Law Of Contracts


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Q. "An agreement enforceable by law is a contract" as per section 2(h) of Indian Contract Act 1872 but "agreements enforceable by law have been defined in section 10". Discuss the statement. Write essential elements of a valid contract.

In our regular day to day life we make several comments and statements. We say several things to people whom we talk to. Most of these are not with any intention to create any legal obligation. For example, if we say to someone that we will go to lunch with him, it is not a legal obligation. But some, which are related to business or civil matters, are understood to be in a serious mood and have a potential to be legally enforceable. For example, when we hire an Auto-rickshaw for going from point A to point B, we are legally bound to pay and the driver is legally bound to take us from A to B.  Indian Contract Act 1872 defines these activities in precise terms in Section 2.

Definition of Terms
Sec. 2 (a) When a person signifies to the other, to do something or to abstain from doing something, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a Proposal.
Sec. 2 (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. An accepted proposal becomes a promise.
Sec. 2 (c) The person making the promise is called Promisor, while the person accepting the promise is called Promisee.
Sec. 2 (d) When, at the desire of the Promisor, the Pomisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing, something, such act or abstinence is called a consideration for the promise.
Sec. 2 (e) Every Promise and every set of Promises forming a consideration for each other, is an Agreement.
Sec. 2 (f)  Promises which form the consideration or part of consideration for each other are "Reciprocal Promises".
Sec. 2 (g) An agreement not enforceable by law is void.
Sec. 2 (h) An agreement enforceable by law is a Contract.
Sec. 2 (i)  An agreement that is enforceable by law at the option of one or more of the parties thereto but not at the other or others is a voidable Contract.
Sec. 2 (j) A Contract that ceases to be enforceable by law becomes void when it ceases to be enforceable by law.

From sec 2(e) and 2(h), it is clear that Agreement and Contract are two different things. For an agreement to become a contract, it has to be enforceable by law.
Section 10 states that all agreements that are made by free consent of the people who are competent to contract, for a legal object and legal consideration, and are not hereby expressly declared to by void, are contracts and are thus legally enforceable. Thus, there are five factors that determine whether an agreement can be legally enforced or not. These are discussed below:

1. Competency of the people doing the agreement. (What do you understand by competency to contract? Who are competent to contract? What protections are offered to minors?)

All the parties doing the agreement must be competent to contract. Section 11 determines who are competent to contract. As per this section, person who has attained the age of majority according to the law to which is subject,  who is of sound mind, and who is not prohibited/disqualified from contracting by law  to which he is subject. Majority is 18 years except when a guardian is appointed by the court in which case it is 21 yrs.

In the case of Mohoribibee vs Dharmodas Ghosh in 1903, a minor had taken a loan and then he sued to avoid the contract. Privy Council council held that any contract with a minor is void ab initio and so the loaner cannot get any money that he gave as advance back. This rule is adopted all over India whether or not it benefits the minor.  
In the case of Mir Sarwarjan vs Fakhruddin Mohd. Chaudhary 1912, a contract to purchase a property was done on behalf of minor. It was held that the minor could not sue for getting the possession of property.

However, since in today's times minors are coming a lot in public life, it is not always possible to consider an agreement with a minor to be always void.  Therefore, in the case of Srikakulam Sbhramanyam vs Kurra Sabha Rao 1949, Privy Council held that a sale of inherited property of a minor to pay off inherited debt effected by the guardian was binding on the minor.

Protections offered to minors:
No estoppel against minor - It has now been settled that a minor who enters into a contract by misrepresenting his age can later on tell his correct age and avoid the contract.

No liability in tort or in contract arising out of a contract - If a minor enters into a contract, he can neither be held liable in contract nor in torts. In the case of Jennings vs Rundall 1799, when an infant hired a horse for riding short distance but rode it for long distance resulting in injury to horse, he was not held liable because it was a contractual obligation. In the case of Hari Mohan vs Dulu Mia 1934, Calcutta HC held minor not liable in tort for money lent on bond.
However, in absence of a contract, a minor may be liable in tort. Thus, in the case of Burnard vs Haggis 1863, when a minor "borrowed" a mare only for riding and then lent it to a friend who jumped her and killed her, he was held liable in tort.

Doctrine of restitution - If a minor obtains property or goods by misrepresenting his age, he can be forced to return it but only as long as the goods are traceable in the minor's possession. This is called doctrine of equitable restitution. If the minor sells or converts the property, the value of the goods cannot be retrieved because that would amount to enforcing a void contract. In the case of Leslie vs Sheill, a minor got 400 pounds from money lenders by misrepresenting his age.  The money lenders could not recover it under any of fraud, quasi-contract, or doctrine of restitution. This was followed in the case of Mohoribibee vs Dharmodas Ghosh as well..

Beneficial Contracts - In contract where a minor has already supplied consideration, the minor can enforce the contract. Thus, in the case of Ulfat Rai vs Gauri Shakar 1911, it was held that a minor can sue to take possession of a property for which he has already paid. But where the contract is still executor and consideration has not been given, the principle adopted in Mohoribibee will prevail. Thus, in the case of Raj Rani vs Prem Adib 1949, it was held that the film producer was not bound by a contract with minor's father to give a role to minor in his movie. This is because minor could not be forced to give consideration and father had not given any consideration. However, a contract of marriage of a minor enter into by the father is not void for want of consideration because it is for the benefit of the minor.

Liabilities for necessities (Section 68) - If a minor is supplied with necessaries that are in accordance with his living standard, the supplier can get paid through the minors property.

Persons of unsound mind
Section 12  says that a person is of sound mind for the purpose of contracting if at the time of contracting, he is capable of understanding the contract and capable of making a rational judgement as to the effects of the contract upon his interests. A person who is usually of sound mind but sometimes of unsound mind may not make a contract when he is of unsound mind, while a person who is usually of unsound mind but sometime of sound mind may make a contract when he is of sound mind. Thus, a person, who is too drunk, or who is temporarily delirious due to sickness such as high fever, may not make a contract at that time. A patient in a lunatic asylum, who is at intervals of sound mind may make a contract when he is of sound mind.
In India, a contract done by a person of unsound mind is absolutely void ab initio. In the case of Indersingh vs Parmeshwardhari Singh Patna HC in 1957 held that a contract to sell property worth 25000 in 7000, was voidable because the mother claimed that her son was of unsound mind and did not understand the implications.

