for necessaries supplied to him or to any one w hom he is legally bound to support.

D isqualified Person s
The third type o f incompetent persons, as per Sec. 11, are those w ho are “disqualified
from contracting by any law to which they are subject”. Thus alien enemies, foreign
sovereigns and ambassadors, convicts, married w om en (with respect to their husband’s
properties), insolvents in certain cases, and joint-stock com panies and corporations
incorporated under a special A ct (like L.I.C., U.T.I.) are disqualified persons.

3. FACTORS VITIATING CONSENT

A mere consent is not enough for a valid contract. O ne o f the essentials o f a valid
contract mentioned in Sec. 10 is that the parties should enter into the contract with
their fre e consent. A ccordin g to Sec. 14, consent is said to b e free when it is not
caused by-
(1) coercion (Sec. 15), or
(2) undue influence (Sec. 16), or

(3) fraud (Sec. 17), or

(4) misrepresentation (Sec. 18), or

(5) mistake, subject to the provision s o f Secs. 20, 21 and 22.

W here consent to an agreement is caused by coercion, undue influence, fraud
or misrepresentation, the agreement is a contract voidable at the option o f the party
w hose consent was so caused. If, for example, a person is induced to sign an agreement
by fraud, he may, on discoverin g the truth, either uphold the contract or reject it.
W here consent is caused by mistake, the agreement is void. A void agreement is not
enforceable at the option o f either party.