QUASI CONTRACT

QUASI CONTRACT

Generally a contract comes into existence as a result of offer made by one party and its acceptance by the other party, with free will of both the parties. However under certain conditions even though no will is expressed by both the parties for creating contractual relations, the law creates and enforces legal rights and obligations. Such contracts are known as Quasi Contracts. The principle behind Quasi Contracts is that a person shall not be allowed to enrich himself at the expense of another.

Section 68 to 72 of the Contract Act deals with 5 different kinds of Quasi Contracts explained below:

1. Supply of Necessaries to Incapable Person (Section 68):

        

If a person incapable of entering into a contract, or anyone whom he is legally bound to support, 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 incapable person.

Example: A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property.

2. Payment by Interested Person (Section 69):

A person, who is interested in payment of money, which another is bound by law to pay, and who therefore, pays it, is entitled to be reimbursed by the other.

Example: A holds land in Bengal on a lease. B is the owner of the land. The land revenue payable by B to the government is in arrears and therefore the government advertised the land for sale to recover the dues. To prevent the sale of land A pays the arrears of land revenue. In this case B is bound to reimburse the amount to A.

3. Payment for Non-gratuitous act (Section 70): 

Where a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitously and such other person enjoys the benefit thereof, the later is bound to make compensation to the former in respect of, or, to restore the thing so done or delivered.

Example: A, a tradesman, leaves his good at B’s house by mistake. B treats the goods as his own and uses them. B is bound to pay for the goods.

4. Liability of Finder of Goods (Section 71):

A person who finds the goods belonging to another, and takes them into his custody is subject to same responsibility as a bailee. He must take reasonable care of the goods and keep them in sound condition and try to find out its true owner.

5. Payment of Delivery by Mistake or under Coercion (Section 72):

A person to whom money has been paid or anything delivered by mistake or under coercion must repay or return it.

Example: A and B jointly owe Rs.5,000 to C. A alone pays this amount to C. B not knowing this again pays Rs.5,000 to C. In this case C is bound to repay Rs.5,000 to B as this amount is paid to him by mistake.

TYPES OF MISTAKE

TYPES OF MISTAKE

 Mistake may be of two types.

1. Mistake of law.
2. Mistake of fact.

1. Mistake of law: Mistake of law may be-

A) A mistake as to a law in the country (India) 

or

B) A mistake as to a law of foreign country.

2. Mistake of Fact: Mistake of fact can be divided as bilateral and unilateral mistake.

A) Bilateral Mistake:  According to Section 20 "where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement shall be void".

Various cases that fall under bilateral mistake are as follows:

Mistake as to the subject matter: Mistake as to the subject matter may be ‑ regarding existence of the subject matter, quality of the subject matter, quantity and price of the subject matter.

Mistake as to the possibility of performance: If the parties believe that the agreement is capable of being performed when in fact it is not the case, then the consent is nullified. The agreement is void on the ground of impossibility.

B) Unilateral Mistake: If the mistake is only unilateral, i.e. one party to the contract is under a mistake of fact, the contract is not voidable. Unilateral mistakes do not affect the validity of the contract unless they concern some fundamental fact and the other party is aware of the mistake. 

A unilateral mistake may be:

Mistake as to the nature of the transaction: A contract shall be void if a party to the contract without any fault of his own makes a mistake about the very nature of the contract. It may be because of blindness, illiteracy, or servility of the person signing the contract or due to the trick or fraudulent misrepresentation as to the nature of the document.

Mistake as to identity of the contracting parties: The person or with whom the contract is to be made must be identified correctly by the other party. It is a fundamental mistake on the part of the other party not to recognize the correct person. The principle of the contract holds good only when the identity of the contracting party is given importance.

EFFECTS OF MISTAKE

EFFECTS OF MISTAKE

1. If there is a mistake, the agreement is void. But as the mistake is subsequently discovered it is called discovered to be void.
2. When an agreement is discovered to be void then any party who has received any benefit from the other party shall restore it to him or make compensation for it.

ELEMENTS OF MISTAKE

Elements of Mistake

1. Mistake must be bilateral. Unilateral mistake is no mistake.
2. The mistake must be in relation to some fact.
3. The fact concerned must be essential to the agreement.
4. As regards mistake of law, if there is mistake of about Indian Law then it is not considered as a mistake of fact to an Indian. But a mistake of law of foreign country is a mistake of fact.

MISTAKE

Mistake may be defined under Section 20 of Indian Contract Act, 1872, as "an erroneous belief about something". If the agreement is made under an erroneous belief it cannot be said that the parties enjoyed free consent i.e. both the parties shall understand the same thing in the same sense.

Difference between Misrepresentation and Fraud

The basic difference between misrepresentation and fraud is that in fraud the person making the representation does not himself believe in the truth of the statement he is making whereas in situations of innocent misrepresentation the person making the statement may believe that what he is saying is true. This is due to the fact that the person making the statement is simply repeating what another person has asserted to be true. In cases of fraud, the person making the statement is a complete liar and is making the statement to deceive others to enter into a contract. However this is just the general rule.