2. Consent and Free Consent
Section 13 defines that two or more people are said to consent when they agree upon the same thing in the same sense. However, many a times, a consent may not reflect the true intentions of a party. For example, one party may give consent because of being financially pressured or criminally threatened. Thus, such a consent should not make the agreement enforceable.  Section 14 determines what factors can vitiate a consent and when a consent is considered free of any complication that affects the enforceability of an agreement . It states that a consent that is not obtained through coercion, undue influence, fraud, misrepresentation, or mistake subject to section 20, 21, and 22, is a free consent.

a.  Coercion (Sec 15): Coercion is committing or threatening to commit any act forbidden by the Indian Penal Code, or unlawful detaining or threatening to detain the property, to the prejudice of any other person, with an intention to cause that other person to enter into an agreement. It is immaterial whether IPC is or is not in force where coercion is applied. Thus, an act that is unlawful as per IPC but not as per England law and that has been used to induce the consent, will be considered coercion.
A clear example would be force someone to consent on gun point or by hurting or threatening to hurt. In Chikham Amiraju vs Chikham Seshamma Madras HC 1912 held that threatening to commit suicide is coercion. In the case of Astley vs Reynolds 1771, the plaintiff had pledged his plate for #20 and when he went to claim it back, the defendant asked for #10 more as interest. To redeem his plate, the plaintiff paid the money but later sued to recover #10. The court allowed it.

b. Undue Influence (Sec 16): Undue influence occurs when because of the nature of the relationship that exists between the parties, one party is able to dominate the will of the other and uses this dominance to obtain unfair advantage over the other. A person is in a dominant position when he holds a real or apparent position of authority for example manager employee, or stands in a fiduciary relationship with the other for example money lender and loanee. A person could also be in a dominant position if the mental capacity of other party is temporarily or permanently effected due or illness, age, or distress.
The burden of proof  that undue influence has not occurred is on the person who is in the dominant position, if the agreement is unconscionable otherwise it is on the party that alleges undue influence.
Examples:
    Father (A) give some money to son (B) when B was a minor. Upon majority, A makes B execute a bond for a much larger amount.
    A person (A) who is old and sick is induced into paying an unreasonably large amount of sum to his doctor (B).
    A village moneylender (A) lends money to a villager (B), who is already in debt, at a very high interest. It lies on A to prove that he has not used undue influence to induce the contract.
    At a time of financial crises, a bank manager gives loan to a person at a substantially higher rate. This is not considered to be undue influence but a simple business transaction.
In Mannu singh vs Umadat Pandey Allahbad HC 1890, a guru induced his devotee into giving all the devotee's property to himself. This was considered undue influence.

c. Fraud (Sec 17): When a person intentionally tries to cheat another person, it is called as fraud in a general sense. Section 17 defines fraud precisely as such - Fraud means and includes any of the following activities done by a party or by his connivance or by his agent, with an intent to deceive another party or his agent, or as to induce the other party to enter into the contract.
  1. the suggestion of a fact, of that which is not true, by the one who does not believe it to be true.
  2. active concealment of a fact by one who knowledge or belief of the fact.
  3. making a promise without an intention to perform.
  4. any act fitted to deceive
  5. any such act or omission that the law declares to be fraudulent.
Mere silence as to facts likely to affect the willingness of a person to enter into the contract is not fraud unless, according to the circumstances of the case, it is the duty of the person keeping silence to speak or unless his silence itself is considered as speech.
Examples:
A sells a horse to B by auction without telling B that horse is unsound. This is not fraud.
B is A's daughter who has just come off age, then it is A's duty to tell B about the fact. So this is fraud.
B says to A, "if you do not deny it, I will assume that horse is sound". Here, silence is considered as speech so this is fraud.
A and B, being traders, enter into a contract. A has private pricing information that will cause B to not enter the contract. A is not bound to inform this to B. This is not fraud.
Concealing the disease history while obtaining insurance is fraud because it is the duty of the insured to give this information to the insurer.
Derry vs Peek 1889 was not fraud, because the company honestly believed in what they said and there was no intentional misrepresentation, which is the essence of fraud.
Sri Krishan vs. Kurukshetra Univ., AIR 1976 SC the student  was not found to be fraud. Even though he knew that he was short on attendance, he did not disclose it on examination form. He was let off because 'mere silence' is not fraud. 

d. Misrepresentation (Sec 18): When a person makes an unwarranted statement, however innocently, which the person believes to be true, and which turns out to be false, it is misrepresentation. Any breach of duty, without an intention to deceive, that gains an advantage to the person committing it or to the person claiming under him,  by misleading the other person to his prejudice or to person claiming under him, is also misrepresentation. Further, causing a party to an agreement to make a mistake regarding the subject matter of the agreement, however innocently, is also misrepresentation.

Examples:
    A claimed to B that the ship being considered under an agreement was below 2800 tonnage. But in reality it turned out to be more than 3000 tonnage. It was held to be misrepresentation and B was entitled to avoid the contract. Oceanic Steam Navigation vs Soonderdas Dharmasey. Bom HC 1980.
    A land was purchased expressly for constructing duplexes. The seller claimed that he saw no permissioning problems. However, later on the permission was denied. This was held to be misrepresentation and even though the claim was innocent, the buyer was allowed to avoid the sale
    Where the seller of a car stated the mileage of the car to be 20000, which turned out to be wrong, the buyer of the car was allowed to recover compensation for misrepresentation.

Section 19 declares that a contract induced due to coercion, fraud, or misrepresentation is voidable at the option or the party whose consent was obtained by coercion. An exception is that when the consent is obtained by silence fraudulent  under sec 17, and when the affected party had the means of discovering the truth with ordinary diligence. In this case, the contract is not voidable. Further,  if the fraud or misrepresentation did not cause the party on which they were practiced to give consent, then the contract will not be voidable.
Section 19A declares that the party whose consent was obtained by undue influence has the option to avoid the contract.

3. and 4.  Legal Object and Legal Consideration
When four dacoits enter into an agreement to share the loot equally and if two of them take more share than the other two, there is nothing that law can do, except arrest them for dacoity. Needless to say,  the objects and considerations involved in the the agreement have to be legally valid. Section 24 declares that agreements are void if consideration and object are unlawful in part. If any part of a single consideration for one or more objects, or any one or any part of one of several considerations for a single object, is unlawful, the agreement is void.
Thus, if the unlawful part cannot be severed from the object or consideration, the whole agreement becomes void. However, if the unlawful part can be severed, the remaining part can still be enforced. For example, A enters into an agreement with B to get 1 Gram of Cocain with 1 Kg or Rice for 10 Rs for rice and 1000 Rs for Cocain, then a part of the object that is 1 gm of cocain and 1000Rs is severable from the agreement without affecting the lawful part. In this case, the agreement can be enforced partially. In another example, A man enters into an agreement with a married women to clean his house and live with him in adultery, which is unlawful, for a sum per month, the whole agreement is void because it is not possible to divide the sum properly between lawful and unlawful objects.

What objects or considerations are unlawful
Section 23 declares that any object or consideration is lawful, unless - it is forbidden by law, or is of the nature that if permitted, defeats the provisions of any law , or is fraudulent, or implies or involves injury to the person or property of another, or is determined by the court to be immoral or against public policy. Thus, an agreement to rent an apartment for prostitution or gambling is void.

