Contracts I notes – Aditya Belsare

Module 1- Offer and Acceptance

Agreement- promise backed by consideration. Ultimately, contracts are based on promises.

Contract -> obligation (duty) + Agreement (freedom)

Freedom of contract:

There are statutory restrictions in some cases, eg. restriction on betting.

Standard form of contract is that restricts your freedom when you cannot change terms and
conditions eg. if you want to use whatsapp, you have to agree to T and C.

Compulsory transaction- tax, municipal fees

Implied terms and standard of reasonableness: it is not necessary to discuss. The T and C
should be reasonable.

Classification of contracts:

Legal effects:

1. Valid contract: enforceable by law, can be executed, backed by legal sanction, if

breached-> you can seek relief in courts.
2. Void: If there is a void agreement, there cannot be void contracts.
3. Voidable: The law gives you freedom to avoid the contract due to certain conditions.
If party chooses to avoid, it becomes void otherwise valid. The party is given
discretion.
Difference between void and voidable is free consent.
4. Unenforceable contract: which is valid but cannot be enforced due to technical
difficulties. Eg. purchasing a house without a stamp
Another eg. a manager buying materials for 75K in oral contract but MoA says
contracts above 50k have to be in written, so the company would not be bound.
5. Illegal contract: Sec 23 -> Every agreement whose object o consideration is illegal is
void (something which is against law, public policy) Usually in contracts,
consideration and object is same
All illegal contracts are void but not all void agreements are illegal. Restoration is
possible under Void agreement but not possible under illegal contracts.

Performance:

1. Unilateral Contract: it is offer initially and later becomes contract and performance
as per the conditions is acceptance. The moment it is performed, it is accepted and
 offer becomes contract. Eg. a note ‘whoever eats 10 chapatis will get 100 Rs.’. Then
the person who perform the act of eating 10 chapatis will get 1000.
Eg. Carlill v. Carbolic Smoke Ball Co
2. Executed Contract: discharged contract (fulfillment). When contract is discharged, no
rights and obligations are left. When both parties fulfill their performance, it is
executed contract.
3. Executory Contract: When one or both parties are left to fulfill their obligations.

Formation:

1. Express Contract: word that can be written or oral.

2. Implied Contract: by not words but action, implied by conduct eg. boarding a bus
3. Quasi Contract: It is not exactly a contract as there was no offer, acceptance but the
situation resembles a contract.

Contract Act:

Section 1: Short title and saving clause: nothing contained shall affect provisions of any
statute nor any customs used in trade. Eg. if customs in the East allows minor girls to enter
into contract, it shall not be allowed.

However, it is flexible also- Section 22- duty of agent to follow principal’s command,
however without it, agent can act as per common standard.

Section 2: Interpretation Clause:

a) Proposal: when one person signifies his intention to do (abstain from doing anything,
with a view to obtain the assent of another to such act, he is said to make a
proposal.
b) Proposal when accepted becomes a promise.
c) Person making proposal is promisor and the one who accepts it is promisee
d) When at desire of promisor, the promise has done or abstained from doing or
promises to do or abstain from doing something, it is called consideration.
e) Every promises or set forming consideration for each other is an agreement.
f) Promises which form consideration for each other are reciprocal promises.
g) An agreement not enforceable by law is void.
h) An agreement enforceable by law is contract.
i) Agreement which is enforceable by law at option of one party but not at option of
another is voidable contract,
j) Subsequent impossibility: A contract may be valid initially but might cease to be
enforceable and becomes void.
Section3: Communication, acceptance and revocation of proposal: The communication,
acceptance and revocation of proposals are deemed to be made by any act/omission of
party proposing, accepting, or revoking by which he intends to communicate.

Section 4: Communication when complete:

Proposal: communication of proposal is completed when it comes to the knowledge of the

person to whom it is made.

Acceptance: communication of acceptance is complete

As against proposer when it is put into a course of transmission to him, so as to be out of

the power of acceptor

As against acceptor, when it comes to the knowledge of the proposer.

Revocation: communication of revocation is complete

As against the person who makes it, when it is put into course of transmission to the person
to whom it is made so as to be out of power of him

As against the person to whom it is made when it comes to his knowledge.

Section 5: Revocation of proposals and acceptance:

A proposal may be revoked at any time before communication of acceptance is complete as

against proposer not afterwards.

Acceptance may be revoked at any time before communication of acceptance is complete

as against acceptor.

Formation of contract:

i) Offer and acceptance (negotiation)

ii) Standard form of contract
iii) Promissory estoppel

Section 2(d) requires that the act should be done at promisor’s desire. This presupposes
promise to pay for the act but it also includes acts done at request when promise to pay is
made subsequently. In

Case: Powell v. Upton Rural District Council

Fact: Defendant lives in district called upton where major services are generally provided to
residents free. He lived in outskirts of city where his house catched fire and he called
ambulance presuming it is free. Later, they ask him for money which he refuses to pay
saying there was no valid contract with proper terms and negotiations and there was no
promise to pay.

Issue: Is there a valid contract and was there a promise to pay?

Judgment: The Court held that defendant lived in Upton and wanted to render its services.
In response to the request, he availed the benefits. Hence services were rendered on an
implied promise to pay.

Section 4: Communication when complete

Is knowledge of proposal necessary to accept?

Case: lalman Shukla v. Gauri datt

Facts: Gauri’s nephew absconded- she made an offer to pay 501 Rs. to the person who finds
her nephew. The servant who went to find him ultimately found him but did not know
about the award. He is obeying the orders of the master. Later on, he finds out sbout the
reward and claims it. However, the other side argued that he was servant and it was his
duty to anyways find him?

Issue: Is there a valid offer here?

Judgment: Section4 states that the communication of offer is complete when it comes to
the knowledge. Allahabad HC held that you must have the knowledge of the offer to accept
it. Since it is a general offer, offer is accepted when the person who has knowledge performs
it. In this case, it was mere performance and no knowledge. Hence, Gauri was not liable to
pay.

When there is specific offer, you accept it first and then perform. Knowledge becomes a
question when it is a general offer. General offer- Acceptance=performance and the intent is
immaterial only knowledge is required. However, only mere knowledge is not sufficient,
consciously acting on that knowledge is necessary.

Case: William v. Cowardine

Facts: Mr. Williams murdered cowardine’s brother and used to beat his wife. Cowardine
offered to pay reward of £20 to anyone who gives info about the murder. Mrs. Williams
gave info with motive to take revenge on her husband.
Issue: Is motive essential to a general offer?

Judgment: Plaintiff entitled to recover £20. The offer was a general promise to person who
performed the mentioned conditions and the motives were irrelevant. If your acceptance of
offer is coupled with other motives, it does not matter. Only knowledge and consciously
acting on it matters.

Case: R v. Clarke

Facts: Australian government offered reward of £1000 to anyone who gave information to
the murderers of a particular case. Further, the government announced to pardon any
accomplices in the crime if they gave info about the murdered. The plaintiff excitedly gave
information to receive pardon completely forgetting about the reward. Later, he tried to
claim,

Issue: can the plaintiff claim the reward when he had knowledge but had forgotten about it
during performance?

Judgment: The Australian HC held that the plaintiff was not entitled to the award. The
principle was developed that even if the acceptor had once known of the offer but had
completely forgotten about it at the time of acceptance, the acceptor would be in no better
position than s person who had no knowledge of the offer at all.