Difference between fraud and misinterpretation :-

In misrepresentation the person making the false statement believes it to be true. In fraud the false statement is person who knows that it is false or he does not care to know whether it is true or false.

There is no intention to deceive the other party when there is misrepresentation of fact. The very purpose of the fraud is to deceive the other party to the contract.

Misrepresentation renders the contract voidable at the option of the party whose consent was obtained by misrepresentation. In the case of fraud the contract is voidable It also gives rise to an independent action in tort for damages.

Misrepresentation is not an offence under Indian penal code and hence not punishable. Fraud, In certain cases is a punishable offence under Indian penal code.

Generally, silence is not fraud except where there is a duty to speak or the relations between parties is fiduciary. Under no circumstances can silence be considered as misrepresentation.

The party complaining of misrepresentation can’t avoid the contract if he had the means to discover the truth with ordinary diligence. But in the case of fraud, the party making a false statement cannot say that the other party had the means to discover the truth with ordinary diligence.

ESSENTIALS REQUIREMENTS OF MISREPRESENTATION

1. there should be a representation or assertion ;

2. such representation must relate to a matter of fact which has become untrue ; and

3. It was made before the finalization of transaction with a view to induce the other party to enter into contract.

4. It must actually have been acted upon by the party.

5. It must have been either by the party himself or by his duly authorized agent.

What is Misrepresentation

Misrepresentation

The Word 'Misrepresentation' means a statement of facts made by one party to the other party or at the time contract is made with the regard to some existing facts or some past events which materially induces the formation of the agreement. A wrong representation when made innocently is Misrepresentation.

Example : A intends to sell his horse to B and says, "My horse is perfectly sound". A genuinely believes the horse to be sound, although he does not know that the horse has fallen ill yesterday. B there upon buys the horse. There is misrepresentation on the part of A.

Thus misrepresentation means false representation made innocently with an honest belief as to its truth by a party without any intention to decieve. 

The leading case on this point is :

DERRY V. PEEK (1889)

A company's prospectus contained a representation that the company has been authorised by a special Act of Parliament  to runs trams by steam or mechanical power. The authority to use steam was, in fact, subject to the approval of the board of Trade, but no mention was made of this. The Board refused consent and consequently the company was wound up. The plaintiff having bought some shares, sued the directors for fraud. But they were held not liable.

They were not guilty of fraud as they honestly believed that once the parliament has authorised the use of steam, the consent of the board was practically concluded. It follows, therefore, that the person making a false representation is not guilty of fraud if he honestly believes in its truth.

What Are The Effects of Fraud

What Are The Effects of Fraud

When consent to an agreement is caused by fraud, the agreement is a contract voidable at the option of the party whose consent was so caused.

A party whose consent to an agreement was caused by fraud has two remedies, namely :

• ha may rescind the contract, or
• he may insist that the contract shall be performed and that he shall be put in the position in which have been, if the representation made had been true.

Example : A fraudulently informs B that A's estate is free from encumberance. B thereupon buys the estates. The estate is subject to a mortgage. B may avoid the contract or may insist on its carried out and the mortgage debt repaid by A.

Apart from the above, the person defrauded may obtain rescission, restitution or damages. The aforesaid remedies are subject to an exception. A contract cannot be avoided on the ground of misrepresentation or silence amounting to fraud., if a party to whom an untrue or misleading statement was made had the means of discovering the truth with reasonable diligence. 

Is Mere Silence Is Not Fraud

Is Mere Silence Is Not Fraud

A silence to the contract is under no obligation to disclose the whole truth to the other party. 'CAVEAT EMPTOR' i.e., let the purchaser beware is the rule applicable to contracts.There is no duty to speak is such cases and silence does not amount to fraud. Similarly there is no duty to disclose facts which are within the knowledge of both parties.

Example : H sold to W some pings which to his knowledge suffering from fever. The pings were sold 'with all faults' and H did not disclose the facts of fever to W. Held there was no fraud. [Word v. Hobhs. (1878) 4 AC 13]

ELEMENTS OF FRAUD

Elements of Fraud

1. The fraud must have been committed by a party to the contract or with his connivance or by his agent. fraud by a stranger to contract does not affect its validity.

2. There must be anyone of the above mentioned in last post in act of fraud.

3. The act of fraud must have been committed with the intent to deceive and must actually deceive. A deceit which does not deceive is not fraud. No cause of action arises where there is fraud without damage or damage without fraud. An action lies where these two occur together.

4. The representation must have been aimed at the other party ti contract or his agent or with a view to induce the other party to enter into the contract, Such representation must have been made before the conclusion of the contract.

5. The other party must have suffered a loss.

What is Fraud

Fraud

The term ‘fraud’ includes all acts committed by a person with an intention to deceive another person.

Fraud is the willful representation made by a party to a contract with the intent to deceive the other party or to induce such party to enter into a contract. It means made knowingly or without belief in its truth or recklessly without caring whether is it true or false.