5. Agreements expressly declared to be void by this act

Some other agreements that satisfy all the four conditions given is section 10 can still be void. Such agreements are: 
Sec 20 : when both the parties are under mistake as to the matter of fact, the agreement is void.
Sec 24 : agreement in which any part of a single consideration for one or more objects, or any consideration or part of a consideration out one or more considerations for a single object is unlawful, is void.
Sec 25 : agreement without any consideration except if it is registered, or a promise to pay for something already done, or is a promise to pay time barred debt.
Sec 26:  agreement in restraint of marriage.
Sec 27 : agreement in restraint of trade.
Sec 28 : agreement against legal proceedings.
Sec 29 : agreement that is uncertain
Sec 30 : agreement by way of wager.
Sec 56 : agreement to do impossible act is void. If an act becomes impossible after the contract it done, the contract becomes void when the act becomes impossible to do.

Legal formalities: Certain agreements such as agreement for the sale of immovable property, or agreement for insurance become a contract only when they are properly registered. For such agreements, the procedure prescribed by law must be followed to make them a contract.




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Q. "An Agreement without consideration is void." Explain this rule and state exceptions if any.

Indian Contract Act 1872 in section 2(e) says that every promise and every set of promises that form a consideration for each other is an agreement. Thus, it is clear that the formation of consideration for a promise or promises is a key ground on which a promise becomes an agreement. There cannot be an agreement if there is no consideration. Section 25 of the act says the same thing in precise terms and also gives three exceptions when an agreement without consideration is a valid contract:

Section 25: An agreement without consideration is void unless,
  1. it is in writing and registered and the promise has been made due to natural love and affection between the parties standing in near relation to each other.
  2. it is a promise to compensate, wholely or in part, a person who has voluntarily done something for the promisor or something that the promisor was legally bound to do.
  3. it is a promise to pay for a time barred debt.
Natural Love and Affection

Rajlukhy Debi vs Bhootnath Mukherji
-  Court found no evidence of love.
Bhiwa vs Shivram - A person gave half of his property to his brother in order to be reconciled with him. Court held that it was due to natural love and affection.
Past and Executed Consideration
The definition in 2(d) says "...has done or abstained from doing...". Thus, an act already done can be a valid consideration. However, a past consideration and an executed consideration must be distinguished. For example, if A saves B from drowning and if B promises to pay A 50/-, under English law, B is not bound by the promise because there was no promise when the act was done. The act of saving is past consideration.  On the other hand, if A promises to pay 50/- to who ever finds his dog and if B finds and produces the dog, A is bound to pay because the promise existed before the act. This is called executed consideration.

However, in Indian law, Section 25 (2) explicitly says that a promise to compensate a person who has voluntarily done something for the promisor is binding. Thus, if B saves A from drowning and if A promises to pay B, then A is bound by the promise.

Further, in the case of a past service on request without any promise to pay, it is construed that there is an implied promise to pay only the amount of payment is not fixed. Thus, a promise to pay for a past service upon request is a valid contract.
In the case of Sri Sandhi Ganpatji vs Abraham, it was held that services rendered to a minor, which were continued after his majority upon his request is a valid consideration for a promise to pay.

Value of the consideration
It is important that the consideration has some value in the eyes of law. If A promises to B to give his Rolls Royce if B brings it from the garage, the promise is not binding because the consideration has no value in the eyes of law. However, if A sells his horse worth 1000/- to B for 10/-, it is a valid consideration even if it is not adequate provided that the consent was free. Explanation 2 of section 25 says that inadequate consideration may be considered to be against free consent.
Haigh vs Brooks - A promise to pay for returning a document, which later on was found to be worthless, was held to be a valid because the document was considered of some value at the time of the contract.

However, consideration need not be adequate.
De La Bere vs Pearson -  A person lost money due to a financial advice given in a newspaper. The newspaper was held liable because the consideration of buying the newspaper was of some value even if not adequate.

Debi Radha Ranee vs Ram Dass - Forbearance to sue to sue is a valid consideration.

Performace of existing duties
In general performance of something that one was already required to do is not a valid consideration. 

Performance of Legal Obligation
For example, a policeman is under legal obligation and performance of his duties cannot be a valid consideration.

Performance of contractual Obligations
In the case of Ramchandra Chintaman vs Kalu Raju 1877, a lawyer was promised to get 100/- more if he wins the case. The promise was held not binding because the lawyer was already under contractual duty to do his best in the case.

However, a performance of a pre-existing contract with a third party was held a valid consideration. In the case of Shadwell vs Shadwell, an uncle's promise to pay his nephew if he married some girl was held valid. This was held by MP HC in the case of  Gopal Co. vs Hazarilal Co AIR 1963.

Promise to pay less than the amount due.
Section 63 of Indian Contract Act says that payment of a smaller sum in satisfaction of a larger dept is valid if this has been done under an agreement between the creditors and the debtors. It further gives an illustration that if A owes B 5000 rs and if B accepts 2000Rs as a satisfaction of the whole amount at the time and place where 5000 rs were due, the payment of 2000 rs discharges A of his debt.

Q. What are the important components of a consideration?

Section 2(d) defines consideration as follows:
When, at the desire of the promisor, the promisee or any other person, has done or has abstained from doing, does or abstains from doing, or promises to to or abstain from doing, such an act or abstinence becomes a consideration for the promise.

At the desire of the promisor
To be a valid consideration, the act must be at the desire of the promisor and not of anybody else. In the case of Durga Prasad vs Baldeo 1880, the plaintiff had build the shops on the desire of the collector and not of the defendants. Therefore the promise by defendants to pay a percentage of sales was held not binding.
In the case of Kedar Nath vs Gauri Mohd. 1886,  the defendant had pledged 100/- for construction of town hall. The plaintiff started work on that pledge and so the defendant was held liable to pay.

Provider of the consideration (Privity)
The British law has two principle governing the consideration.
1. The consideration must move from the promisee to the promisor.
2. Only the person who is a party to the contract can sue for the performance.

Privity of Consideration
In India, the first rule is not followed at all. In fact section 2(d) specifically says that consideration can be provided by the promisee or any other person. This was held in the case of Chinnaya vs Ramaya 1882.

Privity of Contract
In the case of Tweddle vs Atkinson 1882, it was held by the privy council that the person who is not a party in the contract cannot sue. SC in the case of  MC Chacko vs State Bank of Travancore 1969 has adopted the same principle and held that the since the bank was not a party to the contract between the father and the son, it cannot enforce the contract.
However, based on Privy Council's observation of the culture in terms of marriage and family relationship, in the case of Kwaja Mohd. Khan vs Hussaini Begum 1910, some exceptions to this rule have been accepted.

1. Trust or Charge
When an agreement forms a trust for the benefit of a third person, the third person can enforce the agreement. This was held in the case of Kwaja Mohd. Khan vs Hussaini Begum 1910 as well as in Rana Uma Nath Bakhs Singh vs Jung Bahadur AIR 1938.

2. Marriage, partition, and other family matter
In the case of Daropti vs Jaspat Rai 1905, it was held that the wife was able to enforce the husband to fulfill a promise that he gave to her father about providing her a separate residence.

3. Acknowledgement or Estoppel
Where by the terms of a contract a party is to make payments to a third party and the party acknowledges this to the third party, a binding obligation is created towards him. This was held in the case of Devraja Urs vs Ram Krishnaiya AIR 1952.