Implied contracts- Intention to enter into contract:

 Intention to create a legal relationship: Contracts are not mere social agreements.
Any agreement without consideration is void. Exception: love and affection

Case: Balfour v. Balfour:

Facts: Mr. Balfour, engineer at a MNC- made director of Lanka Irrigation. Bothe husband and
wife started to live in England but he had to shift to lanka. Due to arthritis, the wife stayed in
London and Mr. Ballfour promised to pay her £30/month. He later stopped giving the
money.

Issue: Is there a legal relationship and intention to form a contract?

Judgment: There would be legally binding contract if parties thought of consequences.

Certain agreements are not contracts ordinarily-> similar case of agreement between
husband and wife. There is no contract as there is no intention to be legally binding. Hence,
Mr.Balfour was not liable to pay.

Case: Mcgregor v. Mcgregor

Facts: Husband and wife withdrew complaints from the Court after making certain
compromises. Husband promised to pay her allowance in exchange of wife’s promise to not
use his name for pledging.

Issue: Is the agreement binding in nature?

Judgment: The parties were aware of the legal consequences (again being dragged to the
Court). There were considerations in this case which were legally binding in nature i.e. to
refrain from using his name for pledging.

Case: Jones v. Padavatton:

Facts: Mrs. Jones agreed with her daughter that if she would give up her job in USA and
study for exam in England, mother would pay maintenance by providing a house and
money. They had a quarrel and mother brought an action for possession of the house.

Issue: IS the promise made by the mother legally binding and whether mother can take back
the possession?

Judgment: The court ruled that what a prudent man thinks is the test that must apply,
reasonability is an objective test. It does not matter whether the parties think if it is a social
agreement or contract but what a reasonable man thinks. Hence, the court treated it like a
contract.

Also, there is promissory estoppel in this case. The daughter left the job on her mother’s
promise. The Court treated it as a contract to provide remedies as there is an intention to
create legal relationship.

The case ended with favor towards mother as though it was deemed to be a contract but
court held that the contract would not continue till perpetuity.

Objectivity and not subjectivity is the test:

Case: Merritt v. Merritt

Facts: Mr. Merritt and his wife lived in a house jointly owned. Husband left her to live with
another woman. At the time of separation, he promised to pay monthly sum and transfer
the house to her if she kept paying mortgage payments. Later he refused.

Issue: Whether the agreement is binding?

Judgment: The nature of dealings and the fact that Merritt were separated when they
signed the dealings showed that there was a legal relationship to enter into contract. It was
more than a mere social agreement.
Case: Rose and Frank Co. v. JR Crompton

Facts: Agreement between one American firm and English firm. Agreement contained a
clause ‘the agreement shall not be treated as a legally binding contract amd shall not be
subject to jurisdiction of US or England court’.

Issue: Is it a legally binding contract?

Judgment: The document did not constitute a binding contract as there was no intention to
enter into legal relations.

General offers:

Section 8: Acceptance by performing conditions or receiving consideration: Performance of

conditions or acceptance of consideration for a reciprocal promise is acceptance.

Indian contract Act nowhere specifies about general offer but mentions how to accept the
offer.

Case: Carlill v. Carbolic Smoke Company

Facts: Carbolic Smoke Ball Company developed ‘smoke ball’ in response to influenza. Co.
published in a newspaper that it would pay £100 to anyone who still caught influenza even
after applying the balls. It also claimed that the Company had deposited £1000 in bank
account for claims. Carlill used the smoke ball according to the instruction and still caught
influenza. The Co. refused to pay £100 on the ground that there was no intention and no
acceptance of contract.
Issue: Is there a valid acceptance and intention to create legally binding relationship?
Judgment: The Court held that the Company is liable to pay £100. Their sincerity was proved
when they claimed that they deposited £1000 in bank account. This shows the legal intention
to form a binding contract.
For acceptance of general offer: the court held that general offer must not be accepted every
time by words, it could also be accepted by action.

2 kinds of general offer:

i) Can be accepted by one ascertained person eg. Laman Shukla case

ii) Can be accepted by many people eg. carlill case

Invitation to Offer:
definition of "proposal" in Section 2{a), which emphasises that there should be the
expression of willingness to do or abstain with a view to obtaining the assent of the other.
The offeror must have expressed his willingness to contract in terms of his offer with such
finality that the only thing to be waited for is the assent of the other party. Where a party,
without expressing his final willingness, proposes certain terms on which he is willing to
negotiate, he does not make an offer, but only invites the other party to make an offer on
those terms. This is and thperhaps the basic distinction between an "offer" and an
"invitation" to receive offers.

Case: Harvey v. Facey

Facts: Defendant had been carrying on negotiation to sell property. The plaintiff sent a
telegram to the defendant “Tell us the lowest price of the property you wish to sell”.
Defendant replied ‘Lowest price is £900. Plaintiff replied “we agree to buy at £900”. The
defendants refused to sell the property.
Issue: Is the quotation of minimum value an offer?

Judgment: The Court held that there was no contract between the parties. 1 st telegram was
simply a request for information. So at no stage did defendant made an offer which could be
accepted. Lord Morris told that the telegram could not be treated as binding.

Case: Pharmaceutical Society of Great Britain v. Boot Cash Chemist

Facts: Boot Cash Chemist instituted new way for its customers to buy medicines. Shoppers
could now pick up drugs off the shelves and pay. Society complained that it is an unlawful
practice and that display of goods was an offer and when the purchase took the drugs and
kept in the bag, it was acceptance and the point where sale is effected, there is no medical
supervisor.

Issue: When is the offer accepted and is mere display of goods an offer?

Judgment: The Court sided with the boots. They held that the display of goods was not an
offer, Rather, by placing the medicines in the basket, the customers made an offer which
can be accepted/rejected by pharmacist at the counter. The moment of completion of
contract is cash desk.

Cross offer and counter offer:

Cross offer: without knowledge, the parties make same offer to each other. They do not
lead to formation of contract.
Counter offer: Counter offer means the original offer was rejected and a new offer was
made. Once the original offer is rejected, it cannot be accepted again.

Standing offer: Offer which would remain open for a limited period of time. Once it is
accepted, it can still be revoked.

Case: Tinn v. Hoffman

Facts: Defendant sent a letter to plaintiff for purchase of certain quantity of iron for 69/ton.
The plaintiff on similar day in ignorance of this offer made similar offer with similar terms
and conditions. The plaintiff contended that it is a valid contract.

Issue: Does a cross offer result into a valid contract?

Judgment: The Court ruled that there is no valid contract. The two offers were made at the
same time and did not obligate for further actions.

Case: Bengal Coal Co. v. Homee Wadia

Facts: The defendant offered the plaintiffs to supply coal for a period of 1 year as and when
they required it. Everytime the plaintiff had to put an order before the defendant. Due to
shortage, the defendant refused to supply any coal further.

Issue: Is it a breach of contract?

Judgment: A standing offer is not a contract. Everytime an order is made, a new contract is
formed. The plaintiffs had not ordered a specific amount of quantity.

Acceptance:

Section 7: Acceptance

(1) must be absolute and unqualified (should not materially change offer)
(2) to be expressed in usual and reasonable manner. Acceptance to be made in manner
if proposed, if not the other party may within reasonable time insist to do it in
manner prescribed.

Section 9: If proposal or acceptance of promise made by words, it is express. If otherwise,

implied.

Case: Brogden v. Metropolitan Railway co.

Facts: Brogden supplying coal to railway company. Both decide to enter into formal
agreement. Brogden made some changes and sent it for signing. The manager forgot the
signed document in his desk. For a while, both acted according to terms of new contract.
Serious disagreements arose and brogden contended that there is no valid contract.

Issue: Can manifestation of intent be made by conduct?