Accordingly to Section 17, fraud means and includes any of the following acts done with intent to deceive or to induce a person to enter into a contract.

1. A False Suggestion as to fact known to be false or not believed to be true. A False statement made recklessly without inquiring whether it is true or false would amount to fraud. But if a statement which turns out to be false is made in the honest beleief that it is true there is no fraud.

Case: - PEEK V. GURNEY (1873)

2. The Active concealment of fact by one having knowledge or belief of fact. If a person conceals a fact which is material to the contract and it is duty to disclose it, it will be a case of fraud. Mere non-disclosure is not a fraud, where there is no duty to disclose. ‘Caveat Emptor’ or ‘Buyer Beware’ is the rule in contracts of sale of goods, but in contracts of absolute faith mere silence about materials facts will be taken as fraud.

3. A promise made without any intention of performing it. The initial intention not to perform the promise that is being made is a necessary element to constitute fraud. Thus, where a person orders and obtains possession of goods with the intention of not paying for them, he commits fraud.

4. Any other act fitted to deceive. The intention to deceive and the fitness of the act for deceit must be present. Thus, where a party, who by false impersonation includes another to enter into a contract with him under the belief that he is somebody that he is somebody else, commits fraud.

5. Any such act or omission as the law specially declares to be fraudulent. It is fraudulent to conceive of any act that attempts to deceive law. Thus, where a contract is based against the policy of insolvency law, or a secret agreement is formed between the insolvent and the party, it is nothing short of a fraud on insolvency law.

DIFFERENCE BETWEEN COERCION AND UNDUE INFLUENCE

DIFFERENCE BETWEEN COERCION AND UNDUE INFLUENCE 

1. Obtaining the consent. In Coercion the consent to an agreement is obtained by committing or threatening to commit an offence forbidden by the India Penal Code. Whereas in Undue Influence the consent is obtained by dominating the will of the other.

2.  Type of force used. In coercion physical force is used to obtain the consent, whereas in Undue Influence mental or moral force is used to obtain the consent of the party. 

3.  Party. Coercion may be used by any other person and may also be used against a stranger to the contract, whereas ordinarily undue influence is exercised by a party to the contract, which is in the dominating position.

4. Presumption. The law does not presume coercion under any circumstances and the party must prove it that his consent was taken under coercion, whereas in undue influence the party in the dominating position shall prove that he has not undue influence otherwise court may presume undue influence.

5.  Nature of liability. Coercion attracts the provision of Indian Penal Code which is criminal liability, whereas under undue influence does not attract any criminal activity.

What is UNDUE INFLUENCE

Sometimes the parties to an agreement are so related to each other that one party is in a position to dominate the will of the other. One party is compelled to enter into an agreement against his will as a result of “Undue Influence” exerted by the other party who is in dominating position.

Undue Influence is moral coercion as opposed to physical coercion mentioned in Section 15. It is the domination of a weak mind by a strong mind to extent which cause the behavior of the weaker person to assume an unnatural character. It is an influence which compels another person to do something which he would not have done if he had been a free agent. A friendly advice or presuation would not constitute undue influence.

Section 16 of the Indian Contract Act provides that, ”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 the position to obtain an unfair advantage over the other.

What is Coercion

Coercion

In simple words, coercion is the threat used by one party against another for compelling him to enter an agreement. Section 15 of the Indian Contract Act defines coercion as the committing or threatening to commit any act forbidden  by Indian Penal Code or an unlawful detaining or threatening to detain, any property of any person with the intention of inducing any person to enter into an agreement. It is immaterial whether the Indian Penal Code is or not in force in the place where the corecion is employed.


Coercion is said to have been employed when a person was forced to enter into a contract by use or under the threat of use of physical force by the other person committing or threatening to commit any act forbidden by Indian Penal Code.


It is important to note the intention o the person using the coercion and against whom it is used.

FREE CONSENT

Free consent of all the parties to a contract is one of the essential element of a valid contract as per requirement of section 10. The parties to a contract should have identity of minds. This is called consensus ad idem in  English Law.

  A contract which s valid in all other respects may still fail because there is no real consent to it by one or both of the parties.

Consent defined

   Two or more person are said to consent when they agree upon the same thing in the same sense. It means that there is no contract if the parties have not agreed upon the same thing in the same sense.

Absence of a contract may arise from a number of causes, namely (1) by reason of an error as to the nature of the contract itself, (2) by reason of an error as to the identity of the party with whom all the cases, there is no contract at all because in the law of contract consensus ad idem is a condition essential to the formation of a contract. 

PERSON DISQUALIFIED FROM CONTRACTING BY ANY OTHER LAW

It refers to statutory disqualification imposed on certain person in respect of their capacity to contract.


1. Alien enemies.
           An alien is competent to contract with citizens of the indian living in India. He can maintain as action on a contract enter onto by him during peace him time. But if a war is declared, an alien enemy cannot enter into a contract with the Indian citizen. Contract entered into before the declaration of war are either stayed or terminated but contract into during the war are unenforceable.