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Q. Explain - Coercion, Undue Influence, Fraud, and Misrepresentation. 

According to Section 10, free consent is an integral part of a contract. An agreement cannot become a contract unless it is done by free consent of parties.
Section 14 says that a consent is free when it is not vitiated by coercion, undue influence, fraud, misrepresentation, or by mistake subject section 20, 21, 22.

Coercion
Section 15 defines coercion as follows -
Coercion is committing or threatening to commit an act that is prohibited by IPC, or any unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with an intention of causing any person into entering a contract. It is immaterial whether IPC is in operation at a place where such act took place.

Illustrations
A threatens B at gun point to sell his land to A.
A while in an English ship on high seas enter into a contract with B by intimidating B that is unlawful in India. Later on A sues B of breach of contract in Calcutta. This is coercion.

Chikham Amiraju vs Chikham Seshamma 1912 - Husband threatened to suicide unless wife gave property to his brother. This was held coercion.
Askari Mirza vs Bibi Jai Kishori 1912 -  Threatening a criminal prosecution is not coercion per se. It could be coercion if the threat is to file false charges.
Astley vs Reynolds 1731 - Plaintiff had pledged his place for $10. When he went to take it back, pledgee asked for $10 more. He paid the additional $10, but sued to get recover it back. It was held coercion.
Andhra Sugars vs State of AP 1968 -  A factory was bound to take the sugar cane from the farmer under an act. This was not held to be coercion.

Undue Influence
Section 16 defines Undue Influence as follows -
A contract is said to be induced by Undue Influence when the relationship between the parties is such that one party is able to dominate his will on the others and uses that position to gain an unfair advantage. A person is deemed to be in the position of dominating the will of the other if -
  • if the person holds a real or apparent position of power
  • If stands in a fiduciary relationship with the other.
  • if the other person is mentally weak because of sickness, disease, or economic distress
It further says that if a contract is unconscionable the burden of proof lies of the person in whose favor the contract is to prove that it was not induced by Undue Influence, other wise the burden of proof is on the one who alleges it.

Illustrations
A  advances some money to his minor son B. Upon majority, A makes B sign a contract to pay back more than the sum advanced.
A is sick and physically feeble and is attended by his nurse B. B influences A to enter a contract to pay him an unreasonable amount for his professional services.
A being in debt of B, the village money lender goes to B for getting a loan. B gives the loan on terms that are unconscionable. It lies on B to prove that undue influence was not used to create the contract.
A applies for loan to a banker B while there is a stringent crises in the money market. B declines to give the loan only at a very high rate. This is not coercion but simple business transaction.

Ability to dominate the will
Mannu Singh vs Umadat Pandey 1890 - Spiritual guru induced the plaintiff, his devotee, to gift all his property to the guru.

Relations of dominion over other - parties are not on equal footing.
Williams vs Baylex 1866 - father being afraid of bank manager, entered into a contract to mortgage his house. This was held voidable.

Real of Aparant authority
Income tax office, magistrate, police officer etc.
It may not be real but if a person shows off as such then also it is applicable.

Fiduciary Relation
Every relationship of trust and confidence is a fiduciary relationship.
Solicitor - client, doctor - patient, spiritual guru - devotee.

Mental Distress
Ranee Annapurni vs Swaminatha 1910 - A poor widow who was in dire need to money to establish her right to maintenance, was persuaded by a money lender to take loan at the rate of 100%. It was held to be undue influence while a person was under mental distress and the court reduced the rate to 24%.

Burden of Proof - The person must show that the other party was in position of dominating the will and that he used that position to gain advantage.

Presumption of undue influence
In certain cases, when it is established that the defendant was in a position to dominate the will of the plaintiff, it will be presumed that he must have used his position to obtain an unfair advantage. Thus, it will be up to the defendant to prove that the plaintiff freely consented.

Lancashire Loans Ltd. vs Black 1934 : It was held that a daughter may not necessarily be independent and may be under the influence of the mother.

Presumption is raised in the following cases -

1. Unconscionable bargains
Wajid Khan vs Raja Ewaz Ali Khan 1891 - An old illiterate woman conferred upon her managing agent a bug pecuniary benefit without any valuable consideration under the guise of a trust. This was held to be under undue influence.

2. Inequality in bargaining power
LLoyd's Bank vs Bundy -  Farmer pledged his farmhouse for securing a loan for his son. Later bank tried to take possession of the house. It was held that the contract might have been done under undue influence.

3. Contracts with Pardanashin women
A contract with a pardanashin woman is presumed to have been induced by undue influence. However, such a woman must be totally secluded from ordinary society. In the case of Ismail vs Amir Bibi 1902, a lady stood as witness, put tenants, collected rents in respect of her house. She was held not a pardanashin woman.


Coercion - Section 15 Undue Influence - Section 16
There is a clear threat involved and the person being coerced knows it. There is no outward sign on undue influence and the person being influenced may not realize it.
No relationship has to exist. A relationship that allows a person to dominate the will of other must exist.
Contract induced by coercion is voidable under section 19 Contract induced by undue influence is voidable under section 19-A
If an act, which is unlawful under IPC, has been used to force a person into contract, it is immaterial where it has taken place, contract will still be voidable in India.

Fraud
Section 17 defines fraud as follows:
Fraud means and includes any of the following acts done by a party to a contract, or by his connivance, or by his agent, to decieve another party thereto or his agent, or to induce him to enter the contract. Such acts include-
  1. the suggestion, as a fact, that of which the party knows or has reason to believe to be not true.
  2. active concealment of a fact by the one who knows or has reason to believe to be true.
  3. Making a promise he does not intend to fulfill.
  4. any act fitted to deceive.
  5. any act or omission as the law specifically declares to be fraudulent.
Illustrations
A sells, by auction, to B a horse which A knows to be unsound but does not tell anything to B. This is not fraud.
B is A's daughter who has just come of age. In this case, it is A's duty to tell B that the horse is unsound.
B says to A, "If you do not deny it, I will assume that the horse is good.". Here, A's silence is equivalent to speech.
A and B are both traders and A has private information about change in prices, which would affect B's willingness to proceed with contract. This is not fraud.

Intention to deceive is required to constitute fraud.

Suggestion of a fact
Derry vs Peek 1889, it was held not to be fraud because the defendants truly believe that permission would be granted by the board of trade because parliament had approved it.

Active concealment
Active concealment is different from passive concealment. Passive concealment merely means silence as to material facts. However, active concealment means making efforts to prevent the facts from reaching a party and this is fraud.
B R Chaudhary vs IOC 2004 - A dealer concealed his previous employment under govt. to get dealership. SC allowed the contract to be terminated.

Concealment by mere silence is not fraud
Sri Krishan vs Univ. of Kurukshetra 1976 - the candidate knew that he was short of attendance but did not write anything on the examination form. It was held not fraud because it was the job of the university to scrutinize the forms.

Silence may become fraud in certain cases - Duty to speak, Half truth, change of circumstances.