Judgment: The House of Lords held that there was a clear breach by brogden. A mere
mental assent would not have been enough to create valid contract but acting on it
evidenced their intention. The subsequent conduct of buying and accepting coal on basis of
proposed agreements was a manifestation of intent by conduct.

Case: Felthouse v. Bindley

Facts: Plaintiff by letter offered to purchase nephew’s horse. The letter said ‘If I hear no
more, I consider horse mine at a fixed price.’ No reply sent. The auctioneer for nephew
mistakenly sold the house despite him mentioning it to sell it to this uncle. The plaintiff sued
the defendant auctioneer for unauthorized sale amounting to conversion.

Issue: Can this be valid communication of acceptance?

Judgment: The court hed that nephew had not committed his intention to the uncle but to
the defendant which is not valid communication.

Also, offers that put negative stimulation is not valid. There should not be positive action for
offeree to reject the offer.

Case: Powell v. Lee

Fact: plaintiff was an applicant for headmastership at a school. The manager passed a
resolution appointing him but did not communicate. One of the panelist informed him
about the board’s decision. Later, the management scrapped off the resolution.

Issue: Can this be called valid communication of acceptance?

Judgment: The Court held that there must be a notice of acceptance from party in some
way. Info by unauthorized person does not amount to valid communication of acceptance.
The offeree must communicate the acceptance by himself/agent, otherwise not valid.

Counter offer case:

Case: Hyde v. Wrench

Facts: An offer to sell a farm for £1000 which was rejected by plaintiff who offered to
purchase it at £950. Later, he agreed to buy it at original offer price. Defendant refused to
sell.

Issue: Can original offer be accepted after counter offers?

Judgment: The court held that plaintiff after rejecting the original offer was not in a position
to revive the original offer. Hence, there exists no obligation.

Even Section 7 states that acceptance must be absolute. Counter offers destroys the original
offer. In contract, there are negotiations which raise multiple offer. The final offer which is
accepted becomes a contract.
Module 2: Communication:

India:

Postal rule: Contract concluded when acceptance posted.

Instantaneous rule: contract formed when acceptance is received. – Bhagwan Das case

Postal rule explanation:

O ---------------offer to A---------------------------------------------reaches A (knowledge)

O also send revocation before A accepts - now A is bound for revocation when it reaches to
him whereas O bound for revocation as soon as he posts the letter

Reaches O (now O is bound)--Acceptance letter-- ----------------- A accepts (Now O is

bound),

A can cancel here, revoke before O reads

acceptance

Case: Adams v. Lindsell

Facts: Defendant posted a letter on 2nd Sep, offering to sell wool and asked for response
through mail. The plaintiff sent a mail on Sept 5 which reaches to defendant on 9 th Sep. on
8th sep, defendant sold wool to another party.
Issue: Whether the communication of acceptance is complete or not?

Judgment: Section 4- through post, acceptance is complete as against proposer when the
acceptance is put into course of transmission to him so as to be out of power of acceptor.

When the letter was posted by plaintiff, the defendant was bound by the contract.
Complete contract arises on the date when acceptance is posted.

Instantaneous rule of communication of acceptance:

Mere acceptance is not enough, but the knowledge to the offeror is essential.

Case: Entores Ltd v. Miles Far East corp

Facts: Entores sent an offer by telex for copper purchase to a company based in Amsterdam.
The company sent acceptance through telex. Entores tried to sue the company in Uk after
disputes.

Issue: Is the contract completed in England or Amsterdam?

Judgment: J. Denning ruled that postal rules cannot be applied to instantaneous

communication. Since the contract was formed when and where the offeror receives
knowledge of the acceptance which is London.

Case: Bhagwan Das Kedia v. Girdhari Lal and Co.

Facts: defendants made offer from Ahmedabad to supply cottonseed oil to plaintiff in
Ahmedabad. The action was initiated in Ahmedabad City Civil Court. The defendants
contended that the court had no jurisdiction.

Issue: When is the contract performed?

Judgment: The SC held that the contract was under the jurisdiction of Ahmedabad Civil
Court where communication of acceptance is heard by the offeror

Revocation: before the offer is accepted

As against the person who makes it, when it is put into a course of transmission to the
person to whom it is made so as to be out of power of person who makes it

As against the person to whom it is made, when it comes to his knowledge

Section 6: A proposal is revoked when:

i. revocation of offer and acceptance by notice communication

ii. By lapse of time prescribed, otherwise lapse of reasonable time
iii. By failure of acceptor to fulfill a condition precedent to acceptance
iv. By death or insanity of offeror, if this fact comes to knowledge before acceptance

Communication of revocation should be from offeror himself but it is enough if offeree

knows about withdrawal of offer:

Case: Dickinson v. Dodds (notice for revocation)

Facts: The defendant offered to sell a plot of land to be accepted before Friday, 9 pm. One
day before, the offeree gets knowledge by a third party that the plot is already sold. He
makes letter of acceptance the next day.

Issue: is the notice by 3rd party sufficient for revocation of offer?

Judgment: The Court J. James held that the document only amounted to offer which might
be withdrawn anytime before acceptance. The sale to a 3 rd person which came to his
knowledge is an effectual withdrawal of offer.

Case: Rajendra Kumar v. State of M.P.

Where a tenderer communicated well in advance that he would not accept the work order
unless certain changes in his tender document were permitted, it was held that no binding
contract arose by accepting the tender without permitting the tenderer to introduce his
modifications.
Promissory Estoppel:

Section 115: When one person has, by declaration (not offer) act or omission, intentionally
caused or permitted another to believe a thing to be true and to act upon such belief,
neither he nor his representative shall be allowed in any suit to deny the truth.

Case: Pournami Oil Mills v. State of Kerala

Facts: state of kerala-> notification to push industrial development granting wide

exemptions to industries established in SEZ. Later, new notification was issued lessening the
exemptions.

Issue: can the government be allowed to retract from its original stance?

Judgment: the government was allowed to lessen the exemptions as the court held that
promise which is against public policy or statutory prohibition cannot be the foundation of
an estoppel.

Case: Jones v. Padvatton

Standard form of contract:

Also called contracts of adhesion.

Compulsory contracts-> only options are to take it or leave it. Business acumen led to the
development of such type of contacts. Such contracts can negate the liabilities of the other
party and give absolute power to drafting party.

ICA does not talk about standard form of contract. Only Section 10 fulfilment is required.

Section 10: Agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and a lawful object and are not expressly
declared to be void.

Standard form of contracts developed through

Case: L’Estrange v. F Graucob

Facts: Mrs. L signed an agreement to purchase a machine without reading the terms. One of
the terms was that the Company would be excluded from all the liabilities due to defects.
The machine turned out to be totally defective.

Issue: Is there a binding contract even if the party has not read the whole agreement?

Judgment: The Court found it as a fact that the supplier has made no effort to bring this
wide exemption clause to the notice of the plaintiff. However, the Court held that ‘where a
document containing contractual terms is signed, without any absence of fraud or
misrepresentation, the party signing it is bound by it. Hence, defendants were not held
liable.

Awareness and protections in standard form of contract:

1. Reasonable notice:

Case: Henderson v. Stevenson

Facts: plaintiff bought ticket on face was written ‘Location A to B’. On the back however
were mentioned terms including one that exempted the company from damage, delay to
passenger/luggage. Plaintiff’s luggage was lost.

Issue: Can the company be held liable despite the terms?

Judgment: The Company was held liable. The Court held that the plaintiff could not have
said to accepted terms which he has not seen/heard, which he knew nothing about and
which is not at all related to face of contract.

