Pl note that following matter is not a substitute for text and reference books.

*** CONSIDERATION One of the main requirements of the valid contract is that there must be consideration supporting an agreement. According to Section 2(d), when at the desire of the promisor, promisee or any other person has done or abstained from doing or does or abstains from doing or promises to do or to abstain from doing, something, such act or abstinence or promise is called Consideration for the Promise. According to Pollock, consideration is a price paid by one party to purchase promise of the other. The price here, can be in the form of any act abstinence or promise. In Currie vs. Misa, Consideration was defined as, A valuable consideration may consist either in some right, interest, profit, benefit accruing to one party or some forbearance, detriment, loss or responsibility given, or undertaken by the other. In simple words, consideration can be Profit and Loss or Give and Take, Earn and Loss. In short, it is quid-, pro-, quo. i.e. something in return. *Essentials of Valid Consideration / Rules as to Valid Consideration 1) At the desire of the Promisor: Any act or abstinence / Promise must be done / given at the request of Promisor to constitute it as Consideration. Voluntary acts therefore can not be treated as Consideration. In other words, any act / abstinence to be called as Consideration must be done at instance of the Promisor (Durga Prasad vs. Bal Deo). 2) Promisee or any other person: Consideration may be furnished by Promisee or any other person i.e., it is not necessary that promisee alone should provide Consideration. A third person can do the act / abstinence on behalf of Promisee. This rule is based on an old English case Dutton vs. Poole. However, under English Law, Dutton vs. Pole was over ruled in Twedle vs. Atkinson which was confirmed in Dunlop vs. Selfridge Tyre Co. In short, under English Law, Promisee only has to furnish condition. In Indian Law, the rule Promisee or any other person can provide Condsideration was upheld in Chinnaya vs. Ramnaya. 3) Consideration may be past, present or future. The vary wordings of definition indicates that Consideration can be past, present or future. * Past Consideration: When something is done (not done) at the desire of the Promisor for which compensation or return promise is given subsequently by the Promisor, the act/abstinence already done becomes a past Condsideration. e.g., A does some work for B in January with an expectation of any payment. In February B Promises to pay A Rs. 1,000/-. Here, work of A is a past consideration. * Present Consideration: When both the parties perform their respective promises simultaneously, it is known as present

Consideration e.g., A purchase a book for cash price of Rs. 80/- from B. It is present Consideration. * Future Consideration: When parties promise each other to do / to abstain from doing something in future i.e., at a later date, it is known as future Consideration e.g., A promises to deliver goods to B in Decemebr and B promises to pay price in February. 4) Act / Abstinence / PromiseThe word something denotes that Consideration may be in the form of any act / abstinence / promise. Thus, there could be a positive act or a negative act or mere promise. 5) Value in the eyes of Law: Such act / abstinence / Promise must have value in the eyes of law. In other words, law must recognize the act / abstinence / promise constituting Consideration as valuable. Parties may attach great value to act / abstinence, but if, it has no value in the eyes of law it cannot be called as Consideration. 6) Adequacy of consideration: Consideration need not be equivalent provided it has some value in the eyes of law. It is not necessary that if A is selling an article worth Rs. 10,000/- he should get the same amount in return. He is free to accept different amounts (lower or higher) than the worth of the article. In short, Consideration need not be adequate. Although, inadequacy of Consideration can be a ground for courts to find out whether consent to the contract was given freely or otherwise. 7) Consideration must be real and not imaginary or illusory: It must be factual and not sham. It must be possible for performance. 8) Consideration must be lawful: According to Sec. 23, Consideration of an agreement is unlawful -i) if it is forbidden by any law or ii) it is of such a nature that if permitted it would defeat the provisions of any law. iii) it is fraudulent or iv) it involves / implies an injury to the person / property of another or v) the court regards it as immoral or opposed to public policy. 9) Act of duty: no consideration: When a person is bound to do something or to abstain from doing towards discharge of his duties, such act / abstinence cannot be treated as consideration. No consideration No contractAccording to Section 25, agreement without consideration is void i.e, voluntary acts or gratuitous acts creates no right of action. Following are exceptions to this rule. 1) Natural love and affection: When agreement is made between the parties who are near relatives, out of their natural love and affection and is expressed in writing and registered as per law of registration. Such agreement is valid even though without consideration. e.g., An elder brother promised to pay loans of his younger brother out of natural love and