Making a promise without any intention to perform
DDA vs Skipper Construction Company 2000- A builder collected deposit money from more number of people than there were flats. SC held that since the builder knew that he cannot perform his promise and still took the money, he was doing fraud. He was held liable to pay interest even though there was no provision of interest on deposit.

Any other act fitted to deceive
Ningawwa vs Byrappa 1968 -  Husband got his illiterate wife to sign papers saying that he was mortgaging her two lands but actually he mortgaged four. This act was obviously done to deceive and was held to be fraud.


Misrepresentation
Section 18 defines misrepresentation as follows:
Misrepresentation means and includes
  1. making a statement in a manner that is unwarranted by the information of the person making it, of that which is not true, though he believes it to be true.
  2. any breach of duty which, without an intention to deceive, gains an advantage to the person committing it or any one claiming under him, by misleading another to his prejudice or to the prejudice of anyone claiming under him.
  3. causing, however innocently, another party to commit a mistake as to the substance of the thing which is the subject of the agreement.
Thus, when there is no intention to deceive but still a wrong statement has been made, or a duty has not been performed, or a mistake has been induced, it is misrepresentation.

Unwarranted Statements
Oceanic Steam Navigation vs Soonderdas Dharmasey 1980 - the defendants charted a ship from a company. The plaintiff had made a claim that the ship was not more than 2800 tonnage even though the plaintiff had not known about it. In reality the ship turned out to be more than 3000 tonnes. It was held to be misrepresentation and the defendants were allowed to avoid the contract.

Breach of Duty
Thake vs Maurice 1986 - Husband was not informed of the risks and failure rate of vasectomy before the operation. Later on wife became pregnant and the hospital was held guilty of misrepresentation and was ordered to pay compensation for all the pains and expenses of delivery.

Inducing mistake about subject matter
The subject matter of the contract is supposed by the parties to be of a certain value or quality. If one party, however innocently, leads another party to make a mistake as to the value of subject matter, it is misrepresentation.
Farrand vs Lazarus 2002 - A car dealer put a notice on a car that the mileage is incorrect even though he knew  that the reading was grossly incorrect. This was held to be misrepresentation.

Suppression of Material and Vital Facts
R  vs Kylsant 1932- Company prospectus said that company was regularly paying dividends, which implied that is was making profit. However, it did not say that company was making losses and dividends were being paid from war time accumulated profits.

Expression of Opinion
Merely expressing an opinion is not misrepresentation.
Bisset vs Wilkinsen 1927 - The seller was aware that the land was being purchased for sheep farming and he expressed an opinion that the land could carry 200 sheep. It turned out that the land was no suitable for sheep farming. The seller was not held liable.

Section 19 says that any contract which is induced by Coercion, Fraud, or Misrepresentation is voidable at the option of the party whose consent was caused due to coercion, fraud, or misrepresentation.
However, if the consent is obtained by misrepresentation of a fact or silence amounting to fraud, the contract is not voidable if the party whose consent was so caused was able to discover it with due diligence.
Also, a fraud or misrepresentation that did not cause a party to give consent, does not render a contract voidable.

Section 19 A says that when an agreement is created due to a consent induced by undue influence, such an agreement is a contract voidable at the option of the contract whose consent is so caused.

Fraud - Section 17 Misrepresentation - Section 18
There is intention to deceive. No intention to deceive.
A contract involving fraud is liable for action in tort for damages. No action in tort.
Defence of ordinary diligence is not available for fraud except for fraud by silence. Can be defended on the ground that the person could find out the truth by ordinary diligence.

Similarity in Fraud and Misrepresentation
  1. Both contain false representation.
  2. Both render a contract voidable.
  3. In both the cases, the consent must have been caused due to that fraud or misrepresentation.
  4. Defense of ordinary diligence is available to fraud by silence and misrepresentation.



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Q. Define Bailment. What are the rights, duties, and liabilities of a bailee? When is he not responsible for loss, destruction, or deterioration of the things bailed? What are the various kinds of lien held by the bailee. Explain the rights of finder of goods.

Bailment is a kind of activity in which the property of one person temporarily goes into the possession of another. The ownership of the property remains with the giver, while only the possession goes to another. Several situations in day to day life such as giving a vehicle for repair, or parking a scooter in a parking lot, giving a cloth to a tailor for stitching, are examples of bailment. Section 148 of Indian Contract Act 1872, defines bailment as follows -

Section 148 -  A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the bailor and the person to whom they are delivered is called the bailee.
Explanation -  If a person is already in possession of the goods of another contracts to hold them as a baliee, he thereby becomes the bailee and the bailor becomes the bailor of such goods although they may not have been delivered by way of bailment.

According to this definition the following are the essential elements of bailment -

1. Delivery of goods
The possession of goods must transfer from one person to another. Delivery is not same as custody. For example, a servant holding his master's umbrella is not a bailee but only a custodian. The goods must be handed over to the bailee for whatever is the purpose of the bailment.

In Ultzen vs Nicols 1894, the plaintiff went to a restaurant for dining. When he entered the room, the waiter took his coat and hung it on a hook behind him. When the plaintiff arose to leave, the coat was gone. It was held that the waiter voluntarily took the responsibility of keeping the coat while the customer was dining and was thus a bailee. Therefore, he was liable to return it.

Contrasting this case with Kaliaperumal Pillai vs Visalakshmi AIR 1938, we can see the meaning of delivery. In this case, a woman gave some gold to a jeweler to make jewelery. Every evening she used to take the unfinished jewels, put it in a box, lock the box and take the keys of the box with her while leaving the box at the goldsmith. One morning, when the opened the box the gold was gone. It was held that, in the night, the possession of the gold was not with the jeweler but with the plaintiff because she locked the box and kept the keys with her.

As the explanation to section 148 says, even if a person already has the possession of goods that he does not own, he can become a bailee by entering into a contract with the bailor. In such a case, the actual act of delivery is not done but is considered to be valid for bailment.

Types of Delivery - As per section 149, the delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorized to hold them on his behalf.  This means that the delivery can be made to either the bailee or to any other person whom the baliee authorizes. This person can be the bailor himself. This gives us two types of delivery - Actual and Constructive.  In actual delivery, the physical possession of the goods is handed over to the bailee while in constructive delivery the possession of the goods remains with the bailor upon authorization of the bailee. In other words, the bailee authorizes the person to keep possession of the goods.
In Bank of Chittor vs Narsimbulu AIR 1966, a person pledged cinema projector with the bank but the bank allowed him to keep the projector so as to keep the cinema hall running. AP HC held that this was constructive delivery because something was done that changed the legal possession of the projector. Even though the physical possession was with the person, the legal possession was with the bank.

2. Delivery upon contract
For a valid bailment, the delivery must be done upon a contract that the goods will be returned when the purpose is accomplished. If the goods are given without any contract, there is no bailment. In Ram Gulam vs Govt. of UP AIR 1950, plaintiffs ornaments were seized by police on the suspicion that they were stolen. The ornaments were later on stolen from the custody or police and the plaintiff sued the govt. for returning the ornaments. It was held that the goods were not given to the police under any contract and thus there was no bailment.