Hence, the principle was developed that where a written document is presented to a party
before acceptance, a reasonable notice must be given of the terms.

Case: Parker v. South Eastern Railway Co.

Facts: Plaintiffs deposited bag at railway station and received ticket. On it was written ‘see
back’. On the back, notice -> ‘The Company was not liable for loss of luggage of value more
than £10.’ Same was hung up on notice board.

Issue: Is there sufficient display of notice?

Judgment: The Court held that company was not liable. If plaintiff knew there was writing on
the back but did not know about the conditions mentioned therein, he was still bound by it.

Difference between receipts and contractual documents:

Case: Chapelton v. Barry Urban District Council

Facts: plaintiffs went on beach, hired 2 chairs belonging to defendant. He received 2 tickets.
Tickets contained words:’The council will not be liable for damage from chairs’.

Issue: Can the receipt of chairs be considered a contractual document?

Judgment: The Council was held liable. The ticket is no more than a receipt and different
from railway ticket. The object of ticket was only to act as evidence. Mere receipt is not
contract

Case: thronton v. Shoe Lane Parking

Facts: plaintiff parked his car. Plaintiff slipped money into machine which brought ticket
which displayed the condition that excluded the company’s liability. Plaintiff while taking
back his car was injured and brought an action.

Issue: Can the company be held liable with terms?

Judgment: The court held that company is liable. The exempting clause is so wide and
destructive of rights that the Court should not hold any man bound by it unless drawn to his
attention in most explicit way. There was extra onus on company to take care as money
could not be taken back on spot as it is a vending machine.
2 subheads of protection formed by court:

1. Reasonable notice
2. Fundamental breach of contract

Case: Curtis v. Chemical Cleaning and Dyeing Company

Facts: plaintiff delivered wedding dress to defendants for cleaning. On being asked to sign
receipt she inquires the reason and was told that company was not liable for damage to
beads. Receipt contained excluding liability for any damage. When dress was returned, it
was stained.

Issue: is the company liable?

Judgment: They were held liable. Lord denning said that in those circumstances by failing to
draw attention to wide exemption clause, the assistant created false impression that the
exemption was only related to beads.

Application of doctrine of fundamental breach:

Case: lily white v. Munuswami

Facts: laundry receipt -> condition that customer would be entitled to claim only 15% of
market price in case of loss. Plaintiff’s new saree was lost.

Issue: is the company liable to be exempted?

Judgment: The company was held liable. It held that the conditions printed on the reverse of
the bill may govern simple contract subject to obligation on the part of businessman to
perform the business properly and to return the article safe and intact. But if a condition is
imposed which is blatant infringement of law relating to negligence, then the court will not
enforce such claims.

An exclusion clause will protect contractor only when there is performance of said contract.
Module 3: Consideration

Case: ran v youth

The courts have said when a person’s promise gives another a benefit/right/interest, then it
is a good consideration or when that promise creates a liability, it creates a consideration.

Section 2(d) is confusing regarding consideration whether past, present or future

consideration. Also confusion regarding act and abstinence.

1. At desire of promisor:

Case: Durga Prasad v. Baldeo

Facts: plaintiff on collector’s prder built shops in a bazzar which the defendant took
possession off. Defendant promised money in consideration w.r.t. commission on articles
sold but faled. Plaintiff brought an action.

Issue: Did the plaintiff act on the desire of defendant to form necessary consideration for an
agreement?
Judgment: There was no valid agreement. No desire of the defendants to pay- plaintiff
constructed it on order of collector. A promise to perform existing legal duty is not a good
consideration.

Case: Kedarnath v. gauri Mohd.

Fact: To erect town hall, sufficient subscriptions wanted for that purpose. The Municipality
obtained sufficient subscriptions through public subscription. Plaintiff-> subscriberof 100 rs
failed to pay.

Issue: Is there a valid consideration?

Judgment: He was held liable. People were asked to subscribe knowing the purpose for
which money was to be applied. They knew that on their faith of subscription, the
construction work had to be started. An obligation was incurred.

Work started after promise of subscription, hence the promise started the work at desire of
promisor.

Case: Daraswami Iyer v. Arunachal Aiyer

Facts: repair of temple under progress. Meanwhile for extra funds, subscriptions raised.
Defendant subscribed for 125 rs and it was to recover the sum that the suit was filed.

Issue: Did the temple act on the desire of promisor?

Judgment: No recovery was allowed. Promisee must have acted on the desire of the
promisor. Here the repairs work was already under progress and was not the result of his
promise of subscription.

Case: Abdul Aziz v. Masum Ali

Facts: defendant promised 500 rs fund to rebuild a mosque but no work progress was made.

Issue: Whether defendant is liable to pay?

Judgment: The defendant was not liable to pay. A mere promise to subscribe to a charitable
institution cannot be sued while the work has not been even started.

General offer and revocation before full performance:

Case: Errington v. Errington

Facts: owner of house -> mortgaged the house. House was in occupation of son and
daughter in law. He told them that the house would become their property if they paid off
mortgage debt. Both paid installments but due to disagreements, father disagreed later
before full mortgage paid off.

Issue: Can unilateral promise be enforced before completion of performance?

Judgment: Though generally unilateral promise is not enforced until completion of

performance (i.e. till last mortgage). However, the court felt that it would be unjust if the
promisor could revoke it anytime at pleasure -Lord Denning

Case: Morrison Steamship v. Crown

The court realized its mistake and held that mere commencement of performance does not
convert offer into contract in the sense that the promisor is bound to stay with his promise.
But if he revokes, he may be liable to give compensation.

Privity of Contract: (relationship)

2 aspects of privity -> of contract (in common law system, where only parties can sue)

- Of consideration (only parties to contract can pay consideration, if 3 rd

person pays, he becomes party. Strictly followed in England but not in
India where mere payment of consideration will not make you party. Sec
2(d)

Case: Dutton v. Poole, 1677- later overturned

Facts: person -> had daughter to marry and in order to provide a marriage portion intended
to sell woods for £1000. The son made agreement with father that if he does not sell the
precious woods, he would pay his sister £1000. Later, the son refuses to pay and the
daughter sues him.

Issue: Can the daughter sue even if she is not a party to contract?

Judgment: The brother was held liable Though the parties to the contract are father and son
only, it would be unjust and inequitable to allow the son to keep the wood by depriving his
sister.

Case: Tweddle v. Attikson

Facts: plaintiff to be married to daughter of G, defendant. Both of their fathers enter into a
written agreement to pay plaintiff a sum of money. However, G fails and the plaintiff sues
him

Issues: Can the plaintiff sue even when he is not a party?

Judgment: He was not allowed to sue because the agreement was between the fathers and
not with him. Whatman, J. said that no stranger to the consideration can take advantage of
contract, although made for his benefit.

To avoid unnecessary litigation, this doctrine was propounded. It broke the precedent set in
Dutton v. Poole case.

Case: Dunlop Pneumatic Tyre Company v. Selfridge

Facts: plaintiffs sold certain goods to Dew with a condition to not sell the tyres below the list
price and if they were to sell further, they would add clause to not sell at list price. Dew sold
it to defendants with the clause but they sell it below the list price. Plaintiffs sued the
defendants.

Issue: can the plaintiffs sue when they have not entered into contracts with the defendants?
Judgment: The plaintiffs were not allowed to sue the defendants. Assuming that the
plaintiffs were undisclosed principals, no consideration moved from them to the
defendants, hence their claim was unenforceable.

2 basic principles of privity under English law: (as per the above 3 cases)

1. Only parties to contract can sue, not strangers.

2. Consideration to flow from parties under contract

How Indian law differs?