affection. Promise was written and registered. Held promise was valid. (Venkat Swami vs. Ranga Swami). In other words, when written promise / agreement is made between two near relatives out of natural love and affection, such promise / agreement is not void merely for want of consideration. 1) Promise to compensate for past voluntary services: A promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, such promise is valid although without consideration. When a person does something for other on his own i.e., without being requested / asked to do so, or he does something which he is legally bound to do. And the other person i.e., Promisor, Promises to compensate the Promisee for this past voluntary acts. Then such promise becomes binding even though without consideration. 3) Promise to repay time barred debts: A date is said time barred when debtor is legally freed from obligation to pay under Indian Limitation Act. If such debtor gives a written promise duly signed by authorized agent to pay wholly or partly a time barred loan, then debtor becomes liable to repay such time based loan. In other words i) A date has become time barred ii) Debtor promises to repay such loan wholly or partly to the creditor iii) Such promise is in writing and duly signed by debtor or his authorized agent in that regard. Then such written promise becomes binding on debtor. In short, oral promise to repay time barred loan is not enforceable. Similarly, just an acknowledgment of loan is not enough. There must be written promise to repay time barred debt. 4) Completed Gift: When promise to donate or gift something is completed / executed donee becomes legal owner of gift or donation. If promisee initiates some action and thereby makes some commitments to third party, in furtherance or on the basis of promise to donate / gift, then such promise is not void or unenforceable even though without consideration. In case of promise to give gifts / donations, promisor cannot withdraw, cancel, revoke or back out his promise if the promisee has not made any commitments to third parties on the strength of promise of gift. , 5) Agency: Creation of agency does not require any condition (Section 185) if A wants to appoint B as an agent, no consideration is required for such appointment.

COMPETENCY OR CAPACITY OF PARTIES One of the requirements of valid contract is that parties to the contract must be competent to

enter into contract. According to Section 11, every person is competent to enter into 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 contracting by any law to which he is subject. In other words, a major person having sound mind and who is not disqualified under any law, has capacity to make contracts. Simply stated, a major of sound mind not disqualified under any law can make a contract. *Who is a major? 1) According to Section 3 of Indian Major Act 1875, a person becomes a major when he attains 18 years of his age. 2) If guardian is appointed to look after a person / property, under Guardians and wards Act, where persons property is placed under superintendence of Court of wards, such person becomes major when he completes 21 years of his age. In other words, a person who has not completed 18 or 21 years of his age, as the case may be is a Minor. *** MINORS AGREEMENT 1) It was in the case of Mohiribibi vs. Dharamdas Ghosh,the Privy Council held that minors agreement is void ab-initio. Till this case, there was a doubt whether minors agreement was void or voidable although contract act had specifically mentioned who was i.e., (only major person) competent to enter into contract. Therefore, any agreement entered with a Minor, is absolutely null and void. It is destitute of any legal effects. It cannot be enforced at law. In simple words, it has no legal sanctity right from beginning. 2) Even if Minor has received some benefit / advantage under an agreement, he is not bound to return or to compensate other party for benefit received. In the above case the privy-council clarified the minor who had received money under agreement was not liable to refund it. In other words, principle of restitution is not applicable to Minor. 3) An agreement entered during minority cannot be ratified on attaining age of majority. If any person wishes to continue or ratify an agreement made during his age of minority, he can do so only for fresh consideration i.e., there has to be a fresh and new agreement. Something which is void from beginning itself cannot be converted into valid one, just on becoming an adult. 4) Remedy of specific performance cannot be enforced against minor. 5) Minor can always plead his minority as a good defence to avoid any liability. Even if he has misrepresented his age, he cannot be held liable for such misrepresentation. Law has put responsibility on other party to verify the age of another. 6) If minor defrauds other party and obtains some money by fraudulent means, the same can be recovered if found in his possession. While law wants to protect minors from their ignorance, it does not give liberty to minors to cheat others purposely. 7) Minor can be beneficiary under any contract: Law does not want minor to bind himself personally. But, it does not prevent him from becoming beneficiary under any agreement. He can be payee, endorsee of negotiable instrument but he cannot be drawer of a cheque or an acceptor of a bill or a maker of promissory note. One can give anything to minor but cannot ask

him to give in return. Minor can enforce or file a suit against other party to claim advantages under a contract. 8) Minor can be admitted to the benefits of partnership . He can be partner in profits only, but cannot be asked to share losses of partnership. 9) Minor can act as an agent. His actions bind principal. He cannot be held responsible for his action as an agent. 10) Minor cannot be share holder in any company. He cannot be declared as an insolvent, as he is incapable of contracting any debts. 11) The guardians / parents can enter into contract on behalf of minor for his benefits. Under such contracts, guardian / parents (and not minor) are responsible / liable 12) However minors estate is liable for necessities supplied to him. According to Sec. 68, in case of necessaries supplied to a minor or his dependent, reasonable price of necessaries supplied to him which were actually required by him can be recovered from minors property. The term necessaries generally includes not only food, clothing, shelter, but also provision for education, health, sports, culture, religion and his over all personality developments. What is necessary, will depend upon family background, environment of a minor and actual need of a minor. SOUND MIND According to Sec. (12) a person is said to be of sound mind for the purpose of making of contract, if at the time when he makes it, he is capable of understanding it and of forming a rational judgment as its effects upon his interest. A person who can visualize consequences (Good/Bad) and comprehend the terms of contract at the time of entering into a contract is said to be of sound mind. In other words, a person who cannot understand the terms and conditions of contract as well as its effects upon him, is considered as of unsound mind. Law expects a person making a contract to take a conscious decision after evaluating whether contract would be beneficial or detrimental to him. Anybody who is able to do this is of sound mind. A drunkard or a person under the influence of any drink, drugs or intoxicating material cannot form a contract, so long as, he is under such influence. * A lunatic is a person who is of a sound mind at intervals i.e., such person goes through periodical phases of soundness and unsoundness. He can understand contract and form a rational judgment for some period and thereafter he is unable to understand and form a rational judgment for some period. Obviously, lunatic can make a contract during the period of sanity. * An idiot is a person who is permanently mad. He can never understand contract or form national judgment. Hence, he is incapable of entering into a contract. Agreement with an idiot is void. * A person under delirious condition due to high fever or sickness cannot make any contract during such condition. * A pardanshin woman is a woman who stays in seclusion away from public. Such person does not mix with society. Any person entering into a contract with a pardanshin woman must ensure that she has obtained an independent legal advice and understood terms and effects of

contract upon her. Otherwise, law presumes ignorance on part of such woman. In short, a person who is usually of unsound mind but sometimes of sound mind may make a contract when he is of sound mind. Similarly, a person who is usually of sound mind, but sometimes of unsound mind cannot make a contract when he is of unsound mind. Soundness / unsoundness is a deciding factor at a time of making contract. PERSONS DISQUALIFIED FROM CONTRACTING Though a person is of majority and of a sound mind, he is not competent to contract if he is disqualified from contracting by any laws of his nation. Such type of persons are a) Alien enemies: Citizens of enemy country are disqualified from entering into a contract with Indian person. Contracts entered prior to enemity, generally stand suspended during the period of enemity. Such contracts can be revived after war/enemity is over, subject to permission of Govt of India. b) Foreign sovereigns can enter into contracts with Indian persons subject to rules of Govt of India, in this regard. It may be noted that Law courts cannot take cognizance of suit filed against them for breach of contract; unless they have accepted jurisdiction of Indian courts. c) Foreign ambassadors appointed to India can make contracts with Indian persons subject to permissions from his and Indian Govt. d) Convicts- can make contracts with the permission of courts. e) Corporations and companies can make contracts within the limits of their Memorandum of Association and their respective laws/Acts under which they have been formed. INDIAN CONTRACT ACT (1872) An Agreement enforceable by law is a contract.- Sec. 2(h) According to Salmond, A contract is an agreement creating and defining obligations between the parties. According to Pollock, Every agreement and promise enforceable by law is a contract. Thus, every agreement or promise which is enforceable at law is a contract. In other words, all contracts are agreements, but all agreements are not contracts. Contract = Agreement + Enforceability by law. In short, there are some agreements which are not enforceable by law and therefore such agreements are not contract i.e., parties to the agreement can not take recourse to the law in the event of breach of agreements. Sec. 10 lays down the enforceability of law. It says all agreements are contracts, if they are entered into by competent parties out of their free consent for lawful consideration and lawful object and which are not expressly declared as void. Agreement is an accepted proposal i.e., Agreement = Proposal (offer) + Acceptance. Proposal: According to Sec. 2(a), when one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal. In simple words, proposal is an expression of ones wish to do or not to do something made to an another person with an objective of obtaining his acceptance.

*Rules as to valid proposal: 1) Communication: A proposer must communicate his desire to do or not to do something to the proposee. In other words, an offerer must inform or intimate his willingness to do or not to do anything. Such communication when made by words spoken / written is known as Express Proposal. If offerer conveys his wish to do or not to do anything through conduct or behaviour, it is known as Implied Proposal. 2) Intention to create legal relationship: Parties must have an intension to create legal relationship at a time of making proposal. To intent to create legal relationship means to intend to enforce legal remedies against other party at courts of law if required. Obviously, proposal intended to create social relationship or foster friendship are not made to create legal relationship unless specifically stated (Balfour V/s Balfour). 3) Proposal must contain some act or abstinence. Proposal should be of to do something i.e., positive action e.g. Payment against buying of goods or it can be refraining from doing something i.e., abstinence e.g., if A agrees to pay Rs. 1,00,000/- for B not using the common road between A & B. 4) Act or Abstinence must be certain and not vague. It must be definite and not ambiguous. Parties must have full clarity and certainty of what act or abstinence is contemplated. 5) Act or Abstinence must be possible- Apart from being definite and certain the act must be possible i.e., desire to do something is not enough. It should be convertible into possible action. In other words, willingness to do something which is impossible cannot be called as proposal. 6) The proposal must be made to another with a view to obtaining acceptance of the other. Casual reference or sharing of desire not intended to secure assent of the other is not a valid proposal. Intention of the parties must be to obtain assent of the other. An offerer must have expressed his willingness to do or not to do, with an object of securing acceptance of the offeree. In other words, mere statement or desire is not enough, although acted upon by the other party. 7) Tenders, quotations, price-list, window displays are examples of invitations to make offers. They are not offers by themselves. The sellers and shop keepers through such instruments and activities invite buyers to make their offers of buying. 8) General or specific: When proposal is made to the world at large, it is a general proposal. When it is made to a particular person or particular group of persons, it is specific proposal. 9) Specific conditions must be brought to the notice of offeree while making a proposal itself. Conditions subsequent to the acceptance are not binding upon acceptor. Similarly, such conditions should be properly and adequately brought to notice of offeree or at least the existence of such conditions must be brought to the notice of offeree. Non-fulfillment of such conditions amounts to rejection of proposal e.g., giving security deposit, submission of Income Tax Clearance Certificate / I.T. Return etc. However, proposal should not contain a term, the non-fulfilment of which amounts to acceptance of proposal. 10) Proposal can be revoked at any time before its acceptance. In short, an offerer can

withdraw or cancel his proposal before it is accepted. Or it may be revoked by lapse of time, non-fulfillment of condition death or insanity or by counter proposal. ACCEPTANCE when a person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted- Sec. 2(b) A proposal when accepted becomes a promise. According to Prof. Anson, Acceptance to a proposal is like a lighted match stick to the train of gun powder. when proposal is accepted, neither proposal remains nor acceptance remains, what comes out is a promise. As per Sec. 2(c), a person making the proposal is called Promisor and a person accepting proposal is called Promisee. ***Rules as to Valid Acceptance: 1)Absolute and Unqualified: Acceptance of a proposal must be absolute and unqualified. It must be unconditional. Proposal must be accepted in toto. Acceptance with any changes, modifications, additions, deletions in the proposal makes it counter offer. 2) Acceptance must be communicated- Acceptance should be informed to an offerer in the prescribed mode. If no mode is prescribed, it must be intimated in the usual manner. If Acceptance is conveyed in a different mode /manner than the prescribed one, offerer is entitled to reject such acceptance within reasonable period. When acceptance is communicated by words spoken / written, it is Express Acceptance. If it is expressed through action / conduct / behaviour, it is an Implied Acceptance. 3) Acceptance can be given only by offeree. A person to whom proposal is not addressed, cannot accept proposal. In Lalman vs. Gauri Datta, it was held that a person to whom proposal is not sent, cannot be said to have accepted that proposal even if, such person performs the act mentioned in the proposal. However, in newzelad, acceptance can be given if a person does the act mentioned in offer, even if offer is not addressed to him. 4) Reply to an enquiry is not an acceptance. (Harvey vs. Facey) sending information, details does not amount to acceptance. Mere enquiry is not a proposal and reply to the same is not an acceptance. 5)Time limit for Acceptance: Acceptance must be given within prescribed time limit. If no time limit is prescribed then within reasonable time limit. What is reasonable time limit is a question of fact to be decided on case to case basis. 6) In case of proposals, where doing the act itself amounts to acceptance, no separate communication of acceptance is required (Carlil vs. Carbolic Smoke Ball Company). 7) Acceptance can be revoked at any time before communication of acceptance is complete as against acceptor. *** Rules regarding Communication of Proposal, Acceptance and Revocation: 1) Communication of Proposal Sec. 4. -Communication of Proposal is complete when it comes to the knowledge of the person to whom it is made.

When offeree receives the proposal, communication of proposal is said to be completed e.g., when A sends a proposal to sell his house for Rs. 10,00,000/- through letter to B, Communication of Proposal is complete when B receives this letter. 2) Communication of AcceptanceThe communication of Acceptance is completei) As against Proposer when it is put into course of transmission to him (offerer) so as to be out of the Power of an Acceptor. ii) As against Acceptor when it comes to the Knowledge of Proposer i.e., when an offerer receives letter of acceptance e.g., if B sends letter of acceptance on 18th July, the Communication of Acceptance is complete as against proposer, the moment the letter is put into letter box. If A receives letter of Acceptance on 24th July, Communication of Acceptance will be complete as against Acceptor (B) when A receives Letter of Acceptance. 3) Proposal can be revoked at any time, before Communication of Acceptance is complete as against proposer, but not afterwards e.g., In above example, A can withdraw his proposal till letter of Acceptance is put by B into letter box. Once B drops letter of acceptance into letter box, it goes out of his power and Acceptance becomes binding on offerer (A) & once acceptance becomes binding a proposal cannot be revoked. 4)Acceptance can be revoked at any time before communication of acceptance is complete as against acceptor but not afterwards. e.g., B can cancel his acceptance provided Bs communication canceling acceptance does not reach offerer A ,after letter of acceptance reaches A. The communication of revocation is complete as against the revoker, when it is put into course of transmission to other party and as against revokee when it is received by the receiver. In case of oral communications, the rule is based upon the illustrations given by Lord Denning. The rule states-1) Communication of Oral Proposal is complete when offeree listens the proposals and confirms to the offerer that he has understood the proposal. 2) Communication of oral acceptance is complete both as against both offerer and Acceptor when an offerer listens to the acceptance and confirms to the offerer that he has heard and understood the acceptance. Oral proposal can be revoked at any time before acceptance is communicated. However, oral acceptance can be revoked only if an offerer allows him to do so.