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Contract And E-Contract under English And Indian Laws

The law of contract lays down the legal rules relating to promises:

their formation, their performance, and their enforceability. Explaining the object of the law of contract, Sir William Anson observes:
The law of contract is intended to ensure that what a man has led to expect shall come to pass; that what has been promised to him shall be performed.

Anson also said:
The law of contract does not lay down a number of rights and duties which the law will enforce; it consists of rather a number of limiting principles subject to which the parties may create rights and duties for themselves which the law will uphold.

Thus the law shall not lay down absolute rights and liabilities of the contracting parties; rather it shall lay down only the essentials of a valid contract. The parties to a contract, in a sense, make the law for themselves.

The law of contract in India is contained in the Indian Contract Act, 1872. This Act is based mainly on English Common law consisting of judicial precedents. The Act is not exhaustive as it does not deal with all the branches of the law of contract. There are separate Acts which deal with contracts relating to negotiable instruments, transfer of property, sale of goods, partnership, insurance, etc. Before 1930, the Act also contained provisions relating to contracts of sale of goods and partnership.

The Act (w.e.f. September 1, 1872) does not affect any usage or custom of trade (not inconsistent with the provisions of the Act) (Sec. 1). A minor amendment in Sec. 28 of the Act was made by the Indian Contract (Amendment) Act, 1996. The general principles of the law of contract are laid down under Sec. 1-75 of the Act.

To consummate a contract there must be mutuality as well as a meeting of the minds of parties. Mutuality' means equality of rights between the parties. Either party should've equal right to enforce the contract. For example, where one of the parties to a contract is a minor, there is no mutuality. Further, in a contract there is a consensus ad idem i.e. meeting of minds'. A contract, like a tort, is not unilateral. In a tort, a wrong is committed by one person against the other.

According to Anson:
A contract is a legally binding agreement between two or more persons by which rights are acquired by one or more to acts or forbearances on the part of the other or others.

Salmond said:
It is an agreement creating and defining obligations between the parties.

While, according to Pollock:
Every agreement and promise enforceable at law is contract.

Section 2(h) of the Indian Contract Act, 1872, defines the term contract as an agreement enforceable by law. An agreement is a promise and a promise is an accepted proposal. Thus, every agreement is made up of a proposal or offer from one side and its acceptance by the other (there must be two or more persons; one person cannot enter into an agreement with himself). An agreement is a wider term than a contract. Every contract is an agreement, but every agreement is not a contract (i.e. legally binding agreement).

An agreement becomes a contract when the following conditions are satisfied (Sec. 10):

  1. There is some consideration for it.
  2. The parties are competent to contract.
  3. Their consent is free.
  4. Their object is lawful.
  5. The agreement must not be expressly declared to be void.
  6. The terms of the agreement must not be vague or uncertain (Sec. 29).
  7. The agreement must be capable of performance (Sec. 56).

Salmond has rightly observed:
The law of contract is not the whole law of agreements, nor is it the whole law of obligations. It is the law of those agreements which create obligations, and those obligations, which have their source in agreements.

A contract arises from an agreement, which arises mostly through the process of negotiation between the parties, one making the offer and the other accepting it. A contract may be oral or in writing. But in certain special cases the Act lays down that the agreement, to be valid, must be in writing or/ and registered, viz. an agreement to make a gift must be in writing and registered (Sec. 25).

Intention to Create a Legal Obligation

There is no provision in the Indian Contract Act requiring that an offer or its acceptance should be made with the intention of creating a legal relationship, while under English law it is so. The intention of the parties is to be ascertained from the terms of the agreement and the surrounding circumstances.

In social/ family agreements (viz. agreements between husband and wife, an agreement to entertain a person with a dinner, or to go to movie, etc.) it is usual that the parties do not intend legal consequences, while in business agreements it is usual that the parties intend legal consequences to follow. However, the parties could intend legal consequences in family agreements and likewise do not intend so in business agreements.

Test of contractual intention is objective, not subjective

Merely because the promisor contends that there was no intention to create legal obligations would not exempt him from liability (Carlill v. Carbolic Smoke Ball Co. case). In McGregor v. McGregor (1888) 21 QBD 424, a husband and a wife withdrew their complaints under an agreement by which the husband promised to pay her an allowance and she to refrain from pledging his credit.

Held that there is a binding contract. However, in Balfour v. Balfour (1919) 2 K.B. 571, a couple went to England on leave.

For health reasons the wife was unable to accompany the husband again to Ceylon (Husband's place of work). The husband promised to pay 30 pounds per month to his wife as maintenance, but he failed to pay. The husband was held not liable, as there was no intention to create legal relationship.

In Jones v Padavatton (1969) 2 All ER 616, the daughter acting on her mother's promise left her service and gone to another country for education. The mother undertook to foot the expenses. For five long years the daughter could not complete her education. Differences arose between them and the mother stopped the payments. Held, the engagement did result in a contract, but only for a reasonable period.

Kinds of Contracts:

(A) From the point of view of Enforceability

  1. Valid contract- It is an agreement enforceable by law [Sec. 2(h)]
     
  2. Voidable contract- It is an agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others [Sec. 2(i)]. Until it is avoided or rescinded by the party entitled to do so by exercising his option in that behalf, it is a valid contract; after it is repudiated, it becomes a void contract.
     
  3.  Void contract- A contract which ceases to be enforceable by law becomes void [Sec. 2(j)]. Such a contract is a nullity, as for there has been no contract at all.

    An agreement not enforceable by law is said to be void' [Sec. 2(g)]. Thus a void agreement is void ab initio i.e. no agreement at all from its very inception (e.g. an agreement with a minor or an agreement without consideration). A void agreement' never amounts to a contract; a void contract' is valid when it is entered into, but subsequent something happens which makes it unenforceable by law. A contract cannot be void ab initio. A valid contract becomes void because of supervening impossibility or illegality (Sec. 56) or repudiation of a voidable contract, or when the event in a contingent contract becomes impossible (Sec. 32).
  4. Unenforceable contract- It is one which is valid in itself, but is not capable of being enforced in a court of law because of some technical defect such as absence of writing, registration, etc., or time barred by the law of limitation.
     
  5. Illegal or Unlawful contract- The term illegal contract' is inappropriate as it would mean an agreement enforceable by law and contrary to law. The term illegal agreement' is appropriate. An illegal agreement is narrower in scope than a void agreement. All illegal agreements are void but all void agreements are not necessarily illegal.' For example, an agreement with a minor is void as against him but not illegal.

(B) From the point of view of Mode of Creation

  1. Express contract- Where both the offer and acceptance constituting an agreement are made in words spoken or written, it is an express contract.
     
  2. Implied contract- Where the offer and acceptance are made otherwise than in words i.e. by acts and conduct of the parties, it is an implied contract.

    Sometimes, an offer is expressed in words and the acceptance is implied from acts and circumstances. Such contracts may be called as contracts of mixed character.
     
  3. Constructive or quasi-contract- Such a contract does not arise by virtue of any agreement between the parties but the law infers or recognizes a contract under certain special circumstances. The Contract Act has named such contracts as certain relations resembling those created by contract (Secs. 68-72). An example- liability of a person to whom money is paid under mistake to repay it back.

(C) From the point of view of the Extent of Execution

  1. Executed contract- A contract is said to be executed when both the parties to contract have completely performed their share of obligation and nothing remains to be done by either party under the contract. For example, when a bookseller sells a book on cash payment.

    However, where only one of the parties to a contract has performed his share of obligation and the other party is still to perform his share of obligation, then also the contract is called executed'. Such contracts are called Unilateral contracts. For example, a public advertisement offering a reward to anyone who finds a missing thing/ person.
     
  2. Executory contract- A contract is said to be executory when either both the parties to a contract have still to perform their share of obligation in there remains something to be done under the contract on both sides. Such contracts are called Bilateral contracts or Future contracts. For example, A agrees to coach B, a premedical student, from first day of the next month and B promises to pay A Rs. 500 per month.
     