1. Consideration can also flow from 3rd parties

2. Common rule of consideration not to be followed – chinnaya case

Exceptions to privity of contract, consideration:

1. Trust
2. Estoppel -> when one party has to pay to 3rd party and 3rd party has knowledge of it
3. Family relationship: matrimonial matters
4. Statutory exceptions: eg. insurance law

Indian law works on basis of

Case: Chinnaya v. Ramayya

Facts: An old lady, by gift deed handed over certain property to her daughter. It was stated
that she had to annuity of some amount to her old sister, plaintiff. Defendant executed in
plaintiff’s favor an agreement to give effect to stipulation. Annuity was not paid and plaintiff
sued to recover it.

Issue: with no consideration, can the plaintiff sue?

Judgment: The Court held that rule of privity of consideration was not applied. The Court
allowed the plaintiff to recover the money as consideration given by any offer is equally
effective. Kindersley, J. held that the deed of gift and defendant’s promise to pay annuity
should be regarded as one transaction.
Case: Jamna Das v. Ram Pande

Facts: A borrowed ₹40000 by executing a mortgage deed of her zamidari in favor of B. Later,
she sold the property to C for 44000 but allowed C, the purchaser to pay 4000 and retain
40000 in order to redeem the mortgage. B sued c for recovery of mortgage.

Issue: Is C a party to contract?

Judgment: B could not succeed as c was no party to agreement between A and B. Only remedy
available with B was specific enforcement against A.

Case: MC Chacko v. State Bank of Travancore

Facts: Highland bank was indebted to SBT under overdraft. MC-> manager at Highland Bank and his
father K had guaranteed the repayment of overdraft. K gifted his properties to family members
including MC. The deed provide that if any liability under any guarantee should be met by MC either
from bank or gift share. SBT tried to hold MC liable.

Issue: Will privity of contract allow bank to enforce contract between a father and son?

Judgment: MC was not held liable. SBT, not being a party was not bound by covenants in deed, nor
could it enforce it. A stranger to a contract cannot sue.

Exceptions to privity to contract:

1. Beneficiary:

Benefits under trust or charge or other arrangement in specific property. You need to
specify the property on which you are creating a charge.

The moment there is specificity, a trust or charge has been created and rule of privity
goes away.

Case: Rana Singh v. Jang Bahadur

Facts: U was appointed by his father as the successor and was put into possession of entire
estate. In considerations thereof, U agreed with his father to give a village to j, illegitimate
child of his father. U later disagreed and J filed a suit.

Issue: Can J file a suit when he is not a party?

Judgment: It was held that in circumstances mentioned above, a trust was created in favor
of J for the specific village. Hence, he was entitled to maintain the suit.

Case: Gregory and Parker v. Williams

Facts: Parker was indebted to both. He assigned all his property to Williams in satisfaction of
debt and Williams promised to pay Parker’s debt to Gregory. Williams failed to pay.

Issue: Is there a trust on money which will allow Gregory to file suit?

Judgment: The Court was prepared to accept that a trust of the money has been created in
Gregory’s favor which was then enforceable against Williams. When you have somebody
else’s money, you hold it under trust.

2. Marriage settlement, partition and other family arrangements:

Case: Daropati v. Jaspat Rai

Facts: defendant’s wife left him due to cruelty. He entered into agreement with her father
promising to behave properly else would pay maintenance. Subsequently he ill treated her
again and she filed a suit.

Issue: Does she hold privity to contract since there is no trust exception?

Judgment: The Court held that for family settlements, no trust/charge is created.
Immediately a beneficiary can file a suit to enforce agreement. There is trust in family itself.
Hence, she was allowed to file suit.

3. Acknowledgement of estoppel:
Case: N. Devaraja v. Ramakrishna

Facts: A sold his house to B under sale deed and left a sale price desiring him to give it to C.
B made part payments and told that he would pay remaining balance. However b failed and
C sued him.

Issue: Is there privity of contract between B and c?

Judgement:The suit was held to be maintainable. Originally no privity of contract between B

and C. However, the moment B acknowledges that the money held by him has a charge on
it, he is supposed to pay.

Case: Beswick v. beswick

Facts: b was a coal merchant. He transferred his business to defendant who was his nephew
in exchange of him being lifetime consultant and after his death payment to his wife
£5/week. The nephew paid once and then failed.

Issue: Can the wife file a suit?

Judgment: The court held that she was entitled to enforce the agreement. Thus plaintiff was
allowed in her personal capacity to enforce as it was inferred that a trust existed in favor of
plaintiff. This was proved when the defendant made the first payment.

4. Covenants running with land:

Case: Smith and Snipes Farm v. River Doughlas Catchment Board:

Facts: The defendants agreed with certain landholders to improve banks and maintain the.
One of the landlors sold their land to 1st plaintiff and then he sold it to 2nd plaintiff. There
was negligence on part of Board in maintaining banks which burst and the land was flooded.
But plaintiffs were stranger to the board.

Issue: does the right to file suit runs with land?

Judgment: When there is a clause in any contract for benefit of land, we say that such a
clause is a covenant running with the land and privity does not apply. Anybody associated
with the land (previous, current owners) can file a suit.

Court of Appeal allowed them to file suit against the board for breach of contract.

Case: Tulk v. moxhay

Facts: in 108, Tulk-> owner of land in Leicester square. He sold one plot to another person
and made a covenant that the Garden Square to be remained uncovered with buildings.
Over the years, land sold several times and eventually to defendant. Defendant who was
unaware of covenant refused to abide as he claimed he was not in privity to contract.

Issue: Whether the covenant limiting the use of the property could ‘run with the land’ and
bind future owner?

Judgment: The court passed an injunction order to prevent Moxhay from building. Covenant
amounts to contract between a vendor and vendee, it is enforceable against purchaser.

Past consideration:

Case: Mc Ardle Re, 1951

Facts: widow had a real estate to be distributed amongst the children. One son and his wife
started renovating the house. Afterwards, other children agreed to pay her a sum in
settlement of amount spent on reconstruction. They argued that there is no consideration.

Issue: had the wife given good consideration?

Judgment: The action to enforce the agreement was rejected. The consideration was wholly
past consideration, hence beneficiaries agreement for repayment was a promise with no
good consideration.

Case: Lampleigh v. Brathwait

Facts: the defendant, having committed a murder requested the plaintiff to obtain pardon
from the king. The plaintiff did his best to obtain pardon at his own expense. Later, the
defendant promised to give him £100 and then refused to pay.

Issue: Is he liable to pay since it is past consideration?

Judgment: He was held liable to pay. Past act done at request is a good consideration. We
don’t call it past consideration, rather we call it executed consideration. When some act is
done at desire of promisor, and then there is promise to pay consideration, it is valid.

Exception to past service consideration:

Finder of goods: example when somebody finds your dog/ring and they return it to you
spend some money to find you. You can claim compensation from owner.

Though past consideration is not recognized in English law, Section 25 recognises 3

situations:

1. Contract is registered, based on natural love

2. For something due in past
3. To promise to pay debt barred by limitation

Section 25 exceptions:

1. Gift between donor and done

2. Inadequacy of consideration

Natural love and affecton:

Case: rajlukhy Debee v. Bhootnath Mukherjee

Facts: The defendant promised to pay his wife a fixed sum of money for her residence and
maintenance. The agreement contained in a registered document which mentioned certain
quarrels between the two.
Issue: Can there said to be natural love when they had such quarrels?

Judgment: The Court held that the document is not covered by exception under Section 25.
The Court found no trace of love and affection between the parties whose quarrels had
compelled them to separate.