2. Foreign sovereigns and ambassadors.
           These person are immune from the jurisdiction of local courts, unless they voluntarily submit to its jurisdiction. These persons have a right to contract but can claim the privilege of not being sued. The rules regarding suits by or against foreign sovereigns are laid down in section 84 to 87 of Civil Procedure Code.


3. Insolvent.
           An insolvent cannot enter into a contract as his property vests in the official receiver or official assignee. This disqualification of an insolvent is removed after he is discharged.


4. Convict.
           A convict while undergoing imprisonment in incapable of entering into a contract. But this disability comes to an end on the expiry of the sentence.


5. Corporations.
           A Corporation is an artificial person recognised by law. It exists only in the eyes of law. It is competent to enter into a contract only through its agent.


6. Married women.
           A women is competent to enter into a contract. Marriage does not affect the contractual capacity of a women. She can even bind her husband in cases of pressing necessity. A married woman may sue or be sued in her own name in respect of her separate property.


7. Professional persons.
           Doctors and advocates are included in the class. In england barristers are prohibited by the etiquettes of their profession from suing for their fees.


   

PERSON OF UNSOUND MIND

As explained earlier, as per Section 11 of contract Act, for a valid contract each party to the contract must have a sound mind. Contract made by person of unsound mind are void. The reason is that a contract requires assents of two minds but a person of unsound mind has nothing which the law recognize as a mind.


Section 12 deals with the question as to what is a sound mind for the purpose of entering into contract. It lays down that, "A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it he is capable of understanding it and of forming a rational judgement as to its effects upon his interest."


Unsoundness of mind may arise from:
(a) Idiocy. An Idiot is a person with no intervals of saneness. He is in capable. His mental powers of understanding even ordinary matters are absent because of lack of development of brain. The agreement with an idiot is void.
  
(b) Lunacy or Insanity. It is disease of brain. A lunatic loses the use of his reason due to some mental strain or disease. He may have Lucid Intervals of sanity. He can enter into contract during that period when he is of sound mind.


(c) Drunkenness. It produces temporary incapability till the man is under the effect of intoxication creating impotence of mind. He stands on the same footing as a lunatic.


(d) Hypnotism. It also produce temporary incapability till the person is under the impact of artificially induced sleep.


(e) Mental decay. It is on account of old age etc.


So, an agreement with person of unsound mind is void. But under Section 68, the property of such person is always liable for necessaries supplied to him or to anyone whom he is legally bound to support.

RULES REGARDING MINOR'S AGREEMENT

A minor's agreement being void is wholly devoid of all effects. When there is no contract there should be no contractual obligation on either side.


1. An agreement with or by minor is void
            Section 10 of the Indian Contract Act requires that the parties to a contract must be competent and Section 11 says that a minor is not a competent. BUt either section makes it clear whether the contract entered into by a minor is void or voidable. Till 1903, court in india wee not unanimous on this point the privy council made it perfectly clear that a minor is not competent to a contract and that a contract by minor is void ab initio.
    The leading case is:

MOHRI BIBI V. DHARMO DAS GHOSE (1903)

    "A minor borrowed Rs. 20000 from B and as a security for the same executed a mortgage in his favor. He became    a major a few months later and filled a suit for the declaration that the mortgage executed by him during his majority was void and should be cancelled. It was held that a mortgage by a minor was void and B was not entitled to replacement of money.

2. No ratification

            An agreement with the minor is completely void. A minor cannot ratify the agreement even on attaining majority, because a void agreement cannot be ratified. A person who is not competent authorize an act cannot give it validity by ratifying.

   But If on becoming major, minor makes a new a new promise for fresh consideration, then this new promise will be binding.

3. Minor can be a promise or beneficiary

            If a contract is beneficiary to a minor it can be enforced by him. Their is no restriction on a minor from bring a beneficiary, for example, being a payee or a promisee in a contract. Thus a minor is capable of purchasing immovable property and he may sue to recover the possession of the property upon tender of the purchase money. Similarly a minor in whose favor a promissory note has been executed can enforce it.

4. No estoppel against a minor 

            Where a minor by misrepresenting his age has induced the other party enter into a contract with him, he cannot be made liable on the contract. There can be no estoppel against a minor. It means he is not estoppel from pleading his infancy in order to avoid a contract.

5. No Specific performance Except in certain cases

            A minor's contract being absolutely void, there can be no question of the specific performance of such contract. A guardian of a minor cannot bind the minor by an agreement for the purchase of immovable property ; so the minor cannot ask for the specific performance of the contract which the guardian had no power to enter into.

But a contract entered into by guardian or manager on minor's behalf can be specifically enforced if

(a) The contract is within the authority of the guardian or manager.

(b) It is for the benefit of the minor.

(LALCHAND V. NARHAR 89 IC 896)

6. Liability for torts

            A trot is a civil wrong. A minor is liable in tort unless the tort in reality is a breach of contract. Thus, where a minor borrowed a horse for riding only he was held liable when the he lent the horse to one of his friends who jumped and killed the horse.