Basic Elements For Formation Of A Contract

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

[I] Offer (Proposal)

(1) The first essential for creating a contract is a valid offer or proposal (the term offer has been used in English law and the term proposal' under the Indian law).

As per Sec. 2(a), an offer or proposal has the following ingredients:
  1. one person signifies to another,
  2. his willingness to do or abstain from doing anything,
  3. with a view to obtaining the assent of that other.

(2) According to Sec. 3, to signify means that the proposal must be communicated to the other party. Sec. 9 provides that a valid proposal may be made by words (written or spoken) or by conduct. Thus stepping into a taxi and consuming eatables at a restaurant, both create implied promise to pay for the benefits enjoyed. Similarly, a bid at an auction. In Upton Rural District Council v. Powell (1942) I All ER 220, a fire broke out in the defendant's farm. Believing that he was entitled to the free service of Upton Fire Brigade (which he was not), he summoned it. Upton claimed compensation for its services. Held, the services were rendered on an implied promise to pay for them.

(3) Certainty of offer- The terms of the offer must be certain and not vague (Sec. 29). A agrees to sell to B my white horse for Rs. 500 or Rs. 1000. There is nothing to show which of the two prices was to be given, thus it is not a valid offer.

(4) Communication of offer - According to Sec. 4, the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. Acting in ignorance of an offer does not amount to the acceptance of that offer. Thus, knowledge of an offer is must before the offer can be accepted. In Lalman Shukla v. Gauri Dutt (1913) 11 All LJ 489, the defendants by handbills offered to pay Rs. 501 to anyone discovering the lost boy. The servant of defendant came to know of this offer only when he had already traced the missing child and had informed the defendant. His action to recover the reward failed.

The court observed:
Where an offer has been accepted with knowledge of the reward, the fact that the informer was influenced by motives other than the reward will be immaterial.

In Williams v. Carwardine (1833) 2 LJKB 101, where information was given about the murderers of her husband by a woman, not so much for reward, but to assuage her feelings, she was allowed to recover. The court further observed that in the case of public advertisements offering a reward, the performance of the act' raises an inference of acceptance (Sec. 8). But, in the present case, the plaintiff was already under an obligation to do what he did (acting under the servant's duty) and, therefore, the performance of act cannot be regarded as a consideration for the defendant's promise.

In an Australian case, R. V. Clarke (1927) 40 CLR 227, it was held that even if the acceptor had once known of the offer but had completely forgotten about it at the time of acceptance, he would be in no better position than a person who had not heard of the offer at all (e.g. an accomplice giving the information to save himself, completely forgetting the reward).

(5) General offers - There are two kinds of offers - general and specific. The specific offer is made to specific person, while the general offer is made to the public or world at large. However, in case of general offers, the contract is made only with that person who comes forward and performs the conditions of the proposal as such performance amounts to acceptance of performance (Sec. 8).

As stated by Anson:
An offer need not be made to an ascertained person, but no contract can arise until it has been accepted by an ascertained person.

Thus, in Carlill v. Carbolic Smoke Ball Co. (1893) 1 QB 256, the company offered £100 reward to anyone who caught influenza after using their smoke ball according to printed directions. The plaintiff, who used the smoke ball, caught influenza. She was held entitled to recover the promised reward. The court also noted that, in this case as the transaction was advantageous to the Company (for increasing sale), this is enough to constitute consideration for the promise (a requirement of a valid contract).

(6) Cross-offers- When two parties make identical offers to each other, in ignorance of each other's offer, the offers are cross-offers. Such offers do not constitute acceptance of one's offer by the other and as such there is no completed agreement [Tinn v. Hoffman & Co.( 1873) 29 LT 271]. For example, A wrote to B offering to sell him certain goods. On the same day, B wrote to A offering to buy the same goods. The letters crossed in the post. There is no concluded contract between A and B.

(7) Offer and invitation to treat (offer) - An offer is the final expression of willingness by the offeror to be bound by his offer. Where a party, without expressing his final willingness, proposes certain terms on which he is willing to negotiate, he does not make an offer but merely invites the other party to make an offer on those terms.

For example, a book-seller sends catalogue of books indicating price of various books to many persons. This is an invitation to treat. The interested party may make an offer and the book-seller may accept or reject the offer. Similarly, bids/ tenders are only, an invitation to offer.

An auctioneer is not bound to accept even the highest bid (offer). Where an auctioned sale was cancelled, tire plaintiff cannot recover travel expenses, as there was no contract. An offer can be withdrawn before it is accepted.

In McPherson v. Appcma (AIR 1951 SC 184), it was held that mere statement of the lowest price at which the offeror would sell contains no implied contract to sell at that price.

The Supreme Court relied on the principle enunciated in Harvey v Facey (1893) AC 552.

In that case the plantiffs telegraphed to the defendants, writing:
Will you sell us Bumper Hall Pen? Telegraph lowest cash price.

The defendants replied, also by a telegram:
Lowest price for Pen, £ 900.

The plaintiffs immediately sent their last telegram stating:
We agree to buy Pen for £ 900 asked by you.

The defendants, however, refused to sell the plot of land at that price. The court observed that the defendants had made no offer. The plaintiffs' last telegram was an offer to buy, but that was never accepted by the defendants.

In Pharmaceutical Society of G.B. v. Boots Cash Chemists Ltd. (1953) 1 All ER 482, held that the display of goods in a shop with price tags attached is not an offer even if there is a self-service system in the shop. The customer by picking up makes an offer to buy which is subject to acceptance by the shopkeeper. Likewise, an inducement of special discount by a shopkeeper is a commercial puff' or an invitation to treat and not an offer. A banker's catalogue of charges is also not an offer.

[II] Acceptance

A proposal when accepted, results in an agreement. It is only after the acceptance of the proposal that a contract between the two parties can arise. When the person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted [Sec. 2(b)].

There are two essential requirements of a valid acceptance:
  1. acceptance should be communicated by the offeree to the offeror.
  2. acceptance should be absolute and unqualified.

(A) Communication of Acceptance

  1. Acceptance express or implied - Acceptance may be in the form of express words (written or spoken) or may be signified through conduct (implied or tacit viz. cashing of a cheque). In every case, there should be some external manifestation or overt act of acceptance (e.g. fall of hammer in auction sale). A mere mental determination (or intent) to accept is not enough (e.g. keeping agreement in a drawer) [Brogden v Metropolitan Rail Co. (1877) 2 AC 666].
     
  2. When communication not necessary - In all cases of general offers (unilateral contracts), the acceptance is usually by conduct. Sec. 8 provides that performance of the conditions of a proposal is an acceptance of proposal (Carlill v Carbolic Smoke Ball Co.).
     
  3.  Communication to offeror himself - A communication to any other person is no communication in the eyes of law. In Felthouse v Bindley (1863) 7 LT 835, the nephew intended his uncle to have the horse, but had not communicated this to the uncle, instead he told the auctioneer not to sell the horse as it was already sold to his uncle. Held that a communication to a stranger, like the auctioneer in this case, will not do. In this case, also, held that an offeror can't impose upon the offeree the burden of refusal or duty to reply'. The offeror cannot say that if no answer is received within a certain time, the same shall be deemed to have been accepted. Mere silence is no acceptance of offer.
     
  4. Communication by acceptor himself - Information received from an unauthorized person is ineffective as it is like over-hearing from behind the door [Powell v Lee (1908) 24 TLR 606]. In this case, the plaintiff's appointment as a teacher was communicated to him unofficially; later, the managers of school by a resolution cancelled his appointment. The plaintiff sued for breach of contract, but failed.
     
  5. Mode of communication - Sec. 7 provides that acceptance has to be made in the manner prescribed by the proposer (if not prescribed, then in some usual and reasonable manner). Further, a duty is cast on the offeror to reject such acceptance within reasonable time and if he fails to do so, the contract is concluded.
     
  6. When communication of acceptance complete - When the parties are in the presence of each other, the contract is concluded when acceptance is communicated to the proposer. This is the ordinary rule. However, an exception has been engrafted upon this rule by Sec. 4.