Case: Bhiwa v. Shivaram

Facts: A sued B for a share in certain lands. But suit was dismissed as B solemnly affirmed
that it is not ancestral property. B however agreed to give A one half of some property in
writing. The suit was brought to enforce the agreement.

Issue: Was there natural love to cover it under exception of section 25?

Judgment: Plaintiff admitted that he and his brother had long been on bad terms. Inspite of
strained relations, the court held that the case would fall under the exception of section 25.
The defendant had natural love for his brother and in order to reconcile with him, he was
willing to give him his property.

Section 25 case laws for exceptions:

1. Natural love and affection: Cases: balfour v. balfour, Bhiwa v. shivaram

2. Past voluntary service, coupled with promise to pay: case- Mcardle re
3. Time barred debt: right to recover debt is extinguished.

What kind of act, abstinence or promise is consideration?

Case: White v bluett

Facts: defendant owed a sum of money under a promissory note to his father. The
defendant, day and night complained to his father that he had not been treated equally
with other children. The father promised to discharge him from the liabilities in respect of
loan provided he would stop crying.

Issue: whether the defendant’s promise to cease his complaints a good consideration?
Judgment: The consideration has no legal value. Law should believe that the consideration
has some real legal value. Pollock, J. mentioned that such promises could not be held to be
binding. In reality, there is no consideration.

The consideration has to be real though not compulsorily being adequate.

Case: De la Bere v. Pearson Ltd.

Facts: Defendant were newspaper proprietors, offered to answer inquiries from readers
desiring financial advice. Plaintiff asked for investment advice and the editor without
knowing that the broker is insolvent suggests his name. Plaintiff sends money which is
misappropriated. He files a suit.

Issue: Is there sufficient consideration? Plaintiff-> advice and for defendant-> rs 5 of

newspaper

Judgement: The Court held that it does not matter whether the consideration is adequate
for promisee or not. The offer to sell newspapers, when accepted is a contract with good
consideration.

Section 25

An agreement to which consent of promisor is freely given is not void merely because
consideration is not adequate, but inadequacy of consideration may be taken into account
by Court in determining the question whether the consent was freely given.

Promise to perform existing legal/contractual duty not a valid consideration:

It is not as desire of promisor, but at the desire of law.

Case: Sashannah Chetty v. Ramaswamy chetty

Facts: plaintiff -> served with summons requiring him to give evidence before the court. The
defendant who was party gave hima promissory note promising to pay a sum for his trouble.
Issue: Is the consideration of defendant valid which anyways seeks to enforce legal duty?

Judgment: The Court held that the note was void on account of insufficient consideration. If
summons had been served and the note was given for loss of time, it would have been
without consideration as his attendance was mere performance of duty.

Case: Collins v. Godefroy

Facts: The defendant brought an action against attorney for negligence and the courts
summoned the plaintiff to give evidence. Defendant was keen to ensure that plaintiff
arrives. He promised to pay for compensation of loss of time. Later, the defendant did not
pay

Issue: Was the agreement supported by valuable consideration?

Judgment: The Court held that the agreement was not supported by consideration. Plaintiff
was under a public duty to attend the sessions court.

Case: Ward v. byham

Facts: The mother of an illegitimate child, having been separated from her father entered
into contract where the husband would pay £1/week to keep the child happy.

Issue: If it is already a mother’s duty to take care of child, is there consideration in this case?

Judgment: The Court upheld that mother’s legal duty is to take care of the child but not to
keep the child happy, it is only her moral duty. Hence, the promise can be enforced. More
than legal duty, more than what is being expected is a valid consideration.

Case: Stilk v. Myrick

Facts: The ship was on a voyage, 2 of seamen deserted and their captain, entered into
agreement with rest of sailors that if they work ship home, they would get the salary of
deserted seamen distributed amongst them.

Issue: Is the consideration for performing existing contractual duty valid?

Judgment: The act falls within job description. Hence it is a sailor’s duty to not defect the
ships. The agreement was void for lack of consideration as it was his contractual duty of
mariners who remained with ships to bring the ship back to safety.

Case: Ramchandra Chintaman v. Kalu Raju

Facts: plaintiff accepted a vakalatnama from defendant to act for him in certain suit. The
defendant also mentioned that he will give award if the plaintiff wins the case.
Subsequently, the plaintiff won the case but the defendant refused to pay award.

Issue: is the performance of existing contractual duty valid consideration?

Judgment: It is the lawyer’s existing contractual. The plaintiff having accepted Vakalatnama
was already bound to render best services possible to win the case.

A promise to perform contractual duty to a third party is a good consideration. A promise to

perform existing contractual duty by the same party is not a good consideration.

Case: Shadwell v. Shadwell

Facts: The plaintiff was already engaged to marry a girl. His uncle, the defendant told ‘As I
promised to assist you in the starting, I will pay you £150 yearly until your barrister income
reaches a certain amount’

Issue: What was the consideration for uncle’s promise?

Judgment: The Court held that promise to perform existing contractual duty (wife-husband)
by a third party i.e. uncle is a valid consideration. The promise of annuity might have been
intended as inducement to marriage.

Case: Gopal Co. v. Hazarilal co.

Facts: plaintiff under contract to purchase some cotton bales from a mill, but refused to
perform substantial part as prices fell down. The agents of mill were defendants who tried
to negotiate with the plaintiff and offered him a deal to buy the whole cotton in 1 st month
and promised they would buy from plaintiff a part or pay him rs. 25000 at his option. The
plaintiff complied and elected to take 25000 rs, however the defendants refused on the
ground that it was performance of already existing contractual duty.

Issue: Can the selling agents have valid consideration for enforcement of contract between
plaintiff and mill?

Judgment: the court again upheld the principle that 2 nd agreement brings into existence a
new contract between different parties and there is good consideration.

Privity of consideration:

England: followed with a lot of exceptions

India: ICA drafter did not accept this rule

Promise to pay less amount than due not good consideration?

Case: Pinnel v. Cole

Facts: Pinnel sued cole, in an auction of debt of a bond for sum of £8. He paid £5 before
debt was due and plaintiff accepted in full satisfaction for debt.

Issue: Can promise to pay less amount be a valid consideration?

Judgment: A promise to pay lesser amount than due is a bad consideration. Payment of
lesser sum of money in satisfaction for whole cannot be a valid consideration.

Section 63 however overrules Pinnel v. Coole case as there are many criticisms in this case
as negotiations are part and parcel of our life.

Exceptions:

1. Part payment by third party

2. Composition with creditors
3. Payment before time
 4. Promissory estoppel
5. Payment in kind

Module 4: Competence/capacity

Section 11: parties competent to contract:

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

Hence, 3 conditions:

1. Age of majority according to law

2. Sound mind
3. Not disqualified by law

Section 12: sound mind: a person is said to be of sound mind for the purpose of contract, if
at the time of making contract, he is capable of understanding and form rational judgment
as to its effects upon his interest

For age of majority -> indian Majority Act

Unsound types:

1. Lunatics (temporary unsound)

 2. Drunkenness (not in your senses)
3. Idiocy

Person disqualified includes insolvents, alien enemy (if enemy for temporary period, then
contract void for that period), convict, sovereigns

Minor:

By virtue of Indian Majority Act, 1875 the age of majority is 18 or if there is a guardian
appointed by court, he turns major at 21

Who are Guardians?

1. Natural – parents
2. Legal – appointed by parents
3. Appointed by court – when need of protection eg. orphans

1999 -> Amendment to Act -> removes 21 years. Now for all children with guardians, age of
majority is 18.