   But a minor cannot be made liable for a breach of contract by framing the action on tort. you cannot convert a contract into a tort to enable you to sue an infant.

7. No insolvency

            A minor cannot be declared insolvent as he is incapable of contracting debts and dues are payable from the personal properties of minor and he is not personally liable.

8. Partnership

            A minor being incompetent to contract cannot be a partner in a partnership firm, but under Section 30 of the Indian Contract Act , he can be admitted to the benefits of partnership.

9. Minor can be an agent

            A minor can act as an agent. But he will not to be liable to his principal for his acts. A minor can draw, deliver and endorse negotiable instruments without himself being liable.

10. Minor cannot bind parent or guardian

            In the absence of authority, express or implied, an infant is not capable of binding his parent or guardian, even for necessaries. The parents will be held liable only when the child is acting as an agent for parents.

11. Joint contract by minor and adult

            In such a case, the adult will be liable on the contract and not the minor. In Sain Das Vs Ram Chand, where there was a joint purchase by two purchaser, one of them was a minor. It was held that the vendor could enforce the contract against the major purchaser and not the minor.

12. Surety for a minor

            In a contract of guarantee when an adult stands for a minor then he (adult) is liable to third party as there is direct contract between the surety and the third party.

13. Minor as Shareholder

            A minor, being incompetent to contract cannot be a shareholder of the company. If by mistake he become a member, the company can rescind the transaction and remove his name from register. But, a minor may, acting through his lawful guardian become a shareholder by transfer or transmission of fully paid shares to him.

14. Liability for necessaries

            The case of necessaries supplied to a minor or to any other person whom such minor is legally bound to support is governed by section 68 of the Indian Contract Act. A claim for necessaries supplied to a minor is enforceable by law. But a minor not liable for any price that he may promise and never for more than the value of the necessaries. There is no personal liability of the minor, but only his property is liable.


To render minor's estate liable for necessaries two conditions must be satisfied.
(a) The contract must be for the goods reasonably necessary for his support in his station in life.   

(b) The minor must not have already a sufficent  supply of these necessaries.

MINOR

An infant or a minor is a person who is not a major. According to the Indian Majority Act, 1875, a minor is one who has not completed his or her 18th year of age. A person attains majority on completing his 18th year in India.
In the following two cases, a person continues to be a minor until he completes the age 21 years.
(a) Where a guardian of a minor' person or property has appointed under the Guardians and Wards Act, 1890; or
(b) Where the superintendence  of a minor's property is assumed by a court of wards.


An amendment to this ACt was made by Indian Majority (Amendment) Act 2000 which fixed uniform age of majority as 18 years irrespective of the fact whether any guardian has been appointed but president's assent to kid has yet to be obtained.


To deal with the problem the law provides the following two approaches.
(a) In case of contracts relating to ordinary merchantile transactions, the age of majority is to be determined by the law of place where the contract is made.
(b) In case of contracts relating to land, the age of majority is to be determined by the law of the place where the land is situated.


Example: A, 18 years old-domiciled in india, endorsed certain negotiable Instrument in Ceylon, by the law of which he was a minor. Therefore, he was held not to be liable as endorser.

CAPACITY OF PARTIES

For a valid contract, the parties to a contract must have capacity i.e. competence to enter into a contract. Every person is presumed to have capacity to contract but there are certain persons whose age, condition or status renders them incapable of binding themselves by a contract. Incapacity must be proved by the party claiming the benefit of it and until proved the ordinary presumptions remains.


Section 11 of the Contract Act deals with the competency of parties and provides that "every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from disqualified from contracting by any law to which he is subject."


It follow that the following person are incompetent to contract.
(a) minor 
(b) person of unsound mind, and
(c) Person disqualified by any law to which they are subject.
Contract entered into by the persons mentioned above are void.


Every person is competent to contract:
(a) Who is of the age of majority.
(b) Who is of sound mind.
(c) Who is not disqualified from making a contract.


Therefore the following persons are not competent to contract
(a) A person who is a minor.

(b) A person of unsound mind.

(c) A person who is disqualified from making a contract. 

NO CONSIDERATION NO CONTRACT-EXCEPTIONS

Every agreement to be enforceable at law must be supported by valid consideration. An agreement made without consideration is void and is unenforceable except in certain cases. Section 25 specifies the cases where an agreement though made without consideration will be valid. These are as follow:


1. Natural love and affection [Sec. 25(1)]
           An agreement though made without consideration will be valid if it is in writing and registered and is made on account of natural love and affection between parties standing in a near relation to each other. An agreement without consideration will be valid provided-
(a) it is expressed in writing;
(b) it  is registered under the law for the time being in force;
(c) it is made on account of natural love and affection;
(d) it is between parties standing in a near relation to each other.
  All these essentials must be present to enforce an agreement made without consideration.