However, this decision was criticized and finally, in State of Gujarat vs Menon Mohammad AIR 1967, SC held that bailment can happen even without an explicit contract. In this case, certain motor vehicles were seized by the State under Sea Customs Act, which were then damaged. SC held that the govt. was indeed the bailee and the State was responsible for proper care of the goods.

3. Conditional Delivery
The delivery of goods is not permanent. The possession is given to the bailee only on the condition that he will either return the goods or dispose them according to the wishes of the bailer after the purpose for which the goods were given. For example, when the stitching is complete, the tailor is supposed to return the garment to the bailor. If the bailee is not bound to return the goods to the bailor, then the relationship between them is not of bailment. This is a key feature of bailment that distinguishes it from other type of relations such as agency. J Shetty of SC in U Co. Bank vs Hem Chandra Sarkar 1990, observed that the distinguishing feature between a bailment and an agency is that the bailee does not represent the bailor. He merely exercises some rights of the bailor over the bailed property. The bailee cannot bind the bailor by his acts. Thus, a banker who was holding the goods on behalf of its account holder for the purpose of delivering them to his customers against payment, was only a bailee and not an agent.

Duties of a Bailor
A bailor may give his property to the bailee either without any consideration or reward or for a consideration or reward. In the former case, he is called a gratuitous bailor, while in the latter, a bailor for reward. The duties in both the cases are slightly different. Section 150 specifies the duties for both kinds of bailor. It says that the bailor is bound to disclose any faults in the goods bailed that the bailor is aware of, and which materially interfere with the use of them or which expose the bailee to extraordinary risk. This means that if there is a fault with the goods which may cause harm to the bailee, the bailor must tell it to the bailee. For example, if a person bails his scooter to his friend and if the person knows that the brakes are loose, then he must tell this to the friend. Otherwise, the bailor will be responsible for damages arising directly out of the faults to the bailee. But the bailor is not bound to tell the bailee about the fault if the bailor himself does not know about it.

Section 150 imposes a bigger responsibility to the non-gratuitous bailor since he is making a profit out of the bailment. A non gratuitous bailor is responsible for any damage that happens to the bailee directly because of the fault of the goods irrespective of whether the bailor knew about it or not.
In Hyman and Wife vs Nye & Sons 1881,  the plaintiff hired a carriage from the defendant. During the journey, a bolt in the under part of carriage broke, causing an accident in which the plaintiff was injured. The defendants were held liable even though they did not know about the condition of the bolt.

Duties/Responsibilities of a Bailee

1. Duty to take reasonable care
In English law the duties of a gratuitous and non-gratuitous bailee are different. However, in Indian law, Section 151 treats all kinds of bailees the same with respect to the duty. It says that in all cases of bailment, the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances take, of his own goods of the same bulk, quality, and value as the goods bailed. The bailee must treat the goods as his own in terms of care. However, this does not mean that if the bailor is generally careless about his own goods, he can be careless about the bailed goods as well. He must take care of the goods as any person of ordinary prudence would of his things.

In Blount vs War Office 1953, a house belonging to the plaintiff was requisitioned by the War Office. He was allowed to keep his certain articles in a room of the house, which he locked. The troops who occupied the house were not well controlled and broke into the room causing damage and theft of the articles. It was held that War office did not take care of the house as an owner would and held the War Office liable for the loss.

Bailee, when not liable for loss etc. for thing bailed -
As per section 152, in absence of a special contract, the bailee is not responsible for loss, destruction, or deterioration of the thing bailed, if he has taken the amount of care as described in section 151. This means that if the bailee has taken as much care of the goods as any owner of ordinary prudence would take of his goods, then the bailee will not be liable for the loss, destruction, or deterioration of the goods. No fixed rule regarding how much care is sufficient can be laid down and the nature, quality, and bulk of goods will be taken into consideration to find out if proper care was taken or not. In Gopal Singh vs Punjab National Bank, AIR 1976, Delhi HC held that on the account of partition of the country, when a bank had to flee along with mass exodus from Pakistan to India, the bank was not liable for the goods bailed to it in Pakistan.

If the bailee has taken sufficient care in the security of the goods, then he will not be liable if they are stolen. However, negligence in security, for example leaving a bicycle unlocked on the street, would cause the bailee to be liable. In Join & Son vs Comeron 1922, the plaintiff stayed in a hotel and kept his belonging in his room, which were stolen. The hotel was held liable because they did not take care of its security as an owner would.

If loss is caused due to the servant of the bailee, the bailee would be liable if the servant's act is within the scope of his employment.

Special Contract
The extent of this responsibility can be changed by a contract between the bailor and the bailee. However, it is still debatable whether the responsibility can be reduce or it can be increased by a contract.  Section 152 opens with, "In absence of special contract", which is interpreted by Punjab and Haryana HC, as the bailee can escape his responsibility by way of a contract with the bailor. However, in another case Gujarat HC held that the bank was liable for loss of bales of cotton kept in its custody irrespective of the clause that absolved the bank of all liability. This seems to be fair because no one can get a license to be negligent and a minimum standard of care is expected from everybody.

2. Duty not to make unauthorized use (Section 154)
Section 154 says that if the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.
Illustration - A lends horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides with care but the horse is injured. B is liable to compensate A for the injury to the horse.
A hires a horse in Calcutta from B expressly to march to Benares. A rides with care but marches to Cuttack instead. The horse accidentally falls and is injured. A is liable to make compensation to B.

Thus, we can see that bailee is supposed to use the goods only as per the purpose of the bailment. If the bailee makes any unauthorized use of the goods, he will be held absolutely liable for any damages.

3. Duty not to mix (Section 155-157)
The bailee should maintain the separate identity of the bailor's goods. He should not mix his goods with bailor's good without bailor's consent. If he does so, and if the goods are separable, he is responsible for separating them and if they are not separable, he will be liable to compensate the bailor for his loss.  For example, A bails 100 bales of cotton with a particular mark to B. B, without A's consent, mixes them with his own. A is entitled to have his 100 bales returned and B is bound to bear all expenses for separation. But if A bails a barrel of Cape flour worth Rs 45 to B and B mixes it with country flour worth Rs 25, B is liable to A for the loss of his flour.

4. Duty to return (Section 160)
Section 160 - It is the duty of the bailee to return or deliver according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired or the purpose for which they were bailed has been accomplished.

If the bailee keeps the goods after the expiry of the time for which they were bailed or after the purpose for which they were bailed has been accomplished, it will be at bailee's risk and he will be responsible for any loss or damage to the goods arising howsoever.
In Shaw & Co vs Symmons & Sons 1971, the plaintiff gave certain books to the defendant to be bound. The defendant bound them but did not return them within reasonable time. Subsequently, the books were burnt in an accidental file. The defendants were held liable for the loss of books.

5. Duty to return increase (Section 163)
As per Section 163, in absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase of profit which may have accrued from the goods bailed.
Illustration - A leaves a cow in the custody of B to be taken care of. The cow has a calf. B is bound to deliver the calf as well as the cow to B.