Age of majority is not the legal age to marry

In England, contracts with minor is void. A contract would remain till minor invalidates it. A
contract with minor will be valid if minor validates it.

Case: Mohiri bibee v. Dharmodash ghose – bad judgment, not followed today

Facts: A minor, declaring himself to be of full age, mortgaged his two houses as against a
loan, a part of which was paid to him in cash. He then applied to court for cancellation of
mortgage. The Court had to cancel mortgage as it was void. Moneylender asked for
restoration of benefits as provisions do otherwise require minor to restore benefits.

Issue: the 3 major issues before the courts were:

i. Can rule of estoppel be applied against minors?

ii. Can be held liable to compensate/restore the benefits?
iii. Can he be held liable for restitution?
Judgment:

The rule of estoppel cannot be applied against minor even if he misrepresents his age.

A new terminology was declared, the agreement with a minor is void ab initio.

When the plaintiff tries to use section 65, which states that when a voidable contract
becomes void for some reason, the benefits have to be restored, the courts held that the
contract was not voidable but instead void ab initio.

Even when plaintiff tried to use Section 41 of Specific reliefs Act, which gives discretionary
power to the courts to restore the benefits, the Court (lord North) was of the view that
justice did not require restoration.

Law Commission of India: recommended that there should be such a clause which shall
make minor liable to restore in such a case.

Case: leslie v. Sheil

Facts: Infant succeeded in deceiving in some money lenders by telling them lies about age,
got them to land £400 on the faith of him being an adult.

Issue: Can the minor be held for restitution of benefits?

Judgment: Attempt to recover the amount of price and interest failed.

When lenders applied the doctrine of restitution, lord Sumner held that, ‘When infant
obtained an advantage by falsely stating his majority, equity required him to restore his ill
gotten gains, or release the party deceived from obligations or acts in law induced by the
fraud, but scrupulously stopped short of enforcing against him a contractual obligation,
when he is infant, even by fraud, restitution stops when repayment began.

When you ask minor to pay back money, it becomes performance.

The money was paid in order to be used as defendant’s own. There is no question of tracing
it, no possibility of restoring it.

Examples:
 1. Niyati ------- loan --- Boy A -> purchased property
In this case, Niyati cannot ask for money cash but can ask for property
2. Niyati--------loan (5 lakhs)------Boy b-> purchased property of 6 lakhs
Niyati can get back the money by forcing Boy B to sell the property and then transfer
5 lakhs

Case: Khan Gul v. lakha singh

Facts: Defendant still a minor fraudulently shows majority to sell a plot of land to plaintiff
who received consideration in money and then refused to perform his part of contract.

Issue: Can plaintiff get the recovery of possession of money?

Judgment: The Court held when minor is the defendant, he can be asked to restore the
money. The Chief Justice held that there should be greater scope in Indian than England (as
in England, not all contracts with minor are void) for the application of doctrine of equality.

Case: Ajudhiya Prasad v. chandan Lal

Facts: A sum of money borrowed by people who are more than 18 yrs of age but less than
21 and they conceal the fact of guardian appointed by them. Can the plaintiff recover the
principal amount or sell the mortgaged property?

Judgment: Decision of Khan Gul not followed by Allahabad HC. Court felt that the courts of
India should not follow discretionary powers as used in the above case and rather the
principle of restitution should be followed as laid by Lord Sumner in Leslie v. Sheil. Where
the property is not traceable and the only way to grant compensation would be by granting
a money decree against the minor, decreeing the claim would be almost tanta mount to
enforcing the minor's pecuniary liability under the contract which is void There is no rule of
equity, justice and good conscience which entitles a court to enforce a void contract of a
minor against him under the cloak of restitution.

Liability for tort:

The only liability of the minor is the liability that would remain even without contract.
General duty (except contractual duty) can make a minor held liable.

Tortious liability -> involuntary, contractual liability-> voluntary

A minor can be held liable for tort but not for contract. Torts that are generated out of
contract can be applied against minor but should not lead to enforcement.

Case: Johnson v. Pye : An infant who obtains a loan of money by falsely representing his age
cannot be asked to repay damages for deceit. If infants were to be held liable on account of
actions in tort, all the infants of the England would be ruined.

Ratification by minor:

In Karam Chand vs Basant Kaur, the court held that even where the promisor after attaining
majority, promises to pay for the goods attained in minority will also fall under this
provision. The court said that although the promise made by a minority is void but is the
promise is made by a person of full age to the promisee who has done something for him
voluntarily when the promisor was a minor, then it will also attract this exception.

Karam Chand case was overruled in Suraj Narain v. Shekhu Ahir which is the current
position is that such type of contracts is not valid as it becomes past consideration. It is void
ab initio.

MC Nagalakshmi v. Farooq

Non objection to the contract by a person who attains majority though the contract was
entered into when he was minor is implied ratification. Though this case has not overruled
Suraj Narain case, it shows that the opinion of the courts are changing.

When can contracts with minors be enforced?

1. Necessities (Section 68)

 2. Contract of training/internship/apprenticeship
3. Contract where a minor has already performed / enforcing contracts which are
beneficial to owner

1. Necessities:
Section 68: If person, incapable of entering into contracts, is supplied by another
person with necessaries suited to his condition in life, the person who has furnished
such supplies is entitled to be reimbursed from the property of such person.

Case: chapel v. Cooper

Facts: An immediate widow takes loan for cremation of her father. Later, she refuses to
repay the loan on the ground that the loan was not for necessities.

Issue: Can cremation be considered a necessity?

Judgment: It was held that cremation of husband is a necessity. Hence, she was liable to
repay the loan and the contract was enforceable.

Case: Nash v. Imnam

Facts: supply of highly fashioned clothes to a minor studying in Ivy League College. He later
refused to pay.

Issue: Can highly fashioned clothes be considered necessity?

Judgment: supply of highly fashioned clothes including blazer cannot be considered a

necessity to a reasonable person. Though necessity test is subjective, a person’s life
condition should be taken into consideration.

Case: Soorajmal v. Kunwarlal

The property was given to a minor on the rent due to the necessities for living and
continuing study and a minor is liable to pay rent.
Beneficial contracts: contracts of apprenticeship or service on same footing as necessities as
per laws of England.

Case: Doyle v. white City Stadium

Facts: boxing tournament by District federation. Minor has career in boxing so he wanted to
participate by paying fees and gets licence to boxing. The rule was that every time you win,
you will receive money after last fight. If you break rules, prize to be reduced. Minor violates
rule and prize was not given. Minor contended that he is not bound by rules of contract and
wanted his participation money back.

Issue: Is the minor bound by contract?

Judgment: He was held bound to contract. Since he entered contract which was beneficial,
he cannot quit at any time. We can also say that this is a contract of training which is valid in
England.

Scenario in India: contract of service is void but contract of apprenticeship is valid

Case: Raj Rani v. Prem Abid

Facts: producer hires minor girl for a role in his movie. When shooting starts, minor
replaced. She filed a suit. Defendant contended that it is her contract of service which is not
valid.

Issue: Is acting in film a contract of service or contract of apprenticeship?

Judgment: The court held that it was a contract of service and hence can be terminated.

Unsound mind:

Section 11 and 12
Onus to prove unsoundness -> one who is avoiding contract, legal guardian

Case: Indar Singh v. Parmeshwadhari Singh

Facts: person of unsound mind, looking at his conduct appeared normal and there was no
way for a reasonable man to infer that he is of unsound mind. He sold property for peanuts
which was challenged by her mother on the grounds of his insanity.

Issue: Who has the onus toprove?