2. Compensation for services rendered [Sec. 25(2)]
           An agreement made without consideration will be valid if it is a promise to compensate wholly or in a part a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do.To apply this rule, the following essentials must exist:
(a) The act must have been done voluntarily;
(b) for the promisor or it must be something which was the legal obligation of the promiser;
(c) the promisor must be in existence at the time when the act was done;
(d) the promisor must agree now to compensate the promisee.


3. Time-barred debt [Sec. 25(3)]
           A promise to pay a time-barred debt is also enforceable. But the promise must be in writing and be signed by the promisor or his agent authorized in that behalf. The promise may be to pay the whole or part of the debt. An oral promise to pay a time-barred debt is unenforceable


4. Completed gifts [Exp. 1 to Sec. 25]
           Explanation 1 to section 25 provides that the rule 'No consideration, No contract' shall not affect validity of any gifts actually made between the donor and the donee. Thus if a person gives certain properties to another according to the provision of the Transfer of Property Act, he cannot subsequently demand the property back on the ground that there was no consideration.


5. Agency (Sec. 185)
           There is one more exception to the rule. IT is given in section 185 which says that no consideration is needed to create an agency.


6. Guarantee (Sec 127)
           A contract of guarantee is made without consideration.


7. Remission (Sec 63)
           No consideration is required for an agreement to receive less then what is du. This is called remission in the law. 

IMPORTANCE OF CONSIDERATION

Consideration is the foundation of ever contract. The law insists on the existence of consideration if a promise is to be enforced as creating legal obligations. A promise without consideration is null and void. It is called a naked promise or "Nudum Pactum." Thus if A promise to pay B Rs. 1000 without anything in return, this constitute a bare promise and gives no right of action.

Sir William Anson has brought out the importance of consideration thus, "offer and acceptance brings the parties together, and constitute an outward semblance of a contract, but most systems of law requires some further evidence of the intention of the parties and in default of such evidence, refuse to recognize an obligation.' This further evidence of the intention of the parties is supplied by consideration which is one of the element of a valid contract. Section 25 of the Indian contract Act supports this contention and provides that agreement without consideration is void. 

DIFFERENCE BETWEEN INDIAN LAW AND ENGLISH LAW REGARDING CONSIDERATION

1. In India consideration may move from the promisee or any other person. But under English Law the consideration must move from the promiser. In other words, a stranger to consideration can sue in India but not in England.


2. In England, consideration may be present or future. But in India past consideration can be a good consideration and will support a subsequent promise.


3. In England, consideration means something of some value in the eyes of law moving from the promisor. Nature love and affection is not sufficient in the English law to support a contract. In India, natural love and affection is considered to be a good consideration and may support a contract if it is in writing and registered.


4. Under the English law, contracts are divided into formal contracts and simple contracts. A formal contract is one which is in writing, signed, sealed and delivered to the other party. All other contract are simple contracts. Formal contracts do not require any consideration but simple contract must be supported by consideration. No such distinction exists in India. All contracts expect those specified in section 25 and 185 must be supported by consideration.

STRANGER TO CONTRACT

It is general law of contract that a person who is not a party to the contract cannot sue upon it. A stranger to a contract cannot sue in English as well as in India through it may be made for his benefit. This means that unless there is a privity of contract, a party cannot sue on it.
The leading case is:

DUNLOP PNEUMATIC TYRE Co. V. SELFRIDGE & Co.(1915)

   A sold a large quantity of tyres to B at a certain price on entering into a covenant not to sell the tyres below the price mentioned in price list supplied by A. B sold the tyres to C a retail dealer under a contract stipulating the same covenant as between A and B. C sold the tyres at less than the list price. A sued C for breach of contract. It was held that A could not sue C as A was not a party to contract between B and C. 

A stranger to a contract cannot sue expect in the following cases-

1. Trust. In the case of trust, the beneficiary may enforce the contract even though he is stranger to contract creating the trust.

2. Where provision is made in a marriage settlement. Where an agreement is made in a connection with marriage and a provision is made for the benefit of a person he may take advantage of that agreement although he is not party to it.

3. Where provision is made in a partition or family settlement. Such members though not parties to the agreement can sue on the footing of the arrangements.

4. Where a charge is created in favour of a stranger on specific immovable property. A stranger to a contract can sue for the money made payable to him by it where the money is charged on immovable properties.

5. Where the promisor has by his conduct privity of contract with the stranger. Thus, if A admits to C for the money, that he had received money from B for payment to c, he constitute himself as the agent of C, who can successfully recover the amount from A.

6. Where it is conductive to justice.

7. Contract entered into by an agent can be enforced by the principal.

8. Covenants Running with the land. At the time of transfer of immovable property, a notice that the owner of the land is bound due to certain obligations created by a agreement relating to land, the new purchaser will be bound by them though he was not a party to the original covenant. [Tulk vs. Moxhay(1919)]

STRANGER TO CONSIDERATION

Under the Indian Contract Act 1872 consideration for a contract may move from the promisee or any other person i.e. a stranger to the consideration can also enforce the contract. But under the English Law the consideration for the contract must move from the promisee and promisee only, therefore a stranger to consideration cannot enforce it.