    When the parties are at a distance and are contracting through post or by messengers, the proposer become bound as soon as the acceptance is put in the course of transmission to him (e.g. when letter of acceptance is posted by acceptor). But the acceptor will become bound only when the communication of acceptance is received by the proposer i.e. comes to the knowledge of the proposer (Sec. 4). Under both the Indian and English laws, a contract is made at a place where letter of acceptance is posted (rather than where it is posted). Under the English law, however, when a letter of acceptance is posted, both the offeror and acceptor become bound.
When the acceptance is by telephone or telex (i.e. direct/ instantaneous communication), the contract is complete only when the acceptance is received (clearly heard and understood) by the offeror. A contract is deemed to be made at the place where acceptance is received or heard (offeror hears the acceptance at his end, rather than when the acceptor speaks words of acceptance) (Bhagwandas Kedia v. Girdharilal & Co. AIR 1966 SC 543).

The majority view in this case, which is an exception to Sec. 4, is based on the decision in Entores Ltd. v. Miles Far East Corpn. (1955) 2 All ER 493. The court observed: Where the parties are in the presence of each other, say, two persons across a river... one shouts an offer, but do not hear another's reply because of an aircraft noise. There is no contract at that moment... to be a contract, acceptance has to be shouted again and heard by the other. Similarly, in case of a telephonic conversation, if the line goes dead' so that one do not hear other's words of acceptance, there is no contract at that moment. The minority view in this case was that Sec. 4 covers telephonic communication also.

Just as when the lighted match comes into contact with gunpowder, there would be an explosion and then it will not be possible to bring the things back to the original position, similarly, after the offer is accepted it creates a contract whereby both the parties become bound and none of them can go back (Anson). However, an offer may lapse for want of acceptance or be revoked before acceptance. Also the offeree may decide to reject the offer. Once the offer lapses or revoked it is incapable of being converted into a contract by being accepted.

Sec. 4 of the Contract Act lays down that the communication of acceptance is complete as against the proposer, when it is put in the course of transmission to him so as to be out of the power of the acceptor. The proposer or offeror becomes bound immediately on the posting of the letter (correctly addressed) to him and it makes no difference that the letter is delayed in transit or it is even lost in the post and offeror never receives it, or even where the offeror refused to receive it.

This is the position under the Indian as well as English law. The position is advantageous to an acceptor because he is not bound by the letter of acceptance till it reaches the offeror. Thus if the letter is delayed or lost in transit, he is at an advantage. In Bhagwan Das Kedia it was observed that the rule about communication by post makes the position of the offeror miserable as there is no consensus or meeting of minds.

(B) Absolute and Unqualified Acceptance

Sec. 7 provides that in order to convert a proposal into a promise, the acceptance must be absolute and unqualified i.e. without any qualification or condition. For a valid acceptance, there must be an ad idem concurrence of mind i.e. agreeing on the same thing in the same course/ sense and at the same time.
  1. Counter proposals- An acceptance with a variation (e.g. introduction of new terms) is no acceptance: it is simply a counter proposal, which must be accepted by the original promisor before a contract is made. A counter offer implies that the stage of negotiation has not yet passed. A counter offer puts an end to the original offer and it cannot be revived by subsequent acceptance by the acceptor. Thus in Hyde v. Wrench (1840) 3 Beav 334, an offer to sell a farm for £1,000 was rejected by the plaintiff, who offered £950 for it. This was turned down by the offeror and then the plaintiff agreed to pay £1,000. But, the defendant again refused to sell. Held that the plaintiff's offer was a counter proposal and it put an end to the offer previously made by the defendant, thus there was no contract. If he (offeror) repeats the original offer which then is accepted by the offeree, then a contract arises.

    A mere inquiry into the terms of a proposal is not the same thing as a counter proposal. To seek an explanation of the terms is something different from introducing new terms. Further, if an acceptance carries a condition subsequent, it may not have the effect of a counter offer. Thus, where an acceptance said: terms accepted, remit cash down Rs. 25,000 by Feb. 5, otherwise acceptance subject to withdrawal. This was not a counter offer, but an acceptance with a warning.
     
  2. Provisional acceptance- An acceptance made subject to final approval is called provisional acceptance. It does not ordinarily bind either party until the final approval is given. Meanwhile, the offeror is at liberty to cancel his offer unless there is a contrary condition supported by consideration (Union of India v S. Narain Singh AIR 1953 Punj 274).
     
  3. Tenders - A tender is in the same category as a quotation of prices. It is not an offer but an invitation to offer. When a tender is approved it is converted into a standing offer' (an offer which is allowed to remain open for acceptance over a period of time is known as standing, open or continuing offer). A contract arises only when an order is placed on the basis of tender. A standing offer thus can be revoked or withdrawn before the order has been placed.

    Just as the tenderer has the right to revoke his tender as to future orders, so also the acceptor of the tender has a right to refuse to place any order whatsoever. The offer of the tenderer and each successive order of the acceptor of tender together constitutes a series of contracts (Bengal Coal Co. V. Homee Wadia & Co. ILR (1899) 24 Bom 97). In fact, the acceptance of a tender may result into different types of agreements depending upon the terms of the tender notice (Union of India v. Maddala Thathiah AIR 1966 SC 1724).

Revocation

The Contract Act gives both proposer and acceptor the option of revoking their communication, before a completed contract comes into existence. Thus, revocation is an option given to the parties to stop the contract from coming into existence.

(A) Revocation of Proposal

Sec. 6 lays down the circumstances when an offer lapses i.e. modes of revocation. A proposal is revoked under the following circumstances:
  1. Notice of revocation
    Sec. 5 provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against proposer, but not afterwards. As against the proposer, the communication of acceptance is complete when it is put in a course of transmission to him, so as to be out of the power of acceptor (Sec. 4). Thus, for the communication of revocation to be effective, it must reach the acceptor before he mails his acceptance and makes it out of his power. No question of revocation can possibly arise in case of a contract over telephone.

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

    In Henthorn v. Fraser (1892) 2 Ch 27, the court observed that a person who has made an offer must be considered as continuously making it until he has brought to the knowledge of the person to whom it was made that it is withdrawn. Where an offeror gives the offeree (acceptor) an option to accept within a fixed period, he may withdraw it even before the expiry of that period. In Alfred Schonlank v. M. Chetti (1892) 2 Mad LJ 57, the defendant left an offer to sell certain goods at the plaintiff's office allowing him 8 days' time to give his answer.

    On the 4th day, however, the defendant revoked his proposal. The plaintiff accepted it on the 5th day. However, where the agreement to keep the offer open for a certain period of time is for some consideration (even one pound), the offeror cannot cancel it before the expiry of that period.

    Notice of revocation shall be deemed to have been served when it reaches the acceptor's address. In The Brimmes (1974) 3 All ER 88, a notice of revocation was sent by telex and was received by the plaintiff's telex machine during normal business hours, but the plaintiff read the message the next day. He was, however, held bound by the notice when his machine received it.

    Under the Indian law, it is necessary that the communication of revocation should be from the offeror or from his duly authorized agent. However, under the English law, it is enough if the acceptor knows reliably that the offer has been withdrawn. Thus, in Dickinson v. Dodds (1876) 2 Ch D 463, the plaintiff was informed by a third person that the property (about which an offer was made) had already been sold to another. Held that a sale to a third person, which came to the knowledge of the person to whom the offer made was an effectual withdrawal of the offer.
     
  2. Lapse of time
    An offer lapses on the expiry of the time, if any, fixed for acceptance. However it is enough if the acceptor has posted the acceptance before the stipulated time', even if it reaches the offeror after the stipulated date. Where no time for acceptance is prescribed, the offer has to be accepted within a reasonable time. Where the subject matter of the contract is an article, like gold, the price of which rapidly fluctuates in the market, very short period will be regarded as reasonable, but not so in reference to land.
     