6. Duty not to set up jus tertii (Section 166)
As per Section 166 if the bailor has no title and the bailee, in good faith returns the goods back to the bailor or as per the directions of the bailor, he is not responsible to the owner in respect of such delivery.  Thus, once the bailee takes the goods from the bailor, he agrees that the goods belong to the bailor and he must return them only to the bailor. He cannot deny redelivery to the bailor on the ground that the bailor is not the owner.

If there is true owner of the goods, he can apply to the court to stop the delivery of the goods from the bailee to the bailor. This right is given to the true owner in section 167.


Rights of a Bailee

1. Right to necessary expenses (Section 158)
The bailee is entitled to lawful charges for providing his service. As per Section 158 says that where by conditions of the bailment, the goods are to be kept or to be carried or to have work done upon them by the bailee for the bailor and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of bailment. Thus, a bailee is entitled to recover the charges as agreed upon, or if there is no such agreement, the bailee is entitled to all lawful expenses according to this section.

In Surya Investment Co vs STC AIR 1987, STC hired a storage tank from the plaintiff. On account of a dispute, STC appointed a special officer to take charge of the tank, who delivered the contents as per directions of STC. Thus, the plaintiff lost his possession and with it, his right of lien. SC held that the plaintiff is entitled to the charges even if he loses his right of lien because the bailor has enjoyed bailee's services.

2. Right to compensation (Section 164)
As per section 164, the bailor is responsible to the bailee for any loss which the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive back the goods, or to give directions respecting them. This means that if the bailor had no right to bail the goods and if still bails them, he will be responsible for any loss that the bailee may incur because of this.

3. Right of Lien (Section 170-171)
In general, Lien means the right to keep the possession of the property of a person until that person clear the debts. In case of bailment, the bailee has the right to keep the possession of the property of the bailor until the bailor pays lawful charges to the bailee. Thus, right of Lien is probably the most important of rights of a bailee because it gives the bailee the power to get paid for his services.

Lien is of two kinds -  Particular and General.

Particular Lien
This means that the lien holder has a right to keep possession of only that particular property for which the charges are owed. For example, A gives a horse and a bicycle to B. A agrees to pay B charges for training the horse and no charges for keeping the bicycle. Now, if A fails to pay charges for the horse, B is entitled to keep possession only of the horse and not of the bicycle. He must return the bicycle.
Section 170 gives this right to the bailee. It says that where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labor or skill in respect of the goods bailed, he has, in absense of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.

Illustrations - A delivers a rough diamond to B to be cut and polished, which is accordingly done. B is entitled to keep the diamond until charges for his services are paid.
A gives cloth to B, a tailor, to make into a cloth. B promises to deliver the coat as soon as it is done and also to give 3 months credit for the price. B is not entitled to keep the coat until he is paid.
 
Conditions for Particular Lien -
  1. Exercise of labor or skill -  This right is subject to the condition that the bailee has exercised labor or skill in respect of the goods. Further, it has been frequently pointed out that the labor or skill must be such as improves the goods. This, in Hutton vs Car Maintenance Co 1915, it was held that a job master has no lien for feeding and keeping the horse in his stable but a horse trainer does get a lien upon the horse.
  2. Labor or skill exercised must be for the purpose of the bailment - Any services rendered that are beyond the purpose of the bailment do not give a right of lien. For example, A bails his car to B to repair Engine. But B repairs tires instead. B will not get the right of lien.
  3. Labor or skill exercised must be in respect of the goods - As mentioned before, the bailee gets a right of lien only upon the goods upon which the service was performed.

General Lien -
As opposed to Particular Lien, General Lien gives a right to the bailee to keep the possession of any goods for any amount due in respect of any goods. Section 171 says that, bankers, factors, wharfingers, attorneys of a High Court, and policy brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect.
Thus, this right is only available to bankers, factors, wharfingers, attorneys of high court, and policy brokers. However, this right can be given to the bailee by making an express contract between the bailor and the bailee.

4. Right to Sue (Section 180-181)
Section 180 enables a bailee to sue any person who has wrongfully deprived him of the use or possession of the goods bailed or has done them any injury. The bailee's rights and remedies against the wrong doer are same as those of the owner. An action may be brought either by the bailor or the bailee.

Thus, in Umarani Sen vs Sudhir Kumar AIR 1984, a firm which had consigned the goods, of which it was a bailee, with a carrier, was allowed to sue the carrier for loss of the goods.

Rights of finder of goods
If a person finds something, he does not automatically become the owner of that thing. He, in fact, becomes a special kind of a baliee in the sense that he has to keep the thing until the owner is found. He should take care of the thing just like a bailee. Section 168 and 169 describe the rights of such finder of goods.

Section 168 -  The finder of goods has no right to sue the owner for compensation for trouble and expense voluntarily incurred by him to preserve the goods and to find out the owner; but he may retain the goods against the owner until he receives such compensation; and where the owner has offered a specific reward for the return of goods lost, the finder may sue for such reward, and may retain the goods until he receives it.

Thus, if the finder has incurred expenses in finding the owner and/or in maintaining the goods voluntarily, he can retain the possession of the goods until the owner pays the expense to him, though the finder cannot sue the owner for the expense. His only remedy is to keep the goods. Further, if the owner has promised a reward for the return of the goods, the finder is entitled to the rewards, and he can even sue the owner for the reward. He can retain the goods as well until the reward is received.

As per Section 169, the finder of the goods can even sell the goods if they are of common objects of sale, in the following conditions -
  1. the finder of goods was not able to find the owner after good faith efforts.
  2. the owner is found but the owner refuses to pay lawful expenses and
    1. either the goods are in danger of perishing or of losing greater part of the value
    2. or the lawful charges of the finder amount to two third of the value of the goods.



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Q. Describe the law relating to communication of proposals, their acceptance and their revocation.

Section 2(a) of Indian Contract Act 1972 says that when a person signifies his willingness to do or to abstain from doing something to another, with a view to obtaining the assent of that another, he is said to make a proposal.  Further, section 2(b) says that when the person to whom the proposal is made signifies his assent, the proposal is said to be accepted. The important point to note here is that the party making the proposal or the party accepting the proposal must "signify" their willingness or assent to the other party. Thus, a promise cannot come into existence unless the willingness or assent is communicated to the other party. Further, even the revocation, if any, must be communicated to the other party for it to take effect. Therefore, communication is the most critical aspect in the making of a contract.

Communication

Section 3 defines how a communication, acceptance, or revocation can be signified:
The communication, acceptance, and revocation are deemed to be made by an act or omission of the party proposing, accepting, or revoking, by which he intends to communicate such proposal, acceptance, or revocation, or which has the effect of communicating it.
Thus, a proposal may be made by any way, which has the effect of laying before another person his willingness to do nor not do something. The acceptance can be signified similarly.  Section 9 specifies that a promise (i.e. a proposal and its acceptance) can be formed either by words, written or oral, is which case it is called express or by action, in which case it is called implied. In the case of Haji Mohd Ishaq vs Mohd Iqbal SCC 1978, the defendants accepted the goods supplied by the plaintiff through a go between man and also paid part of the price. It was held that the defendants were liable to pay the remaining balance because the proposal and its acceptance were signified by their actions.