    

   So, in India the consideration may move from stranger. This law was established in the case of CHINAYYA Vs. RAMAYYA. 

CHINAYYA Vs. RAMAYYA. 

An old lady Laxhmi Rani gifted her property to her own daughter Ramayya, with the directions to pay a certain sum of money annually to chinayya, her maternal uncle. On the same day Ramayya refused to honour the agreement on the ground that there is no consideration. Chinayya sued for the recovery of the annuity. It was held that there was sufficent consideration i.e. the property given to her by the sister of Chinayya.

ESSENTIALS OF VALID CONSIDERATION

1. Consideration must move at desire of the promiser. An act or abstinence must have been done at the desire of the promisor only. Any act performed at the desire of the third party cannot be valid consideration.


2. From the promisor or any other person. To constitute a valid consideration their must be some consideration, it immaterial who furnished it. Consideration can be furnished by contract but stranger to the consideration can sue, because he is party to that contract, though consideration has been given by some third person.


3. Consideration may be past, present or future. 
 (a)  Past Consideration:-A consideration for the act done in past is a past consideration. Past consideration valid in Indian Contract Act, but it is no consideration in English Law.

 (b) Present Consideration:-When both the parties are ready to move consideration at the same time, it is a present consideration.


 (c) Future Consideration:-When a party promises to or abstain from doing something in future, it is a future consideration.


4. Consideration need not to be adequate. Law only requires the presence of consideration in a valid contract, it adequacy is not required in the Act.


5. consideration must be real. Definition of consideration clearly states "Something in return" is consideration which must be of some value in the eyes of law, though need not be adequate. It should not be uncertain, illusory or impossible.


6. Consideration must be lawful. In valid contract it is necessary that the consideration should be lawful, otherwise it will become void and unenforceable.

CONSIDERATION

Consideration is the foundation of every contract. The law enforces only those promises which are made for consideration. Where one party promises to do something, it must get something in return. This 'something in return' is called consideration. Consideration is the very life-blood of every contract. In the absence of consideration  or undertaking is purely gratutious. However, sacred and binding in honor, it is create no legal obligation.

Definition. Consideration has been defined in many ways.

According to pollock "Consideration is the price for which the promise of some other is brought and the promise thus given for value is enforceable."

It is something which is of some value in the eyes of law.

According to Section 2 (d) of the Indian Contract Act defines consideration as-

(a) when at the desire of the promisor,

(b) the promise or any other person,

(c) has done or abstained from doing, or does or abstain from doing, or promises to do or abstain from doing,

(d) something, such act or abstinence or promise is called a consideration for the promise.

Example:- A agrees to dell his horse to B for Rs. 1000. Here A's promise to sell his horse is for B's consideration to pay Rs. 1000 is A's consideration to sell his horse to B. 

MODES OF REVOCATION OF OFFER (SECTION 6)

1. By notice of revocation.  Offer may be revoked by a communication of a notice of revocation by the offeree to the other party before acceptance is complete against the offeror himself. An offer made in writing may be revoked by words of mouth. The notice of revocation may not always be express. A notice of revocation to be effective must be communicated to the offeree.


2. By lapse of time. A proposal will come to an end by the lapse of time prescribed in such proposal for its acceptance or, if no time is so prescribed by the lapse of time of reasonable time is a question of fact depending upon the circumstances of each case. Where the subject matter of the contract is an article, like gold, the parties of which fluctuate daily in the market, very short period will be regarded as reasonable made late in november.


3. By non-fulfillment of condition precedent. A proposal is revoked when the acceptor fails to fulfill a condition precedent to the acceptance of the proposal which was conditional offer. Thus, X may offer to sell certain goods to Y on a condition that Y pays a certain amount before a certain date.


4. By death or insanity. A proposal is revoked by the death or insanity of the proposer if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.


5. By counter offer. An offer comes to end when the offeree makes a counter offer or rejects the offer. Where an offer is accepted with some modification in the terms of the offer or with some other condition not forming part of the offer, such qualified acceptance amount to a counter offer.


6. By the non-acceptance of the offer according to the prescribed or usual mode. The offer will also stand revoked if it has not been accepted according to the prescribed.


7. By subsequent illegality. An offer lapses if it become illegal after it is made and before it is accepted. Thus, where an offer is made to sell 10 bags of wheat for Rs. 2500 and before it is accepted, a law prohibiting the sale of wheat by private individual is entered, the offer comes to end. 

Effect of silence on acceptance

Generally speaking the person to whom the proposal is made need not reply. His silence cannot be regarded as an acceptance of the proposal. Proposal made to another cannot ripen into an agreement merely because the  offeree   makes no reply even through the proposal states that silence will be taken to amount to acceptance. Thus mental acceptance is no acceptance.


Acceptance of a proposal may be sometime be inferred from silence or inaction.
As a rule silence does not imply acceptance, but in the following cases silence may be indicative of assent to the proposal.