  3. By failure to fulfill a condition precedent
    Where the offer is subject to a condition precedent, it lapses if it is accepted without fulfilling the condition (e.g. deposit of earnest money).
     
  4. By death or insanity of offeror
    An offer lapses on the death or insanity of the offeror, provided that the fact comes to the knowledge of the offeree before he makes his acceptance. It means that if such fact has not come to his knowledge while he accepts the offer, it is valid acceptance giving rise to contractual obligations. The Act is silent about the effect of death of the offeree. As an offer can be accepted only by an offeree, where he died before posting the letter of acceptance, the offer lapses.

(B) Revocation of Acceptance

In India, unlike the English law, acceptance is generally revocable. Sec. 5 provides that an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards'. As against the acceptor, the communication is complete when the acceptance comes to the knowledge of offeror i.e. when the letter of acceptance reaches the offeror (Sec. 4). Thus, an acceptor may cancel his acceptance by a speedier mode of communication, which will reach earlier than the acceptance itself.

Illustration- A proposes, by letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post. B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.

Thus, if the letter of acceptance and the letter of revocation reach together, then also the acceptance will be deemed to have been revoked. However, some authors are of the view that in such a case, the formation of contract will depend on the fact that which of the two letters is opened first', if letter of acceptance is opened first, the revocation is not possible, and, if letter of revocation is opened first, revocation is valid. Thus such contracts are called accidental form of contracts'.

[III] Consideration

Consideration constitutes the very foundation of the contract. An agreement not supported by consideration is void (Sec. 25, Contract Act). Consideration is the cause of the promise and its absence would make the promise a gratuitous or bare promise (nudum pactum). The fact that a promise has been made for consideration goes to show that parties contemplated the creation of a legal obligation. Anson said that the offer and acceptance bring the parties together and constitute the outward semblance of a contract; but most systems of law require some further evidence of the intention of the parties, which is provided by consideration and form. It may be noted that consideration is a cardinal necessity of the formation of a contract, but no consideration is necessary for the discharge or modification of a contract.

Blackstone defined consideration as the recompense given by the party contracting to the other. In other words, it is a price of the promise (Pollock). A valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. This is the most commonly accepted definition. Consideration is a return or quid pro quo (something for something), something of value received by the promisee as inducement of the promise.

Section 2(d) of the Indian Contract Act defines consideration as follows:
when at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstain from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

This definition is wider and more comprehensive then is accepted in English courts.

The three ingredients of this definition of consideration are:
  1. that the act or abstinence, which is to be a consideration for the promise, should be done at the desire of the promisor,
  2. that it should be done by promisee or any other person,
  3. that the act or abstinence may have been already executed or is in the process of being done or may still be executory i.e. it is promised to be done.

(A) At the Desire of the Promisor (Promissory Estoppel)

An act shall not be a good consideration for a promise unless it is done at the desire of the promisor. Thus in Durga Prasad v. Baldeo (1880) 3 All 221, the plaintiff built a shopping complex on the order of the Collector. The shops came to be occupied by the defendants who, in consideration of the plaintiff having expended money in the construction, promised to pay him commission on articles sold by them. The plaintiff's action to recover the commission was rejected on the ground that plaintiff's act was the result not of the promise but of the Collector's order.

In Kedar Nath v. Gorie Mohd. (1886) ILR 14 Cal 64, on the faith of the promised subscription the plaintiff entered into a contract with a contractor for the purpose of building a town hall. Held that the plaintiff's act in entering into contract with the contractor was done at the desire of the defendant (the promisor) so as to constitute consideration.

In Doraswamy Iyer v. A. Ayyar (AIR 1936 Mad 135), the temple repairs were already in progress when the subscription were invited. Held that the action was not induced by the promise to subscribe but was rather independent of it. Thus, the subscriber (defendant) who had promised to pay but had later refused was not held liable. A mere promise to subscribe to a charitable institution cannot be sued upon if nothing has been done in furtherance of the fund raised.

(B) Promisee or Any Other Person

A promise is enforceable if there is some consideration for it and it is quite immaterial that it moves from the promisee or any other person. This is sometimes called as Doctrine of Constructive Consideration. Under English law, however, there is a privity of consideration i.e. consideration must move from the promisee and promisor only, a stranger or third person cannot furnish consideration [Tweedle v. Atkinson (1861) 1 All ER 762],

In Chinnaya v. Ramaya (1882) 4 Mad 137, A, a landlord, executed a gift deed of certain lands in favour of his son B, with a direction that he should pay to his uncle C an annuity of Rs. 8,000 for a period of three years. On the same day, B also executed a separate undertaking in favour of C agreeing to pay the annuity. B subsequently refused to keep his promise. C sued B to recover the amount due under the agreement.

Held that the consideration (gift of lands) furnished by A is enough to enforce the agreement between B and C. If there was no agreement between B and C, though B agreed with A to pay annuity to C, then the case falls under privity of contract': a stranger or third person cannot sue upon a contract between the two parties unless the contract benefits a third person (by way of trust, charge or under a family arrangement). Thus, C will succeed in this situation also.

In Dutton v. Poole (a 1677 case), a person intended to sell a wood in order to provide his daughter a marriage portion. His son (defendant) promised that if he (father) abstains from selling he would pay the daughter £1,000. The father accordingly forbore but the defendant did not pay. The daughter and her husband (plaintiffs) sued the defendants for the same. Held that ...as the consideration moved indirectly from the plaintiff to the defendant and the action of defendant operated to shut out the plaintiff from a certain benefit, the plaintiff can sue. It is a legal common place that if a promise causes some loss to the promisee, that is sufficient consideration for the promise.

Privity of Contract

The doctrine of privity of contract means that a contract is a contract between the parties only and no third party (i.e. stranger to contract) can sue upon it even if it is avowedly made for his benefit.

Similarly, the third person is not bound by the contract as there is no mutuality (doctrine of mutuality).

The doctrine is rooted in the English common law especially in the famous case of Tweddle \ Atkinson (1861) 123 ER 762, and Dunlop Pneumatic Tyre Co. Ltd. v Selfridge & Co. (1915) A.C. 847. In the latter case, the plaintiff (Dunlop Co.) sold goods to one Dew & Co. and secured an agreement from them not to sell goods below the list price and if they sold goods to another trader they would obtain from him a similar undertaking to maintain the price list. Dew & Co. sold goods to the defendants (Selfridge & Co.) who agreed not to sell goods at less than list price. On their not doing so, the plaintiffs sued them for the breach of contract, but failed as there was no privity of contract between them and the plaintiffs.

The rule of privity of contract has been generally criticized. One of the criticism is that the general rule that no third person can sue is only a rule of procedure. It goes to the form of remedy, not to the underlying right. Indian law expressly negatives the English doctrine of privity of consideration'. However, there is no provision in the Indian Contract Act either for or against the rule of privity of contract'. But the common law doctrine of privity of contract is generally applicable in India.

The authority for the application of the rule in India is the decision of the Privy Council in Jamna Das v. Ram Avtar (1911) 30 I.A.7. In that case, A had mortgaged some property to X. A then sold this property to B, B having agreed with A to pay off the mortgaged debt to X. X brought an action against B to recover, but failed as there was no contract between X and B.

Similarly, in Subbu Chetti v. Arunachalam Chettiar (AIR 1930 Mad 382), held that where all that appears is that a person transfers property to another and stipulates for the payment of money to a third person, a suit to enforce that stipulation by the third party will not lie.

The Supreme Court of India has approved the rule of privity of contract in M.C.Chacko v. State Bank of Travancore (AIR 1970 SC 504). In this case, the creditor bank was not allowed to recover its debt from the debtor bank; the former sought to rely on an agreement between the debtor bank's manager and his family members.