Section 4 specifies when a communication is complete:
  • Communication of a proposal is complete when it comes to the knowledge of the party to whom the proposal is made.
For example, if A sends a proposal in the mail to B and if the mail is lost, it can be held that the communication of the proposal is not complete. In the case of Lalman vs Gauridatta 1913, it was held that the reward for the missing child cannot be claimed by a person who traced the child without any knowledge of the announcement. There was no contract between the two in the first place because the proposal never came to the knowledge of the person who found the child and thus he could never accept it.
  • Communication of the acceptance is complete, as against the promisor, when it is put in course of transmission to the  promisor so as to be out of the power of the acceptor, as against the acceptor, when it comes to the knowledge of the promisor.
For example, as soon as B drops a letter of acceptance in mail back to A, A is bound by the promise. However, B is not bound by it unless A receives the acceptance letter. In the case of Adams vs Lindsell 1818, it was held that a contract arose as soon as the acceptance was posted by the acceptor. In this case, the plaintiff received the offer to sell wool on 5th and they posted an acceptance, which was received on 9th by the defendants. The defendants, however, had already sold the wool on 8th. The court observed that the contract must arise as soon as the acceptance is posted and is gone out of the reach of acceptor otherwise this will result in an infinite loop.
  • Communication of a revocation is complete as against the party who makes it when it is put in course of transmission to the party to whom it is made, so as to be out of the power of the party who makes it; as against the party to whom it is made, when it comes to the knowledge of the party to whom it is made.
For example, if A sends a letter revoking his proposal, it will be complete against A as soon as the letter is dropped in the mailbox and is out of his control. However, the revocation will be held complete against B only when B receives the letter.
Further, if B revokes his acceptance by telegram, it will he deemed complete against B as soon as he dispatches the telegram. It will be held complete against A, when A receives the telegram.

Section 5 specifies when a proposal and acceptance can be revoked:
  • A proposal can be revoked anytime before the communication of its acceptance is complete as against the proposer but not afterwards.
For example, if A propose to B through a letter, A can revoke the proposal as long as B has not posted a letter of acceptance to A. In the case of Henthorn vs Fraser 1862, an offer to sell a property was made to a person. This person was to reply to it within 14 days.  He lived in another town and he posted an acceptance at 3.50PM, which reached the offerer at 8.30 PM. Meanwhile, the offerer posted the revocation letter at 1 PM, which reached the person at 5.30PM. Thus, the revocation did not reach the offeree before the communication of the acceptance was complete as against the offerer.  Thus, the revocation was held ineffective.
  • An acceptance may be revoked anytime before its communication is complete as against the acceptor.
For example, B can revoke his acceptance that was sent by letter, by a telegram that reaches A before the acceptance letter.  In the case of Union of India vs Bhimsen Walaiti Ram 1969, the defendant won an auction for a liquor shop and paid 1/6 of the cost upfront. However, the bid was supposed to be finalized by the financial commissioner, which he had not done. Meanwhile, the defendant failed to pay the remaining amount and the commissioner ordered a re-auction. In the re-auction, less money was realized and the plaintiff sued to recover the shortfall. However, SC held that since the commissioner had not given is final approval for the bid, the communication of acceptance was not complete against the defendant, thus the defendant was free to withdraw or revoke his proposal (i.e the bid).

Section 6 specifies how a revocation can be made:
  • A proposal is revoked
    • by the communication of the notice of revocation by the proposer to the other party.
    • by the lapse of prescribed time in the proposal for acceptance or if no time is prescribed, by the lapse of a reasonable time in communication of the acceptance.
    • by the failure of the acceptor to perform a condition precedent to acceptance.
    • by death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance.
Acceptance

Section 7
specifies that an acceptance must be absolute and unqualified. A partial acceptance or a clarification regarding a proposal, or specifying a condition on acceptance is no acceptance.  
In the case of Hyde vs Wrench 1840, an offer was made to sell a farm for  #1000, which was rejected by an plaintiff, who counter offered #950 for it. This was rejected by the defendant, upon which the plaintiff agreed to pay #1000. However, it was held than the defendant was not bound by any such second acceptance.

Section 7 further says that the acceptance must be in some usual and reasonable manner, unless the proposal prescribes the manner in which the acceptance should be made. If the proposal prescribes the manner, and if the acceptance is not done in that manner, the proposer may insist that the acceptance be made in the manner prescribed, and if he fails to do so, he accepts the acceptance. Thus, if the acceptance is sent by any way other than what is prescribed by the proposal, the proposer must reject it in a reasonable time otherwise the proposer accepts it.  This is markedly different from English law where a proposal must be accepted in the manner required in the proposal otherwise, the acceptance is invalid. In the case of Elliason vs Henshaw 1819, it was held that an acceptance sent by mail instead of through the wagon that brought the offer, was not valid. 

Section 8 specifies that a proposal is accepted when the acceptor performs conditions prescribed for the acceptance or when he accepts the consideration given along with the offer for a reciprocal promise.  When acceptance consists of an act as in the case of State of Bihar vs Bengal C & P Works 1954, it was held that, when an order is sent for goods, the posting of goods itself is equivalent to acceptance.  No further communication of acceptance is necessary.

In the case of Carlill vs Carbolic smoke ball co 1893, it was held that, purchasing and consuming the medicine performs the condition of the proposal.

Requirements for an acceptance
  1. Acceptance must be from a person to whom the proposal was made. In the case of Powel vs Lee 1908, it was held that communication of an acceptance from an unauthorized person is invalid.
  2. Acceptance must be signified to the proposer. In the case of Felthouse vs Bindley 1863, it was held that unless an acceptance is given to the offerer, it is no acceptance.
  3. It is required that there be an act that signifies the acceptance. As held in the case of Bhagvandas Goverdhandas Kedia vs Girdharilal Pursottamdas & Co SC AIR 1966, for an acceptance to be completed, a mere mental decision is not sufficient. An external manifestation of the decision is a must. 
Communication and acceptance of General Offers
A general offer, such as an advertisement for the sale of an article at a fixed price, or to give prize to the one that does something first, is not made to a particular person. Whoever the contract is done with the person who responds or who does the task first. Communication of such as offer is done through public media such as a newspaper. S general offer can be perpetual or end as soon as the condition is fulfilled.
No explicit acceptance of such offers is usually required. Performing the conditions specified in the offer acts as the acceptance of the offer. For example, in the case of Carlill vs Carbolic Smoke Ball Company 1893, it was held that it was a general offer and anybody who fulfilled the condition was eligible for the $100 compensation as advertised.

Revocation of General Offers
A general offer can be revoked in the same manner as it was made. For example, by printing a revocation in a newspaper. It will be considered complete, even if a person who is ignorant of the revocation, performs the conditions after the revocation is published.