1. Where the offeree having responsibility opportunity to reject the offered goods or services takes the benefits of them, it will amount to acceptance.
2. Where because of previous dealings the offeree has given the proposer reason to understand that the silence was intended by the offeree as a manifestation of assent and the offeror does so understand. 

ESSENTIAL ELEMENTS OF A VALID ACCEPTANCE

1.             Acceptance must be absolute and unconditional. An acceptance must be unconditional and unqualified. Accepting an offer with conditions, variations and reservations amounts to counter offer and rejection of the original offer. The accepter must comply with the terms of the offer. A variations or alteration, however, small of the offer, will make the acceptance invalid.

2.             Acceptance must be communicated to the offeror. If the offeror remains silent and does nothing to show that he has accepted the offer, no contract is formed. The acceptor should do something to signify his intention to accept. Thus, where a person accepts an offer but fails to post the letter of acceptance, it is no acceptance.

3.             Acceptance must be within a reasonable time. Acceptance to be valid must be made within the time allowed by the offeror and if no time is specified, it must be made within a reasonable time.

4.             It must be according to the mode prescribed or usual or reasonable mode. Acceptance has to be made in the manner prescribed, the proper may within a reasonable time after the acceptance is communicated to him, insist that the acceptance must be made in the manner prescribed. Failure on the part of the offeror to do so, will imply that he has accepted the acceptance although it is not in the desired manner.

5.             The acceptor must be aware of the proposal at the time of the offer. Acceptance follows offer. It the acceptor is not aware of the existence of the offer and conveys his acceptance, no contract comes into being.

6.             Acceptance must be given before the offer lapses or before the offer is revoked. It means that acceptance must be made within the offer is in force i.e. before the offer has been revoked or offer has lapsed.

      7.      Acceptance cannot be implied from silence. No contract is formed if the offeree remains silent and does nothing to show that he has accepted the offer

ACCEPTANCE

When the person to whom the proposal is made signifies his assent, it is an acceptance of the proposal. An acceptance proposal is called a promise or an agreement. [Section 2 (B)] An application for the shares in a company is in the nature of offer while the allotment of the shares by the company is an acceptance resulting into a contract.

Example: A offers to sell his horse to B for Rs. 500. B accepts the offer to purchase the horse for Rs. 500. This is acceptance.

Acceptance may be express or implied. When acceptance is made by words, spoken or written, it is an express acceptance. If it is accepted by conduct, it is an implied acceptance. Thus where a person boards a train or bus, he impliedly accepts to pay the usual fare.

Who may accept? An offer can be accepted only by the person to whom the offer is made. It means that the person to whom the offer is made can alone accept it. It cannot be accepted by another person without the consent of the person making it. 

ESSENTIALS OF A VALID OFFER

1.           Offer must be capable of creating legal relations. The offeror must intend the creation of legal relations. He must intend that if his offer is accepted a legally binding agreement shall result. A accepts an invitations to dine at B’s place on a certain date but fails to turn up on the appointed date, A cannot be sued for breach of a contract, because in contracts regulating social or domestic arrangements the presumptions is that parties do not intend legal consequences to follow from breach of contract.

The leading case is Balfour v. Balfour

2.           Offer must be certain, define and not vague. No contract can come into existence if the terms of the offer are vague or loose and indefinite. Both the parties should clear about the contract.

Case: - Taylor v. Portington (1885)

3.           Offer must be communicated to the offeree. There can be no offer by a person to himself. It must always be communicated to the offeree. If the re is no communication of an offer, there is no acceptance resulting in the contract.

4.           Offer must be made with a view to obtaining the assent of the other party.  An offer must be distinguished from mere expression of intention.

Case: - Harris V. Nickerson (1873)

5.           An offer may be conditional. An offer can be made subject to a condition. In that case can be accepted only subject to that condition. A conditional offer lapses when the condition is not accepted.

6.           Offer should not certain a term the non-compliance of which would amount to acceptance. One cannot say while making the offer if the offer is not accepted before a certain date, it will be presumed to have been accepted.

Example: A writes to B, “I offer to sell my house for Rs. 40000. If I do not receive a reply by Monday next, I shall assume that you have accepted the offer.” There will be no contract if B does not reply.

7.           Lapse of an offer. An offer lapse-

(a)     If either offeror or offeree dies before acceptance.

(b)     If it is not accepted within

(i)                     The specific time, or

(ii)                 A reasonable time, if not time is specified

(c)      If the offeree does not make a valid acceptance, for example makes a counter or conditional acceptance or if a particular manner of acceptance has been requested, he accepts in some other manner.

(d)     An offer can also lapse by revocation.

8.           An invitation to offer is not an offer. An offer must be distinguished from an invitation to offer. In the case of an “invitation to offer” the aim is merely to circulate information of readiness to negotiate business with anybody who on such information comes to the person sending it. Such invitations are not offer in the eyes of law and do not become promises on acceptance.