Exceptions to Privity Rule

In the course of time, the courts have introduced a number of exceptions in which the rule of privity of contract does not prevent a person from enforcing a contract, which has been made for his benefit but without his being a party to it (Beswick v Beswick (1966) 3 ALL ER 1).
  1. Trust or Charge - A trust is the property held and managed by one or more persons for another's benefit (Chinnaya case).
    A person in whose favour a charge or other interest in some specific property has been created may enforce it. In Khwaja Muhammad Khan v. Hussaini Begum (1910) 37 IA 152, there was an agreement between the lady's father-in-law and her father that in consideration of her marriage with his son, he would pay to her Rs. 500 per month in perpetuity for the betel-leaf expenses. Some immovable property was specifically charged for the above purpose. A suit by the wife (not a party to the agreement) for the recovery of arrears of annuity was upheld.
     
  2. Marriage settlement. Partition or other Family arrangements - Where a girl's father entered into an agreement for her marriage with the defendant, it was held that the girl could sue the defendant for damages for the breach of the promise of marriage even though she was not a party to the agreement (Rose v. Joseph AIR 1925 Bom 97). Agreement between two brothers to maintain their mother has been upheld.
     
  3. Acknowledgement or Estoppel - Whereby the terms of a contract a party is required to make a payment to a third person and he acknowledges it to that third person (viz. while making a part-payment), a binding obligation is thereby incurred towards him. Acknowledgement can be express or implied.
     
  4. Covenants running with land - A person who purchases a land with notice that the owner of the land is bound by certain duties created by an agreement or covenant affecting the land, shall be bound by them although he was not a party to the agreement [Tulk v. Moxhay (1919)].

(C) Has Done or Abstained from Doing

Under Sec.2 (d), consideration is an act, which has already been done at the desire of the promisor (past consideration), or is in progress (executed or present consideration i.e. consideration is provided simultaneously with the making of the contract) or is promised to be done in future (executory or future consideration i.e. a simple exchange of promises). Thus consideration may consist of a past, present or a future act.

Past Consideration
If the act has been done before any promise is made, it is called past consideration. It means that the consideration for any promise was given earlier and the promise is made thereafter. Under English law, a past consideration is no consideration; the consideration and the promise ought to go together. However, a past act done at request will be good consideration for a subsequent promise. Further, a promise to pay time-barred debt and a negotiable instrument issued for a past consideration are both valid.

In India, Sec. 25 (2) adequately covers a past voluntary service i.e. a service rendered without any request or promise and there is a subsequent promise to pay for the same. Thus, where A finds B's purse and gives it to him and B promises to give A Rs. 50, this is a contract. Similarly, where A supports B's infant son and B promises to pay A's expenses in so doing, this is a contract.

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

Consideration Must be Real and Not Illusory
Where consideration is physically impossible, illegal, uncertain or illusory, it is not real. English common law has always insisted that Consideration must be of some value in the eyes of the law. Thus where A promises to give his new car to B, provided B will fetch it from the garage, or where a promise made by the father in consideration that his son would not bore him, there is no legal consideration. The position is the same in India.

Consideration Need Not be Adequate

Explanation 2 to Sec. 25 lays down that an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate. Thus, if A agrees to sell a horse worth Rs. 1,000 for Rs. 10 and A's consent to the agreement was freely given, the agreement is a contract notwithstanding the inadequacy of the consideration.

In De La Bere v. Pearson (1908) 1 KB 280, the defendants, the newspaper proprietors, offered to answer inquiries from readers of the paper desiring financial advice. The plaintiff wrote to them asking for a safe investment and also for the name of a good stockbroker. The editor, unknowingly, recommended a person who was an undischarged bankrupt.

The plaintiff's sums were misappropriated by that person. The question was whether there was sufficient consideration for the offer of the advice. Held that such publication has a tendency to increase the sale of the defendant's paper; this offer, when accepted, resulted in a contract for good consideration. Explanation 2 to Sec. 25 further lays down that inadequacy of consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given. For inadequacy of consideration, may in circumstances suggest fraud, coercion, mistake, etc.

Abstinence, etc.
Forbearance to sue (or compromise of a pending suit) has always been regarded as valuable consideration. It is a kind of abstinence. Thus, in Kastoori Devi v. Chiranji Lai (AIR 1960 All 446), the withdrawal of a pending suit by a wife against her husband was held to be a good consideration for his promise to pay her maintenance.

Performance of Existing Duties

  1. Performance of legal obligation - In order to constitute proper consideration there should be a promise to do something more than what a person is already bound to do. Doing of something, which a person is already legally bound to do, is no consideration. For instance, where a person having received summons to give evidence in a case; a promise to pay to such person for appearing in case is no consideration (Collins v. Godefroy). Similarly, a promise to pay a sum of money to a police officer for investigating into a crime will be without consideration. However, where the police authority provides a special form of protection outside the scope of their public duty (e.g. performing an extraordinary act) they may demand payment of it.
     
  2. Performance of contractual obligations
    (a) Pre-existing contract with promisor- If A is already bound to perform a particular contractual duty owed to B, B's promise to pay something additional for the same promise is no consideration. Likewise, a promise to pay a special reward to a pleader (apart from usual fee) if the suit decided in the promisor's favour, does not constitute consideration. Similarly, held in Lalman Shukla's case.

    On the same principle, a promise to pay less than what is due under a contract cannot be regarded as a consideration (Pinnel's case, 1602). However, there are certain exceptions to the Pinnel's rule. Thus, part-payment by a third party may be good consideration for the discharge of the whole debt. In India, the promisee may accept in satisfaction of the whole debt an amount smaller than that. No consideration is needed for such a promise (Sec. 63, Contract Act).

    (b) Pre-existing contract with third party - Where a person has contracted to do an act, and a third person promises to pay him a sum of money if he would go ahead with the performance, is there a consideration for the promise? In Shadwell v. Shadwell (1860) 9CB (NS) 159, the plaintiff A had already promised to marry one Miss Nicholl. A's uncle sent him a letter: I am glad to hear of your intended marriage with Nicholl; and as I promised to assist you at starting, I will pay to you £150 yearly during my life ...

    Thereafter, A married Nicholl. The majority judgment was that there is a sufficient consideration for the promise. The promise of the annuity might've intended as an inducement to the marriage.

In Scotson v. Pegg (1861) 30 LJ Ex 225, it has been held that there is a possibility that A may make a promise to do something in favour of B and then A may make another promise to do the same thing in favour of C. A can enforce the agreement against C. But, if a person contracts with another to do a certain thing, he cannot make the performance of it a consideration for a new promise to the same individual.

The position in India is also the same. In Gopal Co. Ltd. v. Hazarilal Co. (AIR 1963 M.R 37), held that the second agreement brings into existence a new contract between different parties and therefore a promise to do a thing, which the promisee is already bound to do, under a contract with a third party can be good consideration to support a contract. Thus, where A contracts with B to build a fence between their premises; C, a neighbour, also interested in the idea of fence, promises B that if he will carry out his contract with A, he will pay him Rs. 1,000. B can recover Rs. 1,000 from C.


Exceptions to Consideration

According to English law, contracts are of two kinds - simple contracts and contracts under seal, or in the form of a deed. There, consideration is required only as regards simple contracts. A contract under seal (formal or real i.e. which is in writing and which is signed, sealed and delivered) is enforceable without consideration.

Indian law, however, does not recognize any such exception. But Sec. 25 of the Contract Act lays down a few exceptions, when an agreement made without consideration is not void. It may be noted that even in the case of negotiable instruments, where the consideration is presumed under Sec. 118, they would be void if it is proved that no consideration has passed between the parties.

Explanation 1 makes it clear that Sec. 25 does not apply to the cases of gifts. A gift (which is not an agreement) does not require consideration in order to be valid. There need not be natural love and affection or nearness of relationship between the donor and donee. The gift must, however, be complete' i.e. it has been delivered; a promise of gift, being without consideration, is void.

Explanation 2 makes it clear that the consideration must have some value in the eyes of law, even though it need not be adequate.

Exception I. Natural Love and Affection
A written and registered agreement based on natural love and affection between near relatives is enforceable without consideration. The expression near relative' will include parties related by blood or marriage.

In Rajluck Dabee v. Bhootnath Mookerjee (1900) 4 Cal WN 488, held that near relation between the two parties does not necessarily imply natural love and affection between them. In this case, the defendant promised to pay his wife a fixed sum of money every month for her separate residence and maintenance. The court could find no trace of love and affection between the parties. The agreement was held to be void for lack of consideration.

Exception 2. Past Voluntary Service
A promise to compensate a person, who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do, is enforceable. However, such service should have been rendered voluntarily and without promisor's knowledge, and for the promisor only. This implies that the act must have been done for a person who is in existence at the time of the doing of the act. In Karan Chand v. Basant Kaur (1911) PR 31, a promise made after attaining majority to pay for goods supplied to the promisor during minority was held to be within the exception.

It may be noted that as per the exception the promise must be to compensate a person who has himself done something for the promisor and not to a person who has done nothing for the promisor. An illustration- A and B are friends. B treats A during A's illness. B does not accept payment from A for the treatment and A promises B's son, C, to pay him Rs. 1,000. Here, C, to whom the promise was made, did nothing for A, so A's promise is not enforceable.

Exception 3. Time-barred Debt
A promise to pay a time-barred debt is enforceable. The promise referred to in Sec. 25 (3) must be express. Thus a debtor's letter to his creditor to come and receive what was due to him, was held to disclose no express promise. Where a tenant in a letter to the landlord referred to the arrears of time barred rent and said: I shall send by the end of Vysakli month, it was held that the document satisfies the requirements of Sec. 25 (3). The Bombay High Court has held that a statement in the balance sheet of a firm signed by a partner showing that the lien was indebted to the plaintiff in respect of the stated sum became an implied promise to pay

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

[IV] Capacity to Contract

Section 10 of the Contract Act requires that the parties must be competent to contract.

Sec. 11 defines who are competent to contract:
Every person is competent to contract who is the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.

Thus minors, persons of unsound mind and persons disqualified by law are incompetent to contract. The age of the majority is 18, but where a guardian is appointed it is 21. However, by an amendment in 1999 to the Indian Majority Act, 1875, the age of majority is fixed as 18 years for every person (irrespective of the fact of appointment of a guardian).

Nature of Minor's Agreement
Neither Sec. 10 nor Sec. 11 makes it clear whether, if a minor enters into an agreement, it would be voidable at his option or altogether void. However, after the decision in Mohoribibi case, it is now well settled that a minor's agreement is absolutely void. A minor cannot make a promise enforceable in law (Raj Rani case). The specific performance of a contract (actual carrying out of the contract as agreed) is not possible in the case of an agreement by a minor.

Law acts as the guardian of minors and protect their rights, because their mental faculties are not mature.

It is important to note that the parents or guardian of a minor can contract on behalf of the minor. If the contract is within the competence of the guardian and it is for the benefit of the minor it is specifically enforceable. The minor will be bound with such contract and could obtain specific performance of the contract.

Effects of Minor's Agreement

A minor's agreement being void, ordinarily it should be wholly devoid of all effects (except where the contract is for the benefit of minor). As there is no contract, all the effects of a minor's agreement must be worked out independently of any contract.
  1. No Estoppel against Minor
    When a minor misrepresents at the time of the contract that he is a major, the question arises- does the law of estoppel apply against him, so as to prevent him from alleging that he was a minor when the contract was made? It is now well settled that there is no such estoppel against the minor even if he has acted fraudulently. There can be no estoppel against a statute. The policy of the law of contract is to protect persons below the age from contractual liability and naturally the doctrine of estoppel cannot be used to defeat that policy.

    In Khan Gul v. Lakha Singh (AIR 1928 Lah 609), held that the law of estoppel, which is the rule of evidence, is a general law and this has to be read subject to the special law contained in the Indian Contract Act.

  2. No Liability in Contract or in Tort arising out of Contract
    The minor will not be liable for a tort arising out of contract, for the reason that such liability is an indirect way of enforcing his agreement. But where the tort is independent of the contract the mere fact that a contract is also involved, will not absolve the minor from liability.

    Thus where an infant borrowed a mare for riding only, he was held liable when he lent her to one of his friends who jumped and killed her [Barnard v. Haggis (1863) 4 C BNS 45]. Here the defendant was liable on the ground that the act resulting in injury to the mare was quite outside the contract. In Jennings v. Rundall (1799) 8 TR 335, on the other hand, where an infant had hired a horse to be ridden for a short journey and took it on a much longer journey, with the result that it was injured, the court held him not liable on the ground that the action was founded in contract.
  3. Doctrine of Restitution
    The proposition that the lack of capacity goes to the root of the contract and invalidates it completely is subject to the equitable doctrine of restitution and the beneficial contracts in the case of a minor.

English Law: If the minor has unjustly enriched himself, equity demands that such property or goods be restored. The English courts developed the equitable doctrine of restitution' to deal with the matter. In Leslie (R) Ltd. v. Sheill (1914) 3 KB 607, the court laid down the three main propositions of this doctrine:
  1. If an infant obtains property or goods by misrepresenting his age, he can be compelled to restore it, but only so long as the same is traceable in his possession.
  2. Where the infant has sold the goods or converted them, he cannot be made to repay the value of goods, because that would amount to enforcing a void contract.
  3. The doctrine of restitution is not applied where the infant has obtained cash instead of goods, for restitution stopped where repayment began'.

Indian Law: The English doctrine of restitution is contained in the Indian law, though with some modifications:

(a) Mohoribibi v. Dharmodas Ghose (1903) 30 Cal 539- In this case, a minor executed a mortgage for Rs. 20,000 and received Rs. 8,000 from the mortgagee. The mortgagee filed a suit for the recovery of his mortgage money and for the sale of property in case of default.

The Privy Council held that an agreement by a minor was absolutely void as against him, thus the mortgagee could not recover the mortgage money nor could he have the minor's property sold under his mortgage. The court observed that Secs. 64 and 65 of the Contract Act (Restoration of benefits received under a voidable or void contract') starts from the basis of there being a contract between competent parties, while in a minor's case there never was and never could've been any contract.

(b) Khan Gul v Lakh a Singh (AIR 1928 Lah 609)- In this case, the court observed that the doctrine of restitution would not be of any help unless it was extended in India to cover money cases also. The learned Chief Justice, Sir Shadilal, found sufficient reason for the extension as he said:

While in India all contracts made by infants are void, there is no such general rule in England. There should therefore be a greater scope in India than in England for the application of the doctrine of restitution. The doctrine rests upon the salutary principle that an infant cannot be allowed by a court of equity to take advantage of his own fraud.

(c) Sec. 33, The Specific Relief Act, 1963 clears the position- The Law Commission of India preferred the view enunciated in Khan Gui case and accordingly the controversy has now been set at rest by the new Specific Relief Act, 1963.

The principle of restitution is contained in Sec. 33 of the new Act:

  1. Where a void or voidable contract has been cancelled at the instance of a party thereto (i.e. minor goes to the court as plaintiff for cancellation of contract), the court may require him to restore such benefits as he has received under the contract and to make any compensation to the other party which justice may require.
     
  2. Where the minor is defendant in a case and he resists the enforcement of the suit on the ground that he is incompetent to contract, the court may ask him to restore such benefits to the other party, to the extent he or his estate has benefited thereby (Clause b).
The object of sub-sec. (1) is to restore the parties to their original position, as far as possible. But the court will not compel any restitution by a minor even if he is a plaintiff, where the other party was aware of the infancy so that he was not deceived, or where the other party has been unscrupulous in his dealings with the minor, or where, though the minor has misrepresented his age, the other party was so zealous to enter into the transaction that the false representation exerted no influence on him.

Through sub-sec. (2) the parties are tried to be put to the pre-contract position. Moreover, compensation in terms of money (excluding interest) is also permitted. A minor (as a defendant) can be compelled to account for such portion of money or anything else received by him as has gone to benefit him personally, such as education or training, or has resulted in an accretion to his estate (viz. buying the assets, or deposit in bank account). The phrase estate has benefited' means some permanent benefit as opposed to a transient one (viz. entertainment, eating, gifts to friends, etc.). Thus money spent by the minor on watching a film cannot be said to benefit his estate.

Beneficial Contracts

The meaning of the proposition that an infant is incompetent to contract or that his contract is void is that the law will not enforce any contractual obligation of an infant. The decision in Mohoribibi case is confined to cases where a minor is charged with obligations and the other contracting party seeks to enforce those obligations against him. Accordingly, a minor is allowed to enforce a contract, which is of some benefit to him and under which he is required to bear no obligation. A minor will have the option of retiring from a beneficial contract on attaining majority.

The following are the instances of contracts beneficial to a minor:

  1. If a minor has advanced mortgage money and there is a mortgage in his favour, he can sue for enforcement of the contract.
     
  2. Similarly, a minor can sue on a Promissory Note executed in his favour.
     
  3. A contract for the marriage of a minor is also prima facie for his or her benefit. While the contract of marriage could be enforced against the other contracting party at the instance of the minor, it cannot be enforced against the minor.
     
  4. A minor can also be supplied with necessaries suited to his condition in life (e.g. food, lodging, education) and the supplier of such necessaries is entitled to be reimbursed from the property of the minor.
  5. A lease to a minor is void.
     
  6. Trade contracts are not included in beneficial contracts. Thus when a minor, while carrying on business, enters into a trade contract such contract, will not be binding on him.
     
  7. A minor is bound by the contract of apprenticeship under the Indian Apprenticeship Act, 1850. Under English law, infant is bound by the contract of apprenticeship as well as contract of service because such contracts are beneficial to him and help him in earning his livelihood. Unlike English law, contracts of service entered into by a minor are void in India.
In Raj Rani v Prem Adib (AIR 1949 Bom 215), the father of Raj Rani, who was a minor, entered into a contract on her behalf with Prem Adib, a film producer. According to the contract, Raj Rani was to act as a film actress on payment of a certain amount. Raj Rani was not given any work. She sued the producer for the breach of contract. The Bombay High Court held that neither she nor her father could have sued on the promise. If it was a contract with the plaintiff, she being a minor, it was a nullity. If it was a contract with her father it was void for being without consideration.

A minor cannot be a partner in a partnership firm, but under Sec. 30 of the Indian Partnership Act, he can be admitted to the benefits of partnership'. The minor shall not share losses except when liability to third parties has arisen but then too upto his share in the partnership assets; he cannot be made personally liable. Where a minor and an adult jointly enter into an agreement with another person, the minor has no liability but the contract as a whole can be enforced against the adult [Jamna Bai v. Vasanta Rao (1916) 39 Mad 409 (PC)].

A minor can be an agent, but the liability will be of the principal. A minor cannot be adjudicated an insolvent, for, he is incapable of contracting debts. It may be noted that the parents of a minor are not liable for agreements made by a minor, whether the agreement is for the purchase of necessaries or not. The parents can be held liable only when the minor is contracting as an agent for the parents.

Ratification of the Minor's Agreement

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

In Suraj Narain v. Sukhu Aheer (AIR 1928 All 440), a person borrowed some money during his minority and then made a fresh promise, after attaining majority, to pay that sum plus interest thereon. Held that the consideration received by a person during his minority cannot be called consideration within the meaning of Sec. 2(d), and there is no question of that consideration being considered valid for a fresh promise. A person can always make a fresh promise after attaining majority in terms of the promise made during minority. All that is necessary is that there should be some fresh consideration for it.

Persons of Unsound Mind

According to Sec. 12:
  • 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 judgment as to its effect upon his interests.
  • A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
  • A person, who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

Illustrations:
  1. A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.
  2. A sane man, who is delirious from fever, or who is so drunk that he cannot understand the terms of a contract, or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts.
Under English law, a person of unsound mind is competent to contract, although he may avoid his contract if he satisfies the court that he was incapable of understanding the contract and the other party knew it. The contract is voidable at his option.

An agreement by a person of unsound mind is absolutely void as against him but he can derive benefit under it. Further, the property of an insane person is always liable for necessaries supplied to him or to any one whom he is legally bound to support.

Disqualified Persons

The third type of incompetent persons, as per Sec. 11, are those who are disqualified from contracting by any law to which they are subject. Thus alien enemies, foreign sovereigns and ambassadors, convicts, married women (with respect to their husband's properties), insolvents in certain cases, and joint-stock companies and corporations incorporated under a special Act (like L.I.C., U.T.I.) are disqualified persons.

E- contract

Under the provisions of the Information Technology Act, 2000 particularly Section 10-A, an electronic contract is valid and enforceable.
The only essential requirement to validate an electronic contract is compliance with the necessary pre-requisites provided under the Indian Contract Act, 1872.
Also, the courts in India give due regard to electronic contracts under the provisions of the Indian Evidence Act, 1872.

The provisions of the Information Technology Act, 2000 (IT Act) give legal recognition to an electronic (E -Contract) particularly section 10-A of the IT Act which states:
Section 10-A:
Validity of contracts formed through electronic means. Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.

The above provision was introduced by the Information Technology (Amendment Act), 2008 after recognizing the growing dependence on electronic means to reach commercial agreements. This applies where contract formation, communication of the proposal and acceptance is carried out electronically.

How E - Contracts Can Be Entered Into:

E-Contracts can be entered into through modes of communication such as e-mail, internet and fax. The only essential requirement to validate an E-Contract is compliance with the necessary pre- requisites provided under the Indian Contract Act, 1872.

Which are:
  • Offer and Unconditional Acceptance - Which may be made online or by e-mail communication.
  • Lawful Purpose and Consideration - A contract is enforceable by law only when it is made for a lawful purpose and for some consideration. It must not defeat any provision of law and must not be fraudulent in nature.
  • Capacity of Parties and Free Consent - Parties to a contract are capable of entering into a contract, if they satisfy the requirements of Section 11 and 12 of the Indian Contract Act, 1872 (capacity to contract), and consent of the parties must be free as per Section 13 of the Indian Contract Act, 1872.

The simplicity of the execution of an E-Contract being confounding, many sometimes wonder about its validity, especially when compared to a traditional written contract. The simple truth lies in the fact that the Indian Contract Act, 1872 has not specifically laid out any specific way of communicating an offer and what constitute its acceptance.

The same can be achieved verbally, in writing or even through conduct. This shows that even in its simplicity, an E-Contract is as valid as a traditional written contract; the only condition/ requirement being that an E-Contract should possess all the essentials of a valid contract as mentioned above.

Unless an inference can be drawn from the facts, that the parties intend to be bound only when a formal agreement has been executed, the validity of an agreement would not be affected by its lack of formality. Hence, once the parties are at consensus-ad-idem, then the formal execution of the contract is secondary.

Therefore, once an offer is accepted through modes of communication such as e-mail, internet and fax then a valid contract is formed unless otherwise specifically provided by law in force in India; such as the Registration Act, 1908, the various Stamp Acts etc.

Also, Section 1(4) of the IT Act lists out the instruments to which the IT Act, does not apply, which are as follows:
  1. Negotiable Instruments;
  2. Powers of Attorney;
  3. Trust deeds;
  4. Wills;
  5. Contracts for Sale or Transfer of Immovable Property

Evidentiary Value of Electronic Records:

The courts in India recognize electronic documents under Section 65-A of Indian Evidence Act, 1872. The procedure for furnishing electronic documents as evidence is provided under Section 65-B of the Indian Evidence Act, 1872.

As per Section 65-B of the Indian Evidence Act, 1872 any information contained in an electronic record produced by a computer in printed, stored or copied form shall be deemed to be a document and it can be admissible as evidence in any proceeding without further proof of the original. But, admissibility of the same is subject to various conditions prescribed under section 65-B of the said act. It is required that the document or e-mail sought to be produced from a computer, was in regular use by a person having lawful control over the system at the time of producing it; the document or the email was stored or received during the ordinary course of activities; the information was fed into the system on a regular basis; the output computer was in a proper operating condition and has not affected the accuracy of the data entered.

Validity of E-Contracts:

  1. With the e-commerce boom and the growing trend of commercial transactions being concluded by way of internet, execution of contracts by electronic means has become quite prevalent.
     
  2. Like an ordinary paper contract, an electronic contract (or e-contract) is also primarily governed by the codified provisions of Indian Contract Act, 1872 (ICA), as applicable to contracts in general. Therefore, an electronic contract also cannot be validly executed unless it satisfies all the essentials of a valid contract, such as:
    1. Offer and Acceptance;
    2. Lawful consideration;
    3. Lawful object;
    4. Free consent;
    5. Parties to be competent to contract;
    6. Intention of parties to create legal relationship;
    7. Certainty and possibility of performance;
    8. Not be expressly declared to be void; and
    9. Compliance with formalities under different laws governing the agreement.


    All other statutes applicable to an electronic contract are to be read in conjunction, and not in substitution, with the ICA. Therefore, in this context, if an electronic contract has been formed over a series of electronic communications where the essential elements of the contract (such as offer, acceptance, consideration etc.) are captured separately, then proper maintenance of all such electronic records and emails becomes essential to prove the record of the contractual arrangement between the parties.

  3. Electronic contracts/records have also found statutory recognition under the Information Technology Act, 2000 (IT Act). Amongst other things it specifically states that a contract shall not be deemed unenforceable, solely on the ground that electronic form/means were used for communication of proposals, acceptance of proposals, revocation of proposals or acceptances, as the case may. The IT Act also recognizes digital signatures or electronic signatures and validation of the authentication of electronic records by using such digital/electronic signatures. The contents of electronic records can also be proved in evidence by the parties in accordance with the provisions of the Indian Evidence Act, 1872.
Conclusion of contracts through electronic means, such as through e-mail communications (or execution of electronic contracts) have also been recognized by Indian courts from time to time. For instance, in the case of Trimex International FZE Limited, Dubai v. Vendata Aluminum Ltd., the Hon'ble Supreme Court of India held that the contract between the parties was unconditionally accepted through e-mails and was a valid contract which satisfied the requirements of the ICA.

Jurisdiction of Courts under E-Contracts

Given the nature of e-contracts, one question which often comes to fore is - which court would have territorial jurisdiction to try disputes arising out of such e-contracts?
The Code of Civil Procedure, 1908 (CPC) prescribes the manner of determining the jurisdiction of civil courts in India, based on two fundamental principles:
  1. the place of residence of the defendant; and
  2. the place where the cause of action arises.
Subject to the above, while the parties remain free to determine the choice of courts to adjudicate their disputes, they can choose only such court(s) which is/are not barred from exercising jurisdiction, i.e. parties cannot confer jurisdiction upon a court which does not have jurisdiction to entertain their case.
Ordinarily, contracts contain a specific provision with respect to the place of execution thereof, and the courts of such a place would have territorial jurisdiction to entertain and try the disputes arising under such contracts if in accordance with the CPC as aforesaid. However, since e-contracts are not physically signed/executed and are concluded in a virtual space, simply imposing the traditional principles of jurisdiction, applicable to physical contracts, to such transactions can prove to be challenging.

The jurisdictional issues of e-contracts have, however, been addressed to an extent under the IT Act. Section 13 of the IT Act governs the provisions relating to time and place of dispatch and receipt of an electronic record, and addresses the issue of deemed jurisdiction in electronic contracts, as under:
  1. Save as otherwise agreed to between the originator and the addressee, the despatch of an electronic record occurs when it enters a computer resource outside the control of the originator.
  2. Save as otherwise agreed between the originator and the addressee, the time of receipt of an electronic record shall be determined as follows, namely:
(a) if the addressee has designated a computer resource for the purpose of receiving electronic records,
(i) receipt occurs at the time when the electronic record enters the designated computer resource; or
(ii) if the electronic record is sent to a computer resource of the addressee that is not the designated computer resource, receipt occurs at the time when the electronic record is retrieved by the addressee;

(b) if the addressee has not designated a computer resource along with specified timings, if any, receipt occurs when the electronic record enters the computer resource of the addressee.
Save as otherwise agreed to between the originator and the addressee, an electronic record is deemed to be dispatched at the place where the originator has his place of business, and is deemed to be received at the place where the addressee has his place of business.

The provisions of subsection (2) shall apply notwithstanding that the place where the computer resource is located may be different from the place where the electronic record is deemed to have been received under subsection (3).

For the purposes of this section:
  1. if the originator or the addressee has more than one place of business, the principal place of business, shall be the place of business;
  2. if the originator or the addressee does not have a place of business, his usual place of residence shall be deemed to be the place of business;
  3. usual place of residence, in relation to a body corporate, means the place where it is registered.

To further illustrate application of the aforesaid principles, we may refer to the case of PR Transport Agency vs. Union of India, wherein the Allahabad High Court had to decide the question of jurisdiction where the respondent had sent the letter of acceptance by an e-mail to the petitioner's e-mail address. Subsequently, the respondent sent another e-mail cancelling the e-auction in favour of the petitioner due to some technical and unavoidable reasons.

When the petitioner challenged this communication in the Allahabad High Court, the respondent raised an objection as to the territorial jurisdiction of the Court on the ground that no part of the cause of action had arisen within Uttar Pradesh (UP), and therefore, the Allahabad High Court (UP) had no jurisdiction to try the dispute. In the case, the principal place of business of the petitioner was in district Chandauli (UP), and the other place where the petitioner carried on business was Varansi, which is also in the State of UP.

The Court, therefore, on the basis of section 13(3) of the IT Act, held that the acceptance of the tender by e-mail would be deemed to have been received by the petitioner at Varanasi/Chandauli, which are the only two places where the petitioner has his places of business. As both these places fell within the territorial jurisdiction of the Allahabad High Court, the Court assumed jurisdiction to try the dispute.

In view of the foregoing, the place of contract in an e-contract for the purposes of determining jurisdiction (i.e., the place where the cause of action arose) would be deemed to be where the originator has his place of business and where the addressee has his place of business. However, since Section 13 of the IT Act is subject to the mutual agreement of the contracting parties with respect to the agreed place of contract, it is recommended that all parties in their electronic contracts provide for a specific clause on jurisdiction.

Types of Online Contract

Online contracts can be of three types as underneath:
  1. Shrink-wrap agreements
    Shrink wrap contracts are usually a licensing agreement for software purchases. In the case of shrinkwrap agreements, the terms and conditions for access to such software products shall be enforced by the person buying it, with the initiation of the packaging of the software product.
     
  2. Click or web-wrap agreements
    Click-wrap contracts are web-based contracts that require the user's consent or consent through the I Accept, or OK button. The user must accept the terms of use of the particular software with the clickwrap agreements.
     
  3. Browse-wrap agreements
    A browsing wrap agreement can be called an agreement which is to be binding on two or more parties through the use of the website. In case of an agreement on browsing, an ordinary user of a given Website is to accept the terms and conditions of use and other website policies for continuous use.

Formation of Online Contracts or Electronic Contracts

Like an ordinary contract, e-contracts consisting of an offer and acceptance are enforceable. The conduct of the parties, such as exchanging e-mails or acceptance of a condition or terms or by downloading can also imply a contract. A variety of procedures are available for forming electronic/online contracts:

Email: The parties may create a valid contract by exchanging e-mail communications. Offers or acceptances can be completely exchanged via e-mail, or combined with paper documents, faxes, and oral debates.

Website Forms: In many cases, an e-commerce website offers for sale goods or services that are ordered by customers, by filling in and submitting an on-screen order form. The seller will enter into a contract once the order has been accepted. The products and services can be delivered off-line physically. A contract would also be valid for the terms of use of a website once the user accepts the contract by clicking I Agree.

EULA: The End User License Agreements also form valid contracts in which end users click I Accept or I Accept the Terms.

So, an e-contract is very different from a traditional contract: it is paperless and it is sometimes not possible for the parties to meet face to face. Here we try to analyze and examine various aspects of a conventional online contract.

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