Judgment: The onus is on the mother (legal guardian) to prove his unsoundness.

Module: Consent

Section 13: defines consent. Two persons are said to consent when they agree upon the
same thing in the same sense.

Section 14: defines free consent which is mentioned as consent which is not caused by:

i. Coercion (section 15): committing or threatening to commit, any act forbidden by

IPC or unlawful detaining, threatening to detain any person or property with an
intention to cause any person to enter into agreement.
ii. Undue Influence (section 16): A contract is said to be induced by “undue
influence” where the relations subsisting between the parties are such that one
of the parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other.
iii. Fraud (section 17)
iv. Misrepresentation (section 18)
v. Mistake (section 20,21,22)

Coercion (Section 15)

Committing or threatening to commit any act forbidden by IPC, or unlawful detaining or
threatening to detain any property or person with an intention to cause the other party to
enter into agreement.

It is narrow in scope as it only covers offences covered under IPC. What about crimes not
covered in it?

Example: suicide is not a crime under IPC, attempt to commit is. So, threatening to commit
suicide is coercion or not?

The Court in 2:1 ratio held that threatening to attempt suicide is coercion.

Case: Chikaram Amiraju v. Chikkam Seshama

Facts: by threatening to suicide, a hindu induced his wife and son to execute a release in
favor of his brother in repsect of certain properties which they claimed as their own.

Issue: Since suicide is not a crime under IPC, can threatening to commit it comes under
coercion?

Judgment: It was held that threat to commit suicide was coercion as per Section 15 and the
release deed was voidable. The majority bench were of the view that suicide is not a crime
as there is no one left to be punished.

Case: Ranganaya Kamma v. Alwar Setti

Facts: A woman lost her husband. Villagers not allowing to cremate her husband unless she
agrees to adopt a boy. She agreed but later refused to perform her part.

Issue: is prevention of cremation of a dead body a valid ground for coercion?

Judgment: Section 297 of IPC holds that every corpse deserve last rites. If you do not allow
it, it is a crime. Hence, the contract was declared voidable.

Detention of property – coercion:

Case: Astley v Reynolds

Facts: plaintiff pledged his plate for £20. Pledgee insisted additional £10 to release his plate.
He paid and later sued for recovery.

Issue: can detention of valuable property be considered coercion?

Judgment: The court held that the contract is voidable as there was clear detention of
property which is a crime under IPC.

Strikes by workmen – a valid ground for coercion?

Case: Workmen of Appin tea estate v. industrial tribunal

Facts: workmen went on strike. Managers strike a deal between them and workers that if
the workers work hard and will give bonus to them later. Later, he did not give bonus
claiming that he had to do it under compulsion.

Issue: Can strike amount to coercion?

Judgment: The Court held that strike is not an offense under IPC nor is it threatening to
commit detaining of property. Hence, strike does not amount to coercion.

Case: Askari Mirza v. Jai Kishori

Facts: Minor misrepresenting his age to lender. Lender told him to pay loan by giving
property otherwise he will file suit for misrepresentation.

Issue: Can a lawful act be considered coercion even if it threatens?

Judgment: The Court held that is someone has legal grounds, threatening to file suit is not
coercion. Though false/malicious prosecution maybe considered coercion.

Can statutory compulsion amount to coercion?

Case: Andhra Sugars Ltd v. State of AP

Facts: usually sugar mills are free to select farmers from any block. Government comes up
with notification that some sugar mills to purchase some part of sugarcane from a particular
block where farmers faced problems.

Issue: Can statutory compulsion which results in economic compulsion be coercion?

Judgment: Statutory compulsion does not amount to coercion. You can challenge the law on
basis of Article 19 but you cannot avoid contract with farmers saying that statutory
compulsion amounted to coercion.

Undue Influence:

The relations subsisting between the parties are such that one of the parties is in a position
to dominate the will of the other and uses that position to obtain an unfair advantage over
the other.

A person can be said to be in a dominant position if:

1. He holds real/apparent authority

2. He stands in fiduciary relation with other party
3. When he makes a contract with person whose mental capacity is temporarily
affected by reason of age, mental distress

Section 16(3)-> When contract appears unconscionable on the face of it with a party who is
in a dominant position, the burden to prove that there was no undue influence is on the
party who is on a dominant position.

Case: Mannu Singh v. Umadat Pande

Facts: A hindu, who is a spiritual advisor induced plaintiff to gift to him whole property to
secure benefits to his soul in the next world.

Issue: Is there any apparent authority?

Judgment: The Allahabad HC held that there is unfair advantage in this case which will make
contract voidable. The Court asked if any reasonable man would do it under possession of
senses.

Case: Phillip Lukka v. Franciscan Association

Facts: A Christian guided by Church to give away all property to the Church for benefits in
future. They registered the gift deed at a far place so that no one knows about it.

Issue: Can gift to religious org. by weak minded people be considered undue influence?

Judgment: the court held that no reasonable man would transfer his whole property to
religious organization. It is a case of malafide intention.

Case: Niko Devi v. Kirpa

Facts: young girl who lost her parents. Her cousins took care of her. On marriage, brother
made gift deed to transfer the property of her to himself. She signed it out of love.

Issue: can it be agreed that there was undue influence?

Judgment: There is fiduciary relationship and real authority as he also took care of her and
arranged her marriage.

Case: Lakshmi Amma v. Telangala Bhatta

Facts: A person made negligible provision for his third wife and her daughters. He
transferred whole of his property to one of his grandsons.

Issue: Is this case of undue influence?

Judgment: In absence of any explanation from the side of the donor for the discrimination,
the presumption of undue influence arose.
Case: Raghunath Prasad v. Sarju Prasad

Facts: The defendant and his father were equal owners of a vast joint family property over
which quarrels arose. The father instituted criminal proceedings against him. Defendant to
defend himself mortgaged his properties to plaintiff and borrowed money at higher interest.
The defendant contended that lender by extracting higher interest takes unconscionable
advantage of mental distress.

Issue: Should there be presumption of undue influence due to higher interest rates?

Judgment: The Lordships held there can be no presumption in such circumstances. First of
all, moneylenders is in no dominant position. The unconscionable bargain – first thing to be
noted

Case: Shrimati v. Sudhakar Bhatkar

Facts: owner is an illiterate widow, but managing agricultural property for 2 decades. Tenant
treated her as his mother and persuaded her to gift her property. The gift deed was later
registered.

Issue: Can the defendant be said to be in dominant position?

Judgment: The Court felt that it cannot be held that the tenant was in a dominant position.
Every persuation is not the same thing as undue influence. Apart from that, widow was
managing her own property and she cannot claim that tenant was in a dominant position.

Case: Lloys Bank v. Bundy

Facts: Bundy running business -> took loan from Lloyds Bank and was not able to pay back.
He mentioned that his father might mortgage family’s only residential property. Bank
reaches to father and obtains the house on mortgage deed. Later bank sought to enforce
mortgage.

Issue: Can this be a case of undue influence?

Judgment: The mortgage deed was invalid. It was unconscionable bargain with a malafide
intention to absorb the property knowing that the son would not be able to pay. The bank
explored vulnerability of father, caused by desire to help his son.

Case: Wajid Khan v. Raja ewaj Ali Khan

Facts: Begum of wajid khan widowed and has lot of property for which she engaged agent
with only whom she interacts. She conferred on agent, without any valuable consideration
an important pecuniary benefit under trust.

Issue: Whether it was case of undue influence?

Judgment: if somebody is agent, there is fiduciary relationship involved. Use of position

should not be made in bad faith.

Misrepresentation and Fraud: