Pollock & Mulla The Indian Contract Act,1872, 15th ed
Pollock & Mulla The Indian Contract Act,1872, 15th ed / The Indian Contract Act, 1872
Currency Date: 28 April 2020
© 2020 LexisNexis
The Indian Contract Act, 18721
(Act 9 of 1872)
[25 April 1872]
1 For the Statement of Objects and Reasons for the Bill which was based on a report of Her
Majesty Commissioners appointed to prepare a body of substantive law for India, dated 6th
July, 1866, see Gazette of India, 1867, Extraordinary, p 34; for the Report of the Select
Committee, see ibid.,Extraordinary, dated 28th March, 1872; for discussions in Council, see ibid.,
1867, Supplement, p 1064; ibid., 1871, p 313 and ibid., 1872, p 527.
The Chapters and sections of the Transfer of Property Act, 1882 (IV of 1882), which relate to
contracts are, in places in which that Act is in force, to be taken as part of this Act (IX of 1872)—
See Act (IV of 1882), section 4.
This Act has been extended to Berar by the Berar Laws Act, 1941 (4 of 1941), to Dadra and
Nagar Haveli by Reg. 6 of 1963, section 2 and Sch. I, to Goa, Daman and Diu by Reg. 11 of 1963,
section 3 and Sch., to Laccadive, Minicoy and Amindivi Islands by Reg. 8 of 1965, section 3 and
Sch. (See Act 34 of 1973), to Pondicherry by Act 26 of 1968, section 3 and Sch. and has been
declared to be in force in—
The Sonthal Parganas—See Sonthal Parganas Settlement Regulation, 1872 (3 of 1872), section
3, as amended by the Sonthal Parganas Justice and Laws Regulation, 1899 (3 of 1899), section
3.
Panth Piploda—See the Panth Laws Regulation, 1929 (1 of 1929), section 2.
It has been declared, by notification under section 3(a) of the Scheduled Districts Act, 1874 (14
of 1874), to be in force in—
the Tarai of the Province of Agra—See Gazette of India, 1876, Pt I, p 505;
the Districts of Hazaribag, Lohardaga and Manbhum, and Pargana Dhalbhum and the Kolhan in
the District of Singhbhum—See Gazette of India, 1881, Pt I, p 504.—The District of Lohardaga
included at this time the present District of Palamau which was separated in 1894. The District
of Lohardaga is now called the Ranchi District—See Calcutta Gazette, 1899, Pt I, p 44.
It has been extended to Sikkim w.e.f. 1-9-1984.
This Act has been extended to the new provinces and merged States by the Merged States
Laws Act (LIX of 1949) and to the States of Tripura, Manipur (see Act 81 of 1971) and Vindhya
Pradesh (See Act 37 of 1956) by the Union Territories Laws Act (XXX of 1950).
The Indian Contract Act, 1872
PREAMBLE
WHEREAS it is expedient to define and amend certain parts of the law relating to
contracts;
It is hereby enacted as follows:
1. History
1.1 Ancient and Medieval Period
The rules and principles governing contracts were governed in the ancient and
medieval periods of Indian history mainly by two factors-moral and economic. In the
well-developed and fully evolved Indian society, activities like transfer of property,
performance of services, etc. required rules for agreements and promises, which
covered not just business and commercial transactions, but also personal relationships
in all walks of life.
The Hindu laws were enunciated over the centuries by the compilers of smritis. The
laws are collectively found in a huge body of literature called the Dharmashastras, and
the rules governing contracts are part of the law called Vyavaharmayukha. Another
source is the Arthshastra of Kautilya, the only existing secular treatise on politics and
government. There being no general code covering contracts, the principles have to be
derived from numerous references.2The norms laid down for competence of contract
correspond with the present rules, namely, that dependants, minors, sanyasins, persons
devoid of limbs, those addicted to vices, etc. were incompetent to contract. According
to the Arthashastra, dependants included a son whose father was alive; a father whose
son managed the affairs; a woman whose husband was alive; a slave or a hired
servant. The Narada Smriti puts competent persons in three categories—the king, the
vedicteacher and the head of the household. All shastras agreed that contracts or
transactions based on fraud or force were to be declared, by the king, as
unenforceable. In general, women could not make contracts binding on their husbands
or against family properties. It was possible for a "competent" person to authorise a
"dependant" to enter into transactions.
The concept of liability was developed as early as the Rig Vedic period. Spiritual debts
as well as secular engagements were referred to in the literature as "rna",and it was
constantly reinforced by the smritis that failure to pay back the debts implied rebirth of
the defaulter as a slave/servant/woman or beast in the house of the creditor. So, the
son was liable to pay off his father's debts even if he did not inherit any property from
him.
Ancient Indian society, unlike Christian and Islamic society, accepted money-lending as
an occupation. Usury was a sin only when the usurer cheated the debtor, or for
example, when he lent goods of a lower quality, but received goods of a higher quality
in return, or if he extracted fourfold or eightfold return from a distressed debtor. The
creditor could advance a loan on adequate pledge or deposit with a mutual friend, or a
reliable surety, if the transaction was made in writing or in the presence of a witness.
Interest might or not be stipulated at the time of loan. Debtors of all castes were liable
to pay interest agreed to with creditors of all castes. The interest would be fixed with
reference to the article pledged, or surety given, or with reference to a totally unsecured
debt, in the latter case, the interest could be higher. Although, all commentaries are not
in agreement with the amount of interest to be charged, they all agree that it was sinful
to take exorbitant interest, and that interest rates imposed by force could not be
enforced in a court. The Yajnavalkya Smriti provided that in the case of cattle being
loaned, their progeny was to be taken as profit. The rule of damdupat, i.e. the rule that
"the amount ofprincipal and interest recoverable at one time in a lump sum cannot be
more than double the money lent" took into consideration the fact that debts were not
necessarily recoverable from a man himself, his descendants were also liable, and
hence there was practically no limitation for bringing a suit for money lent. The rule
also encouraged creditors to allow interest to increase. The rule of damdupat is
followed in many parts ofIndia.3
Islamic law had a complete and comprehensive law of contract providing for general
principles applicable to all contracts.4 It also supplied rules to govern specific
contracts ofcommercial, mercantile and proprietary nature, like agency (vakalat),
guarantee and indemnity (zamanat and tamin), partnership (shirkat), one person's
money and another's work (muzarabat), bailment (kafalat). All transactions were treated
as secular contracts, and rules were provided for settlement of all types of disputes,
even relating to property and succession.
The application of personal laws continued until the passing of this Act, and some
rules apply even thereafter, as discussed below.
1.2 Introduction of English Law in India
The Charters of the 18th century which established Courts of Justice5 for the three
presidency towns of Calcutta, Madras and Bombay, introduced into their jurisdictions
the English common and statute law, in force at the time,6 so far as it was applicable to
Indian circumstances. Thus, it was held that the Statute of Mortmain (9 Geo II, c 36),7
the law as to forfeiture for suicide,8 and the law as to maintenance and champerty9 did
not apply to India, as not being applicable to Indian circumstances. It is a matter of
controversy whether English law was introduced by the Charter of 1726 (13 Geo I) so
as to extend to India the statutes passed upto that date only, or subsequently also by
the Charters of 1753–74 so as to embrace statutes up to 1774.10
The indiscriminate application of English law to Hindus and Mahommedans, within the
jurisdiction of the Supreme Courts, led to many inconveniences.11 To obviate this, the
Statute of 1781 (21 Geo III, c 7o, section 17) empowered the Court at Calcutta (being
the then Supreme Court), and the Statute of 1797 (37 Geo III, c 142, section 13)
empowered the Courts of Madras and Bombay (being then the Recorders' Courts), to
determine all actions and suits against the inhabitants of the said towns, provided that
their succession and inheritance to lands, rents, and goods, and all matters of contract
and dealing between parties should be determined in the case of Mahommedans by
the laws and usages of Mahommedans, and in the case of Hindus (called "Gentoos" in
the statutes) by the laws and usages of Hindus, and where only one of the parties
should be a Mahommedan or Hindu, by the laws and usages of the defendant. The
effect of these statutes was to supersede English law as regards Hindus and
Mahommedans, in the case of contracts and other matters enumerated in the statutes,
and to declare the right of Hindus and Mahommedans to their own laws and usages.
The result was that in a suit on contract, for instance, between Hindus, the Hindu law of
contract was applied, and the Mahommedan law in the case of a contract between
Mahommedans, and this continued until the enactment of the Indian Contract Act.
In 1862, High Courts were established for each of the presidency towns of Calcutta,
Madras and Bombay. The courts established under the statutes of 1781 and 1797 were
abolished. The Charters of the High Courts of Calcutta, Madras and Bombay contained
similar provisions about the law to be applied.
The Calcutta High Court, by Letters Patent of 1862 and later 1865 (clause 19)12 was
required to apply, in the exercise of its ordinary original civil jurisdiction, the same law
and equity that would have been applied if the Letters Patent had not issued, which
meant the law applied by the Supreme Court. The High Court continued to administer
the personal law to Hindus and Mahommedans in the same manner, i.e. the Hindu law
of contract to Hindus, and the Mahommeddan law of contract to Mahommedans. This
was subject to the legislative powers of the Governor-General-in-Council under clause
44 of the Charter of 1865.
This Indian legislature had the power to alter, by legislative enactment, the provisions of
clause 19 of the Charter of 1865. The Indian Contract Act was enacted in the exercise
of this power by the Indian legislature to govern matters of contract. The High Court
had now to administer the law laid down in the Indian Contract Act13 or other
enactments relating to particular contracts. Subject to any law made by the GovernorGeneral-in-Council, the High Courts were still bound, in the exercise of their ordinary
original civil jurisdiction, to apply the personal laws of contract to Hindus and
Mahommedans as being comprised in the expression "law and equity" in clause 19.
The Charters establishing High Courts in Madras and Bombay made similar provisions.
As the "law and equity" administered by their predecessor Supreme Courts in Madras
and Bombay, they applied the personal law of Hindus to Hindus, and of Mahommedans
to Mahommedans.
Section 17 of the statute of 1781 and section 13 of the statute of 1797 were repealed
by the Government of India Act, 1915. Section 112 of the Government of India Act,
1915 was similar to these repealed sections, and was later repealed and reproduced in
section 223 of the Government of India Act, 1935.
1.2.1 Mofussil Courts
The Bengal Regulation 3 of 1793 (section 21) and Madras Regulation 2 of 1802
(section 17) directed the judges in the zilla (District) and city courts to act according to
justice, equity and good conscience to cases where no specific rule existed. These
regulations were repealed, but the direction to act in the absence of any specific rule
according to justice, equity and good conscience found place in the Bengal Civil Courts
Act, 1887 (section 37) and the Madras Civil Courts Act, 1873 (section 16). The Bombay
Regulation IV of 182714 (section 26),provided that the law to be observed in the trial of
suits be the Acts of Parliament and regulations of government applicable to the case,
and in the absence of such Acts and regulations—the usage of the country in which the
suit arose; and if none such appeared—the law of the defendant, and in the absence of
specific law and usage, equity and good conscience.
The expression "justice, equity and good conscience" was interpreted to mean the rules
of English law so far as applicable to the Indian society and circumstances.15 It has
been observed that in practice, the application of English law did not cause difficulty
because on many points there were no differences between the English and the
personal law, and there was no rule of personal law in many cases, moreover because
many Indian businessmen acquired experience from their relations with Britons.16 Civil
courts in other parts of India were required to apply these principles by the Acts
creating them.17 The law of England, so far as consistent with the principles of equity
and good conscience, generally prevailed in the country unless they conflicted with
Hindu or Mahommedan law.
1.2.2 Legislation
The law made by the Legislatures for the Presidencies of Bengal, Madras and Bombay,
before the date of the Government of India Act, 1833 (3 and 4, Will IV, c 85) were known
as "regulations". The Charter Act of 1833 established a legislature for the whole of
British India, and the laws made by it were called "Acts". Most of the regulations have
been replaced by subsequent Indian legislations. Even before the enactment of the
Indian Contract Act, a number of Acts were enacted to govern particular contracts,
namely, the Interest Act, 1839 the Usury Laws Repeal Act, 1855 the Indian Bills of
Lading Act, 1856 the Workman's Breach of Contract Act, 1859 the Merchant Shipping
Acts (English) of 1854 and 1859, the Carriers Act, 1865 and the Policies of Insurance
Assignment Act, 1866. While the Indian Contract Act repealed some of these statutes
mentioned above, in its schedule, which was also repealed in 1914, the remaining of
these Acts are still in force.
2. The Indian Contract Act, 1872
2.1 Making of the Act
The first draft of the Indian Contract Act, 1872 (Contract Act) made by the Third Indian
Law Commission was a simplified statement of the English law with modifications
suitable to India. There were differences between the views of the Indian legislature
and the Commission, and the Commission resigned. The drafting of the future statutes
fell upon the Indian legislative department. Some proposals of the Commissioners
were rejected, whereas some provisions were borrowed from the draft New York Code
of 1862. The final draft was the work of Sir James Fitzjames Stephen. Sir Frederick
Pollock, the author of the first edition of this book, has opined that the framers
borrowed from various codes of other countries leaving an incongruous effect. But, he
says, after allowing for all drawbacks, the result was a generally sound and useful
one.18
2.2 Law of Contract Until 1950
The Indian Contract Act enumerated in its schedule (now repealed) enactments
repealed by the Act, but did not include the statutes of 1781 and 1797 referred to
above. In Madhub Chunder v Rajcoomar Doss,19 the parties were Hindus and the case
came up before the High Court of Calcutta in its original civil jurisdiction. The case was
about an agreement in restraint of trade, which was not void under the Hindu law of
contract. The plaintiff contended that the Statute of 1781 being not expressly repealed
by the Indian Contract Act, continued to apply, and that section 17 of this statute
required the court to apply Hindu law to Hindus. It was held that the Contract Act did
apply to Hindus having regard to the general words used in clause 2 of section 1 of the
Act. Further the Act applied to all persons, whether the parties were Hindus,
Mahommedans or otherwise.
The Contract Act did not cover the entire field of contract law. In cases not provided by
the Contract Act or other legislative enactments relating to particular contracts, it was
incumbent on High Courts in their original jurisdiction to apply Hindu law to Hindus and
Mahommedan law to Mahommedans. The rule of damdupat20 of the Hindu law has
been appliedin Maharashtra21 and in the Presidency Town of Calcutta22 but is not
recognised outside that town.23 The rule has been statutorily recognized in the State of
Punjab.24 The rule is not recognisedin the Madras presidency25 or in the State of
Andhra Pradesh.26Though damdupat in text books of Hindu Law, is a rule of Hindu Law
of debts, it is not in force in any part of India now as a ruleof Hindu Law. The reason is
that Hindu Law, as now enforced by Courts of law, is confined only to matters of
personal law, while the question of interest is not a matter of personal law, but of civil
law generally. Wherever therefore the rule of damdupat is applicable, it is applied by
virtue of a statute or custom, and not as a branch of Hindu Law.27The rule was applied
in respect of a mortgage transaction of the year 1925.28Another instance is the rule
applicable to Hindus governed by the Mitakshara law in the Bombay presidency, that in
case of a debt wrongfully withheld after demand of payment has been made, interest
becomes payable from the date of demand by way of damages. This rule according to
the Bombay High Court, is not affected either by the Interest Act, 1839 or by the
Contract Act.29 The rule, however, is not applied to Hindus in the Madras Presidency;30
but such cases have been few, and the Hindu and Mahommedan laws of contract may,
for all practical purposes, be regarded as superseded by the Contract Act and other
enactments relating to particular contracts.
Besides, where any subject was not dealt with by the Act, the courts followed as
principles of justice, equity and good conscience, the rules of English law so far as
applicable to the Indian society and circumstances.31
The Contract Act has been amended from time to time.32 After the enactment of the
Contract Act, not only were the provisions contained in the Contract Act relating to sale
of goods and partnership removed and enacted as separate pieces of legislation,33 but
other Acts dealing with particular contracts were also passed, namely, the Negotiable
Instruments Act, 1881 the Transfer of Property Act, 1882 the Powers of Attorney Act,
1882 the Merchant Shipping Act, 1883 (now repealed), the Indian Emigration Act, 1883
(now repealed), the Indian Railways Act, 189034 the Carriage by Air Act, 193435 the
Carriage of Goods by Sea Act, 1925 (now repealed) and the Specific Relief Act, 187736
which provided specific remedies relating to contract.
2.3 Law of Contract after 1950
The Indian Contract Act, 1872 continued to be in operation by virtue of Article 372(1) of
the Constitution of India. However, the provisions of the Act would be subject to the
provisions of the Constitution. Any provision of the Contract Act, if inconsistent with
the fundamental rights, would be void under Article 13 of the Constitution. Contracts of
service under the state37 must be consistent with the provisions of the Constitution.38
The subject of contracts, including partnership, agency, contracts of carriage, and other
special forms of contracts, but not including contracts relating to agricultural land, falls
within Entry 7 in List III of the Seventh Schedule of the Constitution of India (the
Concurrent List). The Parliament as well as the legislature of any state have the power
to make laws about these subjects [Article 246(3)]. If any provision made by the state
legislature is repugnant to any law enacted by the Parliament, the latter prevails [Article
254(1)]. However, if the provision made by the state legislature is repugnant to an
earlier provision of law made by the Parliament, the provision made by the state
legislature would prevail, if the law is reserved for the assent of the President of India,
and the President of India has assented to it [Article 254(2)].In the exercise of these
powers, the Contract Act has been amended by the Parliament.39 Some provisions of
the Act have also been amended by the states.40 The legislative trend has been to let
this Act deal with the general principles, and to make separate Acts for particular
contracts or special aspects of particular contracts.41
In Waverly Jute Mills Co Ltd v Raymon and Co (India) Pvt Ltd,42 a question arose whether
the subject matter of the Forward Contracts (Regulation Act) 1952 fell within Entry 26
(trade and commerce within state) or 27 (production, supply and distribution of goods)
of the List II of the Seventh Schedule within the competence of the state legislature, or
within Entry 48 (future markets) of List I of the Seventh Schedule. It was held that being
a legislation about forward contracts it related to future markets, the word "market"
having relation to business and not any location; and hence the Act fell within the
legislative competence of the Parliament. It has also been held that the Punjab Forward
Contracts Tax Act did not fall within Entry 7 of List III nor under Entry 62 of List II, and
hence was ultra vires.43
2.4 Amendments to this Act
The Indian Contract Act has been amended from time to time.44 The most important
amongst them have been: the Indian Contract (Amendment) Act, 1899 (6 of 1899)
inserting section 19A in the Act, and amending section 74 to provide for stipulations in
the nature of penalty; Central Province Act, 1 of 1915 and the CP and Berar Indian
Contract (Amendment) Act, 15 of 1938 inserting sections 19B and 19C into the Act
making champertous agreements voidable; the Maharashtra Repealing and Amending
Act, 26 of 1963 repealing sections 19B and 19C in their application to the Vidarbha
area of the State of Maharashtra; the UP Act, 57 of 1976 amending section 5 making
irrevocable in certain circumstances a promise to keep an offer open, and the Indian
Contract (Amendment) Act of 1996 (1 of 1997) amending section 28 of the Act.
2.5 Other Laws Affecting Contracts and Enforcement
After 1950, the Parliament has enacted from time to time legislation affecting
particular contracts, namely, the Forward Contracts (Regulation) Act, 1952 the Hire
Purchase Act, 1972 (but repealed in 2005), the Multimodal Transportation of Goods
Act, 1993, the Securities Contracts (Regulation) Act, 1956 and a number of laws for
regulating conditions of employment in various industries. Special courts are provided
for in respect of certain specific types of contracts. The Railways Claims Tribunal Act,
1987 provides for setting up a railway tribunal to deal with claims for compensation for
loss, damage, deterioration or no delivery of goods, claims for refund of fares or freight,
and compensation for death or injury to passengers. The Consumer Protection Act,
1986 provides for a different machinery to deal with disputes affecting consumers. The
Recovery of Debts due to Banks and Financial Institutions Act, 1993 provides for
setting up of bank debts recovery tribunals for recovery of certain loans given by banks
and financial institutions. Special tribunals or authorities under the industrial laws
resolve employment disputes. The Competition Act, 2002, prohibits anti-competitive
agreements and confers jurisdiction on the Competition Commission to inquire into
agreements which are anti-competitive and contracts brought about by abuse of
dominant position.The Electricity Act, 2003 provides for disputes between generators
and licensees, including those arising out of Power Purchase Agreements and other
contracts to be adjudicated by regulatory commissions.
2.6 Contracts to which Government is a party
The power of the Government includes entering into contracts for any purpose.45In
terms of Article 299 of the Constitution of India, all contracts made by the Union
Government and the State Governments, in the exercise of their respective executive
powers, are required to be expressed to be made by the President, or by the Governor
of the State, as the case may be, and all such contracts are to be executed on behalf of
the President or the Governor by authorized persons and in an authorised manner. It
further provides that the President, the Governor or the authorized persons will not be
personally liable in respect of such contracts.
The provision has been held to be mandatory and if not complied with, the contract is
void.46 It has been held that a contract entered into without complying with the
mandatory requirement cannot be subsequently ratified by the Government.47 The
requirements of the Article cannot be waived.48 When a particular contract is made in
terms of Article 299, its novation has to also be on fulfilment of all procedural
requirements.49 The expression "expressed to be made" and the word "executed" in the
said Article, suggest there has to be a formal written contract executed by person duly
authorized in terms of the Article.50 The question as to whether the officer was
authorized or not can be established by evidence, in the absence of an order.51 An
objection of non compliance of Article 299 due to the agreement not stating in so many
words that the officer had signed on behalf of the Governor, was rejected.52
Contracts entered into by statutory authorities in exercise of powers conferred under a
statute, are not governed byArticle 299.53 Government action including that of its
instrumentalities, of entering or not entering into contract, is subject to satisfying
reasonableness and fairness.54In the field of contracts, the State and its
instrumentalities should design their activities in a manner which would ensure
competition and non-discrimination. They can augment their resources but the object
should be to serve the public cause and to do public good by resorting to fair and
reasonable methods.55A party, who had acted on a representation made by the
Government, can, based on principles of promissory estoppel claim that the
Government should be bound to carry out the promise made by it, even though the
promise was not recorded in the form of a formal contract as required by Article 299 of
the Constitution of India. The Government stood on the same footing as a private
individual so far as the obligation in law was concerned and the doctrine of promissory
estoppel may be applied against the government where the interest of justice, morality
and common fairness dictate such a course.56 This is however subject to the principle
that there can be no estoppel against statutory provisions.57
2.7 Recommendations of the Law Commission of India
The Law Commission of India, under the Chairmanship of Shri MC Setalwad, prepared
and submitted its 13th Report in 1958 recommending amendments to the various
provisions of this Act. Among the most important recommendations were:
(i) modification of the doctrine of privity to entitle a third party to sue on a contract
made for his benefit in certain cases;
(ii) the recognition of principle of promissory estoppel;
(iii) to make enforceable without consideration, an agreement to keep an offer open
for a definite period of time;
(iv) to make wagering agreements and collateral agreements unlawful;
(v) to include the principles regarding material alteration to documents;
(vi) to permit reasonable restraint on the right to carry on trade.
Other recommendations in this report are discussed with the respective sections. The
recommendations in the 13th Report were not acted upon.
The Law Commission of India also recommended other specific amendments to this
Act in its 97th Report of 1984 about prescriptive clauses in contracts (section 28),
which was accepted when the Act was amended in 1997. In its 103rd Report of 1984
about unfair terms in contract, it recommended adding a new chapter in this Act giving
power to the court to refuse to enforce a contract or part which was unconscionable.
The 108thReport of 1984 about promissory estoppel, recommended adding one
section to the Act making promises enforceable even though without consideration, if
they were acted upon. This report also gave the limits for operation of the doctrine of
promissory estoppel. The 199th Report of 2006 recommended elaborate provisions
dealing with the substance and procedure of unfair terms in contracts.
2 For a discussion and analysis of Hindu law relating to contract, see PV Kane, History of
Dharmashastra, Vol III, pp 411–85; M Rama Jois, Legal and Constitutional History of India, Vol I,
1990, pp 62–220.
3 See below under "Law of Contract until 1950".
4 Tahir Mahmood, Muslim Law of India, 2nd Edn 1983, pp 188–89.
5 These were at first the Mayors' Courts, which, in Calcutta, were superseded by the Supreme
Court in 1774, and finally by the High Court in 1862. The Mayors' Courts in Madras and Bombay
were replaced, in 1797, by the Recorders' Courts. The Recorders' Court in Madras was abolished
in 1799, and that in Bombay in 1823, and a Supreme Court was established instead, which again
was superseded by a High Court in both places in 1862.
6 Though this view ofthe introduction ofEnglish law into India was pronounced incorrect and
unreasonable by the Indian Law Commissioners in their celebrated lex loci Report of31 October
1840, it may now be taken as an accepted doctrine. The Commissioners maintained that neither
the Hindu nor the Mahommedan law was the lex loci of British India, as it was so interwoven
with religion as to be unfit for persons professing a different faith, and they held that, there being
no lex loci, the English law became ipso jure, the lex loci when any part ofBritish India became a
possession of the British Crown, binding upon all persons who did not belong to the Hindu or
Mahomedan community. They recommended the passing of an Act declaring a lex loci for
British India founded on the English law, but the recommendation was never carried into effect:
Naoroji v Rogers, (1867) 4 BHC 1, pp 17–26; The Indian Chief, (1801)3 Robinson Adm, pp 28–29,
where Lord Stowell showed a just understanding ofthe nature ofAsiatic personal law than the
Indian Law Commissioners.
7 Mayor of the City of Lyons v East India Co, (1836) 1 Moo Ind App 176 .
8 Advocate General of Bengal v Ranee Sumomoye Dossee, (1863) 9 Moo Ind App 387 .
9 Ram Coomar Coondoo v Chunder Canto Mookerjee, (1876) 4 IA 23 .
10 This question has now only a historical interest, derived from the trial and conviction of
Nuncomar under the English Statute of 1728 (2 Geo II, c 25); according to the view that only the
statutes up to 1726 were introduced into India, the conviction under the Statute of 1728 would
be illegal. It would, however, be legal according to the other view, and that view was maintained
by Sir James Stephen in his Nuncomar and Impey, Vol II; Ilbert, Government of India, 1915, pp
34–35.
11 Cowell's Court and Legislative Authorities in India, 6th Edn p 55. Under the Regulating Act,
1773 the Supreme Court of Calcutta practically exercised a general jurisdiction over the whole
of Bengal.
12 "...and we do further ordain that with respect to the law of equity to be applied to each case
coming before the said High Courts of Judicature at Fort William in Bengal in the exercise of its
ordinary original civil jurisdiction, such law or equity shall be the law or equity which would have
been applied by the said High Court to such cases if these Letters Patent had not issued."
13 Madhub Chunder v Raj Coomar Doss, (1874) 14 Beng LR 76.
14 In August 1820 a committee was set up "to examine the existing law and practice and to
prepare a comprehensive code, expressed in non-technical language, which would as far as
possible preserve native Institutions". Following upon the recommendations of the committee,
on 1 January 1827, twenty-six Regulations known as the Elphinstone Code were passed which
(with the exception of Regulation XVIII) came into force on 1 September 1827, see Umaji Keshao
Meshram v Radhikabai, Widow Of Anandrao, AIR 1986 SC 1272 : 1986(Supp ) SCC 401.
15 Waghela Rajsanji v Sheikh Masludin, (1887) 14 IA 89 at 96 : (1887) 11 Bom 551 at 561; Dada
v Babaji, (1865) 2 BHC 36 at 38; Webbe v Lester, (1865) 2 BHC 52 at 56; Naresh Chandra Guha v
Ram Chandra Samanta, AIR 1952 Cal 93 ; Gogun Chunder Ghose v Dhuronidhur Mundul, (1881)
ILR 7 Cal 616.
16 Alan Gledhill, The Republic of India: The Development of its Laws and Constitution, Vol 6, p
291.
17 The Bengal, Agra and Assam Civil Courts Act, 1887, section 37; the Punjab Laws Act, 1872,
section 5; the Central Provinces Laws Act, 1875, sections 5, 6; the Oudh Laws Act, 1876, section
3; and the Burma Laws Act, 1898, section 13. Originally, the words were synonymous with the
rules of natural reason, or the law of nature; but "an Englishman would naturally interpret" them
"as meaning such rules of English law as he happened to know and considered applicable to the
case"—Ilbert, Government of India, 2nd Edn p 330.
18 Preface to the 1st Edn of this book.
19 Madhub Chunder v Rajcoomar Doss, (1874) 14 Beng LR 76.
20 The rule of damdupat provides that interest exceeding the amount of the principal cannot be
recovered at any one time.
21 Dhondu v Narayan, (1863) 1 BHC 47; Khushalchand v Ibrahim, (1866) 3 BHCAC 23; Nathubhai
v Mulchand, (1868) 5 BHCAC 196; Hakma Manji v Meman Ayab, (1870) 7 BHC OC 19; Pavanaga v
Govind, (1873) 10 BHC 382; Ramchandra Mankeshwar v Bhimrav Ravji, (1877) 1 Bom 577; Ganpat
Pandurang v Adarji Dada Bhai, (1877) 3 Bom 312; Dawood Durvesh v Vullubhdas Purshotam,
(1893) 18 Bom 227; Gopal Ramchandra Limaye v Gangaram Anand Shet Marvadi, (1895) 20 Bom
721 (FB); overruling Ganesh Dharnidhar Maharajdev v Keshavrav Govind Kulgavkar, (1890) 15
Bom 625; Harilal Girdharilal v Nagar Jeyram, (1896) 21 Bom 38; Ali Saheb v Shabji, (1895) 21 Bom
85.
22 Nobin Chunder Bannerjee v Romesh Chunder Ghose, (1887) ILR 14 Cal 781.
23 Het Narain v Ram Deni, (1883) 12 Cal LR 590 .
24 Punjab Relief of Indebtedness Act, 1934 (section30), also see Life Insurance Corp Of ... v
Sham Surat Singh, AIR 1983 Del 291 : ILR 1981 Delhi 759 , the High Court held that the ancient
doctrine of Damdupat has been codified under the provisions of the Punjab Relief of
Indebtedness Act, 1934 and when the suit is in respect of a debt as defined in Section 7(1),
irrespective of who the debtor is and what his status is, the rule of damdupat as enacted in
Section 30 is immediately attracted.
25 Annaji Rau v Ragubai, (1883) 6 Mad HC 400.
26 Syndicate Bank, Kurichedu v Induri Guravareddy, 1998 (1) Andh LD 530 : 1998 (1) Andh LT 735
.
27 Sheokaransingh v Daulatmm, AIR 1955 Raj. 201 .
28 Mhadagonda Ramgonda Patil v Shripal Balwant Rainade, AIR 1988 SC 1200 : 1988 SCR (3)
689 .
29 Saunadanappa bin Andanappa Chinwar v Shivbasawa kom Amingowda Desai, (1907) ILR 31
Bom 354.
30 Subramania Aiyar v SA Subramania Aiyar, (1908) 18 Mad LJ 245.
31 Waghela Rajsanji v Sheikh Masludin, (1887) 14 IA 89 at 96 : (1887) 11 Bom 551 at 561; Dada
v Babaji, (1865) 2 BHC 36 at 38; Webbe v Lester, (1865) 2 BHC 52 at 56; Naresh Chandra Guha v
Ram Chandra Samanta, AIR 1952 Cal 93 ; Gogun Chunder Ghose v Dhuronidhur Mundul, (1881)
ILR 7 Cal 616.
32 See below.
33 The Sale of Goods Act, 1930 and the Indian Partnership Act, 1932.
34 Now the Indian Railways Act, 1989.
35 Now the Carriage by Air Act, 1972.
36 Now the Specific Relief Act, 1963.
37 Under Article 12 of the Constitution of India, the word "state" includes the Government of
India and the states, and all local or other authorities within the territory of India or under the
control of the Government of India.
38 Delhi Transport Corp v DTC Mazdoor Congress, AIR 1991 SC 101 , per K Ramaswamy J. at
189.
39 See below.
40 Central Provinces Act 1 of 1915; CP and Berar Act 15 of 1938; Uttar Pradesh Act 26 of 1963;
Uttar Pradesh Act 57 of 1976.
41 See below.
42 Waverly Jute Mills Co Ltd v Raymon and Co (India) Pvt Ltd, [1963] 3 SCR 209 : AIR 1963 SC 90
.
43 Bullion and Grain Exchange Ltd v State of Punjab, AIR 1961 SC 268 .
44 Act 1 of 1877; Act 12 of 1891; Act 6 of 1899; Act 10 of 1914; Act 24 of 1917; Act 3 of 1930;
Act 9 of 1932; Act 3 of 1951; Central Provinces Act 1 of 1915; CP and Berar Act 15 of 1938;
Maharashtra Act 26 of 1963; Uttar Pradesh Act 57 of 1976; Act 1 of 1997.
45 Article 298 of the Constitution of India.
46 State of West Bengal v B.K.Mondal and Sons, AIT 1962 SC 113 ; State of U.P v Murari Lal and
Brothers, (1971) 2 SCC 229 : AIR 1971 SC 2210 .
47 Bihar Easter Gangatic Fishermen Cooperative Society Ltd v Sipahi Singh, (1977) 4 SCC 145 ;
State of Punjab v Om Prakash Baldev, (1988) Supp. SCC 722 .
48 Bihar Easter Gangatic Fishermen Cooperative Society Ltd v Sipahi Singh, (1977) 4 SCC 145 .
49 Joshi Technologies International Inc v UOI, (2015) 7 SCC 728 .
50 Bhikraj Jaipuria v UOI, AIR 1962 SC 113 ; UOI v Hanuman Oil Mills Ltd, (1987) Supp. SCC 84 .
51 Karmshi Jethabhai Somayya v State of Bombay, AIR 1964 SC 1714 ; UOI v Hanuman Oil Mills
Ltd, (1987) Supp. SCC 84 .
52 Davecos Garments Factory v State of Rajasthan, (1970) 3 SCC 874 .
53 Lalji Khimji v State of Gujarat, (1993) Supp. SCC 567 .
54 Dwarakadas Marfatia and sons v Board of Trustees of Port of Bombay, (1989) 3 SCC 293 ;
Mahabir Auto Stores v Indian Oil Corp, (1990) 3 SCC 752 ; Jamshed Hormusji Wadia v Board of
Trustees, Port of Mumbai, (2004) 3 SCC 214 .
55 Centre for Public Interest Litigation v UOI, (2012) 3 SCC 1 ; Jamshed Hormusji Wadia v Board
of Trustees, Port of Mumbai, (2004) 3 SCC 214 .
56 Lalaram v Jaipur Development Authority, (2016) 11 SCC 31 .
57 Joshi Technologies International Inc v UOI, (2015) 7 SCC 728 .
The Indian Contract Act, 1872
Preliminary
[Sections 1 – 2]
S. 1. Short title.—
This Act may be called the Indian Contract Act, 1872.
Extent, Commencement.—It extends to the whole of India 58[except the State of
Jammu and Kashmir]; and it shall come into force on the first day of September, 1872.
Enactments Repealed.—59[***] Nothing herein contained shall affect the provisions of
any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom
of trade, nor any incident of any contract, not inconsistent with the provisions of this
Act.
[s 1.1] Applicability of the Act
The second clause of section 1 of the Act says, in the most general terms, that the Act
is to extend to the whole of India except the State of Jammu and Kashmir. Those
words are large enough to include all courts and persons of all denominations. The
Indian Contract Act, 1872 applies to all contracts in India.60
[s 1.2] Scheme of the Act
The scheme of the Indian Contract Act, 1872 (the Contract Act) is that it enacts in
sections 1–75 provisions applicable in general to all contracts, and then deals
separately with particular kinds of contract such as sale, guarantee, bailment, agency
and partnership and the scheme necessarily posits that all these transactions are
based on agreements.61 Partnership and sale of goods are no longer parts of the
Contract Act and separate statutes have now been enacted dealing with these two
subjects.
[s 1.3] Scope of the Act
In Ramdas Vithaldas Durbar v S. Amerchand &Co,62 the point for decision was whether a
railway receipt was an "instrument of title" within the meaning of section 103 of this
Act (since repealed by the Sale of Goods Act). It was contended that it was not, for the
following reasons:
(i) first, that the Indian Contract Act was primarily a consolidating Act, and therefore
ought, in default of a clear expression to the contrary, to be read as embodying
the law as existing when it was passed;
(ii) secondly, that it was improbable that the Indian legislature could have taken the
lead in a legal reform for which England had to wait until the passing of the
English Factors Act, of 1877.
In dealing with these arguments, the Privy Council said:
Their Lordships cannot attach any weight to either consideration. The Indian Contract Act
recites the expediency of defining and amending certain parts of the law relating to
contracts. It is therefore an amending as well as a consolidating Act, and beyond the
reasonable interpretation of its provisions there is no means of determining whether any
particular section is intended to consolidate or amend the previously existing law. Again
their Lordships do not see any improbability in the Indian Legislature having taken the lead
in a legal reform. Such a reform may have been long recognised as desirable without an
opportunity occurring for its embodiment in a legislative enactment, and it may well be that
the opportunity occurred sooner in India than in this country, where the calls for legislative
action are so much more numerous.....................
The Contract Act does not profess to be a complete code dealing with the law relating
to contracts.63 As appears from the preamble, the Act purports to do no more than
define and amend certain parts of that law. It does treat some particular contracts in
separate chapters, but there is nothing to show that the legislature intended to deal
exhaustively with any particular chapter or subdivision of the law relating to
contracts.64 To the extent to which provisions have been made in the Act, those
provisions apply to all kinds of contracts.65
Where the law is codified, it is of little avail to enquire what is the law apart from such
codification. The code itself must be looked to as the guide in the matter.66 When a
statute clearly covers a case, it is hardly necessary to refer to decisions.67 Although
provisions of the Act are as exhaustive as possible, there may still remain cases not
provided for. Such cases will have to be decided on the principles of "justice, equity and
good conscience". The Law Commission of India68 has expressed the view that this
expression ought no longer to be construed in the narrower sense of rules of English
law. It should be given the widest significance.
[s 1.4] English Law and Judgments of Foreign Courts
To the extent this Act deals with a subject, it is exhaustive upon the same and it is not
permissible to import the principles of English law de hors the statutory provisions;69
unless the statute is such that it cannot be understood without the aid of English law;70
or where any matter cannot be brought within the provisions of the Contract Act.71 In
regard to the law of contract, the courts in India have taken guidance from the common
law of England where no statutory provision to the contrary is in existence.72
The language of the provisions of the Contract Act cannot be enlarged or construed
narrowly or otherwise modified in order to bring the construction in accord with the
scope and limitations governing the English doctrine.73 The courts should examine the
language of Indian statutes uninfluenced by any consideration derived from the English
law upon the subject.74 The principles of English law cannot be introduced where the
subject is dealt with by the Act, but if it is necessary to interpret the Act, the aid of
English law may be pressed into service.75 The English common law and the concept
of justice, equity and good conscience cannot beadapted or amended by a court where
the power is given to the Central Government to do so and it has not done so.76
The decisions of English,Australian, Canadian and other Commonwealth courts and of
the Courts of the USA, when relevant, will have persuasive authority as judgments that
expound the principles of jurisprudence similar to our own.77
[s 1.5] Saving of Usage or Custom of Trade
In Irrawaddy Flotilla Co v Bugwandas,78 the Privy Council took the view that both the
reason of the thing and the grammatical construction of the section required that the
words "not inconsistent with the provisions of this Act" occurring in this section should
not be connected with the clause "nor any usage or custom of trade", and must apply
only to the immediately preceding words "nor any incident of any contract".79 The Privy
Council explained the apparent contrary views of the Bombay and Calcutta High Courts
in earlier cases.80 In both these cases, an opinion was expressed by the Bombay and
Calcutta High Courts that the liability of a common carrier, under the common law of
England, which rendered him liable for all loss or damage to goods except when
caused by the act of God or the King's enemies, was a "usage of trade", the one court
holding that it was inconsistent, and the other that it was consistent, with the
provisions of the Contract Act. In the Privy Council, their Lordships' were inclined to the
opinion that the liability of a common carrier under the English common law as an
insurer of goods was not a usage of trade, but an "incident" of the contract quite
consistent with the provisions of the Act. Such an incident is not inconsistent with the
provisions of sections 151 and 152 of the Act, having regard to the words "in the
absence of any special contract" occurring in section 152. The Law Commission of
India in its 13th Report did not agree with the view expressed in this Privy Council
judgment. It was of the view that neither usage nor a particular custom can be
incompatible with statute law, and that the expression "not inconsistent with the
provisions of the Act" should govern usage and custom also. It had recommended an
amendment to clarify this position.
The expression "usage or custom of trade" used in section 1, as well as in the other
sections of the Act, relates to a particular usage as distinguished from a general or
universal usage. A general usage pervading all trades has no binding force, if it is
inconsistent with the provisions of the Act. A general usage is equivalent to a general
law, and no general law or usage in contravention of the general law laid down by the
Contract Act can be consistent with the validity of the Act itself.81
A particular usage remains unaffected by the provisions of the Act, even though it may
be inconsistent with those provisions. The general provisions of the Contract Act about
the rights and liabilities of an undisclosed principal are not intended to alter the wellestablished rule as to negotiable instrument that no person could sue on a negotiable
instrument unless he was named therein as a payee.82 Where an agent by trade usage
sells goods, the question whether he is authorised to do so by the Act does not arise.83
[s 1.5.1] Usage
Usage may be broadly defined as a particular course of dealing or line of conduct
generally adopted by persons engaged in a particular area of business, or more fully as
a particular course of dealing, or line of conduct which has acquired such notoriety,
that, where persons enter into contractual relationships in matters respecting the
particular branch of business life where the usage is alleged to exist, those persons
must be taken to have intended to follow that course of dealing or line of conduct,
unless they have expressly or impliedly stipulated to the contrary; that is to say that a
rule of conduct amounts to a usage if so generally known in the particular department
of business life in which the case occurs that, unless expressly or impliedly excluded, it
must be considered as forming part of the contract.84 It may be limited to a local area,
or exist in respect of a very limited class, or even to the property of one person.
Every usage must be notorious, certain and reasonable, and it must not offend against
the intention of any legislative enactment. Notoriety does not mean it must be known
to all the world, but that it must be well known at the place to which it applies, and be
capable of ready ascertainment by any person who proposes to enter into a contract of
which that usage would form part.85 It has been held that to support a ground of
mercantile usage, there need not be antiquity, uniformity, or notoriety of custom, which
becomes a local law. The usage may be still in course of growth; it may require
evidence for its support in each case; but in the result it is enough if it appears to be so
well known and acquiesced in, that it may be reasonably presumed to have been an
ingredient tacitly imported by the parties into their contract.86 A usage is not
reasonable unless it is fair and proper and such as reasonable, honest, and rightminded men would adopt.87 A usage,which is founded on the general convenience of
all parties engaged in a particular department of business can never be said to be
unreasonable, and where a usage has been sufficiently proved, there will be very few
cases in which it will be held that the usage is unreasonable; for the fact that the usage
is established and followed, tends to show that it is convenient.88 Where persons enter
into contractual obligations with one another under circumstances governed by a
particular usage, then that usage, when proved, must be considered as part of the
agreement. The contract expresses what is peculiar to the bargain between the parties,
and the usage supplies the rest.
Where the exhibitor advanced a sum to the distributor for getting the picture released
from the producer and it was agreed that the shares payable to the distributor out of
the realisations from the theatres shall be adjusted towards the advance lent by the
exhibitor, it was held that since the agreement was vague with regard to the point of
time at which the entire amount became payable, the matter could be decided on the
basis of custom, practice and usage of the trade and accordingly, the contention of the
exhibitor that he was entitled to recover the amount immediately after the screening of
the film was over in his theatres was upheld on the basis of the custom, practice and
usage of the trade which was proved by oral evidence.89 The application of the AISC
Code by the arbitrator for measuring work done under a sub-contract was accepted,
since the Code was applied by the parties to the main contract, and it was an industry
standard.90 An agreement signed by the seller, delivered to the purchaser and accepted
by the purchaser makes an effective and valid agreement; even if it is not signed by the
purchaser.91 The uniform customs and practices for documentary credits formulated
by the International Chamber of Commerce are deemed to be incorporated in each
documentary credit which is expressed to be subject to the provisions. Yet, it has been
held that even in the absence of such incorporation, they can be taken into account as
part of mercantile customs and practices, unless they are contradicted.92Usage may
be expressly excluded by parties by excluding the operation of usage, or modifying its
application; or impliedly by provisions inconsistent with that usage. The custom or
usage of a trade cannot modify the express term which is clear and not ambiguous.93
A usage may disappear by disuse, or gradual adoption of another usage which is
inconsistent with it.94
[s 1.5.2] Pleadings
Trade usage in conflict with the provisions of the Act can be pleaded. Its incidents and
details must be indicated with clarity and precision.95 Anybody setting up such a local
usage must allege and prove the incidents of that usage.96
[s 1.5.3] Evidence of Usage
Though a contract may be in writing, oral evidence may be adduced to prove any usage
or custom by which incidents not expressly mentioned in the contract are usually
annexed to contracts of that description, provided that the annexing of such incident
would not be repugnant to, or inconsistent with, the express terms of the contract.97
For commercial transactions, see the cases undermentioned.98
Evidence of usage can be given to annex incidents to written contracts in matters to
which they are silent. Evidence of usage repugnant to or inconsistent with the written
contract will not be received.99 The question of the existence of usage is a question of
fact and it is necessary to prove the usage in each case, until such time as the courts
take judicial notice of it. Usages may be proved by evidence having special means of
knowledge thereon.100 It may be proved by oral evidence of persons who become
conversant of its existence by reason of their occupation, trade or position or evidence
of persons carrying on the same trade in the place, by way of opinion of witnesses. As
to the evidence necessary to prove a usage of trade, it is enough if it appears to be so
well known and acquiesced in, that it may be reasonably presumed to have been an
ingredient imported by the parties into their contract..101 The Mysore High Court has
held that the usage to be recognised in the ordinary course of business must be
certain, definite and uniformly recognised in the ordinary course of business.102 The
burden of proving the existence of a trade usage lies on the party propounding it.103
Evidence of one man has been held not sufficient to prove usage of pakki adat.104 A
prior judgment in which it is recognised may be admissible under section 42 of the
Indian Evidence Act, 1872 but is not conclusive proof.105
[s 1.5.4] Usage and Law Merchants
Usages of merchants and usages affecting contractual relationships between persons
engaged in mercantile transactions must be distinguished from law merchant. The
latter term refers to a number of usages, each of which exist among merchants and
persons engaged in mercantile transactions, not only in one particular country, but
throughout the civilised world, and each has acquired such notoriety, not only amongst
those persons, but also in the mercantile world at large, that the courts of this country
will take judicial notice of it.106 The law merchant is far from immutable and it is open
to any court to find on the basis of evidence that it has changed, or if a change has
previously been judicially ascertained and established in other proceedings, to take
notice of that change.107Court must ensure that interpretation of law in commercial
cases must not be disjointed from the intent and object which those having business
dealings seek to sub-serve.Unless interpretation of contracts effectuates a business
meaning for persons of business, the law will not fulfill its purportand object of being a
facilitator for business and providing a structure of ordered certainty to those who
carry on business here. The legal system must innovate constantly to keep abreast
with rapid changes in technology and business.108
[s 1.5.5] Usage and Custom
Usage is a habitual practice which is not a source of law, although it has some legal
effect. Custom is a source of law. The effect of usage is to add a term to the contract.
Usage can be also excluded by a provision in the contract to the contrary. Usage cannot
change a rule of law, but usage may so affect the meaning of a contract that a rule of
law that would be applicable in the absence of the usage, becomes inapplicable. Long
continued usage may develop a rule of law in accordance with usage.
[s 1.5.6] Incident of any Contract
Used both substantively and adjectively of a thing which, whether usually or naturally
and inseparably, depends upon, appertains to, or follows another, that is more worthy.
Used as a noun, it denotes anything which inseparably belongs to, or is connected with,
or inherent in, another thing, called the "principal".
Also, less strictly, it denotes anything which is usually connected with another, or
connected for some purposes, though not inseparably. Thus, the right of alienation is
incident to an estate in fee—simple, though separable in equity.109 An incident is that
which depends on, or pertains or attaches to, another principal or thing.110 Parties to a
contract are free to make any contract they please, except for where it is expressly
declared illegal or unlawful. It is competent to a party to a contract to agree that the
contract shall be applied for the purpose of imposing rights and liabilities according to
any particular law which ordinarily would not be applicable.111
The law of contract draws a distinction between imperative and non-imperative
provisions. No amount of mutual assent can avail to contract against the rights, duties
and liabilities arising out of the imperative provisions. The parties may, however, make
a contract, the incidents of which may be inconsistent with the provisions of this Act
which are merely directory in nature. Wherever it has been intended that independent
provisions should be permitted, it has always been expressly provided for such
provisions by the introduction of the phrase "in the absence of any contract to the
contrary", which occur in a number of sections in the Act.112 Incident of a contract in
order to come within the saving clause must not be inconsistent with the imperative
provisions of the Act.113 In arbitration proceedings, Indian nationals cannot contract to
derogate from Indian law, in view of the imperative character of section 28 of the
Arbitration and Conciliation Act, 1996, which provides that in an arbitration other than
international commercial arbitration, the arbitral tribunal shall decide the dispute in
accordance with the substantive law of India.114 A stipulation in a contract of
guarantee that the surety shall not have the benefit of section 133 has been held to be
inconsistent with the Act.115The terms of an instrument of pledge, giving an
unqualified power of sale, are inconsistent with the provisions of Section 176 of the
Indian Contract Act, and, therefore, by virtue of Section 1 of theAct must give place to
the express provisions of the Act.116
[s 1.6] Choice of Law
If both the parties to the contract are Indians, they will be bound by the provisions of
the Indian substantive law applicable to contractand they cannot choose substantive
law of any other countryby resorting to arbitration.117
The choice of curial law (law governing the conduct of arbitration proceedings) is
different from the substantial law applicable.
Indian parties are however not precluded from having their disputes adjudicated by
arbitrators who are foreign nationals, when the parties have willingly entered into the
agreement andthe case was covered under exception 1 to section 28.118 Where the
two parties involved werecompanies registered under Indian law, then the arbitration
between such parties cannot be said to be an international commercial arbitration,
merely because the central management and control of the petitioner company, did not
take place in India but was exercised in Malaysia.119
The Bombay High Court based on the judgement of the Supreme Court in the case of
Tdm Infrastructure120 held thatarbitrating Indian parties cannot choose English law as
the substantive law with either Singapore or India as the venue of arbitration and the
parties were directed to conduct their arbitration in India with Indian law as the
substantive law of the contract.121 However, the Madhya Pradesh High Court relying on
the judgment of the Supreme Court in Atlas Export122 held that party autonomy was
paramount in deciding seat of arbitration and allowed the parties to arbitrate at
International Council for Arbitration in London.123 The Supreme Court noticing
thatthere was a foreign element to the dispute, with one of the three parties involved
being a foreign entity, was of the viewthe question of autonomy of contracting parties
(all domiciled in India) to agree to a foreign seat or foreign governing law in an
arbitration did not require determination.124 While the decision in Bharat Aluminium
Company forbids two Indian parties from choosing the substantive law of any other
country as the law governing the contract, there is no authoritative pronouncement of
the Supreme Court yet in so far as choice by two Indian parties of a neutral
international institution or curial law is concerned.
The parties to a contract in international trade or commerce may agree in advance on
the forum which is to have jurisdiction to determine disputes which may arise between
them. The chosen court may be a court in the country of one or both the parties, or it
may be a neutral forum.125
Under the contract, the parties had agreed on a two tier arbitration system, with the first
tier being an arbitration in India and the second tier being in the nature of an appeal by
arbitration in London. It was held that there is nothing wrong with such two tier
arbitrationas the parties to an arbitration agreement have the autonomy to mutually
agree on such a clause.126
[s 1.7] Conflict of Laws
Where either party is a foreign national, the contract is made in one jurisdiction or
country and is to be performed in another, or the subject matter of the contract is
situated in a different country or is sued upon in a jurisdiction where it was not made or
was to be performed, it becomes necessary to determine which law of which legal
system will govern the contract, or any particular aspect of it. The Act does not deal
with this question.Globalisation has given rise to the practice of the parties to a
contract agreeing beforehand to approach for resolution of their disputes
thereunder,either any of the available courts of natural jurisdiction and thereby create
an exclusive or non-exclusive jurisdiction in one of the availableforaor to have the
disputes resolved by a foreign court of their choice as a neutral forum according to the
law applicable to that court. It is a well-settled principle that by agreement the parties
cannot confer jurisdiction, where none exists, on a court to which the Code of Civil
Procedure applies, but this principle does not apply when the parties agree to submit to
the exclusive or non-exclusive jurisdiction of a foreign court. Thus, it is clear that the
parties to a contract may agree to have their disputes resolved by a foreign court
termed as a "neutral court" or "court of choice" creating exclusive or non-exclusive
jurisdiction in it.127 Territorial jurisdiction of the Court and applicability of law are two
different things and even if a matter is decided in the country other than the country
where the agreement has been executed, the law which would apply would be the law
agreed by the parties.128
A contract made between a cotton mill at Lyallpur (in Pakistan), and the plaintiffs, was
held to be governed by the law of Pakistan. After the partition, the plaintiff migrated to
India and the monies in the hands of the mills were ordered to be paid over to the
Custodian of Evacuee Property, Pakistan, under an Ordinance. In a suit by the plaintiff's
evacuees in Delhi claiming the money, it was held that Lyallpur was the place of primary
obligation, the elements out of which the contract to pay arose were most densely
grouped at Lyallpur, and Lyallpur was the natural seat of the contract and the place with
which it had its closest and most real connection. Accordingly, the law of Pakistan was
the proper law of the contract; and even under the English doctrine of situs,thesitus of
the debt was Lyallpur and therefore either way law of Pakistan applied.129
[s 1.8] Proper Law of Contract
The expression "proper law of a contract" refers to the legal system by which the
parties to the contract intended their contract to be governed. If their intention is
expressly stated or if it can be clearly inferred from the contract itself or its surrounding
circumstances, such intention determines the proper law of the contract … Where,
however, the intention of the parties is not expressly stated and no inference about it
can be drawn, the Court would endeavour to impute an intention by identifying the legal
system with which the transaction has its closest and most real connection.130
While determining the applicable law, the following questions have to be addressed:131
(i) should contracts with a foreign element be governed by the place of contracting
or by the law chosen or intended by the parties;
(ii) if the contract is to be governed by the law chosen by the parties, should there
be, and if so, what limits on the scope of their choice; and
(iii) if the parties have not chosen the law, should the contract be governed by the
law of the place of contracting, or must be identified by reference to their actual
or presumed intention, or by reference to objective localising factors.
The intention theory regards the proper law of contract as the law or laws by which the
parties intended or may fairly be presumed to have intended the contract to be
governed, or in other words, the law or laws to which the parties intended and may
fairly be presumed to have intended to submit themselves. Accordingly, the intention
expressed by the parties determined the proper law of contract and generally
superseded every presumption. If the intention was not expressed, it was to be inferred
from the terms and nature of the contractand in the absence of countervailing
considerations, the presumptions applied, first that the lex loci contractus (law of the
place where the contract is made)was the proper law, and secondly, if one contract was
made in one country and was to be performed in another, the proper law of contract
could be presumed to be the lex loci solutionis (law of the place where relevant
performance occurs).
In Dhanrajmal Gobindram v Shamji Kalidas and Co,132 the Supreme Court observed that
whether the proper law applicable was the lex loci contractus or lex loci solutionis was a
matter of presumption; but there were accepted rules for determining which of the two
is applicable. Where the parties had expressed themselves, the intention so expressed
overrode the presumption. Where there was no expressed intention, then the rule to
apply was to infer the intention from the terms and nature of the contract and from the
general circumstances of the case. The true intention of the parties, in absence of an
express selection, has to be discovered by applying "sound ideas of business,
convenience and sense to the language of the contract itself". In such a case, selection
of courts of a particular country as having jurisdiction in matters arising under the
contract is usually, but not invariably, an indication of the intention of the parties that
the system of law followed by those courts is the proper law by which they intend their
contract to be governed. However, the mere selection of a particular place for
submission to the jurisdiction of the courts or for the conduct of arbitration will not, in
the absence of any other relevant connecting factor with that place, be sufficient to
draw an inference as to the intention of the parties to be governed by the system of law
prevalent in that place.133 If there is no express choice of the proper law of the
contract, the law of the country of the chosen court will usually, but not invariably, be
the proper law.134
The localisationtheory propounded by Westlake, and later Cheshire, that the proper law
is the law of the country in which the contract may be regarded as localized, the
localization being indicated by grouping of its elements as reflected in its formation
and terms, was accepted by the Supreme Court.135
The difference between the theory of intention and the localisation theory is the
difference between subjectivity and objectivity. According to the theory of intention, the
court purports to ascertain the actual intention of the parties; according to the
localisation theory, it imposes upon them the intention, that in the circumstances of the
case they should have formed as reasonable men.136 Thus, even if they choose the
applicable law, their intention is decisive, but only so far as it appears that the contract
and the circumstances in which it was made do not negative that intention. In the
objective view, the express selection of a governing law will not be permissible if it
conflicts with the natural seat of the contract as disclosed by the grouping of its
elements.The country in which its elements are most densely grouped will represent its
natural seat and the law to which in consequence it belongs.137Where the parties have
not selected the proper law, the courts impute an intention by applying the objective
test to determine what the parties would have, as just and reasonable persons,
intended as regards the applicable law, had they applied their minds to the question.
For this purpose, the place where the contract was made, the form and object of the
contract, the place of performance, the place of residence or business of the parties,
reference to the courts that will have jurisdiction and such other links, are examined by
the courts to determine the system of law with which the transaction has its closest
and most real connection.138
The most usual way of expressing the law in cases where there is no express provision
about the law that is to obtain or the situs, is to say that an intention must be implied or
imputed by reference to considerations such as where the contract was made and how
and where it was to be performed and by the nature of the business or transaction to
which it refers.139
The test of presumed intention was replaced in England, Germany and France by a test
based on objective connection of the transaction with a legal system. In the United
States, in the absence of choice of law by the parties, the applicable law is the law
which has the most significant relationship to the transaction and to the parties.140
The objective test of the "closest and most real connection" was adopted in Bonython v
Commonwealth of Australia.141
[s 1.9] International Commercial Arbitrations
In International commercial arbitrations, the proper law of arbitration (i.e., the
substantive law governing arbitration) determines the validity, effect and interpretation
of the arbitration agreement, the arbitration proceedings are conducted, in the absence
of any agreement to the contrary, in accordance with the law of the country in which the
arbitration is held. On the other hand, if the parties have specifically chosen the law
governing the conduct and procedure of arbitration, the arbitration proceedings will be
conducted in accordance with that law. If no such choice has been made by the parties,
expressly or by necessary implication, the procedural aspect of the conduct of
arbitration (as distinguished from the substantive agreement to arbitrate) will be
determined by the law of the place or seat of arbitration.142 It has been held that if the
parties did not expressly make a choice of the law governing the arbitration agreement,
a presumption would arise that the proper law governing the arbitration would be the
same as law of the country in which arbitration is agreed to be held.143To suit India, the
conflict of law rules have been suitably modified, where the seat of an international
commercial arbitration is in India, the parties would be free to agree on any other
substantive law and if not so agreed, the substantive law applicable would be as
determined by the Tribunal.144
While holding that there is an implied exclusion of jurisdiction of courts in India, it was
held that while interpreting the arbitration clause in an international commercial
arbitration, the commercial background, the context of the contract and the
circumstances of the parties andthe background in which the contract was entered into
are to be considered.145
In international commercial arbitrations, where there is no express choice of the law
governing the contact as a whole, or the arbitration agreement in particular, there is, in
the absence of any contrary indication a presumption that the parties have intended
that the proper law of the contract as well as the law governing the arbitration
agreement would bethe same as the law of the country in which the arbitration is
agreed to be held.146
Considering the different laws that may apply in international commercial arbitrations,
the Supreme Court has held that Party autonomy being the brooding and guiding spirit
in arbitration, the parties are free to agree on application of three different laws
governing their entire contract – (1) proper law of contract, (2) proper law of arbitration
agreement and (3) proper law of the conduct of arbitration, which is popularly and in
legal parlance known as curial law.147
There could be situations where the law governing the conduct of the reference is
different from the law governing the underlying agreement. In such cases, the court
looks to the arbitration agreement to see if the dispute is arbitrable, then to the curial
law to see how the reference should be conducted, and then returns to the first law in
order to give effect to the resulting award.148
There were divergent views on whether, the Courts in India will have jurisdiction under
Pt I of the Arbitration and Conciliation Act, 1996, in respect of arbitrations held outside
India.Overruling its earlier judgments, which had held that Pt I of the Arbitration and
Conciliation Act, 1996, would apply even to international commercial arbitrations held
outside India, unless the parties have expressly or by implication excluded its
application,149 the Supreme Court held that Pt I of the Arbitration and Conciliation Act,
1996 would have no application to International Commercial Arbitration held outside
India.150 It was held that Pt I of the Arbitration and Conciliation Act, 1996 is excluded
by necessary implication if it is foundon the facts of a case that either the juridical seat
of the arbitration is outside India or the law governing the arbitration agreement is a
law other than Indian law.151 After the amendments introduced to the Arbitration and
Conciliation Act, 1996,152 subject to agreement between the parties, sections 9, 27 and
37(3)(1)(a) have been made applicable to international commercial arbitrations held
outside India.153 The introduction of the proviso to section 2(2) by the Arbitration and
Conciliation (Amendment) Act of 2015 whichstates that subject to an agreement to the
contrary, the provisions of sections 9, 27 and 37(1)(a) and (3) shall also apply to
international commercial arbitration, even if the place of arbitration is outside India,and
an arbitral award made or to be made in such place is enforceable and recognised
under the provisions of Pt II of the Arbitration and Conciliation Act,1996, is a significant
legislative change after the decision in Bharat Aluminium Company.
[s 1.10] Private International Law
The autonomy of the parties is recognised as one of the fundamental principles of
private international law.154 "Parties are entitled to agree what is to be the proper law
of their contract... they are entitled to make such an agreement, and I see no good
reason why, subject to some limitation, they should not be so entitled.155 The parties
may have actually expressed their intention upon the matter and in such a case their
intention will be effectuated.156
One view states that the choice of the parties shall be conclusive, and that if the parties
have expressly stated their intention by selecting the law applicable to them, it should
be given effect provided the intention expressed is bona fide and legal, and there is no
reason for avoiding the choice on the ground of public policy.157 According to the other
view, the parties" expression of intention is only a prima facie evidence as to the proper
law applicable;158 it is only one of the factors to be taken-into account.
A question arises whether the law chosen by the parties must have some connection
with the transaction.159 Parties may desire to choose a neutral law, because either
party is not inclined to be subject to the law applicable to the other party. The choice
may also be influenced by the fact that not the main transaction, but some underlying
transaction (namely, insurance, finance, etc.) may have connection with a different
system of law.
[s 1.10.1] Splitting of the Contract
It is a rule that there be only a single proper law of contract which governs all aspects
of the contract. This is conceptually sound, as the primary function of the proper law is
to give effect to the intention of the parties not merely to agree to but also to create a
legally binding relationship. But by the same logic, parties may expressly choose that
different aspects of the contract,160 or different obligations under the contract,161
should be governed by different laws, namely, that obligation A will be governed by the
law of one state and obligation B by the other. The concept of dépçage or
dismemberment indicates that different laws may apply to different parts of the same
contract. There may thus be more than one law applicable to the obligations under the
contract. Although, there should be no difficulty in applying laws of different states to
different issues under the contract in this manner, it is always convenient that all issues
under one contract be determined by one law.
[s 1.10.2] "Floating" Choice of Law Clauses
These are clauses where the parties provide that laws will apply in the alternative in
different circumstances. A "floating" arbitration clause providing for arbitration in
"Beijing or London at the defendant's option" was held valid.162 A contract providing
that it was governed by the English law, and by some other provision oif the London
Arbitration Clause were invalid, was approved ascommercially sound as it had a
fallback provision;163 but there cannot be a proper law which "floats", and is not
identified when it is made, but which is left to be determined later by the unilateral act
of one of the parties.164
[s 1.10.3] Time of application
The proper law attaching to a contract is that which applied at the time it was made.
Hence, the proper law could not be determined retrospectively by an event which at the
time the contract was made was an uncertain event in the future. Nor could the
contract float in the absence of law until the proper law was determined nor change
from one country to another on the happening of subsequent event. Therefore, the
choice of London by the plaintiff had no relevance in determining the proper law of a
bond and as there were no other factors making English law the legal system with
which the bond had the closest connection, the English courts did not have
jurisdiction.165
[s 1.10.4] Renvoiand its applicability
The doctrine by which a Court applies a foreign law in the matter of determination of
disputes before it is Renvoi.166 Under Renvoi, the Court in resorting to foreign law
adopts as well the foreign law's conflict-of-laws principle which may in turn refer the
Court back to the law of the forum.167 The doctrine of renvoi has no place in the law of
contract.168 When a contract is governed by the law of the country with which it has
the closest connection, it will be governed by the substantive legal principles of the law
of that country, and not its conflict of law rules.169 The construction of a contract by
English law involves the application of relevant English statutes and rules of English
common law.170 A contract must necessarily be governed by some system of private
law and there must be a proper law from the inception of the contract.
[s 1.10.5] Scope of the Applicable Law
The "proper law" of the contract determines (subject to exceptions) all aspects of the
contract, namely, its formal and essential validity, its interpretation, effect and
discharge.171 This is stated to be the advantage of the proper law doctrine. The same
law also applies to all obligations under the contract.
A proper law intended as a whole to govern a contract is administered as a living and
changing body of law and effect is given to any changes occurring in it before
performance falls due.172
[s 1.11] Formation
The formation of a contract will be governed by that law which would be the proper law
if the contract were validly concluded. Formation of contract would cover aspects of
offer and acceptance, consideration and reality of consent. A contract which lacks
consideration for formation under the English law, would nevertheless be valid if the
law applicable did not require it.173 In a case where a question is raised that whether
the offer and acceptance resulted in a contract; the question would be determined on
the basis of the putative proper law, i.e. the law which would have been the proper law
of the contract if it had been validly concluded. In Mackender v AG Feldia,174 a case
relating to consent, a claim was made under a jeweller's block policy negotiated in
England for loss by theft. The underwriters discovered that the merchants made a
practice of smuggling diamonds into Italy. The claim was rejected on the ground of
non-disclosure of the smuggling activities and the underwriters sought a declaration
that the policy was void. It was held that the contract being voidable and not void ab
initio, illegality under the proper law of contract (the Belgian law) would merely make
the policy unenforceable.
[s 1.12] Competency to Contract
Generally (but with very important exceptions), the capacity to contract follows the law
of domicile at the time of making the contract.175 This of course is a matter of law
which the parties cannot alter. Section 11 of this Act provides that a person is
competent to contract if he is of the age of majority according to the law to which he is
subject. A large proportion of the decisions under this head applying the lex domicilii
have been in matrimonial causes. In Kashiba Bin Narsapa Nikade v Shripat Narshiv,176 a
widow having domicile by marriage in British India, not having changed this domicile
after marriage, had executed a bond as a surety at the age of 16 years. It was held that
she was a minor by the law of her domicile, and hence not liable under the bond. But
capacity to contract with regard to immovable property is determined by the local law
of its situation.177 Approving the observations in Dicey, that the competence deserved
to be governed not by law of domicile but by the law most closely connected with the
contract, it was held in TNS Firm v VPS Muhammad Hussain,178 that a person's capacity
to bind himself by an ordinary mercantile contract was governed by the law of the
country where the contract was made and not where the person is domiciled. A
personal disqualification imposed on a contracting party by law would extend to all
dealings with any property wherever situated, including a property which had not
specifically been taken over as the disqualified proprietor's estate by the Court of
Wards.179
Later authorities suggest that an individual's capacity to enter into a contract is
governed by the system of law with which the contract is most closely connected or by
the law of his domicile and residence. The Rome Convention (IEEC Convention on the
Law Applicable to Contractual Obligations) provides that where two persons, one of
whom is a natural person, make a contract in the same country, then if the natural
person has the capacity under that law, he cannot rely on any incapacity imposed on
him by the law of another country, unless the other contracting party knew or should
have known of the incapacity.180
[s 1.12.1] Interpretation, Effect and Discharge
The interpretation of the contract, the rights and obligations of the parties under it, and
the discharge, is to be determined by the proper law of contract. However, the mode of
performing a contract, as distinct from the substance of the obligation, is governed by
the place at which the obligation is to be performed.181 The validity of the discharge of
a contract normally depends on the proper law of contract.182 A discharge according to
proper law of contract is valid and a discharge not according to proper law, is not; and
the discharge under the other foreign law will be no answer where the obligation is not
discharged under the proper law. A contractual debt may, and normally will be, regarded
as situated at the debtor's place of residence, but the discharge of a debt whether by
performance or through other events is a matter—subject not to the lex situs of the
debt but to the proper law of contract from which it arises.183
The validity of the transfer of a contractual debt depends on lex situs but a novation,
even a compulsory novation, is not governed by lex situs as it comprises annullment of
one debt and the creation of another and no transfer of property is involved. The former
is governed by the proper law of the contract and the latter probably by the law of the
country with which the substitution of the new debtor is most closely connected.184
The fact that one aspect of a contract is to be governed by the law of one country does
not necessarily mean that that law is to be the proper law of the contract as a
whole.185 Different parts of a contract may be governed by different laws, though the
English courts will not split the contract readily and without good reason.186
[s 1.12.2] Effect of Limitation
Suits instituted in India on contracts entered into in a foreign country shall be subject to
the rules of limitation prescribed in the Indian Limitation Act, 1963. But the rule of
limitation in a foreign country, where the contract is made, may be set up as a defence
to a suit filed in India if:
(i) the rule has extinguished the contract; and
(ii) the parties were domiciled in that foreign country during the period prescribed
by that rule.187
[s 1.13] Tort and Contract
A distinction between liability in tort and in contract,188 turns on the origin of the duty.
Obligations under contract arise from agreement between the parties, are voluntary
and particular to the parties; while those in tort are independent of agreement and are
imposed upon the parties by the law. In tort, the duty is owed to persons generally,
while in contract, it is owed to specific person or persons. A tort makes the claimant's
existing position worse; a breach of contract consists of failing to make the claimant's
position better in the manner contemplated under the contract. In modern law, however,
these distinctions have become hazy because of legislative regulation of many
relationships, terms implied by law, the imposing of terms upon parties which cannot
be contracted out of. The law relating to capacity is different; a minor is liable for his
torts, but not on contract excepting to a limited extent. A contractual right can be
assigned but not a right of action in tort. The distinction between tort and contract has
been described as not logical, and it is sometimes difficult to see whether a particular
act is a wrong or a breach of a contract. Nevertheless, as the law has drawn a
distinction, "tort" may be defined in terms of a breach of duty other than a contractual
duty.189
As to further commentary on the nature of claims under tort and contract, please see
text under section 73.
58 Subs. for "except Part B States" by Act 3 of 1951, section 3.
59 The words "the enactments mentioned in the Schedule hereto are repealed to the extent
specified in the third column thereof; but" repealed by Act 10 of 1914.
60 Official Assignee of Bombay v Madholal Sindh, ILR 1948 : (2) Bom. 1.
61 State of Madras v Gannon Dunkerley & Co Ltd, [1959] SCR 379 at 397 : AIR 1958 SC 560 ;
Sheikh Bros Ltd v Oschner, [1957] AC 136 : [1957] 2 WLR 254 at 260 PC (structure of the Act).
62 Ramdas Vithaldas Durbar v S. Amerchand& Co, (1916) 43 IA 164 at 170 : (1916) 40 Bom 630
at 636 : AIR 1916 PC 7 ; Morvi Mercantile Bank Ltd v UOI, [1965] 3 SCR 251 : AIR 1965 SC 1954 ;
Official Assignee v Mercantile Bank of India Ltd, 61 IA 75 : AIR 1934 PC 246 ; Ibrahim Isaphai v
UOI, AIR 1966 Guj 6 at 12 (but to a limited extent).
63 The 13th Report of the Law Commission of India 1958.
64 Irrawaddy Flotilla Co v Bugwandas, (1891) 18 IA 121 : (1891) 18 Cal 620 at 628, 629; cited in
Jwaladutt R Pillani v Bansilal Motilal, (1929) 56 IA 174 at 178 : AIR 1929 PC 132 at 133–34;
Meghu Mian v Kishun Ram, AIR 1954 Pat. 477 .
65 Special Officer Amaravathi Co-op Sugar Mills v DV Thirumalaswamy, (1973) 2 Mad LJ 361
(bye laws of a co-operative society).
66 Burn &Co v McDonald, (1909–10) ILR 36 –37 Cal 208.
67 Lala Kapurchand Godha v Mir Nawab Himayatalikhan Azamjah, [1963] 2 SCR 168 at 178 : AIR
1963 SC 250 per SK Das J. at 254.
68 The 13th Report of the Law Commission of India 1958.
69 Satyabrata Ghose v Mugneeram Bangur & Co, [1954] SCR 310 at 319 : AIR 1954 SC 44 at 47;
Sushila Devi v Hari Singh (1971)2 SCC 288 ; State of Punjab v Hindustan Development Board Ltd,
AIR 1960 Punj 585 ; Mohori Bibee v Dharmodas Ghose, (1903) 30 IA 114 at 125 : (1902) 30 Cal
539 at 548 (exhaustive and imperative); Gajanan Moreshwar Parelkar v Moreshwar Madan Mantri,
44 Bom LR 703 : AIR 1942 Bom 302 (sections 124 and 125); Burn & Co v McDonald, (1908) 36
Cal 354 ; Lala Kapurchand Godha v Mir Nawab Himayatalikhan Azamjah, [1963] 2 SCR 168 at 178
: AIR 1963 SC 250 at 254; Superintendence Co of India Pvt Ltd v Krisha Murgai, AIR 1980 SC 1717
at 1721.
70 State of West Bengal v BK Mondal & Sons, [1962] 2 (Supp) SCR 876 at 894, 912 : AIR 1962 SC
779 ; Ramanandi Kuer v Kalawati Kuer, 55 IA 18 : AIR 1928 PC 2 : 7 Pat 221 at 227;
Superintendence Co of India Pvt Ltd v Krisha Murgai, AIR 1980 SC 1717 .
71 Firm Kanhaiyalal v Dineshchandra, AIR 1959 MP 234 ; Mohori Bibee v Dharmodas Ghose,
(1903) 30 IA 114 : (1902) 30 Cal 539 (PC); Bhagwandas Goverdhandas Kedia v Girdharlal
Parshottamdas and Co, [1966] 1 SCR 656 : AIR 1966 SC 543 . For the same view taken of the
similarly worded Preamble of the Specific Relief Act, (Act I of 1877); Ramdas Khatau & Co v Atlas
Mills Co Ltd, 55 Bom 659 : AIR 1931 Bom 151 ; Meghu Mian v Kishan Ram, AIR 1954 Pat. 477 .
72 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas and Co, [1966] 1 SCR 656 : AIR
1966 SC 543 at 549.
73 State of Punjab v Hindustan Development Board Ltd, AIR 1960 Pun 585 ; Secretary of State v
GT Sarin & Co, 11 Lah 375 : AIR 1930 Lah 364 ; Firm Chhunna Mal Ram Nath v Firm Mool ChandRam Bhagat, 55 IA 154 : AIR 1928 PC 99 : 9 Lah 510; but see Abaji Sitaram Modak v Trimbak
Municipality, (1904) 28 Bom 66; Ramanandi Kuer v Kalawati Kuer, 55 IA 18 : AIR 1928 PC 2 at 4 : 7
Pat 221 (case of wills).
74 Ramanandi Kuer v Kalawati Kuer, 55 IA 18 at 23 : AIR 1928 PC 2 : 7 Pat 221 at 227; State of
Punjab v Hindustan Development BoardLtd, AIR 1960 Punj 585 (section 70 of Contract Act);
Secretary of State v GT Sarin & Co, 11 Lah 375 : AIR 1930 Lah 364 .
75
Superintendence Co of India Pvt Ltd v Krisha Murgai, AIR 1980 SC 1717 at 1721–22;
Satyabrata Ghosh v Mugneeram Bangur & Co, [1954] SCR 310 : AIR 1954 SC 44 .
76 Indian Airlines Corpn v Madhuri Chowdhuri, AIR 1965 Cal 252 (liability of aircraft "carriers").
77 Re Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, AIR 1939 FC
1 ; Tan Bug Taim v Collector of Bombay, AIR 1946 Bom 216 .
78 Irrawaddy Flotilla Co v Bugwandas, (1891) 18 IA 121 at 127 : ( 1891) 18 Cal 620 at 627.
79 In the section as cited by the Privy Council, there is no comma after "contract"—Irrawaddy
Flotilla Co v Bugwandas, (1891) 18 IA 121 at 127 : ( 1891) 18 Cal 620 at 627.
80 Kuverji Tulsidas v Great Indian Peninsula Railway Co, (1878) ILR 3 Bom 109; Moothora Kant
Shaw v Indian General Steam Navigation Co, (1883) ILR 10 Cal 166.
81 Moothora Kant Shaw v India General Steam Navigation Co, (1883) 10 Cal 166 , 185.
82 Subba Narayana Vathiyar v Ramaswami Aiyar, (1906) 30 Mad 88 at 92 (FB).
83 Salig Ram Amar Nath v Natha Mal Shadi Ram, AIR 1933 Lah 183 .
84 Halsbury's Laws of England, Vol 12(1), 4th Edn Reissue, 31 July, 1998, CUSTOM AND USAGE,
para 650; see also Halsbury' Laws of England, Vol 9(1), 4th Edn Reissue, 30 June 1998,
CONTRACTS, paras 780–781.
85 Halsbury's Laws of England, Vol 12(1), 4th Edn Reissue, 31 July, 1998, CUSTOM AND USAGE,
PARA 650, 657.
86 Juggomohun Ghose v Manickchand, (1859) 7 Moo Ind App 263 at 282; Hind Mercantile
Corpn. Ltd v Miryala Venkateshwarlu & Co, AIR 1959 AP 545 ;
87 Produce Brokers Co Ltd v Olympia Oil and Cake Co Ltd, [1914–15] All ER Rep 113 (HL),
[1916–17] All ER Rep 753 , CA.
88 Moult v Halliday, [1898] 1 QB 125 .
89 Premjit Theatres v Raschi Mehata & Co, AIR 1990 AP 272 at 276.
90 Mcdermott International Inc v Burn Standard Co Ltd, AIR 2006 SCW 3276 : (2006) 11 SCC 181
.
91 Aloka Bose v Parmatma Devi, AIR 2009 SC 1527 : (2009) 2 SCC 582 (agreement to sell
immovable property); Mohd Abdul Hakeem v Naiyaz Ahmed, AIR 2004 AP 299 (assignment); B
Rajamani v Azhar Sultana, AIR 2005 AP 260 .
92 Federal Bank Ltd v VM Jog Engineering Ltd, AIR 2000 SC 3166 : (2001) 1 SCC 663 .
93 Magnum Films v Golcha Properties Pvt Ltd, AIR 1984 Del 162 at 164; also proviso 5 to section
92 of the Evidence Act, 1872.
94 Halsbury's Laws of England, Vol 12(1), 4th Edn Reissue, 31st July 1998, CUSTOM & USAGE,
para 655.
95 SitalPrasad v Ranjit Singh, AIR 1931 All 583 .
96 Rughnath v Ram Partab Ramchander, AIR 1935 Sind 38 .
97 Indian Evidence Act, 1872, section 92(5); Ruttonsi Rawji v Bombay United Spinning and
Weaving Co Ltd, (1916) 41 Bom 518 at 538, 540 : 37 IC 271 : AIR 1916 Bom 4 ; Magnum Films v
Golcha Properties Pvt Ltd, AIR 1984 Del 162 at 164.
98 Juggomohun Ghose v Manickchand, (1859) 7 Moo Ind App 263 at 282; Jamnadas Adukia v
Chetandas Daga, (1928) 30 BOMLR 1317 ; Bejoy Krishna Saha v North Bengal Sugar Mills Co Ltd,
(1945) 2 Cal 173 : AIR 1949 Cal 490 ; Hind Mercantile Corpn. Ltd v Miryala Venkateshwarlu & Co,
AIR 1959 AP 545 ; Se Se Oil v Gorakhram Gokalchand, (1962) 64 Bom LR 113 .
99 The Indian Evidence Act, 1872, proviso 5 to section 92.
100 The Indian Evidence Act, 1872, proviso 5 to section 92, see also section 49.
101 Juggomohun Ghose v Manickchand, (1859) 7 Moo Ind App 263 at 282; G.H. Wittenbaker v
J.C. Galstaun, (1917) 44 Cal 917 at 925 : 43 IC 11 : AIR 1918 Cal 337 ; the allowance of new
usage involves the possibility of allowing change in previous usage: Moult v Halliday, (1898) 1
QB 125 at 130.
102 Canara Industrial and Banking Syndicate Ltd v Ramachandra Ganapathy Prabhu, AIR 1968
Mys 133 at 137.
103 Sital Prasad v Ranjit Singh, AIR 1931 All 583 .
104 Rughnath v Ram Partab Ramchander, AIR 1935 Sind 38 .
105 Ibid.
106 Halsbury's Laws of England, Vol 12(1), 4th Edn Reissue, 31 July, 1998, CUSTOM& USAGE,
PARA 663.
107 Teheran-Europe Co Ltd v ST Belton(Tractors) Ltd, [1968] 1 All ER 585 : [1968] 2 WLR 523 at
530; Miller Gibb & Co v Smith & Tyrer Ltd, [1917] 2 KB 141 : 33 Tax LR 295 (CA); but see
DieElbinger Actiengesellschaft Fur Fabrication Con Eisenbahn Material v Claye, (1873) LR 8 QB
313.
108 Mumbai Metropolitan Region Development Authority v Unity Infraproject Ltd, (2008) 5 Bom
CR 196 ; ICICI Bank Ltd v United Breweries (Holdings) Ltd, (2016) 1 Bom CR 641 .
109 Black's Law Dictionary, 5th Edn West Publishing, 1979, p 686.
110 The Oxford Companion to Law, Oxford, 1980, p 606.
111 Sitaram Bhaurao Deshmukh v Sirajul Khan, (1917) 41 Bom 636 : AIR 1917 Bom 276 .
112 KR Chitguppi and Co v Vinayak Kashinath Khadilkar, (1920) 45 Bom 157 : AIR 1921 Bom 164
: (1920) 22 Bom LR 659 : 58 Ind Cas 184 per Hayward J. at 164 : 58 IC 184.
113 Irrawaddy Flotilla Co v Bhugwandas, (1891) 18 IA 121 at 127 : ( 1891) 18 Cal 620 at 627.
114 Tdm Infrastructure Pvt Ltd v Ue Development India Pvt Ltd, (2008) 14 SCC 271 .
115 KR Chitguppi & Co v Vinayak Kashinath Khadilkar, supra.
116 Official Assignee of Bombay v Madholal Sindh, ILR 1948 : (2) Bom. 1.
117 Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc, (2012) 9 SCC 552 .
118 Atlas Export Industries v Kotak & Co, (1999) 7 SCC 61 .
119 Tdm Infrastructure Pvt Ltd v Ue Development India Pvt Ltd, (2008) 14 SCC 271 .
120 Supra.
121 Addhar Mercantile Pvt Ltd v Shree Jagdamba Agrico Exports Pvt Ltd, 2015 SCC OnLine Bom
7752.
122 Supra foot note 60.
123 Sasan Power Ltd v North American Coal Corp (India) Pvt Ltd, 2016 (2) Arb LR 179 (MP)
(2017) 1 Comp LJ 42 (MP) also see GMR Energy Ltd v Doosan Power Systems India Pvt Ltd, 2017
SCC OnLine Del 11625.
124 Sasan Power Ltd v North American Coal Corp (India) Pvt Ltd, (2016) 10 SCC 813 .
125 British India Steam Navigation Co Ltd v Shanmughvilas Cashew Industries, (1990) 3 SCC 481
.
126 Centrotrade Minerals& Metals Inc v Hindustan Copper Ltd, (2016) SCC OnLine SC 1482.
127 Modi Entertainment Network v W.S.G.Cricket Pte. Ltd, (2003) 4 SCC 341
128
Technip S.A. v S.M.S Holdings Pvt Ltd, (2005) 5 SCC 465 ; Laxman Prasad v Prodigy
Electronics Ltd, (2008) 1 SCC 618 .
129 Delhi Cloth &General Mills Co Ltd v Hamam Singh, AIR 1955 SC 590 : [1955] 2 SCR 402 ;
United Commercial Bank Ltd v Okara Grain Buyers Syndicate Ltd, AIR 1968 SC 1115 (defendant
had not proved that it is not liable and that the property had vested in Pakistan custodian).
130 National Thermal Power Corp v Singer Co, AIR 1993 SC 998 : (1992) 3 SCC 551 ; referring to
Dicey and Morris, Conflict of Laws, 11th Edn Vol. II, pp 1161–62; British India Steam Navigation
Co Ltd v Shanmughvilas Cashew Industries, (1990) 3 SCC 481 ; Delhi Cloth& General Mills Co Ltd v
Harnam Singh, [1955] 2 SCR 402 : AIR 1955 SC 590 ; Rabindra N Maitra v Life Insurance Corpn. of
India, AIR 1964 Cal 141 .
131 Dicey and Morris, Conflict of Laws, 13th Edn p 1196.
132 Dhanrajmal Gobindram v Shamji Kalidas and Co, [1961] 3 SCR 1020 at 1041 : AIR 1961 SC
1285 at 1294.
133 National Thermal Power Corpn v Singer Co, AIR 1993 SC 998 at 1006 : (1992) 3 SCC 551 at
561.
134 British India Steam Navigation Co Ltd v Shanmughvilas Cashew Industries, (1990) 3 SCC 481
.
135 Delhi Cloth and General Mills Co v Harnam Singh, AIR 1955 SC 590 : (1955) 2 SCR 402 ;
Rabindra N. Maitra v Life Insurance Corp, AIR 1964 Cal 141 .
136 Rabindra N Maitra v Life Insurance Corpn.of India, AIR 1964 Cal 141 .
137 Rabindra N Maitra v Life Insurance Corpn.of India, supra.
138 AIR 1993 SC 998 at 1007 : (1992) 3 SCC 551 at 562.
139 Delhi Cloth and General Mills Co v Harnam Singh, AIR 1955 SC 590 : (1955) 2 SCR 402 ; State
Aided Bank of Travancore v Dhrit Ram, 69 IA 1 : AIR 1942 PC 6 .
140 Restatement, § 188.
141 Bonython v Commonwealth of Australia, [1951] AC 201 (PC).
142 National Thermal Power Corp v Singer Co, AIR 1993 SC 998 : (1992) 3 SCC 551 .
143 Centrotrade Minerals & Metals Inc v Hindustan Copper Ltd, (2006) 11 SCC 245 .
144 Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc, (2012) 9 SCC 552 .
145 Harmony Innovation Shipping Ltd v Gupta Coal India Ltd, (2015) 9 SCC 172
146 National Thermal Power Corp v Singer Co, AIR 1993 SC 998 : (1992) 3 SCC 551 .
147 Centrotrade Minerals & Metals Inc v Hindustan Copper Ltd, (2016) SCC OnLine SC 1482;
Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc, (2016) 4 SCC 126 ; Sumitomo
Heavy Industries Ltd v ONGC Ltd, (1998) 1 SCC 305 , referring to Naviera Amazonica Peruna S.A. v
Compania International de Seguros del Peru, (1988) 1 Lloyd's Rep 116 (CA); Bharat Aluminium Co
v Kaiser Aluminium Technical Services Inc, (2012) 9 SCC 552 .
148 Harmony Innovation Shipping Ltd v Gupta Coal India Ltd, (2015) 9 SCC 172 ; Sumitomo
Heavy Industries Ltd v ONGC Ltd, (1998) 1 SCC 305 .
149 Bhatia International v Bulk Trading S.A, (2002) 4 SCC 105 ; Venture Global Engineering v
Satyam Computer Services Ltd, (2008) 4 SCC 190 .
150 Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc, (2012) 9 SCC 552 .
151 Eitzen Bulk A/S v Ashapura Minechem Ltd, (2016) 11 SCC 508 ; UOI v Reliance Industries Ltd,
(2015) 10 SCC 213 ; Harmony Innovation Shipping Ltd v Gupta Coal India Ltd, (2015) 9 SCC 172 ;
Reliance Industries Ltd v UOI, (2014) 7 SCC 603 ; Yograj Infrastructure Ltd v Ssong Yang
Engineering and Construction Co Ltd, (2011) 9 SCC 735 ; Videocon Industries Ltd v UOI, (2011) 6
SCC 161 ; Dozco India Pvt Ltd v Doosan Infracore Co Ltd, (2011) 6 SCC 179 .
152 vide the Arbitration and Conciliation (Amendment) Act, 2015.
153 Raffles Design International India Pvt Ltd v Educomp Professional Education Ltd, (2016) 234
DLT 349 ; Aircon Beibars FZE v Heligo Charters Pvt Ltd, 2017 SCC OnLine Bom. 631
154 Dicey and Morris, Conflict of Laws, 13th Edn pp 1216–17 referring to the position in the
United States and international conventions.
155 James Miller and Partners Ltd v Whitworth Street Estates (Manchester) Ltd, [1970] AC 593 :
[1970] 1 All ER 796 : [1970] 2 WLR 728 .
156 Re Helbert Wagg & Co Ltd, [1956] ChD 323 : [1956] 1 All ER 129 at 135 : [1956] 2 WLR 183 at
189; Mount Albert Borough Council v Australasian Temperance and General Mutual Life Assurance
Society Ltd, [1938] AC 224 at 240 : [1937] 4 All ER 206 at 212; Dhanrajamal Gobindram v Shamji
Kalidas & Co, [1961] 3 SCR 1020 at 1041 : AIR 1961 SC 1285 at 1294 (intention expressed
overrides presumption; inference from terms and nature of contract); dictum of Denning LJ in
Boissevain v Weil, [1949] 1 KB 482 at 491 : [1949] 1 All ER 146 (CA):
I do not believe that parties are free to stipulate by what law the validity of their contract is to be
determined. Their intention is only one of the factors to be taken into account.
157 Vita Food Products Inc v Unus Shipping Co Ltd, [1939] AC 277 : [1939] 1 All ER 513 per Lord
Wright at 521 (PC).
158 The Torni, [1932] at 27 : [1932] All ER Rep 374 ; disapproved in Vita Food Inc v Unus Shipping
Co, [1939] AC 277 : [1939] 1 All ER 513 ; Re Helbert Wagg & Co Ltd, [1956] ChD 323 : [1956] 1 All
ER 129 at 136 : [1956] 2 WLR 183 at 191.
159 Boissevain v Weil, [1949] 1 KB 482 at 490 : [1949] 1 All ER 146 at 153 (CA); affirmed on
other grounds [1950] AC 327 : [1950] 1 All ER 728 (HL).
160 Dicey and Morris, Conflict of Laws, 13th Edn pp 1211–12; Hamlyn & Co v Talisker Distillery,
[1894] AC 202 : [1891–94] All ER Rep 849 (CA).
161 Re Helbert Wagg & Co Ltd, [1956] ChD 323 at 340 : [1956] 1 All ER 129 : [1956] 2 WLR 183 ;
see also the Article 3(1) of the Rome Convention (the EEC Convention on the Law applicable to
Contractual Obligations), which provides: "By their choice the parties can select the law
applicable to the whole or a part only of the contract;" and Article 4(1) provides " … a severable
part of the contract which has a closer connection with another country may by way of
exception be governed by the law of that other country".
162 Star Shipping AS v China National Foreign Trade Transportation Corpn. (The Star Texas),
[1993], 2 Lloyd's Rep 445 (CA).
163 Astro Venturoso Compania Naviera v Hellenic Shipyards SA (The Mariannina), [1983] Lloyd's
Rep 12, 15 (CA).
164 Armar Shipping Co Ltd v Caisse Algerienned' Assurance et de Reassurance (The Armar),
[1981] 1 All ER 498 : [1981] 1 WLR 207 ; EI du Pont de Nemours v Agnew, [1987] 2 Lloyd's Rep
582 at 592.
165 Armar Shipping Co Ltd v Caisse Algerienne d' Assurance et de Reassurance (The Armar),
[1981] 1 All ER 498 at 504 : [1981] 1 WLR 207 (CA).
166 Hindustan Copper Ltd v Centrotrade Minerals and Metals Inc, AIR 2003 Cal 133 .
167 Subhashini Malik v S.K.Gandhi, 2016 SCC OnLine Del 5058.
168 National Thermal Power Corp v Singer Co, AIR 1993 SC 998 : (1992) 3 SCC 551 ; Rhodia Ltd v
Neon Laboratories Ltd, AIR 2002 Bom 502 .
169 Re United Railways of the Havana & Regla Warehouses Ltd, [1960] ChD 52 : [1959] 2 All ER
214 : [1959] 2 WLR 251 ; affirmed on appeal in [1961] AC 1007 : [1960] 2 All ER 332 : [1960] 2
WLR 969 ; not following a dictum of Lord Wright in Vita Food Products Inc v Unus Shipping Co
Ltd, [1939] AC 277 at 292 : [1939] 1 All ER 513 ; Amin Rasheed Shipping Corpn v Kuwait Insurance
Co, [1984] 1 AC 50 at 61–62 : [1983] 2 All ER 884 : [1983] 3 WLR 241 (HL); EI du Pont de
Nemours v Agnew, [1987] 2 Lloyd's Rep 582 at 592; National Thermal Power Corpn v Singer Co,
AIR 1993 SC 998 at 1007 : (1992) 3 SCC 551 .
170 Vita Food Products Inc v Unus Shipping Co Ltd, [1939] AC 277 : [1939] 1 All ER 513 ; Re
Helbert Wagg & Co Ltd, [1956] ChD 323 : [1956] 1 All ER 129 : [1956] 2 WLR 183 at 190.
171 Dicey and Morris, Conflict of Laws, 11th Edn p. l163.
172 Delhi Cloth & General Mills Co Ltd v Harnam Singh, AIR 1955 SC 590 : [1955] 2 SCR 402 .
173 Re Bonancina, [1912] 2 ChD 394 (CA) (Italian law applicable).
174 Mackender v AG Feldia, [1967] 2 QB 590 : [1966] 3 All ER 849 : [1967] 2 WLR 119 .
175 Lachmi Narain v Fateh Bahadur Singh, (1902) 25 All 195 .
176 Kashiba Bin Narsapa Nikade v Shripat Narshiv, (1894) 19 Bom 697.
177 Bank of Africa Ltd v Cohen, [1909] 2 ChD 129 (CA).
178 TNS Firm v VPS Muhammad Hussain, AIR 1933 Mad. 756 : (1933) 65 Mad LJ 458 (no
reference to section 11 of this Act).
179 Lachmi Narain v Fateh Bahadur Singh, (1902) 25 All 195 (disqualification on a proprietor
whose property is placed under the Court of Wards).
180 See also section 11.
181 Jacobs Marcus & Co v Credit Lyonnais, (1884) 12 QBD 589 (CA), (1881–85] All ER Rep 151 ;
Mount Albert Borough Council v Australasian Temperance & General Mutual Life Assurance
Society Ltd, [1938] AC 224 : [1937] 4 All ER 206 (PC); Bonython v Commonwealth of Australia,
[1951] AC 201 (PC).
182 Shankar Vishnu Burhanpurkar v Maneklal Haridas Gujarathi, (1940) Bom 799 : AIR 1940 Bom
362 : 42 Bom LR 873 : 191 IC 653.
183 Perry v Equitable Life Assurance of the USA, (1929) 45 Tax LR 468 (a claim on insurance
policy dismissed because Soviet law annulled rights under insurance contracts); Re United
Railways of the Havana and Regla Warehouses Ltd, [1961] AC 1007 : [1960] 2 All ER 332 : [1960] 2
WLR 969 ; R v International Trustee for the Protection of Bondholders Akt, [1937] AC 500 : [1937] 2
All ER 164 ; Mount Albert Borough Council v Australasian Temperance and General Mutual Life
Assurance Society Ltd, [1938] AC 224 : [1937] 4 All ER 206 (PC).
184 Re United Railways of the Havana and Regla Warehouses Ltd, [1960] ChD 52 : [1959] 2 All ER
214 at 233 : [1959] 2 WLR 251 ; referring to Wolff's Private International Law, 2nd Edn p 458; on
appeal Re United Railways and Regla Warehosues Ltd, [1961] AC 1007 : [1960] 2 All ER 332 :
[1960] 2 WLR 969 ; Arab Bank Ltd v Barclays Bank (Dominion, Colonial and Overseas), [1954] AC
495 : [1954] 2 All ER 226 (HL) (not applied).
185 Hamlyn & Co v Talisker Distillery, [1894] AC 202 : [1891–94] All ER Rep 849 (CA).
186 Kahler v Midland Bank, [1950] AC 24 per Lord MacDermott at p 42 : [1949] 2 All ER 621 at
633.
187 The Limitation Act, 1963, section 11.
188 Anson's Law of Contract, 29th Edn pp 23–34; Halsbury's Laws of England, Vol 9(1), 4th Edn
Reissue, 30 June 1998, "CONTRACTS", para 609 - 611; Chitty on Contracts, 28th Edn pp 31–79.
189 Sachs v Henderson, [1902] 1 KB 612 .
The Indian Contract Act, 1872
Preliminary
[Sections 1 – 2]
S. 2. Interpretation-clause—
In this Act the following words and expressions are used in the following senses,
unless a contrary intention appears from the context:
(a) when one person signifies to another his willingness to do or to abstain from
doing anything, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal;
(b) when the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted, becomes a
promise;
(c) the person making the proposal is called the "promisor," and the person
accepting the proposal is called the "promisee";
(d) when, at the desire of the promisor, the 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 a
consideration for the promise;
(e) every promise and every set of promises, forming the consideration for each
other, is an agreement;
(f) promises which form the consideration or part of the consideration for each
other, are called reciprocal promises;
(g) an agreement not enforceable by law is said to be void;
(h) an agreement enforceable by law is a contract;
(i) 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, is a voidable contract;
(j) a contract which ceases to be enforceable by law becomes void when it ceases
to be enforceable.
[s 2.1] Introduction
The section is an interpretation clause, but it declares a considerable part of the
substantive law. Its propositions are not confined to principles of universal
jurisprudence, but embody several concepts peculiar and of particular importance to
common law. Clauses (a), (b), (c), (e) and (f) provide that an agreement is a promise or
a set of reciprocal promises, that a promise is formed by the acceptance of a proposal;
and that there must be a promisor who makes the proposal and a promisee who
accepts it. In the case of reciprocal promises, each party is a promisor as to the
promise he makes and a promisee as to that which he receives; he is both, proposer
and acceptor, proposing to become liable and accepting the other's liability.
The mutual proposals of the two parties become promises by mutual acceptance;
whatever may have happened before the promises were exchanged are merely
preliminary negotiation, and does not enter into the legal analysis of the transaction.
[s 2.2] Formation of Contract
It has been held that every transaction, to be recognised as a contract, must in its
ultimate analysis, resolve itself into a proposal and its absolute and unqualified
acceptance.190
This analysis of the process may not always be appropriate in a number of situations.In
the absence of signed contract, inference of a concluded contract can be drawn from
documents approved and signed by both parties in form of e-mails, letters, telex and
other mean of telecommunication.191 In order to decide whether there is an absolute
and unqualified agreement between the parties, the entire negotiation and
correspondence should be considered.192 Binding promise can be inferred from the
circumstances of a case.193 For a contract to be formed, the acceptance has to be
communicated and a mere noting of the acceptance of the auction bid in the file is not
enough, even if the bidder had knowledge of such noting.194 A contract being the result
of an offer made by one party and acceptance of that very offer by the other,
acceptance of the offer and intimation of acceptance by some external manifestation,
which the law regards as sufficient is necessary, neither is there an obligation to
accept, nor can silence of the offeree be deemed as consent.195 The general rule is
that an offer is not accepted by mere silence on the part of the offeree, yet it does not
mean that an acceptance always has to be given in so many words. Under certain
circumstances, offeree's silence, coupled with his conduct, which takes the form of a
positive act, may constitute an acceptance—an agreement sub silentio.196 However,
this does not apply to Insurance contracts. It has been held that though in certain
human relationships silence to a proposal might convey acceptance but in the case of
Insurance proposal, silence does not denote consent and no binding contract arises
until the person to whom an offer is made says or does something to signify his
acceptance.197
The learned Ed of the earlier editions of this book had also found it "difficult at first
sight to say without doing violence to the language, that in common affairs of life a
promise is always an accepted proposal". But he observed that the language of the
section was justified, and explained it with an example: a man offers to sell and deliver
goods on credit, then and there, to another, who in the beginning does not want the
goods, but is finally persuaded to take them at a price named by the seller. The seller
delivers the goods and receives in exchange the buyer's promise to pay for them. The
buyer's promise has never been a proposal, the seller offered to sell, and the buyer
accepted the offer by taking the goods and pledging his credit. However, the buyer
must be deemed to adopt the seller's terms at the last moment before delivery of the
goods, as the seller would not have delivered them unless he knew that he would get
the buyer's promise to pay for them. The only way in which he could be sure of this was
the existence of a proposal from the buyer to become liable for the price, which
proposal would become a promise on the goods being delivered. This is the only way in
which the promise can really be simultaneous with the performance for which it is
exchanged, as the theory of the common law requires it to be. Both these reasons
[though the force of the latter appears to be destroyed in India by sub-section (d)]
appear to be sound, and sufficient, on principle, to justify the language of the Act.
The traditional offer-acceptance analysis is not without difficulties, but rejecting it will
deprive the courts, parties and legal advisors of guidance in concluding whether an
agreement has been reached. The traditional method provides a degree of certainty
desirable and necessary in order to promote effective commercial relationships.198
[s 2.3] Position in other Jurisdictions
Parties may contract through the same broker representing both the parties, who
brings them to agree on the same terms.199 Persons entering competitions, or seeking
membership of associations, contract not only with the organiser or association, but
also with one another.200 In such cases, it is difficult to say who has made the offer,
and who has accepted the same. In commercial transactions, particularly complex
ones, contracts are often concluded after prolonged negotiations in which the
sequence of offer and acceptance cannot be identified. The correspondence must then
be considered as a whole, along with the conduct of the parties to see whether the
parties have reached an agreement.201 Such analysis has been viewed as out of
date.202 Courts will hold that there is a contract, even though it is difficult or impossible
to analyse the transaction in terms of offer and acceptance.203 … Most contracts are
reducible by analysis to the acceptance of an offer. The analysisis, however, a working
method, which more often than not,enables us, in a doubtful case, to ascertain whether
a contract has in truth been concluded.204
[s 2.4] Clause (a): Proposal
When one person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence, he
is said to make a proposal.
While the earlier definition emphasises an intention to enter into a legally binding
contract and upon the requirement of consideration from the offeree, the latter
stresses the intention to be bound upon the assent of the offeree. The language of the
definition in this Act appears to confine "proposal" to an offer to be bound by a
promise205 upon receiving the assent from the offeree, or on the offeree fulfilling or
undertaking to fulfil certain conditions.206Where a person intends, actually or
objectively, to be bound without further negotiations by a simple acceptance of his
terms, his expression will be an offer or proposal. To have made a proposal, a person
must have:
(i) signified to another his willingness to do or to abstain from doing anything; and
(ii) has done so with a view to obtaining the assent of that other to such act or
abstinence.
The offeror therefore manifests or makes known his intention of doing or not doing
something, and he does so with the purpose of getting the offeree to assent to it.
It has been held that the use of the words "offer" or "proposal" is not decisive and it
would depend on the facts involved.207 A statement may be a proposal even when
worded as an agreement, with use of the words "I hereby agree to assign the lease to
you...".208 Express words of promise often are no more than a proposal. Thus, a letter
requesting a loan of money, and promising repayment with interest on a certain day, is
not a promissory note but a mere proposal for a loan.209 Promises held out over
loudspeakers are often claptraps of politics and a puffing up of property put up for sale
and cannot be regarded as binding representations.210
[s 2.4.1] Proposal, Statement and Invitation to Treat
A proposal must be distinguished from mere statement of intention which is not
intended to require acceptance. The latter may be merely a statement of intention, or
an invitation to make offers, or to do business. If it is not intended to be binding, it is an
"invitation to treat".
The distinction between offer and invitation to treat depends upon the intention of the
person making it. It is an offer if the person makes it with the intention that he would be
bound no sooner the offeree signifies his assent to it. It must require nothing more to
convert it into a promise except acceptance. It manifests a final declaration of
readiness to undertake an obligation upon certain specified terms and conditions,
leaving the offeree the option of acceptance or refusal. Whereas, it is not an offer if the
person making it is not bound merely by the other party notifying his assent.211 So long
as one of the parties to the transaction could back out of it at his choice, there can be
no binding or concluded contract between the parties, although they have an
agreement on the material terms.212 The person may expressly provide that he would
not be bound by the other person's assent; or his statement may contain words or
expressions which negate the intention; and where this intention is not clear, the court
may take into account the words and expression used in the statement, the
surrounding circumstances, and also the consequences of holding it to be an offer. A
notice communicating to its constituents the decision of the bank to raise the rate of
interest from a certain date was not an express proposal within the meaning of Section
2(a), but it nevertheless gave the terms on which the constituents could propose to
keep alive their overdraft account with the bank or to take further advances from the
bank.213 Neither quotation of prices214 nor a letter asking for quotation or terms215 are
offers, they are invitations for offers. Where orders are invited, a contract comes into
being only when the invitee places an order and the invitor accepts the same.216 A
proposal must also be distinguished from a statement that merely gives
information.217Thus where a Development Authority announces a scheme for
allotment of plots, the brochure issued by it for public information is an invitation to
offer.218
An offer is distinct from statements short of being an offer made during negotiations,
an expression of intention, and an invitation to treat. Stating the price in response to
the request or enquiry is not an offer.219 When a person, in reply to an offer to buy his
house at a certain figure, states that he would not sell the property foranything less
than a certain amount, he thereby merely invites offers and does not make any offer to
sell at the price mentioned by him.220 But a letter communicating willingness to sell at
a price in reply to an inquiry whether the property is for sale, has been held to be an
offer.221 Sending quotations or terms of business is not an offer, but an intimation, on
the part of the merchant sending it, of his readiness to transact business on those
terms, even though it uses the words, "let us have your transaction at once".222 A letter
written to a supplier to purchase goods in response to a telegram received informing
the rates of the goods is an offer and not an acceptance, so as to confer jurisdiction on
the court at the place where such letter is posted.223 A term in a partition deed that any
of the parties wishing to sell his share will sell to the others at the market value is not
an offer but an undertaking to make an offer.224 A bank sending forms to a person at
his request for depositing money does not thereby make an offer.225 An informal talk
between an Honorary Secretary of a bank and another person enquiring whether the
person would purchase land belonging to the bank on certain conditions, followed by
an assurance from the person, and a report by the secretary to the bank about the
assurance, was merely an enquiry and an assurance, and neither an offer nor a
contract.226 A municipal corporation invited tenders for a construction project. It
sought confirmation about the willingness of a tenderer to deposit the entire amount
within 60 days from the date of receipt of final acceptance of the tender. The tenderer
sought two weeks time and agreed. There was no promise by the municipal
corporation to accept the tender if she agreed to pay the entire bid amount within that
time.227 SAIL offered a scheme of discount for any customer who lifted a certain
quantity of goods. A group of customers, who did not qualify separately, but did so as a
group, sought clarification whether they could avail of the discount. SAIL informed that
the discount would be available to such a group provided they declared their intention
to join together for combined off-take according to the scheme and other conditions.
Six traders sent a letter that they had formed a group and suggested a formula for
distribution of discount among individual members. The formula for distribution of
discount to individual members of an unorganised group was not envisaged under the
scheme. The competent authority of SAIL decided that such discount could not be
given. The traders filed a writ petition seeking directions that the discount benefit be
disbursed to them. It was held that there was no concluded contract.228 Advertisement
issued by a housing development authority, offering a scheme, is an invitation to offer
and not an offer.229A bid at an auction isa proposal that would becomebinding when it
is accepted.230 A letter addressed by the chairman of a holding company to the
officers of the subsidiary company to appoint a person to certain post would be merely
in the nature of an advice, giving rise to no contractual relationship, and even if treated
as direction to the subsidiary company, will not be enforceable at the instance of the
person seeking the benefit.231
A voluntary retirement scheme offered by an employer is not a proposal, but merely an
invitation to treat. The application made by employees constitutes the proposal to be
accepted by the employer.232 Such schemes floated by the employer is an invitation to
offer and the application submitted by the employee pursuant to such scheme is an
offer which does not amount to resignation in praesenti and the offer can be withdrawn
by the employee during the validity period, before it is accepted.233 However optees
who knowingly received benefits under VRS would be estopped from withdrawing
thereform.234
[s 2.4.1.1] Tenders
An invitation for tenders for the supply of goods or for execution of works is not an
offer. It is a mere attempt to ascertain whether an offer can be obtained within such a
margin as the employer is willing to adopt; it is an offer to negotiate, an offer to receive
offers,235 even where the reserve price is fixed.236 The actual tender is the offer, and if
accepted, it becomes a binding contract. The mere fact that a person makes
thehighest bidcannot entitle the tenderer to claim acceptance.237 But whenthe
invitation to treat announcing schemes for purchase of land, plot or houses held out a
clear and unequivocal promise to all the applicants that the allotment of plots will be
decided on first come first served basis and that those amongst the applicants who
intend to make out-right purchase will get priority in allotment, the decision to cancel
the process was set aside with a direction to consider the application as per the
scheme.238Where the tenders are invited by the government or public bodies and
authorities, obligations in the conduct of the procedures are imposed on the persons
inviting them in the interest of fairness, preventing discrimination and natural justice,
and their decisionswould be subject to judicial review.239
[s 2.4.1.2] Tender and Standing Offer
A tender for supply of goods, as may be required without the quantity being specified,
is not an offer which may be accepted generally so as to form a binding contract. It is a
continuing offer, which is accepted from time to time whenever an order is given for
any of the goods specified in the tender.240 A writing by which A agrees to supply coal
to B at certain prices and up to a stated quantity, or in any quantity which may be
required for a period of 12 months, is not a contract unless B binds himself to take
certain quantity, but a mere continuing offer which may be accepted by B from time to
time by ordering goods upon the terms of the offer. In such a case, each order given by
B is an acceptance of the offer; and A can withdraw the offer, or, to use the phraseology
of the Act, revoke the proposal, at any time before its acceptance by an order from
B.241 Such a transaction may be reduced to a statement by the intending vendor in this
form: "If you will send me orders for coal, I shall supply it to you for a period of 12
months at a particular rate". This is merely a proposal from A to B. If in reply of such a
proposal, B says to A, "I agree", it does not constitute an acceptance of the proposal. An
acceptance can take place only by B sending an order to A. If, however, there is an
undertaking on the part of B not to send orders for coal (or whatever the goods in
question may be) to any other person than A during a specified time, then, there is a
good consideration for a promise by A to supply such coal as B may order on the
specified terms and up to the specified extent.
The acceptance of tender merely amounts to an intimation that the offer will be
considered to remain open during the period specified, and that it will be accepted from
time to time by giving orders of specified quantities, and does not bind either party
unless and until such orders are given.242 In his mining lease, the lessee undertook to
sell to the government, out of the ore brought to the surface, such quantities as were
required by the government, after the latter had notified to the lessee. This was held to
be an offer by the lessee, and till it was accepted by the government by exercise of its
option as a preferential purchaser, it was not a contract.243
However, failure to supply the goods without any order having been placed under a
continuing offerwould not amount to breach of contract.244
[s 2.4.2] Proposal must be Certain
The proposal must be sufficiently definite to permit the conclusion of the contract by
mere acceptance.245 Since a contract is concluded by the mere acceptance of an offer,
the terms of the intended or proposed agreement must be indicated with sufficient
definiteness in the offer itself. The terms of the offer must therefore be definite and
certain. This does not mean that each and every term may be stated. Sometimes even
essential terms may be left out; but if these can be determined or supplied by
interpreting the agreement, or with reference to usages, previous conduct or practices,
or implied terms, the offer would be adequately definite. A proposal is certain if, under
the general rules of construction or otherwise, the intention of the parties can be
ascertained, and if it can be rendered certain, as by reference to something certain. A
proposal is not less certain if it is conditional, provided there is no element of
uncertainty about it, or in its terms.246 An offer for purchase lacking specification of
quantity required was vague and would not carry contractual relationship.247 A
statement seeking advance payment without any particulars of the thing offered,248 or
stating that the person is prepared to purchase the property for a "reasonable sum",249
are not proposals.
A tender which did not specify the amount of money offered was not certain and could
not be acted upon.250 A contract for renewal of agreement by mutual consent does not
create any obligation or rights in either party for renewal of agreement.251
A term of the proposal signifies a condition without the fulfilment of which the offeror
is not willing to undertake the obligation. Whether a particular condition amounts to a
term depends on the intention of the proposer. When an offer is conditional, the offeree
has the choice of either accepting the conditional offer, or rejecting the conditional
offer, or making a counter-offer. But what the offeree cannot do, when an offer is
conditional, is to accept a part of the offer which results in performance by the offeror
and then reject the condition subject to which the offer is made.252 Some conditions of
the offer may be essential, others ancillary. Where the acceptor accepts the essential
conditions, but does not accept the ancillary conditions strictly, a contract is
nevertheless concluded.253
[s 2.5] Withdrawal of Offer
A proposal can be withdrawn by the offeror at any time before it is accepted by the
offeree. Bidding at an auction is merely an offer which can be withdrawn by the bidder
until it is accepted.254The Supreme Court has in Madhya Pradesh State Road Transport
Corp v Manoj Kumar,255 while quoting from Chitty on Contracts, held that an offer may
be withdrawn at any time before it is accepted and this rule applies even though the
offeror has promised to keep the offer open for a specified time, for such a promise is
unsupported by consideration.
Withdrawal of a public offer to acquire shares under the provisions of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Takeover
Regulations) was not governed by the principles of withdrawal of an offer under the
Contract Act, 1872.256
[s 2.5.1] Proposal to Whom
An offer may be addressed to an individual, or to a specified group of persons or to the
world at large. The former is called a specific offer, and the latter general offer. The
person to whom the offer has been made can accept it. A letter of authority given to a
broker to find a suitable purchaser is not an offer to the world at large to sell to any
person who would offer the minimum price.257
The word "signifies" in the definition indicates that the offer must be communicated to
the person to whom it is made.258
[s 2.5.2] Proposal "Subject to Contract"
A proposal "subject to contract" does not create a contract when accepted. Such a
proposal indicates that the proposer does not intend to enter into a binding contract
until a formal agreement has been executed.259
[s 2.5.3] Proposal and Option
An option by its very nature is dependent entirely on the volition of the person granted
the option. He may or may not exercise it. It is a privilege or concession. Its exercise
cannot be compelled by the person granting the option. It is because of this one
sidedness or "unilaterality", as it were, that the right is strictly construed. The conditions
entitling the option holder to exercise the option must be strictly fulfilled.260 A promise
to reconvey the property within a specified period at the option of the promisor is an
option which becomes enforceable when the offeree exercises his option.261
Whether a statement is an agreement or an option is a matter of construction. Thus,
where the seller in a sale of immovable property could buy back the property at a price
stipulated in the sale after five years, but before six years from the sale, the seller could
not receive the price before the six years, the sale did not contain a term of forfeiting
the right of repurchase if payment is not made in time, and the agreement to
repurchase could be enforced by either party, the agreement was an agreement of sale,
and not a mere option to repurchase.262 A covenant in a sale deed that the purchaser,
in the event of selling the property in future must sell it to the seller or his heirs for the
same price and also the price of any building he might have erected on the property,
amounts to a completed contract and not merely a standing offer or option requiring
acceptance before it could become a contract.263
[s 2.5.4] Proposal: Other Provisions
An offer may be communicated by any act or omission by which the offeror intends to
communicate or has the effect of communicating it (section 3). Its communication is
complete when it comes to the knowledge of the offeree (section 4). It can be revoked
until the offeree posts his acceptance (section 5). It stands revoked by notice of
revocation or by lapse of time, failure by the acceptor to accept the condition precedent
to acceptance, and death ormental illness of the offeror (section 6). It may prescribe
the manner of acceptance (section 7). It may be express or implied (section 9).
[s 2.5.5] Position in other Jurisdictions
The word "proposal" is used in the Act in the same sense as the word "offer" is used in
English law. Writers of English law have defined an offer as:
...an intimation, by words or conduct, of a willingness to enter into a legally binding contract,
and which in its terms expressly or impliedly indicates that it is to become binding on the
offeror as soon as it has been accepted by an act, forbearance, or return promise on the
part of the person to whom it is addressed.264
In Chitty on Contracts, the word "proposal" has been defined as:
an expression of willingness to contract made with an intention (actual or apparent) that it
is to become binding on the person making it as soon as it is accepted by the person to
whom it is addressed.265
It has been held that the test of the person's intention in making a proposal is an
objective one,266 that is, as it would be reasonably construed by a person in the
position of the offeree. A person can be said to have made an offer though he did not
subjectively have the intention to make one,267 or even if it has been made under a
mistake,268 if A's conduct is such as to induce B to reasonably believe that A had that
intention.269 It has been suggested that for reason of convenience and facility of proof
of agreement, it should make no difference whether B's state of mind amounts to
knowledge of, or merely to indifference to, the truth.270 Thus, where ambiguous terms
used by the buyer in the order are misinterpreted by the seller, and such
misinterpretation is acted upon by the buyers, the buyer cannot contend that he did not
make the offer as understood by the seller.The Association of British Travel Agents
(ABTA) prominently displayed in their offices, notice of a scheme stating that if
holidays had not commenced and any member tour operator failed (financially), the
ABTA would arrange reimbursement of money paid for the holiday arrangements. In a
claim concerning a package holiday booked with the tour operator, an ABTA member,
the Court of Appeal held the notice to be an offer by the "objective test", since any
member of the public, booking a holiday with an ABTA member would reasonably
regard these words as an offer of the ABTA.271
A proposer might not be bound where the offeree would know that the proposer never
intended to make the offer on those terms. In ChweeKin Keong v Digilandmallcom Ptd
Ltd,272 the defendant advertised colour laser printers on the internet for 66 Singapore
dollars (SGD) by mistake instead of the real price of 3854 SGD. Plaintiff placed order
for 1606 printers over the internet, and the defendant's computers completed the
contract. The defendant realised the mistake and repudiated the transaction
immediately. It was held that there was no contract.
An express statement that a declaration is not an offer is effective to prevent it from
being an offer,273 but the mere use of the words "offer" or "invitation" may not be
conclusive. A statement may be an invitation to treat even if contains the word
"offer".274 It may be an offer even if it invites the addressee to make an "offer",275 or it
is expressed as an "acceptance".276 A telephonic request for supply of goods suitable
for a prospective customer was a preliminary inquiry, the offer being made by conduct,
when the goods were subsequently dispatched by the supplier.277 An underwriting
letter contained the words: "This engagement is binding on me for two months"; they
were incapable of operating as a promise, and it was held, that their real effect was an
offer with limit of two months for acceptance.278 There is no offer where the owner of
a house states the price at which he "may be prepared to sell" in response to an enquiry
from an interested buyer.279
The proposal may emanate from a third person, who suggests to the prospective
parties the terms of an agreement. In such a case, a contract is formed as soon as
both parties have acted on the agreement, even though there has until that moment,
been no direct communication between them.280 A yacht club committee invited nonmembers to enter for a race on the terms, inter alia, that a yacht that fouled another
should pay damages. A and B both entered their yachts, but as they were jockeying for
position prior to crossing the starting line, A's yacht fouled B's,and A was held liable in
damages to B.281
[s 2.5.5.1] Intention to create Legal Relations
In order that a proposal may be binding by acceptance, it must be such as can be
reasonably regarded as having been made in contemplation of producing legal
consequences. An agreement is not a contract without an intention of creating legal
relation, even though supported by consideration.282 A contract is created by the
common intention of the parties to enter into legal obligation, and the intention is
inferred when the parties to an agreement conform to the rules of law for formation of
contracts. But this intention may be negated, impliedly by the nature of the agreed
promise or promises, as in the case of offer and acceptance of hospitality, or of some
agreements made in the course of family life between members of a family.283 It may
also be negated expressly.284 Contractual intention may be negated by many factors.
Whether or not there is a contractual animus must depend largely on the true
construction of the documents from which that animus is to be inferred.285 The test of
intention to create legal relations is not a subjective but an objective one; that is to
say,the intention which the law will attribute to a person is always that which that
person's conduct bears when reasonably construed by a person in the position of the
offeree and not necessarily that which was present in the offeror's own mind.286
Although, the promisor never intended to create legal relations, he will be bound if a
reasonable person would consider that there was an intention to contract.287 Many
social or domestic arrangements may not be contracts, as they are not intended to be
legally binding.
In Balfour v Balfour,288 a husband staying in Ceylon (now Sri Lanka) promised to pay
GBP 30 a month to his sick wife. She was unable to enforce it inter alia because the
parties did not intend it to be legally binding. But this did not apply where the husband
and wife were separated or were about to do so. Thus in Merritt v Merritt,289an
estranged husband promised to pay GBP 40 a month to his wife, and told her to pay out
of it the outstanding mortgage debt on the matrimonial house, the relevant papers of
which he handed over to her. He agreed to transfer the house to her sole ownership
after the mortgage was paid off. After the mortgage was paid off, he reduced the
monthly allowance to GBP 25 per month and refused to transfer the house. The
agreement was held binding. In all these cases, it was observed that the court looks at
the situation and asks itself whether the arrangement was intended to be binding.
A husband's promise to his wife to buy a car followed by the hire-purchase agreement
in respect of a car registration, booked in the wife's name—there being a prohibition
against parting with possession of a car—was a purely domestic arrangement and not
intended to create a legal relationship or give rise to the rights in the car or in the hirepurchase agreement for the benefit of the wife. It was a purely domestic agreement
with no intention to execute an equitable assignment or create a trust.290 An
arrangement where the owner of the vehicle agreed to carry a co-worker to the place of
their work and back for a weekly sum paid does not show that either party intended to
enter into a legal contract.291
A contractual relationship may be negated by statements made in jest or anger. The
defendant was a director of one company and the plaintiff company, holding shares in
this company, resolved, in the defendant's absence, to sell their shares. After a heated
discussion, the plaintiff company rescinded the resolution and the defendant stated
that he would make good the loss which the plaintiff company might suffer by retaining
those shares. He was held not liable on the undertaking as it was not recorded as a
contract nor recorded in the minutes of the meeting, although the directors thought he
was bound in honour.292
An arrangement which is believed simply to give effect to pre-existing rights is not a
contract because the parties had no intention to enter into a new contract.293 The use
of deliberately vague language such as in "letters of comfort" may negate the intention
to create a legally binding contract.294 A comfort letter, may for example, be a letter
written by a parent company, or sometimes even by a government, to the lender giving
comfort to the lender about a loan made to a subsidiary or a public entity. A letter of
comfort from a parent company to a lender stating that it was the policy of the parent
company to ensure that its subsidiary was "at all times in a position to meet its
liabilities" in respect of a loan made by the lender to the subsidiary, did not have
contractual effect as it was merely a statement of present fact regarding the parent
company's intentions and was not a contractual promise as to the parent company's
future conduct.295 In a commercial transaction, it is not necessary to prove that there
was such an intention, the onus being on the party disputing such an intention. To
quote Lord Moulton again, "not only the terms of such contracts but the existence of an
animus contrahendi on the part of all the parties to them must be clearly shown".296
The onus of proving that there was no such intention lies on the person asserting it,
and it is a heavy burden.297
In Rose and Frank Co v JR Crompton & Bros Ltd,298 an agreement appointing the
plaintiffs as sole agents in the US provided:
This agreement is not entered into nor is this memorandum written as a formal or legal
agreement and shall not be subject to legal jurisdiction in the law courts either of the United
States or England, but it is only a definite expression and record of the purpose and
intention of the three parties concerned to which they each honourably pledge themselves
with the fullest confidence based on past business with each other, that it will be carried
through by each of the three parties with mutual loyalty and friendly cooperation.
It was held that in social and family matters, an intention of not creating a legal
relationship was readily implied, but there was no reason why in business matters also,
the parties should not intend to rely on each other's good faith and honour, and to
exclude all ideas of settling disputes by any outside intervention. If they clearly express
such an intention, there is no reason in public policy why effect should not be given to
their intention. The above clause was interpreted by the court of appeal to mean that
the clause was not intended to affect their legal relation or be enforceable in a court of
law, but it was held by Atkin LJ that the order given by the plaintiffs and accepted by the
defendants created an enforceable contract; which the House of Lords accepted.299 A
statement by a manufacturer in promotional literature of his product being "fool proof"
and "required no maintenance", was held to be without an intention to be acted on as
express warranties and did not give rise to a contract between the manufacturer and a
dealer who had bought the product from an intermediary.300
Intention to create legal relations may be construed from the circumstances of the
case. A stranger was a lodger with a family but was treated as a member of the family.
The family and the stranger had devised separate answers for a fashion competition
and had agreed upon the sharing of expenses and the winnings. One of them won the
prize. It was held that the stranger was entitled to share the prize as it could not be said
that it did not give rise to a legal right because it was similar to a family matter.301 In
Edwards v Skyways Ltd,302 the board of an airlines company agreed to pay ex gratia
payment to pilots declared redundant. They were also to be paid their share of
contribution to the pension fund. The ex gratia payment was equivalent to the
company's contribution for each member of the pension and superannuation fund. This
agreement was held to be a binding contract which the company could not rescind
because of the use of the word "ex gratia". The use of the word "ex gratia" signified that
a pre-existing liability was not admitted, but it did not preclude the legal enforceability
of the settlement itself. It did not make the promise without legal effect.
A proposal "subject to contract" does not create a contract when accepted.303
A contract of option is one whereby the grantor of the option offers to enter into what may
be called a 'major' contract with a second person and makes a separate contract to keep his
offer open.304 The contract of option may exist either as a separate option contract, or as
part of a larger contract such as one of the following: a lease with an option in the lessee (of
land) to renew the lease or buy the reversion; a sale with an option of repurchase granted to
either the seller or the buyer; a sale with an option for the buyer to make further purchases
on similar terms; a service or agency agreement with an option in either party to renew. The
effect of the contract of option is to create an irrevocable offer and a power of acceptance,
such that it is a breach of the contract of option to revoke it. The exercise of the option may
be subject to certain conditions precedent, such as a time limit, or the occurrence of a
certain event, or the duration of a major contract of which it forms a part, or the mode in
which it may be exercised.
[s 2.5.5.2] Advertisement and Display of Goods
Advertisements of goods for sale in newspapers or magazines are not offers.305 Nor
are displays at the shop-window of goods with marked prices,306 or on the shelves of a
self-service shop,307 or an indication of the price of petrol at a petrol pump,308 or or
special offers in catalogues or brochures. As a general rule, these are not offers but
invitations for making offers.
All displays and advertisements may not always be so. A notice at the entrance of an
automatic car-park (the transaction being effected through a machine),309
advertisements of reward for lost articles,310 advertisement promising to pay money to
a person who used a product and caught influenza,311 have been held to be offers. The
test lies in the intention of the maker. The statement is an offer if the person making
the statement shows the intention to be bound immediately on acceptance.
[s 2.5.5.3] Auctions
An auctioneer's request for bids is not an offer, but an invitation to the customers to
bid; the bid constitutes the offer, which is accepted by the auctioneer in a customary
manner, usually by the fall of the hammer. An advertisement announcing that an
auction will be held on a certain day is an invitation to treat, and does not bind the
auctioneer to sell the goods, nor does it make him liable on contract to indemnify the
persons who have incurred expense in order to attend the sale.312
The possibilities of acceptance of tenderhavebeenexplained by Atkin J. in Percival Ltd v
LCC Asylums and Mental Deficiency Committee:313
These tenders...vary in form...It sometimes happens that the effect of the form of the tender
with an acceptance is to make a firm contract by which the purchasing body undertakes to
buy all the specified material from the contractor. On the other hand these tenders are very
often in a form under which the purchasing body is not bound to give the tenderer any
orders at all: in other words, the contractor offers to supply goods at a price and if the
purchasing body chooses to give him an order for goods during the stipulated time, then he
is under an obligation to supply the goods in accordance with the order, but apart from that
nobody is bound. There is also an intermediate contract that can be made in which,
although the parties are not bound to any specified quantity, yet they bind themselves to buy
and pay for all the goods that are in fact needed by them. Of course, if there is a contract
such as that, then there is a binding contract which will be broken if the purchasing body in
fact do need some of the articles the subject of the tender, and do not take them from the
tenderers.
[s 2.6] Clause (b): Acceptance and Promise
When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted, becomes a promise.
[s 2.6.1] Acceptance
An acceptance is a final and unqualified expression of assent to the terms of an
offer.314 Section 2(b) defines acceptance as assent to the proposal by the person to
whom the proposal has been made. An unqualified, unconditional acceptance of the
offer creates a contract when communicated to the offeror (see Section 7). The
contract becomes complete as soon as the acceptance is made by the acceptor and
unless otherwise agreed expressly or by necessary implication by the adoption of a
special method of intimation, when the acceptance of offer is intimated to the
offeror.315
Acceptance is invalid, if the tender which was accepted did not comply with condition
of having to make an initial deposit and there was no rule for waiver of the
condition.316
A party to a transaction cannot take advantage of one part of a document or
transaction and reject the rest. It is a fundamental principle of general application that
if a person of his own accord, accepts a contract on certain terms, he cannot be
allowed to adhere to and abide by some of the terms of the contract which
proveadvantageous to him and repudiate the other terms of the same contract which
might be disadvantageous to him.317
Under Section 3 an acceptance may be communicated by any act or omission by which
the offeree intends to communicate or has the effect of communicating it. Under
Section 4, its communication is complete as against the proposer when it is put into a
course of transmission to him so as to be out of the reach of the acceptor, and as
against the acceptor, when it reaches the proposer. Section 5 provides for revocation of
acceptance. Under Section 7, acceptance must be absolute and unconditional, and of
all the terms of the proposal, and in the manner, if any, prescribed by the proposal.
Acceptance may be express or implied (Section 9).
[s 2.6.1.1] Intention to Accept
The assent may be by express words or by positive conduct.318 An unconditional or
unqualified email stating "we confirm the deal … " was held to be conclusive of the fact
that there was acceptance.319 Acceptance of the offer and intimation of acceptance by
some external manifestation, which the law regards as sufficient is necessary. Neither
is there an obligation to accept, nor can silence of the offeree be deemed as
consent.320 A bank received margin money from a customer for issue of bank
guarantee. The bank suggested that in lieu of charges of other services, the customer
should deposit an amount. The customer stated inability, but offered to keep its trade
surplus with the bank. The bank did not respond, but issued the bank guarantee. It was
held that the bank was not entitled to claim charges, because the customer's proposal
to keep trade surplus was accepted by the bank by issuing the bank guarantee.321 In an
insurance
contract,
communication
of
unconditional
acceptance
is
necessary.322However,where the proposal emanated from the insured and was
accepted by the insurance company, there was a concluded contract.323
An unconditional acceptance of a conditional offer, implied the acceptance of the
conditional offer in entirety, which included the condition subject to which the offer was
made.324
Seeking clarifications about the proposal is neither an acceptance nor a counterproposal,325 nor does mere acknowledgment of offer amount to acceptance. A letter
communicating "without engagement of any kind" that the intent of the offeror had
been duly placed, did not create a binding contract,326 nor a letter stating "will inform
within 15 days".327
An acceptance of a proposal by a company, subject to ratification by its managing
director who was away at the time, became a concluded contract on the company
writing that the managing director would be arriving to sign the agreement; the
requirement of the formal document was held not to apply.328 Acceptance of security
deposit from a tenderer and issue of purchase order to him concluded the contract
between the board and the tenderer, although the formal written contract had not been
executed.329 Government orders signed by authorised officers of the government and
containing terms of the loan were sufficient to create the loan, even though the loan
agreement was not specifically signed on behalf of the government.330 Where the
notice inviting tender contained a clause that on acceptance of the bid, it would be
construed that there was a concluded contract, and pursuant to the acceptance of the
bid, a notification of award was issued, the non-signing of the formal contract was
immaterial.331When the offer made by the employee under the voluntary retirement
scheme, is accepted by the employer, it would constitute a "promise" within the
meaning of section 2(b) of the Indian Contract Act, 1872 and only then the promise
becomes an enforceable contract.332A buyer in an auction sale was liable to pay taxes
where the advertisement for auction sale and the acceptance of the bid stated that the
buyer will bear all statutory liabilities,.333
[s 2.6.1.2] Letters of Intent
A letter of intent merely indicates a party's intention to enter into a contract with the
other party in futureand is not intended to bind either party to enter into any
contract.334
However, it might be construed as a letter of acceptance if such intention is evident
from its terms. The question whether the letter of intent is merely an expression of an
intention to place an order in future or whether it is a final acceptance of the offer
thereby leading to a contract, is a matter that has to be decided with reference to the
terms of the letter. Parties may expressly negative contractual intention, but where this
is not so, the court can hold parties bound by the document, especially when parties
have acted on it, or have spent money on its reliance.335 A letter of intent, for example,
might merely provide that the offer shall be left open.336
[s 2.6.1.3] Who can Accept
There cannot be an acceptance of a proposal which has not come to the knowledge of
the offeree. It has been held that allotment of shares to the nominee of a member who
has renounced his entitlement concludes the contract between the company and the
nominee, though the proposal was made to the member.337
The person accepting on behalf of a legal person must have the authority to accept.338
[s 2.6.1.4] Communication of Acceptance
An acceptance must be communicated to the offeror. This is indicated by the use of
the word "signifies" in the section. Acceptance and intimation of acceptance of offer
are, therefore, both necessary to result in a binding contract.339 Mere mental
resolve,340 or inter-departmental communication proposing acceptance,341 by
company or other body342 or a corporation343 would not result into a contract, unless
these are communicated to the proposer.
An acceptance would be effective without communication if the offeror has, expressly
or impliedly, waived the requirement of communication of acceptance. Performance of
the condition of an offer would amount to acceptance.344
When the standard agreement was not supplied to the party, there was no question of
there being acceptance and hence there was no concluded contract.345
[s 2.7] Position in Other Jurisdictions
If a contract is to be made, the offeree must accept the offer. The acceptance must be
absolute and must correspond with the terms of the offer.Acceptance means, in
general, communicated acceptance, which must be something more than a mere
mental assent. A tacit formation of intention is insufficient.346It was held that the
proposal was accepted by conduct, in a case where the proposal of C in sending to W a
music track for incorporation into W's album along with an invoice, when W produced
the album incurring expenses.347A letter of intent for supply of sugar specifying
amount, price and shipping details was held to be an acceptance.348
The claimants were the suppliers of coal to the defendant railway company. They had
been dealing for some years on an informal basis with no written contract. The parties
agreed that it would be wise to have a formal contract written. The defendant drew up a
draft contract and sent it to the claimant. The claimant made some minor amendments
and filled in some blanks and sent it back to the defendant. The defendant then simply
filed the document and never communicated their acceptance to the contract.
Throughout this period the claimants continued to supply the coal. It was held that
although the acceptance was not communicated, acceptance had taken place by
performing the contract without any objection as to the terms349
There is no contract where acceptance is communicated, not to the proposer, but to
one's own agent.350 There cannot be assent without knowledge of the offer and
reliance upon it.351 Mere resolution of acceptance by a company without it being
communicated, will not conclude a contract.352
In Robophone Facilities Ltd v Blank,353Lord Denning discussed the effect of a clause
providing that the agreement would become binding on the acceptance thereof by
signature. He held that notwithstanding this terminology:
… signing is not enough.... The plaintiffs would be able to keep the form in their office
unsigned, and then play fast and loose as they pleased. The defendant would not know
whether there was a contract binding on them.... Just as mental acceptance is not enough,
nor is internal acceptance within the plaintiff's office.
[s 2.7.1] Promise
Upon acceptance, the proposal becomes a promise. A liability under contract cannot
arise unless the contract has been concluded. Whether a contract has been concluded
or not is a question of fact to be determined in each case by considering all relevant
facts and circumstances, and does not depend on the parties' or solicitors' description
of the situation either as a contract or as negotiation.354 A contract happens when the
acceptance is signified, the question of payment of promised price is a question not of
formation, but of performance.355
A proposer can neither claim that his proposal must be considered by the offeree, nor
can there be a claim for any compensation unless the proposal is accepted. An
employee is entitled to voluntary retirement only if his application is accepted by the
employer.356 It is not necessary that a promise is express, it could even be
implied.357An applicant for land or house in a scheme of housing and development
becomes entitled to it only after his application is accepted by the authority promoting
the scheme.358 Letters written to the bank acknowledging liability, in response to
reminders of the bank to repay the loan, were promise in terms of section 2(b) of the
Act.359 The proposal of the employee under a voluntary retirement scheme, when
accepted by the bank would constitute a promise within the meaning of Section 2(b) of
the Act.360
[s 2.7.1.1] Contract as a Promise
A promise defined in clause (b) of Section 2 is not the same thing as an agreement
under clause (e). A contract has been defined as a promise or a set of promises which
the law will enforce.361 This clause read with clauses (e), (h) and Section 10, indicates
that a promise is an agreement, and is enforceable when it satisfies the conditions
given in Section 10, when it becomes enforceable by law. Reading these together, a
promise becomes a contract when it is supported by consideration. A promisee can
effectually dispense with performance of a contract in whole or in part without either
an agreement by the promisor or consideration for the dispensation.362
The definition of consideration in the Act also supports the view that a contract is a
promise. If A agrees to sell to B a piece of land for Rs 20,000/-, A's promise to convey
the land is the consideration for B's promise to pay the price, and B's promise to pay the
price is the consideration for A's promise to convey the land. There is no consideration
of the agreement between them as a whole. The requirement of consideration as an
essential element for an enforceable contract refers to consideration for a "promise"363
and not for an agreement, and a promise can be enforced if it is supported by
consideration. So also the rule that a minor cannot be liable under a contract, but can
be a beneficiary, can be explained with reference to contract as a promise; for he is not
competent to make or give a promise, but is not incompetent to be a promisee.
[s 2.8] Clause (c): Promisor and Promisee
The person making the proposal is called the "promisor," and the person accepting the
proposal is called the "promisee".
[s 2.8.1] Person
The use of the word "person" in this clause indicates that the "person" must be given an
extended sense to include governments.364 The promisee is the person who is a party
to the contract. The heirs of a promisee or the assignee of a promisee cannot claim to
be promisees themselves, simply on the basis that they themselves could claim what
the promisee could claim.365
[s 2.8.2] Two Parties
A contract envisages two parties, a promisor and a promisee. It can only be bilateral
and the same party cannot be a party on both sides. No man can be under any
obligation to himself.366 For the same reason, a person cannot form a partnership
while acting in different capacities.367 Hence, there cannot be a contract between A on
one side and A and B on the other, and hence, a partner cannot be an employee of his
own firm.368
[s 2.9] Clause (d): Consideration
When, at the desire of the promisor, the 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 a consideration for
the promise.
The section defines what is consideration for a promise. It is an act, forbearance or
promise done or given at the request of the promisor by the promisee or any other
person. While this section defines consideration, the requirement of consideration as
an essential element of contract is mentioned only in Section 25 of the Act; which
renders an agreement without consideration void, subject to exceptions therein.369
[s 2.9.1] Doctrine of Consideration
The purpose of the doctrine of consideration is to put some legal limits on
enforceability of agreements and to establish which promises should be legally
enforceable. It limits the freedom of individuals to make binding legal promises; only
those promises which are supported by consideration are enforceable, others are not
binding, even if the promisor intends to bind himself by the promise.370 Among the
limitations on the enforcement of promises, the requirement of consideration is
described as the most fundamental.
Consideration means a reasonable equivalent or other valuable benefit passed on by
the promisor to the promisee or by the transferor to the transferee.371 The expression
"valuable" is implied under section 2(d) of the Act, for consideration shall be something
which not only parties regard but the law can regard as having some value.372It is the
price of a promise, a return or quid pro quo, something of value received by the
promisee as inducement of the promise.373Consideration is a very wide term and is not
restricted to monetary benefit. Consideration does not necessarily mean money in
return of money or money in lieu of goods or service. Any benefit or detriment of some
value can be a consideration.374 It must be material and not imaginary or
superficial.375Likewise, love,affection or spiritual benefit may be a motive for making a
gift but these filial considerations cannot be held to be legal consideration as
understood by law.376It ensures that the parties have decided to contract after
deliberation, and not on impulse. It is an index of the seriousness of the parties to be
bound by the bargain. Consideration also serves an evidential and formal function. An
act or service having once operated as the consideration for an earlier promise, could
not be treated under Section 2(d) of the Act as a subsisting consideration for a
subsequent promise.377
The requirement of consideration is peculiar to the countries modelled on the common
law system. The continental systems do not require consideration as an element of a
contract, though most insist on some formality for gifts or donative promises; here
contractual obligation can arise when the parties intend to create legal relations. The
UNIDROIT Principles dispense with the requirement of consideration in relation to
conclusion, modification or termination of contracts,378 because in commercial
dealings, obligations are almost always undertaken by both the parties, and the
requirement of consideration is of minimal importance.379
But as Lord Denning LJ has said in Combe v Combe:380
The doctrine of consideration is too firmly fixed to be thrown by a side wind. Its ill
effects have been largely mitigated of late, but it still remains a cardinal necessity of
the formation of a contract, although not its modification or discharge.
[s 2.9.2] Definition
Consideration is defined as:
A valuable consideration in the sense of the law, may consist either in some right, interest,
profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility
given, suffered, or undertaken by the other.381
The above definition brings out the idea of reciprocity as the distinguishing mark; it is
the gratuitous promise that is unenforceable in English law.382
This definition requires that something of value must be given, and that this can either
be a benefit to the promisor or some detriment to the promisee. The Supreme Court
compared this definition with Section 2(d) of this Act, and approved as being practically
the same. It held that the word "valuable" was implied in our law, and could be negative
or positive.383
Another definition approved extensively is the one given by Sir Frederick Pollock:384
An act or forbearance of the one party, or the promise thereof, is the price for which the
promise of the other is bought, and the promise thus given for value is enforceable.
This definition emphasizes the notion of bargain upon which the English law of
contract may be said to be based, and has been approved by the House of Lords,385
and found considerable favour with extra-judicial writers, though it may not give help in
determining whether consideration exists in a given set of facts.386So it is the price of
a promise, a return or quid pro quo for a promise made.387
The term "consideration" must be distinguished from the act of payment of agreed
price. The act of payment of price (or its non-payment) is the performance of a promise
already agreed. Consideration can exist or not exist, and must be reckoned, with
reference to the making of a contract. If a promise to pay the price is the consideration
for the promise, payment of price is performance of that promise and not its
consideration. Not paying price agreed is non-performance or breach, and not lack of
consideration.388
[s 2.9.3] Promise and Consideration
The benefit or detriment relates to each promise looked at separately, as is indicated in
the definition in Section 2(d). The promisee who seeks to enforce the promisemust
have given something of value (detriment to himself or benefit to promisor) at the
request of the promisor. Law is therefore, concerned with consideration for a promise,
and not consideration for a contract.389
Apart from exceptions in Section 25, a promise will not be enforced unless it was given
for value, i.e., not necessarily for an adequate value, but for something which the law
can deem of some value, and the parties treat as such by making it a subject of
bargain. The value so received in exchange for the promise may consist in present
performance, for example, the delivery of goods, or it may itself be the promise of a
performance in the future. These elements of "act, abstinence and promise"390 are
embodied in the definition of consideration by clause (d) of the section. This section
purports to be an interpretation clause, but is really a substantive enactment. Only in
Section 25, after partial anticipation in Sections 10, 23 and 24, does it appear for what
purpose the notion and definition of consideration have been introduced.
[s 2.9.4] Detriment and Benefit
Consideration for a promise may consist in either some benefit conferred on the
promisor, or detriment suffered by the promisee,391 or both. The benefit conferred on
the promisor may be any right, interest, profit or benefit given to him at his request. The
detriment suffered by the promisee may be any forbearance, detriment, loss or
responsibility suffered or undertaken by the promisee (orany other person) at the
request of the promisor. The consideration need not always flow from a party but can
be from a third party at the request of a party.392 In many agreements, both may
correspond in the same contract. In its broader and wider sense consideration also
includes any liability that may pass on to a party who is a beneficiary under the
contract.
A detriment to the promisee is good consideration even though there is no benefit to
the promisor.393 The detriment may consist of any damage or any suspension or
forbearance of the plaintiff's right or any possibility of a loss occasioned to him by the
promise of the other.394 Alteration of position by one person constitutes a good
consideration for a promise on the faith of which he has so altered the position.395
Giving up the right to manage their own estate, for agreeing to common management,
was sufficient consideration.396 A bank seeking to enforce a guarantee has suffered a
detriment, though it has conferred no benefit (factual) upon the surety,397 but in fact
conferred benefit on a third person, the principal debtor. Anything done, or any promise
made, for the benefit of the principal debtor may be sufficient consideration to the
surety for giving the guarantee.398 Reciprocity of obligations is not of the essence of
consideration and an act done or forbearance made in return for a unilateral promise is
sufficient consideration to support the promise.399
A buyer's promise to buy goods is supported both by a detriment to him and benefit to
the seller. However, either of the two is sufficient. Detriment suffered by the promisee is
always good consideration for it is "the price for which the promise is bought";400
detriment to the promisee is of essence of the doctrine, and "benefit to the promisor is,
when it exists, merely an accident.401
In a shipbuilding contract, the owner agreed to pay the price in US dollars in five
installments. After, the payment of the first installment, the dollar was devalued and the
builder demanded a corresponding increase in price threatening otherwise to terminate
the contract. The builders gave a letter of credit as security for repayment in the price.
The owner agreed to pay the increase demanded, without protest, and the builders
agreed to increase the amount of the letter of credit. It was held that the agreement to
carry out the contractual duty to build was no consideration, but the increase in the
letter of credit was, it being additional obligation or liability to increased detriment.402
Promises have been also enforced where there has been no detriment to the
promisee,403 but has secured some benefit including "practical" benefit to the
promisor.404
The terms "benefit" and "detriment" have been used by courts in two senses:
(i) act which has some value; or
(ii) such acts, the performance of which is not already legally due from the
promisee.
The former stresses the factual benefit or sufferance, while in the case of the latter, the
factual benefit is disregarded, and legal benefit or detriment is considered. In the latter
sense, a promisee has provided the consideration only if he has done or promised to do
that which he was not legally bound to do,405 irrespective of whether this confers
factual benefit on the promisor.
The consideration may be of benefit to the promisor or to a third party or may be of no
apparent benefit to anybody but merely a detriment to a third party.406 Detriment to the
promisee suffices even though the promisor does not benefit, e.g., where A guarantees
B's bank overdraft and the promisee bank suffer detriment by advancing money to B.407
[s 2.9.5] "At the desire of the Promisor"
Contracting a marriage in consideration of a promise of a settlement was
enforceable.408 A promise to compensate for a past voluntary act is also enforceable
as an exception under section 25(2) of the Act, if the voluntary act is done, "for the
promisor". A dispute arose between the original owners of land and their assignees of
underground coal and mining rights about the right to receive rent from the sub-lessee
of the mining rights. The sub-lessee agreed to pay rent to the assignees, on the latter's
executing an indemnity bond. The payment being made at the desire of the assignees,
there was a lawful consideration and the contract was held valid.409
An act done at the desire of a third party is not consideration. Thus, a promise by the
defendants to pay to the plaintiff a commission on articles sold through their agency in
a market, which was constructed by the plaintiff, not at the desire of the defendants,
but of the Collector of the place, was without consideration and therefore, void.410 It
could also not be supported under section 25(2) which enacts that an agreement
without consideration is void, unless it is a promise to compensate a person who has
already voluntarily done something for the promisor. The expression "voluntarily"
appears to be used in contradistinction to the words "at the desire of the promisor".411
[s 2.9.6] "Need not benefit the Promisor"
Consideration which moves from the promisee, or any other person, need not move to
the promisor.412 There is nothing to show in the definition of "consideration" in section
2(d) of the Contract Act, that the benefit of any act or abstinence as contained in that
section must directly go to the promisor. The promisee may provide consideration by
conferring a benefit on a third party at the promisor's request. A contract could arise
even though the promise for doing or abstaining from doing something was for the
benefit of a third party.413 Where goods are bought and paid for by the use of a cheque
or credit card, the issuer of the cheque makes a promise to the supplier of the goods
that the cheque will be honoured or that the supplier will be paid; and the supplier
provides consideration for this promise by supplying the goods to the customer.
Consideration moving to one or some of the joint promisors is sufficient consideration
to support a promise to pay made by the others.414 Four persons had executed a
mortgage, but the defence raised on behalf of two of them was that they had not
received any consideration thereunder. The court relied upon section 2(d) of the
Contract Act and held that all the mortgagors were equally liable by the transaction
although two of them might not have benefited by the transaction.415 Thus, coexecutants of a promissory note cannot escape liability on the ground that the other
executant alone had received the amount of consideration under the pro-note.416
The term "consideration" in the Gift Tax Act, 1958417 was construed according to its
definition in section 2(d) of the Contract Act as not requiring that the benefit of act or
abstinence must directly go to the promisor. A contract could arise even though the
promisee does or abstains from doing something for the benefit of a third party (in that
case, a limited company of which the assessees were shareholders and directors), and
the promisor could treat the benefit to the company as a consideration to them.418
The consideration may be of benefit to the promisor or to a third party or may be of no
apparent benefit to anybody but merely a detriment to the promisee.419 Consideration
may be provided either in the form of detriment suffered by the promisee or benefit
provided to the promisor. Detriment to the promisee suffices even if the promisor does
not benefit.420
In the case of a credit card transaction, there may also be consideration moving from
the issuer of the card in the form of the discount allowed to him by the person
supplying goods or services.421
[s 2.9.7] Promissory Estoppel and Consideration
The doctrine of promissory estoppel422 is a departure from the doctrine of
consideration. The principle of promissory estoppel has been statedthus:
Where one party has by his words or conduct made to the other a clear and unequivocal
promise which is intended to create legal relations or affect a legal relationship to arise in
the future, knowing or intending that it would be acted upon by the other party to whom the
promise is made and it is in fact so acted upon by the other party, the promise would be
binding on the party making it and he would not be entitled to go back upon it, if it would be
inequitable to allow him to do so having regard to the dealings which have taken place
between the parties, and this would be so irrespective of whether there is any pre-existing
relationship between the parties or not.423
Promissory estoppel differs fundamentally from traditional contract theory because it
protects reliance, not bargains. Developed to prevent injustice, this doctrine renders a
promise binding if the promisee has suffered some detriment in reliance on the
promise, even though the detriment was not required as consideration, i.e., the reliance
or detriment has not been placed or suffered "at the request of the promisor". To create
an estoppel against a party, his declaration, act or omission must be of unequivocal
character. The Doctrine of Promissory Estoppel belongs not to Law of Contract or
Evidence but relates to "Equity and Fairness in Action".424
A promise in future creates an estoppel, the principle being that if a promise is made in
the expectation, that it would be acted upon and it was in fact acted upon, the party
making the promise will not be allowed to back out of it and the courts should insist
that the promise so made must be honoured.425
The American Law Institute's Restatement of the Law of Contracts in Article 90426
states:
...a promise which the promisor should reasonably expect to induce action or forbearance
on the part of the promisee or a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by enforcement of the promise.
The remedy granted for breach may be limited when justice so requires.
In English law, promissory estoppel has been regarded as a passive equity, and allowed
only as a defence. Allowing it to be used as a cause of action signifies seriously
diluting the rule requiring consideration to support a contractual obligation.
[s 2.9.8] "Promise to Subscribe"
Questions may sometimes arise as to whether the thing done by the plaintiff, claiming
to do so under a promise, was in fact done at the desire of the promisor. The
Commissioners of the Howrah Municipality constituted themselves, trustees by deed
for the purpose of building a town hall in Howrah and for inviting and collecting
subscriptions for that purpose. The defendant signed his name in the subscription
book for an amount of Rs 100. As soon as the subscriptions allowed, the
Commissioners, including the plaintiff, who was also Vice-Chairman of the municipality,
entered into a contract with a contractor for the purpose of building the town hall. The
defendant did not pay his subscription, a suit was brought against him by the plaintiff
on behalf of himself and all the other commissioners who had rendered themselves
liable to the contractor. It was held that the suit would lie, as there was a contract for
good consideration because the subscriber knew the purposes to which the
subscriptions were to be applied, and also that there would be a contractor for the
work.427 In fact, the act of the plaintiff (promisee) in entering into a contract with the
contractor may be said in this case to have been done at the desire of the defendant
(promisor) so as to constitute a consideration within the meaning of the section for the
promise to pay the subscription. If there were no contract with the contractor, or if no
liability had been incurred and nothing substantial had been done on the faith of the
defendant's promise, the promise to pay the subscription would have been without
consideration, and therefore void. It would seem to follow that in the opinion of the
Calcutta High Court, every promise of a subscription to a public or charitable object
becomes a legal promise, and enforceable by the promoters, as soon as any definite
steps have been taken by them in furtherance of the object and on the faith of the
promised subscriptions.
The Madras High Court followed this decision and held that where a person promises
to pay a subscription for a particular object and steps have been taken in furtherance
of the object on the faith of the promised subscription, the subscriber is liable.428 But
in a subsequent case, it was held that a promise to pay a subscription in order to meet
a liability already incurred was not enforceable, as in such a case it could not be said
that there was any request by the promisor to the promisee to do something in
consideration of the promised subscription.429 In an Allahabad case, where a
Mahommedan subscribed Rs 500 to a fund started for rebuilding a mosque, and no
steps were taken to rebuild the mosque, it was held that the promise was without
consideration, and that the subscriber was not liable.430
Mere willingness to utilize a donation for the purposes of a trust which was proposed
to be set up for promoting technical or business knowledge, including knowledge of
insurance could not be regarded as consideration within Section 2(d). In pursuance of a
resolution of the company, an insurance company paid two lakhs out of the
shareholders' fund towards a certain memorial trust proposed to be formed to promote
technical or business knowledge including insurance. After the payment, its insurance
business was taken over by and vested in the Life Insurance Corporation; the trustees
of the trust were called upon to return the amount so paid. This amount was held to be
a donation and the resolution of the company and acceptance by the trustees did not
constitute a contract, and even if it was an offer, there was no consideration moving
from the trustees.431
At all events a voluntary payment, even if repeated, is not in itself evidence of a promise
to continue it.432 The question of consideration for a promise arises only if the offer is
accepted so as to ripen into an agreement. If there is no concluded agreement between
the parties, then the further question whether it is supported by consideration would
not arise.433
There are two English decisions of a similar kind. Re Soames,434 S promised to leave
the plaintiffs GBP 3,000 via his Will for the maintenance of a school. The plaintiffs
established a school, which the court held they would not have done, but for S's
influence. The Will contained no such bequest, but the executors of S were held liable.
Re Mountgarret,435 M suggested that estimates be obtained for the cost of supplying
seating in a school chapel. The school authorities obtained designs though no means
were available. The designs were sent to M and he replied that the school could look to
him for GBP 2800. He also stated that he was willing for lectern, pulpit and organ work
to be added if the cost was not above GBP 3000. Plans for the additional work were
prepared, but then M died. M's estate was held liable for the seating, and the plans for
the other work, but not the actual work. These two English decisions seem in
accordance with the principle of unilateral contacts, where there is a promise for an
act. A makes a promise to B if B performs an act. B is at liberty to act or not, but if he
does so A is liable on his promise. Re Mountgarret indicates that a promisor in such a
case may revoke his promise at any time and remain liable only for work done up to
that time. There is little English authority on the point but in Errington v Errington,
Denning LJ expressed the opinion that such a revocation is impossible once the
promisee has started on performance.
[s 2.9.9] Subscription Agreements in the United States
American courts436 will enforce promises of subscriptions for charitable purposes as a
matter of public policy, because subscription agreements foster and encourage public
and quasi-public enterprises. There is a tendency to adopt a rule that will sustain
subscriptions as legal obligations, so that institutions are not helpless in carrying out
the purposes of their organisation. The theory supporting enforceability of such
agreements is one of contract and not of gift, and the general common law rule that a
promise to subscribe is without consideration and unenforceable generally applies to
them. But the courts have modified the technical rules of consideration and have held
as sufficient a consideration to enforce such subscriptions, which may not be sufficient
to support other contracts,437 by adopting fine reasoning. Consideration is found in the
performance or promise of performance given by the promisee, which the subscriber
treats and considers of value to him; or it may constitute some forbearance or action
on the part of the promisee; at times the intention to benefit has been held to be
sufficient consideration. Consideration has also been found in the mutual promises of
subscribers, each promise given by each of the aggregate body of subscribers being
sufficient consideration to support the validity of each other's promise. Some courts
have upheld the validity of charitable subscriptions on the theory of promissory
estoppel,438 holding that while a mere promise to contribute is unenforceable for want
of consideration, yet if money has been expended or liabilities have been incurred in
reliance on the promise so that non-fulfilment will cause injury to the payee, the donor
is estopped to assert lack of consideration and the promise will be enforced; and the
doctrine has been invoked especially where a request of or invitation to the promisee to
go on with its work cannot be implied in fact.
[s 2.9.10] "Promisee or Any Other Person"
There must be consideration to the promisor (or at his request to some other person)
by the person enforcing the contract or by the promisee or other person.The definition
of consideration under section 2(d) of the Indian Contract Act, 1872 is wide enough to
encompass a situation wherein contract is entered into between the two parties and
the consideration may or may not pass from them and can pass from the third
party.439
This is a departure from the English law under which consideration must move from
the promisee, i.e., the party who wishes to enforce a contract must furnish or have
furnished consideration for the promise of the other party, the whole consideration or in
part (namely, even if provided partly by agent, partner or co-promisee).
In Chinnaya v Ramayya,440A made over certain property by a gift-deed to her daughter
with a direction that the daughter should pay an annuity to A'sbrother, as had been done
by A. On the same day, the daughter executed a writing in favour of the brother
agreeing to pay the annuity. The daughter declined to fulfill her promise, and the brother
sued the daughter to recover the amount due under the agreement. The daughter
contended that no consideration proceeded from the brother, and that he, being a
stranger to the consideration, had no right to sue. Kindersley J. in Chinnayya v
Ramayya,rested his judgment upon the terms in which this section defines
"consideration". In a later case of Samuel Pillai v Ananthanatha Pillai,441 the
administratrix of the estate of deceased person agreed to pay one of the heirs of the
deceased, his full share of the estate if the heir gave a promissory note for a
proportionate part of a barred debt, due to a creditor to the estate. The heir executed a
promissory note in favour of the creditor, gave it to the administratrix, and received his
full share in the estate. The note was subsequently handed over by the administratrix to
the creditor. In a suit by the creditor against the heir on the promissory note, it was held
that the act of the administratrix in handing over to the heir his share of the estate,
without deducting any portion of the debt, constituted consideration for the heir's
promise to the creditors, and that the creditor could recover upon the promissory note.
In both the Madras cases, consideration had proceeded from a third party.A beneficiary
under a trust created by a contract, is entitled to enforce the contract, even though not
a party to the contract.442 A stranger to a Contract which is to his benefit is entitled to
enforce the agreement to his benefit.443
This principle that the consideration for a promise need not necessarily move from the
promisee, has been followed later in a number of cases;444 but not where
consideration moved from a third party who was a minor.445 A family arrangement was
upheld even though the consideration moved from a third party.446 In a contract of
marine insurance, a broker's undertaking to pay premium was consideration, though it
moved from a third person.447
Based on this principle, Courts have evolved an exception to the rule of privity of
contract. The definition of consideration under section 2(d) being wider than the
requirement of the English law, it was held that the bar in the way of an action by the
person not a direct party to the contract, is one of procedure and not of substance and
hence in India the Court is free from these trammels and are guided in matters of
procedure by the rule of justice, equity and good conscience.448 The doctrine of privity
of contract although is applicable even in India but, the same has been applied with
well recognized exceptions and the courts of equity like in India may not be strictly
guided by the said doctrine in order to defeat the claims of the parties.449 Another
exception to the rule of privity of contract is where the privity of contract is created by
the party to the contract with a stranger to the contract by conduct or by
acknowledgement.450 Such conduct or acknowledgement can be either express or
implied.451
In Dutton v Poole,452 decided in 1688, the father of a bride was about to fell timber on
his estate so as to provide for a marriage portion for her. However, he refrained from
doing so on the promise of the eldest son to pay the amount to her. It was held that the
daughter could maintain an action against the son on his promise to the father. Though
she was neither a party to the contract, nor had the consideration moved from her; it
had moved from the father. The decision was based on such nearness of relationship
between the plaintiff (daughter) and the party, from whom the consideration moved
(father), that the plaintiff could be considered a party to the consideration. Thus, a
stranger to the consideration could, by construction of law, be regarded as a party to it,
if he was closely related to the person from whom the consideration actually
proceeded. This decision was set aside in 1861 by Tweedle v Atkinson,453 where the
respective fathers of the husband and the wife agreed that each should pay a sum of
money to the husband, and that the husband should have full power to sue for such
sums. After the death of both the contracting parties, the husband sued the executors
on the agreement of the wife's father. The action was held not maintainable. The
husband was a stranger to the consideration, and the plea of nearness of relationship
to the contracting parties was regarded as of no consequence.
[s 2.9.11] Executory and Executed Consideration
Contracts may be of two classes, one where consideration is executed and the other
where it is executory.454 A consideration which insistson performance (or so far as it
consists in performance) is said to be executed. If and so far as it consists in promise,
it is said to be executory.
Consideration is executory when a promise is made by one party in return for a promise
made by the other; in such a case, each promise is the consideration for the other. Each
party may have his action against the other for non-performance. Such contract is
bilateral, and is binding as soon as the promises are exchanged. If the consideration is
executory on both sides, there will be outstanding rights and liabilities on both the
sides. These are mutual or reciprocal promises.455 Thus, if there is a contract for the
sale of goods, delivery and payment to be made at some future date, the consideration
consists in the promise to sell and to deliver on the one hand and in the promise to pay
on the other; the contract becomes binding as soon as the promises are made, and
does not depend upon delivery or payment to be made. The fact that the promise given
for a promise may be dependent upon a condition does not affect its validity as
consideration.
Consideration is executed when an act is performed in return for a promise, the
promise is unilateral; and there will be a right on one side and an outstanding liability on
the other.456 Illustrations of this may be found in offers of reward. Where, for instance,
the owner of a lost article offers a reward to the person who finds and returns it to him,
the finder, by returning the article, both, accepts the offer and furnishes the
consideration for the offeror's promise.
Where the consideration is executed, liability is outstanding on one side only; where, on
the other hand, the consideration is executory, liability is outstanding on both sides.It is
a trite proposition that mere reciprocal promises are sufficient in law to sustain the
formation of contract.457 The consideration cannot be wholly executed on both sides.
For where performances, and performances only, are exchanged, of which sale of
goods over the counter for ready money is a familiar example, nothing remains to be
done by either party, and there is no promise at all and nothing for the law to
enforce.458 If a contract has been fully and completely performed on both sides, no
question of any further rights and liabilities under the contract is likely to arise.459
An irrevocable power of attorney to the creditor, to sell the hypothecated property, and
credit the same towards the loan advanced, remains an executory promise of the
debtor as long as the debt is outstanding and property not sold against the executed
promise of the creditor. The consideration of the power of attorney is the loan
advanced or remaining unpaid.460 It is not correct to say that as against the loan
advanced, the hypothecation of the property becomes a completed or executed
promise. Hypothecation is only a step towards payment of the loan. But the promise of
the debtor remains executory in character as against the executed promise of the
creditor.461 An executed consideration is within the definition of consideration of
Section 2(d); it consists in performance.462
[s 2.9.12] Past Consideration
The words "has done or abstained from doing" in the definition given in the Act provide
that an act done by A at B'srequest, without any contemporaneous promise from B,
may be a consideration for a subsequent promise from B to A. Consideration may
consist in performance which is known as executed consideration.463 An executed
consideration consists in an act already done by one as consideration for a promise of
the other, and the liability is outstanding on one side only. This is present, as opposed
to future consideration.464
Old debts form good consideration for mortgage or transfer of property.465 A power of
attorney given by a company to a bank enabling it to sell the properties with the bank
was for good consideration relatable to the loan advanced earlier by the bank;466 so
was a promissory note executed as security for repayment of a loan already received
by the debtor;467 or a promissory note executed in favour of a person for services
rendered by him.468
Services previously rendered at the desire of a promisor are good consideration.469 In
Sindha v Abraham,470the plaintiff rendered services to the defendant at his desire
expressed during his minority, and continued those services after his majority at his
request again. The question arose whether such services constituted a good
consideration for a subsequent express promise by the defendant to pay an annuity to
the plaintiff. The agreement was one to compensate for past services, and it was held
that it could be enforced, as the services formed a good consideration within the
meaning of this section. The court was of the opinion that the services were intended
to be recompensed, though the nature and the extent of the proposed recompense
were not fixed until the agreement, sued upon, was executed by the defendant. If so,
there was a contract for reasonable recompense when the services were rendered, and
the decision might have been put on that ground alone. It was chiefly rested, however,
on the ground that, under the words of the present sub-section, service already
rendered at the desire of the promisor and such services to be rendered, stood upon
the same footing. It would seem that, under the Act, the decision must have been the
same on this ground even if the services were rendered at the time, gratuitously, though
at the desire of the defendant. It was also said that if the services had been rendered
voluntarily, i.e., without the desire of the defendant, the case would be within Section 25
of the Act.471 However, neither that section nor the present clause will enable a person
who has purported to bind himself when not competent to contract (Section 11), to
repayment of a loan, to bind himself to it by a new promise when he is competent.472
But where mortgage bonds were executed without authority of the collector, and after
his regime, fresh bonds were executed in lieu of earlier bonds, these were not without
consideration.473
A promissory note is without consideration, if the debt to which the creditor had no
legal right is being assigned to him in spite of prohibition of law.474
[s 2.9.12.1] English Law
If the act or forbearance alleged to constitute the consideration has already been done
before, and independently of the giving of promise, it is said to amount to a past
consideration, for e.g., a thing guaranteed by the seller after it has been sold. Executed
consideration is not a past consideration. In the case of executed consideration, the
promise and the act constituting the consideration are both integral and co-related
parts of the same transaction.475 In the case of past consideration, the promise is
subsequent to the act and independent of it. It is merely an act or forbearance given in
the past by which a person has benefited without incurring any legal liability.476
The general principle of the common law is that in the formation of a contract, the
consideration is given and accepted in exchange for the promise. Hence, the
acceptance of the consideration and the giving of the promise must be simultaneous,
and, in order to have the effect of binding the party making it, a request must be the
offer of a promise in return for some consideration, which offer will become a promise
(if not meanwhile revoked), if and when the consideration is furnished as requested.
Thus, the consideration must always be present at the time of making the promise, and
there is no such thing as a past consideration. If a service is rendered without any
immediate promise or understanding that it is to be recompensed, it is a mere
gratuitous act having no legal effect except such transfer of property or the like as may
be contained in the act itself. If there be such a promise, expressed by words or by tacit
understanding, to be inferred from the circumstances, there is at once an agreement, in
which, if the recompense be not specified, the promise is to give such reward as may
be found reasonable. A subsequent promise specifying the reward will not make an
obligation where there was none before, but will show what the parties thought
reasonable; and there is generally no reason why the parties' own estimate, in a matter
which concerns only themselves, should not be accepted. Such a promise "may be
treated either as an admission which evidences, or as a positive bargain which fixes,
the amount of that reasonable remuneration on the faith of which the service was
originally rendered".477 In many common circumstances, the fact of service being
rendered on request is ample evidence of an understanding that it was to be paid for
according to the usual course.
In determining whether consideration is past, the courts are bound to apply a strictly
chronological test. If the giving of the consideration and the making of the promise are
substantially one transaction, the exact order in which these events occur is not
decisive. For example, a manufacturer's guarantee, though sometimes given to
customer after the sale, has consideration, because the giving of the guarantee and the
sale are in substance a single transaction.
Under the English law, past consideration is no consideration. A promise to pay
compensation for something already done is past consideration and is no
consideration.478 This rule is, under the English law, subject to exceptions.
Consideration given at the request of the promisor.—In Pau On v Lau Yiu,479 the plaintiffs
agreed with a company to sell certain shares in return for allotment of some shares of
the company, and further agreed not to sell the newly allotted shares for some period
of time. Later, the plaintiffs refused to complete the agreement unless they had an
indemnity against any fall in the value of the newly allotted shares during this period,
and the defendants (majority shareholders in the company) gave this guarantee. The
price of the shares fell, and the plaintiffs claimed the amount of indemnity. The
defendants pleaded that there was no consideration. It was held that since the
consideration expressed by incorporation in the guarantee, the plaintiffs' promise in the
main agreement not to sell the shares for a year, the defendants' indemnity would not
be treated as independent of the antecedent promise of the plaintiff not to sell,
because the parties had understood the restriction on the sale to be within the price of
shares. The plaintiffs' promise was made at the request of the defendant and the
promise of indemnity was given to fulfill that intention. Hence the promise, although
antecedent to the guarantee, was a good consideration and the indemnity was
enforceable. The conditions in which this exception applied were stated by the Privy
Council in the above case as follows:
An act done before the giving of a promise to make a payment or to confer some other
benefit can sometimes be consideration for the promise. The act must have been done at
the promisor's request, the parties must have understood that the act was to be
remunerated either by a payment or the conferment of some other benefit, and payment, or
the conferment of a benefit, must have been legally enforceable had it been promised in
advance.480
Payment for antecedent debt.—The existence of an existing debt is sufficient
consideration for a later promise to pay that debt;481 and there will be good
consideration if there has been forbearance on the part of the creditors.482
Negotiable instruments under the Bills of Exchange Act, 1882.—Under Section 27 (1)(b)
of the Bills of Exchange Act, 1882 an antecedent debt or liability constitutes valid
consideration for a bill of exchange. The consideration usually consists in, that the
creditor forbears from suing for the debt, or treats the bill as conditional payment.483
The use of the perfect tense in the clause "has done or promised to do..." embodies in
the law of India the exception to the general rule laid down in Lampleigh v
Brathwaite.484There it was allowed that in general, a service rendered without any
agreement for reward at the time will not support a subsequent promise of reward—"a
mere voluntary courtesy will not have a consideration to uphold an assumpsit"—but it
was said that if the service was "moved by a suit or request" of the promisor, the
promise "couples itself with the suit before," or, as we should now say, is held to relate
back to the original request, and accordingly, is deemed to be made on good
consideration.
[s 2.9.13] Mutual Promises
These words "or promises to do or to abstain from doing something" in the definition,
supplemented by sub-sections 2(e) and 2(f), convey in an indirect manner the
extremely important proposition that a contract may be formed by the exchange of
mutual promises, each promise being the consideration for the other. In this case,
neither promise is of any value by itself, but each of them derives its value from the
exchange, which makes them both binding. This effect of mutual promises is not a
logical deduction from the general notion of consideration, but this positive institution
oflaw is required for the convenience of business in civilised life.
The proposal to give a promise for a promise, is accepted by giving the promise asked
for. Thereafter, the two parties are both bound, each being both promisor and
promisee. It is not really necessary or useful or even true to say that the promise of the
party who accepts has ever been a proposal, though the language of sub-section 2(b)
does not seem to recognise the existence of promises which have not passed through
that stage. Still it is true that, but for the counter-promise or "reciprocal promise";
neither party's signification of willingness could become a promise within the definition
of the Act. In this sense, one can say that the acceptance of an offered promise by
giving the reciprocal undertaking asked for, has itself the nature of a proposal, though it
becomes a promise in the act of utterance, and there is no moment at which it exists
merely as a proposal.
A promise to do something in future is a legal consideration,485 provided it involves a
legal obligation.486 A promise by a widow to adopt a person is good consideration for
the adoptee's agreement in favour of the widow to pay a certain sum of money for
maintenance and, at times, for the management of property.487
A single consideration may support more than one promise.488 For example, where a
tenant gave several undertakings by the rent note, they were held to have collectively
formed one consideration for the landlord assenting to continuing the tenant in
possession and enjoyment of the premises. Every clause of the rent note was
supported by consideration andno clause could be singled out and repudiated on the
ground that it was without consideration.
[s 2.9.14] Abstains: Forbearance
The "detriment" suffered by the promisee is the essence of consideration. Where the
consideration is a present performance and not a promise, the detriment may consist
either in actually parting with something of value, or in undertaking a legal
responsibility, or in foregoing the exercise of a legal right. The exercise of one's legal
rights may not always be profitable; it may be presumed to be of some value because
the law deems it worthy of its protection. Thus, the performance which constitutes a
consideration may be negative as well as positive, provided that the promisee's
abstinence from exercising a right was undertaken at the request of the promisor.
There need not be a total abandonment of the right, or an undertaking to suspend it for
a definite time. Such an undertaking, if it exists, is of course not a performance but a
promise, and such a contract is formed by mutual or reciprocal promises [sub-section
2(f)]. The class of cases under discussion is one where the defendant has requested
the plaintiff to forbear the enforcement of a claim against him offering a new promise
in return, and the plaintiff has in fact forborne for an appreciable time without any
express acceptance of the defendant's terms. The giving up, or forbearing to exercise
an actually existing and enforceable right is certainly a good consideration.489 A
promise to abstain from questioning the validity of an adoption was good
consideration.490
An actual forbearance toexercise a right may be a good executed consideration,
provided it be at the promisor's request, and a promise of forbearance may also be a
good executory consideration.
[s 2.9.14.1] Forbearance to sue
In most cases of forbearance, the promise is one to forbear suing either for a definite
time or for a reasonable time according to the circumstances. This promise may be
express or inferred from the surrounding circumstances of the case and the
transaction as a whole.491 Such cases really belong to contracts by mutual promises.
Sometimes it may not be easy to say whether, on the facts of a particular case, the
consideration is actual forbearance or an agreement to forbear; in other words, whether
the promise sued upon was exchanged for a promise of forbearance, or was an offer to
be accepted by forbearance in fact, and became a promise when its condition was
fulfilled by the plaintiff's forbearance for the specified time, if any, or otherwise for a
reasonable time.492 The Allahabad High Court in Bittan Bibi v Kuntu Lal,493by a majority,
held that in order to constitute a valid consideration, forbearance to sue should be at
the request of the debtor whether express or implied. An actual forbearance, as
opposed to an agreement to forbear to approach the court, is not a good consideration
unless it proceeds from a request, express or implied, on the part of the promisor.
In order that forbearance should be consideration, some liability should be shown to
exist,494 or to be reasonably supposed to exist,495 by the parties; or that there is a
reasonable claim (one made on reasonable grounds), though doubtful,496 or which is in
good faith believed by the party forbearing to have at any rate a fair chance nor where
the plaintiff does not bona fide believe in the validity of the claim.497 Where, after the
expiration of the time fixed for completion of a mortgage, the mortgagee declined to
advance the money unless the mortgagor consented to pay interest from the date fixed
for the completion, and the mortgagor agreed to do so, it was held that there was a
good consideration for the agreement though time was probably not of the essence of
the original contract. The mortgagee believed in good faith that he was entitled to
rescind at once, and the abandonment of his claim to do so was consideration enough
for the mortgagor's agreement to his terms.498
Forbearance to sue on a claim which is not only void, but is also so known to the party
forbearing, is not a good consideration, and equally so if the claim is not believed by
him to be valid. Hence, forbearing to sue in respect of a void agreement,499 is not a
good consideration.A promise to abstain from suing can be a consideration, but only
when the person suing has a subsisting right to sue. Therefore, non-payment of
instalment of a debt fixed under the Debt Conciliation Act, which had become barred
under the Act, cannot be a good consideration of a promise to pay these instalments by
a third party.500
There need not be any express promise to forbear. It is sufficient if circumstances exist
from which such a promise could be implied, and a forbearance has infact followed. A
forbearance to sue, even for a short time, may be consideration for the promise.501 A
request to forbear suing or taking other proceedings, not specifying any length of time,
is understood to be a request of forbearance for a reasonable time.502
Forbearance on the part of the creditor to sue could operate as a sufficient
consideration for a promise even though it be for a limited time.503
On the discovery of an irregularity in advancing a loan, the agent and a clerk of a bank
were asked to explain the irregularity. They executed an undertaking to secure the
payment of the loan amount and in default they held themselves liable for payment.
This agreement was held to be for valid consideration,e.g., forbearance to take
action.504 Forbearance to sue for ejectment given in return for agreement to pay
enhanced rent;505 promise not to file appeal if the tenant was given time to vacate;506
as also an agreement to accept the decree and not to file appeal against it when both
parties could have appealed;507 forbearance to enforce execution and allow time to the
debtor to pay for a verbal promise by the debtor to pay the debt;508 or forbearance to
sue a person other than the promisor509 have been held to be for good consideration.
The withdrawal of pending proceedings for maintenance under Section 488 of the
Criminal Procedure Code, 1973510 was a good consideration for an agreement to pay
maintenance
allowance;511
so
was
relinquishing
the
counterclaim
a
good
consideration for the withdrawal by the plaintiff of his claim.512 Accepting sole liability
by one of two joint debtors is good consideration for an agreement to discharge the
other;513 so is release of a principal debtor a good consideration, for the undertaking of
his liability by another person.514
[s 2.9.14.2] Compromises
The abandonment of a doubtful or disputed claim is good and valuable consideration
even if the claim is ultimately found to be unsustainable. The test to be applied is not to
find out whether the party had a good case, but only to see if he thought in good faith
that he had a case which he was abandoning.515 Compromise of disputes516 and of
doubtful rights517would besufficient consideration for agreements.
Forbearance to sue coupled with forbearance to declare the defendant a defaulter in
respect of a wagering agreement was good consideration.518 But the abandonment of
an obviously groundless claim will not make a good consideration "any more than a
promise to pay a sovereign in satisfaction of a debt of a guinea is supportable by the
consideration that it saves the creditor the trouble of bringing an undefended action for
the larger sum".519This principle is followed by the Indian courts.520
A settlement of a bona fide dispute between the parties521 is a good consideration. An
agreement in the nature of the compromise of a bona fide dispute as to the right
ofsuccession to a priestly office is not without consideration;522 nor a mutual
agreement to avoid further litigation invalid on this ground;523 nor a family
arrangement providing for marriage expenses ofa female member ofa joint Hindu
family on a partition between them of the joint family property.524
A promissory note in the nature of a compromise, of doubtful litigation, passed by a
tenant to the zamindar,during the pendency of a suit brought by the zamindar against
the tenant to eject him from his holding is not without consideration.525 Where the
plaintiff bonafide pleads his title to the property in the suit and then there is a
compromise whereby the plaintiff agrees to buy the property and some other property
from the defendant, such a contract is lawful and for valid consideration. Besides it
was beneficial to the defendant inasmuch as he got paid for his interest in the suit
property the title to which was in dispute in the suit.526 A compromise relating to title
to land, at a time when it was doubtful, is valid, although subsequently it may be found
by judicial decision in another case, that one of the parties to the compromise had a
wholly valid title, and the other had no title at all.527 If at the time of entering into an
agreement, the parties come to a settlement bona fide, the settlement would be binding
on them and it cannot be challenged at a subsequent stage on the ground that on close
examination by a judicial tribunal, it would have been found that one party had nothing
to lose.528
But a pledge or promise of security for an existing debt is void unless there is some
forbearance or undertaking by the creditor (such as not pressing for payment, or
accepting a reduced rate ofinterest) in return for it. Thus, where the drawer of a hundi
became insolvent before it fell due, and the plaintiff, who was the holder, in due course
applied to the acceptor to give security for payment at maturity, and the latter executed
a mortgage "by way of collateral security bond", it was held that, the plaintiff not having
entered into any undertaking whatsoever, could not recover on the mortgage deed.529
A compromise of a claim arising out of an illegal contract is insufficient as
consideration, unless the compromise arises out of a dispute of fact as to whether the
contract is infact illegal.530
The most usual and important kind of forbearance occurring in practice is the one
which is exercised or undertaken by way of compromise of a doubtful claim. It may
seem at first sight that the validity of the promise is doubtful. It is a question of some
importance within what limits the abandonment or compromise of a disputed claim is
a good consideration. The difference between forbearance and compromise is that in
the latter, the claim is not admitted, and the claimant promises to abandon the claim.
Cockburn, Lord Chief Justice has stated in Callisher v Bishoffsheim:531
… a compromise is effected on the ground that the party making it has a chance of
succeeding in it, and if he bona fide believes that he has a fair chance of success, he has a
reasonable ground for suing, and his forbearance to sue will constitute a good
consideration. When such a person forbears to sue he gives up what he believes to be a
right of action, and the other party gets an advantage, and, instead of being annoyed with an
action, he escapes from the vexations incident to it.
Can a cause of action to which there is a complete defence be of any value in the eye
of the law? If a man bargains for reward in consideration of his abandoning such a
cause of action, does he not really get something for nothing, even if he believes he has
a good case? The abstaining or promising to abstain from doing anything which one
would otherwise be lawfully free to do or not to do, is a good consideration, and every
man who honestly thinks he has a claim deserving to be examined532 is free to bring it
before the proper court, and have the judgment of the court on its merits, without which
judgment it cannot be certainly known whether the claim is well founded or not. That
which is abandoned or suspended in a compromise is not the ultimate right or claim of
the party, but his right of having the assistance of the court to determine and, if
admitted or held good, to enforce it. 'If an intending litigant bona fide forbears a right to
litigate a question of law or fact which it is not vexatious or frivolous to litigate, he does
give up something of value. It is a mistake to suppose it is not an advantage, which a
suitor is capable of appreciating, to be able to litigate his claim, even if he turns out to
be wrong.533
[s 2.9.14.3] Family Arrangements
Inthe case of family arrangements, the court will not look too closely into the quantum
of consideration, and an arrangement designed to promote peace and goodwill among
members of a family has been held to be based on good consideration,534 even though
there may not be a dispute,535 or the dispute does not involve legal claims,536 or the
rights claimed are not doubtful537 or there is no claim to property.538A family
settlement whih settles disputes within the family should not be lightly interfered with
especially when the settlement has already been acted upon by some members. Such
settlements have to be viewed a little differently from ordinary contracts and their
internal mechanism for working out the settlement should not be lightly
disturbed.539The courts give effect to a family settlement upon the broad and general
ground that its object is to settle existing or future disputes regarding property
amongst members of the family; the word "family" also being understood in a narrow
sense of being a group of persons recognised in law as having a right of succession or
having a claim to a share in the property in dispute.540 The consideration for a family
arrangement may be preservation of family property, preservation of peace and honour
of the family or the avoidance of litigation;541 or avoiding the possibility of a future
dispute;542 but it must be shown that there was an occasion for effecting the family
arrangement and that it was acted upon;543 and if there is no family dispute to be
settled, it is essential that some consideration, howsoever small, must pass from the
side of the person upon whom a right in property is sought to be conferred.544 Two
sisters, who were litigating against each other, entered into a compromise andeffected
a registered sale between themselves but no cash passed. That was held to be
immaterial and the sale was valid under Section 25(1) of the Contract Act, as the sale
was the result of "rapprochement" between the sisters.545 Differences having arisen
between two brothers on the death of the father, the younger brother was
contemplating litigation. The mother intervened and gave a letter undertaking to make
good the shortfall, which may result from the elder brother not paying the amount
claimed by the younger brother and thus peace in the family was purchased and
restored. This was held to be a good consideration, which brought about an
enforceable agreement.546
[s 2.9.15] "Something"
Consideration must be real. It must be some thing which is of some value in the eye of
law.547 Though this Act speaks only of unlawful and lawful consideration, it must be
"good or valuable" in the sense in which these words appear in English law.548 It need
not be of any particular value; it need not be in appearance or in fact or of
approximately equal value with the promise for which it is exchanged,549 but it must be
something which the law can regard as having some value, so that the giving of it
effects a real though it may be a very small change in the promisee's position. The
benefit or detriment conferred or suffered may be of the most trifling description,
provided it is not utterly worthless.
A meritorious or gratuitous consideration such as love and affection, or obedience and
submission by way of respect is not good or valuable consideration,550 nor an
expectation of spiritual and moral benefit.551 Mere moral duty to perform a promise
given to a party does not constitute consideration.552 However, a promise to marry is
valuable consideration.553
Consideration should not be something which the promisee would have done anyway.
When a subordinate got nothing in return for his promise—what he got he was entitled
to get—the consideration was unreal.554 The consideration should not be illusory,i.e.,
consisting of a promise the terms of which leave performance entirely to the discretion
of the promisee, namely, a promise to do something if "I feel like it", or "unless I change
my mind".
Under a contract to process pulses, performance was accepted. Later agreement by
the contractor for upgrading the pulse already supplied was held without consideration
because the earlier contract was performed and discharged. Promise not to invoke
bank guarantee could not provide consideration because the guarantee could not have
been invoked for a contract fully performed.Where there was no consideration for a
supplemental agreement, claim based thereon was not sustainable.555
The promise should not be obviously impossible,i.e., "according to the state of
knowledge of the day, so absurd that the parties could not be supposed to have so
contracted",556 nor uncertain. In White v Bluett,557a promise by a son "not to bore his
father" was held to be too vague. Promise to cooperate in the recovery from a joint
debtor was sufficiently certain to form a consideration for a forbearance.558
Whilst there is a general insistence that consideration must be of some value, there
seems to be no single theory which explains all the cases in which the consideration
has been held to be insufficient.559 The courts have at times resorted to inventing
consideration, ignoring the intention of the parties. In working the doctrine, courts have
at times held a promise invalid which the parties intended to be binding, and at other
times have held even the slightest of benefit or detriment, to constitute consideration,
which is criticized and subject to ridicule.560
This practice of inventing consideration has been criticized as a source of uncertainty
in law.561 However, the courts would be reluctant to describe a promise made in a
commercial context as gratuitous and it has been said that "a defence of lack of
consideration rarely has merit"562 and that "businessmen know their own business
best even when they appear to grant an indulgence".563
[s 2.9.15.1] Consideration and Motive
The requirement of consideration, vital to the English conception of contract, is not
satisfied by a purely moral obligation, nor is it synonymous with motive. Consideration
and motive are not the same.564 The consideration for a promise is always a motive for
a promise, unless it is nominal or invented; while a motive for a promise may not
always be the consideration for it.565 Motive induces a promise to be given.
A concubine and paramour rendered services to each other by their agreement to
cohabit, her services being given in exchange for his similar services. Having once
operated as consideration for the earlier promise, her past services could not be
treated as a subsisting consideration for a subsequent promise to transfer properties.
Therefore, a gift by a karta of a portion of the joint family property to his permanent
concubine, past cohabitation being the motive and not the consideration, is invalid even
as to his own undivided interest as it was motivated by a desire to compensate for past
services.566
[s 2.9.15.2] Adequacy of Consideration
The courts will not ask if the price is adequate—this is for the parties themselves to
decide.567 At times, even the most trifling of benefit or detriment has been considered
by the court as sufficient.
Where a promissory note was executed for a consideration of the debt due on
accounts, the fact that the amount was not credited in the accounts did not render it
without consideration.568 A smaller sum of money advanced can validly constitute the
consideration for an acceptance of liability for a bigger amount by the debtor.569
Third parties cannot challenge the existence or adequacy of consideration.570
Landholders whoaccepted compensation for acquisition of land, under agreements
entered voluntarily, could not question this amount later when the civil court granted
compensation at much higher rate in respect of similar lands.571
Inadequacy of consideration may not affect the validity of contract if the consent is
free. It may be corroborative evidence of lack of consent. The aspects of inadequacy
and its effect on contract are discussed in Section 25.
Courts do not generally concern themselves with the adequacy of consideration572nor
will they upset a bargain "which is the result of the ordinary interplay of forces".573They
make no attempt to audit the bargain made by the parties to see if it is a fair one.
The act of executing a deed was consideration for a promise to pay money, although
the deed was void.574 It has been good consideration to permit to weigh boilers for a
promise to return them,575 or just to show a person a document,576 or give up a piece
of paper which later turned out to be of doubtful validity; in the last case, the
worthlessness of the document surrendered was no defence to the promise sought to
be enforced, for it related to the adequacy of consideration, for, "the plaintiffs were
induced by the defendant's promise to part with something which they might have kept,
and the defendant obtained what he desired by means of that promise".577
A promise to pay an estate agent for the withdrawal of claim which seemed to have
had no legal basis, and was at most a moral claim or had a nuisance value, was a good
contract with valuable consideration.578
In Esso Petroleum Co Ltd v Commissioners Customs and Excise Commissioners,579one
coin depicting a World Cup footballer offered to every customer, who purchased four
gallons of petrol, was an offer of consideration to the customer to enter into a contract
of sale of petrol, and hence not a gift. In Chappell &Co v Nestle,580an advertisement
promised to supply one of the six gramophone records named in the advertisement in
return for a postal order for one shilling six pence and three wrappers of their
chocolate. It was held that the wrappers were part of the consideration.
A contracting party can stipulate for what consideration he chooses. A peppercorn does not
cease to be good consideration if it is established that the promisee does not like pepper
and will throw away the corn.581
But in Lipkin Gorman v Karpnale,582which dealt with the doctrine of tracing, gaming
chips supplied by a gaming club to one of its members (and then lost by the member in
the course of the gaming) were held not to constitute consideration for the money
which the member had paid for them. One reason for this view appears that the chips
were themselves worthless (so were wrappers in the Chappell case), the second view
was that the chips remained the property of the club; the third view was that parties
merely regarded the chips as a convenient mechanism for facilitating gambling and did
not regard the transaction as sale of chips. The court thus refused to "invent"
consideration in this case. This has invited a view that, "...the question whether a party
has provided consideration may thus receive one answer when it arises for the purpose
of determining the enforceability of a promise, and a different and narrower one when it
arises for the purpose of determining whether a transaction has adversely affected the
rights of a third party."583
If the owner of a newspaper offers the financial Ed's advice to readers who will send
their queries to a given address, the trouble of sending an inquiry is a sufficient
consideration for an undertaking that reasonable care shall be used to give sound
advice in answer thereto. It seems that the contract was concluded as soon as the
reader had sent in his inquiry, the general offer being not merely an invitation, but the
proposal of a contract; though it would also seem that only nominal damages would be
recoverable if the Ed did not answer at all.584
[s 2.9.15.3] Nominal Consideration and Inadequate Consideration
Nominal consideration must be distinguished from inadequate consideration. Nominal
consideration is one placed deliberately by the parties in order to give efficacy to the
contract. Inadequate consideration is one which is substantially less than the
performance promised. The deliberate use of nominal consideration can be regarded
as a form to make a gratuitous promise binding. It may not also necessarily be paid. It
is submitted that the Act does not make any distinction between inadequate and
nominal consideration, and that any nominal consideration is sufficient in the eye of
law for supporting a contract.585 While inadequate consideration may be taken into
consideration by the court in determining whether consent to a contract was free,586
nominal consideration is one likely to be expressed with due deliberation and thought.
It has been said that the difference is of common sense. The language of the
document may not be indicative of the true intention, for documents in cases of this
kind are often deliberately drafted so as to conceal the true nature of the
transaction.587 Although, the parties are free to contract for nominal consideration,
prejudice caused thereby to third parties is undesirable and may be dealt with by other
laws dealing with fraudulent transactions, namely, laws relating to taxation, stamp duty,
protection of shareholders, protection of investors ceiling on land holdings etc.
An allegation that the written contract showed a lower valuation to avoid payment of
stamp duty was no ground to refuse specific performance. It is for the authorities
under the stamp law to take action for violation of provisions of that law.588
[s 2.9.15.4] Pre-existing obligations under Law
The performance of what one is already bound to do, either by general law or by a
specific obligation to the other party, is not a good consideration for a promise;589
because such performance is no legal burden to the promisee, but rather relieves him
of a duty. Neither is the promise of such performance a consideration, since it adds
nothing to the obligation already existing.590 Moreover, in the case of the duty being
imposed by the general law, an agreement to take private reward for doing it would be
against public policy.
Before applying this rule, it must be ascertained that a legal duty does exist. A promise
to remunerate a person named as executor (not out of the estate itself) if he accepts
the office and performs the duty of the executor is not bad for want of consideration,
since it is not a legal duty to accept the office591 and perform those duties without
claiming any remuneration. But a person served with a subpoena is legally bound to
attend and give evidence in a court of law, and a promise to compensate him for loss
of time or other inconvenience is void for want of consideration.592 Similarly, an
agreement by a client to pay to his vakil after the latter had accepted the vakalatnama a
certain sum in addition to his fee if the suit was successful, is without
consideration.593 And it has been held that a bond passed by a judgment-debtor to the
holder of a decree against him for the amount of the decree plus Rs 3/- paid for him for
the stamp and registration charges of the bond is without consideration where the
decree was made by a court having no jurisdiction to make it, and the bond was passed
to secure the release of the debtor from arrest.594 There is a pre-existing obligation on
the husband to take care of his wife and hence expenditure for treatment of wife
cannot be a valid consideration.595 When the mother of the child agrees to accept an
amount less than what was provided in a judicial order, the fatheracquires a pecuniary
advantage and hence there was valid consideration.596
But if a man, being already under a legal duty to do something, undertakes to do
something more, than is contained therein, or to perform the duty in one of several
admissible ways—in other words, to forgo the choice which the law allows him—this is
a good consideration for a promise of special reward.597 In Glasbrook Brothers Ltd v
Glamorgan County Council,598the owners of a coal mine, fearing violence from the
strikers, sought more protection from the police than necessary. The police were held
entitled to the consideration promised for this special guard, even though the police
had done the act of the same kind as that which they are legally bound to do. In another
case, a football club was held liable to the police authority for the cost of policing the
match played on its ground.599
On another view, the actual performance of an existing duty may confer a factual
benefit, because on actual performance, the promisee is saved of pursuing the legal
remedy for its breach. A promise to perform an existing duty or the performance of it
should be regarded as good consideration because it is a benefit to the person to
whom it is given as also to a person who gives it. Therefore, a promise by the father to
pay to the mother a weekly sum for maintenance of their illegitimate child was a
binding contract, it being a promise in return for an act, a promise by the father to pay a
weekly sum for return for the mother's keeping the child "well looked after and happy",
who had till then been living with the father and was handed over to the mother. So long
as she looked after the child she would be entitled to the receipt of the weekly sum. It
was held that the mother had promised more than her statutory duty to maintain.600
[s 2.9.15.5] Performance of Existing Contractual Obligations
If A is already bound to do a certain thing, not by the general law, but under a contract
with Z, neither the performance of it nor a fresh promise thereof without any addition,
or variation, will support a promise by Z, who is already entitled to claim performance.
For Z is none the better thereby in point of law, nor Aany worse. But if M, a third person
not at present entitled to claim anything, offers a promise to A in consideration of: (a)
A's performance of his obligation to Z; or (b) A's promise to M to perform that
obligation, is such performance or promise supported by consideration?
English authority favours the opinion that the performance is a good consideration (see
below) and they seem to assume that both performance and promise must be good
consideration in such case.601 The test ought to be whether there is any legal
detriment to A, the supposed promisee. Now A's performance—that what he already
owes to Z is no detriment to him, and on the other hand, the resulting discharge of his
liability is to him an advantage; and therefore it is no consideration for a new promise
by anyone. But A's promise to M to do something, though he may have already
promised Z to do that same thing, is the undertaking of a new obligation to a new party.
There is no reason why it should not be made binding by M's counter promise, as in any
other case of a contract by reciprocal promises, unless the law forbids the same
performance to operate in discharge of two distinct contracts. In a contract by
reciprocal promises, the promises are the consideration of each other, and not the
performance. The difficulty, if any, may be removed, in the case of performance, by the
slightest appreciable addition to the performance already contracted for; and in the
case of promise, by A's new undertaking to M being or including an undertaking not to
rescind or vary without M's consent, the existing contract with Z.
[s 2.9.15.6] Performance of Existing Contractual Duty Owed to Third Party
A promise to perform, or the performance of a pre-existing contractual obligation with
a third party can be valid consideration for another contract.602Shadwell's603 case
supports the view that the performance of a contractual duty owed to a third party can
be good consideration for a promise. Later authorities too uphold that view. A, a firm of
stevedores, had unloaded goods from B's ship. Some of these goods belonged to C. C
promised Anot to sue him for damaging the goods. It was held that A had provided
consideration for this promise by unloading the goods, even if he was already bound by
the contract with B to unload them.604
In Pao On v Lau Yiu,605 the plaintiff company agreed to sell certain shares to a
company F, the consideration being the agreement to allot 4.2 million shares of F, the
market value of each share was taken as USD 2.50 per share. The plaintiff agreed not
to sell or transfer 2.5 million shares out of the total for one year. The plaintiff then
threatened to breach this contract unless the defendants (majority shareholders of F)
gave an indemnity against loss on these 2.5 million shares if their price went below
USD 2.50 per share. The defendants gave the indemnity. The value of the shares did go
down. The plaintiff sought to enforce the indemnity and recover the loss. The promisee
defendants pleaded that there was no valid consideration for the indemnity agreement.
It was held that since the consideration expressed in the guarantee included by
incorporation the plaintiff's promise in the agreement of sale not to sell the shares for a
year, the defendants' agreement of indemnity could not be treated as independent of
the original promise. Since the promise not to sell for a year was made at the
defendant's request, the promise of indemnity was given to fulfil that intention and it
was held to be enforceable. The consideration for the indemnity was the plaintiff's
promise to perform their pre-existing obligation under the contract with F.
[s 2.9.15.7] Performance of Existing Contractual Duty Owed to the Promisor
Normally performance of a duty already owed under the contract to the promisor is not
good consideration. Even in terms of public policy, it is necessary to discourage a
tendency to use improper pressure or threatening to break one's contract unless other
party complies by paying or promising to pay more; a tendency to resort to extortive
renegotiations. A promise to pay extra freight for the carriage of goods to the agreed
destination cannot be enforced by the law, and the claim can be rejected on grounds of
public policy that the enforcement of such promises might lead carriers to refuse to
perform their contracts unless extra freight was paid, which would encourage
undesirable forms of pressure amounting to extortion.606 Where a mortgagor is
already under a legal obligation to pay interest due regularly under the terms of the
mortgage, a promise to pay that interest regularly cannot form good consideration for
an agreement for reduction of rate of interest payable.607
Insuch cases, however:
...with a properly developed doctrine of the avoidance of contracts on the grounds of
economic duress, there is no warrant for the court to fail to recognise the existence of some
consideration even though it may be insignificant and even though there may have been no
mutual bargain in any realistic use of that phrase.608
The performance of the existing contractual duty may confer the "benefit" or provide
the "detriment" in practical terms. The promisee may find it more economical and of
"practical benefit" to have the promise performed immediately rather than be required
to pursue the action for damages which may not compensate fully the breach. The
promisor would suffer a "detriment" in immediate performance, because else he would
utilize his funds elsewhere with a greater advantage.
Where one party to a contract, agrees in absence of economic duress or fraud, to make
a payment to the other party to the contract, over and above the contract price, in order
to secure completion of the contract by the other party on time and thereby obtains a
benefit in avoiding a penalty payable to the third party if the contract was not
completed on time, the obtaining of that benefit could amount to consideration for
payment of the additional sum. InWilliams v Roffey Bros. & Nicholls (Contractors)
Ltd,609a sub-contractor resumed his work on promise of additional payment for the
carpentry work in refurnishing of flats, it was held by the Court of Appeal that since the
defendant agreed to make the additional payment to avoid a penalty under the main
contract for having to engage another sub-contractor, this amounted to consideration
for the extra payment, even though the plaintiff was not required to undertake any work
additional to that which he had originally undertaken to do, and the plaintiff subcontractor was entitled to claim the extra payments. Glidewell LJ, stated:610
(i) if A has entered into a contract with B to do work for, or to supply goods or
services to, B in return for payment by B; and
(ii) at some stage before A has completely performed his obligations under the
contract B has reason to doubt whether A will, or will be able to, complete his
side of the bargain; and
(iii) B thereupon promises A an additional payment in return for A's promise to
perform his contractual obligations on time; and
(iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a
disbenefit; and
(v) B's promise is not given as a result of economic duress or fraud on the part of A;
then
(vi) the benefit to B is capable of being consideration for B's promise, so that the
promise will be legally binding.
The recognition of "practical" benefit has been criticized.611 It enables the promisor to
rely upon his own breach to establish consideration. It undermines the strength of the
contractual obligation. Yet, it enables commercially desirable renegotiations.612 The
Court of Appeal refused to extend the principle of "practical" benefit to the issue of part
payment of money debt.613 In the absence of "practical" benefit to the promisor, the
promise will still be without consideration.
Although the rule that a promise by one party to a contract to fulfil his contractual duty
towards the other party did not constitute good consideration, in a contract to build a
ship, the builders' original liability to build the ship did not constitute good
consideration for an agreement to pay further percentage. But on a devaluation of
currency, the increase by the shipbuilders in the amount of their letter of credit which
they had agreed to give as security for instalments was sufficient consideration on their
part for the agreement, since by increase they had undertaken an additional obligation
or had rendered themselves liable to an increased detriment, and were not merely
fulfilling their existing contractual duty.614
The principle that a promise to perform an existing contractual obligation is not good
consideration when it was premised on the continuation of same obligations. Thus, a
new agreement that replaced a rescinded contract, could be enforced, its consideration
being provided not only by the mutual promises contained in the agreement, but also by
the mutual release from the earlier agreement.615
[s 2.9.16] Examples of Valid Consideration
An act done or forbearance made in return for unilateral promise is a sufficient
consideration to support the promise.616 Where a party leaves the determination of all
matters under a contract in the discretion of the other party; that does not, in all
circumstances, constitute a total want of consideration.617 Where it was agreed at the
time of partition that a particular co-sharer should realise arrears of rent due before
partition, and distribute the amounts to the other co-sharers in proportion, and the
particular co-sharer failed to realise the amounts, it was held that the other co-sharers
could claim their share of the rent from him as there was consideration for the
agreement.618 The benefit received by the vendee under the original conveyance is the
consideration for the option to repurchase, reserved to a vendor under it.619 Accepting
the responsibility of conducting religious ceremonies in a temple is a valuable
consideration to support the gift of property to the person who accepts the
responsibility.620Aentered into employment with a company at the instance and
request of B, its manager. B executed a promissory note in favour of A for a part of his
remuneration. It was held that the note was executed for sufficient consideration.
Where the mortgagees under a trust were obliged to pay a certain sum to charity and in
discharge of such obligation they transferred the mortgage interest to charity, the
transfer was held to be for valuable consideration, which arose from the fact that the
charity in return did not enforce its right to recover that amount from the family (i.e.,
mortgagees).621 An oral award though not enforceable, was not illegal, and when acted
upon was good consideration.622 A clause in a development agreement providing for
the transfer of developed land by the landowners to Nagpur Improvement Trust free of
cost and without payment of any compensation was held to be valid and not without
consideration, as the transferee had got the benefit of forming layout plan and was
allowed to allot the sites to allottees.623
[s 2.9.17] Doctrine of Privity
A contract cannot confer rights or impose obligations arising under it on any person
except the parties to it. No one but the parties to a contract can be entitled under it, or
bound by it. This principle is known as that of privity of contract.624
The doctrine has two aspects. The first aspect is that no one but the parties tothe
contract are entitled under it. Contracting parties may confer rights or benefits upon a
third party in the form of promise to pay, or to perform a service, or a promise not tosue
(at all or in circumstances covered by an exclusion or limitation clause). But the third
party on whom such right or benefit is conferred by contract can neither sue under it
nor can rely on defences based on the contract.
The second aspect of the doctrine is that parties to a contract cannot impose liabilities
on a third party. A person cannot be subject to the burden of a contract to which he is
not a party. It is the counterpart of the proposition that a third party cannot acquire
rights under a contract.625 This rule, for example, also bars a person from being bound
by an exemption clause contained in a contract to which it is not a party, so that a
contract between A and B cannot impose a liability upon C.626
The doctrine of privity may involve any (or more) of the four questions:
(i) Can a person enforce a contract to which he is not a party?
(ii) Can a person set up a defence based on the terms of a contract to which he is
not a party in order to answer a claim brought by a person who is a party to the
relevant contract?
(iii) Can a contracting party set up a defence based on the terms of his own
contract in order to answer a claim brought by a person who is not a party to the
relevant contract?
(iv) Can a contracting party enforce his own contract against a person who is not a
party to the relevant contract?
[s 2.9.17.1] Applicability of the Doctrine of Privity
MC Chacko v State Bank of Travancore,627is a striking example of the application of the
rule of privity in India. In this case, the appellant was the Managing Director of the
Highland Bank. K, the father of the appellant, had guaranteed amounts due by the
Highland Bank to the Kottayam Bank for an overdraft arrangement between the two
banks. K had executed a deed making the appellant and other members of the family
universal donees of his properties. This deed contained a clause as follows:
I have no debts whatsoever. If in pursuance of the letter given by me to the Kottayam Bank
at the request of my eldest son, Chacko, for the purpose of Highland Bank Ltd., Kottayam, of
which he is the Managing Director, any amount is due and payable to the Kottayam Bank,
that amount is to be paidfrom the Highland Bank by my son, Chacko. If the same is not so
done and any amount becomes payable (by me) as per my letter, for that my eldest son
Chacko and the properties in Schedule A will be answerable for that amount.
K's guarantee was barred by limitation. The Kottayam Bank sued the Highland Bank and
the appellant and other family members. The claim against the appellant rested upon
the fact that he was one of the donees under the deed, which, it was claimed, created a
charge on the properties mentioned. The Supreme Court held that the "Kottayam Bank
not being a party to the deed was not bound by the covenants in the deed, nor could it
enforce the covenants. It is settled law that a person not a party to the contract cannot
subject to certain well recognised exceptions,enforce the terms of the contract: the
recognised exceptions are thatbeneficiaries under the terms of the contract or where
the contract is a pärt of the family arrangement may enforce the covenant." The
Supreme Court also referred to thepronouncement of Rankin CJ, in Krishna Lal Sadhu v
Promila Bala Dasi:628
Clause (d) of section 2 of the Contract Act widens the definition of 'consideration' so as to
enable a party to a contract to enforce the same in India in certain cases in which the
English law would regard the party as the recipient of a purely voluntary promise and would
refuse to him a right of action on the ground of nudum pactum. Not only, however, is there
nothing in Section 2 to encourage the idea that contracts can be enforced by a person who
is not a party to the contract, but this notion is rightly excluded by the definition of 'promisor'
and 'promisee'.
The general rule is that only the persons entitled to the benefits or bound by the
obligations of a contract are entitled to sue or be sued upon it.629No right may be
enforced by a person who is not a party to the contract.630
Under the Act, the consideration for an agreement may proceed from a third party, but it
does not follow that the third party can sue on the agreement. There was some
divergence of opinion on this point.631 Even though under the Contract Act, the
definition of consideration is wider than in English law, yet the common law principle is
generally applicable in India with the effect that only a party to the contract is entitled
to enforce the same.632 The best statement of the law is that of Rankin CJ, in Krishna
Lal Sadhu v Promila Bala Dasi:633
Clause (d) of section 2 of the Contract Act widens the definition of "consideration" so
as to enable a party to a contract to enforce the same in India in certain cases in which
the English law would regard the party as the recipient of a purely voluntary promise
and would refuse to him a right of action on the ground of nudum pactum. Not only,
however, is there nothing in Section 2 to encourage the idea that contracts can be
enforced by a person who is not a party to the contract, but this notion is rigidly
excluded by the definition of "promisor" and "promisee".
The Calcutta High Court has held that the administration of justice was not to be
hampered by Tweedle v Atkinson,634and that "in India, we are free from these trammels
and are guided in matters of procedure by the rules of justice, equity and good
conscience".635
The Law Commission of India recognised that a rigid adherence to the doctrine of
privity caused hardship, and recommended incorporation of a separate section into the
Act.636 The amendment proposed purported to make a contract enforceable by the
third party in his own name, if the contract expressly conferred a benefit on him, but
subject to any defences available to the contracting parties. It also proposed that the
parties to the contract should be unable to vary or rescind or alter the contract, once
the third party had adopted the contract.
[s 2.9.17.2] Applicability of the Doctrine of Privity in English Law
It was an established rule of English law that a third party could not sue on a contract
though made for his benefit,637 described as well as established as any "in our law", a
"fundamental principle",638 and an "elementary" principle. The principle is that apart
from special considerations of agency, trust, assignment or statute, a person not a
party to a contract cannot enforce or rely for protection on its provisions.639 English
law knows nothing of a jus quaestium tertio arising by way of contract, such a right may
be conferred by way of property, as for example, under a trust, but it cannot be
conferred on a stranger to a contract as a right to enforce the contract in personam.640
[s 2.9.18] Privity and Consideration
The rule that a party wishing to enforce the contract must furnish or have furnished
consideration (under the English law) must be distinguished from the doctrine of
privity. The rules of privity and consideration may not always coincide. The two rules
reflect separate issues of policy. The rule of privity relates to who can enforce the
contract, and that of consideration is about the types of promises which can be
enforced.
Two different factual situations may arise. The plaintiff may be a party to an agreement
without furnishing any consideration. A, B and C may all be signatories to an agreement
whereby C promises A and B to pay A GBP 100 if B will carry out work desired by C.
There may be another case where the person wishing to enforce a contract may not be
a party to the agreement at all. B and C may make an agreement whereby B promises
to write a book for C and C promises to pay GBP 100 to A. Under the English law, A
cannot sue C in both the cases. But does he fail in the first case because the
consideration has not moved from him and in the second because he is not privy to the
contract?
The fundamental assumption of the English law is that a contract is a bargain. If a
person furnishes no consideration, he takes no part in a bargain; if he takes no part in a
bargain, he takes no part in a contract. In the second of the above two cases, A is a
stranger to the contract. But he is equally a stranger in the first; he is a party to an
agreement but he is not party to a contract. It is true if the doctrine of consideration
were abolished, the problem of privity will remain as in other continental legal systems.
But as long as consideration is an essential feature of English law, it would seem to be
immaterial whether a person is forbidden to sue on the ground that he has given no
consideration or on the ground that he is stranger to the contract. These are but two
ways of saying the same thing.641
It was controversial whether the rule that consideration must move from the promisee
and the doctrine of privity of contract were fundamentally distinct or whether they are
merely variations of a common theme. In the earlier English cases, the two rules have
always led to the same result. But Lord Haldane in Dunlop Pneumatic Tyre Co Ltd v
Selfridge &Co Ltd,642 distinguished between the two:
[I]n the law of England certain principles are fundamental. One is that only a person who is a
party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by
way of contract. Such a right may be conferred by way of property, as for example, under a
trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract
in personam. A second principle is that if a person, with whom a contract not under a seal
has been made, is to be able to enforce it, consideration must have been given by him to the
promisor or to some other person at the promisor's request.
Under this Act, consideration may move from the promisee or any other person. In the
first of the situations given above, A can sue C because the consideration for C's
promise has been provided by B, who is "any other person" according to this definition,
and C is a party to the agreement. Although consideration for an agreement may
proceed from a third party, a stranger to an agreement cannot sue upon it.643 There is,
however, nothing in Section 2 to allow a stranger to a contract toenforce it.
In Kepong Propecting Ltd v Schimidt,644the Privy Council considered the provisions of
Section 2(d) of the Malaya Contracts Ordinance (the same as in this Act) and held that
the provision gave a wider interpretation to the definition of "consideration" than that
which applied in England, particularly in that it enabled consideration to move from
another person than the promisee, yet that did not affect the law relating to
enforcement of contracts by third parties. On the contrary, paras (a), (b), (c) and (e) of
Section 2 supported the English conception of a contract as an agreement on which
only the parties to it could sue.645
[s 2.9.18.1] Justification for the Doctrine of Privity
The rule of privity has been justified on a number of grounds. First, it is unjust to enable
a third party to sue on the contract and not be liable for it. Secondly, enabling third
parties to enforce contracts would affect or limit the rights of contracting parties to
vary or terminate the contract. Thirdly, the third party may not have provided the
consideration, and hence should not be able to enforce the contract. Lastly, the
promisor is likely to face two actions, from the promisor and the third party.
[s 2.9.18.2] Criticism of the Doctrine of Privity
First, the third party rule prevents effect being given to the intentions of the contracting
parties. If remedy is denied to the third party when the contracting parties intended it to
be so, it frustrates their intentions. Secondly, it causes injustice to the third party who
may have relied on the contract to regulate his affairs, and thus, upsets the reasonable
expectations of the third party to the benefit under the contract. Thirdly, such a third
party who suffers a loss cannot sue, and the promisee who has suffered no loss can.
Fourthly, therefore, the third party who suffers loss cannot claim compensation, and the
promisee not having suffered any loss can claim nominal damages only. Fifthly, even if
the promisee were to obtain a satisfactory remedy, he may not be able to, or may not
wish to sue. Lastly, the third party rule causes difficulties in commercial life, particularly
where transactions and projects involve a "network" of contracts allocating risks,
responsibilities and liabilities between the parties.646
The courts have developed exceptions647 to the doctrine to avoid injustice. The
existence of the number of exceptions demonstrates its basic injustice, and the fact
that these exceptions continue to evolve and are litigated, shows that the existing
exceptions have not solved the problems.
[s 2.9.18.3] Privity in Other Legal Systems
The doctrine of privity is peculiar to the common law countries. A number of countries
recognise the rights of third parties to enforce the contract.648 The rule that a third
party cannot enforce a contract has been abrogated by statute in a number of
"common law" countries.649 Even in the UK, the Contracts (Rights of Third Parties) Act,
1999 provides for enforcement of contractual terms by third parties.650 The UNIDROIT
Principles provide that a contract is binding upon the parties,651 but this does not
prejudice any effect which that contract may have in respect of third parties under the
applicable law, nor does it purport to deal with the effects of avoidance and termination
of a contract on the rights of third persons.
[s 2.9.19] Remedies Available to the Promisee for the Benefit of the Third
Party
[s 2.9.19.1] Specific Performance
Third parties for whose benefit a contract has been made may not sue on the contract,
but the party making the contract may sue for specific performance for the benefit of
the third party even where damages obtainable will be nominal.
In Coulls v Bagot's Executor & Trustee Co Ltd,652a company O, for a consideration of
GBP 5, agreed to quarry stone from the property of C and agreed to pay a fixed
minimum royalty of GBP 12 per week to C and his wife during their joint lives and
thereafter to the survivor. The document was signed by the company, the husband and
the wife. The wife was held entitled to receive the royalties after her husband's death
and notwithstanding that she gave no consideration, she could enforce this right.
Barwick CJ, held that a person not a party to a contract may not himself sue upon the
contract so as to directly enforce its obligations. But it is possible for that person to
obtain the benefit of a promise made with another for his benefit by steps other than
enforcement by himself in his own right.653 In a contract where a promise by A is made
to B and C for consideration to pay B and C, it is not open to A to question whether the
consideration moved from both B and C or as between themselves or only from one of
them. The agreement was a promise in respect of which there was privity between A on
the one hand and B and C on the other. It is enforceable in the joint life time of B and C,
but only if both are parties to the action to enforce it. B, though he supplied the
consideration could not sue alone. If C was unwilling to join as plaintiff he could be
joined as a defendant, but the judgment would be in favour of both B and C. Similarly, if
B would not join in the action, C could join B as a defendant and with a similar
judgment,i.e., in favour of B and C.654 In neither of these cases could A successfully
deny either privity or consideration. Similarly, if B were dead, the representatives of B
would have to be joined by C because A's promise was not made with C alone though
the judgment will be in favour of C being the survivor.655 The mode of enforcing would
be by the executor enforcing the promise to pay the survivor,i.e., for the benefit of the
widow. Windeyer J, reviewed the law relating to consideration and the right of third
parties to enforce a contract where consideration moved from a joint promisee, and
seems to hold that C (the wife) could enforce the contract in the manner suggested by
the Chief Justice Barwick,656 observing that complete and perfect justice to a promisor
may well require that a promisor perform his promise to pay money or transfer property
to a third party, and held that specific performance could be possible in such cases,
unless these cases were for rendition of personal services.
In Beswick v Beswick,657one PB agreed with his nephew to transfer his business in
consideration of the nephew employing him at GBP 6–10 a week for the rest of his life
and to pay to PB's wife after his death an annuity charged on the business at GBP 5 a
week for her life. The nephew took over the business, but after the death of PB refused
to pay any sum to PB's widow. She brought an action against the nephew in her
capacity as administratrix and her personal capacity. This action was decreed by the
Court of Appeal. Lord Denning MR held that the rule that "no third person can sue or be
sued on a contract to which he is not a party" is only a rule of procedure. Where a
contract is made for the benefit of a third person, the third person may enforce it in the
name of the contracting party or his executor or personal representative, or jointly with
him, or, if he refused to sue, by adding him as a co-defendant.658 Danckwerts LJ, there
held that a contract to make a money payment could be specifically performed.659 The
House of Lords affirmed the decision of the Court of Appeal, but the question whether
the widow was entitled to sue at common law in her personal capacity as beneficiary,
was not argued and the correctness of the decision in Tweedle v Atkinson,660was not
challenged. Dunlop Pneumatic Tyre Co Ltd v Selfridge &Co Ltd,661and Scruttons Ltd v
Midland Silicones Ltd,662were considered as the greatest difficulty in the way of
widow's right to sue personally. It was held that the widow, as administratrix of the
estate of her husband, was entitled to enforce the agreement by way of specific
performance in her own favour, notwithstanding that damages recoverable for her
husband's estate were or might be nominal. Lord Reid was of the opinion that the
widow had no right in her personal capacity but as an administratrix, she could sue for
specific performance for the benefit of herself and Lord Hodson was of the same
opinion. For an unconscionable breach of faith, the equitable remedy was apt. Lord
Pearce was of the opinion that specific performance was the proper remedy.663 Lord
Upjohn held that in common law, a third party cannot sue to enforce a contract but
equity must come in for the purpose of specifically enforcing a right, and if the husband
of the widow in his lifetime could enforce the contract, there was no reason why the
widow could not sue for her benefit. The power of equity to specifically enforce a
contract in favour of third party at the instance of the contracting party was not in
doubt. And further equity will act if damages would only be nominal.664
Although, the promisee may seek specific performance of the contract, the remedy
itself is limited. It may not be ordered to enforce a contract of personal service, or a
contract involving numerous details or requiring constant supervision of the court.665
[s 2.9.19.2] Damages
Generally, in a suit for damages; the plaintiff cannot recover more that the amount
required compensating him for his own loss,666 and not that of the third party.667 If the
action is for recovery amount, the promisee may not recover because the amount is not
due to him.668 Where the plaintiff transferred the property to the defendant who
undertook to construct a house for her and her children who could live rent free for life,
the plaintiff could recover her own loss, and not for the rights of occupation after her
death which her children would have enjoyed.669 The third party rule produces an
unjust and perverse result, because the person who has suffered the loss (of the
intended benefit) cannot sue, while the person who has suffered no loss (the party to
the contract) can sue. The legal representatives of a deceased hotel guest who had
been staying in a hotel under an arrangement between his employer company and the
hotel, were held entitled to claim compensation for negligence of the hotel causing his
death, although they were third parties to the contract. The decision rested on the
ground that any other view was an anomaly, where the employer company was
disentitled from claiming compensation, and the guest (his legal representatives), not
being parties to the contract, from suing.670
But a trustee may be able to recover substantial damages for breach of contract even
though the loss is suffered by his cestui que trust.671An agent may be able to recover
substantial damages even though his undisclosed principal suffers the loss.672 A local
authority could recover substantial damages although the loss was suffered by the
inhabitants, as it acted like a trustee (though not strictly a trustee) for the inhabitants of
its area and had to act in their interests. It administered funds for their benefit, and
owed them a duty to get them in.673
In Jackson v Horizon Holidays Ltd,674 the plaintiff had booked a holiday with the
defendants. The plaintiff and his wife and children found the hotel most disappointing
and their holiday was spoiled. On their return to England, the plaintiff brought an action
for damages in respect of the loss of his holiday for himself, his wife and two small
children. Lord Denning held that the damages granted were excessive for his own
distress, but upheld the award on the ground that the contract was made for the benefit
of himself as well as his wife and children, and hence he could recover their loss as
well as his own.675 This approach was disapproved by the House of Lords in Woodar
Investment Development Ltd v Wimpey Construction UK Ltd676In this case, a purchaser
under a contract of sale agreed to pay part of the price to the third party. The seller
alleged wrongful termination by the purchaser and sought damages. The decision
rested on the ground that there was no breach by the purchaser, but all the judges
indicated that if there was breach by the purchaser, the seller could have recovered only
for his loss and not that of the third party.
But the decision in Jackson's case was supported on the ground that the damages had
been awarded for the plaintiff's own loss, or alternatively on the ground that cases
relating to holidays required special treatment.677 Where a promisee seeks damages in
respect of a contract made for a third party's benefit, he can recover nominal damages
only.
But in St Martins Property Corp. Ltd v Sir Robert McAlpine & Sons Ltd,678 a question
arose as to whether a contracting party was liable for loss suffered by a third party to
whom the subject matter was transferred. In this case, the owner-employer, having a
building contract (which contained a clause prohibiting assignment) for development
of property by a contractor, assigned the property, and later along with the assignee,
sued the contractor for damages for defects in the building. It was held that since the
assignment was invalid, the assignor retained the rights under the agreement.
Although, the normal rule disabled a plaintiff from recovering damages except for his
own loss, and hence, from recovering any damages if he had parted with the ownership
of property, the plaintiff assignor in the present case could, as an exception, recover
substantial damages. The contractor could foresee that the parts of the constructed
property would be occupied and purchased by third parties, and therefore, it could be
foreseen "that damage caused by a breach would cause loss to a later owner". The
parties were treated as having entered into a contract on the footing that the plaintiff
would be able to enforce contractual rights for the benefit of those who suffered from
the defective performance, but who, under the terms of the contract, could not acquire
any right to hold the defendant contractor liable for breach. The House of Lords held
that the case fell within the rationale of one of the exceptions to the rule that a party
can recover damages only in respect of his own loss, applied the principle of The
Albazero,679 that since the parties to the contract of carriage must have contemplated
that property in the goods might be transferred to third parties after the contract had
been made, the shipper must be treated in law as having made the contract of carriage
for the benefit of all persons who might, after the time of contracting, acquire interests
in the goods.
The exception to the rule that damages could not be recovered for third party's loss
was later extended further. It was held that where a party entered into a building
contract for the benefit of a third party and subsequently assigned its rights against the
building contractor to the third party, the latter was entitled to recover substantial
damages for defects in the performance of the contract where it was foreseeable that
such defects would cause third party loss.680 In Pamatown Ltd v Alfred McAlpine
Construction,681 U owned a site which he wanted to develop, and appointed M as the
contractor. In order to avoid VAT, the contract with M was made between M and P, the
latter being a company in the same group as U. On the same day, a separate "Duty of
Care Deed" was executed between U and M under which M gave warranties about
exercise of care in construction. This deed, unlike the building contract, did not contain
an arbitration clause. P made a claim in arbitration against M for defective work. M
alleged that P could not recover substantial damags under the building contract since it
has no proprietary interest in the site and had therefore, suffered no loss. The Court of
Appeal held that the fact that P was not the owner of the property was no bar for its
claim for substantial damages for breach of contract between P and M. The contract
being based on the intention or contemplation of P and M.On appeal, the House of
Lords reiterated the rule that a plaintiff could recover damages only for a loss which he
himself had suffered, but it formualted the exception of a situation where it has been
within the contemplation of the contracting parties that breach by one was likely to
cause loss to an identified or identifiable stranger to the contract, rather than to the
other contracting party. It justified the exception for the necessity to avoid the
disappearance of a substantial claim into a legal "black hole", and stated that the
necessity disappeared where the third party had a right to recover substantial damages
even if those damages might not be identical to those which would have been
recovered under the main contract in the same circumstances. In the instant case, the
exception did not apply, because by "a plain and deliberate course...was adopted" under
which U, the company with the potential risk of loss, was given a distinct entitlement to
sue the contractor directly.
[s 2.9.20] Arbitration
An arbitration clause in a contract does not bind a third party, even where the third party
and one contracting party have the same director, and the third party has received
goods under that contract, has paid for the goods, acted in terms of that contract, and
has indicated in its prospectus that it was bound by that contract. The fact that the
third party affirmed and approved that contract and acted on its terms might be
relevant to determine its obligations under the contract, but not for deciding the
existence of an arbitration agreement.682 Similarly, an arbitration agreement between a
financer, borrower and one guarantor does not bind the second guarantor.683
However, in international commercial arbitrations, non-signatory parties to agreements
with arbitration clauses, can pray for and be referred to arbitration under section 45 in
Pt II of the Arbitration and Reconciliation Act, 1996 in exceptional cases. Following
factors will be relevant: direct relationship with the signatory party; direct commonality
of the subject matter, and the agreement between parties; the transaction being a
composite transaction where the performance of the principal or mother agreement
may not be feasible without the aid, execution and performance of the supplementary
or ancillary agreement for achieving the common object; will the composite reference
achieve ends of justice. Thus, an arbitation agreement relating to international
commercial arbitration, by a company within a group might bind its non-signatory
affiliates, if the circumstances demonstrate that the mutual intention of the parties was
to bind both the signatory as well as non-signatory parties.684 With the amendment
introduced to section 8 of the Arbitration and Conciliation Act, 1996,685 the aforesaid
position may avail evento domestic arbitration under Pt I of the said Act.
[s 2.9.21] Privity Established
Goods supplied by the plaintiff to the defendant and admitted to have been received by
the latter raise a presumption of an order having been placed by the defendant. It is
immaterial whether or not the order was by a partner or a person authorised. The initial
onus was discharged, and privity established.686
In a suit by a purchaser against the seller for damages for shortage of supply of goods
by shipper; the shipper, as agent, was also entitled to take benefit of the arbitration
clause in the contract between the purchaser and the seller and to apply for stay of
suit.687
Where, by a deed, A conveyed his property to B and, on the same day B agreed by
another deed to reconvey the property to A and C, or any one of them, it was held that
there was an agreement enforceable at law, though the said second deed was not
signed by A or C.688An agent of a foreign company for sale of its machine agreed with
the purchaser that the purchaser will deduct his commission and pay the balance of
price to the company. The purchaser was liable to the agent for the commission.689
If A,for good consideration, agrees with B that he will not sue C for C's negligence, the
latter will not be able to set up the promise of A to B as defence. There is no difference
in principle between Apromising B to pay C and A promising B that he will not claim that
which C ought to pay A. Privity must be pleaded and established.690
There would be no privity of contract between the landholder whose land was taken
under management under Section 45 of the Bombay Tenancy and Agricultural Lands
Act, 1948 and was delivered back due to termination of management, and the person
to whom it was leased during the management.691
Where a person transfers property to another and stipulates for the payment by the
purchaser to a third person, a suit by such person to enforce the stipulation will not
lie.692 A stranger providing legal advice to the arbitrator, and hence indirectly to the
parties to an arbitration agreement, could not sue for the benefit conferred upon him by
the award,693 nor could a company sue upon a contract entered into by the managing
director of the company on his own behalf and on behalf of his friends, relatives and
other directors.694 A consumer of LPG connection had a contract with the authorised
distributor of the Indian Oil Corporation for the supply of connection; he had no
subscription voucher, and had no right to proceed against the Indian Oil Corporation.695
Where a lease contained a stipulation that the lessee would pay to the zamindar those
zamindari dues which were payable by the lessor to the zamindar, it was held that the
zamindar, not being a party to the lease, was not entitled to sue the lessee, under the
terms of the lease.696 By a tharao (resolution), the owners of certain villages were
given full rights over the forests in those villages under their vahivat. Some of these
villagers executed contracts in favour of the plaintiffs. But the government, after
merger of the states, cancelled the tharaos. Inan action for injunction against the
government, it was held that the plaintiffs could not enforce the agreement, as they
were not parties thereto.697There is no contract between the members of a trade union
inter se, such as to entitle a member to sue another for breach of contract.698It was
held699 that a shareholder of a company cannot challenge termination of an agreement
between that company with another.700
A third party is not entitled to challenge the existence or the adequacy of consideration
of a sale.701
[s 2.9.21.1] Contracting party cannot set up defence under his contract against
third party
A contract between O and B (the contractor) excluded consequential liability. A clause
in the contract between O and B provided that rights, remedies and redresses that B
has against O, M (the sub-contractor) will have against B. It was held that this did not
give B the same benefits nor did it render B bound against M in the same way. The
clause did not absolve B of its liability towards M.
[s 2.9.21.2] Third Party is not liable
A contract between Aand the government authorized the latter to take possession of all
tools, plant, machinery, stores and materials in or upon the works incertain
eventualities of breach of contract. It could not, it was held, jeopardize the property of B
who had entered into a partnership with A with the knowledge of government and did
not impose a liability on him.702 An agreement between the government and forest
officers appointed for the forests of a raj is not enforceable against the raj after the
government gives up its administration of the forests, because there is no privity of
contract.703Aissued an advertisement for a circus run by B, the proposal for which was
approved by C, B's financier. A's suit against C for recovery of the dues for services
rendered was dismissed for want of privity.704 The lessors of the mills could not be
held liable under a contract between the government and the lessees of the rice mills,
where the lessees were operating as agents of the government,705 nor was there any
privity between the seller of mineral ore and the foreign buyer, where the seller had a
contract with the State Trading Corporation for sale of the mineral ore, and the
corporation had another contract with the foreign buyer for sale of goods purchased
from the seller.706 In Paschimanchal Vidyut Vitran Nigam Ltd v DVS Steels and Alloys Pvt
Ltd,707 it was heldthat the electricity dues of a former owner of property cannot be
recovered from the purchaser of the premises,708 unless the rules, or terms or
conditions of supply, authorize the supplier to do so.
Where goods consigned to an airline for carriage are delivered late, that airline is liable
for compensation; and not the other airlines to which it had transferred goods for
onward carriage.709 A person who has merely arranged for shipping goods through a
vessel chartered by him is not liable to a buyer for shortage of goods shipped to the
buyer under a contract of sale.710 The Corporation to which roads are handed over
after construction by the Government, is not liable for paying bills of the contractor who
has constructed the road.711A bank is not liable for interest on delayed payment of
insured amount under an insurance policy arranged by it for its customer who holds its
credit card.712 A bank that has lent money for purposes of a transaction cannot be
impleaded as party to arbitration concerning matters arising between parties to the
transaction.713 A drawee of a cheque cannot claim compensation from the banker of
the drawer for delay in clearing the cheque.714A paper mill placed an order and gave
advance for machinery with a supplier stipulating that the contract for such supply
shall be made by the supplier with an engineering firm, such that the bills shall be
submitted to the firm, and be paid by the firm. Bills were raised on the firm, and goods
despatched to the firm. The mill couldnot be liable merely taking steps at various
stages in the transaction for pursuing supply of the machinery.715
[s 2.9.22] Exceptions to Application of the Principle
The doctrine of privity of contract althoughapplicable in Indiahas been applied with well
recognized exceptions and the courtsmay not be strictly guided by the said doctrine in
order to defeat the claims of the parties.716 One of the exceptions to the application of
rule of privity of contract is where the privity is created by the party to the contract with
a stranger to the contract by conduct or by acknowledgement.717 Such conduct or
acknowledgement can be either express or implied.718
[s 2.9.22.1] Trust
To establish that a trust of the promise has been created, it is necessary, firstly, to
establish an intention ofthe promisee to enter into the contract as a trustee. A trust
does not arise simply because a party to a contract undertakes to confer a benefit on a
stranger.719Use of express words like "trust" or "trustee", establish the intention.720 In
the absence of express words, no satisfactory test can be laid down to determine
whether the requisite intention exists. Nearness of relationship is a circumstance
which may be indicative of a trust but does not, per se, enable a third party to sue.721
Mere direction in a document to which the plaintiff is not a party, to pay a certain sum
to the plaintiff, is not enough to create a trust in his favour.722
InInuganti Kasturamma v Chelikani Venkatasurayya Garu,723 A contracted with B to pay a
sum of money to C, it was held that the latter could not sue A merely on the basis of the
contract. In order to enable C to sue, the contract must be intended to secure a benefit
to him so that he may be entitled to say that he has a beneficial interest as cestui que
trust. It was not possible to lay down categorically and exhaustively the circumstances
which have to be considered in order to determine whether or not a contract is intended
to secure such a benefit. But the court laid down four considerations which it referred
to:
(i) whether the defendant was made a trustee for the plaintiff by the document, or
whether the defendant's position was merely such that she might become a
trustee if certain events were to take place as contemplated in the document;
(ii) if she was made or had become a trustee, had she any personal and substantial
interest in the property which she had a right to protect, or did the contract
override any interest of her own in the property in other words;
(iii) was any specific property charged with the payment to the plaintiff in which the
defendant was to have no interest whatsoever;
(iv) was the deed communicated to the plaintiff and did he accept in lieu of any
rights that he had prior to the deed. The plaintiff, in the instant case, could
recover payment as the document was held to have created a trust in his favour.
This equitable exception was applied in India by the Privy Council in Khwaja
Muhammad Khan v Husaini Begam,724 Where an obligation in equity amounting to a
trust arising out of the contract exists, the beneficiary has a right to sue.725 In this
case, the father of the bridegroom had contracted with the father of the bride to make
the daughter an allowance called kharch-i-pandan if she married the son. After the
marriage, the daughter sued her father-in-law to recover arrears of the allowance. The
Privy Council held that though she was no party to the contract yet "she was clearly
entitled to proceed in equity to enforce her claim". Thus, a bargain between the
husband of the plaintiff and the defendants, where the shares belonging to the
plaintiff's husband were sold to the defendant and the share money remained charged
for payment of monthly sums both to the husband and after his lifetime to the wife,
could be enforced by the wife since an obligation was in the nature of a trust.726
Certain persons collected dues from carters coming to the bazaar for the benefit of
charitable purposes of a sabha. It was held that they thereby constituted themselves as
trustees for the sabha, and it could as cestui que trust file a suit against them for
recovery of the amount.727
The beneficiary in a benami transaction may sue, joining the benamidar.728 However, on
coming into force of the Benami Transactions (Prohibition) Act, 1988 no suit, claim or
action to enforce any right in respect of any property held benami against the person, in
whose name the property is held, or against any other person, shall lie, by or on behalf,
of a person claiming to be the real owner of such property nor can defence be based on
any right in respect of any property held benami as provided in sub-sections (1) and (2)
of Section 4 subject to the exceptions in sub-section 3.729
In Okara Grain Buyers Syndicate Ltd v United Commercial Bank,730a contract of
procurement of grain by a syndicate for and on behalf of the Punjab government for the
due performance of which security was deposited in a bank in Okara, subsequently in
Pakistan, became impossible of performance due to the partition of the country. It was
held that legal ownership of the deposit was and continued to be in the depositor and
was claimable by the syndicate. No trust was created in favour of the third party
government.
Sometimes, it has been found difficult to decide whether in a contract, the intention is
to create a right arising by way of contract or by way of property under a trust. In some
cases, it was held that trust was created,731 in others that it was not.
Where A makes a promise to B for the benefit of C, the promise can be enforced by C
against A if B has constituted himself trustee of A's promise for C. This equitable
principle was first laid down by Lord Hardwicke in the eighteenth century,732 and was
developed later.
In Les Affreteurs Reunis SA v Leopold Watford (London) Ltd,733the shipowners promised
the charterers that they (shipowners) would pay commission to the broker who had
negotiated the charterparty. The House of Lords held that the broker could enforce the
agreement against the owners, although he was not the promisee in the contract, and
had given no consideration for the promise by the owners. It was held that the
charterers were trustees of the shipowner's promise to the broker. The absence of the
charterers, the trustees, as plaintiffs was held to be immaterial, as the parties agreed to
treat the case as if they were plaintiffs.
This exception of trust as a promise has been applied to promises to pay money or to
transfer property, but is presently confined within narrow limits and its application
refused to other forms of contractual obligations, like exclusion clauses.734
Later English cases show that the courts are reluctant to apply the exception, because
its application prevents the parties to the contract to vary it by mutual consent.735
Courts have required that the intention to constitute a trust must be affirmatively
proved by substantial evidence.736 Secondly, there must be an intention to benefit the
third party. In an appeal from Canada, Alice Marie Vandepitte v Preferred Accident
Insurance Co of New York,737the development ofthe doctrine received a check at the
hands of the Privy Council. In this case, B had insured his car with D. B's daughter J,
driving with B's permission, negligently injured V. V sued J with success but the
judgment was unsatisfied. V then sued D claiming theft the policy covered J as well as
B, B having so stipulated for her as trustee. The Privy Council held for D, holding that
the intention to constitute a trust must be affirmatively proved and that the trust
doctrine applied only to benefits to be conferred on a third party cestui que trust,
whereas were the argument of D to prevail, serious duties and obligations wouldbe
placed upon J, without her consent. Thirdly, the intention to benefit the third party must
be irrevocable. English Courts are stated no longer to favour the device of trust as a
contractual right,738 but the Australian Courts find that there is "considerable scope for
development of trusts" specially in the context of policies of insurance effected for the
benefit of third persons.739
[s 2.9.22.2] Family Arrangements and Marriage Settlements
The Specific Relief Act, 1963 enables specific performance of a contract being a
settlement on marriage, and family arrangements at a suit of any person beneficially
entitled thereunder,740 and creates an exception to the rule that a party to a contract
cannot sue.741 Even before its enactment, a party although a stranger, could sue to
enforce a benefit where it was due under a marriage settlement, partition or other
family settlement.742 Where A and B, two Hindu brothers, divided the family property
between them, and agreed at the time of partition that they should contribute Rs 300/in equal shares and invest the sum on the security of immovable property and pay the
interest towards the maintenance of their mother, it was held that the mother, though
not a party to the contract, was entitled to sue her sons to have that amount invested in
her favour.743 Similarly, where on a partition between a Hindu son and his father, it was
arranged that the father should remain in possession and management of the share of
the property allotted to the son and maintain the son's wife and his children out of it, it
was held that the wife, though not a party to the arrangement, was entitled to sue the
father for the maintenance of herself and her children.744 The wife and children, though
not named as parties to the contract, possessed an actual beneficial right which placed
them in the position of cestui que trust under the contract.745 A family arrangement
between a father, his daughter and her husband whereby the father conveyed his house
to his daughter who undertook to maintain him for life would be a sufficient
consideration. The daughter can specifically enforce the contract.746 Similarly, where a
provision is made for the marriage expenses of a female member of a Hindu family on
a partition of the joint family property between the male members, the female member
is entitled to sue the parties to the partition deed to enforce the provision in her
favour.747 This principle was again given effect to by the Privy Council in Dan Kuer v
Sarla Devi,748 to enforce a provision for maintenance of the mother made in a partition
award in a partition between a father and his sons.
The mere fact that an agreement is entered into by persons who are relations of each
other does not make such an agreement a family settlement, so as to be binding on
persons who are not even parties thereto.749
The creation of a settlement on marriage in which the plaintiff may be beneficially
entitled can be specifically enforced under the Specific Relief Act, 1963.750
In equity, a covenant for the settlement of property under a marriage settlement can be
enforced by persons "within the marriage consideration",i.e., by husband, wife and the
issue of the marriage, but not by the next-of-kin of the wife, or her children by a
previous marriage.751 This equitable exception to the doctrine of privity applies where
the contract is made in consideration of marriage and the intended beneficiary is within
the marriage consideration.752 In Prebble v Broghurst,753the children of the marriage
were described as quasi-parties to the contract—a marriage settlement,i.e., they were
treated for every purpose of settlement as though consideration moved from each one
of them.754 But an intended beneficiary who is not an issue of marriage is not within
the marriage consideration, nor are children by a previous marriage unless their
interests are interwoven with those of the children of marriage.755 Even children of
marriage would be strangers to a post-nuptial settlement.756 Where the obligation to
settle property has been assumed voluntarily, no object of intended trusts can enforce
the obligation,757e.g., where a spinster made a voluntary settlement in favour of herself
and her issue containing a covenant to settle after-acquired property and married
thereafter, and had children, they had, as volunteers, no right to enforce the
covenant.758
[s 2.9.22.3] Creation of a Charge
A stranger to a contract can sue for the money made payable to him by it where the
money is charged on immovable properties,759 or also where specific money in suit is
allocated by the promisor in favour of such third party.760While no particular form of
words is needed to create a charge on immovable property; there must be evidence of
intention disclosed by the deed that a specified property or fund belonging to a person
was intended to be made liable to satisfy the debt due by the creator of the charge in
favour of the person seeking to enforce it.761
[s 2.9.22.4] Covenants running with Land
The privity of contract doctrine has been relaxed for commercial reasons to allow
certain positive or restrictive covenants to run with the land, so as to benefit or burden
persons not party to the contract imposing such covenants. Third parties can acquire
rights in this manner under a covenant to which they were not a party. These are
properly classified as belonging to the law of property.
In India, the enforcement of covenants running with the land is provided under section
40 of the Transfer of Property Act 1882,762 in respect of :
(i) a right to restrain enjoyment in a particular manner of property imposed for the
more beneficial enjoyment of the property; and
(ii) benefit of an obligation arising out of contract and annexed to the ownership of
property.
These can be enforced against the transferee with notice or a gratuitous transferee, but
not against transferee for consideration and without notice of the right or obligation.
[s 2.9.22.5] Benefit of Exclusion Clauses
The extent to which third parties to contracts can take benefit of clauses in those
contracts excluding or limiting liability for loss or damage have been a challenge to the
privity doctrine. Earlier English cases have accepted a principle of "vicarious immunity",
according to which a servant or agent performing a contract was entitled to that
immunity from liability which his employer would have had,763 but this principle was
later discarded by the House of Lords in Scruttons Ltd v Midland Silicones Ltd,764in
which the stevedores engaged by the carrier negligently damaged a drum containing
chemicals, and in a suit by the cargo-owners in tort, relied on a limitation clause
contained in the bill of lading between the carrier and the cargo-owners, but did not
succeed. However, it was held that liability could be limited if provided by contract in
certain cases, namely, where the bill of lading clearly provided, that the carrier was
contracting on his own behalf and also contracting as agent of the stevedore, or had
authority from the stevedore to act, or if the stevedore later ratified, or if there was
consideration moving from the stevedore.
The Supreme Court of Canada has accepted the doctrine of vicarious immunity. The
plaintiffs had a contract of bailment with a warehouseman which contained a clause
limiting the liability of the warehouseman on, any one package, "to USD 40, unless the
holder had declared in writing a valuation in excess of USD 40 and paid the additional
charge specified to cover warehouse liability". The goods were damaged because of
negligent handling by the employees of the warehouseman. The plaintiff sued the
employees for the tort of negligence. Although, there was no express mention of
employees in the limitation clause, it was held that the employees could take the
benefit of the contractual limitation because the employees were acting in the course
of employment and had performed the very services provided for in the contract
between their employer (warehouseman) and the plaintiff; particularly so when the
plaintiff knew that employees would be involved in performing the obligation of the
warehouseman.765 On the other hand, the benefit of the clause excluding liability in a
contract for preparing drawings between a building contractor and an engineering firm
was not available to engineers employed by the firm who had prepared the drawings, as
it was not shown that the exemption clause was established for the benefit of the
engineers, and the facts did not give rise to an inference that the exemption was
intended to include the engineers.766
In New Zealand Shipping v AM Satterthwaite (The Eurymedon),767 the Privy Council
considering a "Himalaya Clause",768 had to consider whether an exclusion clause
contained in a bill of lading could be relied upon by a third party stevedore employed by
a carrier in a suit by consignees for negligently damaging the goods while unloading
them. The Privy Council gave to the stevedores the benefit of the exemptions and
limitations contained in the bill of lading by regarding that the shipper had made an
offer of a unilateral contract to the stevedores to unload the goods on terms
incorporating the exclusion clause, which offer the stevedores had accepted by
commencing the work; and held that the carrier had contracted to the exclusion clause
as an agent for its servants, agents and independent contractors, and therefore, was
"designed to cover the whole carriage from loading to discharge, by whomsoever it is
performed, the performance attracted the exemption or immunity in favour of whoever
the performer turned out to be".769
The approach in this case was viewed as artificial. The principle of The Eurymedon,770
was restricted to contracts carriers and stevedores. InSouthern Water Authority v
Carey,771 the main contract between the employer and the head-contractor for
construction of sewage works excluded liability on the part of all sub-contractors,
agents and independent contractors. Ina suit for negligence filed by the employer
against the engineering sub-contractor, the latter relied on the above clause, and was
entitled to the benefit of the exemption clause on the ground that it negatived the duty
of care which would otherwise have existed upon the head-contractors. In Norwich City
Council v Harvey,772the sub-contractor had contracted on the same terms as the main
contract between a building owner and the head-contractor, and the main contract
provided that the owner was to bear the risk of damage by fire. The building was
damaged by fire as a result of negligence of the roofing sub-contractor. The owner
sued him in tort, and although there was no contractual relationship between the owner
and the sub-contractor, it was held that the latter owed no duty of care, because both
the contractors had contracted on the basis that the owner had assumed to bear the
risk of damage by fire.
The above cases indicate a departure from the privity doctrine, dictated by the need to
support established commercial practice, and to avoid the redistribution of the risks
perceived and contemplated by the contracting parties at the time of making the
contract.
[s 2.9.22.6] Collateral Contracts
A collateral contract between a third party and one of the parties to a main contract
may be associated with the main contract. Such a contract may enable a third party to
enforce the main contract. A manufacturer's guarantee is an example of such contract
collateral to the main contract of purchase of goods. Where such collateral contract is
express, it may not be an exception to the third party rule, because the "third party" is
party to the collateral contract. They are a device used or implied to impose obligations
on persons not parties to the main contract.
A employed B as a painting contractor and instructed B to buy paint made by C. A gave
this instruction on the basis of a statement of C to A that the paint would last for seven
years. The paint lasted for three months. Although the contract was between A and B, it
was held, in an action by A, that there was a collateral contract between A and C that
the paint would last for seven years.773 It has also been suggested that the same
reasoning may also apply where a person purchases goods from a seller who gives a
"guarantee" in the name of the manufacturer, which guarantee can be regarded as a
collateral contract.774
A garage owner undertook the job of repairing the plaintiff's car damaged in a collision,
after an insurance company had ordered the repairs. Normally, it should have taken five
weeks; the garage owner took eight weeks. The owner sued the garage for expenses
incurred by him in hiring a car for three weeks. The garage owner pleaded that the
contract was with the insurance company and the car owner could not sue. The court
held that there was a second collateral contract when the garage undertook to do the
job in a reasonable time and so it was liable to the plaintiff.775
[s 2.9.22.7] Multilateral Contracts
In a club or other unincorporated association, one member joining the club is deemed
to contract with other members. He does so without being aware of the identity, and
although his communication is only with the secretary. Similarly, where a number of
persons agree to enter into a competition subject to rules, such persons contract not
only with the organising club, but also with each other.776
[s 2.9.22.8] Assignment
Where an assignment of benefits under a contract is validly made, whether according
to the provisions of statute or otherwise,777an action can be brought by the
assigneewho the promisor did not regard as a party, or whom he did not intend to
benefit. An assignee will also be bound by an arbitration clause in the contract
assigned.778
A consignee with a duly endorsed railway receipt779 may maintain as owner a suit for
loss or damage to goods against the railways, but a bare consignee may not.780 Where
title has passed to the consignee, he can sue.781 The delivery of the railway receipt to
the consignee now passes to the consignee the property in the consignment, and the
consignee shall have all the rights and liabilities as the consignor.782 A consignee will
have a right to sue only if he is able to bring his case within any of the exceptions to the
general rule,783 which debars any person who is not a privy to a contract from
instituting a suit for breach thereof.784
[s 2.9.22.9] Contracts requiring tortious duty of care to third parties
A contract between A and B may also create a tortious duty of care by one of them
towards a third party. That party's negligence constitutes a breach of contract for
which the affected third party may seek relief. These are not cases of torts per se, but
cases where the basis of the third party's tort claim is not independent of the rights
conferred by contract. In one view, allowing such liability to be imposed is not any
circumvention of established principles of the law of contract;785 yet the effect of these
decisions allows a third party to enforce a contract by pursuing an action in tort.786 A
contract between a professional, namely, solicitor or surveyor and his client imposes a
duty of care so that such solicitor or surveyor may be liable to third parties for
misrepresentation.787 Solicitors have been held liable in tort to third parties for
negligence in drawing up Wills. In one case because the Will was never drawn up,788
and in the other, because it was executed in a manner as to invalidate the gift under
it.789 These cases can be analysed as torts.
[s 2.9.22.10] Acknowledgement and Estoppel
A stranger to a contract can sue where one of the parties to the contract afterwards
agrees with the stranger to pay him directly or is estopped from denying the liability to
so pay.790 A promisor may create privity between himself and the third party by
conduct, by acknowledgment,791 or otherwise, constituting himself an agent of the
third party, entitling the third party to sue.792
In a case before the High Court of Calcutta,793A advanced Rs 300/- to B on the security
of a pattah relating to immovable property and deposited with him by B. B then
transferred by a registered kabala all his property, movable and immovable, to C for a
sum of Rs 2000/-. The entire amount of Rs 2000/- was not paid, as there was a
provision and declaration in the kabala that out of this consideration money of Rs
2000/-, the sum of Rs 300/- due to A should be paid by C. A sued C for Rs 300/-, basing
his claim upon the kabala.It was found that there was no agreement between A and C
for payment of Rs 300/- by C to A.794But on the very day on which the kabala was
executed, C acknowledged the obligation to pay Rs 300/- to A, that the
acknowledgment was communicated to and accepted by A, and that as a result of this,
the pattah, which was erroneously believed by the parties as constituting a charge,795
was handed over by A to C. Upon these facts, it was held that A was entitled to recover
the amount claimed from C. This decision was followed in a later case when there was
no communication to A of the arrangement between B and C; and the court held that
the absence of communication did not make any difference in principle.796
[s 2.9.22.11] Contract for Benefit of a Third Person
It has been held that where a contract is made for the benefit of a third person, there
may be an equity in favour of the third person to sue upon the contract,797 and it has
been suggested that a person who takes a benefit under a contract may sue on the
contract.798 Thus, a stranger having beneficial interest under a contract can sue in
equity to enforce, although he himself is a stranger to the contract.799
This view was dissented from by the Bombay High Court,800 and is directly opposed to
the decision of the Privy Council in Jamna Das v Ram Autar Pande,801 that a purchaser's
contract to pay off a mortgage cannot be enforced by the mortgagee who was no party
to the contract. Indeed, the weight of decisions now is in favour of the view that a
person not a party to the contract cannot sue on the contract unless the case comes
within one of the recognised exceptions802 and this seems clearly indicated by the
provisions of sub-sections (a),(b), (c) and (e) of section 2. It has accordingly been held
that where A mortgages his property to B, part of the consideration for the mortgage
being B's promise to A to pay C the amount which A owed to C, C not being a party to
the contract, cannot sue B for the payment.803
It has also been held that if the courts consider that it would be in aid of justice to
adjudicate between the parties, the courts may allow a third party to a contract to sue
for doing justice between the suitors; and a suit by the addressee of an insured article
sent bypost was entitled to sue if the article was not delivered.804 A legal
representative of an employee of a company staying in a hotel under a contract
between the company and the hotel wasentitled to sue for compensation on account
of his death, though he was not a party to the contract.805
[s 2.9.23] Statutes Conferring Rights or Imposing Liabilities on Third Parties
A policy of insurance effected by any married man on his own life, and expressed on
the face of it to be for the benefit of his wife, or children, shall be deemed to be a trust
for the benefit of his wife or such children.806 An insurer issuing a policy under the
Motor Vehicles Act, 1988 covering third party liability is liable to satisfy any judgment
or decree which may be passed in favour of the third party against the insured in
respect of compensation for loss to the third party arising in an accident involving a
motor vehicle.807 Where an insured under such a policy becomes insolvent or makes
compromise or arrangement with creditors, or the insurance company is wound up, the
rights of the insured against the insurer stand transferred to such third party to whom
such liability is incurred.808An insurance policy protects only the owner and not the
mortgagees.809 A bank is not entitled to claim the policy amount under an insurance
policy taken by its debtor for goods hypothecated with it,810 but a financer can can
claim the amount where the policy is taken in the financer's name.811
Where a person (principal employer) employs a contractor for execution of any work
involved in his business or trade, such principal employer is liable to pay compensation
under the Workmen's Compensation Act, 1923 arising out of accidents to the workmen
employed by the contractor in doing such work (subject to being indemnified by the
contractor).812 A mortgagee, consignee or other person having an interest in the
subject matter insured, may insure on behalf of and for the benefit of other persons
insured as well as for his own benefit.813
A holder of a promissory note, bill of exchange or cheque is entitled to recover the
amount due thereon.814 Every consignee of goods under a bill of lading and every
endorsee of a bill of lading has the right of suit and is subject to the same liabilities as
if he were a party to the bill of lading.815A consignee of goods covered by railway
receipt or the endorsee shall have all rights and liabilities of the consignor on delivery
of railway receipt to him.816
Although, a principal is a party to the contract made by the agent on his behalf, the
position of an undisclosed principal requires consideration. If an agent makes a
contract with a person who neither knows, nor has reason to suspect that he is an
agent, his principal may require the performance of the contract.817
A user of goods or beneficiary of services using or taking benefit with the consent of
the person who has purchased the goods or hired the services, is a consumer, and can
file a complaint and obtain relief for defect in goods or deficiency in services.818
Specific performance may be obtained by a person beneficially entitled under a
marriage settlement and family arrangement, a new company arising out of
amalgamation of a contracting party (company) with another company, and a new
company in respect of contracts entered into before its incorporation.819
On receiving the assent of the conciliation officer, the settlement of industrial disputes
binds not only the parties to that dispute, but also binds all the workmen in the
establishment, who are employed at the date of the dispute and all persons who
subsequently become employed in that establishment.820
[s 2.9.23.1] United Kingdom
Statutes similar to those discussed above confer rights or impose liabilities on third
parties in the UK.
The Contracts (Rights of Third Parties) Act, 1999 reforms the privity rule so as to
enable contracting parties to confer a right to enforce the contract on a third party.
[s 2.10] Clause (e): Agreement
Every promise and every set of promises, forming the consideration foreach other, is an
agreement.
Every promise is an agreement, so is every set of promises "forming consideration for
each other". The phrase 'forming consideration for each other, relates to the words "set
of promises" and does not qualify "every promise".821 Therefore, a promise is an
agreement without consideration. The fact that consideration is not a necessary
element for making an agreement is seen from the language of sections 10 and 25,822
though it is necessary for making it enforceable. A promise ripens into an agreement
only after an offer has been accepted by the offeree; the question of consideration
arise thereafter.823
An agreement is either a single promise or a group of promises,824 and therefore it
appears that an executed consideration would not be reckoned as an agreement.825
The original draft prepared by the Indian Law Commissioners only laid down in general
terms that "a contract is an agreement between parties whereby a party engages to do
a thing or engages not to do a thing".826 The current use of language treats an
agreement as an act of both parties, whether a legal obligation is incurred by one or by
both of them. The expression "agreement" stresses on the consensuality required in a
transaction.827
Since an agreement is a promise, there is no difficulty in treating promises made to
minors for consideration received as contracts, for they are made by persons
competent to contract for consideration received.828 An acknowledgment containing a
stipulation to pay interest becomes an agreement, and must be stamped as such.829
An agreement, even if not signed by the parties, can be spelt out from correspondence
exchanged between the parties. Whether the correspondence reveals an unequivocal
meeting of minds between the parties is a matter of construction.830
[s 2.11] Clause (f): Reciprocal Promises
Promises which form the consideration or part of the consideration for each other, are
called reciprocal promises.
These are mutual promises which form consideration for one another. Reciprocal
promises are sufficient in law to sustain the formation of a contract.831 A seller
promising to deliver goods in two month's time and the buyer agreeing to pay for them
on delivery results in a binding contract immediately, its performance being postponed.
The promise of one party may be the whole consideration for the promise of the other,
or part consideration. Thus, where the same seller promises to deliver goods in two
months time, the buyer paying some part of the price immediately, and the remaining
part payable on delivery, the promise of the buyer to pay the balance at the time of
delivery forms only part of the consideration for the seller's promise to deliver the
whole of the goods.
Reciprocal promises forming the contract may be either independent or dependent.
They are independent when the obligation of one party to perform his promise is
absolute and not conditional on the performance by the other party of his promise.
These can be enforced without showing performance of the plaintiff's own promise, or
readiness or willingness to perform it.
Dependent promises may be of two types. Concurrent promises are those where the
promise of one party is to be performed simultaneously with the promise of the other
party, but depends upon the readiness and willingness of the other party to perform the
latter promise (see section 51),e.g., goods to be delivered in exchange for cash or bills.
The other is where one promise is dependent upon and must be performed after the
performance of the other (see sections 52–54). In the latter case, performance of one
party's promise may have to be completed or tendered before he can sue on the other's
reciprocal promise, and it is a condition precedent to the right of action on the
reciprocal promise.
[s 2.12] Clause (g): Void Agreement
An agreement not enforceable by law is said to be void.
The words "not enforceable by law" in this clause do not refer to a disability to sue
arising under any procedural laws like law of limitation or civil procedure. The
unenforceability contemplated in this clause is one arising under the provisions of a
substantive law.832 It may be declared void by this Act, or by any other law.833 A
contract void since its inception is no contract at all, not having passed from the stage
of agreement to being a contract. It is an agreement not enforceable by law.834
It is a practice to use the term "void contract", which is truly a contradiction in terms.835
The distinction between "agreement" and "contract" made by clause (h) is apparently
original, and is convenient, and has also been adopted by some English writers. The
distinction is apparent from section 2.836 An agreement not enforceable by law is itself
void, and therefore, cannot be a contract at all.837 By clause (e), every promise and
every set of promises forming the consideration for each other is an agreement and by
clause (h), an agreement enforceable by law is a contract. By clause (g), an agreement
not enforceable by law is said to be void. This distinction ought to be observed.
Although a void agreement is described as one not enforceable, yet reliefs can be
granted under it. For example, if goods are delivered under a void agreement, the goods
are recoverable by an action of conversion in tort. If the contract is discovered to be
void, the obligation of restitution arises under section 65. A party to an agreement
which is void for unlawful consideration or object may be entitled to recover, if he can
establish his claim otherwise under that agreement; so would a party to such an
agreement be entitled to recover if he is not a participant in the illegality.
[s 2.12.1] Unenforceable Contracts
Unenforceable contracts are valid in all respects, but may not be sued upon by the
parties. Such disability may arise for want of registration;838 or because the time
prescribed for filing the suit has expired;839 or because the plaintiff firm has not been
registered;840 or the document or instrument does not bear the requisite stamp
duty;841 or because the lender of money does not possess a licence under moneylending laws.
[s 2.13] Clause (h): Contract
An agreement enforceable by law is a contract.
The definition of "contract" in this section is built upon a succession of definitions of
elements which constitute it, namely, proposal, acceptance, promise, promisor,
promisee, consideration and agreement.842 A contract is a bilateral transaction
between two or more than two parties.843 What is essential for an enforceable contract
is consensus ad idem. The mere fact that the plaintiff had not signed the agreement
cannot be the basis to conclude that the agreement was unilateral and that the plaintiff
was not a consenting party to the terms and conditions of the agreement of
sale.844Two minds, when remain apart, there is no expected consensus which is
necessary to constitute a contract. But when the evidence indicates that there is
consensus ad idem and the major part of the contract having been performed on both
sides, the first act of getting the document executed has been destined to be the last
act, then the contention that there is no concluded contract has no meaning.845
A contract is not a property, but only a promise supported by consideration, upon
breach of which either a claim for specific performance or damages would lie.846
Railway tickets, a ticket to see a cinema or a pawnbroker's ticket are memoranda or
contracts between the vendors of the ticket and the purchasers. Tickets are
themselves, normally evidence of and in some cases the contract between the buyer of
the ticket and its seller.847
The conditions required for an agreement being enforceable by law are contained in
Chapter II of the Act, section 10 below; and the absence of any such condition makes
an agreement void, though certain defects will make a contract voidable. The manner
in which contracts are, if necessary, enforced, belongs to civil procedure and specific
relief. If the procedure for entering into a contract is laid down by the Statute, it is only
in the way and mannermentioned thereinthat a valid contract can be arrived at and not
in deviation of the procedure; if there is a non-adherence, no concluded contract would
come into existence.848
[s 2.14] Clause (i): Voidable Contract
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, is a voidable contract.
Section 2(i) describes a voidable contract as one which is enforceable by law at the
option of one of the parties, but not at the option of the others. Section 2(g) describes
that an agreement not enforceable by law is void. The language of clauses (g) and (i)
would not be accurate in England. What clause (i) indicates is that one of the parties
(or possibly more) can at his option maintain the contract, or resist its enforcement, or
take active steps to set it aside and the other party has no such option. Such a contract
is voidable.849 When rescinded by a party entitled to rescind, it becomes void.
Nevertheless, it is in the first instance a contract, being valid until rescinded.
Since the contract is voidable, it gives the person a right of choice or election. Such a
right, once exercised, is exhausted. If such a person, by express notice or by conduct,
elects to affirm, he cannot later seek to avoid the contract; and if he has elected to
avoid, he cannot later be allowed to affirm. There is no locus poe nitentiaeor drawing
back from the bargainin either case.850 If the party having the option, affirms the
contract, or fails to exercise the right to rescind within a reasonable time, so that the
position of the parties has been altered, he loses the right to rescind.
The option which characterises a voidable contract is an option either to say "it shall
not be enforceable at all", or to leave it as a good contract enforceable by any party on
usual conditions.851 Hence, the words "may put an end to the contract" in section 39
also render the contract voidable.
Voidable contracts under this Act can be divided into two groups, namely, contracts
voidable in their inception under section 19 on the ground of coercion, fraud,
misrepresentation and under section 19A undue influence; and the contracts becoming
voidable by subsequent default of one party under section 39 (refusal of party to
perform promise wholly), section 53(impossibility created by act of party), and section
55 (failure to perform at time fixed, time being of essence).
A contract may be voidable, not only under the Act, but also under other laws. A
transfer by a guardian of minor's property in violation of section 29 of the Guardians
and Wards Act, 1890 or under sections 8(2) or (3) of the Hindu Minority and
Guardianship Act, 1956 are voidable at the option of the minor. A transaction covered
by the second proviso to section 20 of the Madras Estates (Abolition and Conversion
into Ryotwari) Act, 1948 being enforceable by the government, but not against it, is a
voidable transaction.852
This definition was not intended to alter, and does not alter the substantive law. A
contract is not vitiated by a clause conferring on one party an option to enforce the
contract.853 A contract giving to one party the power to terminate is not a voidable
contract, and section 19 does not apply to cases where the contract itself contains a
defeasance clause. The party who is given a right to terminate the contract under it is
entitled to do so unless the other party proves that the former has waived his rights.854
It has been held that when a "voidable contract" is avoided, it "becomes void", and
hence attracts application of section 65 to it for restoration of advantage received by
the parties.855
[s 2.15] Clause (j): Becomes Void
A contract which ceases to be enforceable by law becomes void when it ceases to be
enforceable.
In Mahant Singh v U Ba Yi,856 the Privy Council observed that clause (j) did not declare
every unenforceable contract void, but only those unenforceable by law, and these
meant not unenforceable by reason of some procedural regulation,e.g., the law relating
to limitation, but unenforceable by substantive law. It observed:
. . . a contract which was from its inception illegal, such as a contract with an alien enemy,
would be avoided by clause (g) and one which became illegal in the course of its
performance, such as a contract with one who had been an alien friend but later became an
alien enemy, would be avoided by clause (j). A mere failure to sue within the time specified
by the statute of limitations or an inability to sue by reason of the provisions of one of the
Orders under the Civil Procedure Code would not cause a contract to become void.857
A contract which becomes void is a valid contract at its inception, but is rendered void
(i.e., unenforceable) by some later event. Under this Act, a contract becomes void under
section 32,when the event on which its enforcement is contingent, becomes
impossible;858under section 35, when the specified event on which the enforcement of
contract is contingent, does not happen before the time fixed, or becomes impossible
within that time; under section 56, when the act promised becomes impossible or
unlawful by reason of some event which the promisor could not prevent. It has also
been held that a contract "becomes void" when it is rescinded by the party at whose
option it is voidable.859
Section 65 provides that when the contract becomes void, any person who has
received any advantage under it is bound to restore it or make compensation for it to
the person from whom it was received.
190 Badri Prasad v State of Madhya Pradesh, AIR 1970 SC 706 at 712;Suraj Besan and Rice Mills
v Food Corpn. of India, AIR 1988 Del 224 at 227; Deep Chandra v Ruknuddaula Shamsher Jung
Nawab Mohammad Sajjad Ali Khan, AIR 1951 All 93 at 97 (FB); Nirod Chandra Roy v Kirtya Nanda
Singh, AIR 1922 Pat. 24 ; Dagdu v Bhana, (1904) 28 Bom 420 at 425 (DB); Haji Mohamed Haji Jiva
v E Spinner, (1900) 24 Bom 510 at 523 (DB).
191
Trimex International FZE v Vedanta Aluminium Ltd, (2010) 3 SCC 1 ; The New India
Assurance Co Ltd v Dewa Properties, (2015) 2 LW 889 : (2015) 4 CTC 407 .
192 Dhulipudi Namayya v UOI, AIR 1958 AP 533 ; Meenakshi Mills Ltd v TC Anantarama Ayyar, AIR
1930 Mad. 654 (DB) 122 Ind Cas 507.
193 Ganesh Prasad Singh v Beehu Singh, AIR 1934 All 271 ; Firm Kanhaiya Lal v Dineshchandra,
AIR 1959 MP 234 .
194 Delhi Development Authority v Ravindra Mohan Aggarwal, (1999) 3 SCC 172 .
195 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas and Co, [1966] 1 SCR 656 : AIR
1966 SC 543 .
196 Bharat Petroleum Corp Ltd v Great Eastern Shipping Co Ltd, (2008) 1 SCC 508 .
197 Life Insurance Corp of India v Raja Vasireddy Komalavalli, (1984) 2 SCC 719 : AIR 1984 SC
1014 .
198 Tekdata Interconnections Ltd v Amphenol Ltd, [2009] EWCA Civ 1209 .
199 Pagnan SpA v Feed Products Ltd, [1987] 2 Lloyd's Rep 601.
200 Clarke v Earl of Dunraven (The Satanita), [1897] AC 59 ; Phillips, [1976] 92 LQR 499; but see
Berry v Pulley, [2002] 2 SCR 493 (Supreme Court of Canada): there is no contract between the
members, such as to entitle a member to sue another for breach of contract.
201 Gibson v Manchester City Council, [1978] 2 All ER 583 (CA) [1978] 1 WLR 294 ; Vorster,
(1987) 103 LQR 278.
202 Butler Machine Tool Co Ltd v Ex-Cell-O Corpn. (England) Ltd, [1979] 1 All ER 965 (CA) [1979]
1 WLR 401 ; Adams, (1979) 95 LQR 487; Tankereederei Ahrenkeil GmbH v Frahvil SA (The
Multitank Holsatia), [1988] 2 Lloyd's Rep 486; Interfoto Picture Library Ltd v Stilleto Visual
Programmes Ltd, [1989] ChD 433 : [1988] 1 All ER 348 .
203 Clarke v Earl of Dunraven (The Satanita), [1897] AC 59 .
204 Anson's Law of Contract, 30th Edn 2016, p 32
205 Ma Pwa Kywe v Maung Hmat Gyi, AIR 1939 Rang 86 .
206 Deep Chandra v Ruknuddaula Shamsher Jung Nawab Mohammad Sajjad Ali Khan, AIR 1951
All 93 .
207 BOI v O.P.Swarnakar, (2003) 2 SCC 721 ; Adikanda Biswal v Bhubaneswar Development
Authority, AIR 2006 Ori. 36 .
208 Visweswaradas Gokuldas v BK Narayan Singh, AIR 1969 SC 1157 at 1159 : (1969) 1 SCC 547
.
209
Dhondbhat Norharbhat v Almaram Moreshwar, (1889) ILR 13 Bom 669; Narayanasami
Mudaliar v Lokanibalammal, (1897) 7 Mad LJ 220.
210 Banwari Lal v Sukhdarshan Dayal, (1973) 1 SCC 294 .
211 BOI v O.P.Swarnakar, (2003) 2 SCC 721 , relying on Anson's Law of Contract, Chitty on
Contracts etc. it was held that a voluntary retirement scheme was an invitation to treat;
Adikanda Biswal v Bhubaneswar Development Authority, AIR 2006 Ori. 36 .
212 Bajinath v Kshetrahari Sarkar, AIR 1955 Cal 210 .
213 Hulas Kunwar v Allahabad Bank Ltd, AIR 1958 Cal 644 .
214 A.M. Mylappa Chettiar v Aga Mirza Mohamed Shirazee, (1919) 37 Mad LJ 712 : 54 IC 550 :
AIR 1920 Mad. 177 ; Secretary of State v Madho Ram, (1929) 10 Lah 493 at 502 : AIR 1929 Lah
114 .
215 Firm Durga Parshad Mutsaddi Lal v Firm Rulia Mal Doogar Mal, AIR 1922 Lah 100 .
216 Chatturbhuj Vithaldas Jasani v Moreshwar Parashram, AIR 1954 SC 236 (whether there was
a contract to disqualify a candidate for an election under the Representation of People's Act).
217 I B P Co Ltd v Ramashish Prasad Singh, AIR 2006 Pat. 91 : 2006 (1) BLJR 132 .
218 Ghaziabad Development Authority v State of Punjab, (2000) 6 SCC 113
219 Col.DI MacPherson v MN Appanna, AIR 1951 SC 184 .
220 Col. DI MacPherson v MN Appanna, AIR 1951 SC 184 : (1951) SCC 161 .
221 Surendra Nath Roy v Kedar Nath Bose, AIR 1936 Cal 87 , at 89 (DB).
222 Shyamsunder Ramdas v Abdul Sattar Haji Abba Abdul Karim, AIR 1938 Ngp 186 .
223 Matanhella Brothers v Shri Mahabir Industries Pvt Ltd, AIR 1970 Pat. 91 (DB).
224 M Pooran Singh v Krishna Bai, AIR 1951 Mad. 396 .
225 State Aided Bank of Travancore Ltd v Dhrit Ram, AIR 1942 PC 6 .
226 Central Bank Yeotmal Ltd v Vyankatesh Bapuji, AIR 1949 Ngp 286 at 288.
227 C Jayasree v Commr, Municipal Corpn.Hyderabad, AIR 1994 AP 312 .
228 Steel Authority of India Ltd v Salem Stainless Steel Suppliers, AIR 1994 SC 1414 : (1994) 1
SCC 274 .
229 Ghaziabad Development Authority v UOI, AIR 2000 SC 2003 : (2000) 6 SCC 113 ; Adikanda
Biswal v Bhubaneswar Development Authority, AIR 2006 Ori. 36 .
230 Raja of Bobbili v Suryanarayana Rao, (1917) ILR 421 Mad. 776 : 37 Mad LJ 274.
231 Nandganj Sihori Sugar Co Ltd v Badri Nath Dixit, AIR 1991 SC 1525 .
232 BOI v OP Swaranakar, AIR 2003 SC 858 : (2003) 2 SCC 721 ; HEC Voluntary Retd Employees
Welfare Society v Heavy Engineering Corpn. Ltd, AIR 2006 SC 1420 : (2006) 3 SCC 708 ; Board of
Trustees, Vishakhapatnam Port Trust v T S N Raju, (2006) 7 SCC 664 .
233 Madhya Pradesh State Road Transport Corp v Manoj Kumar, 2016 SCC Online SC 874; New
India Assurance Co Ltd v Raghuvir Singh Narang, (2010) 5 SCC 335 ; State Bank of Patiala v
Romesh Chander Kanoji, (2004) 2 SCC 651 ; BOI v O.P.Swarnakar, (2003) 2 SCC 721 .
234 Punjab & Sind Bank v S.Ranveer Singh Bawa, (2004) 4 SCC 484 .
235 SP Consolidated Engineering Co Pvt Ltd v UOI, AIR 1966 Cal 259 .
236 Anil Kumar Srivastava v State of Uttar Pradesh, (2004) 8 SCC 671 : AIR 2004 SC 4299 .
237 U P State Electricity Board v Goel Electrical Stores, AIR 1977 All 494 ;
238 Adikanda Biswal v Bhubaneswar Development Authority, AIR 2006 Ori. 36 , the Court relied
on the principle of promissory estoppel to arrive at its conclussion.
239 Tata Cellular v UOI, AIR 1996 SC 11 : (1994) 6 SCC 651; see Section 10 below: "Public
Contracts".
240 Chatturbhuj Vithaldas Jasani v Moreshwar Parashram, AIR 1954 SC 236 ; UOI v Maddala
Thathaiah, AIR 1966 SC 1724 ; Manickam Chettiar v State of Madras, AIR 1971 Mad. 221 .
241 Bengal Coal Co Ltd v Homee Wadia & Co, (1899) 24 Bom 97; Joravarmull Champalal v
Jeygopaldas Ghanshamdas, (1922) 43 Mad LJ 132 : AIR 1922 Mad. 486 ; Chaturbhuj Vithaldas v
Moreshwar Parashram, AIR 1954 SC 236 .
242 Dresser Rand S A v Bindal Agro Chem Ltd, AIR 2006 SC 871 : (2006) 1 SCC 751 ; Rishi Kiran
Logistics v Board of Trustees of Kandla Port, (2015) 13 SCC 233 .
243 Dantu Bhaskarrao v CVK Rao, AIR 1964 AP 77 (a case under the People's Representation
Act 1951); distinguishing N Satyanathan v K Subramanyan, [1955] 2 SCR 83 : AIR 1955 SC 459 .
244 Chand Kunwar v State of Rajasthan, AIR 1981 Raj. 23 .
245 Coffee Board Bangalore v Janab Dada Haji Ibrahim Halari, AIR 1966 Kant. 118 ;.
246 Pipraich Sugar Mills Ltd v Pipraich Sugar Mills Mazdoor Union, AIR 1957 SC 95 at 102.
247 Coffee Board Bangalore v Janab Dada Haji Ibrahim Halari, AIR 1966 Mys 118 .
248 Ratan Lal Gattani v Harcharan Lal, AIR 1947 All 337 .
249 KS Thangal v State of Kerala, AIR 1968 Ker. 197 .
250 Gorakh Nand Yadav v District Magistrate, Gorakhpur, AIR 1992 All 340 (the rules required the
amount in words and in figures).
251 BDA Ltd v State of Uttar Pradesh, AIR 1995 All 277 .
252 Food Corp of India v Ram Kesh Yadav, (2007) 9 SCC 531 ; G.S. Fertilisers Pvt Ltd v The
Associates Cement Cos Ltd, 2014 SCC OnLine Cal 3107 : AIR 2014 CC 1376 .
253 See Section 7 below: "Mirror Rule"; 17A Am Jur 2d, Contracts, § 90–91; quoted with
approval inD Wren International Ltd v Engineers India Ltd, AIR 1996 Cal 424 .
254 Joravarmull Champalal v Jeygopaldas Ghanshamdas, AIR 1922 Mad. 486 ; Agra Bank v
Hamlin, (1890) ILR 14 Mad. 235.
255 Madhya Pradesh State Road Transport Corp v Manoj Kumar, 2016 SCC OnLine SC 874.
256 Pramod Jain v SEBI, (2016) 10 SCC 243
257 Sanwarmal Goenka v Soumyendra Chandra Gooptu, AIR 1981 Cal 37 at 41 (DB).
258 See Sections 3, 4 below for rules regarding communication.
259 See also Section 7 below, under the heading: "Acceptance Subject to Formal Document".
260 Shanmugam Pillai v Annalakshmi Ammal, AIR 1950 FC 38 ; K Simrathmull v Nanjalingiah
Gowder, AIR 1963 SC l182.
261 Shree Ram v Ratanlal, AIR 1965 All 83 .
262 V.Pechimuthu v Gowrammal, AIR 2001 SC 2446 : (2001) 7 SCC 617 .
263 Venkatachalam Pillai v Sethuram Rao, AIR 1933 Mad. 322 (FB).
264 Anson's Law of Contract, 30th Edn 2016, p 35.
265 Chitty on Contracts, 28th Edn 1999, p 90, para 2–002.
266 Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal), [1983]
1 All ER 34 QBD : [1983] 1 AC 854 ; Vorster, [1987] 103 LQR 274; De Moor, [1990] 106 LQR 632.
267 Upton-on-Severn Rural District Council v Powell, [1942] 1 All ER 220 .
268 OT Africa Line Ltd v Vickers Pic, [1996] 1 Lloyd's Rep 700.
269 The Hannah Blumenthal, [1983] 1 AC 854 ; as interpreted in Allied Marine Transport Ltd v
Vale de Rio Doce Navegacao SA,(The Leonidas D), [1985] 2 All ER 796 (CA).
270 Chitty on Contracts, 28th Edn 1999, p 91, para 2–003.
271 Bowerman v Association of British Travel Agents Ltd, [1996] CLC 451 ; noted by McMeel
[1997] 113 LQR 47.
272 ChweeKin Keong v Digilandmallcom Ptd Ltd, [2005] 1 Serv LR 502 (Court of Appeal of
Singapore, Supreme Court), the case proceeds on the basis of mistake.
273 Financings Ltd v Stimson, [1962] 3 All ER 386 (CA).
274 Spencer v Harding, (1870) LR 5 CP 561; Clifton v Palumbo, [1944] 2 All ER 497 .
275 Harvela Investments Ltd v Royal Trust Co of Canada(CI) Ltd, [1985] 2 All ER 966 .
276 Bigg v Boyd Gibbins Ltd, [1971] 2 All ER 183 : [1971] 1 WLR 913 .
277 Interfolo Picture Library Ltd v Stiletto Visual Programmes Ltd, [1988] 1 All ER 348 at 350.
278 Hemp, Yarn and Cordage Co, Re Hindley's case, [1896] 2 ChD 121 (CA).
279 Gibson v Manchester City Council, [1978] 2 All ER 583 .
280 Clarke v Earl of Dunraven, [1897] AC 59 HL; Shanklin Pier Ltd v Detel Products Ltd, [1951] 2
All ER 471 : (1951) 2 KB 854 (the parties to a collateral contract need not be same as those to
the "main" contract).
281 The judgments are not clear whether the contract between A and B was complete as soon
as both had sent in the prescribed entry to the club secretary, or only when they actually sailed
against one another.
282 Chitty on Contracts, 28th Edn p 155, para 2–145; Zakhem International Construction Ltd v
Nippon Kohan KK, [1987] 2 Lloyd's Rep 596.
283 Balfour v Balfour, [1919] 2 KB 571 : [1918–19] All ER Rep 860 .
284 Rose & Frank Co v J R Crompton & Bros Ltd, [1923] 2 KB 261 (CA); on appeal [1925] AC 445 :
[1924] All ER Rep 245 (HL); Edwards v Skyways Ltd, (1964)1 WLR 349 at 355 : [1964] 1 All ER 494
at 500–01; Appleson v H Littlewood Ltd, [1939] 1 All ER 464 (condition in a coupon in a football
pool); Jones v Vernons Pools Ltd, [1938] 2 All ER 626 .
285
Gore v Van der Lann, [1967] 1 All ER 360 ; distinguishing Wilkie v London Passenger
Transport Board, [1947] 1 All ER 258 .
286 Anson's Law of Contract 30th Edn 2016, p 34.
287 Carlill v Carbolic Smoke Ball Co, [1893] 1 QB 256 : [1891–1894] All ER Rep 127 .
288 Balfour v Balfour, [1919] 2 KB 571 : [1918–19] All ER Rep 860 (CA); Pettitt v Pettitt, [1970] AC
777 at 816 : [1969] 2 All ER 385 : husband can be wife's tenant—where it has been said that the
facts of Balfour's case "stretched the doctrine to its limits"—but there are many instances of its
application—eg Gage v King, [1961] 1 QB 188 : [1960] 3 All ER 62 ; Spellman v Spellman, [1961] 1
WLR 921 : [1961] 2 All ER 498 ; cf Re Beaumont (decd), Martin v Midland Bank Trust Co Ltd, [1980]
ChD 443 at 453 : [1980] 1 All ER 266 .
289 Merritt v Merritt, [1970] 2 All ER 760 (CA); see also Jones v Padavatton, [1969] 2 All ER 616
(CA) (a case by a mother against a daughter for possession of a house purchased out of
mother's money); Gould v Gould, [1969] 3 All ER 728 (where the husband had promised to pay
£12 a week "as long as I can manage it", was held not to be binding); Re Windle, [1975] 1 WLR
1628 : [1975] 3 All ER 987 ; Tanner v Tanner, [1975] 1 WLR 1346 : [1975] 3 All ER 776 (where the
parties were not married); Horrocks v Forray, [1976] 1WLR 230 : [1976] 1 All ER 737 (where there
was no such reliance and hence, no contract); for the arrangement being enforceable by way of
constructive trust: Eves v Eves, [1975] 1 WLR 1338 at 1342 : [1975] 3 All ER 768 ; Grant v
Edwards, [1986] ChD 638 : [1986] 2 All ER 426 ; Lloyd's Bank plc v Rosset, [1988] 3 All ER 915 ;
Burns v Burns, [1984] ChD 317 : [1984] 1 All ER 244 .
290 Spellman v Spellman, [1961] 1 WLR 921 at 926, 928 : [1961] 2 All ER 498 (CA), Danckwerts
LJ contra; Balfour v Balfour, [1919] 2 KB 571 : [1918–19] All ER Rep 860 (CA).
291 Coward v Motor Insurers Bureau, [1962] 2 WLR 663 at 672 : [1962] 1 All ER 531 .
292 Licences Insurance Co v Lawson, (1896) 12 Tax LR 501 .
293 See The Aramis, [1989] 1 Lloyd's Rep 213; Harvela Investments Ltd v Royal Trust Co of
Canada (CI) Ltd, [1986] AC 207 : [1985] 2 All ER 966 ; but see Furness Withy (Australia) Pty Ltd v
Metal Distributors (UK) Ltd (The Amarozia), [1990] 1 Lloyd's Rep 236 (new contract intended);
British Steel Corp v Cleverland Bridge and Engineering Co Ltd, [1984] 1 All ER 504 ; Wilson Smithett
& Co (Sugar) Ltd v Bangladesh Sugar Industries Ltd, [1986] 1 Lloyd's Rep 378 (letter of intent held
to be an acceptance); Kleinwort Benson Ltd v Malaysian Mining Corpn. Bhd, [1989] 1 All ER 785
(letters of comfort).
294 But see Associated British Ports v Ferryways NV, [2009] EWCA Civ 189 (can be binding if so
intended on proper construction of the document as a whole).
295 Kleinwort Benson Ltd v Malayasia Mining Corpn. Bhd, [1989] 1 All ER 785 (CA); reversing
decision of Hirst J. in [1988] 1 All ER 714 .United Breweries (Holding) Ltd v Karnataka State
Industrial Investment, AIR 2012 Kant. 65 .
296 Heilbut Symons & Co v Buckleton, [1913] AC 30 : 47 [1911–13] All ER Rep 83 ; followed by
the House of Lords in LBA v EMf Electronics Ltd, [1980] 14 Build LR 1; cf Strover v Hasrrington,
[1988] 1 All ER 769 , 779; Hispanica de Petroleos SA v Vencedora Oceanica Navegacion SA (The
Kapetan Markos NL), [1981] 2 Lloyd's Rep 323.
297 GAFLAC v Tanter (The Zephyr), [1985] 2 Lloyd's Rep 529 at 536; Yani Haryanto v ED and F
Man (Sugar) Ltd, [1986] 2 Lloyd's Rep 44; Edwards v Skyways Ltd, (1964)1 WLR 349 : [1964] 1 All
ER 494 .
298 Rose and Frank Co v JR Crompton & Bros Ltd, [1923] 2 KB 261 (CA), on appeal [1925] AC
445 : [1924] All ER Rep 245 at 250 (HL).
299 Rose and Frank Co v JR Crompton & Bros Ltd, [1923] 2 KB 261 (CA); on appeal [1925] AC
445 : [1924] All ER Rep 245 (HL).
300 Lambert v Lewis, [1982] AC 225 at 262 : [1981] 1 All ER 1185 .
301 Simpkins v Pays, [1955] 1 WLR 975 : [1955] 3 All ER 10 .
302 Edwards v Skyways Ltd, [1964] 1 WLR 349 : [1964] 1 All ER 494 .
303 Bennett, Walden & Co v Wood, [1950] 2 All ER 134 ; Confetti Records v Warner Music UK Ltd,
[2003] EWHC 1274 (Ch).
304
See generally Halsbury's Laws of England, Vol 9(1), 4th Edn Reissue, 30 June 1998,
"CONTRACTS", para 640.
305 Partridge v Crittenden, [1968] 2 All ER 421 : [1968] 1 WLR 1204 .
306 Timothy v Simpson, [1834] 6 C&P 499; Fisher v Bell, [1960] 3 All ER 731 .
307 Pharmaceutical Society of Great Britian v Boots Cash Chemists (Southern) Ltd, [1953] 1 QB
410 : [1953] 1 All ER 482 (CA).
308 Esso Petroleum Ltd v Commissioners of Customs and Excise, [1976] 1 All ER 117 : [1976] 1
WLR 1 .
309 Thornton v Shoe Lane Parking Ltd, [1971] 2 QB 163 : [1971] 1 All ER 686 (CA).
310 Gibbons v Proctor, (1891) 64 LT 594 .
311 Carlill v Carbolic Smoke Ball Co, [1893] 1 QB 256 : [1891–94] All ER Rep 127 .
312 Harris v Nickerson, [1873] LR 8 QB 286.
313 Percival Ltd v LCC Asylums and Mental Deficiency Committee, (1918) 87 LJ KB 677 at 678–
79.
314 Connaught Plaza Restaurants Pvt Ltd v Niamat Kaur, 2013 SCC OnLine Del 2320.
315 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas and Co, [1966] 1 SCR 656 : AIR
1966 SC 543 at 549.
316 State of Madhya Pradesh v Firm Gobardhan Dass Kailash Nath, AIR 1973 SC 1164 at 1166.
317 New Bihar Biri Leaves Co v State of Bihar, (1981) 1 SCC 537 ; Narayanrao Jagobaji Gowande
Public Trust v State of Maharashtra, (2016) 4 SCC 443 .
318 Nalini v Somasundaram, AIR 1964 Mad. 52 ; New India Assurance Co Ltd v Dewa Properties,
2015 SCC OnLine Mad 3443 : (2015) 2 LW 889 ; Gaddar Mal v Tata Industrial Bank Ltd, AIR 1927
All 407 at 410; Bhagwan Das v Shiv Dial, AIR 1914 Lah 436 at 438.
319 Trimex International FZE v Vedanta Aluminium Ltd, (2010) 3 SCC 1 .
320 Life Insurance Corp of India v Raja Vasireddy Komalavalli, (1984) 2 SCC 719 : AIR 1984 SC
1014 ; Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas and Co, [1966] 1 SCR 656 :
AIR 1966 SC 543 .
321 Allahabad Bank v MECON Doranda Ranchi, AIR 2005 Jhar. 54 .
322 Life Insurance Corp of India v Raja Vasireddy Komalavalli, (1984) 2 SCC 719 : AIR 1984 SC
1014 ; Deokar Exports Pvt Ltd v New India Assurance Co Ltd, (2008) 14 SCC 598 .
323 Life Insurance Corp of India Machilipatnam v Vankadaru Koteswaramma, AIR 2003 AP 153 .
324 Food Corporation of India v Ram Kesh Yadav, (2007) 9 SCC 531 ; G.S. Fertilisers Pvt Ltd v The
Associates Cement Cos Ltd, 2014 SCC OnLine Cal 3107 : AIR 2014 CC 1376 .
325 U P State Electricity Board v Goel Electric Stores, AIR 1977 All 494 ; Sindhu Resettlement Corp
Ltd v Shree Om Commercial Coop Society Ltd, (2013) SCC OnLine Guj 693.
326 Kilburn Engg Ltd v Oil and Natural Gas Corpn. Ltd, AIR 2000 Bom 405 (intimation stating
"award of contract likely to be issued on ..." was no acceptance).
327 Biswanath Shaw v Central Bank of India, AIR 2009 Cal 243 .
328 Municipal Committee Harda v Harda Electric Supply Co Pvt Ltd, AIR 1964 MP 101 at 106.
329 Punjab State Electricity Board v Abnash Textile Trading Agencies, AIR 1986 P&H. 323 ; See
Section 7 below: "Acceptance Subject to Formal Document".
330 State of UP v Raza Buland Sugar Co Ltd, AIR 2006 All 61 .
331 Oil and Natural Gas Petro Additions Ltd v Daelim Industry Co Ltd, (2015) 13 SCC 176 .
332 Madhya Pradesh State Road Transport Corp v Manoj Kumar, 2016 SCC OnLine SC 874.
333 Plato Industries Ltd v State of HP, AIR 2011 HP 120 .
334 Rajasthan Co-op Dairy Federation Ltd v Maha Laxmi Mingrate Marketing Service Pvt Ltd,
(1996) 10 SCC 405 ; Dresser Rand S A v Bindal Agro Chem Ltd, AIR 2006 SC 871 : (2006) 1 SCC
751 ; Speech and Software Technologies (India) Pvt Ltd v Neos Interactive Ltd, (2009) 1 SCC 475 ;
Connaught Plaza Restaurants Pvt Ltd v Niamat Kaur, 2013 SCC OnLine Del 2320; Rishi Kiran
Logistics v Board of Trustees of Kandla Port, (2015) 13 SCC 233 .
335 Dresser Rand S A v Bindal Agro Chem Ltd, AIR 2006 SC 871 : (2006) 1 SCC 751 at 773; Great
Offshore Ltd v Iranian Offshore Engineering and Construction Company, (2008) 14 SCC 240 ; Rishi
Kiran Logistics v Board of Trustees of Kandla Port, (2015) 13 SCC 233 .
336 Ibid.
337 H Ezekiel v Carew & Co Ltd, AIR 1938 Cal 423 .
338 Gammon India Ltd v Punjab State Electricity Board, AIR 1997 P&H. 43 (fax by an officer is no
acceptance where authority to accept with the Board); Subramania Mudaliar v Ammapet
Cooperative Weavers Production and Sales Society, AIR 1961 Mad. 289 (communication must be
by the secretary of the society, where its regulations so provide); Life Insurance Corpn. of India v
Prasanna Devaraj, AIR 1995 Ker. 88 (receipt of premium issued by divisional manager when only
central office has power of accepting does not conclude the contract).
339 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas and Co, [1966] 1 SCR 656 : AIR
1966 SC 543 at 549; Quadricon Pvt Ltd v Shri Bajrang Alloys Ltd, AIR 2008 Bom 88 .
340 T Linga Gowder v State of Madras, AIR 1971 Mad. 28 .
341 Gajendra Singh v Nagarpalika Nigam Gwalior, AIR 1996 MP 10 ; Kamalabai Jageshwar Joshi
v State of Maharashtra, AIR 1996 SC 981 : (1996) 1 SCC 669 .
342 Rani Huzur Ara Begum v Deputy Commissioner Gonda, AIR 1941 Oudh 529 (resolution by the
Court of Wards to compromise on terms arrived at after discussion); Central Bank Yeotmal Ltd v
Vyankatesh Bapuji, AIR 1949 Ngp 286 ; Gajendra Singh v Nagarpalika Nigam Gwalior, AIR 1996
MP 10 (resolution of a municipal corporation).
343
Gajendra Singh v Nagarpalika Nigam Gwalior, AIR 1996 MP 10 (resolution and
interdepartmental communication).
344 See Section 8 below.
345 Indian Oil Corp Ltd v Nilofer Siddiqui, (2015) 16 SCC 125 .
346 Anson's Law of Contract, 30th Edn 2016, pp 42, 43, 45.
347 Confetti Records v Warner Music UK Ltd, [2003] EWHC 1274 (Ch) (although original offer
was "subject to contract", conduct of making album showed acceptance).
348 Wilson Smithett & Co (Sugar) Ltd v Bangladesh Sugar Industries Ltd, [1986] 1 Lloyd's Rep
378.
349 Brogden v Metropolitan Railway Co, (1877) 2 App Cas 666 .
350 National Savings Bank Association, Hebb's case (1867) LR 4 Eq 9; Kennedy v Thomassen,
[1929] 1 ChD 426 : [1928] All ER Rep 525
351 Crown v Evan Clarke, (1927) 40 CLR 227 (High Court of Australia).
352 Best's case, (1865) 2 De GJ & Sm 650 : 34 LJ Ch 523;cf Gunn's case, (1867) LR 3 Ch App 40.
353
Robophone Facilities Ltd v Blank, [1966] 3 All ER 128 at 132; see also Hubli-Dharwad
Municipal Corp v Chandrashekar M Shetty, AIR 2009 Kant. 41 .
354 Gastho Behari Sirkar v Surs' Estates Ltd, AIR 1960 Cal 752 .
355 Claude-Lila Parulekar v Sakal Papers Pvt Ltd, AIR 2005 SC 4074 : (2005) 11 SCC 73 .
356 National Textile Corp (MP) Ltd v M R Jhadav, AIR 2008 SC 2449 : (2008) 7 SCC 29 .
357 Adivelu v Narayanchari, AIR 2005 Kant. 236 .
358 Adikanda Biswal v Bhubaneswar Development Authority, AIR 2006 Ori. 36 ; MHADA v MSHRC,
AIR 2010 Bom 104 (allotment letter).
359 State Bank of India v Kanahiya Lal, 2016 SCC OnLine Del 2639.
360 BOI v O.P.Swarnakar, (2003) 2 SCC 721 ; Ganeswar Biswal v State of Orissa, 2012 Lab IC 467
: (2012) 132 FLR 492 .
361 Pollock, Principles of Contract, 13th Edn 1950;
362 Chunnamal Ram Nath v Moolchand Ram Bhagat, (1928) BomLR 837 .
363 See Section 2 clause (d).
364 State of Uttar Pradesh v Kanhaiya Lal Mukund Lal Sarraf, AIR 1956 All 383 .
365 Alluri China Bapanna v Muttangi Jaggiah, AIR 1939 Mad. 818 .
366 Nabendra Nath Basak v Shasabindoo Nath Basak, AIR 1941 Cal 595 .
367 Meenakshi Achi v PSM Subramanian Chettiar, AIR 1957 Mad. 8 at 12.
368 SMagnus v CIT, AIR 1958 Bom 467 : [1958] 33 ITR 538 ; but see Section 5 of the Transfer of
Property Act, 1882, under which a person may transfer property to himself or to himself and
another living person.
369 See also Section 127 (consideration for guarantee) and Section 185 (consideration not
necessary for creating of an agency) of the Indian Contract Act, 1872.
370 PS Atiyah, An Introduction to the Law of Contract, 5th Edn 1995, p 118.
371 Sonia Bhatia v State of Uttar Pradesh, AIR 1981 SC 1274 .
372 Chidambara Iyer v P.S. Renga Iyer, [1966] 1 SCR 168 : AIR 1966 SC 193 ; Kulasekaraperumal v
Pathakutty Thalevanar, AIR 1961 Mad. 405 .
373 Fazaladdin Mandal v Panchanan Das, AIR 1957 Cal 92 .
374 K.S.Bakshi v State, (2008) 146 DLT 125 ; Suresh Chadra Goyal v Amit Singhal, 2015 SCC
OnLine Del 9459 : (2015) 3 BC 649 .
375 UOI v Himachal Futuristic Communications Ltd, 2013 SCC OnLine Del 783.
376 Sonai Bhatia v State of U.P, (1981) 2 SCC 585 .
377 Dwarampudi Nagaratanamba v Kunuku Ramayya, AIR 1968 SC 253 .
378 See also Article 29 of the United Convention on the International Sale of Goods, 1980.
379 The UNIDROIT Principles, Article 3.2 provides:
A contract is concluded, modified or terminated by mere agreement of the parties, without any
further requirement.
380 Combe v Combe, [1951] 2 KB 215 at 220 : [1951] 1 All ER 767 per Denning LJ; Gould v Gould,
[1969] 3 All ER 728 .
381 Currie v Misa, Lush J, (1875) LR 10 Ex 153 at 162 [1874–80] All ER Rep 686 , HL; Thomas v
Thomas, (1842) 2 QB 851 : 114 ER 330;.Midland Bank Trust Co Ltd v Green, [1981] AC 513 at 531
: [1979] 3 All ER 28 ; R v Braithwaite, [1983] 1 WLR 383 at 391 : [1983] 2 All ER 87 .
382 Anson's Law of Contract, 30th Edn 2016, p96
383 Chidambara Iyer v P.S. Renga Iyer, [1966] 1 SCR 168 : AIR 1966 SC 193 at 197 per Subbarao
J; Ramacharya Venkatramanacharya v ShrinivasacharyaVenkatramanacharya, (1918) 20 Bom LR
441 : AIR 1918 Bom 183 at 184; Sonia Bhatia v State of Uttar Pradesh, AIR 1981 SC 1274
(reasonable equivalent or valuable benefit).
384 Pollock, Principles of Contract, 13th Edn p 133; quoted in Keshub Mohindra v Commissioner
of Gift Tax, [1968] 70 ITR 1 at 23 : (1969) 1 ITJ 293 at 304.
385 Dunlop Pneumatic Tyre Co Ltd v Selfridge& Co Ltd, (1915) AC 847 at 885 : [1914–15] All ER
333 (HL) at 335 per Lord Dunedin.
386 Chitty on Contracts, 28th Edn p 170, para 3–007.
387 Bachawat J in Fazaladdin Mandal v Panchanan Das, AIR 1957 Cal 92 ; referring to Chitty on
Contracts, Vol 1, 20th Edn, p 39.
388 See, for instances that fail to make this distinction.:Prahlad v Laddevi, AIR 2007 Raj. 166 ;
Dhanbarti Koerin v Shyam Narain Mahton, AIR 2007 Pat. 59 .
389 Chitty on Contracts, 28th Edn p 169, para 3–004.
390 Manna Lal v Bank of Bengal, (1876) ILR 1 All 309 at 311.
391 Sivagami Achi v PS Subramania Chettiar, AIR 1936 Mad. 978 at 980.
392 Nihal Singh v State of Punjab, (2013) 14 SCC 65 .
393
Food Corp of India v Surana Commercial Co, (2003) 8 SCC 636 ; Perumal Mudaliar v
Sendanatha Mudaliar, AIR 1918 Mad. 311 at 312; Munnalal v Duklo, AIR 1926 Ngp 149 at 151;
Ganesh Prasad Singh v Bechu Singh, AIR 1934 All 271 at 272;
394 Perumal Mudaliar v Sendanatha Mudaliar, AIR 1918 Mad. 311 at 312.
395 Shailesh Chandra Guha v Bechari Gape, AIR 1925 Cal 94 .
396 Kirtyanand Sinha v Ramanand Sinha, AIR 1936 Pat. 456 : 164 IC 220.
397 See Section 127 of the Act: Anything done, or any promise made, for the benefit of the
principal debtor may be a sufficient consideration to the surety for giving the guarantee. See
also Prakashwati Jain v Punjab State Industrial Development Corp, AIR 2012 P&H. 13 .
398 Section 127 of the Indian Contract Act, 1872, expressly provides so.
399 Fazaladdin MandaI v Panchanan Das, AIR 1957 Cal 92 at 94; mutuality is no longer a
necessary condition for grant of specific performance; see Section 20(4) of the Specific Relief
Act, 1963.
400
Pollock, Principles of Contract, 13th Edn 1950, p 133; definition approved in Dunlop
Pneumatic Tyre Co Ltd v Selfridge & Co Ltd, [1914–15] All ER 333 .
401 Sir William Holdsworth, History of English Law, Vol 8, p 11, (2nd Edn 1937).
402 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, [1978] 3 All ER 1170 .
403 Bolton v Madden, (1873) LR 9 QB 55.
404 Good v Cheesman, (1831) 2 B&Ad 328; Alliance Bank v Broom, (1864) 2 Dr & Sm 289 : 34 LJ
(Ch) 256 : [1861–73] All ER Rep 1449 ; De la Bere v CA Pearson, [1908] 1 KB 280 : [1904–07] All
ER Rep 755 ; Ward v Byham, [1956] 1 WLR 496 : [1956] 2 All ER 318 ; Chappell & Co Ltd v Nestle
Co Ltd, [1960] AC 87 : [1959] 2 All ER 701 ; Williams v Roffey Bros. & Nicholls (Contractors) Ltd,
[1991] 1 QB 1 : [1990] 1 All ER 512 (CA).
405 It is no consideration if the promisee has promised to do what he is already legally bound
to do; see below, under the heading: "Pre-existing Obligations Under Law" and "Performance of
Existing Contractual Obligations".
406 Bolton v Madden, (1873) LR 9 QB 55 at 57; referred in Keshub Mohindra v Commissioner of
Gift Tax, [1968] 70 ITR 1 : (1969) 1 ITJ 293 ; Midland Bank Trust Co Ltd v Green, [1981] AC 513 at
531 : [1979] 3 All ER 28 .
407 O'Sullivan v Management Agency and Music Ltd, [1985] QB 428 at 459 : [1985] 3 All ER 351 .
408 PK Nanjundasami Chetti v Kanagaraju, (1919) 42 Mad 154 at 159 : 49 IC 666 : AIR 1919
Mad. 500 .
409 Radha Govinda Rai v Khas Dharmaband Colliery Co Ltd, AIR 1963 Pat. 160 .
410 Durga Prasad v Baldeo, (1881) ILR 3 All 221 (the case could not also fall under Section
25(2) because the market was not constructed by the plaintiff for the defendants).
411
Sindha Shri Ganpatsingji Himatsingji v Abraham, (1895) 20 Bom 755 at 758; Raja of
Venkatagiri v Sri Krishnayya Rao Bahadur Zamindar, AIR 1948 PC 150 : 50 Bom LR 517.
412 Fanindra Narain Roy v Kachheman bibi, (1917) 45 Cal 774 : 41 IC 673 : AIR 1918 Cal 816 at
817; Ganesh Prasad Singh v Bechu Singh, AIR 1934 All 271 at 272.
413 Sudhanshu Mohan Koley v Mathura Mohan Adak, (1975) ILR 1 Cal 182.
414 Sornalinga Mudali v Pachi Naicken, AIR 1914 Mad. 41 ; P Rama Patter v A Vishwanath Patter,
45 Mad 345 : AIR 1922 Mad. 23 at 24; Munnalal v Duklo, AIR 1926 Ngp 149 at 151; Anant Krishna
Modak v Sarasvatibai Padmanabh Shetti, AIR 1928 Bom 316 at 318 : 30 Bom LR 709 : 111 IC 556;
Amin Chand v Guni, AIR 1929 Lah 466 at 467 : 119 IC 766.
415 Fanindra Narain Roy v Kachheman bibi, (1917) 45 Cal 774 : 41 IC 673 : AIR 1918 Cal 816 .
416 Andhra Bank Suryapet v Anantnath Goel, AIR 1991 AP 245 at 248.
417 Gifts made after 30 September 1998 are not chargeable to gift tax vide Section 75 of the
Finance (No. 2) Act, 1998.
418 Keshub Mohindra v Commr. of Gift Tax, [1968] 70 ITR 1 : (1969) 1 ITJ 293 .
419 Re Wyern Developments Ltd, [1974] 2 All ER 535 ; International Petroleum Refining & Supply
Sociedad Ltd v Brett Caleb & Sons Ltd, [1980] 1 Lloyd's Rep 569; Barclay's Bank plc v Weeks Legg
& Dean, [1998] 3 All ER 213 (need not move to the promisor).
420 O'Sullivan v Management Agency and Music Ltd, [1985] QB 428 : [1985] 3 All ER 351 ; Re
Dale, Proctor v Dale, [1994] ChD 31 [1993] 4 All ER 129 ; Jones v Padavatton, [1969] 1 WLR 328 :
[1969] 2 All ER 616 , (giving up a job); Tanner v Tanner, [1975] 3 All ER : 776 (giving up tenancy);
Coombes v Smith, [1986] 1 WLR 808 .
421 Customs & Excise Commrs v Diners Club Ltd, [1989] 2 All ER 385 at 395; Re Charge Card
Services Ltd, [1987] ChD 150 , affirmed in [1988] 3 All ER 702 : [1989] ChD 487 .
422 See section 10 below: "Doctrine of Promissory Estoppel".
423 Motilal Padampat Sugar Mills Co Ltd v State of Uttar Pradesh, AIR 1979 SC 621 at 631 :
[1979] 2 SCR 641 : (1979) 2 SCC 409 at 425.
424 State of Tamil Nadu v Sumathi Srinivas, 2015 SCC OnLine Mad 3757 : (2015) 2 LW 391 .
425 Lyle-Meller v A. Lewis & Co (Westminster) Ltd, [1956] 1 All ER 247 ; Sat Narain v UOI, AIR
1961 P H 314.
426 Motilal Padampat Sugar Mills Co Ltd v State of Uttar Pradesh, AIR 1979 SC 621 .
427 Kedar Nath Bhattacharji v Gorie Mahomed, (1886) ILR 14 Cal 64; distinguished in Adaitya
Dass v Prem Chand Mondal, (1928) 120 IC 105 : AIR 1929 Cal 369 (no evidence of plaintiff's
expense being incurred at defendant's request); Gopal Vinayak Deshmukh v Trimbak Narayan
Deshmukh, AIR 1953 Ngp 195 .
428 District Board of Ramnad v DK Mahomed Ibrahim Saheb, AIR 1933 Mad 524 : 64 Mad LJ 574
: 143 IC 496; cf Perumal Mudaliar v Sendanatha Mudaliar, AIR 1918 Mad. 311 .
429 Doraswamy Iyer v Arunachala Ayyar, AIR 1936 Mad. 135 : 159 IC 345.
430 Abdul Aziz v Masum Ali, (1914) 36 All 268 : 23 IC 600 : AIR 1914 All 22 at 23; CIT v
Kameshwar Singh, AIR 1953 Pat. 231 at 234.
431 A Lakshamanaswami Mudaliar v Life Insurance Corpn. of India, AIR 1963 SC 1185 at 1190 :
(1963) 33 Com Cas 420 : (1963) 1 SCJ 521 (the donation was also ultra vires the company).
432 Jiban Krishna Mulick v Nirupama Gupta, (1926) 53 Cal 922 : 96 IC 846 : AIR 1926 Cal 1009 ;
Jamuna Das v Ram Kumarji, AIR 1937 Pat. 358 : 169 IC 396.
433 Pipraich Sugar Mills Ltd v Pipraich Sugar Mills Mazdoor Union, AIR 1957 SC 95 : [1956] SCR
872 at 885.
434 Re Soames, (1897) 13 TLR 439 .
435 Re Mountgarret, (1913) 29 TLR 325 .125. [1952] 1 KB 290 at 295 : [1952] 1 All ER 149 (CA).
436 See generally 73 Am Jur 2d Subscriptions.
437 73 Am Jur 2d Subscriptions, § 10.
438 73 Am Jur 2d Subscriptions, § 10.
439 Nihal Singh v State of Punjab, (2013) 14 SCC 65 ; Utair Aviation v Jagson Airlines Ltd, 2012
SCC OnLine Del. 2114 : (2012) 129(2012) 129 DRJ (Del); Punjab National Bank v Khazan Singh,
AIR 2004 P&H. 282 .
440 Venkata Chinnaya Ray Garu v Ramayya Venkataramaya, (1881) 4 Mad 137 : (1876–1882) ILR
1 –4 Mad 930.
441 Samuel Pillai v Anathanatha Pillai, (1883) ILR 6 Mad 351.
442 M.C.Chako v State Bank of Travencore, AIR 1970 SC 704 ; Madhav Trading Co v UOI, ILR
(1978) 2 Del. 74 ; Jnan Chandra Mukherjee v Manoranjan Mitra, AIR 1942 Cal 251 .
443 Bhujendra Nath v Sushamoyee Basu, AIR 1936 Cal 66 ; Klaus Mittelbachert v East India
Hotels, AIR 1997 Del 201 .
444 Budhavaram Narashimhulu Chetti v Noota Ibbundrum Nagaram Varu, AIR 1923 Mad. 434 at
435; Wahidan v Nasir Khan, AIR 1930 All 434 at 436; Raja Shiba Prasad Singh v Tincouri Banerji,
AIR 1939 Pat. 477 at 485; Daw Po v U Po Hmyin, AIR 1940 Rang 91 : 187 IC 875; Marayee Ammal
v Nalluswamy, (1965) 2 Mad LJ 329; see also Fazaladdin Mandal v Panchanan Das, AIR 1957 Cal
92 , per Bachawat J at 95.
445 Raj Rani v Prem Adib, AIR 1949 Bom 215 at 217.
446 Sundar Sahu Gountia v Chamra Sahu Gauntia, AIR 1954 Ori. 80 at 84.
447 Ramachandra Ramyallabh v Gomtibai, AIR 1926 Bom 82 at 85.
448 Debnarayan Dut v Chunilal Ghose, (1914) ILR 14 Cal 137.
449 Utair Aviation v Jagson Airlines Ltd 2012 SCC OnLine Del. 2114 : (2012) 129 DRJ (Del).
450 Jnan Chandra Mukherjee v Manoranjan Mitra, AIR 1942 Cal 251 .
451 Utair Aviation v Jagson Airlines Ltd, (2012) 129 DRJ (Del).
452 Dutton v Poole, (1688) 2 Lev 210 approved by Lord Mansfield in Martyn v Hind, (1776) 2
Cowp 437 at 443.
453 Tweedle v Atkinson, (1861) 1 B & Section 393 : [1861–73] All ER Rep 369 : 124 RR 610,
especially the judgment of Crompton J; accepted by House of Lords in Beswick v Beswick,
[1967] 3 WLR 932 at 955 (HL) [1967] 2 All ER 1197 ; contra Denning MR in the same case [1966]
ChD 538 : [1966] 3 All ER 1 (CA).
454 Distinction approved by the Supreme Court in UOI v Chaman Lal Loona and Co, AIR 1957 SC
652 at 655; quoting Chitty on Contracts, 21st Edn Vol. I, pp 43–44; Pankaj Bhargava v Mohinder
Nath, AIR 1991 SC 1233 : (1991) 1 SCC 556 at 564.
455 The Indian Contract Act, 1872, Section 2(f).
456 Shree Ram v Ratan Lal, AIR 1965 All 83 ; R.Ramaswamy v Seethammal, (1990) 1 Mad LJ
428.
457 UOI v Chaman Lal Loona & Co, AIR 1957 SC 652 quoting Chitty on Contracts; Pankaj
Bhargava v Mohinder Nath, (1991) 1 SCC 556 .
458 The possible existence of a collateral promise, e.g. a warranty on sale, does not affect the
general truth of this agreement.
459 Dwarampudi Nagaratanamba v Kunuku Ramayya, AIR 1968 SC 253 .
460 Board of Revenue Madras v Annamalai &Co Pvt Ltd, AIR 1968 Mad. 50 : (1967) 2 Mad LJ 515
(FB); Seth Loon Karan Sethiya v Ivan E John, AIR 1969 SC 73 : (1969) 1 SCR 122 (held to be
equitable assignment).
461 Board of Revenue Madras v Annamalai & Co Pvt Ltd, AIR 1968 Mad. 50 : (1967) 2 Mad LJ
515 (FB).
462 Fazaladdin Mandal v Panchanan Das, AIR 1957 Cal 92 .
463 Fazaladdin Mandai v Panchanan Das, AIR 1957 Cal 92 .
464 UOI v Cham Lal Loona &Co, AIR 1957 SC 652 at 655.
465 Kunj Behari Lal Rastogi v Madhsodan Lal, AIR 1919 All 348 .
466 Board of Revenue Madras v Annamalai &Co Pvt Ltd, AIR 1968 Mad. 50 at 52 : (1967) 2 Mad
LJ 515 (FB).
467 Central Bank of India v Tarseema Compress Wood Manufacturing Co, AIR 1997 Bom 225 .
468 Dungarmull Kissenlal v Sambhu Charan Pandey, AIR 1951 Cal 55 .
469 P Kanakasabapathy Mudaliar v Hajee Gosman Sahib, AIR 1925 Mad. 192 (promise to pay
bonus for extra work put in by the employees); Tayerali Mahamadali v Garabad Sadu, AIR 1939
Bom 252 at 251.
470
Sindha
Shri
Ganpatsingji
v
Abraham,
(1895)
20
Bom
755;
cf
Ramacharya
Venkatramanacharya v ShrinivasacharyaVenkatramanacharya, (1918) 20 Bom LR 441 : AIR 1918
Bom 183 ; Dungarmull Kissenlal v Sambhu Charan Pandey, AIR 1951 Cal 55 .
471 See below.
472 Suraj Narain Dube v Sukhu Aheer, (1928) 51 All 164 : 112 IC 159 : AIR 1928 All 440 . The
words are in themselves not clear, but if a merely void transaction could thus be in effect
ratified, the intention of the Act would be frustrated; but see Narain Singh v Chiranji Lal, AIR 1924
All 730 (2) at 731; Bankey Lal v Ram Piari, AIR 1933 All 659 (mortgagee agreeing to payoff the
debts of the mortgagor incurred during minority to the third party and paying off those debts
was valid consideration for the mortgage).
473 Lala Babu Ram v Ganga Devi, AIR 1959 All 788 at 798.
474 RK Sundaram Asari v TR Abdul, AIR 1956 Mad. 692 at 693.
475 Westminster City Council v Duke of Westminster, [1991] 4 All ER 136 .
476 Anson's Law of Contract, 30th Edn 2016, p101.
477 Re Casey's Patents, Stewart v Casey, [1892] 1 ChD 104 , Bowen LJ.
478 Re Mc Ardle, [1951] 1 ChD 669 : [1951] 1 All ER 905 .
479 Pao On v Lau Yiu, [1980] AC 614 : [1979] 3 All ER 65 (PC); Lampleigh v Brathwait, (1615) Hob
105; Re Casey's Patents, Stewart v Casey, [1892] 1 ChD 104 . See also Rainforest Trading Ltd v
State Bank of India Singapore, [2012] 2 Serv LR 713 (Singapore Court of Appeal).
480 (1979) 3 All ER 65 (PC) at 74.
481 Slade's case, (1602) 4 Co Rep 91a.
482 Wigan v English and Scottish Law Life Assurance Association, [1909] 1 ChD 291 at 297 :
[1908–10] All ER Rep 449 .
483 Sic one would expect "make".
484 Lampleigh v Brathwaite, Hob, 105 : 1 Sm LC 148.
485 ANAR Arunachallam Chettyar v VMRP Firm, AIR 1938 Rang 202 at 203 (FB).
486 Taluk Board Koilpath v Senthattikalai Pandia Chinnathambiar, AIR 1936 Mad. 709 .
487 Mittar Sain v Data Ram, (1925) 24 All LJ 185 at 205 : 90 IC 1000 : AIR 1926 All 194 at 198.
488 Kothari Revashankar Amulakh v Gauriben Jayashankar Vyas, AIR 1954 Sau 8 ; State of Orissa
v Narain Prasad, (1996) 5 SCC 740 (consideration for grant of liquor licence made up of monthly
rental plus excise duty in addition to the obligation to purchase the minimum guaranteed
quantity). See also UOI v Himachal Futuristic Communications Ltd, 2013 SCC OnLine Del 783.
489 Jagadindra Nath Roy v Chandra Nath Poddar, (1903) 31 Cal 242 ; Indira Bai v Makarand, AIR
1931 Ngp 197 ; Vathyam Balarama Sastri v Vavilala Vasudeva Sastri, (1948) 1 Mad LJ 47 : AIR
1948 PC 7 .
490 Srish Chandra Roy v Roy Banomali Rai, (1904) 31 IA 107 : (1904) 31 Cal 584 at 596, PC.
491 Amin Chand v Guni, AIR 1929 Lah 466 : 119 IC 766.
492 Miles v New Zealand Alford Estate Co, (1886) 32 ChD 266 at 289 Per Brown LJ, [1886–90]
All ER Rep Ext 1726 .
493 Bittan Bibi v Kuntu Lal, AIR 1952 All 996 (FB) (a case under the Stamp Act); referring to
Crears v Hunter, (1887) 19 QBD 341 .
494 Srinivasa Raghava Iyengar v K R Renganatha Iyengar, AIR 1919 Mad. 528 at 529; Gulab
Chand v Kamal Singh, AIR 1922 All 260 at 262; Syed Muhammad Jafar v Ram Charan, AIR 1923
Oudh 176 ; Gajendra Singh v Durga Kumari, AIR 1925 All 503 at 506 (FB); Anant Krishna Modak v
Sarasvatibai Padmanabh Shetti, AIR 1928 Bom 316 at 318 : 30 Bom LR 709 : 111 IC 556; Aya
Ram Tola Ram v Sadhu Lal, AIR 1938 Lah 781 at 784; M Ramiah Pillai v PA Sankaranarayana Iyer,
AIR 1958 Ker. 246 at 248; Lakshmi Chand v Niader Mal, AIR 1961 All 295 at 298; Bank of New
India Ltd v G Govinda Prabhu, AIR 1964 Ker. 267 at 269; Tulsabai Nathudas v Narayan Ajabrao
Raut, AIR 1974 Bom 72 at 73 : (1975) Bom 562.
495 Ajodhya Jha v HE Cox, AIR 1920 Pat. 552 at 553.
496 Indira Bai v Makarand, AIR 1931 Ngp 197 (settlement of a doubtful claim of maintenance of
wife).
497 Gopal Sahai-Bichha Lal v Dhani Ram–Ram Gopal, 118 IC 646 : AIR 1929 Lah 689 at 690.
498 Dadabhoy Dajibhoy Baria v Pestonji Merwanji Barucha, (1893) ILR 17 Bom 457 at 486 (the
plaintiff's right, it seems, was really to give the defendant notice that he would rescind if the
defendant did not complete within a reasonable period of time).
499 Gopinath Bhagat v Lakshminarain Singh, AIR 1917 Cal 485 at 486 (incapacity to enter into
contract involving pecuniary liability under the Chhota Nagpur Encumbered Estates Act, 1876).
500 Tulsabai Nathudas v Narayan Ajabrao Raut, AIR 1974 Bom 72 at 73 : (1975) Bom 562.
501 Alliance Bank v Broom, (1864) 2 Dr & Sm 289 : 34 LJ (Ch) 256 : [1861–73] All ER Rep 1449 .
502 Mohesh Chandra Guha v Rajani Kanta Duff, AIR 1916 Cal 740 : (1915) 22 Cal LJ 235 : 31 IC
29; Srinivasa Raghava Iyengar v Ranganatha Iyengar, (1918) 36 Mad LJ 618 : AIR 1919 Mad. 528 :
51 IC 963; Anant Krishna Modak v Sarasvatibai Padmanabh Shetti, AIR 1928 Bom 316 : 30 Bom
LR 709 : 111 IC 556.
503 Board of Revenue Madras v Annamalai & Co Pvt Ltd, AIR 1968 Mad. 50 : (1967) 2 Mad LJ
515 at 517 (FB); Bittan Bibi v Kuntu Lal, AIR 1952 All 996 (FB).
504 Bank of New India Ltd v G Govinda Prabhu, AIR 1964 Ker. 267 .
505 Lakshmi Chand v Niader Mal, AIR 1961 All 295 .
506 Kedarnath Gangagopal Misra v Sitaram Narayan Moharil, AIR 1969 Bom 221 at 223, 224.
507 Bhirgunath Prasad Singh v Annapurna Dai Sijuarin, AIR 1934 Pat. 644 at 645.
508 Narendra Lal Khan v Tarubala Desai, AIR 1921 Cal 67 .
509 Karam Din Nawab Din v Anant Ram Lala Hukum Chand, AIR 1941 Pesh 6 at 7 (forbearance to
attach the property of another).
510 Now Section 125 of the Criminal Procedure Code, 1973.
511 Kastoori Devi v Chiranji Lal, AIR 1960 All 446 .
512 Mayadas Lakhmidas v Bhagwandas Parmanand, AIR 1924 Sind 41 at 45.
513 U San Ya v PRMPSPL Firm, AIR 1936 Rang 396 at 398.
514 Mahesh Chandra Guha v Rajani Kanta Dutt, AIR 1916 Cal 740 : (1915) 22 Cal LJ 235 : 31 IC
29; Sada Ram v Sahazada Ram, AIR 1934 Lah 789 at 790.
515 Firm Gopal Co Ltd v Firm Hazari Lol & Co, AIR 1963 MP 37 .
516 Kastoori Devi v Chiranji Lal, AIR 1960 All 446 .
517 Harihar Prasad Singh v Maharaja Kesho Prasad Singh, AIR 1925 Pat. 68 at 94 (FB); Baba
Tikam Das v Nawab Abbas Mirza, AIR 1934 Oudh 442 (2) at 444; Raja Jagat Kishore Acharya
Choudhury v Hemendra Kishore Acharya Choudhury, AIR 1935 Cal 263 at 265.
518 Aya Ram Tala Ram v Sadhu Lal, AIR 1938 Lah 781 .
519 Raja Jagaveera Rama Venkateswara Ettappa v Arumugam Chetty, (1918) 45 IA 195 at 203 :
48 IC 907 : AIR 1918 PC 173 (the real question was whether a contract to pay enhanced rent for
tenant's improvements could be implied, under a Madras Act; in fact there was no forbearance
or promise thereon; O. Gopal Sahai–Bichha Lal v Dhani Ram–Ram Gopal, AIR 1929 Lah 689 : 118
IC 646;
520 Olati Pulliah Chetti v Varadarajulu Chetti, (1908) 31 Mad 474 at 476–477.
521 Trnsukia Municipal Board v Harikissen Lohia, AIR 1957 Assam 10 ; Mania v Deputy Director
of ConsoLtdation, Uttar Pradesh, AIR 1971 All 151 (compromise between two sisters, sale deed
pursuant thereto good without money consideration).
522 Girijanund Datta Jha v Sailajanund Dutta Jha, (1896) 23 Cal 645 at 665–66; Rameshwar
Prosad Singh v Lachmi Prosad Singh, (1903) 31 Cal 111 , at 131–32; Bhiwa Mahadshet Takate v
Shivaram Mahadshet Takate, (1899) 1 Bom LR 495 , 497; Sunder Singh v Haro, AIR 1929 notes
23e, (1929) 116 IC 719 (property).
523 Bhima v Ningappa, (1868) 5 BUC : ACJ 75.
524 S.A. Anantanarayana Iyer v Savithri Ammal, (1911) ILR 36 Mad 151; Sidh Gopal v Behari Lal,
(1928) 50 All 284 : 107 IC 247 : AIR 1928 All 65 .
525 Ram Kirpal v Gaya Dat, AIR 1914 All 533 : (1914) 12 All LJ 331; Callisher v Bischoffshein,
(1870) LR 5 QB 449.
526 Indubala Devi v Jitendra Nath Ghose, AIR 1971 Cal 411 at 413.
527 U.P. Govt. in Nazul Department v Church Missionary Trust Association Ltd, (1947) 22 Luck 93
: AIR 1948 Oudh 54 : 229 IC 421.
528 Tinsukia Municipal Board v Harikissen Lohia, AIR 1957 Assam 10 ; relying on Poornammal v
R Srinivasarangan, AIR 1956 SC 162 .
529 Manna Lal v Bank of Bengal, (1876) ILR 1 All 309.
530 Binder v Alachouzos, [1972] 2 QB 151 : [1972] 2 All ER 189 , per Lord Denning MR.
531 Callisher v Bishoffsheim, (1870) LR 5 QB 449.
532 He need not have a positive opinion that it is justified; for its success may depend on facts
not within his own knowledge, or on unsettled questions of law, or both. Often, a man who is
asked, "Is your cause just?" may quite fairly answer: "I see nothing against good conscience in it;
whether it is good in law is exactly what I want the court to tell me." These refinements, however,
are perhaps fitter for the moralist than for the lawyer.
533 Bowen LJ in Miles v New Zealand Alford Estate Co, (1886) 32 ChD 266 at 291 : [1886–90]
All ER Rep Ext 1726 ; Wilby v Elgee, (1875) LR 10 CP 497; Debi Radha Rani v Ram Dass, AIR 1941
Pat. 282 ; Vathyam Balarama Sastri v Vavilala Vasudeva Sastri, (1948) 1 Mad LJ 47 : AIR 1948 PC
7 ; Rameshar Mistri v Babulal Pandit, AIR 1946 Pat. 97 : 225 IC 629.
534 Ranganayakamma v K S Prakash, AIR 2009 SC (Supp) 1218 : (2008) 15 SCC 673 .
535 Latif Jahan Begam v Nabi Khan, AIR 1932 All 174 : (1932) All LJ 9 : 137 IC 231.
536 Kale v Deputy Director of Consolidation, AIR 1976 SC 807 at 813.
537 Ram Charan Das v Girja Nandini Devi, AIR 1959 All 473 at 481.
538 Latif Jahan Begam v Nabi Khan, AIR 1932 All 174 : (1932) All LJ 9 : 137 IC 231; Kirtyanand
Sinha v Ramanand Sinha, AIR 1936 Pat. 456 : 164 IC 220.
539 K.K.Modi v K.N.Modi, (1998) 3 SCC 573 .
540 Ram Charan Das v Girja Nandini Devi, AIR 1966 SC 323 .
541 Sundar Sahu Gountia v Chamra Sahu Gauntia, AIR 1954 Ori. 80 at 84; Ram Charan Das v Girja
Nandani Devi, AIR 1959 All 473 ; Tek Bahadur Bhujill v Debi Singh Bhujil, AIR 1966 SC 292 at 119;
Madan Gopal v B Mukund Lal, AIR 1959 Punj. 434 .
542 Gandharp Singh v Nirmal Singh, AIR 1919 Oudh 105 at 109 (FB); Ram Charan Das v Girja
Nandani Devi, AIR 1959 All 473 at 481; Adusumilli Venkata Subba Rao v Gullapall Subba Rao, AIR
1964 AP 326 at 329.
543 Potti Lakshmi Perumallur v Potti Krishnavenamma, AIR 1965 SC 825 .
544 Phul Kumari Devi v Sambhu Prasad Singh, AIR 1965 Pat. 87 at 91–92; Kashinath Das v
Pravash Chandra Das, AIR 1978 Cal 509 .
545 Mania v Deputy Director of Consolidation UP, AIR 1971 All 151 at 154.
546 CWT v Vijayaba Dowger Maharani Bhavnagar, AIR 1979 SC 982 at 983 : [1979] 3 SCR 545 .
547 Anson's Law of Contract, 30th Edn 2016, p106.
548 Muthukaruppa Mudali v Pi Mu Kathappudayan, AIR 1915 Mad. 528 .
549 Also see Section 25, Explanation 2.
550 Shakuntala v State of Haryana, AIR 1979 SC 843 ; Kanak Sundar Bibi v Ram Lakhan Pandey,
AIR 1955 Pat. 458 at 462; Sona Bhatia v State of Uttar Pradesh, AIR 1981 SC 1274 (love,
affection, spiritual benefit may enter into the intention of the donor, but are not legal
consideration).
551 Debi Saran Koiri v Nandalal Choubey, AIR 1929 Pat. 591 .
552 Firm Gopal Co Ltd v Firm Hazari Lal & Co, AIR 1963 MP 37 .
553 Srinivasa Padayachi v Parvathiammal, AIR 1970 Mad. 113 .
554 Uttar Pradesh Govt v J R Bhatia, AIR 1956 All 439 .
555 Food Corp of India v Surana Commercial Co, (2003) 8 SCC 636 .
556 Clifford (Lord) v Watts, (1870) LR 5 CP 577, per Brett J at 588.
557 White v Bluett, (1853) 23 LJ Ex 36 .
558 Bank of Nova Scotia v MacLellan, (1977) 78 DLR (3d) 1 (Canada).
559 Halsbury's Laws of England, Vol 9(1), 4th Edn Reissue, 30 June 1998, CONTRACTS, para
735.
560 Anson's Law of Contract, 29th Edn 2010, p 94.
561 Chitty on Contracts, 28th Edn pp 171–72, para 3–008.
562 Thorensen Car Ferries Ltd v Weymouth Portland Borough Council, [1977] 2 Lloyd's Rep 614,
per Dolandson J at 619.
563 Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd, [1972] AC 741 at
757–58 per Lord Hailsham LC, [1972] 2 All ER 271 .
564 Dwijendra Nath Mullick v Gopiram Gobindram, AIR 1926 Cal 59 at 63 (motive was withdrawal
of a case, and consideration was a return of some portion of embezzeled funds and mortgage
executed); Sivagami Achi v PS Subramania Chettiar, AIR 1936 Mad. 978 at 980 (motive was the
discharge of liability by plaintiff to an insolvent, and the consideration was that the defendant
should forgo his claim against the insolvent); SRajanna v SM Dhondusa, AIR 1970 Mys 270
(giving up right to receive monthly amount from each of the brothers in the coparcenery was the
motive, and the agreement lacked consideration).
565 Thomas v Thomas, [1842] 2 QB 851 : 114 ER 330.
566 Dwarampudi Nagaratanamba v Kunuku Ramayya, AIR 1968 SC 253 ; applying Balo v Parbati,
(1940) All 371 : AIR 1940 All 385 , but not applying Istak Kamu Musalman v Ranchod Zipru Bhate,
(1947) Bom 206 : (1946) 48 Bom LR 775 : AIR 1947 Bom 198 .
567
Kulasekaraperumal v Pathakutty Thalevanar, AIR 1961 Mad. 405 ; Keshub Mohindra v
Commissioner of Gift Tax, [1968] 70 ITR 1 : (1969) 1 ITJ 293 .
568 Khimji Punja &Co v Maun Devshi Bhallji, AIR 1950 Kutch 24 at 26–27.
569 Balbhaddar Prasad v Dhanpat Dayal, AIR 1924 Oudh 193 at 195.
570
Sivarama Konar v Thiruvadinatha Pillai, AIR 1957 Tr & Coch 189; Sudhakar Sahu v
Achutananda Patel, AIR 1967 Ori. 89 .
571 Desigowda v Karnataka Industrial Area Development Board, AIR 1996 Kant. 197 .
572 Hitchcock v Coker, (1837) 6 A&E 438 : 45 RR 522 : [1835–42] All ER Rep 452 ; Gravely v
Barnard, (1874) LR 18 Eq 518; Alec Lobb (Garages) Ltd v Total Oil (GB) Ltd, [1985] 1 WLR 173 at
179 : [1985] 1 All ER 303 at 313.
573 Lloyd's Bank Ltd v Bundy, [1975] QB 326 , 336 per Lord Denning MR : [1974] 3 All ER 757 .
574 Westlake v Adams, (1858) 5 CB(NS) 248 .
575 Bainbridge v Firmstone, (1838) 8 A&E 743.
576 Chitty on Contracts, 28th Edn p 176 para 3–014 from Sturlyn v Albany, (1587) Cro Eliz 67;
but see Re Charge Card Services Ltd, [1987] ChD 150 ; affirmed in [1988] 3 All ER 702 : [1989]
ChD 487 (production of charge card and signature of voucher not consideration for a supply of
goods, evidently because such consideration would be blatantly "invented").
577 Haigh v Brooks, (1839) 10 A&E 309 at 320 per Lord Denman CJ.
578 Scott v Ricketts, [1966] 3 All ER 791 .
579 Esso Petroleum Co Ltd v Commissioners Customs and Excise Commissioners, [1976] 1 WLR
1 : [1976] 1 All ER 117 .
580 Chappell & Co Ltd v Nestle Co Ltd, [1960] AC 87 : [1959] 2 All ER 701 .
581 [1959] 2 All ER 701 at 712 per Lord Somervell.
582 Lipkin Gorman v Karpnale, [1991] 2 AC 548 : [1992] 4 All ER 512 : [1991] 3 WLR 10 .
583 Chitty on Contracts, 28th Edn p 177, para 3–015.
584 De la Bere v CA Pearson Ltd, [1908] 1 KB 280 : [1904–07] All ER Rep 755 (CA).
585 It is submitted that the observation in John Tinson and Co Pvt Ltd v Surjeet Malhan, AIR
1997 SC 1411 to the effect that consideration of Rs 1/- was no consideration, is not justifiable
under the provisions of the Act.
586 See Section 25 below.
587 Chitty on Contracts, 28th Edn p 179.
588 John Thomas v Joseph Thomas, AIR 2000 Ker. 408 .
589 Muthukaruppa Mudali v Pi Mu Kathappudayan, AIR 1915 Mad. 528 at 529; Karim Bux v Debi,
AIR 1933 All 511 ; Sundar Sahu Gountia v Chamra Sahu Gauntia, AIR 1954 Ori. 80 at 84.
590 Anuradha Samir Vennangot v Mohandas Samir Vennangot, (2015) 16 SCC 596 .
591 Narayan Coomari Debi v Shajani Kanta Chatterjee, (1894) ILR 22 Cal 14. It was argued,
without success, that the agreement was against public policy by making it the executor's
interest to prolong the administration of the estate against his duty.
592 Sashannah Chetti v Ramasamy Chetty, (1868) 4 Mad HCR 7 .
593 Ramchandra Chintaman v Kalu Raju, (1878) ILR 2 Bom 362.
594 Banda Ali v Banspat Singh, (1882) ILR 4 All 352.
595 Anuradha Samir Vennangot v Mohandas Samir Vennangot, (2015) 16 SCC 596 .
596 Sukha v Ninni, AIR 1966 Raj. 163 .
597 England v Davidson, (1840) 11 A & E 856 : 52 RR 522 (reward to constable for services
beyond duty); Hartley v Ponsonby, (1857) 7 E&B 872 : 110 RR 867; Glasbrook Brothers Ltd v
Glamorgan County Council, [1925] AC 270 : [1924] All ER 579 (HL).
598 Glasbrook Brothers Ltd v Glamorgan County Council, [1925] AC 270 : [1924] All ER 579 (HL).
599 Harris v Sheffield United Football Club Ltd, [1988] QB 77 : [1987] 2 All ER 838 (such liability
may arise irrespective of contract).
600 Ward v Byham, [1956] 1 WLR 496 at 498 : [1956] 2 All ER 318 ; Hicks v Gregory, (1849) 8 CB
378 referred to; Williams v Williams, [1957] 1 WLR 148 : [1957] 1 All ER 305 ; Sukha v Ninni, AIR
1966 Raj. 163 (agreeing to accept an amount less than that provided by judicial order).
601 It has been the opinion of the earlier editors of this book that on principle this assumption
is not tenable; Shadwell v Shadwell, (1860) 9 CB (NS) 159 : 127 RR 604; but quaere whether there
was in fact any intention to create a legal obligation at all (see the dissenting judgment of Byles
J); Seorson v Pegg, (1861) 6 H&N 295.
602 Firm Gopal Co Ltd v Firm Hazari Lal & Co, AIR 1963 MP 37 ; following Shadwell v Shadwell,
(1860) 9 CB (NS) 159; Pao On v Lau Yiu, [1980] AC 614 at 632 : [1979] 3 All ER 65 (PC); Indermal
Tekaji Mahajan v Ramprasad Gopilal, AIR 1970 MP 40 .
603 Shadwell v Shadwell, (1860) 9 CB (NS) 159 : 127 RR 604.
604 New Zealand Shipping Co Ltd v AM Satterthwaite &Co Ltd (The Eurymedon), [1975] AC 154 :
[1974] 1 All ER 1015 (the plaintiff obtained the benefit a direct obligation which he could
enforce).
605 Pao On v Lau Yiu, [1980] AC 614 : [1979] 3 All ER 65 at 74–75, applying dictum of Bowen LJ
Re Casey's Patents, Stewart v Casey, [1892] 1 ChD 104 at 114–115.
606 See Atlas Express Ltd v Kafco. (Importers and Distributors) Ltd, [1989] 1 All ER 641 ; Syros
Shipping Co SA v Elaghill Trading Co (The Proodos C), [1980] 2 Lloyd's Rep 390 : [1981] 3 All ER
189 ; Williams v Roffey Bros. & Nicholls (Contractors) Ltd, [1991] 1 QB 1 : [1990] 1 All ER 512 at
520 (CA).
607 Rudra Pratap Singh v Ballabh Das, AIR 1948 Oudh 152 , at 154.
608 Vantage Navigation Corpn v Sahail and Saud Bahwan Building Materials Llc (The Alev), [1989]
1 Lloyd's Rep 138, per Hobhouse J at 147.
609 Williams v Roffey Bros. & Nicholls (Contractors) Ltd, [1991] 1 QB 1 : [1990] 1 All ER 512 (CA)
(question of novatio not considered), referring to Ward v Byham, [1956] 1 WLR 496 : [1956] 2 All
ER 318 ; Williams v Williams, [1957] 1 WLR 148 : [1957] 1 All ER 305 .
610 (1990) 1 All ER 512 (CA) at 521.
611 South Caribbean Trading Co Ltd v Trafigura Beheer, [2005] 1 Lloyd's Rep 128.
612 Anson's Law of Contract, 29th Edn 2010, p 111.
613 Re Selectmove Ltd, [1995] 1 WLR 474 : [1995] 2 All ER 531 .
614 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, [1978] 3 All ER 1170 ; Pao On v
Lau Yiu, [1980] AC 614 at 633 : [1979] 3 All ER 65 (PC); Sybron Corpn v Rochem Ltd, [1983] ICR
801 : [1983] 2 All ER 707 .
615 Compagnie Noga D'importation et D'Exportation Sa v Abacha, [2003] All ER (Comm) 915 :
[2003] EWCA Civ 1100 .
616 Fazaladdin Mandal v Panchanan Das, AIR 1957 Cal 92 .
617 Gaumont-British Picture Corpn.Ltd v Alexander, [1936] 2 All ER 1686 .
618 Nirbheram Fatte Kurmi v Sukhdeo Kisun Kurmi, (1944) Nag 212 : AIR 1944 Ngp 307 .
619 Bipin Behari Deb v Masrab Ali, AIR 1961 Assam 173 ; Dasarath Gayen v Satyanarayan Ghosh,
AIR 1963 Cal 325 ; PR Kanakasabapathi Chettiar v PV Govindarajulu Naidu, AIR 1964 Mad. 219 ;
Sinnakaruppa Gounder v M Karuppuswami, AIR 1965 Mad. 506 at 508; Shree Ram v Ratanlal, AIR
1965 All 83 ; Asmal Bagas Ablzaram v Raj Mahijibhai Parbhatsing, AIR 1974 Guj 19 at 23.
620 Ramacharya Venkatramanacharya v Shrinivasacharya Venkatramanacharya, (1918) 20 Bom
LR 441 : AIR 1918 Bom 183 . PRS Pillai v Manuel Sathyanesan, AIR 1965 Ker. 155 .
621 Chidambara lyer v PS Renga Iyer, [1966] 1 SCR 168 : AIR 1966 SC 193 : [1966] 1 SCR 168 .
622 OP Verma v Lala Gehrilal, AIR 1962 Raj. 231 .
623 Narayanrao Jagobaji Gowande Public Trust v State of Maharashtra, (2016) 4 SCC 443 .
624 The current edition follows the practice of the earlier edition and other writers on the Act of
including the commentary on the doctrine of privity under Section 2(d); See also Law
Commission of India, 13th Report, 1959, proposing to incorporate the provisions conferring
rights upon third parties, after Section 37 of the Act in the chapter relating to performance.
625 Shiv Dayal Kapoor v UOI, (1963) 2 Punj 463 : AIR 1963 P&H. 538 .
626 AIR 1963 P&H. 538 , quoting Cheshire & Fitfoot, Law of Contract, 5th Edn (1960) p 378;
Fatechand Murlidhar v Maharashtra State Electricity Board, AIR 1985 Bom 71 at 74 (owner of a
building not privity to contract between the tenant and the Electricity Board).
627 MC Chacko v State Bank of Travancore, [1970] 1 SCR 658 : (1969) 2 SCC 343 : AIR 1970 SC
504 .
628 Krishna Lal Sadhu v Promila Bala Dasi, (1928) 55 Cal 1315 : AIR 1928 Cal 518 : 32 Cal WN
634 : 114 IC 658.
629 Des Raj Pahwa v Concord of India Insurance Co Ltd, AIR 1951 Punj 114 ; Shiv Dayal Kapoor v
UOI, (1963) 2 Punj 463 : AIR 1963 Punj 538 ; Fatechand Murlidhar v Maharashtra State Electricity
Board, AIR 1985 Bom 71 at 74.
630 Narayani Devi v Tagore Commercial Corpn. Ltd, AIR 1973 Cal 401 ; but see other exceptions
below.
631 See for a discussion of various judgments, Tirumulu Subbu Chetti v Arunachalam Chettiar,
(1930) 53 Mad 270 : 124 IC 55 : AIR 1930 Mad. 382 (FB).
632 Narayani Devi v Tagore Commercial Corpn. Ltd, AIR 1973 Cal 401 at 405.
633 Krishna Lal Sadhu v Promila Bala Dasi, (1928) 55 Cal 1315 : AIR 1928 Cal 518 : 32 Cal WN
634 : 114 IC 658.
634 Tweedle v Atkinson, (1861) 1 B&S 393 : [1861–73] All ER Rep 369 : 124 RR 610.
635 Deb Narain Dutt v Ram Sadhan Mandal, (1914) 41 Cal 137 per Jenkins CJ, at 145 : 20 IC 630
: AIR 1914 Cal 129 ; approved and followed in N DevarajeUrs v M Ramakrishniah, AIR 1952 Mys
109 .
636 Law Commission of India, 87th Report, 1958, para 16, recommended adding Section 37A to
the Act as follows:
37A. Benefits conferred on third parties.—(1) Where a contract expressly confers a benefit
directly on a third party, then, unless the contract otherwise provides, it shall be enforceable by
the third party in his own name, subject to any defences that would have been valid between the
contracting parties.
(2) Where a contract expressly conferring a benefit directly upon a third party has been adopted,
expressly or impliedly, by a third party, the parties to the contract cannot substitute a new
contract for it or rescind or alter it so as to effect the rights of the third party.
637 See now, Contracts (Rights of Third Parties) Act, 1999, conferring rights on third parties to
sue on contract.
638 Dunlop Pneumatic Tyre Co Ltd v Selfridge& Co Ltd, (1915) AC 847 : 853 : [1914–15] All ER
Rep 333 per Lord Haldane at 334.
639 Scruttons Ltd v Midland Silicones Ltd, [1962] AC 446 : [1962] 1 All ER 1 : [1962] 2 WLR 186
(HL); distinguishing Elder Dempster & Co v Paterson Zochonis & Co, [1924] AC 522 : [1924] All ER
Rep 135 ; Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd, (1915) AC 847 : [1914–15] All ER
Rep 333 ; Snelling v John G Snelling Ltd, [1972] 1 All ER 79 (even though agreement is for third
party's benefit); Veeramma v Appayya, AIR 1957 AP 965 ; Bhanwar Singh v Raghubir Nanwa Singh,
AIR 1985 All 331 , 333.
640 Tweddle v Atkinson, (1861) 1 B & Section 393 : [1861–73] All ER Rep 369 : 124 RR 610;
Scruttons Ltd v Midland Silicones Ltd, [1962] 1 All ER 1 : [1962] 2 WLR 186 (HL); following Dunlop
Pneumatic Tyre Co Ltd v Selfridge & Co Ltd, (1915) AC 847 : [1914–15] All ER Rep 333 ; rejecting
Smith v River Douglas Catchment Board, [1949] 2 KB 500 : [1949] 2 All ER 179 (CA); and White v
John Warrick & Co Ltd, [1953] 2 All ER 1021 ; Alice Marie Vandepittee v Preferred Accident
Insurance company of New York, [1933] AC 70 at 79 : [1932] All ER Rep 527 at 532 : AIR 1933 PC
11 ; Beswick v Beswick, [1967] 2 All ER 1197 : [1967] 3 WLR 932 at 953 (HL); Coulls v Bagot's
Executor & Trustee Co Ltd, (1967) 119 CLR 460 ; Gandy v Gandy, (1885) 30 ChD 57 at 66 : [1881–
85] All ER Rep 376 .
641 Coulls v Bagot's Executor& Trustee Co Ltd, (1967) 119 CLR 460 Windeyer J, at 494.
642 Dunlop Pneumatic Tyre Co Ltd v Selfridge& Co Ltd, (1915) AC 847 at 483 : [1914–15] All ER
Rep 333 at 334; this distinction was accepted by the English Law Revision Committee in 1937.
643 Akolla Suryanarayana Rao v Dwarapudi Basivireddi, (1932) 55 Mad 436 : 139 IC 135 : AIR
1932 Mad. 457 ; Ganesh Das v Banto, (1935) 16 Lah 118 : 158 IC 387 : AIR 1935 Lah 354 at 357;
National Petroleum Co Ltd v Popatlal Mulji, (1936) 60 Bom 954 : 165 IC 338 : AIR 1936 Bom 344 ;
UK Seal v ARA Aramugam Chettyar, AIR 1938 Rang 35 at 38; Jnan Chandra Mukherjee v Mano
Ranjan Mitra, ILR (1941) 2 Cal 576 : AIR 1942 Cal 251 ; Rijhumal Nandiram v Jan Mahomed, AIR
1943 Sind 190 ; Saraswatibai v Haibatrao Ramji Patil, (1945) Nag 581 : AIR 1945 Ngp 261 ; Maroti
Bansi Teli v Radhabai, AIR 1945 Ngp 60 ; Beni Madho v Major AU John, AIR 1947 All 110 at 114; C
Duraiswami Iyengar v United Life Assurance Co Ltd, AIR 1956 Mad. 316 at 317; Chhanganal
Harpaldas v Dominion of India, 59 Bom LR 704 : AIR 1957 Bom 276 ; Babu Ram Budhu Mal v Dan
Singh Bishan Singh, AIR 1957 P H 169 at 170; Narayani Devi v Tagore Commercial Corpn. Ltd, AIR
1973 Cal 401 at 405.
644 Kepong Propecting Ltd v Schimidt, [1968] AC 810 .
645 Ibid.
646 See for discussion—Law Commission (of UK) No. 242 (1996) Privity of Contract: Contract
for the Benefit of Third Parties, Pt III.
647 Also referred to as "Circumventions" of the doctrine—Law Commission (of UK) No 242
(1996) Privity of Contract: Contract for the Benefit of Third Parties, Pt II, para 2.8.
648
Scotland, France, Germany, Italy, Austria, Spain, Portugal, Netherlands, Belgium,
Luxembourg, Greece.
649 Western Australia, Queensland and New Zealand.
650 See below: "Statutes Conferring Rights: UK".
651 UNIDROIT Principles, Article 1.3; and comment below it.
652 Coulls v Bagot's Executor& Trustee Co Ltd, (1967) 119 CLR 460 .
653 Ibid, relying on Beswick v Beswick, [1966] ChD 538 : [1966] 3 All ER 1 : [1966] 2 WLR 396
(CA); Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd, (1915) AC 847 : [1914–15] All ER Rep
333 ; dissenting on the ground that the promise was gratuitous and privity was not lacking;
Beswick v Beswick, [1967] 3 WLR 932 : [1967] 2 All ER 1197 (HL); approving Coull'scase.
654 Coulls v Bagot's Executor & Trustee Co Ltd, (1967) 119 CLR 460 per Garfield Barwick CJ at
478–79.
655 Ibid at 479; Attwood v Rattenbury, (1822) 6 Moo CP 579 at 584.
656 Coulls v Bagot's Executor Trustee Co Ltd, (1967) 119 CLR 460 per Windeyer J at 503;
quoting Wilson v Northampton & Banbury Junction Railway Co, (1874) 9 Ch App 279 at 284.
657 Beswick v Beswick, [1967] 3 WLR 932 : [1967] 2 All ER 1197 (HL) affirming [1966] ChD 538 :
[1966] 3 All ER 1 : [1966] 2 WLR 396 (CA); approving Coulls v Bagot's Executor Trustee Co Ltd,
(1967) 119 CLR 460 .
658 Beswick v Beswick, [1966] ChD 538 : [1966] 3 All ER 1 at 9 : [1966] 2 WLR 396 (CA) (Salmon
LJ contra); but see Coulls v Bagot's Executor & Trustee Co Ltd, (1967) 119 CLR 460 ; cf Deb
Narain Dutt v Ram Sadhan Mandal, (1914) 41 Cal 137 at 141 : 20 IC 630 : AIR 1914 Cal 129 (per
Jenkins CJ—Courts in India not hampered by Tweddle v Atkinson).
659 Beswick v Beswick, [1966] ChD 538 : [1966] 2 WLR 396 at 410 : [1966] 3 All ER 1 at 10–11;
upheld by the House of Lords on appeal [1967] 3 WLR 932 : [1967] 2 All ER 1197 (HL); Hohler v
Aston, [1920] 2 ChD 420 (contract relating to purchase of a house); Keenan v Handley, 2 DeGJ &
Sm 283 : (1864) 12 WR 930 (annuity); Drimmie v Davies, (1899) 1 LR 176 at 190 (annuity).
660 Tweedle v Atkinson, (1861) 1 B&S 393 : [1861–73] All ER Rep 369 : 124 RR 610.
661 Dunlop Pneumatic Tyre Co Ltd v Selfridge& Co Ltd, (1915) AC 847 : [1914–15] All ER Rep
333 (HL).
662 Scruttons Ltd v Midland Silicones Ltd, [1962] 1 All ER 1 (HL); affirming Midland Silicones Ltd
v Scruttons, [1960] 2 All ER 737 (CA).
663 Referring to and applying Hart v Hart, (1881) 18 ChD 670 , at 685 : [1881–85] All ER Rep
1745 (per Kay J, an agreement for valuable consideration and partially performed should be
carried out by a decree for specific performance) and Coulls v Bagot's Executor &Trustee Co Ltd,
(1967) 119 CLR 460 .
664 Beswick v Beswick, [1967] 2 All ER 1197 : [1967] 3 WLR 932 (HL), applying cases of specific
performance of contracts for benefit of third parties—Hohler v Aston, [1920] 2 ChD 420
(purchase of a house for the benefit of the third parties); Keenan v Handley, (1864) 12 WR 930 at
950 (annuity to mother, and after her death to her child not a party); Drimmie v Davies, (1899) 1
IR 176 at 190 (Holmes LJ) annuities provided for third parties); Wilson v Northampton & Banbury
Junction Railway Co, (1874) 9 Ch App 279 at 284 (specific performance instead of damages
when court can do more complete justice); and observations of Windeyer J in Coulls v Bagot's
Executor & Trustee Co Ltd, (1967) 119 CLR 460 ; see also Veeramma v Appayya, AIR 1957 AP 965
.
665 See generally Sections 10–20 of the Specific Relief Act, 1963, below.
666 See below, under the heading: "Exceptions to Application of the Principle".
667 Albacruz (Cargo Owners) v Albazero (Owners) (The Albazero), [1977] AC 774 at 846.
668 Chitty on Contracts, 28th Edn p 985, para 19–044; Coulls v Bagot's Executor and Trustee Co,
(1967) 119 CLR 460 at 502.
669 Forster v Silvermere Golf and Equestrian Centre Ltd, (1981) 125 SJ 397 .
670 Klaus Mittelbachert v East India Hotels Ltd, AIR 1997 Del 201 (whether claim arose out of
contract or tort was not decided).
671 Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd, [1988] 2 Lloyd's Rep 505.
672 Siu Yin Kwan v Eastern Insurance Co Ltd, [1994] 2 AC 199 at 207 : [1994] 1 All ER 213 .
673 St Albans City and District Council v International Computers Ltd, [1996] 4 All ER 481 .
674 Jackson v Horizon Holidays Ltd, [1975] 1 WLR 1465 : [1975] 3 All ER 92 (CA).
675 [1975] 1 WLR 1465 : [1975] 3 All ER 92 (CA).
676 Woodar Investment Development Ltd v Wimpey Construction UK Ltd, [1980] 1 WLR 277 :
[1980] 1 All ER 571 .
677 [1975] 1 WLR 1465 : [1975] 3 All ER 92 (CA); Calabar Properties Ltd v Stitcher, [1984] 1 WLR
287 at 290 : [1983] 3 All ER 759 .
678 St Martins Property Corp. Ltd v Sir Robert McAlpine & Sons Ltd, [1993] 3 All ER 417 ; sub nom
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd, [1994] AC 885 : [1993] 3 All ER 417 .
679 Albacruz (Cargo Owners) v Albazero (Owners) (The Albazero), [1977] AC 774 ; Dunlop v
Lambert, (1839) 2 Cl&F 626.
680 Darlington Borough Council v Wiltshire Northern Ltd, [1995] 3 All ER 895 (CA).
681 Alfred McAlpine Construction v Panatown, [2000] 4 All ER 97 (HL); reversing on facts Alfred
McAlpine v Panatown, (1998) 58 Const LR 58; discussed in Treitel, (1998) 114 LQR 527; Coote,
(1998) Cal LJ 250 ; Duncan Wallace, (1999) 115 LQR 394; Coote, [2001] 117 LQR 81.
682 Indowind Energy Ltd v Wescare (I) Ltd, AIR 2010 SC 1793 : (2010) 5 SCC 306 .
683 S N Prasad v Monnet Finance Ltd, AIR 2011 SC 442 : (2011) 1 SCC 320 .
684
Chloro Controls India Pvt Ltd v Severn Trent Water Purification Inc, (2013) 1 SCC 641
(enumerates circumstances).
685 vide The Arbitration and Conciliation (Amendment) Act, 2015, notified on 1.1.2016.
686 Khushalbai Mahijibhai Patel v Firm Mohamad-hussain Rahimbux, AIR 1981 SC 977 at 979.
687 Societe Commercial De Coreales& Financiers v State Trading Corpn.of India, AIR 1998 Guj 94
.
688 Prag Datt v Saraswati Devi, AIR 1982 All 37 .
689 Continental and Eastern Agencies v Coal India Ltd, AIR 2003 Del 387 .
690 Bhatinda Chemicals v M V. "X-Press Nuptse", AIR 2006 Bom 311 .
691 Dhondu Undru Chaudhary v Ganpat Lal Shankar Lal Agarwal, AIR 1991 SC 1037 .
692 Tirumulu Subbu Chetti v Arunachalam Chettiar, (1930) 53 Mad 270 : 124 IC 55 : AIR 1930
Mad. 382 (FB); Suraj Prasad Oja v Ram Lal Singh, (1947) 25 Pat 269 : 230 IC 224 : AIR 1947 Pat.
131 ; Maghi Mal v Darbara Singh, AIR 1933 Lah 695 ; Iswaram Pillai v Tharagan, (1913) 38 Mad
753 : AIR 1914 Mad. 701 (third party creditor of mortgagor cannot enforce an agreement under
which the mortgagee agreed with the mortgagor to pay part of the amount to such creditor).
693 Tarachand Khimandas v Syed Abdul Razak Shah, AIR 1939 Sind 125 .
694 Raj Cylinders andContainers v Hindustan General Industries Ltd, AIR 1998 Del 418 ; Harnam
Singh v Purbi Devi, AIR 2000 HP 108 (Where D agreed to sell land to elder brother, other brothers
cannot enforce it).
695
Indian Oil Corpn v Consumer Protection Council, (1994) 1 SCC 397 (case under the
Consumer Protection Act, 1986).
696 Mangal Sen v Muhammad Hussain, (1915) ILR 37 All 115 : AIR 1915 All 97 ; Adhar Chandra
Mondal v Dolgobinda Das, (1936) 63 Cal 1172 : AIR 1936 Cal 663 .
697 State of Gujarat v Vora Fiddali, AIR 1964 SC 1043 at 1076.
698 Berry v Pulley, [2002] 2 SCR 493 (Supreme Court of Canada).
699 Cox & Kings India Ltd v Indian Railways Catering & Tourism Corpn Ltd, (2012) 7 SCC 587 .
700 Ibid.
701 Sivarama Konar v Thiruvadinatha Pillai, AIR 1957 TC 189 ; Sudhakar Sahu v Achutananda
Patel, AIR 1967 Ori. 89 .
702 ShivDayal Kapoor v UOI, AIR 1963 P&H. 538 .
703 State of Bihar v Charanjit Lal Chandha, AIR 1960 Pat. 139 .
704 Aries Advertising Bureau v CT Devaraj, AIR 1995 SC 2251 : (1995) 3 SCC 250 .
705 Nand Kishore Prasad v State of Bihar, AIR 1974 SC 1988 .
706 Mohd Serajuddin v State of Orissa, AIR 1975 SC 1564 .
707 Paschimanchal Vidyut Vitran Nigam Ltd v DVS Steels and Alloys Pvt Ltd, AIR 2009 SC 647 :
(2009) 1 SCC 210 ; see also Haryana State Electricity Board v Hanuman Rice Mills, AIR 2010 SC
3835 : (2010) 9 SCC 145 ; Prafulla Kumar Sahoo v Central Electricity Supply Co of Orissa Ltd, AIR
2005 Ori. 54 ; Abhisar Developers v Torrent Power Ltd, AIR 2011 Guj 1 ; See also Special Officer
(Commerce) NESCO. v Raghunath Paper Mills Pvt Ltd, AIR 2011 Ori. 52 and Agarwal Strips Pvt Ltd
v Deputy General Manager (Elct) CESCO., AIR 2011 Ori. 42 (purchaser's application for electricity
connection cannot be denied on the ground that the previous owner of premises has not paid
electricity charges); Sona Co-op Housing Society Ltd v Gujarat Electricity Board, AIR 2004 Guj 26
(a condition requiring new occupier to pay electricity arrears of previous occupier must be
struck down).
708 Ajay Kumar Agrawal v OSFC, AIR 2007 Ori. 37 (even where the purchaser of premises has
agreed to pay these arrears).
709 Ramnath Exports Pvt Ltd v The Chairman, Air India, AIR 2003 Del 461 .
710 Kuok Oils and Grains PTE Ltd v Tower International Pvt Ltd, AIR 2005 Guj 9 .
711 North Eastern Electric Power Corpn. Ltd v Khoda Talley, AIR 2004 Gau 171 .
712 Sandhya Sah v New India Assurance Co, AIR 2004 Pat. 42 .
713
Deutsche Post Bank Home Finance Ltd v Taduri Sridhar, AIR 2011 SC 1899 (contract
between a developer and purchaser relating to construction work).
714 Vysya Bank Ltd v A P State Agro Industries Development Corp, AIR 2004 AP 10 .
715 Tamilnadu Card Boards and Paper Mill Ltd v Sirpur Paper Mills Ltd, AIR 2003 AP 438 .
716 Utair Aviation v Jagson Airlines Ltd, 2012 SCC OnLine Del. 2114 : (2012) 129 DRJ (Del).
717 Jnan Chandra Mukherjee v Manoranjan Mitra, AIR 1942 Cal 251 .
718 Utair Aviation v Jagson Airlines Ltd, 2012 SCC OnLine Del. 2114 : (2012) 129 DRJ (Del).
719 Seth Bhabhootmal Seth Nathmal Oswal v Moolchand Munnalal Sagotia, AIR 1943 Ngp 266 ;
MC Chacko v State Bank of Travancore, [1970] 1 SCR 658 : AIR 1970 SC 504 : (1969) 2 SCC 343 .
720 Desraj v Ralli Ram, AIR 1957 J&K 10 .
721 Veeramma v Appayya, AIR 1957 AP 965 .
722 Inuganti Kasturamma v Chelikani Venkatasurayya Garu, (1915) 29 Mad LJ 538 : AIR 1916
Mad. 65 (document created a trust); see also Gurdit Singh v Chuni Lal, AIR 1932 Lah 66 .
723 Inuganti Kasturamma v Chelikani Venkatasurayya Garu, (1915) 29 Mad LJ 538 : AIR 1916
Mad. 65 .
724 Khwaja Muhammad Khan v Husaini Begam, (1910) 37 IA 152 : (1910) ILR 32 All 410 : 7 IC
237.
725 Deb Narain Dutt v Ram Sadhan Mandal, (1914) 41 Cal 137 : 20 IC 630 : AIR 1914 Cal 129 ;
Shanmugan v PLAPL Annamalai Chettiar, AIR 1935 Mad. 141 (being beneficiary under a
settlement); Jang Bahadur v Rana Uma Nath Bakhsh Singh, (1937) 12 Luck 639 : 2 Cal 576 : AIR
1937 Oudh 99 ; Jnan Chandra Mukherjee v Mano Ranjan Mitra, ILR (1941) 2 Cal 576 : AIR 1942
Cal 251 (no trust made out); Seth Bhabhootmal Seth Nathmal Oswal v Moolchand Munnalal
Sagotia, AIR 1943 Ngp 266 (no trust made out); Shamji Bhanji &Co v North Western Railway Co,
(1946) 48 Bom LR 698 : 231 IC 367 : AIR 1947 Bom 169 ; Nawabjada K Atikalla v Md. Mobarak
Hossein, AIR 1949 Cal 174 ; N Devaraje Urs v M Ramakrishniah, AIR 1952 Mys 109 ; Post Master
General, Patna v Ram Kirpal Sahu, AIR 1955 Pat. 442 ; Veeramma v Appayya, AIR 1957 AP 965 ;
Desraj v Ralli Ram, AIR 1957, J&K 10.
726 Narayani Devi v Tagore Commercial Corpn. Ltd, AIR 1973 Cal 401 at 405; following Jnan
Chandra Mukherjee v Mano Ranjan Mitra, ILR (1941) 2 Cal 576 : AIR 1942 Cal 251 at 252.
727 Ram Dhan v L Chauthmal, AIR 1935 Oudh 496 .
728 A Singarayya v A Subbayya, (1924) 47 Mad LJ 517 : 84 IC 962 : AIR 1924 Mad. 861 ; The
Indian Trusts Act, 1882, Section 82.
729 See The Benami Transactions (Prohibition) Act, 1988, Sections 3 and 4.
730 Okara Grain Buyers Syndicate Ltd v United Commercial Bank, AIR 1961 P H 66; affirmed on
appeal in United Commercial Bank Ltd v Okara Grain Buyers Syndicate Ltd, AIR 1968 SC 1115 .
731
Re Flavell, Murrayand Flavell, (1883) 25 ChD 89 : [1881 – 85] All ER 267 ; Harmer v
Armstrong, [1934] ChD 65 : [1933] All ER 778 (specific performance granted though the plaintiffs
were not mentioned in the contract).37. Re Schebsman, [1944] ChD 83 : [1943] 2 All ER 768 (a
contract between an employee and two companies employing him, providing for payment to his
widow and daughter in certain eventualities); Gurdit Singh v Chuni Lal, AIR 1932 Lah 66
(document creating a deposit of amount stating "will have all creditors paid off by and get
receipts from them" did not create a trust in favour of the creditor).
732 Tomlinson v Gill, (1756) Amb 330.
733 Les Affreteurs Reunis SA v Leopold Watford (London) Ltd, [1919] AC 801 .
734 Southern Water Authority v Carey, [1985] 2 All ER 1077 .
735 Re Schebsman, [1944] ChD 83 : [1943] 2 All ER 768 at 779.
736 Alice Marie Vandepitte v Preferred Accident Insurance Co of New York, [1933] AC 70 : [1932]
All ER Rep 527 : AIR 1933 PC 11 .
737 Alice Marie Vandepitte v Preferred Accident Insurance Co of New York, [1933] AC 70 : [1932]
All ER Rep 527 : AIR 1933 PC 11 applied to by Falshaw; cited with approval in Des Raj Pahwa v
Concord of India Insurance Co Ltd, AIR 1951 Punj 114 .
738 Chitty on Contracts, 28th Edn p 999, para 19–066; Anson's Lawof Contract, 29th Edn 2010, p
638.
739 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd, (1988) 165 CLR 107 .
740 See Section 15(c) of the Specific Relief Act, 1963 below.
741 Janaki Bala Debya v Maheshwar Das, AIR 1942 Pat. 460 .
742 Tirumulu Subbu Chetti v Arunachalam Chettiar, (1930) 53 Mad 270 : 124 IC 55 : AIR 1930
Mad. 382 (FB); Jagadambya Debya v Bibhuti Bhusan Sarkar, AIR 1933 Cal 407 (no family
arrangement); Jang Bahadur v Rana Uma Nath Bakhsh Singh, (1937) 12 Luck 639 : 165 IC 113 :
AIR 1937 Oudh 99 ; Seth Bhabhootmal Seth Nathmal Oswal v Moolchand Munnalal Sagotia, AIR
1943 Ngp 266 ; Dan Kuer v Sarla Devi, (1947) 73 IA 208 : (1946) All 756 : AIR 1947 PC 8 : (1947)
49 BOMLR 123 , (partition); Veeramma v Appayya, AIR 1957 AP 965 (family arrangement).
743 Shuppu Ammal v Subramaniyan, (1909) ILR 33 Mad 238; Arumuga Gounden v Chinnammal,
(1911) 21 Mad LJ 918; Nehal Singh v Fateh Chand, AIR 1922 All 426 : (1922) 20 All LJ 708 : 68 IC
778.
744 Rakhmabai v Govind Moreshwar, (1904) 6 Bom LR 421 ; Jang Bahadur v Rana Uma Nath
Bakhsh Singh, (1937) 12 Luck 639 : 165 IC 113 : AIR 1937 Oudh 99 .
745 Gandy v Gandy, (1885) 30 ChD 57 : [1881–85] All ER Rep 376 (a negative decision).
746 Veeramma v Appayya, AIR 1957 AP 965 ; Khwaja Muhammad Khan v Husaini Begum, 37 IA
152 : (1910) ILR 32 All 410 : 7 IC 237.
747 Sundararaja Aiyangar v Lakshmiammal, (1915) ILR 38 Mad 788 : AIR 1914 Mad. 95 : 24 IC
943.
748 Dan Kuer v Sarla Devi, (1947) 73 IA 208 : (1946) All 756 : AIR 1947 PC 8 : (1947) 49 BOMLR
123 , (award created a charge and entitled the wife to sue).
749 Mittar Sain v Data Ram, (1925) 24 All LJ 185 at 205 : 90 IC 1000 : AIR 1926 All 194 (per
Sulaiman J, there were no disputes nor any charge created).
750 Iswaran Pillai v Tharagan, (1913) 38 Mad 753 : AIR 1914 Mad. 701 .
751 Chitty on Contracts, 28th Edn p 1003, (1999) para 19–074.
752 Re Cook's Settlement Trusts, [1965] ChD 902 : [1964] 3 All ER 898 : (1965) 2 WLR 179 .
753 Prebble v Broghurst, (1818) 1 Swan 309 : 36 ER 402.
754 Attorney General v Jacobs Smith, [1895] 2 QB 341 per Kay LJ at 353 (CA).
755 Re Cook's Settlement Trusts, [1965] ChD 902 : [1964] 3 All ER 898 : [1965] 2 WLR 179 .
756 Green v Paterson, (1886) 32 ChD 95 .
757 ReCook's Settlement Trusts, [1964] 3 All ER 898 .
758 Re Kays Settlement, Broadbent v Mac Nab, [1939] ChD 329 : [1939] 1 All ER 245 .
759 Tirumulu Subbu Chetti v Arunachalam Chettiar, (1930) 53 Mad 270 : 124 IC 55 : AIR 1930
Mad. 382 at 389 (FB); Jang Bahadur v Rana Uma Nath Bakhsh Singh, (1937) 12 Luck 639 : 165 IC
113 : AIR 1937 Oudh 99 ; Seth Bhabhootmal Seth Nathmal Oswal v Moolchand Munnalal Sagotia,
AIR 1943 Ngp 266 ; Gulabchand Sitaram Marwadi v Laxminarayan Balmukund Marwadi, (1944)
Nag 46 : 212 IC 539 : AIR 1944 Ngp 120 .
760 Iswaran Pillai v Sonnivevaru, (1913) 38 Mad 753 : AIR 1914 Mad. 701 .
761 MC Chacko v State Bank of Travancore, [1970] 1 SCR 658 : AIR 1970 SC 504 : (1969) 2 SCC
343 .
762 Mulla's Transfer of Property Act, 9th Edn pp 273–86.
763 Elder Dempster & Co v Paterson Zochonis& Co, [1924] AC 522 : [1924] All ER Rep 135 (HL);
per Scrutton LJ in the Court of Appeal [1923] 1 KB 421 at 441; Mersey Shipping & Transport Co
Ltd v Rea Ltd, [1925] 21 Lloyd's Rep 375; Pyrene Co Ltd v Scindia Steam Navigation Co Ltd, [1954]
2 QB 402 : [1954] 2 All ER 158 .
764 Scruttons Ltd v Midland Silicones Ltd, [1962] AC 446 : [1962] 2 WLR 186 : [1962] 1 All ER 1
(HL), affirming Midland Silicones Ltd v Scruttons, [1960] 2 All ER 737 (CA); Wilson v Darling Island
Stevedoring & Lighterage Co Ltd, (1956–57) 95 CLR 43 (stevedores, not party to bill of lading,
could not be sued in contract, but not relieved of tortious duty in negligence).
765 London Drugs Ltd v Kuehne &Nagel International Ltd, [1992] 3 SCR 299 (Supreme Court of
Canada); see comments of Waddams, (1993) 109 LQR 349; Adams& Bronsword, (1993) 56 MLR
722.
766 Edgeworth Construction Ltd v ND Lea &Associates, [1993] 3 SCR 206 (Supreme Court of
Canada) (but the suit against engineers was dismissed on another ground). See also Kay Lim
Construction & Trading Pte Ltd v Soon Douglas (Pte) Ltd, [2012] SGHC 186 (Singapore High
Court), [2013] 1 Serv LR 1.
767 New Zealand Shipping Co Ltd v AM Satterthwaite &Co Ltd (The Eurymedon), [1975] AC 154 :
[1974] 1 All ER 1015 (PC).
768 The name is derived from the name of the ship involved in Adler v Dickson, [1955] 1 QB 158
: [1954] 3 All ER 397 , and refers to an exclusion or exemption clause relieving the shipowner or
carrier his servant, agents and independent contractors from liability for negligence; see
Halsbury's Laws of England, Vol 9(1), 4th Edn Reissue, 30 June 1998, CONTRACT, para 814.
769 New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon), [1975] AC 154
at 167 : [1974] 1 All ER 1015 (PC); KH Enterprise v Pioneer Container (The Pioneer Container),
[1994] 2 All ER 250 (sub–bailee from carrier could invoke exclusive jurisdiction clause contained
in the contract between the owner of the goods and the carrier allowing the carrier to contract
"on any terms", as he had contracted with the carrier "on the same terms"); see also The
Mahkutai, [1996] 3 WLR 1 : [1996] 3 All ER 502 (PC) (exclusive jurisdiction clause did not fall
within the terms of the Himalaya clause, and the ship owners not being party to the bill of lading,
were not entitled to invoke the exclusive jurisdiction clause).
770 New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon), [1975] AC 154 :
[1974] 1 All ER 1015 (PC).
771 Southern Water Authority v Carey, [1985] 2 All ER 1077 .
772 Norwich City Council v Harvey, [1989] 1 All ER 1180 .
773 Shanklin Pier Ltd v Detel Products Ltd, [1951] 2 KB 854 : [1951] 2 All ER 471 (warranty).
774 Chitty on Contracts, 28th Edn p 962, para 19–005.
775 Charnock v Liverpool Corpn, [1968] 1 WLR 498 : [1968] 3 All ER 473 .
776 The Satanita, [1895] p 248, affirmed [1897] AC 59 ; but see Ellesmere (Earl) v Wallace, [1929]
2 ChD 1 : [1929] All ER Rep 751 .
777 See Section 37 below, under the heading: "Assignment of Contract".
778 RK Associates v Channappa, AIR 1993 Kant. 247 .
779 See Section 37 below, under the heading: "Consignee of Goods under Railway Receipt".
780 Chhangamal Harpaldas v Dominion of India, 59 Bom LR 704 : AIR 1957 Bom 276 .
781 Morvi Mercantile Bank Ltd v UOI, AIR 1965 SC 1954 at 1960; approving Shamji Bhanji & Co v
North Western Railway Co, (1946) 48 Bom LR 698 : 231 IC 367 : AIR 1947 Bom 169 ; Chhanganal
Harpaldas v Dominion of India, 59 Bom LR 704 : AIR 1957 Bom 276 ; UOI v West Punjab Factories
Ltd, AIR 1966 SC 395 ; Bhai Mehar Singh Kishan Singh v UOI, AIR 1979 Del 158 ; Lal Chand
Madhav Das v UOI, AIR 1986 Del 29 ; New India Assurance Co Ltd v UOI, (1995) 2 SCC 417 .
782 The Railways Act, 1989, Section 74 provides:
The property in the consignment covered by a railway receipt shall pass to the consignee or the
endorsee, as the case may be, on the delivery of such railway receipt to him, and he shall have
all the rights and liabilities as the consignor.
783 Utkal Farm &Road Machinery v UOI, AIR 1995 Mad. 185 at 187 (consignee can sue because
consignor entered into contract of carriage "for the benefit" of the consignee).
784 Ibrahim Isaphai v UOI, AIR 1966 Guj 6 ; following Chhanganal Harpaldas v Dominion of India,
59 Bom LR 704 : AIR 1957 Bom 276 .
785 White v Jones, [1995] 2 AC 207 per Lord Goff at 268 : [1995] 1 All ER 691 at 710.
786 Law Commission (UK) No. 242 (1996) Privity of Contract: Contract for the Benefit of Third
Parties, para 2.14.
787 Hedley Byrne &Co Ltd v Heller& Partners Ltd, [1964] AC 465 : [1963] 2 All ER 575 .
788 White v Jones, [1955] 2 AC 207 : [1995] 1 All ER 691 .
789 Ross v Caunters, [1980] ChD 287 : [1979] 3 All ER 580 .
790 Tirumulu Subbu Chetti v Arunachalam Chettiar, (1930) 53 Mad 270 : 124 IC 55 : AIR 1930
Mad. 382 (FB); Seth Bhabhootmal Seth Nathmal Oswal v Moolchand Munnalal Sagotia, AIR 1943
Ngp 266 ; Daw Po v U Po Hmyin, AIR 1940 Rang 91 : 187 IC 875; Noratmal v Mohanlal, AIR 1966
Raj. 89 .
791 Moitrali Mukherjee v Manik Chand Johuri, AIR 1996 Cal 226 (eviction of sub–lessee).
792 VRamaswami Ayyar v S S Srishnasa & Sons, AIR 1935 Mad. 904 ; Jnan Chandra Mukherjee v
Mano Ranjan Mitra, ILR (1941) 2 Cal 576 : AIR 1942 Cal 251 ; Surjan Singh v LalaNanak Chand,
AIR 1940 Lah 471 : 191 IC 763.
793 Deb Narain Dutt v Ram Sadhan Mandal, (1914) 41 Cal 137 : 20 IC 630 : AIR 1914 Cal 129
following Khwaja Muhammad Khan v Husaini Begum, (1910) 37 IA 152 : (1910) 32 All 410 : 7 IC
237; see also Jiban Krishna Mullick v Nirupama Gupta, (1926) 53 Cal 922 at 925 : 96 IC 846 : AIR
1926 Cal 1009 (court decided that instant case did not fall within the purview of the principle in
Khwaja's case because it was not created for the benefit of the plaintiff); Hashmatmal v
Pribhdas, (1928) 114 IC 111 : AIR 1929 Sind 117 .
794 It was argued in this case that there was a novation within the meaning of Section 62
below, but it was held upon the facts that there was no novation.
795 The case was from the mufassil, where a mortgage by deposit of title deeds was not
recognised by law—The Transfer of Property Act, 1882, sections 58 and 59.
796 Dwarka Nath Ash v Priya Nath Malki, (1917) 22 Cal WN 279 : 36 IC 792 : AIR 1918 Cal 941 ;
Deb Narain Dutt v Ram Sadhan Mandal, (1914) 41 Cal 137 at 141 : 20 IC 630 : AIR 1914 Cal 129 .
797 Khirod Behari Dutt v Man Govinda, AIR 1934 Cal 682 : (1934) 61 Cal 841 : 152 IC 351; relying
on observations of Jenkins CJ in Deb Narain Dutt v Ram Sadhan Mandal, (1914) 41 Cal 137 : 20
IC 630 : AIR 1914 Cal 129 , and Dwarka Nath Ash v Priya Nath Malki, (1917) 22 Cal WN 279 : 36
IC 792 : AIR 1918 Cal 941 ; Khirod's casewas not approved by the Privy Council in Kepong
Propecting Ltd v Schmidt, [1968] AC 810 : [1968] 2 WLR 55 (from Malaysia).
798 Khirod Behari Dutt v Man Govinda, AIR 1934 Cal 682 : (1934) 61 Cal 841 : 152 IC 351 not
applied in Kepong Propecting Ltd v Schmidt, [1968] AC 810 : [1968] 2 WLR 55 (PC); Guari Shankar
v Mangal, AIR 1933 Lah 178 : 141 IC 490; purports to follow Torabaz Khan v Nanak Chand, AIR
1932 Lah 566 : 138 IC 263.
799 Torabaz Khan v Nanak Chand, AIR 1932 Lah 566 : 138 IC 263; Khirod Behari Dutt v Man
Govinda, AIR 1934 Cal 682 at 696 : (1934) 61 Cal 841 : 152 IC 351; Bhujendra Nath Biswas v
Sushamoyee Basu, AIR 1936 Cal 67 at 68; Pandurang Ganpatrao Tidke v Vishwanath Pandurang,
AIR 1939 Ngp 20 ; Mehdatunnissa Begum v Halimatunissa Begum, AIR 1939 Pat. 194 at 196.
800 National Petroleum Co Ltd v Popatlal Mulji, (1936) 60 Bom 954 : 165 IC 338 : AIR 1936 Bom
344 . The two views are discussed in Post Master General, Patna v Ram Kirpal Sahu, AIR 1955
Pat. 442 .
801 Jamna Das v Ram Autar Pande, (1911) 39 IA 7 : (1911) 34 All 63 : 13 IC 304; Kepong
Propecting Ltd v Schmidt, [1968] AC 810 : [1968] 2 WLR 55 (PC).
802 Ganesh Das v Banto, (1935) 16 Lah 118 : 158 IC 387 : AIR 1935 Lah 354 ; Adhar Chandra
Mondal v Dolgobinda Das, (1936) 63 Cal 1172 : AIR 1936 Cal 663 ; Akolla Suryanarayana Rao v
Dwarapudi Basivireddi, (1932) 55 Mad 436 : 139 IC 135 : AIR 1932 Mad. 457 ; Wali Uddin Ahmad
v Thakur Ram Rakhan, AIR 1936 Oudh 313 : 162 IC 451; Jnan Chandra Mukherjee v Mano Ranjan
Mitra, ILR (1941) 2 Cal 576 : AIR 1942 Cal 251 ; Shamji Bhanji& Co v North Western Railway Co,
(1946) 48 Bom LR 698 : 231 IC 367 : AIR 1947 Bom 169 ; Gulabchand Sitaram Marwadi v
Laxminarayan Balmukund Marwadi, (1944) Nag 46 : 212 IC 539 : AIR 1944 Ngp 120 ; Saraswatibai
v Haibatrao Ramji Patil, (1945) Nag 581 : AIR 1945 Ngp 261 ; Suraj Prasad Oja v Ram Lal Singh,
(1947) 25 Pat 269 : 230 IC 224 : AIR 1947 Pat. 131 ; Gajadhar Prasad Gangapershad Shukul v
Rishabhkumar Mohanlal Baniya, (1949) Nag 122 : AIR 1949 Ngp 319 ; Sudama Devi v Ram Kishan
Lal, AIR 1954 All 348 ; MC Chacko v State Bank of Travancore, [1970] 1 SCR 658 : (1969) 2 SCC
343 : AIR 1970 SC 504 .
803 Iswaram Pillai v Tharagan, (1913) 38 Mad 753 : AIR 1914 Mad. 701 ; but see Inuganti
Kasturamma v Chelikani Venkatasurayya Garu, (1915) 29 Mad LJ 538 : AIR 1916 Mad. 65
(document created a trust); Ganesh Das v Banto, (1935) 16 Lah 118 : 158 IC 387 : AIR 1935 Lah
354 .
804 Post Master General Puma v Ram Kirpal Sahu, AIR 1955 Pat. 442 .
805 Klaus v Mittelbachert v East India Hotels Ltd, AIR 1997 Del 201 (whether the basis of the
claim was tort or contract was not decided).
806 The Married Women's Property Act, 1874, Section 6.
807 The Motor Vehicles Act, 1988, Section 149; see also the Inland Vessels Act 1917, Section
54C.
808
The Motor Vehicles Act, 1988, Section 150; See for similar provision the Workmen's
Compensation Act, 1923, Section 14; New India Assurance Co Ltd v Rula, AIR 2000 SC 1082
(third party entitled to amount although the policy may be cancelled on the ground of non–
payment of premium later).
809 Graham Joint Stock Shipping Co Ltd v Merchants Marine Insurance Co Ltd, [1924] AC 294 ;
Yangtze Insurance Association Ltd v Lukmanjee, [1918] AC 585 .
810 New India Assurance Co Ltd v Lakka Vijaya Gopala Reddy, AIR 2003 AP 465 .
811 New India Assurance Co Ltd v T T Finance Ltd, AIR 2011 Del 121 .
812
The Workmens Compensation Act, 1923, Section 12; for similar provision regarding
payment of contribution by the principal employer, the Employees State Insurance Act, 1948,
Section 40.
813 The Marine Insurance Act, 1963, Section 17.
814 The Negotiable Instruments Act, 1881, Section 8.
815 The Indian Bills of Lading Act, 1856, Section 1.
816 The Railways Act, 1989, Section 74; For the extent to which any other assignees may sue
on a contract, see "Assignment" under Section 37 below.
817 The Indian Contract Act, 1872, Section 231.
818 The Consumer Protection Act, 1986, Sections 2(d)(1) and (11); (provisions of the Act apply
to certain types of goods and services only).
819 The Specific Relief Act, 1963, Section 15.
820 The Industrial Disputes Act, 1947, Section 18(3); Tobacco. Friends Union v State of Uttar
Pradesh, AIR 1958 All 688 ; BK Jobanputra v BS Kalelkar, AIR 1965 Bom 146 .
821 Abaji Sitaram Modak v Trimbak Municipality, (1903) 28 Bom 66.
822 Ibid.
823 Pipraich Sugar Mills Ltd v Pipraich Sugar MillsMazdoor Union, AIR 1957 SC 95 .
824 Abaji Sitaram Modak v Trimbak Municipality, (1904) 28 Bom 66 at 72; Sadashiv Vaman
Dhamankar v Trimbak Divakar Karandikar, (1899) 23 Bom 146 at 163–64.
825 See also "Contract as a Promise" above.
826 Section I of draft Second Report of Indian Law Commissioners, 1866, p 11; this section is
understood to be the work of Sir James Stephen.
827 Sunnam Sattiah v State of Andhra Pradesh, AIR 1980 AP 18 at 23 (licence under the Abkari
Act).
828 Sadashiv Vaman Dhamankar v Trimbak Divakar Karandikar, (1899) 23 Bom 146 at 163–64.
829 Moolchand v Lachman, AIR 1958 Raj. 72 ; Matoliram v Lala Nanumal, AIR 1958 Raj. 260 .
830 Rickmers Verwaltung Gmbh v India Oil Corp Ltd, (1999) 1 SCC 1 ; Great Offshore Ltd v Iranian
Offshore Engineering and Construction Company, (2008) 14 SCC 240 .
831 Pankaj Bhargava v Mohinder Nath, (1991) 1 SCC 556 .
832 Mahanth Singh v U Ba Yi, (1939) 66 IA 198 : AIR 1939 PC 110 : 41 Bom LR 742 : 181 IC 1.
833 See Section 23 below—"Expressly Declared Void".
834 Sadhusingh Fatehsing v Jhamandas Valiram, AIR 1937 Sind 211 at 212; Mahanth Singh v U
Ba Yi, (1939) 66 IA 198 : AIR 1939 PC 110 : 41 Bom LR 742 : 181 IC 1; Village Panchayat of
Jangareddigudem v Kommireddy Narasayya, AIR 1965 AP 191 at 193, 196.
835 Sadhusingh Fatehsing v Jhamandas Valiram, AIR 1937 Sind 211 at 212; Chitty on Contracts,
28th Edn p 22, para 1–037.
836 Harnath Kuar v Indar Bahadur Singh, 50 IA 69 at 75 : (1922) 45 All 179 at 184 : AIR 1922 PC
403 .
837 Rai Satyadeva Narayan Sinha v Tirbeni Prasad, AIR 1936 Pat. 153 .
838 See the Indian Registration Act, 1908, Section 49.
839 See the Indian Limitation Act, 1963, Section 3.
840 See the Indian Partnership Act, 1932, Section 69.
841 See the Indian Stamp Act, 1899, Section 35, also various stamp legislations in various
states.
842 Rai Satyadeva Narayan Sinha v Tirbeni Prasad, AIR 1936 Pat. 153 .
843 Tarsem Singh v Sukhminder Singh, (1998) 3 SC 471 ; Gladys Devaram v S.Subaiah, (2011) 4
LW 237 : (2012) 1 Mad LJ 1070.
844 Mohd. Abdul Hakeem v Naiyaz Ahmed, AIR 2004 AP 299
845 The New India Assurance Co Ltd v Dewa Properties, (2015) 2 LW 889 : (2015) 4 CTC 407 .
846
Sunrise Associates v Govt. of NCT of Delhi, (2006) 5 SCC 603 ; Yasha Overseas v
Commissioner of Sales Tax, (2008) 8 SCC 681 .
847 Ibid
848 Gammon India Ltd v Punjab State Electricity Board, AIR 1997 P&H. 43 .
849 Rajah of Venkatagiri v State of Andhra Pradesh, AIR 1958 AP 522 at 529.
850 Kunja Lal Bhuiya v Hara Lal Bhuiya, AIR 1943 Cal 162 .
851 Muralidhar Chatterjee v International Film Co Ltd, (1943) 70 IA 35 : AIR 1943 PC 34 at 39 :
(1943) 2 Mad LJ 369.
852
Rajah of Venkatagiri v State of Andhra Pradesh, AIR 1958 AP 522 (option with the
government to disaffirm contracts during one year before abolition of estates).
853 Chetoomal Bulchand v Shankerdas Girdharilal, AIR 1929 Sind 83 : 118 IC 220.
854 Western India Life Insurance Co Ltd v Asima Sirkar, AIR 1942 Cal 412 at 417.
855 Satgur Parsad v Har Narain Das, AIR 1932 PC 89 : 59 IA 147.
856 Mahant Singh v U Ba Yi, (1939) 66 IA 198 : AIR 1939 PC 110 : 41 Bom LR 742 : 181 IC 1; see
Vishwanath Narayan v Deokabai, (1948) Nag 50 : AIR 1948 Ngp 382 ; Pulingundla Venkatappa
Naidu v Geddam Chennappa Naidu, AIR 1945 Mad. 171 : 221 IC 153.
857 AIR 1939 PC 110 at 113.
858 Purvankara Projects Ltd v Hotel Venus International, (2007) 10 SCC 33 .
859 Satgur Parsad v Har Narain Das, AIR 1932 PC 89 : 59 IA 147.
The Indian Contract Act, 1872
CHAPTER I Of Communication, Acceptance and Revocation of Proposals
S. 3 Communication, acceptance and revocation of proposals.—
The communication of proposals, the acceptance of proposals, and the revocation
proposals and acceptances, respectively, are deemed to be made by any act
omission of the party proposing, accepting or revoking, by which he intends
communicate such proposal, acceptance or revocation, or which has the effect
communicating it.
of
or
to
of
[s 3.1] Introduction
Sections 3 and 4 of the Contract Act, deal with communication of proposals,
acceptances and revocation of proposals and acceptances. Section 3 specifies what
communication is. Section 4 describes when it is complete.
The section states that a proposal or acceptance may be made by an act or omission,
by which the person intends to communicate, or which has the effect of
communicating it. The earlier editors of this book had suggested replacing the word
"or" with "and", because the section suggests that an inchoate communication of a
proposal, etc., made by an act intended to communicate it, but in fact does not have
that effect, fails to have legal effect. The Law Commission of India considered this
opinion, but recommended no change because the existing language has not caused
any difficulty.
It is submitted that the use of the word "or" in the section indicates that a
communication of a proposal, etc., is made by an act which: (i) is intended to
communicate it; or (ii) has the effect of communicating it. An act or omission with
intention to communicate would amount to a communication of the proposal etc.,
provided its communication is complete under section 4. The later clause suggests
that if the act or omission has the effect of communicating the proposal or acceptance
to the addressee, it is equally a communication, irrespective of intention. Thus, an act
or omission of the party proposing or accepting or revoking, as the case may be, would
be communicated if, when objectively viewed from the position or viewpoint of the
addressee, would have the effect of communication.
[s 3.2] The Objective Test
In the matters of contract formation, the objective test of agreement is adopted. The
judicial task is not to discover the actual intentions of each party; it is to decide what
each was reasonably entitled to conclude from the attitude of the other.1 The Court is
required to review what the parties wrote and how they acted, and from that material to
infer whether the intention as expressed in correspondence was to bring into existence
a mutually binding contract.2
[s 3.3] What is Communication?
Communication imparts knowledge and if there is no knowledge there cannot be any
communication.3 Communication may be made effectively in many other ways besides
written, spoken or signalled words. For example, delivery of goods by their owner to a
person who has offered to buy them for a certain price will be understood to signify
acceptance of that proposal, unless there be some indication to the contrary. No words
are used nor needed to explain the intent with which a person steps into a ferry-boat or
a tramcar, or drops a coin into an automatic machine. It is also possible for parties to
hold communication by means of pre-arranged signs being any form of cipher or secret
writing, and not having in themselves any commonly understood meaning; but this
does not happen often in business. Means of communication, which a person has
prescribed or authorised, are generally taken as against him to be sufficient. When
despite the Respondents requesting for the standard agreement, the same was not
sent to them, it cannot be said that the Respondents had knowledge of the terms and
conditions in the standard agreement.4
An unexecuted intention to communicate something, or even an unsuccessful attempt
cannot be treated as amounting to communication; nor can a mere mental act of
assent.5 An internal noting does not constitute a communication. The acceptance
should be communicated to the other party.6
[s 3.4] Communication in Electronic Form
An offer and acceptance, like any other expression of will or intention, may be
communicated by any means, including by data messages in electronic form (called
"electronic record" in the Information Technology Act, 2000). The provisions of the
Contract Act, are wide enough to cover such transactions. In the context of contract
formation, unless otherwise agreed by the parties, an offer and the acceptance of an
offer, or either of them, may be expressed by means of data messages or electronic
record. Where electronic record, are used in the formation of a contract, that contract
shall not be denied validity or enforceability on the sole ground that data messages
was used for that purpose.7 Section 10A of the Information Technology Act, 20008
provides that proposals, accceptances and their revocation can be expressed by
means of electronic record. Thus, a contract may result from exchange of e-mails,9 or
by fax.10
However, data messages expressing offer and acceptance generated solely by
computers without human intervention, namely, contracts effected through electronic
data interchange (EDI), may lack the requisite intention.
Autonomous machines can learn through experience, modify the instructions in their
own programs and even devise new instructions. They can then make decisions based
on these self–modified or self–created instructions. If autonomous computers are able
to learn and modify their own behaviour in this way, a reasonable implication must be
that they are capable of manifesting (or, at least, appearing to manifest) human
cognitive processes which we associate with the exercise of free will. These processes
include making choices, forming intentions, reaching decisions and giving or
withholding consent. What follows from these A (rtificial) I (ntelligence)–orientated
developments? Humans can give their computers substantial autonomy in decision–
making, thus permitting the machines to operate where the tasks in question are highly
complex and involve not only the need for speed of operation but also the making of
sophisticated, precise judgments...computers (can now be made to) not only negotiate
details such as the price, quantity and dates of delivery and payment but also to decide
whether to make or accept an offer without reference to any human trader.11
The question of intention in such transactions is solved by the provisions relating to
attribution. An electronic message sent by an information system programmed by or
on behalf of the originator12 to operate automatically shall be attributed to the
originator.13
Apart from this fiction (of attribution), the last clause of this section 3 effectively deals
with such manifestations. Attribution procedures further give to the receiving party the
benefit of a presumption that the message came from the sender.
[s 3.5] Silence as Acceptance
A contract being the result of a proposal made by one party and, acceptance of that
proposal by the other, acceptance of proposal and intimation of acceptance by some
external manifestation that the law regards as sufficient is necessary.14 As a general
rule, an offeree who does nothing in response to the proposal is not bound by its terms.
In principle, it is difficult to see how the silence or inaction of an offeree who fails to
reply to an offer can operate as an acceptance, for there will have been no
communication of the acceptance to the offeror.15
Mere silence of one party, to the offer of the other does not amount to assent of the
party remaining silent.16 Silence to a letter is not acceptance of the terms proposed in
it.17 In the absence of a formal communication, a mere noting of the acceptance of the
auction bid in the file is not enough, even if the bidder had knowledge of such noting.18
For communication to be complete, acceptance of the offer and intimation of
acceptance by some external manifestation, which the law regards as sufficient is
necessary.19
The general rule is that mere silence on the part of the offeree, cannot be construed as
acceptance of the offer, yet it does not mean that an acceptance always has to be
given in so many words. Under certain circumstances, offeree's silence, coupled with
his conduct, which takes the form of a positive act, may constitute an acceptance.20It
has been held that in insurance contracts, no binding contract arises until the person to
whom an offer is made says or does something to signify his acceptance and mere
silence does not denote consent.21
Law does not cast a duty on the person to whom a proposal is made to reply to that
proposal,22 and hence acceptance cannot be inferred from the silence of the offeree23
and as a general rule, a proposal is not accepted by mere silence on the part of the
offeree.24 Silence is not an effective expression of intention, nor is inaction. The reason
is that silence and inaction are by their nature equivocal, as there can be more than one
reason for a person to be silent and inactive. Apart from not wanting to accept, an
offeree may simply be forgetful or slow in responding to the proposal. Where the
offeree does not wish to accept the proposal, it is undesirable to put him to the trouble
and expense of refusing the proposal.
Acceptance can, however, be inferred from silence only under exceptional
circumstances.
If there is a prior agreement that contract forms, if not returned unsigned with a letter,
shall amount to acceptance, then the non-return of the contract is acceptance, but that
is not so if there is no prior agreement.25 This will apply to arbitration agreements as
well.26 Once a concluded contract was arrived at and the parties were to subsequently
alter or modify the terms thereof, it was required to be done either by express
agreement or by necessary implication which would negate the application of the
doctrine of "acceptance sub-silentio".27
If silence is reinforced by conduct, it may constitute acceptance. A vessel was used
after the term of its charter party was over, and continued on same terms. It was held
that the conduct of using the vessel implied that the arbitration clause in the charter
party was also accepted.28 A contractor consented, subject to payment at enhanced
rates, to the proposal to spread the contract work over two years instead of the agreed
one year. On completing the work, he was entitled to payment at enhanced rates even
though the employer remained silent.29
In Ramji Dayawala & Sons Pvt Ltd v Invest Import,30R had objected during negotiations
to the incorporation of an arbitration clause referring to international arbitration into the
agreement, and had sought an amendment to the draft to that effect. The agreement
however, got signed between the parties containing such arbitration clause.
Immediately after signatures on the document, R objected to the inclusion of the said
clause stating that he had never agreed to its inclusion. I did not respond, but continued
with the contract work with R. Holding that there was no agreement to refer the matter
to arbitration, the Court observed:
[a]s part of the offer was disputed at the negotiation stage, this (deletion of the clause) was
a counter–offer, and silence of the original offeror amounted to its acceptance.
Silence may constitute acceptance by custom of trade or business in question.31
[s 3.6] Notice Before or at the Time of the Contract
An e-ticket does not contain the complete conditions of carriage but incorporates the
same by reference. This is sufficient notice of the terms as the interested passengers
can ask the airline for a copy of the contract of carriage or visit the website and
ascertain the same. The parties will be bound by the contract.32 The conditions must
be brought to the notice of the party before or at the time the contract is made. The
party will then be bound by those conditions. The Indian Airlines Corporation, at the
door of its Calcutta office, affixed a board on which the conditions of carriage were
given in bold letters. In the ticket issued to the passengers, it was stated that the ticket
was issued subject to the conditions of carriage which were printed inside the cover
page in very small letters. It was held that the conditions displayed on the board gave
reasonably sufficient notice of the conditions and must be deemed to have been
accepted by a person buying the ticket.33 The mere writing on bills of medical
practitioners that interest of 1% per month will be charged cannot amount to a contract
to pay that interest.34 An unsigned consignment note, which was merely delivered or
handed over, without the terms contained therein being adequately and specifically
brought to the notice of the counter party, cannot be binding.35
It has been held that such clauses in a consignment note, must be brought to the
notice beforehand and preferably printed in red ink or pointed by a hand in the red ink
on the face of the document.36
[s 3.7] Communication of Exemption Clauses and Other Special Conditions in
Printed Documents
Often a document containing printed conditions, particularly exemption clauses or
other onerous clauses, is handed over to a party at the time or after making the
contract. He may not read the terms, moreover, he may not also be aware that the
document contains such conditions. Such special terms or conditions would either
exclude or restrict the liability of the person issuing the document, or may impose
onerous obligations on the party to whom the document is given. Particularly where an
invitation of offer leads to business, the terms of any resulting agreement are often
determined by reference to the terms of the invitation. These terms very often leave no
room for bargaining on details and contain the whole terms of the kind of agreement
contemplated. A question arises whether and how far these conditions bind the
parties. The answer depends upon whether the terms and conditions have been
effectively communicated to him.
Such exemption clauses may be of various types, for example:
(i) an exclusion clause, whereby the parties alter the primary obligations which
would otherwise arise under the contract, or whereby the parties agree not to
undertake particular primary obligations and are therefore not liable for their
non–performance; or
(ii) a limitation clause, whereby the parties alter their secondary obligation to pay
damages in the event of particular primary obligations of the contract, where the
parties agree to limit the damages otherwise payable as a result of a breach of
the contract, or seek to deny or limit the right to rescind the contract, or specify a
time limit for the exercise of the right to rescind or claim damages. Such clause
may also limit the right to file a suit, for example by specifying the place where
the action can be filed.
Whether such clauses would have contractual effect or not, would depend upon the
nature of the document, the adequacy of notice to the party sought to be bound, the
time at which such terms are brought to his notice, and the course of dealings between
the parties.37
[s 3.8] Reasonable Notice of Exclusion and similar Onerous Clauses
The party enforcing the clause may show that the other party assented to the clause.
The mere printing of the words "subject to Madras jurisdiction" in the letter could not
become part of contract unless it was agreed to by the addressee.38 But where the
party signed an order form with bold printed letters "subject to Madras jurisdiction", the
jurisdiction of other Courts would be excluded.39
The consignor signed a consignment note containing a clause limiting liability of the
courier to USD 100. Despite clear notice to that effect, the consignor had not disclosed
the contents of the cover at the time of consignment, nor had purchased insurance
cover for the consignment. The clause was binding on the consignor and liability of the
courier limited to USD 100.40
The question whether the party tendering the document did all that was reasonably
sufficient to give the other notice of the exclusion clause is a matter of fact. The burden
of proving that it was brought to the notice of the other party, or that the other party
assented41 to the exclusion clause lies on the party seeking to enforce it. But it is for
the Court to decide whether there is sufficient evidence to show that the notice is
reasonably sufficient. In InterGlobe Aviation Ltd v N. Satchinand,42 conditions of
carriage had an exclusive jurisdiction clause. The e-ticket did not give complete
conditions of carriage, but incorporated these by reference. It was stated:
Placing the conditions of carriage on the website and referring to the same in the e-ticket
and making copies of conditions of carriage available at the airport counters for inspection
is sufficient notice in regard to the terms of conditions of the carriage and will bind the
parties. The mere fact that a passenger may not read or may not demand a copy does not
mean that he will not be bound by the terms of contract of carriage.
[s 3.9] Position in other jurisdictions
[s 3.9.1] The Objective Test
In the matters of contract formation, the objective test of agreement is adopted.43 Law
will attribute to a person an intention which that person's conduct bears when
reasonably construed by a person in the position of the person to whom it is
addressed. Words are to be interpreted as they were reasonably understood by the
party to whom they were spoken.44 A person would be bound by any act or omission or
conduct which appears to be an offer or acceptance, as the case may be, to the person
to whom it is made. Where A makes such an offer to B in circumstances that it appears
to B that A has the requisite intention to be bound by the offer, and B accepts it, A is
bound by the acceptance. A may however deny his apparent consent if: (i) B knew or
ought to have known that A's apparent intention did not correspond with A's real
intention; or (ii) A had agreed to something he did not intend because of B' sfault. To
this extent, the test of intention is not purely objective.45 The purpose of the objective
test is to protect B when he relies on the act or omission of A.
If whatever a man's real intention may be, he so conducts himself that a reasonable man
would believe that he was assenting to the terms proposed by the other party and the other
party upon that belief enters into the contract with him, the man thus conducting himself
would be equally bound as if he had intended to agree to the other party's terms.46
The other theory described as the "fly on the wall" theory or the theory of "detached
objectivity"47 requires that the words used by one party must be judged as they would
appear to a reasonable man eavesdropping on the negotiations, and not as they
appeared to the party to whom they were addressed;
...once a contract has been made, that is to say, once the parties, whatever their innermost
states of mind, have to all outward appearances agreed with sufficient certainty in the same
terms on the same subject matter, then the contract is good.48
This approach is criticised because it is likely to force on both the parties an agreement
which neither of them intended. Also, it cannot be reconciled with the approach in The
Hannah Blumenthal,49 which supports the broad proposition that the question of
formation should be viewed from the perspective of the person to whom the
communication is made, and at the same time stresses the subjective understanding
of a reasonable person in the position of such person.
According to Lord Diplock in The Hannah Blumenthal—
To create a contract by exchange of promises between two parties where the promise of
each party constitutes the consideration for the promise of the other, what is necessary is
that the intention of each as it has been communicated to and understood by the other (even
though that which has been communicated does not represent the actual state of mind of
the communicator) should coincide...Thus if A (the offeror) makes a communication to B
(the offeree) whether in writing, orally or by conduct, which, in the circumstances at the time
it was received, (1) B, if he were a reasonable man, would understand as stating A's
intention to act or refrain from acting in some manner also specified in the offer, and (2) B
does in fact understand A' scommunication conveying his willingness so to act or to refrain
from acting which, mutatis mutandis,satisfies the same two conditions as respects A,the
consensus ad idem essential to the formation of the contract in English law is complete.50
[s 3.10] Nature of the Document
In documents, exemption clauses and clauses imposing other special conditions would
have contractual effect if incorporated into documents of a class which the party
receiving it would know or would expect to contain contractual conditions.51 Thus a
turnpike ticket,52 a ticket for a deck–chair,53 a ticket handed at a public bath,54 a
parking ticket issued by an automatic machine55 are not such documents, and the
party receiving it can put it in his pocket unread.56 The same is the case with a cheque
book.57 On the other hand, a railway58 or steamship ticket59 and a receipt of goods
deposited60 have been held to be contractual documents. The conditions may be set
out in the document itself or incorporated therein by reference, provided reasonable
notice of the conditions is given.
The nature of contract will decide whether a clause requires special notice. Thus in an
insurance contract, an insurer need not draw attention of an insured to every limitation
and procedural requirement, because the very nature of an insurance policy is to limit
the insurer's risk. What are onerous clauses in ordinary commercial contracts may not
be of that nature in insurance contracts.61
If the conditions are communicated to the party after the contract is concluded, they do
not have any effect. The plaintiff lost his articles from a hotel room due to the
negligence of the hotel staff. The register on which he had signed on his arrival did not
contain any exemption clauses. A notice inside the hotel room sought to disclaim
liability for lost or stolen articles. It was held that the notice was of no effect as the
plaintiff was not made aware of the conditions before the contract was made.62 A
receipt issued by a launderer contained a condition restricting the liability of the
launderer for loss to the lesser of the amount of twenty times the laundering charges or
half of the price of unreturned articles. It was held that the contract of bailment was
complete as soon as the clothes were entrusted to the launderer at the counter. The
receipt being issued subsequently, was not a "contractual document". The burden lay
on the defendant to prove that plaintiff had assented to the condition expressly or by
necessary implication, and that the stipulation was liable to be considered as a
contractual term. The plaintiff was entitled to claim the full value of the clothes.63
[s 3.11] Previous Course of Dealings
A contract would also be binding where there has been a previous course of dealings
between the parties.64 Where an indemnity clause was contained in the plaintiff's form
never signed by the defendant, the clause was held incorporated into the terms of the
contract since the condition was common to all firms doing similar business and the
defendant knew that the condition was the same as his own.65 If the party against
whom the clause is sought to be enforced has on previous occasions been put to
notice of the operation of the condition, it may operate even though it is contained in a
document like a confirmation note issued much later after the contract is made.66
[s 3.12] Subsequent Incorporation
A condition may be incorporated into the contract subsequently by variation. For this
purpose, documents of contractual effect in formation of contract must be
distinguished from documents used in performance of a contract. Variation will not
occur through presentation of documents of performance, namely, a time–sheet,
invoice or statement of account. These documents record the performance of existing
obligations under the contract, and do not usually contain the terms of a contract. Mere
signature on such a document containing or incorporating reference to contractual
terms is not sufficient to incorporate the new terms into an existing contract. Whether
such a signature varies an existing contract will depend upon a consideration of a
number of substantive factors; the nature and purpose of the document, the
circumstances of its use between the parties and the parties' understanding of its
purpose at the time.67
[s 3.13] Reasonable Notice of Exclusion and similar Onerous Clauses
It is not sufficient that the exclusion clause be incorporated into the contract; the party
against whom it is to operate must be given reasonable notice of its existence. When
there is no actual knowledge, the party will not be bound if he has no reason to believe
that the document containing the clause contained contractual terms.68 If such party
to be bound has actual knowledge of the clause when the contract is concluded, he is
bound by it.69 If he has reason to believe that the document given to him contains
contractual terms, he may be bound by those terms even though he has not read the
document,70 but only if the terms are brought to the attention of the reader in the
document, namely by words "for conditions, see back", written on the face of the
document; and yet he will not be liable if such words are obliterated by date stamp.71
The more unreasonable the term, the greater the notice which must be given of
it.72"Some clauses which I have seen", said Denning LJ, "would need to be printed in
red ink on the face of the document with a red hand pointing to it before the notice
could be held to be sufficient".73
If the party seeking to enforce the clause has done what is normally sufficient to give
reasonable notice of the clause, it binds the other party, even though the other party is
disabled, or is unable to understand the clause, e.g., because of illiteracy.74 But if the
party seeking to enforce knows of the disability, he must take further steps to bring the
clause to the notice of such person under disability. The more onerous the
consequences of the exclusion clause, the more effective must the notice be.75
[s 3.14] Shrinkwrap Licences
The "shrinkwrap" licence gets its name from packages (usually of retail software)
covered in plastic or cellophane "shrinkwrap", having written licences, mostly unsigned,
which state that acceptance on the part of the user to the terms of the licence is
indicated by opening the shrinkwrap packaging or other packaging of the software, by
use of the software or by some other specified means. This licence is a direct contract
between the software producer and the user or ultimate customer, and is separate from
the contract of sale by which the user acquired the software from the distributor or
retailer. The terms of licence in standard form would usually contain the licence to use
the software with restrictions, prohibition of copying, altering, modifying or adapting the
software. The customer purchasing the software would know about the licence only
after purchasing the software, and would be able to read the terms only after the
package is opened.
The extent to which such licences are enforceable has been decided from various
points of view. In Beta Computers (Europe) Ltd v Adobe Systems Ltd,76 it was held that
the contract of sale of standard package made over the telephone was not complete
until the customer had seen and accepted the licence terms inside the shrinkwrap
packing. Since the customer had rejected the software, the terms were not accepted
and there was no contract. But the Court observed that had the customer accepted the
terms by opening the package, the contract in the licence would have been
enforceable. In the US, some cases suggest that such licences are unenforceable, as
they attempt to modify the terms of the contract already made and understood by the
buyer and seller. In Step-Saver Data Systems lnc v WYSE Technology;77 the Court
concluded that the shrinkwrap licence was "best seen as one more form in a battle of
forms", and applying UCC section 2–207,78 held that the contract was concluded with
the placing of the order and the acceptance on the telephone, and the disclaimers and
warranties in the shrinkwrap licence sent to the customer after this contract, materially
altered the terms of the contract, and therefore were not part of the agreement.
But in ProCD Inc v Mathew Zeidenberg,79Z purchased from a retail store a CD-ROM disc
containing a database called Selectphone which was a compilation of telephone
directories made by P. A notice was printed outside the package that the use of the CDROM was restricted by the terms of the licence contained inside the package, which
restricted the use of the database for non-commercial purpose. Z sold the information
contained in the database to third parties in violation of the terms of the licence. P
sought an injunction restraining Z from disseminating the information. The district
court held that the licence was ineffective because its terms did not appear on the
outside of the package, and the buyers did not have any opportunity to object to the
proposed user agreement or review it before purchase, nor did they assent to the terms
explicitly after they learnt of them. Reversing this decision, the Court of Appeal held
that shrink wrap licences were enforceable unless their terms are objectionable on
grounds of positive law or are unconscionable. It held that P had made an offer to
license its product which was accepted by the conduct of Z in choosing to use the
software, and hence Z was bound by the terms. As to the argument of Z that the
placing of the package of software on the shelf was the offer and payment of price was
the acceptance, the Court observed that one of the terms on which Z agreed to
purchase the software was that the transaction was subject to a licence and treated
the licence as ordinary contract accompanying the sale of products. It held that terms
inside a package of software bind consumers who use the software after an
opportunity to read the terms and reject the product. It observed:
Notice on the outside, terms on the inside, and a right to return the software for a refund if
the terms are unacceptable (a right that the license expressly extends), may be a means of
doing business valuable to buyers and sellers alike... Transactions in which the exchange of
money precedes the… communication of detailed terms are common… In the purchase of
insurance the buyer goes to an agent, who explains the essentials... and remits the premium
to the home office, which sends back a policy… In the purchase of the airline ticket the
traveller calls the agent, is quoted a price, reserves a seat, pays, and gets a ticket in that
order. The ticket contains elaborate terms, which the traveller can reject by cancelling the
reservation. To use the ticket is to accept the terms, even terms that…are disadvantageous.
Consumer goods work the same way. Someone wants to buy a radio set visits a store, pays,
and walks out with a box. Inside the box is a leaflet containing some terms, the most of
which usually is the warranty, read for the first time in the comfort of the home...Drugs come
with a list of ingredients on the outside and an elaborate package insert inside.
Following this analysis in the ProCD case, the Seventh Circuit held in Hill v Gateway,
2000 Inc,80 that the terms of a hardware sales agreement not provided at the time of
the sale were binding upon the buyers of the computer hardware, although buyers
could not review the terms kept inside the computer's shipping box until after the
computer had arrived. The Court expressly rejected the buyers' suggestion that the
Court limit the ProCD holding to the context of software licenses. It observed:
Practical considerations support allowing vendors to enclose the full legal terms with their
products. Cashiers cannot be expected to read legal documents to customers before
ringing up sales. If the staff at the other end of the phone for direct–sales operations such
as Gateway's had to read the four–page statement of terms before taking the buyer's credit
card number, the droning voice would anaesthetize rather than enlighten many potential
buyers. Others would hang up in a rage over the waste of their time. And oral recitation
would not avoid customers' assertions (whether true or feigned) that the clerk did not read
term X to them, or that they did not remember or understand it. Writing provides benefits for
both sides of commercial transactions. Customers as groups are better off when vendors
skip costly and ineffectual steps such as telephonic recitation, and use instead a simple
approve–or–return device.
[s 3.15] Clickwrap Agreements
On the internet, an end user may be required to agree to a specific set of terms and
conditions as a prerequisite for access to a particular online site or service. These
contracts may often provide that the end user will abide by the rules of the online site,
or be entitled to privacy protections provided in the system rules, pay for goods or
services purchased at the site, waive any claims that the online site is liable for errors
or harms suffered by the user, not infringe others' intellectual property rights, not
violate other applicable laws or lose access to the site if the rules are violated. Very
typically, one party will display its terms on its website subject to which it offers to sell
its goods or provide services. The purchaser will indicate the assent to the terms by
clicking on the button "I agree", very often without reading the terms, which would
conclude the contract on the terms displayed. The terms of these agreements are nonnegotiable. But they are enforceable unless they violate public policy. In the dicta, the
Court in the ProCD case81 approved of clickwrap agreements.
1 Anson's Law of Contract, 30th Edn 2016, at p 35.
2 Rickmers Verwaltung GmbH v Indian Oil Corp, (1999) 1 SCC 1 .
3 Devarakonda Educational Society v All India Council for Technical Education, AIR 1997 AP 389 .
4 Indian Oil Corp Ltd v Nilofer Siddiqui, (2015) 16 SCC 125 : (2016) 1 MLJ 245 (SC).
5 Brogden v Metropolitan Railway Co, [1877] 2 App Cas 666 (HL) at 691 per LORD BLACKBURN;
SM Bholat v Yokohama Specie Bank, AIR 1941 Rang 270 : 197 IC 890; Bank of India Ltd v Rustom
Fakirji Cowasjee, AIR 1955 Bom 419 at 430; Kashyap's v Bata India Ltd, 2013 SCC OnLine Del
2424.
6 National Textile Corp (M.P) Ltd v M.R.Jadhav, (2008) 7 SCC 29 .
7 UNCITRAL Model Law on Electronic Commerce, (1996). The Information Technology Act,
2000 does not make such express provision. For contracts which may not be made in electronic
form, see The Information Technology Act, 2000, section 1(4).
8 Section 10A inserted in the Information Technology Act, 2000 by the Information Technology
(Amendment) Act, 2008, provides:
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.
9 Trimex International FZE Ltd v Vedanta Aluminium Ltd, AIR 2010 SCW 909 : (2010) 3 SCC 1 ;
Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd, [2012] EWCA Civ 265 (CA) (a
guarantee); Nicholas Prestige Homes v Neal, [2010] EWCA Civ 1552 .
10 Great Offshore Ltd v Iranian Offshore Engg & Construction Co, (2008) 14 SCC 240 : (2008) 8
Mad LJ 128 (SC); Quadricon Pvt Ltd v Bajarang Alloys Ltd, AIR 2008 Bom 88 : 2008 (3) MhLJ 407
.
11 Tom Allen and Robin Widdison, "Can Computers Make Contracts", Harvard Journal of Law
and Technology, 1996.
12 Under section (2) clause (za) of the Information Technology Act, 2000, "originator" means a
person who sends, generates, stores or transmits any electronic message or causes any
electronic message to be sent, generated, stored or transmitted to any person but does not
include an intermediary.
13 The Information Technology Act, 2000, section 11(c).
14 Bhagwandas Govardhandas Kedia v Girdharlal Parshottamdas and Co, AIR 1966 SC 543 at
547.
15 Anson's Law of Contract, 30th Edn 2016 at p 51.
16 Bank of India Ltd v Rustom Fakirji Cowasjee, AIR 1955 Bom 419 at 430; Urmila and Co v J.M.
Baxi and Co, AIR 1986 Del 336 ; Kashyap's v Bata India Ltd, 2012 SCC OnLine Del 6441 : (2013)
137 DRJ 39 .
17 SM Bholat v Yokohama Specie Bank, AIR 1941 Rang 270 .
18 Delhi Development Authority v Ravindra Mohan Aggarwal, (1999) 3 SCC 172 : AIR 1999 SC
1256 .
19 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas and Co, [1966] 1 SCR 656 : AIR
1966 SC 543 .
20 Bharat Petroleum Corpn. Ltd v Great Eastern Shipping Co Ltd, AIR 2008 SC 357 : (2008) 1 SCC
503 .
21 Life Insurance Corp of India v Raja Vasireddy Komalavalli, (1984) 2 SCC 719 : AIR 1984 SC
1014 .
22 Gaddar Mal v Tata Industrial Bank Ltd, AIR 1927 All 407 at 410 (DB) : (1927) 49 All 674 ; Raj
Kumar v Shiva Prasad Gupta, AIR 1939 Cal 500 at 501; Moti Lal Madan Lal v Kishori Lal & Brothers,
AIR 1930 Lah 374 at 375 (DB); Perala Krishnayyan Chettiar v G Padmanathan Chettiar, AIR 1917
Mad. 13 at 14 (DB).
23 Hulas Kunwar v Allahabad Bank Ltd, AIR 1958 Cal 644 : (1959) ILR 2 Cal 252.
24 SM Bholat v Yokohama Specie Bank Ltd, AIR 1941 Rang 270 ; BOI v Rustom Fakirji Cowasjee,
AIR 1955 Bom 419 : 1955 (57) BomLR 850 ; Karan Singh Chandan Singh v Collector, Chhatarpur,
AIR 1980 MP 89 : 1980 MPLJ 231 ; Urmila & Co Pvt Ltd v JM Baxi & Co, AIR 1986 Del 336 at 340.
25 Goddarmal Hiralal v Chandrabhan Agarwal & Co, AIR 1968 All 292 .
26 Ibid; Jugal Kishore Rameshwardas v Goolbai Hormusji, AIR 1955 SC 812 : [1955] 2 SCR 857 .
27 Bharat Sanchar Nigam Ltd v BPL Mobile Cellular Ltd, AIR 2009 SC (Supp) 1005 : (2008) 13
SCC 597 .
28 Bharat Petroleum Corpn. Ltd v Great Eastern Shipping Co Ltd, AIR 2008 SC 357 : (2008) 1 SCC
503 .
29 Hyderabad Municipal Corpn v M Krishnaswami Mudaliar, AIR 1985 SC 607 : (1985) 2 SCC 9 .
30 Ramji Dayawala& Sons Pvt Ltd v Invest Import, AIR 1981 SC 2085 at 2092.
31 Chitty on Contracts, 28th Edn at p 119, para 2–065.
32 Interglobe Aviation Ltd v N.Satchidanand, (2011) 7 SCC 463 .
33 Mukul Dutta Gupta v Indian Airlines Corpn, AIR 1962 Cal 311 ; Smt. Madhuri Chaudhuri v Indian
Airlinces Corp, AIR 1962 Cal 544 .
34 Deputy Commr Kheri v Ram Kumar Saxena, AIR 1941 Oudh 254 .
35 Road Transport Corp v Kirloskar Brothers Ltd, AIR 1981 Bom 299 ; Oriental Fire and Insurance
Co v New Suraj Transport Co Pvt Ltd, AIR 1985 All 136 .
36 Road Transport Corp v Kirloskar Brothers Ltd, AIR 1981 Bom 299 .
37
For rules of construction of exemption and limitation clauses, see section 9 below:
"Construction of Exemption Clauses". (For validity of such clauses, particularly in standard form
contracts, see section 23 below "Unconscionable Agreements".)
38 C Satyanarayana v Kanumarlapudi Lakshmi Narasimham, AIR 1968 AP 330 : 1967(1) AnWR
445 .
39 S Manuel Raj and Co v J Manilal and Co, AIR 1963 Guj 148 : (1963) GLR 540 .
40 Bharahi Knitting Co v DHL Worldwide Express Courier Division of Airfreight Ltd, AIR 1996 SC
2508 : (1996) 4 SCC 704 (a case under the Consumer Protection Act, 1986).
41 RS Deboo v MV Hindlekar, AIR 1995 Bom 68 : 1995 (1) Bom CR 17 .
42 InterGlobe Aviation Ltd v N. Satchinand, (2011) 7 SCC 463 : 2011 (3) RCR (Civil) 666 .
43 Anson's Law of Contract, 29th Edn 2010, at p 32; Chitty on Contracts, 28th Edn at pp 90–91,
para 2–003.
44 Paal Wilson& Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal), [1983] 1
All ER 34 (HL); Vorster, [1987] 103 LQR 274; De Moor, [1990] 106 LQR 632.
45 See also section 2(a) above: "The Objective Test of Intention.".
46 Smith v Hughes, [1861–73] All ER Rep 632 .
47 Howarth, (1984) 100 LQR 265; Vorster, (1987) 103 LQR 274.
48 Solie v Butcher, [1949] 2 All ER 1 I07.
49 Paal Wilson& Co A/s v Partenreederei, the Hannah Blumenthal, [1983] 1 All ER 34 (HL).
50 [1983] 1 All ER 34 (HL) per Lord Diplock at 49 of All ER.
51 Chitty on Contracts, 28th Edn at p 587, para 12–009.
52 Parker v South Eastern Rail Co, (1877) 2 CPD 416 , 422 : [1874–80] All ER Rep 1661 .
53 Chapelton v Barry Urban District Council, [1940] 1 KB 532 : 1940] 1 All ER 356 (CA).
54 Taylor v Glasgow Corpn, AIR 1952 SC 440 .
55 Thornton v Shoe Lane Parking Ltd, [1971] 2 QB 163 : [1971] 1 All ER 686 (CA).
56 Parker v South Eastern Rail Co, (1877) 2 CPD 416 : [1874–80] All ER Rep. 1661 .
57 Burnett v Westminster Bank Ltd, [1966] 1 QB 742 : [1965] 3 All ER 81 (notice appeared on new
cheque books which had not appeared on the previous cheque book).
58 Thompson v London, Midland & Scottish Rail Co, [1930] 1 KB 41 : [1929] All ER Rep 474 .
59 Hood v Anchor Line (Henderson Bros) Ltd, [1918] AC 837 : [1918–19] All ER Rep 98 .
60 Parker v South Eastern Rail Co, (1877) 2 CPD 416 at 422 : [1874–80] All ER Rep 1661 .
61 Mcllroy (Swindon) Ltd v Quinn Insurance Ltd, [2011] EWCA Civ 825 .
62 Olley v Marlborough Court Ltd, [1949] 1 KB 532 : [1949] 1 All ER 127 (CA); Thornton v Shoe
Lane Parking Ltd, [1971] 2 QB 163 : [1971] 1 All ER 686 (ticket from an automatic machine);
Dillon v Baltic Shipping Co, [1991] 2 Lloyd's Rep 155 (ship ticket).
63 RS Deboo v MV Hindlekar, AIR 1995 Bom 68 : 1995 (1) Bom CR 17 following Lily White v R
Munuswami, AIR 1966 Mad. 13 .
64 British and Overseas Trading (Bristles) Ltd v Brooks Wharf and Bull Wharf Ltd, [1967] 2 Lloyd's
Rep 51 (contractual relations spanning 50–80 years of course of dealings was sufficient enough
to incorporate the term from previous contracts in an oral contract); McCutcheon v David
Macbrayne Ltd, [1964] 1 All ER 430 : [1964] 1 WLR 125 (HL) (no consistent course of dealing);
Hollier v Rambler Motors (AMC) Ltd, [1972] 1 All ER 399 : [1972] 2 QB 71 (CA) (three or four
transactions not sufficient to constitute such a course of dealing).
65 British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd, [1974] 1 All ER 1059 (CA).
66 Henry Kendall& Sons v William Lillico & Sons Ltd, [1969] 2 AC 31 : [1968] 2 All ER 444 (HL); J
Spurling Ltd v Bradshaw, [1956] 2 All ER 121 (CA); British and Overseas Trading (Bristles) Ltd v
Brooks Wharf and Bull Wharf Ltd, [1967] 2 Lloyd's Rep 51.
67 Grogan v Robin Meredith Plant Hire, (CA), noted in Cambridge Law Journal, MacMillan, 1996,
p 427 : 53 Con LR 371.
68 Chapleton v Barry UDC, [1940] 1 All ER 356 ; RS Deboo v MV Hindlekar, AIR 1995 Bom 68 .
69 Parker v South Eastern Railway, (1877) 2 CPD 416 , at 422 (CA).
70 Parker v South Eastern Railway, (1877) 2 CPD 416 (CA); Hood v Anchor Line (Henderson Bros)
Ltd, [1918] AC 837 (HL); Mendelssohn v Normand Ltd, [1969] 2 All ER 1215 (CA).
71 Sugar v London, Midland and Scottish Ry Co, [1941] 1 All ER 172 .
72 Kaye v Nu Skin UK Ltd, [2009] EWHC 3509 (Ch) : [2010] 2 All ER (Comm) 832 .
73 J Spurling Ltd v Bradshaw, [1956] 1 WLR 461 at 466.
74 Thomson v London, Midland and Scottish Rly Co, [1930] 1 KB 41 (CA) : [1929] All ER Rep 474
CA.
75 Halsbury's Laws of England, Vol 9(1), 4th Edn Reissue, 30 June 1998, "CONTRACT", para 802.
76 Beta Computers (Europe) Ltd v Adobe Systems Ltd, [1996] FSR 367 (Scotland).
77 Step-Saver Data Systems lnc v WYSE Technology; 939 F 2d 91 (3d Cir 1991).
78 Section 2–207 of UCC:
1. A definite and reasonable expression of acceptance or a written confirmation which is
sent within a reasonable time operates as an acceptance even though it states terms
additional to or different from those offered or agreed upon, unless acceptance is
expressly made conditional on assent to the additional or different terms.
2. The additional terms are to be construed as proposals for addition to the contract.
Between merchants such terms become part of the contract unless;
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within
reasonable time after notice of them is received.
79 ProCD Inc v Mathew Zeidenberg, 86 F 3d 1447 (Seventh Cir 1996).
80 Hill v Gateway, 2000 Inc, 105 F 3d 1147 (Seventh Cir 1997); See also Mortenson v Timberline
Software Corp, 93 Wash. App. 819, 970 p 2d 803 (1999); but see Specht v Netscape
Communications Corp, 306 F.3d 17 (2d Cir 2002) (plaintiff did not have reasonable notice of
licence terms).
81 ProCD Inc v Mathew Zeidenberg, 86 F3d 1447 (Seventh Cir 1996); See also I Lan Sys Inc v
Netscout Serv Level Corp, 183 F Supp 2d 328 : 336 (D Mass. 2002); Register.com Inc v Verio Inc,
356 F.3d 393 (2d. Cir. 2004); Feldman v Google Inc, 513 F Supp 2d 229 (ED Pa 2007); but see
Bragg v Linden Research Inc, 487 F Supp2d 593 (E D Pa 2007).
The Indian Contract Act, 1872
CHAPTER I Of Communication, Acceptance and Revocation of Proposals
S. 4 Communication when complete.—
The communication of a proposal is complete when it comes to the knowledge of the
person to whom it is made.
The communication of an 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;
as against the acceptor, when it comes to the knowledge of the proposer.
The communication of a revocation is complete,
as against the person who makes it, when it is put into a course of transmission to the
person to whom it is made, so as to be out of the power of the person who makes it;
as against the person to whom it is made, when it comes to his knowledge.
Illustrations
(a) A proposes, by letter, to sell a house to B at a certain price. The communication of
the proposal is complete when B receives the letter.
(b) B accepts A's proposal by a letter sent by post.
The communication of the acceptance is complete,
as against A, when the letter is posted;
as against B, when the letter is received by A.
(c) A revokes his proposal by telegram.
The revocation is complete as against A, when the telegram is despatched. It is
complete as against B when B receives it.
B revokes his acceptance by telegram. B's revocation is complete as against B when
the telegram is despatched, and as against A when it reaches him.
[s 4.1] Introduction
This section deals with the completion of communication of a proposal, acceptance
and revocation. The provisions of the section are applied with sections 2 and 3 to
determine the place where the contract is made, and therefore to decide the jurisdiction
of the Court,82 or the applicability of the Act as the lex causae in a case involving
foreign elements,83 or the time at which the contract is concluded. The section is also
in the nature of an interpretation clause to section 5. The provisions of the section are
applied for ascertaining whether a contract has been concluded at all; if it has, the
rights and obligations will arise under it.
[s 4.2] Communication of a Proposal
A proposal is communicated when it comes to the knowledge of the offeree. Unless a
proposal is communicated to the person to whom it is made, it is not complete, and is
inchoate and inconclusive.84 Hence, an acceptance without knowledge of the proposal
is not an acceptance and does not result into a contract.85 In general an offer is
effective when, and not until, it is communicated to the offeree. It follows that there can
in general be no acceptance in ignorance of an offer.86 Although the section requires
imparting actual knowledge of the proposal to the offeree, it is sufficient if in respect of
standard form contracts, the proposer does all that might reasonably be expected to
give notice of its terms to the intended offeree.87 Whether a proposal has or has not
come to the knowledge of the person to whom it is made is purely a question of fact.
A proposal by letter must be deemed to have reached the addressee when the letter
ordinarily would be delivered at the addressee's residence. Any delay in addressee
actually receiving it in his hands, caused owing to his failure to make proper
arrangements to receive the communication, will not be considered.88
A proposal by letter is made not at the place where it is posted but where the offer is
received or the letter delivered,89 because a proposal is not complete unless and until it
comes to the knowledge of the person to whom it is made.90
[s 4.3] Communication of Acceptance
It is necessary to make a binding contract, not only that the proposal be accepted, but
also that the acceptance be notified.91 An acceptance is not complete unless and until
it is communicated to the proposer in some perceptible form which may be by speech,
writing or other acts or omissions. The reason is that the proposer is entitled to know
whether a contract has been concluded by the acceptance, and it would be unfair to
hold him bound by an acceptance of which he has no knowledge. Thus, an internal
noting would not constitute a communication.92 Acceptance requires the promisee to
signify expression of assent to the terms of the offer. Acceptance is not complete and
has no legal effect till it is communicated and mere intention to accept an offer does
not create a valid and a binding contract.93
[s 4.4] Communication of Electronic Messages
The Information Technology Act, 2000 provides that unless otherwise agreed, the
despatch of an electronic record occurs when it enters a computer resource94 outside
the control of the originator.95 If the addressee has designated a computer resource for
receipt of an electronic record (for instance in the case where an offer expressly
specifies the address to which acceptance should be sent), and it is sent to such
resource, it will be considered as received when the electronic record enters the
designated computer resource.96 If instead of sending it to the designated computer
resource, it is sent to a computer resource which is not the designated computer
resource, the record is considered as received when it is retrieved by the addressee.97
If the addressee has not designated a computer resource along with specified timings,
the record is received when it enters the computer resource of the addressee.98 The
sender of the electronic record is entitled to stipulate that the record sent shall be
binding only on receipt of acknowledgment.99
[s 4.5] General Rule
The general rule is that acceptance must be communicated to the proposer.100
The act of acceptance becomes effective so as to bind the acceptor completely when
the acceptance comes to the knowledge of the proposer.101 In the case of a contract
consisting of mutual promises, the proposer must receive intimation that the offeree
has accepted his offer and has signified his willingness to perform his promise.102
Accordingly, there is no contract where the acceptance is not communicated to the
proposer,103 the reason being that it would be unfair to hold the proposer bound by an
acceptance of which he has no knowledge. Silence or receipt or retention of premium
by the insurance company was not construed as acceptance and the contract of
insurance was concluded only when the party to whom the offer was made, accepted it
unconditionally and communicated his acceptance to the offeror.104
[s 4.6] Exceptions to the General Rule
An acceptance is binding without communication in certain cases. First, if the proposer
has waived the requirement of communication, namely, where proposer requires
performance of conditions of the proposal, and therefore requires acceptance by
conduct (see section 8). There is a material distinction between acceptance of a
proposal that asks for a promise and a proposal that asks for an act on the condition of
the proposal becoming a promise. In the former case where the acceptance is to
consist of a promise, there must be communication to the proposer.105 But in the latter
class of cases, as for example, dispatching goods ordered by post, the rule is that no
further communication of acceptance is necessary than performance of proposed act.
Mere performance of the act prescribed by the proposal is sufficient acceptance of
such proposal and converts it to a promise even without further communication of
acceptance (section 8).106
The acceptance, though received,but not read, will bind the offeror, despite lack of
complete knowledge of acceptance. Lastly, where the acceptance is sent by post, the
acceptance binds the offeror even though it never reaches him; as expressly provided
in the second paragraph of the section.
[s 4.7] Parties in each others' presence and at a Distance
When the parties are in the presence of each other, the proposer and the acceptor
know that the acceptance has been communicated. Section 4, when it speaks of the
communication of an acceptance becoming complete as against the proposer when it
is put in course of transmission to him so as to be out of the power of the acceptor,
and as against the acceptor when it comes to the knowledge of the proposer, it
necessarily contemplates two different points of time. Even on the application of the
language of the material provisions of Section 4 to contracts negotiated in each other's
presence, the communication of an acceptance is complete as against both the
proposer and the acceptor almost if not completely at the same point of time: For
acceptance by spoken words transmitted through the medium permeating space
cannot be said to be "effectually put in a course of transmission" to the proposer so as
to be out of the power of the acceptor uttering the words of acceptance, unless they
are loud enough to be audible to the proposer and are heard by him; and if the words of
acceptance have been heard by the proposer, the acceptance comes to his
knowledge.107
If the parties are at a distance, they depend upon other modes of communication. The
mode used may be instantaneous, namely, telephone, telex, etc. or they may choose
other modes namely, post or courier (the telegram service now being discontinued).
They may also use the fax or e–mail for communication.
[s 4.8] Instantaneous Mode of Communication: Telephone, Telex
The application of this ordinary rule of law to contracts settled on telephone is in no
way inconsistent with the provisions of the Contract Act or with the principles of
justice, equity and good conscience. Nor does it lead to any strange and absurd results.
In a contract negotiated orally by the parties in the presence of each other, there can be
no binding contract until the offeror receives the acceptance by hearing and
understanding it. In contracts made by telephone, the parties are no doubt at a
distance. But communication is instantaneous and oral. The rule that acceptance is
incomplete until received, heard and understood by the offeror would, therefore, govern
contracts negotiated over the telephone no less than those settled in oral negotiations
in the physical presence of the parties.108
Where the acceptor uses the telephone or telex for communication, the acceptor will
generally know if his communication has not reached the proposer, and can try to send
it again. The rule is sound and practical because the oral acceptance may be drowned
by the noise of a flying aircraft, or the telephone may go dead or feeble and indistinct,
and not be heard. When the parties negotiate a contract orally in the presence of each
other or over telephone and one of them makes an oral offer to the other, it is natural
that an oral acceptance is expected, and the acceptor must ensure that his acceptance
is audible, heard and understood by the offeror. The acceptance in such a case must be
by such words which have the effect of communicating it. If the words of acceptance
are inaudible and have not been heard or understood by the offeror, then the
acceptance is incomplete and no contract would be formed until the acceptor repeats
his acceptance so that the offeror can hear it.109Such a contract is concluded when the
acceptance reaches the proposer. However, the rule that in case of oral communication
or by telex or telephone, an acceptance is communicated when it is actually received by
the proposer has been accepted in India as applicable to acceptance by telephone,110
and by telex.111
[s 4.9] Non-Instantaneous Mode of Communication: "The Postal Rule"
The provision about communication of acceptance in the section, as shown by the
illustrations, is mainly intended to meet the questions raised by the formation of
agreements between parties at a distance. The first part of the provision provides that
the acceptance is binding on the proposer when the acceptor puts the acceptance into
such course of transmission as to be beyond the power of the acceptor, and it is
binding on the acceptor when the acceptance comes to the knowledge of the proposer.
There is therefore a certain time, while the acceptance is on its way, when the intended
receiver shall be bound and the sender is not. The proposal becomes a promise before
it is certain that there is any consideration for it. This is a deliberate and large departure
from the common law rule requiring the promise and the consideration to be
simultaneous. This section also does not deal with an acceptance, which is put into a
course of transmission, but does not reach the proposer. This seems to result from the
language of the second paragraph that the proposer must be deemed to have received
the acceptance at the moment when it was despatched so as to be "out of the power of
the acceptor", and that accordingly it becomes a promise on which the acceptor can
sue. The employee who had offered to voluntarily retire revoked the offer. However, a
letter of acceptance dated one day prior to the revocation was issued by post by the
employer, which was received after the communication of the revocation. Although, the
letter of acceptance was dated prior to the letter of revocation and was sent by post,
and the posting of the letter would be the date of communication, in the absence of
evidence regarding the actual date of posting of the letter of acceptance, it was held
that the revocation of offer was valid, as it was not proved that the acceptance was
communicated before the offer was withdrawn.112
The acceptance may not become a promise by this mode (i.e., at the moment of
despatch) if the consideration on the acceptor's part was not promise but performance
—for example, the sale of goods despatched at the proposer's request without previous
negotiation. The Act certainly does not say that the intending purchaser must be
deemed to have received goods which have never arrived; at most that he must be
deemed to have been aware of their despatch. But if the consideration on the
acceptor's part was a promise, it would seem that the proposer cannot say that he has
not received that consideration; for he cannot say that the acceptance has not been
communicated to him, and there is no difference between having the communication
of a promise and having the promise itself. Consequently, where the agreement is to
consist in mutual promises, a binding contract appears to be formed by a letter of
acceptance despatched in the usual way,113 even if it does not arrive at all, unless the
proposal was expressly made conditional on the actual receipt of an acceptance within
a prescribed time, or in due course, or unless the acceptor sends a revocation as
provided for by the latter part of the section and explained by illustration (c).
[s 4.9.1] Telegrams
The rule with regard to telegraphs is the same as in the case of letters by post, i.e., the
acceptance is complete when the telegram is handed for despatch to the telegraph
office.114 When, by agreement, course of conduct or usage of trade, acceptance by
telegram is authorised, the bargain is struck and the contract is complete when the
acceptance is put into course of transmission by the offeree dispatching a telegram.
This question is now academic as the facility of sending telegrams has been
discontinued.
[s 4.9.2] Acceptance Lost or Delayed in Transit
The Act omits to consider the situation of an acceptance not arriving at all. It is
uncertain whether this was a deliberate omission or meant to be an implied exception
on the ground that want of any final consent between the parties would prevent the
formation of a contract. The draft of 1866 assumed that actual communication was
necessary.115
A contract is concluded even if the acceptance gets lost in the post and never reaches
the proposer, particularly when sent to the offeror on the address given by the
offeror.116 The contract is concluded at the time the acceptance is posted. This rule is,
it seems,117 independent of the rule that, if the proposer of an agreement has
prescribed or authorised any particular mode of communicating acceptance (section
7), he cannot dispute the sufficiency of that mode, and must take any risks of delay or
miscarriage attaching to the acceptor's action in conformity with the request or
authority. On the one hand, it may be hard to hold the proposer liable on an acceptance
which has never reached him for no fault of his. On the other hand, it is equally hard to
deprive the offeree of the benefit of acceptance if he has taken all necessary steps to
communicate it. Further, each party may have taken steps based on his own view of the
situation, the proposer assuming there is no acceptance, and hence no contract, and
the offeree assuming there is one. However, the English and the Indian law favour the
offeree. The reason appears to lie in that the proposer can protect himself by
stipulating in the offer that the acceptance must be actually notified to him.
The contract is concluded at the time the letter is posted. However, if a last date or
time is prescribed for receipt of an acceptance, it must reach the offeree before that
time.118
[s 4.9.3] Proper Address and Delivery
The rule of communication by post, registered or otherwise, would be applied with
reference to the manner in which an attempt was made to communicate it and the
correct address being mentioned is the primary thing.119A letter of acceptance
misdirected by t he acceptor's fault, namely, because of incorrect address of the
proposer or insufficient postage stamp, is not effectually put in a course of
transmission to the proposer.120 It may not be so where the proposer himself has
furnished an insufficient address. There the proposer's own want of care obviously
cannot extenuate, but will, if possible, aggravate, the risk imposed on him by the
general rule of law.
[s 4.9.4] Proof of Despatch and Receipt
Whether a particular letter or writing has been posted, delivered, or actually received by
the addressee, is a question of fact.121 When the intimation of acceptance does not
reach the proposer, it has to be shown that the letter or telegram was correctly
addressed.122 The actual despatch of a letter of acceptance must be established by
evidence and it cannot be presumed from any course of business followed by the
offeree.123 This rule applies equally to revocation of proposal or acceptance. A
purchaser alleging revocation and failing to produce the postal acknowledgment
receipt to show the receipt of the letter of revocation by the addressee, thereby failed to
prove the revocation, and was held liable to compensate seller for damages for breach
of contract.124 The bare statement by the forest authorities inviting the tender that the
letter of acceptance of the tender was sent to the petitioner was not enough. The date,
the mode of transmission and the address on which the letter was posted or
despatched or delivered through personal messenger should have been pleaded, and
documents, if any, should also have been filed to prove acceptance of the offer.125
[s 4.10] Communication by Whom
No contract is concluded unless acceptance of the proposal is communicated to the
tenderer, by the competent authority.126 A resolution of a co–operative society was
necessary for accepting the proposal application for purchase of house. Hence, the
contract was not complete unless the resolution was communicated by a competent
authority; casual communication by the president of the society did not conclude the
contract.127
[s 4.11] Revocation of Proposal
Revocation of a proposal is effectual if it reaches before the despatch of the
acceptance; the time of despatching the revocation is immaterial.128 The rule that the
revocation of proposal is effective when it reaches the offeree and not when it is
posted or put into a course of transmission, applies to revocations sent through post or
telegram or any other method. A revocation of offer must be actually communicated. It
is not withdrawn by acting inconsistently with it.
In M. Lachia Setty and Sons Ltd v Coffee Board Bangalore,129 the special conditions
regulating bids were prescribed by the Coffee Board, which barred withdrawal or
retraction of bids by telegram. Withdrawal by telegram was ineffective, and the
acceptance made notwithstanding the withdrawal concluded the contract. In the same
case, it was also held that an oral retraction made to an officer having no authority of
auction was also of no avail.130
A proposal is revoked if the revocation comes to the knowledge of the offeree before
the offeree has posted or otherwise dispatched the acceptance.131 Sections 4–6 of the
Act fix the point of time after which either party is precluded from revoking the
proposal or acceptance.132
[s 4.12] Communication by Fax, e–mail, or other Electronic Modes, etc.
Where the communication is made by an "instantaneous" mode, namely, by telephone
or telex, the sender is able to know immediately whether his communication has
reached, and has an opportunity of making a proper communication. When
communication is sent by post or by telegram, there is a risk of the letter or telegram
being lost, and the sender may not know about it. Hence, the postal rule constitutes an
exception to the general rule. However, an acceptance sent by fax may not be received
at all, or may not be legible, and hence should not be effective instantaneously. An
acceptance by e–mail may not reach the addressee at all. The sender's mail gets
"posted" in the addressee's "mail–box" with the addressee's server. The addressee will
receive it, the server facility being available, when the addressee accesses it and
downloads the message on his computer. The despatch resembles that by post in that
once the message is sent, it goes into a course of transmission so as to be out of the
control of the sender. In the case of fax as well as e-mail, the sender is unable to know
at once about the success or failure of communication. It is therefore submitted that
the rules of postal communication must be made applicable to communication by fax
or e–mail, or messages sent by similar electronic means, except where the sender has
an opportunity of verifying immediately the proper communication of the message.
However, it has been held that the contract is complete where acceptance is received,
where it is sent by telex,133 fax134 or email.135
[s 4.13] Time of Conclusion of a Contract
It may be necessary to determine the time of contract, for example, to decide priorities
between competing claims, or to determine the law applicable to a contract. Where
parties are in the presence of each other, or even if at a distance, connected on the
telephone or telex enabling immediate communication of proposal and acceptance, the
time of the contract is not difficult to ascertain. It is the time at which the offer and
acceptance take place. When the proposal and acceptance are made by letters, the
contract is made at the time when the letter of acceptance is posted.136 A contract is
concluded when the acceptance is posted, although the formal agreement may not
have been still executed.137 In a contract for supply of imported goods, the purchaser
did not sign and send the standard form sent to him for signatures by the seller. It was
held that the contract was made when the purchaser accepted the offer by telex
message.138
[s 4.14] Place of Contract
The Contract Act, does not expressly deal with the place where a contract is made.
Section 4 does not deal with the place where a contract takes place but with the
completion of communication of a proposal, acceptance and revocation. In
determining the place where a contract takes place, the interpretation clauses in
section 2, which largely incorporate the substantive law of contract, must be taken into
account. Section 4 does not imply that a contract is made qua the proposer at one
place and qua the acceptor at another place. The contract becomes complete as soon
as the acceptor makes the acceptance, and unless otherwise agreed expressly or by
necessary implication by the adoption of a special method of intimation, when the
acceptance of offer is intimated to the proposer.139 The decision of the question as to
whether a suit on contract is within the jurisdiction of the Trial Court must necessarily
imply the decision of the question as to where the contract was made in the light of the
provisions of section 4 of this Act.140 The place where the contract is concluded, being
a part of "cause of action", determines the jurisdiction of the Court in a case arising out
of contract.141
The contract is completed when a proposal made is accepted; it is therefore the
acceptance that gives rise to the "cause of action" and not merely the proposal.142 A
contract concluded by both parties in the presence of each other is concluded at that
place. In the case of a contract which consists of mutual promises, the proposer must
receive intimation that the offeree has accepted his offer and has signified his
willingness to perform his promise.143 Where the acceptance is sent by post or
telegram, the contract is concluded not at the place where the acceptance is received,
but where it is posted or telegram handed over to the telegraph office for delivery, i.e.,
when the acceptance of offer is put into a course of transmission to the proposer, and
the Court at the place where the letter is posted or telegram delivered for despatch has
jurisdiction to entertain the case,144even if the acceptance is lost or misplaced and
never reaches the proposer.145 The Court at such place will have jurisdiction, and not
the place where the acceptance has been received.
A question arose in Bhagwandas v Girdharlal,146 where and when was the
communication of an acceptance complete under the Indian Contract Act, when the
parties completed their contract by long distance telephone.
The plaintiff made the offer from Ahmedabad by a long distance telephone call to
purchase goods, and the defendant had accepted the offer at Khamgaon. The plaintiff
alleged firstly that the offer being made at Ahmedabad, and secondly since the
acceptance was received at Ahmedabad, the Ahmedabad Court had jurisdiction. The
defendant contended that sections 3 and 4 applied uniformly whatever the mode of
acceptance, and since the words of acceptance were spoken into the telephone at
Khamgaon and thereby put into a course of transmission so as to be out of the power
of the defendant, the contract was concluded at Khamgaon, and plaintiff's suit was
without jurisdiction.
It was held that mere making of an offer did not form part of the cause of action for
damages for breach of contract which resulted from acceptance of the offer. A Court
would not have jurisdiction merely because an offer was transmitted from within its
jurisdiction. Further question was whether the contract was concluded by acceptance
at Ahmedabad, where the acceptance was received, or at Khamgaon where the
acceptance was spoken.
The majority judgment of Wanchoo and Shah JJ. relied on an English
judgement147holding that a contract made by instantaneous communication is
concluded when the acceptance is received by the proposer, and that generally an
acceptance must be notified to the proposer to make a binding contract. Observing
that the draftsmen of the Act did not contemplate use of telephone as a means of
personal conversation, they considered it reasonable to hold that the parties were in a
sense in presence of one another.
Hence, communication of acceptance was a necessary part of the formation of
contract, and the exception of the postal rule did not apply. Thus, where the proposal
and acceptance are made on the telephone, the rules relating to proposal and
acceptance by post and telegrams do not apply, and the contract is made where the
acceptance is received and the Court at the place where the acceptance is received will
have jurisdiction.148 The contract in the above case was therefore formed at
Ahmedabad, where the acceptance was communicated.
The rule of acceptance in oral form has been applied to contract accepted by telex,149
fax150 and e-mail.151 Thus, where acceptance is sent by telex or fax, it is complete
when it reaches the proposer.
[s 4.15] Place of Contract in Electronic Contracts
Between the originator, namely, the person sending the electronic record or causing it
to be sent, and the addressee, the record is deemed to be despatched at the place
where the originator has his place of business, and deemed to have been received
where the addressee has his place of business.152 This rule applies wherever the
computer resource of the party for conducting such transactions is located.153 If the
party has more than one place of business, the principal place of business will be taken
into account.154 If the party does not have a place of business, the usual place of
residence of such party will be considered (which for a body corporate shall mean the
place where it is registered).155
These provisions provide a location for the despatch and receipt of the offers or
acceptances in the form of electronic record. As regards jurisdiction, the normal rules
as described above will apply subject to these provisions.
[s 4.16] Position in other jurisdictions
[s 4.16.1] Justification for the Postal Rule
The provisions about communication of acceptance in various legal systems fall into
three broad categories.156 First, the system of information, under which the proposer
must be notified; and the contract is formed only when the proposer is so informed.
Secondly, the system of declaration, under which the contract is formed from the
moment when the recipient of the offer declares his acceptance, even without the
knowledge of the proposer. In some systems, the declaration alone is sufficient, and in
others with the system of expedition, the sending of the acceptance by post is enough
though not a bare declaration, and in those following the system of reception, the
reaching of the letter is the decisive factor, whether the letter is read or not. Thirdly, the
mixed or electric system, in which the contract is formed when the acceptance is
received but it relates back to the time when the acceptance was sent. The provisions
of the Act follow the system of expedition.
When the proposer and acceptor are at a distance, and the acceptor posts his
acceptance, it stands communicated to the proposer. This postal rule favours the
offeree. While the proposer is ignorant about the actions of the offeree, the offeree is
fully aware of the position of acceptance. The proposer also bears the risk of the
acceptance being lost or delayed in transit.157 However, the rule is justified on the
ground that the proposer can avoid this risk and protect himself by requiring actual
notification of the acceptance.158 The rule also limits the power of the proposer to
revoke the acceptance by disabling him from revoking the proposal after the offeree
has acted upon the offer. The rule is justified, not on the basis of logic, but commercial
convenience. Under the UNIDROIT Principles, acceptance is complete when it reaches
the offeror; the reason for adoption of the "receipt" principle being that the risk of
transmission is better placed on the offeree than on the offeror, since it is the former
who chooses the means of communication, who knows whether the chosen means of
communication is subject to special risks or delay, and who is therefore best able to
take measures to ensure that the acceptance reaches, its destination.159
[s 4.16.2] The Postal Rule
If the acceptance is sent by post or telegram, the acceptance is effective when the
letter is posted or the telegram handed over for transmission to the offeror.160
The letter is posted or telegram handed over when it is handed over to the post office or
a person authorised to receive it.161 The postal rule was laid down in Adams v
Lindsell.162 To the extent the provision in the second paragraph of the section provides
that the acceptance is complete when the letter is posted, it follows the rule of English
law. However, it departs from the English law to the extent that the acceptance is
binding only on the proposer when the letter is posted, and on the acceptor only after
the letter has reached the proposer. During the time it is in transit, it is binding only on
one of the parties, i.e., the proposer, and the acceptor is able to revoke it by a faster
means of communication. (See section 5).
Where the parties must, from the context, have reasonably assumed that the post
might be used as a means of communicating the acceptance of an offer, the
acceptance is complete as soon as it is posted.163 English authorities support the
application of the postal rule in three situations. First, a postal acceptance prevails over
a withdrawal of an offer which was posted before the acceptance but which had not
reached the offeree when the acceptance was posted. Secondly, a postal acceptance
takes effect even though it never reaches the proposer because it is lost through the
accident in the post. Thirdly, the same rule applies where an acceptance is merely
delayed through an accident in the post.164
If the proposer has stated that the acceptance shall be notified to him, the acceptance
is not effective until it reaches the proposer. An offer to sell a house was made in the
form of an option to be exercised by notice in writing to the intending vendor. Such a
notice was posted but did not arrive, and it was held that there was no contract of sale.
The offer on its construction required actual communication of acceptance.165
[s 4.16.3] Acceptance Lost or Delayed in Transit
In Household Fire Insurance Co Ltd v Grant,166 the defendant applied for shares in the
plaintiff company. A letter of allotment was posted but it never reached the defendant.
The company went into liquidation, and it was held that the defendant was a
shareholder and liable for calls on the shares.
The same rule would apply if the acceptance was delayed through an accident in the
post.167
[s 4.16.4] Exclusion of Postal Rule
Postal rule can be excluded by the terms of the offer. Whether it is excluded or not is a
question of construction.168 If it is expressly agreed that the acceptance to be binding
must not only be in writing but had to reach the proposer, and the mere posting was not
enough, there would be no contract till this condition was fulfilled.169
[s 4.16.5] Instantaneous Mode of Communication: Telephone, Telex
In the Entores case170 the offer was made by telex in Amsterdam and notification of
the acceptance was received in London also by telex; it was held that in the case of oral
communication or by telex or telephone, an acceptance is communicated when it is
actually received by the proposer and the contract resulting thereupon was held to be
made in London. In the US and Canada, the contract in such cases is made where the
acceptance is spoken.
[s 4.17] Revocation of Proposal
A person who has made an offer is considered as continuously making it until he has
brought to the knowledge of the person to whom it was made that it is withdrawn.171
An offer to sell goods made to an offeree does not stand withdrawn by selling the
goods to a third person.172 It has been held that the communication of revocation need
not come from the proposer, and the proposal stands revoked if the offeree knows
from a reliable source that the proposer does not intend to deal with him any longer.173
The rule that the revocation must be actually "brought to the mind of the offeree"
should be subject to qualifications.174 When the revocation is sent by post or telegram
or fax to a commercial organisation, or at the address of business of the offeree, it is
likely that the communication may reach the address, but would be opened and read in
the ordinary course of business according to the usual practice. Communication
received towards the end of the day may be read the next day. Communication received
on a holiday, namely, received by a fax machine or in the e–mail in box, may not be read
until business begins on the opening day. Moreover, it is necessary that the
communication be brought to the notice of the responsible or authorised officer in the
organisation. Where the offer has been made to a commercial organisation, it seems
probable that the offer would be revoked when the letter of revocation is opened in the
ordinary course of business or would have been so opened if the ordinary course of
business were followed.175 However, if the revocation reaches the offeree, but the
offeree does not read it, or is not read by him or the staff until the next day despite its
arrival during business hours,176 the revocation is effective when it is received.177
Similarly, a revocation is effective if sent to the offeree's address, though the offeree
may have moved out without notifying the proposer.
A message sent by telex is taken to have been received by the addressee when the
message is received by the telex machine and not when the addressee's attention is
drawn to it. He cannot rely on his own or his servant's failure to take cognisance of the
message in the normal business–like manner. Therefore, notice of withdrawal of a
vessel for non–payment of hire will be taken to have been received when the message
was received and not when it was brought to the notice of charterers. If this occurred
before the payment of hire, the withdrawal would be valid.178
Where a proposal is made to the general public, it is sufficient if the proposer has taken
sufficient steps to bring the revocation to the attention of such persons.
82 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas, AIR 1966 SC 543 : [1966] 1
SCR 656 ; See below: "Place of Contract"; also section 28 below: Agreements prescribing
Jurisdiction.
83 See section 1 above: "Applicable Law in the Absence of Choice".
84 Baroda Oil Cakes Traders v Parshottam Narayandas Bagulia, AIR 1954 Bom 491 : 1954 (56)
Bom LR 575 ; Dalpatri Jhanjhnari v West End Watch Co, AIR 1953 MB 38 ; Bengal Insurance and
Real Property Co v Velayammal, AIR 1937 Mad. 571 : (1937) ILR Mad 990.
85 Fitch v Snedaker, (1868) 38 NY 248; Lalman Shuklal v Gauri Dutt, (1913) 11 All LJ 489.
86 Anson's Law of Contract, 30th Edn 2016, p41.
87 See "Reasonable Notice of Exclusion Clauses".
88 Firm Sheikh Ahmad Mohammed Amin v Firm Bachu lal & Gajandhar Lal, AIR 1927 Lah 50 : 98
Ind. Cas. 902.
89 Dhanraj Mills Ltd Liability Co v Narsingh Prasad Bodona, AIR 1949 Pat. 270 (post office is an
agent of the sender, not the addressee); Ratan Lal Gattani v Harcharan Lal, AIR 1947 All 337 .
90
Firm Kanhaya Lal v Dinesh Chandra, AIR 1959 MP 234 ; Baroda Oil Cakes Traders v
Parshottam Narayandas Bagulia, (1954) ILR 1137 : AIR 1954 Bom 491 ; Sadhana Arun Kothari v
Raj Bhalla, 2007 (4) Bom CR 61 : 2007 (4) ALL MR 496.
91 Baroda Oil Cakes Traders v Purshottam Narayandas Bagulia, AIR 1954 Bom 491 : 1954 (56)
Bom LR 575 ; Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas and Co, [1966] 1 SCR
656 : AIR 1966 SC 543 ; Delhi Development Authority v Ravindra Mohan Aggarwal, (1999) 3 SCC
172 .
92 National Textile Corp(M.P.) Ltd v M.R.Jadhav, (2008) 7 SCC 29 : AIR 2008 SC 2449 .
93 Kuldip Gandotra v UOI, ILR (2005) 2 Del. 859 : (2005) 125 DLT 5 (DB).
94 The Information Technology Act, 2000, section 2(1)(k) defines "computer resource" to mean
computer, computer system, computer network, data, computer database or software.
95 The Information Technology Act, 2000, section 13(1).
96 The Information Technology Act, 2000, section 13(2)(a)(i).
97 The Information Technology Act, 2000, section 13(2)(a)(ii).
98 The Information Technology Act, 2000, section 13(2)(b).
99 The Information Technology Act, 2000, section 12; for details see below section 7 below:
"Acknowledgement of Electronic Records".
100 Holwell Securities Ltd v Hughes, [1974] 1 All ER 161 (CA).
101 Baroda Oil Cakes Traders v Parshottam Narayandas Bagulia, AIR 1954 Bom 491 : ILR 1954
Bom 1137 ; Dhanraj Mills Ltd liability Co v Narsingh Prasad Bodona, AIR 1949 Pat. 270 (DB).
102 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas, AIR 1966 SC 543 : [1966] 1
SCR 656 .
103 Kuldip Gandotra v UOI, ILR (2005) 2 Del. 859 : (2005) 125 DLT 5 (DB).
104 LIC of India v Raja Vasireddy Kamalavalli Kamba, AIR 1984 SC 1014 : (1984) 2 SCC 719 ;
earlier cases to the contrary would no longer be good law; Hindustan Co-op Insurance Society Ltd
v Shyam Sunder, AIR 1952 Cal 691 : 56 Cal WN 418.
105 LIC of India v Raja Vasireddy Kamalavalli Kamba, AIR 1984 SC 1014 .
106 State of Bihar v Bengal Chemical and Pharmaceutical Works, AIR 1954 Pat. 14 ; S Sadiq
Hasan v Mumtaz Bank Ltd, AIR 1929 Lah 656 .
107 Firm Kanhaiya Lal v Dineshchandra, AIR 1959 MP 234 .
108 Firm Kanhaiya Lal v Dineshchandra, AIR 1959 MP 234 .
109 Ibid,
110 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas, AIR 1966 SC 543 : [1966] 1
SCR 656 , (per majority); Firm Kanhaya Lal v Dinesh Chandra, AIR 1959 MP 234 .
111 Triveni Oil Field Service Ltd v Oil and Natural Gas Commission, AIR 2006 Del 331 .
112 Kuldip Gandotra v UOI, ILR (2005) 2 Del. 859 : (2005) 125 DLT 5 (DB); also see Kuldip
Gandotra v UOI, ILR (2005) 2 Del. 859 : (2005) 125 DLT 5 (DB) which was under different factual
circumstnaces.
113 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas, AIR 1966 SC 543 , at 548.
114 Bhagwandas Govardhandas Kedia v Girdharilal Parshottamdas and Co, AIR 1966 SC 543 :
[1966] 1 SCR. 656 ; Cowan v O'Connor, [1888] 20 QBD 640 (telegraph); Tinn v Hoffmann & Co, 29
LT 271 at 274, 278; Santosh Kr Ranka v Food Corp of India, AIR 2011 Pat. 114 (Acceptance by
telegram).
115 3A. Proposal to enter into a contract may be retracted, or the terms of it altered by the party
making it, at any time before it is accepted.
Explanation.—A proposal is said to be accepted when an expressed acceptance of it has been
communicated to the proposer, or when a letter of acceptance is posted or a telegraphic
message delivered at the proper office, and the acceptance by letter or telegram is not cancelled
by some communication which reaches the proposer before or at the same time with the letter
or telegram of acceptance, or when acceptance is to be inferred form the circumstances of the
case.
116 JK Enterprises v State of Madhya Pradesh, AIR 1997 MP 68 . Henthorn v Fraser, [1891–94]
All ER Rep 908 (CA).
117 Henthorn v Fraser, [1892] 2 ChD 27 : [1891–94] All ER Rep 908 (CA).
118 R. Maheswari v Secretary Selection Committee, AIR 1995 Mad. 168 : 1995-1-LW 348 (receipt
of application for admission to an educational institution).
119 Devarakonda Educational Society v All India Council for Technical Education, AIR 1997 AP
389 .
120 Ram Das Chakarbati v Official Liquidator of the Cotton Ginning Co, (1887) ILR 9 All 366, 385.
121 Indian Evidence Act, 1872, sections 16 and 114.
122 Ram Das v Official Liquidator, Cotton Ginning Co, (1887) 9 All 366 ; Kalluram Keshavani v
State of Madhya Pradesh, AIR 1986 MP 204 .
123 Ram Das v Official Liquidator Cotton Ginning Co, (1887) ILR 9 All 366.
124 SKARSM Ramanathan Chettiar v National Textile Corpn, AIR 1985 Ker. 262 .
125 Kalluram Keshavani v State of Madhya Pradesh, AIR 1986 MP 204 ; Karan Singh Chandan
Singh v Collector Chhatarpur, AIR 1980 MP 89 : 1980 MPLJ 231 .
126 S. Muthiah Thevar v State of Madras, (1975) 88 LW 485 .
127 Subramania Mudaliar v Ammapet Co-op Weavers Production and Sales Society, AIR 1961
Mad. 289 : (1960) 2 Mad LJ 477.
128 It is literally possible to read the words of section 4 of the Act, para 3, as giving only one
chance of sending a revocation, so that if a man sends a written acceptance by a slow ship,
then sends a written revocation by a faster ship, and then changes his mind and confirms the
acceptance by a telegram arriving before either letter, the revocation is operative, and the
confirmation cancelling it is not. But this cannot be entertained, and seems sufficiently excluded
by the terms of section 5.
129 M Latchia Setty & Co Ltd v Coffee Board Bangalore, AIR 1981 SC 162 .
130 Law Commission of India in its 13th Report, 1958, para 30.
131 See section 5.
132 Firm Kanhaiya Lal v Dineshchandra, AIR 1959 MP 234 .
133 Triveni Oil Field Service Ltd v Oil and Na tural Gas Commission, AIR 2006 Del 331 : 2006 (1)
ArblR 360 Delhi.
134 Quadricon Pvt Ltd v Bajarang Alloys Ltd, AIR 2008 Bom 88 .
135 P R Transport Agency v UOI, AIR 2006 All 23 : 2006 (1) All WC 504.
136 Kamisetti Subbiah v Katha Venkataswamy, (1903) ILR 27 Mad 355; Protap Chandra v Kali
Charan, AIR 1952 Cal 32 .
137 Shankarlal Narayandas Mundada v New Mofussil Co Ltd, AIR 1946 PC 97 ; UOI v A.L. Rallia
Ram, AIR 1963 SC 1685 : 1964 SCR (3) 164 ; Manickam Chettiar v State of Madras, AIR 1971
Mad. 221 ; Maheshwari Metals and Metal Refinery v Madras State Small Industries Corp Ltd, AIR
1974 Mad. 39 ; Progressive Constructions Ltd v Bharat Hydro Power Corp Ltd, AIR 1996 Del 92 :
59 (1995) DLT 290 .
138 Cotton Corp of India Ltd v Alagappa Cotton Mills, AIR 2001 Bom 429 : 2001 (3) MhLj 415 .
139 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas, AIR 1966 SC 543 at 548 :
[1966] 1 SCR 656 .
140 Baroda Oil Cakes Traders v Parshottam Narayandas Bagulia, AIR 1954 Bom 491 : ILR 1954
Bom 1137 ; but see Vadada Ganeswara Rao v Mummidisetti Vijaya Chamundeswari, AIR 2010 AP
74 which applies principles of section 4 to termination of a contract without reference to section
66 of this Act.
141 Section 20 of the Civil Procedure Code, 1908 provides that a suit can be filed in the court
within the territorial jurisdiction of which a part or whole of the "cause of action" arises. In a suit
on contract, the making of the contract is a part of the cause of action for filing the suit.
142 Republic Medico Surgical Co v UOI, AIR 1980 Kant. 168 : 1979 (2) KarLJ 410 .
143 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas, AIR 1966 SC 543 : [1966] 1
SCR 656 .
144 Kamisetti Subbiah v Katha Venkataswamy, (1903) 27 Mad 355; Bengal Insurance & Real
Property Co Ltd v Velayammal, AIR 1937 Mad. 571 ; Protap Chandra Koyall Acharjyal Iyer v Kali
Charan, AIR 1952 Cal 32 ; Manilal v MP Venkatachalapathy, (1944) Mad 95 : AIR 1943 Mad. 471 ;
Shimoga Oil Mills v Radha Krishna Oil Mills, AIR 1952 Mys 111 : (1953) 31 MysLJ ; Baroda Oil
Cakes Traders v Parshottam Narayandas Bagulia, AIR 1954 Bom 41 : ILR 1954 Bom 1137 ; State
(Delhi Administration) v Sinha Govindji, AIR 1967 Del 88 : 1967 Cr LJ 1300 ; American Pipe Co v
State of Uttar Pradesh, AIR 1983 Cal 186 at 192; Progressive Constructions Ltd v Bharat Hydro
Power Corp Ltd, AIR 1996 Del 92 : 59 (1995) DLT 290 ; Oil and Natural Gas Commission v Modern
Construction and Co, AIR 1998 Guj 46 : (1997) 3 GLR 1855 ; but see Dhanraj Mills Ltd Liability v
Narsingh Prasad Bodona, AIR 1949 Pat. 270 (acceptance becomes complete only where it is
communicated to the offeror); UOI v Shiboo Mal and Sons Co, AIR 1989 P&H. 205 (court at the
place where the acceptance is conveyed to the offeror has jurisdiction).
145 Baroda Oil Cakes Traders v Parshottam Narayandas Bagulia, AIR 1954 Bom 491 : ILR 1954
Bom 1137 (the receipt of the letter of acceptance by the proposer is not an integral part of the
completion of communication as to constitute a part of cause of action).
146 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas, AIR 1966 SC 543 : [1966] 1
SCR 656 ; Firm Kanhaiya Lal v Dineshchandra, AIR 1959 MP 234 ; Sadhana Arun Kothari v Raj
Bhalla, 2007 (4) Bom CR 61 .
147 Entores Ltd v Miles Far East Corpn, [1955] 2 All ER 493 : [1955] 2 QB 327 : [1955] 3 WLR 48 .
… where a contract is made by instantaneous communication, eg, by telephone, the contract is
complete only when the acceptance is received by the proposer, since generally an acceptance
must be notified to the proposer to make a contract binding' (acceptance notified by telex).
148 Bhagwandas Goverdhandas Kedia v Girdharlal Parshottamdas, AIR 1966 SC 543 : 1966 SCR
(1) 656 ; Republic Medico Surgical Co v UOI, AIR 1980 Kant. 168 : 1979 (2) KarLJ 410 .
149 Triveni Oil Field Service Ltd v Oil and Natural Gas Commission, AIR 2006 Del 331 : 2006 (1)
Arb LR 360 Delhi.
150 Quadricon Pvt Ltd v Bajarang Alloys Ltd, AIR 2008 Bom 88 (but mode of communication not
proved).
151 P R Transport Agency v UOI, AIR 2006 All 23 : 2006 (1) All WC 504 (writ petition, does not
discuss the postal rule).
152 The Information Technology Act, 2000, section 13(3); P R Transport Agency v UOI, AIR 2006
All 23 : 2006 (1) All WC 504.
153 The Information Technology Act, 2000, section 13(4).
154 The Information Technology Act, 2000, section 13(5)(a).
155 The Information Technology Act, 2000, sections 13(5)(b) and (c).
156 Winfield, [1939] 55 LQR 499.
157 Household Fire and Carriage Accident Insurance Co Ltd v Grant, (1879) 4 ExD 216 : [1874–
80] All ER Rep 919 (CA).
158 Holwell Securities Ltd v Hughes, [1974] 1 All ER 161 (CA); New Hart Builders Ltd v Rindley,
[1975] ChD 342 : [1975] 1 All ER 1007 .
159 UNIDROIT Principles, comment below Article 2.6.
160 Cf with the Article 18(2) of the United Nations Convention on Contracts for International
Sale of Goods, 1980 and Article 2.6(2) of the UNIDROIT Principles under which an acceptance
of an offer becomes effective at the moment the indication of assent reaches the offeror.
161 Chitty on Contracts, 28th Edn at p 111, para 2.043.
162 Adams v Lindsell, (1818) 1 B &Ald 681.
163 Henthorn v Fraser, [1892] 2 ChD 27 : [1891–94] All ER Rep 1064 (CA).
164 Per Thesiger L in Household Fire Insurance Co v Grant, (1879) 4 ExD 216 at 222 : [1874–80]
All ER Rep 919 ; Dunlop v Higgins, (1848) 1 HLC 381; Chitty on Contracts, 28th Edn at p 112–13,
paras 2–048–2–051.
165 Holwell Securities Ltd v Hughes, [1974] 1 WLR 155 : [1974] 1 All ER 161 ; New Hart Builders
Ltd v Bindley, [1975] ChD 342 : [1975] 1 All ER 1007 .
166 Household Fire Insurance Co Ltd v Grant, (1879) 4 ExD 216 : [1874–80] All ER Rep 919 (CA).
167 Chitty on Contracts, 28th Edn at p 113, para 2–050; Dunlop v Higgins, (1848) 1 HL Cas 381.
168 Holwell Securities Ltd v Hughes, [1974] 1 All ER 161 .
169 Ibid.
170 Ibid.
171 Henthorn v Fraser, [1892] 2 ChD 27 per Lord Herschell at 31; confirming Byrne & Co v Leon
van Tienhoven & Co, (1880) 5 CPD 344 : [1874–80] All ER Rep Ext 1432 .
172 Adams v Lindsell, (1818) 1 B & Ald 681: Stevenson, Jacques & Co v MacLean, [1880] 5 QBD
346 .
173 Dickinson v Dodds, (1876) 2 ChD 463; section 6.
174 Chitty on Contracts, 28th Edn at 126–27. para 2–083.
175 Eaglehill Ltd v J Needham Builders Ltd, [1973] AC 992 at 1011 : [1972] 2 All ER 8951 ; NV
Stoony Maats "De Maas" v Nippon Yusen Kaisha (The Pendrecht), [1980] 2 Lloyd's Rep 56 at 66;
Tenax Steamship Co Ltd v Owners of Motor Vessel Brimnes (The Brimnes), [1975] 5 QB 929
(notice withdrawing charterparty), [1973] 1 All ER 769 , affirmed, [1974] 3 All ER 88 (CA); Curtice
v London City & Midland Bank Ltd, [1908] 1 KB 293 : 300 (CA) (case relating to cheques).
176 Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH, [1983] 2 AC 34 at 42 :
[1982] I All ER 293 : [1982] 1 Lloyd's Rep 217 : [1981] 2 WLR 264 (HL).
177
Section 130 of the German Civil Code (BGB) provides that every declaration of will,
including offer, acceptance or revocation, is effective as soon as it "arrives", that is, as soon as it
comes within the sphere of influence of the addressee. The person sending the declaration
takes the risk arising out of choice of medium, and the risk incident to addressee's own zone of
influence must be borne by the addressee. Konrad Zweigart, Introduction to Comparative Law
(translated by Tony Weir), Clarendon Press, 1998, at p 362.
178 Tenax Steamship Co Ltd v Owners of Motor Vehicle Brimnes (The Brimnes), [1974] 3 All ER
88 at p100.
The Indian Contract Act, 1872
CHAPTER I Of Communication, Acceptance and Revocation of Proposals
S. 5 Revocation of proposals and acceptances. —
A proposal may be revoked at any time before the communication of its acceptance is
complete as against the proposer, but not afterwards.
An acceptance may be revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards.
Illustrations
A proposes, by a 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.
B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.
[s 5.1] STATE AMENDMENT
Uttar Pradesh
In its application to the State of Uttar Pradesh, at the end of the first paragraph, the
following Explanation has been inserted:
Explanation.— Where an invitation to a proposal contains a condition that any proposal
made in response to such invitation shall be kept open for a specified time and a
proposal is thereupon made accepting such condition, such proposal may not be
revoked within such time.179
[s 5.2] Introduction
While section 4 provides the time at which communication of acceptance and of
revocation of proposal and acceptance is complete, this section first states that both
proposal and acceptance can be revoked, and secondly, gives the time before which
the right of revocation can be exercised. Sections 4 and 5 have to be read together. A
proposal can be revoked in such a manner that the revocation reaches the offeree
before he accepts, or posts the acceptance as the case may be. An acceptance can be
revoked in such a manner that the revocation reaches the proposer before the
acceptance.
If the revocation of proposal reaches the offeree after he has accepted the proposal, or
in case the acceptance is sent by post, before he has posted the acceptance, the
contract is concluded and the revocation is of no consequence.180 A proposal cannot
be revoked after its acceptance has been communicated.181Since the general rule is
that acceptance is not complete until it has been communicated to the offeror, it
follows that an acceptance can be revoked at any time before this occurs, provided, of
course, that the revocation itself is communicated before the acceptance arrives.182
[s 5.3] Communication of revocation
The illustrations make it clear that communication is the vital factor, when considering
revocation. Where the acceptance is being sent by post or telegram, the revocation of
the offer must reach the offeree before the offeree posts the letter or hands over the
telegram for delivery. Where the proposal requires the doing of an act as a condition of
proposal, the proposal may be revoked before the act is done. Difficulty arises where
the act required is a continuing act. What is the time when acceptance would be
complete? If a person is offered money for completing a work can the proposal be
revoked after he has commenced the work but not completed it? According to the
traditional view, the acceptance is complete when the act is completed. Allowing the
revocation of proposal before the act is completed would lead to an inequitable result.
[s 5.4] Right of Revocation
The proposer has the right to revoke the offer at any time before acceptance..An
acceptance of an offer may be absolute or conditional. If the acceptance is conditional,
the offer can be withdrawn at any time until absolute acceptance.183 The right to
withdraw before acceptance is available, in the absence of a condition to the contrary
supported by consideration.184 The Contract Act provides that an offer can be
withdrawn before its acceptance. But such withdrawal of an offer before its
acceptance is a completely different aspect from forfeiture of earnest/security money
which has been given for a particular purpose. A person may have a right to withdraw
his offer but if he has made the offer on a condition that upon exercise of right of
withdrawal, some earnest money will be forfeited, he has no right to claim refund of
earnest. Forfeiture in no way affects any statutory right under the Contract Act. Such a
condition is often imposed to ensure genuine persons bid.185A condition in the tender
prohibiting the offeror from withdrawing his bid during its period of validity, cannot be
said to be opposed to public policy orunenforceable.186 Earnest money may be liable
for forfeiture according to the conditions of the tender or bid ; or a bank guarantee
given for the purpose can be invoked.187 It cannot be said that a clause of forefeiture
of earnest money, if the offer is withdrawn within a particular time, is contrary to
section 5 of the Act.188 When earnest money is furnished by a tenderer, it forms part of
the price if the offer of the tenderer is accepted or it is refunded to the tenderer if
someone else's offer is accepted. If for some fault or failure on the part of the tenderer
the transaction or the contract does not come through, the party inviting the tender is
entitled to forfeit the earnest money.189 It was held that a condition that the bidder at
an auction shall not be entitled to retract the bid is inoperative in law,190 and cannot
take away that legal right in the absence of any rule or statute,191 for a one-sided
declaration cannot alter the bidder's rights under the general law; nor is there any
consideration for his assenting to it, even if he could be supposed to assent by
attending the sale with notice of the condition.192 But these judgments would no
longer be good law after the above judgments of the Supreme Court. The Delhi High
Court relying on the judgement of the Supreme Court in National Highway Authority of
India v Ganga Enterprises,193 has held that it is lawful for parties to agree to be bound
by the term that any offer made will remain open for acceptance by the other party upto
a specified date, and that the offeror cannot withdraw his offer prematurely, without the
consent of the other party.194 The statement of the claimant to the land acquisition
officer that he was willing to accept the acquisition, provided a lumpsum compensation
was awarded to him, amounted to a proposal in terms of this Act, and unless the offer
was accepted, there was no contract between the parties. The claimant was not bound
to keep such offer open indefinitely and could validly withdraw the same.195
A proposal cannot be withdrawn where a statutory rule applicable to it precludes
withdrawal of a bid before communication of its acceptance or refusal.196 A statutory
power to make rules for the conduct of departmental business will justify a local
government in prescribing, among the conditions of tenders for public services, that a
tender shall not be withdrawn before the acceptance or refusal.197 Banks can
introduce voluntary retirement scheme governed by the law of contract and it would be
in the nature of an invitation to treat. Upon an employee submitting his offer pursuant
to the same, the bank can subject to the terms of the Scheme accept or reject the offer
and upon acceptance, it would become an enforceable contract.198 An application by
an employee seeking voluntary retirement binds when accepted by the employer;199
but where the acceptance is not communicated but remains an internal noting of the
employer, the employee cannot derive any benefit from the scheme and the relationship
of employer and employee would continue.200 If the scheme is contractual in nature,
the offer can be withdrawn by the employee at any time before it is accepted by the
employer and the stipulation in the option form that the option once exercised cannot
be withdrawn would be invalid.201 If the contractual scheme prescribes a time limit for
withdrawal, the offer can be withdrawn only if made within the time prescribed.202
Unlike a contractual scheme to which the provisions of the Contract Act would apply,
where the scheme is statutory in character, its terms will prevail over the general
principles of contract and the provisions of the Contract Act. If the scheme contains a
bar against withdrawal of an offer once given, the said term of the statutory scheme
will be binding on the parties and the employee cannot withdraw his option.203
[s 5.5] "Keeping Offer Open"
It is implied in this section that the proposer of a contract cannot bind himself (unless
by a distinct contract made for a distinct consideration) to keep his offer open for any
definite time, and that any words of promise to that effect can operate only for the
benefit of the proposer and as a warning that an acceptance after the specified time
will be too late (section 6(2)). The offer says in effect, "You may accept within the time
specified, but the limitation is for my benefit. I make no binding promise not to revoke
my offer in the meantime". This follows the rule of common law, and is also recognised
in India.204 The reason is that an undertaking to keep the offer open for a certain time
is a promise without consideration, and such a promise is unenforceable. In order to be
binding, the promise to keep the offer open must be supported by consideration, which
may be in the form of benefit to the offeror, or a detriment incurred by the offeree.
[s 5.6] Revocation of Standing Offer
Where a tenderer makes a standing offer to supply the goods as and when they are
ordered, each order, when it is placed, is to that extent an acceptance of the standing
offer, and creates a contract for the supply of goods so ordered. The standing offer
may be withdrawn at any time as regards the goods not ordered.205A gives an
undertaking to B to guarantee, for 12 months, the due payment of M's bills, which may
be discounted by B at A's request. This is not a binding promise, but a standing
proposal which becomes a promise or series of promises as and when B discounts
bills on the faith of it, A may revoke it at any time, subject to his obligations as to any
bills already discounted.
[s 5.7] Auction
In an auction, the owner of each lot put up for sale, makes the auctioneer his agent to
invite offers for it, and "every bidding is nothing more than an offer on one side, which
is not binding on either side till it is assented to". Hence, a bidder may withdraw his bid
at any moment before the fall of the hammer.206 A contract for sale of goods in an
auction therefore comes into existence only after the auctioneer accepts the bid. A
bidder at an auction merely makes a proposal which he can withdraw until it is
accepted207 when the auctioneer announces its completion by the fall of the
hammer.208 The bid may be retracted until such announcement is made. When the bid
of an agent at an auction sale was accepted by the auctioneers kutcha-pucca (subject
to sanction of the owner of the goods), and the agent agreed thereto, it did not preclude
the principals of the agent from exercising their right of retracting the bid before it was
accepted by the auctioneers.209 In an auction by the Court, the auction purchaser is
entitled to the property only after confirmation of sale by the Court.210 A condition of
sale providing that a bid shall not be retracted is not operative in law.211
[s 5.8] Revocation of Tender
The submission of tender or bid being in the nature of proposal or offer, unless the
highest bid or tender is accepted by the competent authority, and acceptance is
communicated to the tenderer or bidder, the contract cannot be said to be concluded
between the parties.212 A tender can be withdrawn at any time before it is accepted,
and if accepted by post or telegram, till such time the acceptance is posted or handed
over for delivery.213 A tenderer revoked the tender after the letter of acceptance was
posted by the government. It was held that the contract was complete as soon as the
letter of acceptance was posted.214 Revision of tender amounts to revocation,
rendering the tenderer liable for forfeiture of his deposit.215 Acceptance of the highest
tender does not end the offer of other tenderers. Thus, where the highest tenderer
failed to deposit the security amount, acceptance of the tender of the second highest
bidder bound him.216
[s 5.9] Revocation in Case of Conditional Acceptance of Bid/Tender
Where the bid has been conditionally accepted, namely, subject to confirmation of
higher authorities, the contract is concluded after the condition is fulfilled. If the
acceptance of a bid in an auction sale by the sale officer or auctioneer is subject to
confirmation by a superior authority, there is only a provisional or conditional
acceptance, and the bidder will be bound only after such confirmation is given,217 even
despite an endorsement in the bidding list by the officer conducting the auction that the
sale has been concluded in favour of the highest bidder.218 If the acceptance of a bid
or tender is subject to confirmation or approval of a higher officer or authority, the bid
or tender can be revoked at any time before the condition is fulfilled, i.e., before the
confirmation or approval,219 as there is no concluded contract.220 The auctionpurchaser is then not liable for shortfall on resale.
The plaintiff was the highest bidder at an auction sale of a lease in two forests. The
terms and conditions of the sale notification were to form part of the agreement to be
executed but the sale was subject to the confirmation of District Forest Officer or the
Conservator of Forests. The plaintiff deposited the entire sale price together with
security deposit as required by rules, but the bid was not confirmed by the District
Forest Officer and the sale price was ordered to be refunded and second auction was
held. The amounts of sale price and security deposit were deposited in Court in the
second sale. The plaintiff brought a suit for declaration against the state that he was
entitled to the amount deposited in Court on second sale and also to refund of the
security deposit. It was held that the auction sale of a successful bidder would be one
which was not only the highest but also to a person to whom intimation or confirmation
of the sale had been sent.221 At an auction sale, the highest bid was accepted by the
DFO subject to confirmation. The confirmation was not communicated to the highest
bidder and was later settled with a third party. It was held that there was no concluded
contract between the government and the highest bidder, and therefore, the settlement
with the third party was invalid on that ground.222 Where after the auction, but before
the acceptance, the government leased a forest to another person, the claim of the
highest bidder who had deposited his instalment of bid money was negatived by the
High Court as there was no enforceable ground.223
Where an auction sale was held on the express condition that the acceptance of the
highest bid would be subject to the confirmation by a particular authority, the highest
bidder can withdraw the offer in time before confirmation in spite of the fact that the
bid was provisionally accepted or that he had deposited the earnest money or even the
first instalment as per terms of the auction sale.224 A bidder at an auction sale, of a
liquor contract, is not bound by his bid, even though accepted, if the bid is not binding
on the government for the period of one month, during which the Excise Commissioner
under the conditions of sale, can suspend or revoke the acceptance by his
subordinates. The bidder can also withdraw his offer in spite of his depositing the sale
price of the liquor shops.225
[s 5.10] Withdrawing Resignation from Service
In the absence of any statutory rules, a resignation is like a proposal for bringing the
contract of service to an end and governed by sections 4 and 5 of the Contract Act. It is
complete when it is put in course of communication so as to be out of reach of the
proposer and as against the person to whom it is made, when it comes to his
knowledge.226 A resignation of an office holder can be withdrawn before it becomes
effective. Therefore, where a secretary of a school committee resigned and asked for
its acceptance by calling a meeting of the society at an early date, and before its
acceptance by the meeting, withdrew it, the resignation became ineffectual.227 An
employee who had submitted his resignation and in terms of the service regulation,
stated that the resignation is to take effect at future date, was entitled to withdraw the
resignation, before such future date and the employer's acceptance of the resignation
with immediate effect was not valid.228
[s 5.11] Revocation of Acceptance
An acceptance would stand revoked if it reaches the proposer before the acceptance
reaches him. Where the telegram revoking the acceptance reaches the proposer before
the letter of acceptance, no contract is concluded.229A revocation of acceptance is
made valid by the express terms of sections 4 and 5 of the Contract Act.230 The United
Nations Convention on Contracts for the Sale of Goods and the UNIDROIT Principles
also enable withdrawal of acceptance.231
In an action for breach of contract, the Court at the place where the purported
revocation was communicated also has jurisdiction,232 such communication being
part of cause of action.
[s 5.12] Statement on Oath
It has been held that if A offers to be bound by a special oath taken by B who accepts
the offer, A cannot resile from the agreement, unless there is sufficient cause, to the
satisfaction of the Court, for allowing the offeror to resile.233 Having regard, however,
to the provisions of the Indian Oaths Act, 1969, B may be allowed by the Court to resile
from the agreement.234
[s 5.13] Offer to Abide by a Statement of Opposite Party or Another
An offer of a party to litigation to abide by a statement made by the opposite party or
one of them, if accepted, is binding and cannot be resiled from. But if sufficient cause
is shown, the Court may allow the withdrawal of the offer or acceptance as the case
may be.235
[s 5.14] Position under other jurisdictions
[s 5.14.1] Revocation of Proposal
A proposal may be revoked at any time before acceptance, even though the proposer
has promised to keep the offer open for a specified time;236 and once accepted, the
proposal becomes irrevocable.237 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.238 In other words, the revocation of
a proposal is effectual if it reaches before the despatch of the acceptance. The time of
despatching the revocation is immaterial, whatever be the mode of revocation.
[s 5.15] When is acceptance complete
It has been suggested that a distinction be drawn between the acceptance of the offer
for the purposes of revocation, and conditions which have to be satisfied before the
offeree can enforce the promise contained in the offer. The acceptance would be
complete once the offeree has begun the performance, and the offeror should not be
able to revoke the acceptance thereafter.239 The offeree would not be entitled to
payment until the act is performed, thus, the offeror is unable to revoke the offer once
the performance of the act has commenced, but his duty to perform his obligation is
conditional upon the performance of the act by the offeree.240 Another view is that an
offer should not be revocable once the offeree has acted in reliance on the offer,
including doing of an act in preparation of performance.241 The English Law Revision
Committee recommended242 that a promise made in consideration of the promisee
performing an act should constitute a contract as soon as the promisee entered on the
performance of the act, unless the promisee included expressly or by necessary
implication a term that it can be revoked before the act has been completed. This view
finds judicial support in England.243
[s 5.15.1] Option to withdraw
When an offer is made, the offeree has an option to accept the offer or reject it. The
Offeror can withdraw the offer before acceptance. An option given for value is not
revocable. It is an offer together with a contract that the offer will not be revoked during
the time, if any, specified in the option. If the offer is accepted within the time specified,
the contract is made, but if the offeror purports to revoke the offer, it is ineffectual to
prevent the formation of a contract. The offeree may expressly or impliedly promise to
do or to refrain from doing something in exchange of the proposer's promise not to
revoke the offer.
This rule is peculiar to the legal systems following the English common law, and has
been strongly criticised. It can cause hardship to an offeree who has not "purchased an
option". The offeree may have entered into engagements or incurred expenditure on
reliance of the continuation of the offer. In the U.S., the Restatement (Second) of
Contracts (1981) provides in section 87, para 2 that an offer is to be regarded as
irrevocable if, as the offeror should reasonably have expected, it induces action or
forbearance of a substantial character on the part of the offeree. Such offer is
considered binding only "to the extent necessary to avoid injustice". In France, if an
offeror has set a period for acceptance, the offer can be withdrawn before this period
has expired, but the withdrawal renders the offeror liable in damages. On one view, this
liability arises out of a "preliminary contract" binding the offeror to keep the principal
offer open for a certain time.244 As per the Italian Code, an offer cannot be withdrawn
before the expiry of the period specified. If no period is specified, the offer can be
withdrawn before acceptance, unless the offeree has relied on the offer in good faith, in
which case, the offeree can claim damages for the loss he suffered in preparing to
perform. In Germany, the offeror is "bound" by his offer and a purported withdrawal has
no effect unless the offeror has excluded the binding effect by express words.245 In
England, the Law Revision Committee recommended that "an agreement to keep an
offer open for a definite period of time or until the occurrence of some specified event
shall not be enforceable by reason of the absence of consideration".246 The Vienna
Convention on Contracts for the International Sale of Goods and the UNIDROIT
Principles, both provide that an offer, even if irrevocable, can be withdrawn if the
withdrawal reaches the offeree before or at the same time as the offer; and may be
revoked before the acceptance is despatched. But an offer cannot be revoked if it
indicates that it is irrevocable (by stating a fixed time of acceptance or otherwise), or
where the offeree, having good reasons to treat the offer as being irrevocable, has
acted in reliance of the offer.247 It is submitted that when the offeror has expressly
promised to keep the offer open for a certain period of time, the offeree who has relied
on the offer and incurred expenses (namely, for investigation, surveys, procuring subcontracts, buying or hiring machinery, preparing for production, etc.) needs protection
against unrestricted revocation of offer. Any revocation must make the offeror liable to
compensate the offeree for the expenses incurred.
The Act stands amended in its application to the State of Uttar Pradesh, where if an
invitation to a proposal contains a condition that the proposal must be kept open for a
specified time, the proposal made in response to the invitation must be kept open for
that time.248
179 UP Act 57 of 1976, section 25 (w.e.f. 1 January 1977).
180 Sadhoo Lal Motilal v State of Madhya Pradesh, AIR 1972 All 137 (telegram revoking the
proposal reached the offeree after the offeree had posted the letter of acceptance).
181 Keshav Krishna Londhe v Adarsh Gruha Nirman Sahakari Sanstha Ltd, (2005) Bom CR 404 .
182 Anson's Law of Contract, 30th Edn 2016, p 55.
183 UOI v Messrs Bhim Sen Walaiti Ram, (1969) 3 SCC 146 quoting with approval the decision of
Court of Appeal in Hussey v Hornepayne, 1878 (8) ChD 670 .
184 Somasundaram Pillai v Provincial Government of Madras, AIR 1947 Mad. 366 .
185 National Highway Authority of India v Ganga Enterprises, AIR 2003 SC 3823 : (2003) 7 SCC
410 .
186 Food Corp of India v Prem Chand Jain, (2013) 136 DRJ 369 : 2013 SCC OnLine Del 1849.
187 State of Maharashtra v A.P Paper Mills Ltd, (2006) 4 SCC 209 ; Villayati Ram Mittal Pvt Ltd v
UOI, (2010) 10 SCC 532 ; State of Haryana v Malik Traders, AIR 2011 SC 3574 : (2011) 13 SCC
200 ; Food Corp of India v Prem Chand Jain, (2013) 136 DRJ 369 : 2013 SCC OnLine Del 1849;
Maharashtra State Electricity Distribution Co Ltd v Vijai Electricals Ltd, (2015) 3 Bom CR 211 :
(2015) 5 AIR Bom R 1.
188 Ibid,
189 Villayati Ram Mittal (Pvt.) Ltd v UOI, AIR 2011 SC 301 : (2010) 10 SCC 532 .
190 T Linga Gowder v State of Madras, AIR 1971 Mad. 28 .
191 Rajendra Kumar Verma v State of Madhya Pradesh, AIR 1972 MP 131 ; Suraj Besan and Rice
Mills v Food Corpn. of India, AIR 1988 Del 224 at 227.
192 Somasundaram Pillai v Provincial Government of Madras, AIR 1947 Mad. 366 ; UOI v S Narain
Singh, AIR 1953 P H 274.
193 National Highway Authority of India v Ganga Enterprises, AIR 2003 SC 3823 : (2003) 7 SCC
410 .
194 Food Corp of India v Prem Chand Jain, (2013) 136 DRJ 369 : 2013 SCC OnLine Del 1849.
195 Nutakki Sesharatanam v Sub–Collector, Land Acquisition, Vijayawada, AIR 1992 SC 131 :
(1992) 1 SCC 114 at 116.
196 Bhanwarlal v State of Rajasthan, AIR 1976 Raj. 215 ; T Linga Gowder v State of Madras, AIR
1971 Mad. 28 , distinguishing KP Chowdhry v State of Madhya Pradesh, AIR 1967 SC 203 : [1966]
3 SCR 919 ; the UP Amendment to this section.
197 Secretary of State for India v Bhaskar Krishnaji Samani, (1925) 49 Bom 759 : 89 IC 498 : AIR
1925 Bom 485 .
198 BOI v OP Swaranakar, AIR 2003 SC 858 : (2003) 2 SCC 721 ; Food Corp of India v Ramesh
Kumar, AIR 2007 SC 2864 .
199
Punjab & Sind Bank v S.Ranveer Singh Bawa, (2004) 4 SCC 484 ; Vice-Chairman And
Managing Director, APSIDC Ltd v R Varaprasad, AIR 2003 SC 4050 : (2003) 11 SCC 572 ;
HEC Voluntary Retd Employees Welfare Society v Heavy Engineering Corp Ltd, (2006) 3 SCC 708 .
200 National Textile Corp (MP) Ltd v M R Jhadav, AIR 2008 SC 2449 : (2008) 7 SCC 29 .
201 Hindustan Copper Ltd v Banshi Lal, (2005) 13 SCC 492 .
202 State Bank of Patiala v Romesh Chander Kanoji, AIR 2004 SC 2016 : (2004) 2 SCC 651 .
203 New India Assurance Co Ltd v Raghuvir Singh Narang, AIR 2010 SCW 3791 : (2010) 5 SCC
335 .
204 Vtsweswaradas Gokuldas v BK Narayan Singh, AIR 1969 SC 1157 .
205 For standing offers, see section 2(a) above under the heading: "Tender and Standing Offer".
206 Agra Bank v Hamlin, (1891–93) ILR 14 -16 Mad 165; Raghunandhan Reddy v State of
Hyderabad, AIR 1963 AP 110 .
207
Riya Travel& Tours (India) Pvt Ltd v C U Chengappa, (2001) 9 SCC 512 ; Joravarmull
Champalal v Jeygopaldas Ghanshyamdas, AIR 1922 Mad. 486 .
208 G Srinivasa Reddy v Commr of Excise, Board of Revenue, AIR 1973 AP 178 (FB); T Linga
Gowder v State of Madras, AIR 1971 Mad. 28 .
209 Mackenzie v Chamroo, (1899–00) ILR 16 –17 Cal 464.
210 Canara Bank v Apple Finance Ltd, AIR 2008 Bom 16 .
211 Somasundaram Pillai v Provincial Government of Madras, AIR 1947 Mad. 366 ; UOI v S Narain
Singh, AIR 1953 P H 274.
212 Executive Engineer, Sundergarh v Mohan Prasad Sahu, AIR 1990 Ori. 26 .
213 Kochi Refineries Ltd v Reva Enviro Systems Pvt Ltd, 2016 SCC OnLine Ker 1564 : (2016) 1
KLJ 774 .
214 Sadhoo Lal Motilal v State of Madhya Pradesh, AIR 1972 All 137 ; Re Baroda Oil Cakes
Traders v Parshottam Narayandas Bagulia, AIR 1954 Bom 491 .
215 Villayati Ram Mittal Pvt Ltd v UOI, AIR 2011 SC 301 : (2010) 10 SCC 532 .
216 State of Haryana v Malik Traders, AIR 2011 SC 3574 : (2011) 13 SCC 200 .
217 UOI v Bhimsen Walaiti Ram, AIR 1971 SC 2295 ; Rajanagaram Village Co-op Society v P
Veerasami Mudaly, AIR 1951 Mad. 322 ; UOI v S Narain Singh, AIR 1953 Punj 274 .
218 Muthu Pillai v Secretary of State, AIR 1923 Mad. 582 .
219 Sri Durga Saw Mill v State of Orissa, AIR 1978 Ori. 41 (DB); State of Madhya Pradesh v Hakim
Singh, AIR 1973 MP 24 (DB); G Srinivasa Reddy v Commissioner of Excise, Board of Revenue, AIR
1973 AP 173 (FB); State of Madras v R Ranganathan Chettiar, AIR 1975 Mad. 292 ; T Linga
Gowder v State of Madras, AIR 1971 Mad. 28 ; UOI v S Narain Singh, AIR 1953 Punj 274 ;
Rajanagaram Village Co-op Society v P Veerawami Mudaly, AIR 1951 Mad. 322 ; Somasundram
Pillai v Provincial Government of Madras, AIR 1947 Mad. 366 ; Chitibobu Adenna v Garimalla
Jaggarayadu, AIR 1916 Mad. 75 .
220 Haridwar Singh v Bagun Sumbrui, AIR 1972 SC 1242 ; Abdul Rahim Khan v UOI, AIR 1968 Pat.
433 ; Karan Singh Chandan Singh v Collector, Chhatarpur, AIR 1980 MP 89 .
221 State of Madras v R Ranganathan Chettiar, AIR 1975 Mad. 298 ; State of Madhya Pradesh v
Hakim Singh, AIR 1973 MP 24 ; Sri Durga Saw Mill v State of Orissa, AIR 1978 Ori. 41 .
222 Haridwar Singh v Bagun Sumbrui, AIR 1972 SC 1242 : [1972] 3 SCR 629 .
223 Nilgiri Contractors' Society v State of Orissa, AIR 1975 Ori. 33 , distinguishing UOI v Anglo
Afghan Agencies, AIR 1968 SC 718 : [1968] 2 SCR 368 ; Haridwar Singh v Begum Sumbrui, AIR
1972 SC 1242 ; Executive Engineer, Sundergarh v Mohan Prasad Sahu, AIR 1990 Ori. 26 .
224 State of Madhya Pradesh v Hakim Singh, AIR 1973 MP 24 ; Sri Durga Saw Mill v State of
Orissa, AIR 1978 Ori. 41 .
225 Raghunandhan Reddy v State of Hyderabad, AIR 1963 AP 110 , Re Agra Bank v Hamlin,
(1980)14 Mad 235 and Somasundaram Pillai v Provincial Govt of Madras, (1947) Mad 837 : AIR
1947 Mad. 366 , approving Pollock and Mulla's Contract Act, 18th Edn at pp 44–45; dissenting
from Rajanagaram Village Co-op Society v Veerasami Mudaly, AIR 1951 Mad. 322 and Chitibobu
Adenna v Garimalla Jaggarrayadu, AIR 1916 Mad. 75 : 28 Mad LJ 617; Abdul Rahim v UOI, AIR
1968 Pat. 433 (auction sale under Displaced Persons (Compensation and Rehabilitation) Act);
following Bombay Salt Chemical Industries v LJ Johnson, AIR 1958 SC 289 .
226 Janardan Misra v State of Uttar Pradesh, AIR 1981 All 213 .
227 Managing Committee of Shree Ganesh Adarsh Sanskrit High School v State of Bihar, AIR
1981 Pat. 271 ; UOI v Gopal Chandra, AIR 1978 SC 694 .
228 Punjab National Bank v P.K.Mittal, AIR 1989 SC 1083 .
229 Dhanraj Mills Ltd Liability Co v Narsingh Prasad Boobna, AIR 1949 Pat. 270 .
230 Lingo Raoji Kulkarni v Secretary of State, AIR 1928 Bom 201 : (1928) 30 BOMLR 570 .
231 The UNIDROIT Principles, Article 2.10 (note the word "withdrawal").
232 Fertilizer Corp of India Ltd v Sanjit Kumar Ghosh, AIR 1965 Punj 107 ; D Wren International
Ltd v Engineers India Ltd, AIR 1996 Cal 424 (writ petition).
233 Saheb Ram v Ram Newaz, AIR 1952 All 882 (FB).
234 Mahadeo Prasad v Srjug Prasad, AIR 1952 Pat. 208 .
235 Florabel Skinner v Jai Bajrang Kala Mandir Ram Lila Mandal, AIR 1980 P&H. 284 (FB); Ram
Bhaj v Duni Chand, AIR 1926 Lah 240 (Oath's case); Allah Rakha v Punnan, AIR 1941 Lah 173 .
236 Routledge v Grant, (1828) 4 Bing 653.
237 Anson's Law of Contract, 30th Edn 2016, at p 56, sums up the law relating to revocation of
offers into these two rules.
238 Henthorn v Fraser, [1892] 2 ChD 27 , 31 per Lord Herschel; confirming Byrne D. Co v Leon
Van Tienhoven Co, (1874–80) All ER Rep 1432 .
239 Sir Frederick Pollock, Principles of Contract, 13th Edn at 19.
240 Anson's Law of Contract, 29th Edn 2010, p 54–55.
241 UNIDROIT Principles, Article 2.4.
242 (English) Law Revision Committee, 6th Interim Report (Cmd 5449 1937).
243 Errington v Errington, [1952] 1 KB 290 : [1952] 1 All ER 149 (CA); Daulia Ltd v Four Millbank
Nominees Ltd, [1978] 2 All ER 557 (CA).
244 Walford v Miles, [1992] 2 WLR 174 : [1992] 1 All ER 453 ; Davenport, [1991] 107 LQR 366;
Neill, (1992) 108 LQR 405.
245 Konrad Zweigart, Introduction to Comparative Law, (translated by Tony Weir), Clarendon
Press, Oxford, 1998, at pp 356–64, for a comparative analysis of the various legal systems.
246 The Law Revision Committee, 6th Interim Report (Cmd 5449, 1937).
247 United Nations Convention on Contracts for International Sale of Goods, Articles 15 and 16;
UNIDROIT Principles, Articles 2.3 and 2.4. Note the distinction between a withdrawal (made
before the offer reaches the offeree) and a revocation.
248 The text of the amendment is given under section 5 above.
The Indian Contract Act, 1872
CHAPTER I Of Communication, Acceptance and Revocation of Proposals
S. 6 Revocation how made.—
A proposal is revoked—
(1) by the communication of notice of revocation by the proposer to the other party;
(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no
time is so prescribed, by the lapse of the reasonable time, without
communication of the acceptance;
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death or insanity
comes to the knowledge of the acceptor before acceptance.
[s 6.1] Introduction
Section 3 of the act states that the revocation may be communicated by any act or
omission by which the proposer intends to communicate the revocation, or which has
the effect of communicating it. Section 5 deals with the right of revocation and the time
before which it can be effectively exercised. This section provides the mode in which a
proposal can be revoked or shall stand revoked.
[s 6.2] Notice of Revocation
Clause (1) requires that the notice of revocation must be given; (i) by the proposer, and
(ii) to the offeree, being the other party, i.e., the person to whom the proposal is made.
The clause appears to make it a condition of revocation being effectual that it shall be
communicated by the proposer or by his authority. This was probably intended to
correspond with the law of England at that time.
Communication of the notice of revocation is a must and cancellation of an offer of
allotment without such communication is invalid.249 The notice of revocation may be
express or implied, e.g., by the offeror varying the terms of the offer.250 Where the
offeror revises the offer, and this is accepted by the offeree, it results into a contract on
the terms of the revised offer and the offeree cannot claim any right based on the
earlier offer.251 Where the offer is general and made to the whole world, it is sufficient if
the offeror has taken suitable steps to bring the offer to the notice of the persons to
whom it is made. Actual receipt of notice by each and every offeree would not be
required. A proposal cannot be revoked after its acceptance has been
communicated.252
[s 6.3] Effect of Act Inconsistent with the Offer
An offer does not stand revoked by acting inconsistently with it. In Dickinson v
Dodds,253Dodds made a written offer to Dickinson to sell certain premises and
promised to keep the offer open for some time. Before that time, Dodds sold the
property to another without notice to Dickinson. Dickinson came to know about the
sale from his own agent. Nevertheless, Dickinson accepted the offer before the time
specified in the offer, and sought specific performance. The Court of Appeal held that
there was no contract holding:
…beyond all question, the plaintiff knew that Dodds was no longer minded to sell the property
to him as plainly and clearly as if Dodds had told him in so many words: 'I withdraw the
offer'.
The earlier editors of this book have argued that the case actually decided that if an
owner of immovable property made a proposal to sell it to one man, and before that
proposal was answered, agreed to sell it to another, and the first with the knowledge of
this fact then formally tendered an acceptance, the purchaser who first actually
accepted had the better right to specific performance. It was not decided (though the
words above suggest) that knowledge about the property being sold to someone else,
not communicated by the proposer, was such a revocation of the first proposal as to
make acceptance by the offeree impossible. Acceptance of the proposal, which the
proposer has made impossible to fulfil, is not necessarily inoperative; even if the
obligation cannot be specifically performed, the promisor is bound to pay damages for
default. Many obligations are from the beginning incapable of specific performance so
far as any power of the Court is concerned. It would be absurd to hold that a promisor
is to go scot-free because by his own action he has reduced, the possibilities of his
obligation from a higher to a lower level. The true principle of such cases was stated by
Langdell:254
An offer to sell property will not be revoked by a sale of the property to someone else. As
evidence of the change of mind on the part of the offeror, such an act cannot be put higher
than a letter of revocation sent to the offeree by mail; and yet it is well settled that a letter of
revocation will not be operative until the offeree receives it.255 Nor will subsequent sale of
the property to someone else constitute any legal obstacle to the continuance of the offer.
The original offeree and the subsequent purchaser cannot both acquire the property, but
they can both acquire a right to it as against the seller, together with the alternative right to
damages; and this is all that a contract secures to one in any case.
The earlier editors of this book have also argued that the act of selling to one man,
property already offered to another, cannot be itself an act which has the effect of
communicating notice to that other. Such notice must be the effect of some other act
or event. As in Dickinson v Dodds, a stranger may inform the original offeree about the
other transaction.256 This is not the act of the party supposed to be revoking, and
therefore its effect, if any, cannot depend on the words of section 3. Therefore, the
decision is not of positive authority in India in view of the express words of the
Contract Act.
Another view is that that an act of proposer, inconsistent with his original intention, will
be operative, if it comes in any way to the knowledge of the offeree, being an act which,
under section 3, "has the effect of communicating" a revocation of the proposal. If this
were so, Dickinson v Dodds,would be good law in India to the full extent of the reasons
there given. In the opinion of the earlier editors, an act or omission would be sufficient
communication under section 3 only if it was made with an intention to
communicate.257 The editors of the earlier edition rejected this view against this
background.
It has already been submitted that the interpretation of section 3 points towards the
objective theory of communication.258 However, the mere act or omission of the
offeror inconsistent with the offer ought not to amount to revocation.259 Acceptance of
the tender of the highest bidder does not liberate the other bidders from their offers.
Thus, on failure of the highest tenderer to deposit security deposit, the party calling the
tender can accept the proposal of the second highest tenderer within the time the offer
is open.260
Having once made an offer, it is always within the power of the offeror to revoke it if he
changes his mind.261 Any acceptance of the offer made with or without knowledge of
any such inconsistency ought to bind the offeror, rendering the offeror liable in
damages.
[s 6.4] Notice from Another Person
It has been suggested, supported by the decision in Dickinson v Dodds,262 that the
communication of revocation need not come from the offeror, it is sufficient if the
information comes from a reliable source. This would not be the position in the Indian
law in view of the express provision of cl. (a) requiring that the notice be given by the
proposer. This view is also otherwise criticised on the ground that it would lead to
inconvenience and uncertainty.263
If the offeree were bound by a revocation upon information of offeror's intention
reaching the offeree from whatever source, whether based on the knowledge of an
offeror's inconsistent act, (as described above) or on the information received from
another person, the offeree would be in a dilemma. If he believed the informant were
right, his acceptance would be worthless; and if the information proved to be wrong, he
would lose the bargain.264
[s 6.5] Lapse of Time
Where a specific time is prescribed for the receipt of an acceptance, it must reach the
addressee before that time265 and if it does not, the offer stands revoked.266
In Kalyanji Vithaldas &Sons v State of Madhya Pradesh,267 K agreed to purchase tendu
leaves for three years ending on 31 December 1970, the terms of the lease providing
that it was renewable every year. K was to opt for renewal within 15 days prior to
December 31 and the leases were to be renewed by issue of order by the government
and acceptance by the department by 31 January next year. K offered for renewal on 7
December 1968, and it was accepted by the government on 31 January 1969 but
despatched on 7 February 1969. K sought to withdraw from the offer on the ground
that the government had not renewed it before 31 January 1969. It was held that it
being a continuing contract, the acceptance on 31 January 1969 was in time and the
lease stood renewed.
If the offer does not specify any time for acceptance, it will come to an end on the
lapse of reasonable time, and therefore must be accepted within a reasonable time in
order to conclude a contract,268 unless the offeror has waived revocation. The reason
for the rule may be supported by the view that it is an implied term of such an offer that
if it is not accepted, it will be treated as withdrawn, or that if the offeree does not
accept within reasonable time, he must be treated as having refused it.269 What is
reasonable time is a question of fact and would depend on the purpose of the offer, its
subject-matter, the method by which the offer is communicated, the subsequent
conduct of the parties, renewals of the offer. An offer to sell perishable articles, or
goods subject to violent price fluctuations, an offer sent by telegram or telex, would
terminate after a short period of time. A person who applied for shares in a company in
June was held not bound by an allotment made in November.270 Application for shares
was made in March and July 1933, and December 1934. There was no allotment till
August 1935. There was nothing in the conduct of the applicant amounting to waiver of
revocation. Section 6(2) applied and proposal was deemed to have been revoked.271
The respondents made an offer asking the petitioner to sign a fresh draft agreement by
5 December and wrote another letter to the petitioner in January 1972 renewing the
proposal and stating that a parallel supply agreement would be renewed if the
petitioner signed the draft agreement. The letter did not prescribe any period for
signing the agreement. The second part of section 6(2) applied and it was necessary to
accept within reasonable time.272
The proposal lapses even if the acceptor is prevented from accepting within the
stipulated or reasonable time due to causes beyond his control. Where after inviting
tenders for purchase of tendu leaves the Forest Corporation could not proceed to
consider the tenders during the stipulated period by injunctions issued by the Court in
certain litigation, it was held that since the offer of the tenderer was not accepted
within the stipulated period and was revoked, there was no contract.273
The power to accept the offer ends at the time specified in the offer. If the offer
stipulates a period of time, namely, 15 days, then, time would run from the date of
receipt of offer,274 unless the offer stipulates that time shall run from the date of the
offer, or its transmission. If such offer stipulates reply by return post, it may be
accepted by a letter posted on that date.275
[s 6.6] Condition Precedent to Acceptance
The meaning of the term "condition precedent to acceptance" is not clear. The words
were borrowed from the draft Civil Code of the State of New York, which was never
adopted. A man proposing a contract may request either, a single act, or several acts,
or a promise or set of promises, or both acts and promises, as the consideration for a
promise which he offers. The other party may do something obviously inconsistent
with performing some or one of the things requested. This amounts to a tacit refusal,
and accordingly, the proposal is at an end. The parties can form a contract only by
starting afresh. If the fact amounts to a refusal, there is no manifest reason for calling
it a failure to fulfil a condition precedent. Everything required on the acceptor's part to
complete an acceptance would rather seem to be part of the acceptance itself.
The section suggests that if a condition is to be complied with by the acceptor before
acceptance, its non-fulfilment will prevent the formation of a contract. A conditional
proposal lapses when the offeree does not accept the condition. The employer made
an offer to the trade union which was threatening to go on strike, that if the trade union
withdrew the strike, the workers would be paid a certain amount from the profits arising
from the transfer of the mill. The condition was not accepted by the union. There was
no correspondence thereafter. The transfer took place. It was held that there was no
acceptance of the condition of offer, and hence no liability to pay any amount to the
workers.276
The term is not used in this connection in English books. Under English law, an offer
made expressly or impliedly subject to a condition upon which it would terminate,
cannot be accepted upon the occurrence of the condition.277
The offer expressly indicates that its continuance is conditional upon the existence of
circumstances other than time, and the condition may be express or implied. An offer
to buy goods is subject to the implied condition that the goods will be substantially in
the same state in which they were when the offer was made and cannot be accepted
after they were seriously damaged.278 Similarly, an offer to insure the life of a person
cannot be accepted if he sustains a serious injury.279
[s 6.7] Death or Insanity of Proposer
A proposal stands revoked on the death or insanity of the proposer, if the acceptor has
notice of the death or insanity before acceptance. A bid is merely a proposal and on the
death of the highest bidder, the offer stands revoked under section 6.280 A life
insurance policy lapsed and the policy holder died before the revival procedure was
complete. The claimants were entitled only to the paid-up value of the lapsed policy
and not the full amount of policy, as renewal could take place only during the lifetime of
the assured, and the rights and liabilities under the new revived contract did not begin
until the new terms and conditions were accepted and complied with.281
Under the English law, death of the offeror will terminate the offer only if the offer on its
true construction so provides.282 If the proposed contract is one of "personal service",
it terminates on death of the offeror (or even of the offeree). Incase of other offers not
involving personal service, an irrevocable offer would not be determined by the death of
the offeror or the offeree.283 The insanity of the proposer terminates the offer under
the English law.
[s 6.8] Death of Offeree
If an offer is addressed to a man who dies without having accepted or refused it, his
executors have no power to accept it either in England or in India. The proposer cannot
be presumed to have intended to contract with a deceased person's estate. This is very
differentfrom the case of one who accepts a proposal without knowing that the
proposer is dead. According to Warrington LJ. in Reynolds v Atherton,284 an offer
ceases by operation of law on the death of the offeree because after death there is no
longer an offer at all. This offer is not intended to be made to a dead person or his
executors. But this point was expressly reserved when the case went to the House of
Lords.
249 Manohar v Saraswati Co-op Housing Society Ltd, (2005) 3 Mah LJ 297 ; (2005) 5 Bom CR
470 .
250 Villayati Ram Mittal Pvt Ltd v UOI, AIR 2011 SC 301 : (2010) 10 SCC 532 ; Gilkes v Leonino,
supra.
251 Haryana State Industrial Development Corp Ltd v Inderjeet Sawhney, AIR 1996 SC 2244 :
(1996) 7 SCC 339 .
252 Keshav Krishna Londhe v Adarsh Gruha Nirman Sahakari Sanstha Ltd, (2005) Bom CR 404 :
2005 SCC OnLine Bom 256.
253 Dickinson v Dodds, (1876) 2 ChD 463 .
254 Summary of the Law of Contract, section 181.
255 Curtice v London City & Midland Bank Ltd, [1908] 1 KB 293 (CA)—A cheque is not effectually
countermanded by a telegram delivered at the bank on which it is drawn but not in fact brought
to the banker's notice.
256 (1876) 2 ChD 463 ; The informant was not in fact a stranger, but the agent of the plaintiff,
the original offeree.
257 Section 3 above: "Introduction."
258 Ibid.
259 Chitty on Contracts, 28th Edn p 125, para 2–081; in view of Stevenson, Jacques& Co v
MacLean, [1880] 5 QBD 346 ; Dickinson v Dodds, (1876) 2 ChD 463 to the effect that such offer
may be withdrawn by acting inconsistently with it, would not be followed.
260 State of Haryana v Malik Traders, AIR 2011 SC 3574 : (2011) 13 SCC 200 .
261 Krishan Kumar Bhasin v D.D.A, (1999) 82 DLT 302 .
262 Chitty on Contracts, 28th Edn p 126, para 2–082; Anson's Law of Contract, 29th Edn 2010, at
p 58.
263 Chitty on Contracts, 28th Edn p 126, para 2–082.
264 Anson's Law of Contract, 30th Edn 2016-, p 61.
265 See R Maheswari v Secretary Selection Committee, AIR 1995 Mad. 168 (case relating to
receipt of application for admission to an entrance examination).
266 Manglam Express Cargo Pvt Ltd v UOI, 2016 SCC OnLine Del. 6336.
267 Kalyanji Vithaldas & Sons v State of Madhya Pradesh, (1996) 10 SCC 762 .
268 Hindustan Aluminium Corpn. Ltd v Uttar Pradesh State Electricity Board, AIR 1973 All 263 ;
Shree Jaya Mahal Co-op Housing Society Ltd v Zenith Chemical Works Pvt Ltd, AIR 1991 Bom 211
; Krishna Mohini Saxena v Uttar Pradesh Madhyamik Siksha Seva Chayan Board, 2002 All LJ 1688 :
(2002) 7 Serv LR 274; Sekhsaria Exports v UOI, AIR 2004 Bom 35 ; Binod Kumar Khetan v The
Hindustan Copper Ltd, (2006) 2 AIR Jhar. R 20 : (2006) 40 AIC 763 ; Commissioner, HR and CE
Department, Chennai v S Muthukrishnan, AIR 2012 Mad. 43 .
269 Manchester Diocesan Council for Education v Commercial and General Investments Ltd,
[1969] 3 All ER 1593 .
270 Indian Co-op Navigation Trading Co v Padamsey Premji, AIR 1934 Bom 97 : 36 Bom LR 32 :
150 IC 645 (allotment of shares); in Ramlalsao Gupta v MER Malak, AIR 1939 Ngp 225 : 183 IC
748 (allotment of shares).
271 Ramlalsao Gupta v MER Malak, AIR 1939 Ngp 225 .
272 Hindustan Aluminium Corp v UP State Electricity Board, AIR 1973 All 263 ; citing Manchester
Diocesan Council for Education v Commercial & General Investment Ltd, (1970) 1 WLR 271 :
[1969] 3 All ER 1593 .
273 Shyam Biri Works Pvt Ltd v Uttar Pradesh Forest Corpn, AIR 1990 All 205 . Having held that
no contract came into existence since there was no acceptance, the court held that the contract
was frustrated under section 56 of the Contract Act, as the corporation was gagged by
litigations and could give no answer to the tenders. It is submitted that the question of applying
section 56 of the Act did not arise if contract never came into existence.
274 Barrick v Clark, [1951] SCR 177 : (1950) 4 DLR 529 (Supreme Court, Canada) (time ran from
the receipt of the offer at the offeree's address, although he was away).
275 Dunlop v Higgins, (1848) 1 HLC Cas 381.
276 Pipraich Sugar Mills Ltd v Pipraich Sugar Mills Mazadoor Union, AIR 1957 SC 95 : [1956] SCR
872 at 884.
277 Halsbury's Laws of England, Vol 9(1), 4th Edn Reissue, 30 June 1998, "CONTRACT", para
647.
278 Financings Ltd v Stimson, [1962] 1 WLR 1184 : [1962] 3 All ER 386 (CA).
279 Looker v Law Union and Rock Insurance Co Ltd, [1928] 1 KB 554 .
280 Rajah of Bobbili v Akkella Suryanarayana Rao Garu, AIR 1920 Mad. 911
281 Ahmedunnisa Begum v Life Insurance Corp of India, AIR 1981 AP 50 ; Harshad Shah v Life
Insurance Corpn. of India, AIR 1997 SC 2459 : (1997) 5 SCC 64 ; LIC of India v Jaya Chandel, AIR
2008 SC 1310 : (2008) 3 SCC 382 .
282 Chitty on Contracts, 28th Edn at p 130, para 2–092.
283 Halsbury's Laws of England, Vol 9(1), 4th Edn Reissue, 30 June 1998, "CONTRACT", para
648.
284 Reynolds v Atherton, (1921) 125 LT 690 (CA) : affirmed (1922) 127 LT 189 (HL).
The Indian Contract Act, 1872
CHAPTER I Of Communication, Acceptance and Revocation of Proposals
S. 7 Acceptance must be absolute.—
(1) be absolute and unqualified;
(2) be expressed in some usual and reasonable manner, unless the proposal
prescribes the manner in which it is to be accepted. If the proposal prescribes a
manner in which it is to be accepted, and the acceptance is not made in such
manner, the proposer may, within a reasonable time after the acceptance is
communicated to him, insist that his proposal shall be accepted in the
prescribed manner, and not otherwise; but if he fails to do so, he accepts the
acceptance.
[s 7.1] Introduction
Under section 7(1), an acceptance must be absolute and unqualified in order to convert
a proposal into a promise. Section 7(2) prescribes that the acceptance must be made
in a reasonable manner. If the proposer has prescribed a manner of acceptance, the
acceptance must be made in that manner, if not so made, there is a contract only if the
proposer "accepts the acceptance".
[s 7.2] Principle
The acceptance must be absolute, unqualified and without conditions.285 The offer and
acceptance must correspond.286 This is sometimes called the "mirror rule", i.e., the
acceptance must match with the terms of the offer. When there is a variation between
the offer and acceptance even in respect of any material term, acceptance cannot be
said to be absolute and it does not result in the formation of a legal contract.287 When
parties are at cross purposes, there is no real correspondence of offer and
acceptance.288
The question is of interpretation in each such case whether a particular
communication is to be understood as a real and absolute acceptance, or as
introducing a condition or qualification which makes it only a stage in the course of
negotiation, capable of leading, but not necessarily leading, to a concluded contract;
and this may often involve the construction of various documents which have passed
between the parties to find out the extent of the agreement. In order to decide whether
there is an absolute and unqualified agreement between the parties to a contract, the
entire negotiations and correspondence should be considered.289 An absolute and
unqualified acceptance may, even when there is no express intimation from the offeree,
be inferred from the conduct of the offeree.290
It is important to read the document as a whole and gather if there was intention to
accept291
The intention of the offeree to accept must be expressed with such certainty as to
leave no doubt that the terms offered by the offeror are assented to. A mere
acknowledgment of an offer, or a reply that the offeree intends to place an order does
not amount to an acceptance. Seeking clarification of an offer neither amounts to the
acceptance of the offer nor to the making of a counter-offer.292 An acceptance given
under protest would not result in a binding contract.293 A concurrence given without
prejudice, to the offer of the other side to be guided by the Arbitration & Conciliation Act
so far as procedural law is concerned, would not amount to waiver of the terms of the
contract.294 A reply that "I am making the necessary arrangement" to a counterproposal was not an acceptance.295 The question whether the terms added to the
proposal are intended to be part of the contract, or are merely in the nature of inquiries,
will depend in each individual case upon the words used and the intention of the
parties.296 Acceptance must be signified by some act or acts agreed on by the parties
or from which the law raises a presumption of acceptance.297In the absence of written
communication of acceptance of proposal, the act or the conduct of parties must show
that the acceptance was absolute and unqualified and without any reservations or
conditions.298
It would be no acceptance if it attempts to vary the terms of the offer, whether the
variation relates to the subject matter of the proposed contract or the time of
performance or the place of performance, or otherwise. An acceptance does not
convert a proposal into a promise if it leaves one of the essential conditions to the
discretion of a third person,299 or it is in substance only a provisional arrangement
subject to something more being done to complete the arrangement;300 so is an
acceptance stated to be "subject to confirmation by mail",301 or is expressly made
subject to the payment accompanying the proposal being found in order.302 An
acceptance which at the same time exempts the acceptor of any obligation is not an
acceptance capable of creating a binding contract.303 An offer meant to be accepted
by offerees jointly must be accepted by all the offerees. Acceptance was invalid, if the
offer which had been accepted was not in compliance with condition of having to make
an initial deposit.304
In exceptional circumstances, there may be an unconditional acceptance in terms of a
proposal which in fact the parties do not understand in the same sense, and which
neither party is estopped from understanding in his own sense. Here the acceptance is
merely apparent, and no contract is formed. Such cases are dealt with in section 13.
[s 7.3] Negotiations
No contract is concluded by an acceptance referring to future negotiations to be made
for finalisation of more terms of the contract.305
Parties may carry on lengthy negotiations in anticipation of reaching an agreement.
Parties may even make new demands and counter-demands. The Court then has to
decide whether any contract has been concluded, and if so, on what terms and at what
point.306 The Court is more likely to hold that the negotiations have resulted in a
contract if a party has acted on the basis of existence of contract,307 or if performance
under the contract has commenced or has been rendered.308 Until there is absolute
acceptance of a proposal, the parties are still in the stage of negotiations and no legal
obligations attach to them.309 If negotiations continue and the terms are not finalised,
there is no concluded contract even though a letter allotting the contract to the tenderer
has been issued.310
Analysis of offer and acceptance in formation of a contract may present some
difficulties in such situations. The mechanism of offer and acceptance is a useful
guideline to Courts to determine whether an agreement has been reached between the
parties. The terms of contract may depend upon the analysis of the negotiations in
offer, counter-offer and acceptance.311 Where the question is, whether the negotiations
started with the object of forming a contract were still open to bargaining, or had
resulted in the formation of a contract, the decision should depend on the facts and
circumstances of that particular case.
In Rickmers Verwaltung GmbH v Indian Oil Corp,312 the charter party between R and I
was not signed. I was to furnish a stand by letter of credit, and R a performance bond,
both on terms to be mutually agreed between the parties. I informed R to load the
goods according to the indicated schedule, but R did not do so as the letters of credit
were not approved by I. On R's request for arbitration, I contended that there was no
contract. The clause in the unsigned charter party did not indicate whether furnishing
of the letters of credit was a condition precedent. The Supreme Court held that there
was no contract since the correspondence indicated that the finalisation of the formats
of the letters of credit and the performance guarantee by the parties was considered by
the parties as a condition precedent, and the fax messages also showed that the
parties were still negotiating. It observed in para 12:
The Court is required to review what the parties wrote and how they acted, and from that
material to infer whether the intention as expressed in correspondence was to bring into
existence a mutually binding contract. The intention of the parties is to be gathered only
from the expressions used in the correspondence and the meaning it conveys, and in case it
shows that…(the parties) had actually reached an agreement upon all material terms, then…
a binding contract...(could be) spelt out from the correspondence.
A letter of intent normally expresses an intention to enter into a contract with the other
party in future.313 But it may be construed as a letter of acceptance if such intention is
evident from its terms. It is not uncommon in contracts involving detailed procedure, in
order to save time, to issue a letter of intent communicating the acceptance of the offer
and asking the contractor to start the work with a stipulation that the detailed contract
would be drawn up later. This would be an acceptance of the offer though termed a
letter of intent.314 The issue will have to be decided with reference to the terms of the
letter of intent. Where the LOI itself is hedged with the condition that the final allotment
would be made after obtaining CRZ and other clearances, it would depict an intention
to enter into a contract at a later stage.315
When the existence of an arbitration agreement can be inferred from various
documents duly approved and signed by the parties in the form of exchange of emails,
letters, fax and other means of telecommunication, a concluded contract comes into
effect and the mere fact that a formal contract had to be prepared and initialed by the
parties would not affect its binding nature.316
In Koylsh Chunder Dass v Tariney Churn Singhee,317the defendant wrote to the plaintiff:
The value of your house has been fixed through the broker at Rs 13,125. Agreeing to that
value, I write this letter. Please come over to the office of my attorney between three or four
this day, with the title deeds of the house and receive the earnest.
In reply, the plaintiff wrote:
You having agreed to purchase our house for Rs 13,125, have sent a letter through the
broker, and we are agreeable to it, and we will be present between three and four this day at
your attorney's, and receive the earnest.
The plaintiff and the defendant met at the attorney's office, but the attorney was absent,
and accordingly no inspection of title deeds or payment of the earnest money took
place. The plaintiff sued the defendant for specific performance, but it was held that
there was no binding contract, as two important matters—namely, inspection of the
deeds and the amount and payment of the earnest money—were left to be arranged at
the attorney's office. Grath C.J. said:
As regards the earnest money, it must be observed that both parties treat that as an
element in the bargain…Suppose the meeting had taken place and, the parties had been
unable to agree as to the amount of the earnest money, how could it possibly have been
said that they have arrived at any binding agreement?318
Although no contractual liability fixes if the negotiations do not result into a contract,
other obligations may arise. Confidential information conveyed during the course of
negotiations cannot be misused by the party to whom it was communicated for any
purpose than for which it was communicated.319 A document titled "Basis of
Negotiation" involving transfer of share capital that provided for return of amount paid
if certain conditions were not fulfilled. It was held it was a contract, not of sale and
purchase of shareholdings, but as regards amount of Rs 50 lakhs.320
An agreement to negotiate in good faith is generally not enforceable.321
[s 7.4] Acceptance: Absolute and Unqualified
Where the acceptance is absolute and not qualified, the contract is completed by
acceptance.322 Parties become bound by its terms, and on breach, for damages or
compensation. When an offer is accepted without any condition, the contract is formed
on the terms of the offer so accepted. The offeree cannot be heard to say later that the
acceptance was subject to a condition which ought to have formed part of the
acceptance. However, in a case where on the day of signing the contract, it was pointed
out by a separate communication that a particular clause which was earlier objected to
and deleted from the draft exchanged, was found in the contract, which was not
acceptable, it was held that the party signing the contract was not estopped from
objecting to the clause.323
When the proposal of any payment is subject to any condition, the payment has to be
accepted with the condition imposed and it is not permissible in law to accept the
payment and ignore the condition. The payment has to be accepted with the condition
or not at all.324 It is always open to a person to elect to accept or not to accept with
that condition.325 The offeree cannot be heard to say that though he accepted the
proposal, he was not bound by the condition.326 The petitioner having unconditionally
accepted the migration package and giving up all disputes relating to the licence
agreement, cannot after accepting the benefits reject the conditions subject to which
these were extended.327
The plaintiff tendered to buy from the defendant 3500 tonnes of coke at Rs 31 per
tonne and also deposited Rs 5000/- as security. The acceptance of the tender and the
deposit of security money constituted a concluded contract. Further, the plaintiff was
held to have accepted all the terms of the sale.328 A tender issued by the Government
for sale of 244 tons of iron scrap, approximately, was filled by a purchaser and
accepted by the Government. This was held to be a valid unconditional contract,
implying that purchaser will pay more if the weight exceeded the quality tendered for
and get a refund if the quality is less.329 A shareholder of a company informed the
desire to purchase shares under her right of preemption. The contract was formed
then, and did not depend on payment of price, which was a question of
performance.330
The acceptance of the conditional offer is an acceptance of the offer and the condition
attached thereto.331 The acceptance of the offer by a person of a named sum in full
payment of the claim operates as a discharge of the claim. The claimant cannot accept
the amount and repudiate its being payment in full discharge or claim it as payment of
another claim.332 Therefore, acceptance of a cheque issued by the railway in full and
final discharge of liability cannot be accepted and cashed without the liability standing
discharged.333
An acceptance binds the parties to all the terms and conditions. A housing society was
bound to pay enhanced price for the land allotted to it by a development authority, as it
had accepted the allotment on the terms of offer made earlier, and on its failure to do
so, was liable to have the earnest money forfeited.334 Where the brochure of a land
development authority clearly mentioned that the cost was estimated, and that
allottees will have to pay actual cost at enhanced rates as applicable in the future, the
allottees are bound to pay enhanced rates.335 Such allottees cannot reopen the
contract and demand part of the price or the instalments paid by them.336 The
arbitration clause in the tender form binds the parties to the agreement.337
If by action on the part of the acceptor, the proposer cannot be restored to his former
position, then the acceptor cannot be permitted to say that his acceptance should be
treated as other than according to the original proposal. But in the absence of estoppel
being applicable, a conditional acceptance cannot become absolute acceptance.338
An apparently conditional acceptance may nevertheless be interpreted as an absolute
one. The offer of the new contract may be annexed to an absolute acceptance so that
there is a concluded contract whether the new offer is accepted or not.339 An
unconditional acceptance of the original offer and the formation of the contract
thereupon is not affected by the collateral term annexed to that acceptance.340 An
acceptance on condition, coupled with an admission that the condition has been
satisfied, may be unconditional.341 Nor do the mere use of the words "to be agreed" in
the acceptance prevent it from being binding.342
[s 7.5] Acceptance Conditional and not Binding
A valid acceptance of proposal must be absolute and unconditional.343 It must extend
to all the terms of a proposal.344 If the purported acceptance is conditional or qualified,
it does not create contractual relationship. It becomes a counter-proposal,345 which
may become a contract on the terms offered by the offeree if the proposer accepts it.
When an offer is conditional, the offeree has the choice of either accepting the
conditional offer or making a counter-offer. But what the offeree cannot do when the
offer is conditional, is to accept a part of the offer which results in performance by the
offeror and reject the condition subject to which the offer is made.346 An acceptance
of the counter-proposal would revoke the offer, and the contract cannot be revived on
original terms by withdrawing the conditional acceptance.347 A bid can be revoked by
notice if it has been accepted provisionally or with conditions.348
An absolute acceptance of an offer does not make a binding contract if it does not
extend to all the terms under negotiation or it is merely a provisional arrangement
subject to a further agreement to be executed between the parties.349
Where the plaintiff in his tender offered to purchase and remove 1500 MT of damaged
food grains declared fit for cattle or poultry, but the defendant conveyed acceptance in
respect of the higher quantity of 6200 MT of damaged paddy, it was held that such
acceptance of offer was neither absolute nor unconditional and therefore there was no
binding contract.350 A company requested the port authorities for lease of certain area
in the western side of the port and the port trust indicated readiness to give lesser and
different area on certain conditions. There was no concluded contract.351 Where an
acceptance sent to a tenderer stated three conditions for his compliance, there was no
contract if conditions were not complied within the time stipulated in the conditions.352
The plaintiff's goods were lost due to the negligence of the railways, which sent
cheques with a form stating that the plaintiff received them in full and final settlement
of the claim. The plaintiff had made clear to the railways that they would be accepting
cheques only as part payment. In the suit for recovery of the balance claim, the
railways claimed that the amounts were received in full and final settlement in terms of
the form, which had been accepted by the plaintiff by encashing the cheque. It was
held, applying section 7, that the acceptance by the plaintiff of the cheques was not
absolute and unqualified.353 The original offer of the tenderer clearly contained the
term that no security deposit would be made. The Director General of Supplies and
Disposals stipulated in clear terms that a sum of Rs 75,000 be deposited as security
deposit. The tenderer in a telegram extended the period for acceptance of the original
offer that no security deposit shall be made. It was held that there was no
unconditional acceptance of the counter-offer made by the Director General of Supplies
and Disposals and hence no contract was concluded between the parties.354
Where an offer was made for the purchase of certain goods which were to be ordered
out from Europe, an acceptance "free Bombay Harbour and interest," being a term not
contained in the offer, was held to be no acceptance within the meaning of this
section.355 Where a cheque for an amount was received by the defendant subject to
finalisation of the lease deed as per the terms and conditions indicated by the
defendant, it was held that no concluded contract came into existence and the plaintiff
was entitled to the refund of the amount with interest.356 Where an agreement for sale
was subject to ratification by the co-heirs, such ratification was condition precedent for
formation of the contract.357 A reply of "I am making the necessary arrangement" to a
counter-proposal, was not an acceptance.358
Where the proposal contains a condition, the offeree is not bound to accept at all. An
auction purchaser of evacuee property repudiated his liability on the ground that the
area of the property auctioned was less than the area represented at the time of sale.
The authorities did not accept his proposal that he was prepared to accept the property
if price were proportionately reduced. The sale was cancelled and the property was
resold at a higher price. The auction purchaser could not contend that his sale should
not have been cancelled. The authorities were not bound to accept his conditional
proposal of reduction in price.359 When a party makes a composite offer, each part
being dependant upon the other, another party cannot, by accepting a part of the offer,
compel the other to confine its dispute to the accepted part.360
[s 7.6] Condition Precedent and Subsequent
Where acceptance is made, for example, subject to payment of deposit, planning,
consent, confirmation, ratification or approval of third party; a question may arise
whether such acceptance is conditional, and therefore not binding on the offeror. This
would depend upon whether such a condition is a condition precedent to the formation
of the contract. If it is, there is no contract. If not, it may be a condition precedent to
performance, or a promissory condition. The acceptance in such cases is
unconditional and results in a contract. Whether it is the one or the other is a matter of
interpretation.361
Where letters of intent were issued on the term that the contractor would sign the
contract and would furnish irrevocable bank guarantee of a scheduled bank; which the
contractor failed to do, it was held that the two conditions were conditions precedent to
the formation of the contract,362 and the revocation of the letters of intent was
valid.363
Where while accepting the tender on behalf of the President of India, the Chief
Engineer, Eastern Command required the plaintiff to deposit a further sum of additional
security, it was held that the acceptance was unconditional, and depositing additional
security was a condition subsequent to the acceptance of tender and a binding
contract being concluded. The plaintiff was therefore not entitled to refund the amount
of deposit.364
A tender for supply of oil contained conditions:
(a) that on acceptance of the tender, the contractor shall at the option of the
Secretary, Department of Supply, and within the period specified by him, deposit
with him the security deposit therein specified; and
(b) if the contractor is called upon to deposit security and the contractor fails to
provide the security within the period, such failure will constitute a breach of the
contract or/and the Secretary shall be entitled to make other arrangements at
the risk and acceptance of the contractor.
The tender was accepted by a letter stating that the tender had been accepted "subject
to your depositing 10% as security". It was argued that the letter converted the
condition about deposit to one of condition precedent and hence it was no acceptance,
and there was no contract. It was held that a contract was concluded as the condition
was a condition subsequent.365 A contract to purchase several tons of iron scrap from
the Government was concluded on acceptance of the purchaser's tender. The condition
of payment of price did not make the contract conditional.366 Acceptance intimated by
fax stating "regular purchase order follows" concluded the contract, and other
conditions about joint signature of the tenderer or collaborator or furnishing bank
guarantee were conditions subsequent. The fax was neither a conditional acceptance
nor a counter-offer.367
The conditions of the offer cannot be waived except by a competent authority. Where
the conditions of the tender required the tenderer to make a deposit, an acceptance of
the same without insisting upon the deposit was not valid, and there was no
contract.368
Where an acceptance incorporates conditions, it must be shown that the conditions are
fulfilled, if the acceptance is to be binding.369
[s 7.7] Counter-Proposal
An acceptance with a variation in terms of the proposal or with a qualification is a
counter-proposal,370 which must be accepted by the original offeror before a contract
is made.371 A person faced with a counter proposal has three choices. The first would
be to refuse to accept the counter proposal in which event there would be no contract.
The second is to accept the counter proposal which would result in a concluded
contract in terms of the counter proposal. The third is to make a counter proposal to
the counter proposal in which event there would be no concluded contract unless the
respondent agreed to the same. But the person did not have the fourth choice of
propounding a concluded contract with a modification neither proposed nor agreed to
by either party.372 Thus where a bank did not sanction the full amount of the loan
applied for, and the borrower proceeded to sign documents of loan, there was a
contract for repayment of the loan sanctioned.373 It is a counter-proposal where the
acceptance contains conditions,374 or refers to future negotiationsfor finalisation of
more terms,375 or requires compliance of further requirements.376 When accepted, it
becomes a contract on the terms of the counter-proposal.
If acceptance is made conditional, it amounts to rejection of the original offer and no
concluded contract comes into existence.377 A municipality passed a resolution
agreeing to renew the lease of the lessee on his paying the upset price and annual rent
within the specified time. The lessee appealed to the minister but failed and then seven
years later, he paid part of the money and agreed to the rest being paid in instalments,
which was accepted by the municipal commissioner. But the Supreme Court held that
the commissioner had no authority to do so in view of the municipality's resolution.
Thus, there was a fresh offer and no contract came into existence.378 The offeree
requested a tenderer to extend time of validity, in response to which the tenderer put a
condition of reduction in rebate. Purported acceptance of the original tender did not
create a contract.379 On voluntary offer made by a breweries company to supply
certain quantity of rum to the army as a gesture of goodwill and not pursuant to any
tender inquiry, the Government, while purporting to accept offer of the company to
supply rum, issued a letter of acceptance of tender containing an arbitration clause and
a default clause. The company however, never signed nor sent any acknowledgment of
the receipt of the letter of acceptance of tender. It was held that the letter of
acceptance of tender sent by the Government amounted in law, to a counter-offer,
which was not accepted by the company as it had not signed the acknowledgment
attached to it and mere payment of security deposit as per the letter did not amount to
implied acceptance of all terms and conditions thereof.380
A tender was submitted with special conditions annexed to the tender. The letter of
acceptance stated that it was subject to general conditions. Work commenced. It was
held that the letter of acceptance was a counter-offer, and the contractor having acted
upon it, it was accepted; and that the special conditions did not form part of the
contract.381 A tenderer who continued to supply although the supply order did not
conform to the tender conditions, was bound by the terms of the supply order.382
If the offer is accepted but another term, e.g. of price, is introduced, the original offer is
destroyed and cannot be accepted unless renewed.383U purchased tender documents
for certain works. I approached U for joint participation. Draft agreement was prepared
imposing joint responsibility in completing the work. I made material changes in the
draft placing unilateral responsibility on U. U did not communicate further, but
submitted the tender, and later withdrew it. In an action by I for breach, it was held that
the conduct of U of submitting unilateral tender did not amount to acceptance of the
counter-offer of I, and there was no concluded contract.384
[s 7.8] Acceptance of Counter-proposal
Acceptance of a counter-offer creates a binding contract. A vendor did not accept the
buyer's proposal but made a counter-proposal for a higher price with a condition for an
advance. The buyer sent the advance along with the letter of acceptance. There was a
concluded contract.385 In such a case, the acceptance with the qualification is in its
nature a counter-proposal, which, if accepted by the proposer, would constitute an
agreement.386 A letter accepting only the general conditions and not the special
conditions given with the invitation to tender, is not an acceptance, but a counterproposal. A contract is concluded if the counter-proposal is acted upon, and then the
special conditions are not part of the contract.387 However, if the counter-offer is made
proposing changes in respect of only some of the terms of the proposal, and these are
accepted, the original offer stands accepted subject to modifications made by the
counter-offer.388 When the counter offer was made in the form of a letter, which was
issued immediately after signing the contract, the counter party's silence along with the
conduct of the counter party of not controverting the letter, resulted in acceptance of
the counter offer.389
The sellers gave the buyers quotations for the sale of their machine tools and the terms
and conditions included two clauses: (a) a price variation clause providing price ruling
on the date of delivery; and (b) the terms and conditions in that letter to prevail over
terms and conditions in the buyer's orders. The buyers placed an order with terms and
conditions materially different from that of the sellers with no price variation clause. At
the foot of the order, there was a tear-off acknowledgment of receipt of order with the
words "we accept your order on the terms and conditions stated thereon". When the
goods were ready and delivered, the price had gone up and the sellers demanded
higher price. The buyers paid the price quoted and the sellers brought an action for the
balance. The Trial Court upheld the claim but the Court of Appeal, basing its decision
on the analysis of "offer and acceptance", reversed the judgment for the reasons; first,
that the buyer's order was a counter-offer, and the sellers by completing and sending
the tear-off acknowledgment had accepted the counter-offer and could not claim the
increase in price; and secondly, that the documents had to be read as a whole and the
tear-off acknowledgment was the decisive document.390
[s 7.9] Post Acceptance Negotiations and Conduct
If one party submits a document or documents containing terms after the making of
the contract, it will not affect the existence of the contract. The new terms will become
part of the contract only if they are accepted as a variation, either expressly or by
conduct, namely, acceptance of goods. Where after signing the contract a mistake as
to terms of a document is pointed out and a counter offer was made, the signatory to
the original contract cannot be said to be bound by the objectionable clause in the
original contract.391 The plaintiff entered into a contract with the defendant for supply
of glazed windows of approved design at a particular rate. After a part of the contract
was performed, the defendant asked the plaintiff to supply panelled windows, for which
the plaintiff demanded enhanced rates, to which the defendant never agreed. The new
windows were supplied. It was held that there was no agreement for enhanced rates,
as the rates for the new windows were never settled.392
Where a complete contract was formed by unqualified acceptance of an offer at a
certain date, subsequent negotiations will have no effect unless they amount to a new
agreement.393
A concluded contract for the sale of a tank of oil is not affected by the subsequent
demand of dharmada or a future term about time of dispatch of the wagon, sought to
be imposed by the buyers. The agreement of parties as to the terms of a contract can
be proved not only by their words, but also by their conduct in accordance with the
maxim non refert an quis assensum suum praefert verbis, aut rebus ipsis et factis. An
acceptance without qualification or condition concludes the contract. Fresh
negotiations regarding other terms will not affect the main contract so concluded.394 A
new collateral term annexed to an acceptance of a contract does not affect the original
contract accepted absolutely.395
[s 7.10] Waiver of Conditions of Offer
Where an essential condition of the tender is not complied with, it is open to the person
inviting the tender to reject the same.396 A contract may however be concluded even if
the tender, instead of being rejected, is accepted without the condition being complied
with, if such condition can be waived.397 Any such condition may be waived only with
proper authority. Where the tender was accepted by the Chief Conservator of Forests
without the deposit of 25%, required to be deposited under the rules with the
submission of the tender, there was no contract as the Chief Conservator could not
waive the condition.398
Mere issuing of work order in response to the tender did not conclude any contract
where the tenderer intimated after opening the tender that he would accept the work
order only if the suggested term relating to the revision of rates is incorporated in the
agreement.399
A condition in the tender notice requiring the tenderer to submit documents along with
the tender is not a condition precedent. This condition could be relaxed and the
tenderer would be required to submit documents later, else have the offer cancelled.400
A condition in a contract of insurance that the insurer would be liable only on the
insured paying premium, being for the benefit of the insurer, could be waived by the
insurer.401 However, under section 64VB of the Insurance Act, 1938 (inserted in 1968),
an insurer is prohibited from undertaking risk or issuing a policy from a date before the
payment is received or is guaranteed.
[s 7.11] Acceptance in the Sale of Land Subject to Investigation of Title
An offer to sell land was accepted "subject to the title being approved by our solicitors".
While the law requires merely a marketable title to be made out, the term introduced an
additional condition of title being approved by a solicitor of his choice. When such
approval was not given and the purchaser withdrew, the Court of Appeal held that
acceptance was conditional and there was no binding contract.402 Applying this
principle, the Supreme Court held that where the bid in an auction was subject to
confirmation by a competent authority, the acceptance was conditional and until the
acceptance became absolute upon confirmation, the bid could be withdrawn.403
Where an agreement of sale of a lease is "subject to the purchaser's solicitor approving
the lease" the contract is conditional.404 It has been held that the lessor is bound to
give the lessee a good title free from reasonable doubt, and where a prospective lessee
demands title deeds from the prospective lessor for investigation and approval, it
cannot be said that there is a final and concluded agreement. In this case, the Court
found that the plaintiff did not intend any final lease being made until a good title had
been made and until it had been approved by the plaintiff's solicitors, after
investigation. This, it is submitted, was a case on its own facts.405 The Indian Courts
also adopt the view that an agreement containing such a provision is not a mere
surplusage, or a clause meaning no more than what sections 25(1) of the Specific
Relief Act, 1963 or 55(2) of the Transfer of Property Act, 1882 imply, but the fulfilment
of such condition is necessary for enforcement of contract. If not assented to by the
vendor, there is no concluded contract.406
A provision in an agreement for the sale of the house that "on approval of the title by
the purchaser's solicitor, the purchase money should be paid" does not have the effect
of making the completeness of the agreement, conditional upon the approval of the
title by the solicitor, but of simply fixing the time for the payment of the purchase
money without waiting for a conveyance.407
[s 7.12] Acceptance Subject to Confirmation or Approval
Where an offer is accepted, subject to confirmation or approval, a question arises
whether acceptance is complete on the provisional or conditional acceptance, or
subsequently when the confirmation or approval is given.
In Chitibobu Adenna v Garimalla Jaggarayadu,408it has been held that when there is a
conditional acceptance by an agent on behalf of the principal and the condition is
subsequently fulfilled, there is a valid contract. In Somasundaram Pillai v Provincial
Government of Madras,409it washeld that a bidder could retract his bid after the
provisional acceptance but before the final acceptance or confirmation by the authority
competent to accept. The Court went on to clarify that all that was held in Chitibobu
Adenna's case was thatwhere there is a conditional acceptance and the condition is
subsequently fulfilled, there was a contract.. In Rajanagaram Village Co-op Society v VP
Veerasami Mudaly,410 the person who accepted the bid had the authority to do so and
the property was knocked down in favour of the highest bidder subject to the approval
of the bank. The Bank by its resolution accepted the bid, but this was not
communicated to the bidder. The Bank later cancelled its resolution of acceptance and
directed re-sale. The bidder sought specific performance, which was granted by the
Court. It was held that the acceptance was a conditional acceptance and once the
Bank had accepted the bid, a further communication of the acceptance by the Bank
was not necessary. The Court drew a distinction between a provisional and conditional
acceptance and held that an acceptance was provisional when the auctioneer had only
a right to receive the bids and pass them on to his superior and he acted merely as a
conduit pipe, like the sub-collector in the Somasundaram case mentioned above. But if
the offeree had the full power to accept the offer, yet gave only a qualified acceptance,
although the offeree was not finally bound, the offeror could not withdraw his bid. It
was held that conditional acceptance has the effect of binding the highest bidder to the
contract if finally there was approval or confirmation by the superior person indicated in
the terms of sale. It was not open to him to withdraw the offer as in the case of a
provisional acceptance and if there was approval the contract becomes concluded and
becomes enforceable.
The earlier editors of this book had opined that in Chitibobu's case (above), the
condition was not a condition subsequent, as stated in the judgment but was a
condition precedent, as the Court had held that the contract was to come into being
subject to the satisfaction of the condition. If the bidder could have retracted the bid
before the final acceptance, it was a condition precedent in both the Chitibobu and
Rajanagaram cases. An acceptance is either absolute or conditional. There is no
halfway ground between the two. If an acceptance is conditional, the offeror can
withdraw at any moment until absolute acceptance has taken place.411 The distinction
drawn in Rajanagaram case between provisional and conditional acceptance creates a
half-way acceptance between absolute and conditional acceptance, the offeree has full
power to accept, yet gives a qualified ("conditional") acceptance, and though the
offeree is not finally bound, the offeror cannot withdraw his offer. The Andhra Pradesh
High Court disagreed with the view in Rajanagaram case and held that where the offer
and acceptance culminating in a concluded contract are themselves subject to
conditions and are not final, there is no contract at all till these conditions are fulfilled
and an offer before the fulfilment of these conditions can be withdrawn.412 The Patna
High Court disagreed with the distinction between "provisional" and "conditional"
acceptance and held that a provisional acceptance is not acceptance, because the real
acceptance was yet to come.413
The question whether by an acceptance which is conditional upon the occurrence of a
future event a contract will become concluded was considered by the Supreme Court in
Haridwar Singh v Bagun Sumbrui,414 and the following passage from Williston on
Contracts, Vol. I, 3rd edition was quoted with affirmation:
A nice distinction may be taken here between (1) a so-called acceptance by which the
acceptor agrees to become immediately bound on a condition not named in the offer, and
(2) an acceptance which adopts unequivocally the terms of the offer but states that it will
not be effective until a certain contingency happens or fails to happen. In the first case,
there is a counteroffer and rejection of the original offer; in the second case there is no
counteroffer, since there is no assent to enter into an immediate bargain. There is, so to
speak, an acceptance in escrow, which is not to take effect until the future. In the meantime,
of course, neither party is bound and either may withdraw. More over, if the time at which
the acceptance was to become effectual is unreasonably remote, the offer may lapse
before the acceptance becomes effective. But if neither party withdraws and the delay is not
unreasonable a contract will arise when the contingency happens or stipulated event
occurs.
In UOI v Bhimsen Walaiti Ram,415the rules provided that the final bid would be subject to
confirmation, and the contract not complete till the bid was confirmed. The Supreme
Court held that if the acceptance of a bid in an auction sale by the sale officer or
auctioneer was subject to confirmation by a superior authority, there was only a
provisional or conditional acceptance, and the bidder would be bound only after such
confirmation was given.416
This would be so even despite an endorsement in the bidding list by the officer
conducting the auction that the sale has been concluded in favour of the highest
bidder.417 The highest bidder will not have any right under the sale unless the bid is so
approved or confirmed,418 although he may have deposited part of the price according
to the conditions of the auction.419 The successful highest bidder will not be liable for
loss incurred on account of the shortfall in price at the re-auction ordered after his
failure to deposit the prescribed minimum amount, if his bid has not been sanctioned
by the Excise Commissioner.420 Where the authority has not confirmed, the bidder
cannot challenge the settlement made by the Government in favour of a third party.421
In the auction for tehbazari dues, it was knocked down to a bidder and affirmed by the
municipal committee. That constituted a contract and was binding on the parties.422
The contract is concluded on the approval of the competent authority to the
acceptance of the bid, and the auction purchaser takes the risk of the loss of goods by
fire if the property in the goods has passed under the contract.423
Where the acceptance is subject to approval or confirmation, the contract becomes
binding on the confirmation or approval being given, and communication of such
approval or confirmation is not again necessary.424 The offeror can revoke his offer
until the confirmation, or approval, subject to which the acceptance has been given.425
There is no contract until such confirmation or approval is given,426 or if the higher
officer or authority does not confirm or approve.427
[s 7.13] Acceptance Subject to Formal Document
Where it is contemplated that a formal document shall follow the offer and acceptance,
the effect of such stipulation depends on whether the parties regard the offer and
acceptance as sufficient to conclude the contract and intend the document to be a
record of this contract, or they regard it as incomplete and do not intend it to be legally
binding until the terms of the formal document are agreed and the document is duly
executed in accordance with the terms of the agreement. A letter of intent normally
expresses an intention to enter into a contract with the other party in future. But it may
be construed as a letter of acceptance if such intention is evident from its terms. It is
not uncommon in contracts involving detailed procedure, in order to save time, to issue
a letter of intent communicating the acceptance of the offer and asking the contractor
to start the work with a stipulation that the detailed contract would be drawn up later.
This would be an acceptance of the offer though termed a letter of intent.428
When the existence of an arbitration agreement can be inferred from various
documents duly approved and signed by the parties in the form of exchange of emails,
letters, fax and other means of telecommunication, a concluded contract comes into
effect and the mere fact that a formal contract had to be prepared and initiated by the
parties would not affect its binding nature.429
In deciding whether a contract is a concluded contract or not, the essential question is
to find out whether the formal document is of such a nature that it was the very
condition of the contract or whether it was commemorative of the evidence on the
point.430 In order to decide this matter, the entire negotiations, and the correspondence
on which the contract depends, must be considered.431 It is a matter of construction
whether the execution of a further contract is a condition of the contract or a mere
expression of a desire of the parties as to the manner in which the transaction already
agreed to will go through.432 Where a clause in the tender required the tenderer to
execute the formal agreement by a specified date, else be liable for forfeiture of
earnest money, the execution of agreement was a condition precedent to the
contract.433 The fact that the parties refer to the preparation of an agreement by which
the terms agreed upon are to be put in a more formal shape, does not prevent the
existence of a binding contract.434 Thus a contract was made upon acceptance of
tender, even if the tenderer is required to execute an agreement after acceptance of his
tender.435 But there may be cases where the signing of a further formal agreement is
made a conditional term of the bargain and if the formal agreement is not approved
and signed, there is no concluded contract.436 A provisional allotment expressly stating
to confer no rights until issue or signature of further document does not confer any
right on the offeror to insist on the rights under the proposed contract.437
Parties are free to provide that the agreement shall not be complete and operative until
its terms are reduced into writing, or are embodied in a formal document, and that it is
a question of interpretation whether they have done so or not. Where, however, there is
no such stipulation, express or implied, the mere circumstances that the parties intend
to put the agreement into writing or in a formal instrument will not prevent the
agreement from being enforced, assuming, of course, that an agreement otherwise
complete and enforceable is proved.438 Thus a document mentioning some terms with
an express statement that it was a tentative draft for discussion, was nevertheless
enforceable, where no further documents were contemplated, it was signed after
resolutions made by board of directors, and was acted upon by parties.439
Where there is no precise clause for reservation, but the acceptance is not obviously
unqualified, it becomes a question of construction whether the parties intended that
the terms agreed on should merely be put into form,440 or whether they should be
subject to a new agreement, the terms of which are not expressed in detail,441 and this
must be determined by examination of the whole of a continuous correspondence or
negotiation. It will not do to pick out this or that portion which, if it stood alone, might
be sufficient evidence of a contract.442
If the signing of a further contract is a condition of the terms of the bargain, there is no
enforceable contract, either because the condition is unfulfilled, or because the law
does not recognise a contract to enter into a contract. If the condition is a mere
expression of the desire of the parties about the manner in which the original
agreement should be performed, there is a binding contract, and reference to the
formal document may be ignored.443 An endorsement on a receipt for price of property
contained a term that an agreement of sale on stamp paper was to be executed within
15 days. This was a condition for the bargain, and the mere receipt was not a
concluded contract.444 There was a concluded contract when the vendor agreed to sell
and the purchaser agreed to purchase the property even though a clause in the
agreement imposed a liability on the vendor to execute the sale deed within a certain
time.445 Parties may even be bound by an oral agreement, although there is a reference
to execution of formal contract.446
Where parties intend making of a formal contract, it may be evidence to show that they
did not intend the previous negotiations to amount to any contract. This circumstance
is however not conclusive, and they will be bound by the previous agreement "if it is
clear that such an agreement has been made".447 Where the proposal is absolutely and
unequivocally accepted, it binds the parties, and the non-execution of a formal
document cannot absolve them of their engagement.448 In Kallipara Sriramulu v T
Awastha Narayana,449the drawing up of a written agreement was not shown as a prerequisite to the coming into operation of the oral agreement to sell. However, where
tender of supply of cloth was accepted by Punjab State Electricity Board by a telegram
and the purchase order was issued, it was held that it could not be successfully
contended that in the absence of any regular document showing the execution of the
agreement between the parties, there was no completed contract between them.450
The terms of a contract have retrospective application if the parties during negotiations
act on that understanding and in the anticipation that on the contract being made it
would govern what was being done.451
A letter attached to the tender of a controller that the tender was subject to adequate
supply of labour being available as and when required, was held not to have been
incorporated in the contract in Davis Contractors Ltd v Farenham Urban District
Council,452as it was not listed in a clause of the formal contract.
[s 7.14] Acceptance and Contracts of Insurance
The general rule that a contract will be concluded only when the party to whom the
offer is made accepts it unconditionally and communicates it to the person making the
offer is equally applicable to insurance contract. Whether the final acceptance is that of
the assured or the insurer, however, depends simply on the way in which negotiations
for an insurance have progressed.453 In the case of the assured, a positive act on his
part by which he recognises or seeks to enforce the policy amounts to an affirmation of
it.454
A contract of insurance, like any other contract, is concluded by offer and acceptance.
Acceptance may be expressed in writing or it may even be implied if the insurer
accepts the premium and retains it.455Though in certain cases silence to a proposal
might convey acceptance but in the case of Insurance proposal, silence does not
denote consent and no binding contract arises until the person to whom an offer is
made says or does something to signify his acceptance.456
In a case where the assured had died before the risk was underwritten and policy
issued and the proposal contained a clause that receipt of completed proposal and
initial payment does not create any obligation on the insurer to underwrite the risk and
that insurer shall not be liable until it has underwritten the risk and issued the policy, it
was held that mere receipt of proposal form premium by the insurer does not make a
contract, the insurer must accept the risk, take steps to underwrite the risk and issue
the policy.457
In a case where the amount of premium initially fixed was unconditionally accepted by
the Life Insurance Corporation (LIC), it was held that a concluded contract resulted
between the parties, and merely because on the basis of information already furnished
by the insured, namely that all his teeth except one molar were extracted, the
Corporation was subsequently inclined to enhance the amount of premium marginally,
it could not be permitted to wriggle out of its obligation under the policy.458 Where the
LIC accepted subsequent premiums without demur and issued receipts, it was held
that the Corporation would be deemed to have waived its right to withhold payment
under the policy on the ground that it had lapsed by non-payment of an earlier halfyearly premium in the stipulated time.459 Where proposal for insurance of his life was
made by a person in the standard form accompanied by cheque for the first premium
amount, which was encashed, but deficiency of a small amount was shown due to a
clerical error committed by the LIC office, the Court negatived the plea of the LIC that
there was no binding contract between the parties.460
Where a rupee policy was converted into a policy of sterling value and re-delivered to
the assured without any demand of repayment of the first sterling premium and the
assured died before the first sterling premium could be paid, it was held that repayment
of the sterling premium as a condition precedent to the right to the sterling assurance
had been waived and the payment of the full amount of the sterling policy could not be
avoided.461 An absolute and unequivocal acceptance of a proposal binds the parties,
and the non-execution of the policy cannot absolve the parties of their engagement.462
A policy of insurance became effective where all other formalities had been completed
except that "the personal statement duly completed by the doctor had not been done"
as this was held to be a mere formality,463 and also where the first premium was
accepted but the insurer required the proposer to produce standard evidence of age.464
The acceptance of the proposal of life insurance does not necessarily result in a
binding insurance contract. It may merely amount to an intimation of willingness of the
insurer to insure on payment of the necessary premium.465 Nor is there an insurance
contract where premium is received by the insurer, receipt is issued, but the cover
sought by the proposer has not been decided and agreed by the insurer.466
An acceptance of the proposal by an insurer on the condition that the first premium will
be paid within 30 days from the date of acceptance, is in law a counter-offer, the
fulfilment of which would result in a contract.467Or a proposal for insurance may be
accepted in all its terms, but with the statement that there shall be no assurance till the
first premium is paid. Here again there is no contract, but only a counter-offer, and the
intending insurer may refuse a tender of the premium if there has meanwhile been any
material change in the facts constituting the risk to be insured against.468
A stipulation of attachment of liability on the payment of premium is a condition
precedent to the policy taking effect. But that is a condition for the benefit of the
insurer and could be waived by the insurer.469 However, section 64VB of the Insurance
Act inserted in 1968470 prevents an insurance company from accepting any risk from a
date prior to the date of payment of premium, or its guarantee. The insurer will be at
risk only after premium is received. In case of general insurance, if the payment is not
realised by the insurer, the policy is void ab initio.471
It has been a well-established commercial practice to send cover notes even prior to
the completion of a proper proposal or while the proposal is being considered or a
policy is inpreparation for delivery. If the proposal is for a standard policy and the cover
note refers to it, the insured is taken to have accepted the terms of the policy.472
However, if cover notes remained in the office of the insurer and were not given to the
party seeking the insurance, the contract cannot be held to be concluded.473 It had
been held that the prefix "interim" to words "cover note" does not bring about difference
in the liability of the defendant. "The position in law is that the cover note is in itself a
contract of insurance governing the rights and liabilities of the parties in the event or a
loss taking place during the currency".474 When amount of premium is not received,
issue of cover note does not amount to acceptance by the insurance company and the
cover note has no binding character.475 In LIC of India v R Vasireddy,476 the Supreme
Court, however, held that the mere receipt and retention of premium until after death of
the applicant or the mere preparation of the policy document is not acceptance.
Acceptance must be signified by some act or acts agreed on by the parties or from
which the law raises a presumption of acceptance. Mere delay in giving an answer
cannot be construed as an acceptance, as, prima facie, acceptance must be
communicated to the offeror. The general rule is that contract of insurance will be
concluded only when the party to whom an offer has been made accepts it
conditionally and communicates his acceptance to the person making the offer.
Whether the final acceptance is that of the assured or the insurer, however, depends
simply on the way in which negotiations for insurance have progressed.477 However,
once the policy is issued, the insurer of third party insurance under the Motor Vehicles
Act, 1988 is not absolved of liability to the third parties on the ground that the cheque
of premium was dishonoured.478
A lapsed insurance policy on life does not become an enforceable contract until revived
and if death takes place before revival, no rights in favour of the person applying for
revival arise. Revival is not automatic nor a right. Revival gives rise to a new contract
and there is no revival after death.479 However, where a policy of health insurance
contained a clause of renewal at the option of the insured, the insurer was bound to
renew the policy.480
The offeror being the master of his proposal, may prescribe a mode or manner of
acceptance. He may prescribe that the acceptance must be sent to a particular place; it
may not then be sent elsewhere and that the acceptance has to reach the offeror.481
This rule is particularly strict in case of options.482 If a last date is prescribed for
receipt of an acceptance, it must reach the offeree before that date.483
An insurance company offered to revive a lapsed policy if the assured remitted the
premium amount before a specified date. The assured remitted the payment by post.
The policy stood revived as soon as the assured put the money into the post office,
though the assured could have recalled the money thereafter. The company had
prescribed the manner of acceptance and the assured had so acted.484
It is not for the acceptor to say that some other mode of acceptance which is not
according to the terms of the proposal will do as well. In Surendra Nath Roy v Kedar
Nath Bose,485an offer was made in the following terms: "I intend to sell my house for
Rs 7,000. If you are willing to have it, write to F at his address". Instead of writing to F,
the purchaser sent an agent in person to F and agreed to purchase the property for Rs
7,000. It was contended that this was not a valid acceptance, as the only manner in
which the acceptance of the offer could be made was by writing to F at his address. It
was held that the letter had to be read in a reasonable manner and that it did not
preclude the purchaser from putting himself into direct communication with F. This
reason for the decision is doubtful. The decision could have rested on the reason that
the oral acceptance being communicated to the vendor, he did not insist upon the
proposal being accepted in writing.
It may be reasonable to use the post, even though the offer was made orally, if
immediate acceptance was not required and the parties lived at a distance.486 On the
other hand, it would not normally be reasonable to accept a telegraphic offer by posting
a letter. A communication, by post of any demand or offer, generally authorises the
post as a proper mode of conveying the answer, but a general authority to pay a sum
due to remittance through the post will not authorise the unusual practice of enclosing
considerable sums of coin or negotiable notes in a post letter.487 A proposal cannot be
said to have been accepted by service of copy of plaint in a suit for specific
performance.488
If the person making the proposal expressly or impliedly intimates in his proposal that
it will be sufficient to act on the proposal without communicating acceptance of it to
himself, performance of the condition is a sufficient acceptance without notification.
However, some overt act must be done or words spoken by the offeree which are
evidence of his intention to accept and which conform to the mode of acceptance
indicated by the proposer. A mere tacit formation of intention cannot constitute an
acceptance.489
In the absence of any express or implied directions from the proposer to the contrary, a
proposal can be accepted by a letter.490 Acceptance of proposal by telegram is
valid.491 Assent must be by express words or positive conduct.492 It can be in a form
other than specified under sections 7, 8 or 9.493 It may be in the form of conduct when
trade or mercantile usage can be invoked to import into the transaction a promise
which is not made either expressly or impliedly.494
Under the common law, acceptance by mode other than one prescribed by the offeror
would amount to a counter-offer, and would result in a contract when this is in return
accepted.495 However, the Court may decide as a matter of construction, the object for
which the mode was prescribed (whether speed or certainty). A requirement that
acceptance must be sent by letter, by post, may be for fixing the time of acceptance,
and not the manner of accepting. In such a case, acceptance by telex would be
sufficient.496 But an acceptance by telex may not suffice where the object of such
condition is to require a signed acceptance.
The Indian law differs. Under section 7(2) of the Contract Act, if the acceptor does not
send the acceptance in the manner prescribed by the offeror, the acceptance is
nevertheless valid unless the offeror intimates to the acceptor that he does not "accept
the acceptance". The present sub-section, however, throws on the proposer the burden
of notifying to the acceptor that an acceptance not in the prescribed manner and form
is insufficient, and he remains bound if he fails to insist on an acceptance such as he
required.497
[s 7.15] Acknowledgment of Electronic Records
A person sending a message by electronic record may require the addressee to
acknowledge its receipt in a particular form or by a particular method. If he has not so
stipulated, the acknowledgment may be given by any form of communication or by
conduct.498 Such sender (originator) of the electronic record can exclude liability for
the message by stipulating that this record will not be binding on him unless
acknowledgment is received. Then, if acknowledgment is not received, the "electronic
record shall be deemed to have never been sent by the originator".499 If the originator
stipulates for an acknowledgment, but has not stipulated that the electronic record
shall be binding only on receipt of acknowledgment, and acknowledgment has not
been received within time specified or agreed, or within reasonable time (if no time is
specified), and the addressee has not sent any acknowledgment, the originator must
give notice to the addressee specifying a time for receipt of acknowledgment, and if it
is still not received, "treat the electronic record as though it has never been sent".500
Therefore, where the sender (originator) of electronic record has stipulated for an
acknowledgment, failure to give acknowledgment by the addressee may absolve the
sender (originator) of liability for the electronic record sent. Whether or not sending
that acknowledgment amounted to accepting the offer is not dealt with by these
provisions, but by the substantive law of contract; and matters of establishing
despatch, receipt and acknowledgments by the law of evidence.
[s 7.16] Position in other jurisdictions:
[s 7.16.1] "Mirror rule"
There has been a growing judicial awareness of the danger that a very strict application
of the requirement of certainty of the terms could result in the striking down of
agreements intended by business community to have a binding force, and the Courts
have been reluctant in striking down an agreement on which the parties have already
acted.501
An acceptance, apparently conditional, is valid if a new term in the acceptance merely
makes express that which was implied in the offer or the proposed contract.502 An
acceptance will have legal effect if the new terms are trivial, or the acceptance is
accompanied with a protest or a "grumble", or it requests the offeror for better
terms.503 An acceptance which is in form conditional may also be considered in fact
absolute, on the ground that the parties did not really envisage the incorporation in the
contract of any terms other than those already agreed. An offer was accepted when the
acceptance used the words "subject to the usual conditions of acceptance". It was held
that there was a binding contract, as these words were on the facts quite meaningless;
the offeree had not in mind that any further terms were to be agreed, but was using a
high-sounding phrase to which he attached no particular meaning.504
The rule that an acceptance must be absolute and unqualified does not mean that the
offer and acceptance must match completely.505 An acceptance which contains
statements which do not intend to vary the terms of the offer or to add new terms is
valid even if it does not correspond with the offer. All that is required is that it must not
introduce a new term or a different term, nor should it leave any material term yet to be
agreed. "Immaterial or minor differences or variances between the offer and
acceptance will not prevent the formation of the contract".506 An acceptance of tender
was held to conclude the contract even though the formal contract remained to be
signed and some terms were still being negotiated between the parties.507
[s 7.17] Conflicting standard terms
It is quite frequent in commercial transaction that both the offeror, when making the
offer, and the offeree when accepting it, each seek the contract on their own standard
terms. If the offeror does not expressly accept the offeree's standard terms, the
question arises whether a contract is at all concluded, and if so, on which or whose
terms.
In response to the offer of a party, the offeree may signify his acceptance "on his own
standard terms" or "usual conditions". The acceptance is really a counter-proposal, the
original offeror is not bound to accept. His accepting of goods or services would
constitute acceptance of the standard terms. In some cases, each party may support
the contract with reference to its own standard terms which may conflict. If the general
rules of offer and acceptance were strictly applied, there would either be no contract, or
a contract on the basis of the acceptance of the "last shot" fired.
Where the plaintiffs delivered a consignment of whisky to the defendants for storage
and the delivery note incorporated the plaintiffs' conditions of carriage, and the
defendants stamped it with a note that it was received under the defendants'
conditions, it was held that the latter amounted to a counter-offer which the plaintiffs
accepted by handing over the goods and therefore the contract incorporated the
defendants' conditions.508 This is the "last-shot" doctrine—the contract finalises on the
terms of the party who fired the last shot, the terms contained in the final document in
the series of correspondence.
In Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd,509 applying the mirror
image rule, the seller's confirmation was held to be a counter offer. The "last shot"
approach has been criticised on the ground that it would encourage businessmen to
fire salvos of standard forms at each other with a hope to fire the last shot and induce
express or implied acceptance.510 The operation of the doctrine depends on chance
and can be arbitrary. The outcome may belie the expectations of the parties; they may
believe that a contract is made, and the Court may decide there is no contract.511 A
minor departure from this rule has been suggested, where if the offeror who has
received an acceptance with additional terms not materially altering the terms of the
offer does not object to the discrepancy, the terms of the contract consist of the terms
of the offer subject to the modifications contained in the acceptance. This puts the
burden of objecting to the additional terms upon the offeror, and would preserve the
agreement, and in effect the expectation of the parties.512 Where goods have been
delivered and accepted before the finalisation of terms, as in the Butler Machine Tools
case, the delivery and acceptance may be considered as a new contract which is in
neither set of written terms, but on ordinary implied terms, which would operate in the
absence of agreed express terms, together with any further terms which the judge feels
should be implied in the particular circumstances.513
Yet in Tekdata Interconnections Ltd v Amphenol Ltd,514 the Court of Appeal stressed
that: "the traditional offer and acceptance analysis must be adopted unless the
documents passing between the parties and their conduct show that their common
intention was that some other terms were intended to prevail",515 or there was a clear
course of dealing between the parties. This approach provides "a degree of certainty
which is both desirable and necessary in order to promote effective commercial
relationships"516 The court viewed that the traditional analysis should not be displaced
unless there were sufficiently strong circumstances to do so.
The "last shot" doctrine would be appropriate if the parties have expressly indicated
that their own standard terms shall be adopted. But on other occasions, parties may
refer to their own standard terms automatically, namely, by exchanging printed order or
acknowledgment of order forms, and very often without being aware of the terms set
out in them. Once performance of the contract has commenced the parties should not
be allowed to question the formation of contract. The solution may lie in the "knockout" doctrine, where a contract is concluded on the basis of the agreed terms and of
any standard terms which are common in substance. The operation of this doctrine
may be excluded by clearly indicating in advance, or by later document that it does not
intend to be bound by any terms except its own,517 or a clear course of dealing
between the parties.518
The Uniform Commercial Code519 makes an exception to the "mirror image" rule in
contracts for sale of goods made by exchanging forms. Where the forms sent by the
buyer and seller do not agree in entirety, the Code provides that an acceptance is
generally effective and contract created, even though the form containing the
acceptance has terms additional to or different from those contained in the offering
form. This is in consonance with the parties' intentions and practices. This doctrine
may not exactly fit within the four corners of the provisions of formation of contract
prescribed in the Contract Act.
285 Jawahar Lal Barman v UOI, [1962] 3 SCR 769 : AIR 1962 SC 378 ; Nirod Chandra Roy v Kirtya
Nanda Singh, AIR 1922 Pat. 24 ; Moti Lal Madan Lal v Kishori Lal & Bros, AIR 1930 Lah 374 ; Kahn
and Kahn of Delhi v Premsukh Das Rup Narain, AIR 1931 Lah 260 ; Deep Chandra v Rukneeddaula
Shansher Jung Nawab Mohammed Sajjad Ali Khan, AIR 1951 All 93 (FB); UOI v Babulal
Uttamchand Bhandari, AIR 1968 Bom 294 ; Badri Prasad Bhandari v State of Madhya Pradesh, AIR
1970 SC 706 ; UOI v Uttam Singh Duggal, AIR 1972 Del 110 ; Uttar Pradesh State Electricity Board
v Goel Electric Stores, AIR 1977 All 494 ; Suraj Besan and Rice Mills v Food Corpn. of India, AIR
1988 Del 224 ; Phosphate Co Ltd v Emirates Trading Agency LLC, 2016 SCC OnLine Cal 5067;
Kochi Refineries Ltd v Reva Enviro Systems Pvt Ltd, 2016 SCC OnLine Ker 1564 : (2016) 1 (2016)
1 KLJ 774 .
286
Mayawanti v Kaushalya Devi, (1990) 3 SCC 1 ; New India Assurance Co Ltd v Dewa
Properties, 2015 SCC OnLine Mad 3443 : (2015) 2 LW 889 .
287 UOI v Uttam Singh Duggal, AIR 1972 Del 110 at 115; Chhotey Lal Gupta v UOI, AIR 1987 All
329 at 334.
288 I.T.C. Ltd v George Joseph Fernandes, (1989) 2 SCC 1 : AIR 1989 SC 839 .
289 Dhulipudi Namayya v UOI, AIR 1958 AP 533 ; Sree Minakshi Mills Ltd v TC Anantarama Ayyar,
AIR 1930 Mad. 654 ; Trimex International FZE Ltd v Vedanta Aluminium Ltd, AIR 2010 SCW 909 :
(2010) 3 SCC 1 (exchange of emails); Bharat Forge Ltd v Onil Gulati, AIR 2005 Del 369 ; National
Properties Ltd v Bata India Ltd, AIR 2001 Cal 177 .
290 Bishun Padu Haldar v Chandi Prasad & Co, AIR 1919 All 7 .
291 D Wren International Ltd v Engineers India Ltd, AIR 1996 Cal 424 .
292 Uttar Pradesh State Electricity Board v Goel Electric Stores, AIR 1977 All 494 .
293 Leela Hotels Ltd v Housing and Urban Development Corp Ltd, (2012) 1 SCC 302 .
294 Aurohill Global Commodities Ltd v Maharashtra STC Ltd, (2007) 7 SCC 120 .
295 Sir Mohamed Yusuf Ismail v Secretary of State, (1920) 22 Bom LR 872 : 45 Bom 8 : 57 IC
971 : AIR 1921 Bom 200 .
296 Moolji Jaitha& Co v Seth Kirodimal, AIR 1961 Ker. 21 at 23.
297 Life Insurance Corp of India v Raja Vasireddy Komalavalli, (1984) 2 SCC 719 : AIR 1984 SC
1014 ; Bharat Sanchar Nigam Ltd v BPL Mobile Cellular Ltd, AIR 2009 SC (Supp) 1005 : (2008) 13
SCC 597 .
298 Shri Sowmya Enterprises v Mineral Exploration Corp Ltd,.
299 Rani Huzur Ara Begum v Deputy Commr Gonda, AIR 1941 Oudh 529 .
300 Dhulipudi Namayya v UOI, AIR 1958 AP 533 .
301 Kahn v Jugal Kishore Gulab Singh, AIR 1930 Lah 114 .
302 Life Insurance Corpn. of India v Brazinha D'Souza, AIR 1995 Bom 223 .
303 Kahn and Kahn of Delhi v Prem Sukh Das Rup Narain, AIR 1931 Lah 260 .
304 State of Madhya Pradesh v Firm Gobardhan Dass Kailash Nath, AIR 1973 SC 1164 at 1166.
305 Satya Prakash Goel v Ram Krishan Mission, AIR 1991 All 343 .
306 New India Assurance Co Ltd v Dewa Properties, 2015 SCC OnLine Mad 3443 : (2015) 2 LW
889 .
307 Gujarat State Fertilizers Co Ltd v HJ Baker & Bros, AIR 1999 Guj 209 (force majeure clause
was invoked); Geo-Group Communications INC v IOL Broadband Ltd., AIR 2010 SCW 209 : (2010)
1 SCC 562 .
308 RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co KG (UK Production), [2010]
UKSC 14 : [2010] 3 All ER 1 (performance after expiry of letter of intent).
309 Haji Mohamed Haji Jiva v E Spinner, (1900) 24 Bom 510 at 525; United Bank of India v
Shyam Sundar Banerjee, AIR 2007 Cal 87 ; Board of Control for Cricket in India v Zee Telefilms Ltd,
(2005) 2 CTC 609 : (2005) 2 Mad LJ 653.
310 Gammon India Ltd v Punjab State Electricity Board, AIR 1997 P&H. 43 (allotment was also
made subject to ratification).
311 Ramji Dayawala & Sons Pvt Ltd v Invest Import, (1981) 1 SCC 80 .
312 Rickmers Verwaltung GmbH v Indian Oil Corp, AIR 1999 SC 504 at 509 : (1999) 1 SCC 1 at 9;
Rajasthan Co-op Dairy Federation Ltd v Maha Laxmi Mingrate Mktg Service Pvt Ltd, (1996) 10 SCC
405 (furnishing bank guarantee was condition precedent to formation of contract).
313 Rajasthan Co-op Dairy Federation Ltd v Maha Laxmi Mingrate Marketing Service Pvt Ltd,
(1996) 10 SCC 405 . Bhushan Power and Steel Ltd v S.L.Seal, Additional Secreatry (Steel and
Mines), (2017) 2 SCC 125 .
314 Dresser Rand S.A. v Bindal Agro Chem Ltd, (2006) 1 SCC 751 .
315 Rishi Kiran Logistics Pvt Ltd v Kandla Port Trust, (2015) 3 SCC 233 ; Bhushan Power and
Steel Ltd v S.L.Seal, (2017) 2 SCC 125 .
316 Trimex International FZE Ltd v Vedanta Aluminium Ltd, (2010) 3 SCC 1 quoting with approval
decision of Court of Appeal in Pagnan S.p.A v Feed Products Ltd, (1987) 2 Lloyd's Rep 601(CA).
317 Koylsh Chunder Dass v Tariney Churn Singhee, (1884) ILR 10 Cal 588; Baijnath v Kshetrahari
Sarkar, AIR 1955 Cal 210 .
318 There was no proof of any customary amount of earnest money intended by the parties.
319 Lac Minerals Ltd v International Corona Resources Ltd, [1989] 2 SCR 574 (Supreme Court of
Canada).
320 SMV Agencies Pvt Ltd v Cross Country Heritage Hotel, (2013) 203 DLT 790 : 2013 SCC
OnLine Del 1426.
321 See section 10 below: "Agreement to negotiate".
322 Jawahar Lal Barman v UOI, AIR 1962 SC 378 ; Ram Dev Mool Chand v Lakshmi Insurance Co
Ltd, AIR 1962 P H 125.
323 Ramji Dayawala & Sons Pvt Ltd v Invest Import, (1981) 1 SCC 80 .
324 UOI v Gangadhar Mimraj, AIR 1962 Pat. 372 ; Amrit Banaspati Co Ltd v UOI, AIR 1995 SC
1340 .
325 UOI v Gangadhar Mimraj, AIR 1962 Pat. 372 at 377 (DB).
326 State of Bihar v Chiranjit Lal Chandha, AIR 1960 Pat. 139 .
327 Bharti Cellular Ltd v UOI, (2010) 10 SCC 174 .
328 Jagdish Prasad Kesharwani v Fertilizers Corpn. of India Ltd, AIR 1981 Pat. 58 ; UOI v Maddala
Thathaiah, AIR 1966 SC 1724 distinguished.
329 Deviprasad Khandelwal & Sons v UOI, AIR 1969 Bom 163 .
330 Claude-Lila Parulekar v Sakal Papers Pvt Ltd, AIR 2005 SC 4074 : (2005) 11 SCC 73 .
331 Kanhaiya Lal Agrawal v UOI, AIR 2002 SC 2766 : (2002) 6 SCC 315 (tenderer offering
concessional rates if tender finalised within shorter period).
332 State of Bihar v Charanjit Lal Chadhaj, AIR 1960 Pat. 139 ; Faithful Croft v Benjamin Lumley,
(1858) 10 ER 1459 at 1468; Sheikh Mohamad Jan v Munshi Ganga Bishun Singh, [1910] 38 IA 80 ;
Ishaq Abdul Karim v Madan Lal, AIR 1965 All 34 .
333
Amrit Banaspati Co Ltd v UOI, AIR 1995 SC 1340 ; section 63 below: "Accord and
Satisfaction".
334 Delhi Development Authority v Grihsthapana Co-op Housing Society Ltd, AIR 1995 SC 1312 .
335 Bareilly Development Authority v Vrinda Gujarati, AIR 2004 SC 1749 : (2004) 4 SCC 606 ;
Chief Adminstrator, PUDA v Shabnam Virk, AIR 2006 SC 1758 : (2006) 4 SCC 74 .
336 Shiva Pal Karan Kholi v State of Uttar Pradesh, AIR 1988 All 268 .
337 State of UP v Combined Chemicals Co Pvt Ltd, AIR 2011 SCW 439 : (2011) 2 SCC 151 .
338 UOI v Babulal Uttamchand Bhundari, AIR 1968 Bom 294 .
339 Sir Mohamed Yusuf Ismail v Secretary of State, (1920) 22 Bom LR 872 : 45 Bom 8 : 57 IC
971 : AIR 1921 Bom 200 .
340 Dhulipudi Namayya v UOI, AIR 1958 AP 533 ; Jainarain Ram Lundia v Surajmull Sagarmull,
AIR 1949 FC 211 at 216 relied upon; Raunaq International Ltd v Alfred C Toepfer, AIR 1984 NOC
84 (Del).
341 Roberts v Security Co, [1897] 1 QB 111 (CA); but see Equitable Fire & Accident Office Ltd v
The Ching Wo Hong, [1907] AC 96 : [1906] UKPC 86 at 101.
342 But an agreement to supply goods described in general terms at a price "to be agreed" is
not necessarily void for uncertainty; for a term may be implied that the goods are intended to be
of reasonable quality to be sold at reasonable prices: Hilla& Co Ltd v Arcos Ltd, (1932) 147 LT
503 : [1932] All ER Rep 494 ; Foley v Classique Coaches Ltd, [1934] 2 KB 1 : [1934] All ER Rep 88 .
(The question is one of construction in each case, and the inclusion of an arbitration clause is in
such cases an important element); May & Butcher Ltd v R, [1934] 2 KB 17 : [1929] All ER Rep 679
(HL); the Court takes into consideration the fact that the parties believed that they had made a
contract, followed on this point in Rajkishor Mohanty v Banabehari Patnaik, AIR 1951 Ori. 291 ;
British Bank for Foreign Trade Ltd v Novimex, [1949] 1 KB 623 at 630 : [1949] 1 All ER 155 (CA);
The implication of a reasonable sum is assisted if the agreement had been executed on one
side.
343 Jawahar Lal Barman v UOI, AIR 1962 SC 378 .
344 Dhulipudi Namayya v UOI, AIR 1958 AP 533 .
345 See below "Counter-Proposal".
346 Food Corp of India v Ram Kesh Yadav, (2007) 9 SCC 531 .
347 See above section 6 "Rejection of Proposal".
348 Abdul Rahim Khan v UOI, AIR 1968 Pat. 433 .
349 Dhulipudi Namayya v UOI, AIR 1958 AP 533 .
350 Suraj Besan and Rice Mills v Food Corpn. of India, AIR 1988 Del 224 at 228; Technocom v
Railway Board, AIR 2009 Pat. 15 (acceptance of part of tendered work only).
351 Visakhapatnam Port Trust v Bihar Alloy Steels Ltd, AIR 1991 AP 331 at 339.
352 Kerala Financial Corp v Vincent Paul, AIR 2011 SC 1388 : (2011) 4 SCC 171 .
353 UOI v Babulal Uttamchand Bhandari, AIR 1968 Bom 294 .
354 Zodiac Electricals Pvt Ltd v UOI, AIR 1986 SC 1918 : (1986) 3 SCC 522 at 526.
355 Haji Mohamed Haji Jiva v E Spinner, (1900) 24 Bom 510; Kundan Lal v Secretary of State, AIR
1939 Oudh 249 : 183 IC 597.
356 J K Industries Ltd v Mohan Investments & Properties Pvt Ltd, AIR 1992 Del 305 at 311.
357 MV Shankar Bhat v Claude Pinto (Dec) By LRs, AIR 2004 SC 636 .
358 Sir Mohamed Yusuf Ismail v Secretary of State, (1920) 22 Bom LR 872 : 45 Bom 8 : 57 IC
971 : AIR 1921 Bom 200 .
359 Bhagat Ram Batra v UOI, AIR 1976 SC 2128 at 2129.
360 General Assurance Society Ltd v Life Insurance Corpn. of India, AIR 1964 SC 892 : [1964] 5
SCR 125 .
361 S Kumar's Associates AKM (JV) v South Eastern Coalfield Ltd, AIR 2013 Chhat 19 (DB)
(acceptance conditional on payment of security deposit).
362 Rickmers Verwaltung GmbH v Indian Oil Corpn, AIR 1999 SC 504 : (1999) 1 SCC 1 .
363 Rajasthan Co-op Dairy Federation Ltd v Maha Laxmi Mingrate Marketing Service Pvt Ltd,
(1996) 10 SCC 405 .
364 Sardar Sucha Singh v UOI, [1987] (Supp) SCC 127.
365 Jawahar Lal Barman v UOI, AIR 1962 SC 378 ; D Wren International Ltd v Engineers India Ltd,
AIR 1996 Cal 424 .
366 Deviprasad Khandelwal & Sons v UOI, AIR 1969 Bom 163 .
367 D Wren International Ltd v Engineers India Ltd, AIR 1996 Cal 424 .
368 State of Madhya Pradesh v Firm Gobardhan Dass Kailash Nath, AIR 1973 SC 1164 .
369 L K Trust v EDC Ltd, AIR 2011 SC 2060 : 2011 (6) SCC 780 .
370 Haji Mohamed Haji Jiva v E. Spinner, (1900) 24 Bom 510 (DB); Rao Girdhari Lal v Societe
Belge de Banque SA, AIR 1938 Lah 341 .
371 Kundan Lal v Secretary of State, (1939) 14 Luck 710 : 183 IC 597 : AIR 1939 Oudh 249 ; Haji
Mohamed Haji Jiva v E. Spinner, (1900) 24 Bom 510 at 523. In the latter case, the plaintiff
maintained that the additional term was already implied in the offer by a previous course of
dealing or otherwise. The defendant maintained that there was a contract without that term. The
Court held that there was no contract at all.
372 Deokar Exports Pvt Ltd v New India Assurance Co Ltd, (2008) 14 SCC 598 .
373 Kalpana Das v Contai Co-op Bank Ltd, AIR 2005 Cal 95 .
374 Chhotey Lal Gupta v UOI, AIR 1987 All 329 ; South British Insurance Co Ltd v JR Stenson, AIR
1928 Bom 260 (an insurance policy containing the condition that no insurance shall be deemed
to have been effected until the premium in full was paid); Benarsi Debi v New India Assurance Co
Ltd, AIR 1959 Pat. 540 (acceptance of insurance proposal on condition that first premium
thereunder should be paid within 30 days); Claridges Infotech Pvt Ltd v Surendra Kapur, AIR 2009
Bom 1 (plaintiffs should have confirmed offer first).
375 Satya Prakash Goel v Ram Krishan Mission, AIR 1991 All 343 ; Motilal Manshi Shah v
Suryakant Sheth, AIR 2006 Bom 246 .
376 Sindhu Resettlement Corp Ltd v Shree Om Commercial Coop Society Ltd, 2013 SCC OnLine
Guj 693.
377 Chhotey Lal Gupta v UOI, AIR 1987 All 329 ; Badri Prasad v State of Madhya Pradesh, AIR
1970 SC 706 ; Uttar Pradesh Rajkiya Nirman Nigam Ltd v Indure Pvt Ltd, AIR 1996 SC 1373 :
(1996) 2 SCC 667 (material terms deleted from draft of agreement).
378 Badrilal v Municipal Corpn. of Indore, AIR 1973 SC 508 at 510 : [1973] 3 SCR 15 .
379 DS Constructions Ltd v Rites Ltd, AIR 2006 Del 98 .
380 UOI v Mohan Meakin Breweries Ltd, AIR 1988 NOC 33 (Del).
381 Heavy Engineering Corp Ltd v Crompton Greaves Ltd, AIR 1972 Cal 217 at 220.
382 Security Printing and Minting Corpn. of India Ltd v Gandhi Industrial Corpn, (2007) 13 SCC
236 .
383 Moolji Jaitha& Co v Seth Kirodimal, AIR 1961 Ker. 21 .
384 Uttar Pradesh Rajkiya Nirman Nigam Ltd v Indure Pvt Ltd, AIR 1996 SC 1373 : (1996) 2 SCC
667 .
385 Byomkesh Banerjee v Nani Gopal Banik, AIR 1987 Cal 92 .
386 Muralidhar Jalan Chandra Chatterjee v Paresh, AIR 1947 Cal 14 : 228 IC 260.
387 Heavy Engineering Corpn. Ltd v Crompton Greaves Ltd, AIR 1972 Cal 217 .
388 Fair, Air Engineers Pvt Ltd v NK Modi, (1996) 6 SCC 385 (counter-offer concerning only
technical aspects of the detail offer).
389 Ramji Dayawala& Sons Pvt Ltd v Invest Import, (1981) 1 SCC 80 .
390 Butler Machine Tool Co Ltd v Ex-Cell-O Corpn. (England) Ltd, [1979] 1 All ER 965 at 967; Hyde
v Wrench, (1840) 3 Beav 334; Brogden v Metropolitan Railway Co, [1877] 2 AC 666 applied.
391 Ramji Dayawala& Sons Pvt Ltd v Invest Import, (1981) 1 SCC 80 .
392 State of Punjab v Hindustan Development Board, AIR 1960 Punj 585 (contractor was entitled
to payment under section 70 of the Act).
393 Jainarain Ram Lundia v Surajmull Sagarmull, (1949) FCR 379 : 51 Bom LR 979 : AIR 1949 FC
211 ; Hindustan Construction Co v State of Bihar, AIR 1963 Pat. 254 at 260; Dhulipudi Namayya v
UOI, AIR 1958 AP 533 ; Tamil Nadu Electricity Board v N Raju Reddiar, AIR 1999 SC 2025 : (1996)
4 SCC 551 (no document in support of after-tender discussions and its acceptance).
394 Laxmi Ginning and Oil Mills v Amirit Banaspati, AIR 1962 Punj 56 .
395 Dhulipudi Namayya v UOI, AIR 1958 AP 533 .
396 GJ Fernandez v State of Karantaka, AIR 1990 SC 958 ; Sri N.O. Shetty v Karnataka State Road
Transport Corpn, AIR 1992 Kant. 94 .
397 Bismi Abdullah & Sons v Regional Manager, FCI, AIR 1987 Ker. 56 at 58.
398 State of Madhya Pradesh v Firm Gobardhan Das Kailash Nath, AIR 1973 SC 1164 at 1166 (it
was not proved that he had the power).
399 Arvind Coal& Construction Co v Damodar Valley Corpn, AIR 1991 Pat. 14 at 21.
400 Mukul Kumar v Divisional Railway Manager, AIR 1995 All 72 (writ petition by unsuccessful
tenderer challenging the acceptance).
401 Abdul Azeez& Co v New India Assurance Co Ltd, AIR 1954 Mad. 520 .
402 Hussey v Horne-Payne, [1879] 2 AC 311 at 322 : affirming; (1878) 8 ChD 670 : [1874–80] All
ER Rep 716 at 721, per Lord Cairns followed in Treacher & Co Ltd v Mahomedally Adamji
Peerbhoy, (1910) 35 Bom 110. In such a case, the seller should show good title or satisfaction
of the solicitor.
403 UOI v Messrs Bhim Sen Walaiti Ram, (1969) 3 SCC 146 .
404 Caney v Leith, [1937] 2 All ER 532 ; applying Hudson v Buck, [1877] 7 ChD 683 ; Curtis Moffat
Ltd v Wheeler, [1929] 2 ChD 224 ; Halsbury's Laws of England, Vol 9(1), 4th Edn Reissue, 30 June
1998, "CONTRACT", para 670.
405 Baijnath v Kshetrahari Sarkar, AIR 1955 Cal 210 pp 215–16.
406 Panem Venkanarayana Shastry v Rajupalli Chinna Iella Reddy, AIR 1959 AP 256 ; Treacher&
Co Ltd v Mohamedally Adanji Peerbhoj, (1910) ILR 35 Bom 110; but see Krishnaji Gopinath Rele v
Ramchandra Dashinath Mastakar, 53 Bom LR 1377 : AIR 1932 Bom 51 (such condition does not
give the solicitor arbitrary and absolute power to reject a title. He is the sole judge if he acts
reasonably. The vendor does not thereby surrender his right to assert or maintain that he has
made out a marketable title. The court will determine whether or not the solicitor has acted
reasonably, and whether the title is or is not marketable having regard to the grounds of
rejection put by the solicitor).
407 Sutherland v Cohen, (1890) ILR 17 Cal 920.
408 Chitibobu Adenna v Garimalla Jaggarayadu, AIR 1916 Mad. 75 (DB).
409 Somasundaram Pillai v Provincial Government of Madras, (1947) Mad 837 : AIR 1947 Mad.
366 ; UOI v Narain Singh, AIR 1935 Punj 274 .
410 Rajanagaram Village Co-op Society v VP Veerasami Mudaly, AIR 1951 Mad. 322 .
411 This opinion expressed in the earlier editions of this book was approved in Raghunandhan
Reddy v State of Hyderabad, AIR 1963 AP 110 and Abdul Rahim Khan v UOI, AIR 1968 Pat. 433 .
412 Raghunandhan Reddy v State of Hyderabad, AIR 1963 AP 110 .
413 Abdul Rahim Khan v UOI, AIR 1968 Pat. 433 .
414 Haridwar Singh v Bagun Sumbrui, AIR 1972 SC 1242 : 1972 SCR (3) 629 .
415 UOI v Bhimsen Walaiti Ram, AIR 1971 SC 2295 ; approving Hussey v Horne Payne, [1879] 4
AC 311 affirming, [1874–80] All ER Rep 716 .
416 UOI v Bhimsen Walaiti Ram, AIR 1971 SC 2295 ; Rajanagaram Village Co-op Society v P
Veerasami Mudaly, AIR 1951 Mad. 322 ; Hubli-Dharwad Municipal Corp v Chandrashekar M Shetty,
AIR 2009 Kant. 41 .
417 Muthu Pillai v Secretary of State, AIR 1923 Mad. 582 (DB).
418 Swadesh Rubber Industries v Sardar Singh, AIR 1994 P&H. 306 .
419 Veera Property Development Pvt Ltd v Tamil Nadu Slum Clearance Board, AIR 1999 Mad. 304
(conditions of tender provided that the bid will be considered for confirmation only after
depositing stipulated part of the price).
420 State of Uttar Pradesh v Kishorilal Minocha, AIR 1980 SC 680 .
421 Nilgiri Contractors Society v State of Orissa, AIR 1975 Ori. 33 (DB), This would now be
subject to test of fairness in action Tata Cellular v UOI, AIR 1996 SC 11 : (1994) 6 SCC 651 .
422 Ishwardas Dayal Hingwasia v Municipal Board Rath, AIR 1980 All 143 .
423 Digamber Pershad Kirti Prasad v State of Uttar Pradesh, AIR 1996 All 1 .
424 Rajanagaram Village Co-op Society v VP Veerasami Mudaly, AIR 1951 Mad. 322 .
425 UOI v Bhimsen Walaiti Ram, AIR 1971 SC 2295 ; Rajanagaram Village Co-op Society v P
Veerasami Mudaly, AIR 1951 Mad. 322 ; Abdul Rahim Khan v UOI, AIR 1968 Pat. 433 .
426 Seth Kashi Ram Chemicals (India) v State of Haryana, AIR 1991 SC 478 (confirmation in
court auction); Kamalabai Jageshwar Joshi v State of Maharashtra, AIR 1996 SC 981 : (1996) 1
SCC 669 (offer of land at a specified price to the government in land acquisition referred by
engineer, to higher authorities).
427 New India Assurance Co Ltd v Haryana Roadways, AIR 1997 P&H. 257 .
428 Dresser Rand S.A. v Bindal Agro Chem Ltd, (2006) 1 SCC 751 .
429 Trimex International FZE Ltd v Vedanta Aluminium Ltd, (2010) 3 SCC 1 quoting with approval
decision of Court of Appeal in Pagnan S.p.A v Feed Products Ltd, (1987) 2 Lloyd's Rep 601(CA).
430 Gastho Behari Sirkar v Surs' Estate Ltd, AIR 1960 Cal 752 ; Harichand Mancharam v Govind
Luxman Gokhale, 50 IA 25 : AIR 1923 PC 47 ; Currimbhoy& Co Ltd v LA Creet, 60 IA 297 : AIR 1933
PC 29 : 60 Cal 980 : 141 IC 209; Shankerlal Narayandas Mundada New Muffasil Co Ltd, 73 IA 98 :
AIR 1946 PC 97 ; Von Hatzfeldt Wildenburg v Alexander, [1912] 1 ChD 284 ; Hukum Chand v
Maharaj Bahadur Singh, AIR 1933 PC 156 .
431 Dhulipudi Namayya v UOI, AIR 1958 AP 533 ; Damodar Shah v UOI, AIR 1959 Cal 526 ; D Wren
International Ltd v Engineers India Ltd, AIR 1996 Cal 424 .
432 Dhulipudi Namayya v UOI, AIR 1958 AP 533 ; Currimbhoy& Co Ltd v LA Creet, supra.
433 Lotus Constructions v Govt of Andhra Pradesh, AIR 1997 AP 200 .
434 Harvey Shopfitters Ltd v ADI Ltd, [2004] 2 All ER 982 .
435 Maheshwari Metals and Metal Refinery v Madras State Small Industries Corpn. Ltd, AIR 1974
Mad. 39 ; Von Hatzfeltdt-Wildenburg v Alexander, [1912] 1 ChD 284 , 289 : [1911–13] All ER Rep
148 ; approved by Privy Council in Shankarlal Narayandas Mundada v New Moffusil Co Ltd, AIR
1946 PC 97 .
436 Kollipara Sriramulu v T Aswatha Narayana, AIR 1968 SC 1028 ; Von Hatzfeldt-Wildenburg v
Alexander, [1912] 1 ChD 284 at 288; Rossiter v Miller, [1878] 3 AC 1124 : [1874–80] All ER Rep
465 ; Currimbhoy& Co Ltd v L. A. Creet, [1932] 60 IA 297 : AIR 1933 PC 29 relied upon in Satya
Prakash Goel v Ram Krishan Mission, AIR 1991 All 343 at 347; HG Krishna Reddy & Co v MM
Thimmiah, AIR 1983 Mad. 169 ; Y Konda Reddy v State of Andhra Pradesh, AIR 1997 AP 121 ;
Chairman cum Managing Director, Tamil Nadu Tea Plantation Corpn. Ltd v Srinivasa Timbers, AIR
1999 Mad. 111 (bid accepted, confirmed and amount of security deposit paid, but no formal
agreement executed); Rajni Kumar Mahto v Uma Devi Budhia, AIR 2005 Jhar. 13 .
437 Haryana Industrial Development Corpn v Inderjeet Sawhney, (1996) 7 SCC 339 .
438 Whymper Co v Buckle, (1881) 3 All 469 ; citing Brogden v Metropolitan Railway Co, [1877] 2
AC 666 ; Lewis v Brass, (1877) 3 QBD 667 ; Bonnewell v Jenkins, (1878) LR 8 ChD 70.
439 Geo-Group Communications INC. v IOL Broadband Ltd, AIR 2010 SCW 209 : (2010) 1 SCC
562 .
440 Harichand Mancharam v Govind Luxman Gokhale, (1923) 50 IA 25 : 47 Bom 335 : 71 IC 763 :
AIR 1923 PC 47 ; Currimbhoy& Co Ltd v LA Creet, (1933) 60 IA 297 : 60 Cal 980 : 141 IC 209 : AIR
1933 PC 29 ; Subimalchandra Chettor v Radhanath Ray, (1933) 60 Cal 1372 : 149 IC 1000 : AIR
1934 Cal 235 ; Gujjar Mal Ram Rattan Puri v Governor-General of India, AIR 1942 Pesh 33 ;
Shankarlal Narayandas Mundada v New Mofussil Co Ltd, (1946) 73 IA 98 : 48 Bom LR 456 : 224
IC 598 : AIR 1946 PC 97 ; reversing (1941) Bom 361; LC Sitlani v Viroosing Ramsingh, (1947) 225
IC 264 : AIR 1947 Sind 6 ; Amritlal Maganlal v Harkisandas Kahandas, (1945) 47 Bom LR 878 :
AIR 1946 Bom 149 ; see Deep Chandra v Ruknuddaula Shamsher Jung Nawab Mohammed Sajjad
Ali Khan, AIR 1951 All 93 (FB); Abdul Rahiman v Sadasiv Tripathy, AIR 1968 Ori. 84 .
441 Jessel MR in Winn v Bull, (1877) 7 ChD 29 ; Akoojee Jadwet and Co v AV and Son, AIR 1939
Rang 423 : 185 IC 705; Shamjibhai v Jagoo Hemchand, AIR 1952 Ngp 220 .
442 Aryodaya S&W Co v Javalprasad Dolatrai, (1903) 5 Bom LR 909 ; D Wren International Ltd v
Engineers India Ltd, AIR 1996 Cal 424 .
443 Currimbhoy & Co Ltd v LA Creet, AIR 1933 PC 29 ; Wellman Hindustan Ltd v NCR Corpn, AIR
1993 Del 32 .
444 HG Krishna Reddy& Co v MM Thimmiah, AIR 1983 Mad. 175 .
445 Jiwan Lal v Brij Mohan Mehra, AIR 1973 SC 559 .
446 Kollipara Sriramulu v T Aswatha Narayana, AIR 1968 SC 1028 ; Kochi Refineries Ltd v Reva
Enviro Systems Pvt Ltd, 2016 SCC OnLine Ker 1564 : (2016) 1 KLJ 774 .
447 Ridgway v Wharton, [1857] 6 HLC 238 at 264.
448 Punjab State Electricity Board v Abnash Textile Trading Agencies, AIR 1986 P&H. 323 (tender
and security deposit accepted and purchase order issued, but written agreement not executed).
449 Kallipara Sriramulu v T Awastha Narayana, AIR 1968 SC 1028 .
450 Punjab State Electricity Board Patiala v Abnash Textile Trading Agencies, AIR 1986 P&H. 323
at 325.
451 Trollope and Colis Ltd & Holland & Hannen & Cubbits Ltd v Atomic Power Construction Ltd,
[1963] 1 WLR 333 : [1962] 3 All ER 1035 .
452 Davis Contractors Ltd v Fareham Urban Distt Council, [1956] 3 WLR 37 at 60 : [1956] AC 696 :
[1956] 2 All ER 145 .
453 Life Insurance Corp of India v Raja Vasireddy Komalavalli, (1984) 2 SCC 719 : AIR 1984 SC
1014 ; S R Kharidia v Max New York Life Insurance Co Ltd, AIR 2009 Guj 57 .
454 General Assurance Society Ltd v Chandmull Jain, AIR 1966 SC 1644 : (1966) 3 SCR 500 ;
United India Insurance Co Ltd v Orient Treasures Pvt Ltd, (2016) 3 SCC 49 : 2016 SCC OnLine SC
32.
455 Ibid.
456 Life Insurance Corp of India v Raja Vasireddy Komalavalli, (1984) 2 SCC 719 : AIR 1984 SC
1014 .
457 S R Kharidia v Max New York Life Insurance Co Ltd, AIR 2009 Guj 57 .
458 Babooram Jain v Life Insurance Corpn. of India, AIR 1990 MP 351 at 353.
459 Life Insurance Corpn. of India v OP Bhallah, AIR 1989 Pat. 269 ; LIC of India v Ramdas
Aggarwal, AIR 1979 Pat. 124 ; Life Insurance Corp of India v Omprakash Agrawalla, AIR 1977 Gau
11 ; Kiran Sinha v Life Insurance Corp of India, AIR 1983 Pat. 142 .
460 Life Insurance Corpn. of India v L Kamalamma, AIR 1986 Ker. 215 at 217; but see LIC of India
v R Vasireddy, AIR 1984 SC 1014 (the facts of the case clearly indicated the total absence of a
contract).
461 Re An Agreement Between the Universal Life Assurance Society and MC Sterndale, (1895)
ILR 23 Cal 320.
462 Muhammad Sultan v Clive Insurance Co Ltd, AIR 1934 All 298 (proposal of insurance was
accepted, but policy was not issued).
463 Ram Dev Mool Chand v Lakshmi Insurance Co Ltd, AIR 1962 P H 125; Macgillivary on
Insurance, 4th Edn section 649; for cases of misrepresentation and fraud, Harsud Co-op Mktg
Soceity Ltd v United India Fire & General Insurance Co Ltd, AIR 1992 Bom 341 (cover note is in
itself a contract of insurance).
464 Omana Purushottaman Nair v Life Insurance Corpn. of India Bombay, AIR 2005 Bom 152 .
465 Life Insurance Corpn. of India v Tirupathayya, AIR 1963 AP 353 .
466 Marthi Crystal Salt Co Ltd v Oriental Insurance Co Ltd, AIR 2001 Mad. 288 .
467 Banarasi Debi v New India Assurance Co Ltd, AIR 1959 Pat. 540 .
468 Canning v Farquhar, [1885] 16 QBD 727 .
469 P Abdul Azeez& Co v New India Assurance Co Ltd, AIR 1954 Mad. 520 : (1953) 2 Mad MLJ
714; Ocean Accident & Guarantee Corp Co Ltd v D K Patkar, AIR 1935 Bom 236 followed; South
British Insurance Co Ltd v J R Stenson, 52 Bom 532 : AIR 1928 Bom 260 distinguished; Fire&
Accident Office Ltd v The Ching Wo Hong, [1907] AC 96 : [1906] UKPC 86 .
470 Section 64VB of the Insurance Act provides: No insurer shall assume any risk in India in
respect of any insurance business on which premium is not ordinarily payable outside India
unless and until the premium payable is received by him or is guaranteed to be paid by such
person in such manner and within such time as may be prescribed or unless and until deposit of
such amount as may be prescribed, is made in advance in the prescribed manner. For the
purposes of this section, in the case of risks for which premium can be ascertained in advance,
the risk may be assumed not earlier than the date on which the premium has been paid in cash
or by cheque to the insurer.
471 Regulation 4 of the Insurance Regulatory and Development Authority (Manner of Receipt of
Premium) Regulations, 2002.
472 General Assurance Society Ltd v Chandmull Jain, AIR 1966 SC 1644 at 1648.
473 Nibro Ltd v National Insurance Co Ltd, AIR 1991 Del 25 at 39.
474 Harsud Co-op Mktg Society Ltd v United India Fire & General Insurance Co Ltd, AIR 1992 Bom
341 at 344.
475 Oriental Insurance Co Ltd v Rukminibai, AIR 1995 Kant. 18 : ILR 1994 KAR 861 ; National
Insurance Co Ltd v Seema Malhotra, AIR 2001 1 SC : (2001) 3 SCC 151 (premium cheque
dishonoured); but see Oriental Insurance Co Ltd v Inderjit Kaur, AIR 1998 SC 588 : (1998) 1 SCC
371 and New India Assurance Co Ltd v Rula, AIR 2000 SC 1082 (liability to third party).
476 LIC of India v R Vasireddy, AIR 1984 SC 1014 .
477 LIC of India v Raja Vasireddy Kamalavalli Kamba, AIR 1984 SC 1014 .
478 Oriental Insurance Co Ltd v Inderjit Kaur, AIR 1998 SC 588 : (1998) 1 SCC 371 ; New India
Assurance Co Ltd v Rula, AIR 2000 SC 1082 .
479 LIC of India v Jaya Chandel, AIR 2008 SC 1310 : (2008) 3 SCC 382 ; Ahmedunnisa Begum v
Life Insurance Corpn. of India, AIR 1981 AP 50 at 54; Mckenna v City Life Assurance Co, [1919] 2
KB 491 ; Re P Sankuni Menon v Empire of India Life Assurance Co Ltd, AIR 1932 Mad. 241
followed.
480 United India Insurance Co Ltd v Mohanlal Aggarwal, AIR 2004 Guj 191 ; see however United
India Insurance Co Ltd v Manubhai Dharamsinhbhai Gajera, AIR 2009 SC 446 : (2008) 10 SCC 404
(recommends that medical insurance policies must ordinarily be renewed).
481 Chitty on Contracts, 28th Edn p 116, para 2–058.
482 Holwell Securities Ltd v Hughes, [1974] 1 WLR 157 : [1974] 1 All ER 161 (CA).
483 R Maheswari v Secretary, Selection Committee, AIR 1995 Mad. 168 .
484 Hairoon Bibi v United India Life Insurance Co Ltd, AIR 1947 Mad. 122 .
485 Surendra Nath Roy v Kedar Nath Bose, AIR 1936 Cal 87 : 63 Cal LJ 86.
486 Henthorn v Fraser, [1892] 2 ChD 27 : [1891–94] All ER Rep 1064 .
487 Mitchell Henry v Norwich Union Life Insurance Society, [1918] 2 KB 67 : [1918–19] All ER Rep
908 (CA) : [1918–19] All ER Rep 1142 .
488 Vishweswaradas Gokuldas v BK Narayan Singh, AIR 1969 SC 1157 : 1969 SCR (3) 581 .
489 Hindusthan Co-op Insurance Society Ltd v Shyam Sunder, AIR 1952 Cal 691 : 56 Cal WN 418;
Indian Cotton Co Ltd v Hari Poonjoo, AIR 1937 Bom 39 .
490 Protop Chandra Koyal v Kali Charan Acharjya, AIR 1952 Cal 32 .
491 Chiranji Lal Multani RB Pvt Ltd v UOI, AIR 1963 Punj 372 .
492 Gaddar Mal v Tata Industrial Bank Ltd, AIR 1927 All 407 : 49 All 674; Bhagwan Das v Shiv
Dial, AIR 1914 Lah 436 .
493 Gaddarmal Hiralal v Chandrabhan Agarwal & Co, AIR 1968 All 292 : 294.
494 Gaddar Mal v Tata Industrial Bank Ltd, AIR 1927 All 407 at 409 (DB).
495 Wettern Electric Ltd v Welsh Development Agency, [1983] QB 796 : [1983] 2 All ER 629 at
633, QBD.
496 Tinn v Hoffmann& Co, (1873) 29 LT 271 ; cf Manchester Diocesan Council v Commercial &
General Investment Ltd, [1969] 3 All ER 1593 : [1970] 1 WLR 242 .
497 Manchester Diocesan Council v Commercial & General Investment Ltd, [1969] 3 All ER 1593 .
498 The Information Technology Act, 2000, section 12(1).
499 The Information Technology Act, 2000, section 12(2).
500 The Information Technology Act, 2000, section 12(3).
501 Albion Sugar Co Ltd v William Tankers Ltd, (The John S Darbyshire), [1977] 2 Lloyd's Rep 457
at 464; Brown v Gould, [1972] Ch 53 at 57; Tropwood AG of Zug v Jade Enterprises Inc. (The
Tropwind), [1982] 2 Lloyd's Rep 232; Grace Shipping Inc. and Hai Nguan v CF Sharpe (Malaysia)
Pte, [1987] 1 Lloyd's Rep 207; Didymi Corp v Atlantic Lines & Navigation Co Inc, [1987] 2 Lloyd's
Rep 166; affirmed in [1988] 2 Lloyd's Rep 108.
502 Stevenson, Jacques & Co v MacLean, (1880) 5 QBD 346 ; Lark v Outhwaite, [1991] 2 Lloyd's
Rep 132.
503 Halsbury's Laws of England, Vol 9(1), 4th Edn Reissue, 30 June 1998, "CONTRACT", para
661.
504 Nicolene Ltd v Simmonds, [1953] 1 QB 543 : [1953] 1 All ER 822 ; distinguishing British
Electrical & Associated Industries (Cardiff) Ltd v Patley Pressings Ltd, [1953] 1 WLR 280 : [1953] 1
All ER 94 QBD ("Subject to force majeure conditions"-held too vague); Scammell v Ouston, [1941]
AC 251 ("the balance of purchase price can be had on hirepurchase terms over a period of two
years"-too vague). The latter case was followed in Jai Gobind Singh v Bagal Lal Singh, AIR 1950
Pat. 445 ; Baijanth v Kshetrahari Sarkar, AIR 1955 Cal 210 (lease subject to "all other usual
clauses" held too vague).(25)
505 Clive v Beaumont, (1847) 1 De G & Sm 397; Butler Machine Tool Co Ltd v Ex-Cell-O Corpn.
(England) Ltd, [1979] 1 WLR 401 : [1979] 1 All ER 965 .
506 D Wren International Ltd v Engineers India Ltd, AIR 1996 Cal 424 .
507 Progressive Constructions Ltd v Bharat Hydro Power Corpn, AIR 1996 Del 92 : 59 (1995) DLT
290 .
508 British Road Services Ltd v Arthur V Crutchley & Co Ltd, [1968] 1 All ER 811 ("last shot"
doctrine); see also OTM Ltd v Hydranautics, [1981] 2 Lloyd's Rep 211; Muirhead v Industrial Tank
Specialities Ltd, [1986] QB 507 at 530 : [1985] 3 All ER 705 (CA); Port Sudan Cotton Co v Govinda
Swamy Chettiar Sons, [1977] 2 Lloyd's Rep 5.
509 Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd, [1979] 1 All ER 965 : [1979] 1 WLR
401 .
510 Rick Rawlings, (1979) 42 Modern Law Review 715.
511 Anson's Law of Contract, 30th Edn 2016, p 44.
512 Anson's Law of Contract, 30th Edn 2016, p44, the Vienna Convention on the International
Sale of Goods, Article 19; Gibson v Manchester City Council, [1978] 2 All ER 583 : [1979] 1 WLR
294 ; disapproving this approach suggested by Lord Denning MR in Butler Machine Tools Co Ltd
v Ex-Cell-O Corpn. (England) Ltd, [1979] 1 All ER 965 : [1979] 1 WLR 401 .
513 PS Atiyah, An Introduction to the Law of Contract, 15th Edn p 70.
514 Tekdata Interconnections Ltd v Amphenol Ltd, [2009] EWCA Civ 1209 .
515 Tekdata Interconnections Ltd v Amphenol Ltd, [2009] EWCA Civ 1209 per LJ. Longmore.
516 [2009] EWCA Civ 1209 per LJ. Dyson.
517 UNIDROIT Principles, Article 2.22.
518 Tekdata Interconnections Ltd v Amphenol Ltd, [2009] EWCA Civ 1209 .
519 UCC, Article 2–207.
The Indian Contract Act, 1872
CHAPTER I Of Communication, Acceptance and Revocation of Proposals
S. 8 Acceptance by performing conditions, or receiving consideration—
Performance of the conditions of a proposal, or the acceptance of any consideration
for a reciprocal promise which may be offered with the proposal, is an acceptance of
the proposal.
[s 8.1] Introduction
Section 8 provides the acceptance of the proposal by conduct as against other modes
of acceptance, i.e., verbal or written communication contemplated by sections 7 and 9.
It embraces a case, to cite an instance, of a reward for the finder of a lost article.
[s 8.2] General
The terms of the section are very wide. The division of the subject-matter of the section
into two branches, "performance of the conditions of a proposal" and "acceptance of
any consideration for reciprocal promise which may be offered with a proposal",
corresponds to the general division of proposals into those which offer a promise in
exchange for an act or acts and those which offer a promise in exchange for a promise.
It is well settled that an offer may be accepted by conduct. In deciding whether there
has been performance of the condition of a proposal the conduct of the offeree is to be
looked into to see if it amounted to an unequivocal acceptance of the offer made. If the
facts of the case disclose that there was no reservation in signifying acceptance by
conduct, it must follow that the offer has been accepted by conduct. On the other hand,
if the evidence discloses that the offeree had reservation in accepting the offer, his
conduct may not amount to acceptance of the offer in terms of Section 8. In this case,
a cheque was forwarded to the appellant with a condition that it was in full and final
settlement of the claim and that if the offer was not acceptable, the cheque should be
returned, failing which it would be deemed that the offer had been accepted. It was
held that non acceptance of the offer should be prior to the encashment of the cheque
and as this fact had not been proved, the appellant's conduct of encashing the cheque
was acceptance by conduct in the mode prescribed and recognized by section 8.520
[s 8.3] Communication is not Necessary
A proposal is said to be accepted when the person to whom it is made "signifies his
assent thereto" [section 2(b)]. This must be read with section 4, which tells when an
acceptance is complete, and section 7, which provides about the manner of
performance. An acceptance is binding upon communication, and this section does
not expressly dispense with this requirement. "The general rule that an acceptance of
an offer made ought to be notified to the offeror is for the benefit of the offeror, who
may expressly or impliedly waive the requirement of notification and agree that an
uncommunicated acceptance will suffice … In such a case two things are necessary.
There must be an express or implied intimation that a particular mode of acceptance
will suffice and there must be some overt act or conduct on the part of the offeree
which is evidence of an intention to accept, and which conforms to the mode of
acceptance indicated by the offeror".521 The most obvious example is where a reward
is publicly offered to any person, or to the first person, who will recover a lost object,
produce certain evidence, or the like. Here the party claiming the reward has not to
prove anything more than that he performed the conditions on which the reward was
offered, which conditions may or may not include communication by him to the
proposer. This section provides for acceptance of a proposal by conduct as against
other modes of acceptance described in section7 or section 9.522
But where a reward was offered for information about murderers, and C, after being
arrested for the same, gave the information as well as provided evidence leading to the
arrest and conviction of the murderers, it was held that although C knew of the offer of
reward, he was not entitled to it, as the offer had not induced him to give the
information.523 The section is not applicable merely because the highest bid was
offered and the bid was opened by the department.524
The nature of acceptance required was considered by the English Court of Appeal in
Carlill v Carbolic Smoke Ball Co525 The defendant company, being the proprietor of the
"carbolic smoke ball", a device for treating the nostrils and air passages with a kind of
carbolic acid snuff, issued an advertisement offering GBP 100 reward if any person
should contract influenza (or similar ailments as mentioned) after using the ball as
directed. It was also stated that GBP 100 was deposited with a named bank, "showing
our sincerity in the matter". The plaintiff bought one of the smoke balls by retail, used it
as directed, and caught influenza while she was still using it. Hawkins J.526 held that
she was entitled to recover GBP 100 as on a contract by the company. The Court of
Appeal held that there was an offer to anyone who performed the condition (namely, of
using the smoke ball as directed) on the faith of the advertisement; and by such
performance it becomes a contract, not absolute, but subject to the further
independent condition of the user contracting influenza or the like while using the
remedy, and perhaps during some reasonable time afterwards. As to the objection that
to complete the plaintiff's acceptance of the offer, there must either be communication
to the defendant or some act of a public nature, Bowen LJ. said:527
One cannot doubt that, as an ordinary rule of law, an acceptance of an offer made ought to
be notified to the person who makes the offer, in order that the two minds may come
together...But there is this clear gloss to be made upon that doctrine, that, as notification of
acceptance is required for the benefit of the person who makes the offer, the person who
makes the offer may dispense with the notice to himself if he thinks it desirable to do so...
where a person, in an offer made by him to another person, expressly or impliedly intimates
a particular mode of acceptance as sufficient to make the bargain binding, it is only
necessary for the other person to whom such offer is made to follow the indicated method
of acceptance; and if the person making the offer expressly or impliedly intimates in his
offer that it will be sufficient to act on the proposal without communicating acceptance of it
to himself, performance of the condition is a sufficient acceptance without notification.
Carlill's case shows the principle that an offer, to be capable of acceptance, must
involve promise by the offeror that he will bind himself if the exact terms specified by
him are accepted. If a man writes, "send me such and such goods, and I will pay for
them", is not the sending of goods an acceptance of the offer?528 A proposal is in every
case accepted by performance of its conditions, i.e., by compliance with its terms.
Communication by the acceptor to the proposer or his authorised agent is necessary
when the terms consist of or include a counter-promise (for there is no promise at all
without communication), but when only acts are required, the communication of their
performance may or may not be added as a term of the offer at the will of the proposer,
which may be either express or inferred from the nature and circumstances of the
proposal.529 There is a material distinction between acceptance of a proposal that
asks for a promise and a proposal that asks for an act on the condition of the proposal
becoming a promise. In the former case, where the acceptance is to consist of a
promise, there must be communication to the proposer. But in the latter class of cases,
as for example, dispatching goods ordered by post, the rule is that no further
communication of acceptance is necessary than performance of the proposed act.
Mere performance of the act prescribed by the proposal is sufficient acceptance of
such proposal and converts it to a promise even without further communication of
acceptance. This distinction is recognised in sections 5 and 8 of the Contract Act.530
If an offer takes the form of a promise in return for an act, the performance of that act
is in itself an adequate indication of assent.531 In Hindustan Cooperative Insurance
Society v Shyam Sunder,532 A signed a proposal form for insurance on his life and
handed it to N, an organiser of the defendant insurance company, with a cheque for the
premium. N had no authority to receive the cheque as premium, but after A had been
medically examined twice, the company encashed the cheque. Two weeks later, the
company wrote to N, asking him to make further enquiries regarding A's proposal, but
the next day A died of pneumonia. The company denied liability, but the Court held that
the contract was complete from the moment the cheque was encashed, as A had
dispensed with express communication of acceptance.
Contractual obligations do not arise if services are rendered which in fact fulfill the
terms of an offer, but are performed in ignorance of the existence of the offer. In
Lalman Shukla v Gauri Dutt,533 the plaintiff was in the defendant's service as a munim.
The defendant's nephew absconded, and the plaintiff volunteered his services to
search for the missing boy. In the plaintiff's absence, the defendant issued handbills
offering a reward of Rs 501 to anyone who might find the boy. The plaintiff traced him
and claimed the reward. The plaintiff did not know the handbills when he found the boy.
It was held that the plaintiff was not entitled to the reward.
[s 8.4] Acceptance by Conduct and Invitation to Treat
Under certain circumstances, offeree's silence, coupled with his conduct, which takes
the form of a positive act, may constitute an acceptance.534Conduct would only
amount to acceptance if it is clear that the offeree did the act with the intention (actual
or apparent) of accepting the offer.535 When land was transferred by the State
Government to the Central Government on one time payment of land revenue, from the
conduct of the governments it was evident that there was a contract regarding
exemption from payment of land revenue on such one time payment.536Questions may
arise in particular cases whether there was a certain offer, or whether offer was
intended, or was the statement any offer at all. In the simple case of an offer for
reward, the terms would be clear, and its satisfaction by the claimant manifest. An
open letter for credit authorising the addressee to draw on the issuer to a specified
extent, and requesting "parties negotiating bills under it to endorse particulars", has
been held to amount to a general invitation or request to advance money for the faith of
such bills being accepted, and to constitute a contract with anyone so advancing
money while the credit remained open.537
If, upon an offer being made by one party, the other party does not choose to reject the
offer and instead acts on the basis of offer, a contract definitely stands entered into as
regards the terms acted upon by virtue of Section 8. It is not open to a person to say
that despite his acting upon the offer, yet, there is no concluded binding contract only
on account of a letter written by him objecting to one of the terms..538
According to another view, the promise made in a banker's irrevocable letters of credit,
cannot be explained in terms of acceptance of an offer of a unilateral contract,
because, while the beneficiary makes no promise to the bank, the bank's promise is
binding, no sooner it is communicated to the seller.539 Another case is of a railway
company's timetable, which is a general proposal to run trains according to the table
and is accepted by an intending passenger tendering the price of a ticket.540
On the other hand, performing acts in response to invitations do not result in any
contract in a number of situations. When particular goods are advertised for sale by
auction, the auctioneer does not contract with anyone who attends the sale intending
to purchase those goods that they shall be actually put up for sale.541 An
advertisement for tenders for goods to be sold is not a proposal capable of being a
contract to sell to the highest bidder, but "a mere attempt to ascertain whether an offer
can be obtained within such a margin as the sellers are willing to adopt"; it is only an
invitation for offers, which the offeree may or may not accept, and he is not bound to
accept the highest or the lowest tender,542 as the case may be. Similarly, an
advertisement for the award of a scholarship after holding an examination is no
promise to give it to the best student.543 These situations can be distinguished on the
basis of the difficulty of ascertaining the acceptor, if the announcement is treated as a
proposal; or on the impracticablility of contracting with several persons who would
respond to the invitation. Interpretation must be largely guided, in this class of
transactions, by business usage or common sense.
Where brokers in Bombay wrote to merchants in Ghaziabad stating their terms of
business and the merchants afterwards placed orders with the brokers which were
executed by them, it was held that the first letter was only an invitation to do business;
no contract was made until the orders given by the brokers were accepted by the
merchants and hence the cause of auction arose wholly in Bombay.544 A bank's letter
with quotations as to particulars of interest on deposits in answer to an enquiry was
not an offer but only a quotation of business terms.545 Where the owner of a property
said that he would not accept less than Rs 6,000/-, he did not make an offer, but merely
invited offers.546
Definite proposals (e.g., to guarantee a particular ascertained or ascertainable debt)
must be distinguished from expression or undefined willingness, which only invites a
proposal. Advancing money to the debtor at the request of surety and upon surety's
promise to make himself responsible, amounted to acceptance of the proposal to
complete the contract of guarantee.547 In a case involving supply of pipes under a
contract at an agreed price, the supplier had indicated that some pipes were not as per
specification to which the purchaser offered to accept the pipes at a discount of 11%
on the agreed price. The supplier delivered the pipes. It was held that by application of
section 8, there was a separate and distinct contract between the parties.548 In
response to the request to extend the time to effect supply of balance quantity, the
purchaser had while extending the time for supply, indicated that the price for the
balance quantity would be as settled in respect of another tender. The supplier
completed supply without objecting to the change in price proposed by the purchaser.
It was held that it was not a case of acceptance by conduct since the purchaser could
not change the price under an already concluded contract.549
[s 8.5] Performance of Conditions
In a case decided by the Privy Council,550 the plaintiff was the grandniece of P, a
wealthy widow.. P promised that if the plaintiff and her husband would reside with her,
she would make provision for her on the fairly ample scale by the purchase of
immovable property for her. The plaintiff and her husband accordingly lived with P. In
1893, P bought a village in her own name, but assured the plaintiff that it was
purchased for her. Dissatisfaction arose, and they ceased to reside with P. In October
1893, P wrote a letter in her own handwriting to the plaintiff stating that the village had
been purchased for the plaintiff, and would be transferred to her upon her death. The
plaintiff and her husband thereafter resided with P until P's death in 1899. After P's
death, the plaintiff instituted a suit for a declaration that she was entitled to the village
and the possession thereof. It was held that the letter of October 1893, constituted a
promise which was accepted by the plaintiff, and that there was a completed contract
which entitled the plaintiff to possession of the village.
A promised to leave a house to a relation with the arrangement that during the lifetime
of the promisor, the relation will come and live with him and share the expenses. On the
basis of the promise, the relation sold his cottage and came to live with the promisor
who terminated the arrangement and asked the relation to quit. This arrangement was
held to be a binding contract and not merely an unenforceable family arrangement. The
promisee was held entitled to damages for the loss of the benefits of living in a big
house during the lifetime of the promisor and damages for the loss of prospect of
inheriting the house under the promisor's Will.551 A wife acted upon her husband's
letter to her mentioning the conditions, inter alia, as to residence and alimony on which
he was prepared to allow his wife to divorce him, although the acceptance was not
communicated to the husband. This was held a concluded contract supported by
consideration because the wife acted upon it and invited the divorce Court toact upon
it.552
A creditor cashed a cheque for a small amount in full and final payment of a bigger
amount without informing the debtor of his not agreeing to the condition; the creditor
must be taken to have thereby agreed to the proposal. His subsequent demand did not
make any difference to the position.553 But if such a cheque sent by the debtor was
accepted by the creditor in part payment, the creditor would be entitled to claim the
balance.554 The real emphasis is not on the acceptance of the smaller sum of money
when a larger sum is due, but on the acceptance of the debtor's condition that if the
tendered money be at all accepted, it must be done so in discharge of the entire
debt.555 Where the debtor attaches no such condition and the creditor also intimates
that he accepts the amount without prejudice to the balance amount due, no question
of accord and satisfaction arises. If a person who finds a lost Article and restores it to
the offeror, it is sufficient acceptance of the proposal to merit the reward.556 An
insurance company offered to revive a lapsed policy if the assured remitted the
premium amount before a specified date. The assured remitted the payment by post.
The policy stood revived as soon as the assured put the money into the post office
though the assured could have recalled the money thereafter. The company had
prescribed the manner of acceptance and the assured had so performed.557
[s 8.6] Promissory Estoppel
A representation that something will be done in the future may involve an existing
intention to act in the future in the manner represented, and if the representation is
acted upon by another, it may, unless statute governing the person making
representation otherwise provides, result in an agreement enforceable by law; and if
law requires form, no contract may result, but law is not powerless to compel
performance.558 Although, the case does not use the term, the judgment has been later
interpreted as applying promissory estoppel.559
[s 8.7] Accepting Consideration for Reciprocal Promise
The earlier editors of this book have found that the second branch of the section
dealing with "acceptance of any consideration", is rather obscure, for the following
reasons. It cannot be said with certainty which particular class or classes of
transactions it covers. The words seem more appropriate to gifts or transfers of
property than to contracts. It is sound principle that what is offered on conditions must
be taken as it is offered. The use of the word "reciprocal" does not even fit the most
obvious case of goods sent on approval where the receiver keeps them with the
intention of buying them. Here, the seller need not and commonly does not offer any
promise, and there is therefore no question of reciprocal promise as defined in the
Contract Act. No doubt the acceptance of an offered consideration, as such, amounts
to giving the promise (whether reciprocal or not) for which it was offered, or else raises
an equivalent obligation. But a thing which is offered in one right and for one purpose
may be taken under a different claim of right and with a different intent; and in that
case, the legal result will not be a contract between the parties unless the party
receiving the thing so conducts himself as to lead the proposer reasonably to conclude
that there is an acceptance according to the offer; and then the proposer can hold him
liable on the universal principle that a man's reasonably apparent intent is taken in law
to be his real intent. It cannot be supposed that the present section is intended to
preclude all inquiries of this kind by making every receipt in fact of a thing offered by
way of consideration a conclusive acceptance of the proposal.
It has been applied however to the case of a bank's customer receiving notice, which he
did not answer, of an increase in the rate of interest on overdrafts, and afterwards
obtaining a further advance. It was held that he accepted a consideration offered by the
bank within the terms of this section560 and as a consideration for that "reciprocal
promise", the bank offered to desist from discontinuing the overdraft or from
immediate recall of its debt.561
Where, for several years, a constituent availed of an overdraft at a bank, periodical
statements of account were sent to him showing the charging of a compound interest
and no objection was taken by him, he must be taken to have agreed to the rate of
interest.562 A firm had a cash credit account with a bank and every month interest was
calculated on daily balance, which was added on the last day of the month of the
account. This amounted to charging compound interest, and was held to be
contemplated by the agreement—the expression being "shall be charged to such
account or accounts".563
A contract between a bank issuing a credit card to its customer and the retailer who
supplies the goods to the customer against the card, would fall within this second
branch of the section.564 The bank promises the retailer that the retailer will be paid,
and the retailer provides the consideration for this promise by supplying the goods to
the customer.565
The second branch of the section can be said to apply to a number of other situations.
An offer to supply goods sent to the offeree may be accepted by using the goods.566 A
new lease may be accepted by staying on the premises.567
[s 8.8] When is Acceptance Complete
Where acceptance takes place by performance of an act, the latter being the condition
of the proposal, when does the acceptance "become complete" as to bind the offeror?
Does the word "performance" in this section mean complete or partial performance?
Insisting on completion of performance for formation of contract would cause
injustice, for it may be possible for the offeror to revoke the proposal even after the
offeree has commenced the performance of the act.568 The Law Commission had
recommended including clarification in the section to the effect that:
in the case of a promise made in consideration of the promisee's performing an act, the
promisee's entering upon performance of the act is an acceptance of the proposal, unless
the promise contains an express or implied term that it can be revoked before the act has
been completed.569
[s 8.9] Place of Contract
Where the acceptance of the proposal consists of the performance of the condition of
the proposal, the contract is made at the place where the condition is performed.570
520 Bhagwati Prasad Pawankumar v UOI, reported in (2006) 5 SCC 311 : AIR 2006 SC 2331 ;
Muneer Enterprises v Ramgad Minerals and Mining Ltd, (2015) 5 SCC 366 .
521 Anson's Law of Contract, 30th Edn2016, p 47.
522 UOI v Rameshwarlall Bhagchand, AIR 1973 Gau 111 .
523 Crown v Evan Clarke, (1927) 40 CLR 217 .
524 Om Sai Associates v State of Madhya Pradesh, 2016 SCC OnLine MP 2702.
525 Carlill v Carbolic Smoke Ball Co, [1893] 1 QB 256 : [1891–94] All ER Rep 127 ; see also
Soulsbury v Soulsbury, [2007] EWCA Civ 969 .
526 The facts were not disputed. See report of the same case in the court below [1892] 2 QB
484 .
527
[1893] 1 QB 256 at 269; cited with approval in State of Bihar v Bengal Chemical &
Pharmaceutical Works, AIR 1954 Pat. 14 .
528 Harvey v Johnston, (1848) 6 CB 295 at 304 : 77 RR 328 at 332 per Cresswell J. The
suggestion appears to have escaped the notice of text-writers for many years; Greenmast
Shipping Co SA v Jean Lion et Cie SA (The Saranikos), [1986] 2 Lloyd's Rep 227.
529 LIC of India v R Vasireddy, AIR 1984 SC 1014 .
530 State of Bihar v Bengal Chemical and Pharmaceutical Works, AIR 1954 Pat. 14 ; S. Sadiq
Hasan v Mumtaz Bank Ltd, AIR 1929 Lah 656 .
531 Carlill v Carbolic Smoke Ball Co, [1893] 1 QB 256 : [1891–94] All ER Rep 127 (CA).
532 Hindustan Co-op Insurance Society v Shyam Sunder, AIR 1952 Cal 691 ; LIC of India v R
Vasireddy, AIR 1984 SC 1014 and section 64VB of the Insurance Act, 1938.
533 Lalman Shukla v Gauri Dutt, (1913) 11 All LJ 489; Fitch v Snedaker, (1868) 38 NY 248; Crown
v Evan Clarke, (1927) 40 CLR 227 .
534 Bharat Petroleum Corpn. Ltd v Great Eastern Shipping Co Ltd, AIR 2008 SC 357 : (2008) 1
SCC 503 .
535 Bhagwati Prasad Pawankumar v UOI, (2006) 5 SCC 311 : AIR 2006 SC 2331 .
536 Steel Authority of India Ltd v State of M.P., (1999) 4 SCC 76
537 Re Agra and Masterman's Bank, (1867) LR 2 Ch App. 391.
538 Forbes Gokak Ltd v Central Warehousing Corp, 2010 SCC OnLine Del 369.
539 Chitty on Contracts, 28th Edn p 123, para 2–075.
540 Denton v Great Northern Railway Co, (1856) 5 E&B 860; Thompson v London, Midland &
Scottish Rail Co, [1930] 1 KB 41 : [1929] All ER Rep 474 (CA), (contract is not complete till the
ticket is received).
541 Harris v Nickerson, (1873) LR 8 QB 286.
542 Spencer v Harding, (1870) LR 5 CP 561.
543 Rooke v Dawson, [1895] 1 ChD 480 .
544 Devidat Ramniranjandas v Shiram Narayandas, (1932) 56 Bom 324 : 34 Bom LR 236 : 137 IC
381 : AIR 1932 Bom 291 .
545 State Aided Bank of Travancore Ltd v Dhrit Ram, AIR 1942 PC 6 : 198 IC 753.
546 Col DI MacPherson v MN Appanna, AIR 1951 SC 184 : 1951 SCR 161 ; relying on the Privy
Council in Harvey v Facey, [1893] AC 552 .
547 Ranga Ram Thakur Das v Raghbir Singh, AIR 1928 Lah 938 : 113 IC 780.
548 Indian Oil Corp Ltd v Man Industries (India) Ltd, 2017 SCC OnLine Del 6452.
549 Daulat Ram Industries v UOI, 2013 SCC OnLine Del 1523 : ILR (2013) 3 Del 2285 .
550 Sri Rajah Malraju Lakshmi Venkayyamma Rao Bahadur v Rajah Venkata Narasimha Appa Rao
Bahadur, (1916) 43 IA 138 : 39 Mad 509 : 34 IC 921 : AIR 1916 PC 9 .
551 Parker v Clark, [1960] 1 WLR 286 : [1960] 1 All ER 93 .
552 Nalini v Somasundaram, AIR 1964 Mad. 52 : (1916) 43 IA 138 at 146 : 39 Mad 509 at 522 :
AIR 1916 PC 9 at 12.
553 UOI v Rameshwarlal Bhagchand, AIR 1973 Gau 111 ; following Amrit Banaspati Co Ltd v UOI,
AIR 1995 SC 1340 , and distinguishing as decisions under section 63: Lala Kapurchand Godha v
Mir Nawab Himayatalikhan Azamjah, AIR 1963 SC 250 : [1963] 2 SCR 168 ; Dipchand Golencha v
M Abhechand Co, AIR 1962 Cal 166 : 65 Cal WN 754; Shyamnagar Tin Factory Pvt Ltd v Snow
White Food Products Co, AIR 1965 Cal 541 .
554 Shyamnagar Tin Factory Pvt Ltd v Snow White Food Products Co, AIR 1965 Cal 541 .
555 Bhagwati Prasad Pawankumar v UOI, (2006) 5 SCC 311 : AIR 2006 SC 2331 .
556 UOI v Rameshwarlal Bhagchand, AIR 1973 Gau 111 at 113.
557 Hairoon Bibi v United India Life Insurance Co Ltd, AIR 1947 Mad. 122 .
558 Century Spinning & Manufacturing Co Ltd v Ulhasnagar Municipal Council, AIR 1971 SC 1021
: 1970 SCR (2) 854 ; following UOI v Anglo Afghan Agencies, AIR 1968 SC 718 : 1968 SCR (2) 366
.
559 Motilal Padampat Sugar Mills Co Ltd v State of Uttar Pradesh, AIR 1979 SC 621 : (1979) 2
SCC 409; see below section 10: "Promissory Estoppel".
560 Gaddarmal v Tata Industrial Bank Ltd, (1927) 49 All 674 : 100 IC 1023 : AIR 1927 All 407 ;
followed in Behari Lal v Radhye Shyam, AIR 1953 All 745 ; Hulas Kunwar v Allahabad Bank Ltd, AIR
1958 Cal 644 (overdraft kept alive for three years).
561 Hulas Kunwar v Allahabad Bank Ltd, AIR 1958 Cal 644 ; Haridas Ranchordas v Mercantile
Bank of India Ltd, (1919) 47 IA 17 : AIR 1920 PC 61 ; Bruce v Hunter, (1813) 3 Camp 467;
Batakrishna Tramanik v Bhawanipur Banking Corpn. Ltd, 59 Cal 662 : AIR 1932 Cal 521 ;
Gaddarmal v Tata Industrial Bank Ltd, (1927) 49 All 674 : AIR 1927 All 407 .
562 Konakalla Venkata Satyanarayana v State Bank of India, AIR 1975 AP 113 ; relying on
Batakrishna Tramanik v Bhawanipur Banking Corpn. Ltd, AIR 1932 Cal 521 : 59 Cal 662; Haridas
Ranchordas v Mercantile Bank of India Ltd, 47 IA 17 : AIR 1920 PC 61 ; Hulas Kunwar v Allahabad
Bank Ltd, AIR 1958 Cal 644 .
563 Ibid.
564 First Sport Ltd v Barclays Bank plc, [1993] 1 WLR 1228 : [1993] 3 All ER 789 (CA).
565 R v Lambie, [1982] AC 449 : [1981] 2 All ER 776 ; Re Charge Card Services Ltd, [1987] ChD
150 , affirmed in [1989] ChD 497 : [1988] 3 All ER 702 (CA).
566 Weatherby v Banham, (1832) 5 C&P 228; See also Minories Finance Ltd v Afribank Nigeria
Ltd, [1995] 1 Lloyd's Rep 134.
567 Roberts v Hayward, (1828) 3 C&P 432.
568 Commentary below section 4; see also above: "When is Acceptance Complete".
569 The Law Commission of India, 13th Report, 1958, para 32 and draft amendment, section 8.
570 Sitaram Marwari v Thompson, (1905) 32 Cal 884 .
The Indian Contract Act, 1872
CHAPTER I Of Communication, Acceptance and Revocation of Proposals
S. 9 Promises, express and implied.—
In so far as a proposal or acceptance of any promise is made in words, the promise is
said to be express. In so far as such proposal or acceptance is made otherwise than in
words, the promise is said to be implied.
[s 9.1] Introduction
If the proposal or the acceptance (or both) is made in words, the promise is an express
one. If the proposal or acceptance (or both) are made otherwise than in words, the
promise is implied. The section also assumes that the promise may be partly express
and partly implied. Express and implied contracts are both contracts in the true sense
of the term, for they both arise from the agreement of the parties, though in one case
the agreement is manifested in words and in the other case by conduct.571 The section
explains that proposal or acceptance may be in words or without, and assumes the
existence of the rule. The Law Commission of India has recommended that the section
must contain the positive rule that a promise may be express or implied.572
[s 9.2] Express Promises
A proposal or acceptance may be expressed orally or in writing. A written contract may
be a single document, each party being bound by signing it. It is suggested that the first
to sign makes the offer, and the second to sign, accepts.573 The parties may have two
copies of the document, each party signing one copy and exchanging the signed copy,
in which case, the first to deliver the copy to the other makes the offer and the second
accepts when he delivers his.574 A party may send a written document as an offer to
be signed by the other party by way of acceptance.575 Parties may also include terms
by incorporation or reference, namely, from other standard terms576 or contracts. One
party making an offer by letter and the other by accepting it may conclude a contract.
The proposal and the acceptance may likewise be made by fax, telex, telegram; or by
word of mouth, namely, in the presence of each other, or on telephone or voice-mail. In
each of these cases, the terms may be agreed in words, and the promise may be
express. The parties to a contract are free to settle any terms they please.577
Even with the parties having a contractual document, the document may not contain all
the terms agreed between them. There may be certain terms agreed on orally. The
question whether the contract contains additional or contradictory oral terms, is a
question of fact. Evidence of certain oral terms cannot be given in certain cases to
prove the terms of written contracts or to contradict or vary them.578
Once the express terms are ascertained, their meaning is a matter of construction.579
An "express contract" means the reciprocal promises contained in the words of the
contract or resulting from a true construction of them and excludes stipulations which
may arise out of any usage or custom or which may be inferred from the conduct or
course of dealings between the parties.580
A term which, in the opinion of the Court, results from the true construction of the
language used by the parties may be said to be implicit in that language, but in the
sense of the present section it is not implied; for it is contained in the words of the
agreement,581 though not apparent on the face of them. The Courts will enforce not
only the terms expressly agreed between the parties, but also those which are "logically
implied" from those express terms.582
Where parties have acted on the terms of an informal document which has passed
between them, but has never been executed as a written agreement or expressly
assented to by both, it is a question of fact whether their conduct establishes an
implied agreement to be bound by those terms.583
[s 9.3] Incorporating or Reference to Other Documents
Questions may arise whether all the terms of another document are incorporated in a
contract, when the contract refers to that document. The terms of the document can be
incorporated by reference,584 when they are not inconsistent with the express terms of
the incorporating document,585 and are not repugnant to the transaction which that
document represents.586 In India, the law has been construed more liberally, towards
accepting incorporation by reference.587 A contract can also incorporate by reference
statutes or rules, instead of merely referring to them.588 However circulars not issued
under any statute and meant for use internally in an office, are not binding unless they
are incorporated into the contract.589
An arbitration clause may be incorporated by reference to a specific document but the
intention to refer to arbitration by such incorporation must be clear and specific.590
Where, the parties are aware of the arbitration clause in an earlier contract, and the
terms of an earlier contract are incorporated by reference in the subsequent contract
between the parties, merely because the subject-matters of the two contracts are
different, there would be no bar to such incorporation, unless, the incorporation of the
arbitration clause will be insensible or unintelligible.591In a case, where the subsequent
contracts contained a clause to the effect that each of them was subject to all terms
and conditions of an earlier contract with another party, it was held that since the
arbitration clause in the earlier contract was framed in the widest terms, it was
imported into each of the subsequent contracts.592While ascertaining the intention of
the parties, with regard to incorporation of a clause contained in another document,
attempt should be made to give meaning to the incorporation clause and to give effect
to the same and not to invalidate or frustrate it by giving a literal, pedantic and
technical reading of the clause.593
In a case where the parties had entered into multiple agreements with a main and three
ancilliary agreements and the main agreement contained a clause that disputes under
the said agreement and disputes connected therewith could be referred to arbitration, it
was held that although the other agreements also contained separate arbitration
clauses, since the agreements were entered into for a common object, the disputes
(including disputes under the ancilliary agreements) arising out of the termination of
the main agreement, could be referred to a Sole Arbitrator. .594
A cover note relating to a contract of insurance is a temporary and limited agreement. It
may be self-contained or it may incorporate by reference the terms and conditions of
the future policy. When the cover note incorporates the policy in this manner, it does
not have to recite the term and conditions, but merely to refer to a particular standard
policy. The reference to the policy and its terms and conditions may be expressed in
the proposal or the cover note or even in the letter of acceptance including the cover
note. The incorporation of the terms and conditions of the policy may also arise from a
combination of references in two or more documents passing between the parties.595
If the document sought to be incorporated by reference is a standard form set of terms
and conditions, the courts are more likely to accept that general words of incorporation
will suffice. This is because the parties can be expected to be more familiar with those
standard terms including the arbitration clause.596
In M R Engineers and Contractors Pvt Ltd v Som Datt Builders Ltd,597 while discussing
the difference between the effect of reference to another document in a document and
incorporation of another document in a contract, the Supreme Court explained:
… there is difference between reference to another document in a contract and
incorporation of another document in a contract, by reference. In the first case, the parties
intend to adopt only specific portions or part of the referred document for the purposes of
the contract. In the second case, the parties intend to incorporate the referred document in
entirety, into the contract. Therefore when there is a reference to a document in a contract,
the Court has to consider whether the reference to the document is with the intention of
incorporating the contents of that document in entirety into the contract, or with the
intention of adopting or borrowing specific portions of the said document for application to
the contract.
… If a contract refers to a document and provides that the said document shall form part
and parcel of the contract, or that all terms and conditions of the said document shall be
read or treated as a part of the contract, or that the contract will be governed by the
provisions of the said document, or that the terms and conditions of the said document
shall be incorporated into the contract, the terms and conditions of the document in entirety
will get bodily lifted and incorporated into the contract. When there is such incorporation of
the terms and conditions of a document, every term of such document, (except to the extent
it is inconsistent with any specific provision in the contract) will apply to the contract. If the
document so incorporated contains a provision for settlement of disputes by arbitration, the
said arbitration clause also will apply to the contract.
… On the other hand, where there is only a reference to a document in a contract in a
particular context, the document will not get incorporated in entirety into the contract. For
example, if a contract provides that the specifications of the supplies will be as provided in
an earlier contract or another purchase order, then it will be necessary to look to that
document only for the limited purpose of ascertainment of specifications of the goods to be
supplied. The referred document cannot be looked into for any other purpose, say price or
payment of price. Similarly if a contract between X and Y provides that the terms of
payment to Y will be as in the contract between X and Z, then only the terms of payment
from the contract between X and Z, will be read as part of the contract between X and Y. The
other terms, say relating to quantity or delivery cannot be looked into.
When the employment contract between the parties contained a clause providing for
exclusive jurisdiction of the courts in Bombay, the contention that the dispute has to be
resolved through arbitration in terms of the "solutions programme" applicable to the
employment of employees in the USA, was rejected by holding that there is no specific
incorporation of the provisions for arbitration contained in the "solutions programme"
to the case of the petitioner.598
A bank guarantee being a separate and independent contract, the arbitration clause
contained in the main contract cannot bind the bank as the bank is not a party to the
main contract. It is therefore futile to contend that the arbitration clause contained in
the main contract must be treated as incorporated in the contract of Bank
Guarantee.599
[s 9.4] Implied Contracts
The word "implied" is sometimes used to indicate contracts where proposal or the
acceptance or both are signified not by words but by acts or conduct. In a case where
the Defendants accepted the goods supplied by the Plaintiff and never repudiated the
demand for payment for the goods supplied, it was held that there was an implied
contract.600 When a physician agrees to attend a patient, there is an unwritten contract
between the two. The patient entrusts himself to the doctor and that doctor agrees to
do his best, at all times, for the patient. Except when written informed consent is
obtained, such doctor-patient contract is almost always an implied contract.601 The
contract of employment may not contain details of overtime work and remuneration for
the same. In the course of the employment, when the employee does overtime work, it
amounts to acceptance of an offer of the employer. In such a situation there emerges
concluded implied contract between the employer and employee.602
The acts or conduct must be such that it can only give rise to the inference that there
must have been an implied offer and an acceptance. If they are not consistent with
there being an offer and acceptance, they cannot give rise to a tacit or implied
contract.603 Thus, an agreement between partners to vary the terms of the partnership
contract may "either be express or be implied from a uniform course of dealing"
[section 11(1) of the Indian Partnership Act, 1932]. When a customer of a bank has not
objected to a charge of compound interest in accordance with the usual course of
business, there is an implied promise to pay the charge.604
Where an act is done by one person at the request of another, which act is not tortious
to the knowledge of the person doing it, and such act turns out to be injurious to the
rights of a third party, the person doing it is entitled to indemnity from him who
requested that it should be done.605 Where a tenderer carries the tender of his subcontractor in his own tender, he has sub-contracted the work to the sub-contractor,
subject to acceptance of his own tender.606
[s 9.6] Implied Terms
A contract may be partly express and party implied. The language of the section thus
also applies to what are called "implied terms" in promises, terms which a Court
"imports" into a contract, generally for giving effect to the intention, the presumed
intention, of the parties. It is not just what is set out expressly that constitutes the
terms of contract. Nearly every contract leaves matters to be implied. If on reading the
document as a whole, it can fairly be deduced from the words used therein that the
parties had agreed to a particular term, there is nothing in law which prevents them
from setting up that term; what matters are to be implied must be determined with
reference to the surrounding circumstances and the parties who made them,607 or may
be imported under trade, mercantile or local usage.608 It is an implied term that a
person who does work or who supplies goods under a contract, where no price is fixed,
is entitled to be paid a reasonable sum for his labour and the goods supplied.609 A
contract, whether implied or express, gives an equal cause of action.610 The question,
whether contract is express or implied, is one of inference to be drawn from the facts.
An express contract can be proved by written or spoken words, which constitute an
agreement between the parties, while an implied promise may be proved by
circumstantial evidence of an agreement.611 The process of implying a term is not one
of inferring or presuming the existence of a term in an express contract.612
[s 9.6.1] Necessity of Implying a Term
The necessity for implying a term into the contract may arise because the parties have
not expressly stated them, owing to inadvertence or bad drafting. Prima facie, that
which in any contract is left to be implied and need not be expressed is something so
obvious that it goes without saying.613 They may be content to state expressly only the
most important terms agreed between them, leaving the others to be understood. They
may have had the terms in their mind but did not express them or would probably have
expressed them if the question had been brought to their attention. Otherwise, they
may have understood the obligations according to the practices already established
between them, or arising out of custom or trade usage applicable to their business.
Later disputes will show that they did not provide for some contingencies in their
contract. It may then become necessary to find out whether terms can be implied to
provide for the contingency.
The Bombay High Court in Deviprasad Khandelwal & Sons v UOI,614 held as follows
regarding implying terms into a contract:
It is a matter of common experience that no perfect contract can be made, because the
parties to it may not at the stage of making it, envisage or provide for all the contingencies
that may arise. Several times the parties to a contract may either through forgetfulness or
through bad drafting fail to incorporate into the contract terms which, had they adverted to
the situation, they would certainly have inserted to complete the contract. In such cases, in
order to give efficacy to the contract, the Court will imply into a contract terms which the
parties have not themselves expressly inserted. It is true that it is not the function of the
Court to make contracts for the parties, but only to interpret contracts already made.
Courts are required to imply a term to give efficacy to the contract, to prevent "the
enjoyment of the rights conferred by the contract (being) rendered nugatory, worthless,
or, perhaps...seriously undermined".615The principle of business efficacy is normally
invoked to read a term in an agreement or contract so as to achieve the result or the
consequence intended by the parties acting as prudent businessmen. A term can be
implied only if it is necessary to give business efficacy to the contract to avoid such a
failure of consideration that the parties as reasonable businessmen could not have
intended. But only the most limited term should be implied to achieve this object. If the
contract makes business sense without the term, the courts will not imply the term.616
While reiterating the traditional tests of business necessity and obviousness in
deciding whether to imply a term, the UK Supreme Court held that in particular, a term
should not be implied on the basis that it is reasonable to do so.617 In Malik v
BCCI,618while implying a term into a contract of employment that an employer shall not
without reasonable and proper cause, conduct itself in a manner calculated and likely
to destroy or seriously damage the relationship of confidence and trust between the
employer and the employee, the Court observed that the evolution of the term was a
recent and sound development, brought about by a change in legal culture, with far
greater duties imposed on the employer to care for the welfare of the employee.
[s 9.6.2] Types of Implied Terms
The terms implied may be of three types:619
(i) terms implied by custom;
(ii) terms implied by law; and
(iii) other terms implied by Courts.
The common law also makes a distinction between terms implied in fact and terms
implied by law. A term implied by law arises from the nature, type or class of contract in
question. Some terms are implied by statutes in contracts of a particular class, for
example, sale of goods. Certain terms are presumed to apply because of custom of a
trade or business. Other terms are implied by common law, because though originally
based on the intentions of parties to specific contracts of particular descriptions, they
become so much part of the common understanding as to be imported into all
transactions of the particular description. If an implied condition is absolutely
necessary to give that effect to the transaction which the parties must have intended at
all events, this condition is to be implied. The principle is both positive and negative.
Where it is necessary for that purpose, an implication will be made; and no further
implication will be made than inecessary to give such efficacy to the transaction as
must have been intended at all events.620
Whether or not a term is implied usually depends upon the intention of the parties as
gathered from the words of the agreement and the surrounding circumstances.621
Such implication may be made in one or both situations, i.e., first, to give business
efficacy622 to the contract, and secondly, to bring forth the obvious, but unexpressed,
intention of the parties. Both these criteria depend on the presumed intention of the
parties. This inquiry has difficulties, as it is based on an assumption that the parties
have a common or joint intention, when in fact the parties may have no views in the
matter, or may have contradictory views once they apply their minds to the question.
[s 9.6.3] Relationship between Parties
The relationship between the parties or the nature of the contract is of prime
importance in determining the implied term of any of the types mentioned above. It has
been held that when a debtor issues a cheque to his creditor, he makes an implied
promise to him to pay the amount of the cheque being issued by him.623It is not
sufficient only to inquire into the intention of the parties in the particular case. Over the
course of time, Courts have grouped together terms likely to be imported because of
the relationship between the parties arising out of the type of transaction. In certain
types of contracts, these terms may become standardised. Once these terms are wellsettled, the real issue then remains of classifying the type of contract, by determining
the relationship between the parties. Such implication depends not only on the
intention of parties, but also on more general considerations.
In the case of commercial documents familiar to commercial parties, terms can be
implied, in particular as to the mode of carrying out of contract.624 Modern principles
of construction require the court to have regard to the commercial background, the
context of the contract and the circumstances of the parties, and to consider whether,
against that background and in that context, to give the words a particular or restricted
meaning would lead to an apparently unreasonable and unfair result.625 An implied
contract to pay compound interest may arise from a long course of dealings.626 Where
both parties to a contract were hirers of plants, a term was implied that the usual
standard form of conditions of hire applied.627
Although a duty of good faith may not be generally implied in all contracts, particular
implication of such duty is possible in a commercial contract based on presumed
intention of parties.628
[s 9.7] Implication by Custom or Usage
In certain contracts, the parties are presumed to have contracted with tacit reference to
some custom or usage well-known in the district or in the trade, and whatever is
prescribed by that usage becomes an additional term of the contract, if not excluded by
express agreement. Evidence can be given of custom and usage to annex incidents to
written contracts in matters in which the contract is silent.629 Such terms are certainly
implied from a general interpretation of the transaction with reference to the usual
understanding of persons entering in like transactions in like circumstances.630 The
parties are presumed to have intended to be bound with reference to these usages
without expressing these into their contracts. By virtue of section 1, any such custom
or usage will be recognized.. The grounds on which usage of this kind are enforced is
not that they have any intrinsic authority, but that the parties are deemed to have
contracted with reference to them. They need not, accordingly, be ancient or universal.
A Court may import into a contract any local custom or usage which is notorious,
certain, legal and reasonable, provided it is shown that persons in the circumstances
and condition of the parties in fact generally observe them. In India, most of the cases
of this kind, which have been reported in the High Courts, appear to be on implied
contracts to pay interest. Such a contract may exist by reason of mercantile usage.631
The custom or usage of a trade cannot modify the express term which is clear and not
ambiguous.632
It has been held that the liability to pay interest cannot be imported into a contract
containing no stipulation to that effect either under Hindu or English law, unless there is
a mercantile usage.633
[s 9.7.1] Implication by Law
A term may be implied into a contract by statute, namely, sale of goods, insurance, hire
purchase, etc.634 These implied conditions or covenants may be varied or
supplemented, or also excluded by particular conditions provided in the contract
between the parties. These terms may not always be taken to reflect the presumed
intention of the parties; parties may not have thought about them at all. One view
suggests that these are not "implied terms" at all, but duties which (unless contrary
intention is expressed in the contract) are imposed by law in the case of the particular
contracts.635 Although these terms do not reflect the intention or presumed intention
of the parties, they may be imposed upon them on considerations of public policy.
Under the law, apart from the terms imported by mercantile usage, the Court may imply
terms, which are necessary in order to repair an intrinsic failure of the expression in the
contract, in other words, which will implement the presumed intention and give
"business efficacy" to the contract,636 which is such a term that if at the time the
contract was being negotiated some one had suggested some express provision for a
matter in the agreement, the parties would testily suppress him with a common "oh, of
course!"637 The principle of business efficacy was stated by Bowen LJ. in The
Moorcock:638
Now, an implied warranty…as distinguished from an express contract or express warranty,
really is in all cases founded upon the presumed intention of the parties, and upon reason.
The implication which the law draws from what must obviously have been the intention of
the parties, the law draws with the object of giving efficacy to the transaction and preventing
such a failure of consideration as cannot have been within the contemplation of either side;
and I believe if one were to take all the cases…of implied warranties or covenants in law, it
will be found that in all of them the law is raising an implication from the presumed intention
of the parties with the object of giving to the transaction such efficacy as both parties must
have intended that at all events it should have.
The doctrine in The Moorcock is applied as a last resort where, without the implied
term, the contract will not be workable. The doctrine can only be invoked to give
business efficacy to the transaction as must have been intended; if an obligation is not
clearly intended as such, it must fail to take effect unless some obvious oversight is to
be remedied, or it is something so obvious that it goes without saying.639
The Court will imply a term if it was so obviously a stipulation in the agreement that it
goes without saying that the parties must have intended it to form a part of a contract.
This test overlaps the business efficacy test. In the words of Jenkins LJ.:640
I do not think that the Court will read a term into a contract unless, considering the matter
from the point of view of business efficacy, it is clear beyond a peradventure that both
parties intended a given term to operate, although they did not include it in so many words.
Sellers were held to warrant absolutely that they would obtain an export licence
because of the clause "Delivery: prompt as soon as licence granted" which meant that
licence would be granted, the only thing was when. In such cases, the warranty is to
use reasonable diligence to get the licence.641 Variation clauses were retrospectively
applied because a stipulation was necessary for the business efficacy of the
contract.642 Where the provisions of a lease cannot be carried out and must remain
inoperative without implying an easement of necessity into the lease, the Court should
read the lease in such a way that ut res magis valeat quam pereat and therefore the
right course is to imply an easement of necessity.643
To give efficacy to the contract, the Courts are willing to imply a term on the ground
that without it the contract will not work.644 Thus, a term has been implied into a
contract for driving lessons that the vehicle provided would be covered by
insurance;645 into a contract for the Turkish bath that the couches for reclining on were
free from vermin;646 and into a contract of agency that the principal would not deprive
the agent of his commission by committing a breach of contract between himself and
a purchaser which released the purchaser from the obligation to pay the price.647
[s 9.8] When will a Term be Implied
Whether a term will be implied is a question of law for the Court. A Contract is implied
in fact only when there is a meeting of minds.648The Court should refuse to read an
implied term into a contract which is silent on the point or did not clearly indicate the
nature of term.649It will not be implied so as to contradict any express term.650 It ought
not to be implied unless on considering the whole matter in a reasonable manner, it is
clear that the parties have intended that there should be the suggested term. The Court
has no discretion to make a new contract for the parties.651 As observed by Lord Atkin
in Bell v Lever Bros:652
Nothing is more dangerous to allow oneself the liberty to construct for the parties contracts
which they have not in terms made by importing implications which would appear to make
the contract more businesslike or more just. The implications to be made are to be no more
than are 'necessary' for giving business efficacy to the transaction... a condition should not
be implied unless the new state of facts makes the contract something different in kind
from the contract in the original state of facts.
The Privy Council in an appeal from Australia has held,653 that in the first instance an
implied term must be equitable. The other conditions are:
(i) it must be reasonable and equitable;
(ii) it must be necessary to give business efficacy to the contract and no term can
be implied if contract is effective without it;
(iii) it must be so obvious that "it goes without saying";
(iv) it must be capable for clear expression;
(v) it must not contradict any express term of the contract.
[s 9.9] Express Terms Prevail
A promise which is excluded by the express terms of a contract cannot be implied.654
Courts will also not imply a term which is inconsistent with or contradicts the express
terms of the contract.655 In construing a contract the court must look at the words
used in the contract unless they are such that one may suspect that they do not convey
the intention correctly.656
An unexpressed term could only be implied if it was necessary to give business
efficacy to a contract, but it must be a term which the Courts finds the parties must
have contemplated to be a term of their contract. If, however, the terms of the contract
are explicit and clear and free from ambiguity, those terms will be applied even if the
Court considered that some other term would be more appropriate. Therefore, in a
building contract, if it was clear that Phase III was to be contemplated by the particular
date, no term for extension could be implied because of the delay in completion of a
penultimate phase.657
In a contract for supply of "screened zira" for Jamalpur Railway Station, it was provided
that the railway administration would not be liable for "anything that may happen to the
suppliers" commodities until the same passed into the physical possession of the
buyer (and not as a carrier) at a place of delivery noted in the Purchase Order'. This
condition was held to be a clear indication of keeping the liability of the railway carrier
and purchaser separate and distinct. In such a case, in the absence of a contract,
express or implied, the supply of wagons by the railway administration would not be a
condition precedent to the supply of the commodities within the time specified by the
contract.658
An implied term, that when a broker is invited to produce an offer, there is a promise by
the invitor that it would be accepted, unless just excuse for refusal existed, was not
raised in Luxor (Eastbourne) Ltd v Cooper.659A term was not implied for extra payment
for the work of dewatering required on meeting soft strata during excavation, when the
tender mentioned excavation of hard strata,660 or for renewing an agreement when the
words "if it is not renewed" were used in an agreement of supply of electrical energy.661
Where a member of a Committee had a two year term, its rules did not provide for his
removal, a term could not be implied conferring power of removal.662
[s 9.10] Implication of Term Rejected
A term ought not to be implied simply because it is reasonable to make a particular
implication663 or that it would make the performance of the contract more
convenient,664 or it would improve the contract,665 or that it is consistent with the
express terms agreed between the parties.666 It is not permissible for the court to
make a new contract, howsoever reasonable, if the parties have not made it
themselves. The Court refused to imply into an agreement "subject to contract", a
collateral agreement to negotiate in good faith for an unspecified period.667 A term will
not be implied if the contract is effective without it.668 The test is of necessity and not
merely reasonableness.669
No term was implied in a contract of service that wages were not to be paid during
absence of an employee owing to illness;670 into a lease that the lessor would keep a
drain in repair;671 into a contract for the services of a handwriting expert that he should
not render assistance to the opposite party;672 into a voyage charter party that the
charterers would indemnify the shipowners against claims made by the cargoowners;673 into a contract between banker and customer that the customer would take
reasonable precautions in his business to prevent forgeries by his employees;674 into a
debenture that the debenture holder could appoint a receiver if his security was in
jeopardy;675 into an arbitration agreement that the claimant would proceed with the
arbitration without undue delay;676 and into a contract between the insurer and the
assignee of the policy to inform him that the insured was dishonestly jeopardising the
cover provided by the insurer.677
The Court of Appeal refused to imply into the contract a term providing a lock to the
dressing room of an actor whose clothes were stolen (a case of master's liability
towards servant).678 No term was implied to the term of employment of a house
physician who had to reside at a neighbouring hostel provided by the hospital and he
was required to leave the key of his bedroom in the lock (also a case of master and
servant);679 or into a contract for a sale of a patent that the patent would be kept alive
by the seller;680 or into a contract for sale of jute which required licence of the
Government of India that it was subject to the necessary licences and shipments
should be subject to "quota system"; it being within the knowledge of the sellers how
much quota they had.
The Court would read an implied term only where both parties intended that term to
operate;681 or into a contract, where it was within the power of the owners and outside
the power of the charterers, to obtain permission to load, the obligation "expected to
load" in the charter party being sufficient for business efficacy;682 or into a contract,
where parties have made express contract for remuneration, the amount of and
conditions under which it will become payable must be ascertained by reference to the
terms of the contract.683 From the phrase "purchaser to use diligence to obtain
approval of scheme," there is no implied term to appeal to the minister if the scheme
was not approved by the planning authority.684 A term cannot be implied that
wholesaler who has collected tax from retailers, the levy of which was later declared
invalid, were bound to refund it to the retailers, because had the parties thought of the
contingency, they would not have agreed to refund the amount.685
An obligation to indemnify is an onerous one, and the courts would be slow to imply
such an obligation into a contract.686
[s 9.11] No Implied Contract under Article 299 of the Constitution
There can be no implied contract between the Government and another person
because that would nullify the provisions of Article 299(1)687 and, therefore, no
contract can be inferred from the facts and circumstances of the case, and a contract
not complying with the provisions of Article 299(1) is not a contract at all and is not
enforceable against or by the Government.688 However, Article 299 applies only to
contracts to be executed in exercise of "executive power" and not to those executed by
virtue of statutory power.689
[s 9.12] Implied Terms "generally in all contracts"
[s 9.12.1] Not to Prevent Performance
A term may be implied into a contract that neither party shall prevent the other from
performing it.690 If a contract is subject to a condition precedent, a term will be implied
that the parties do nothing to prevent the fulfilment of the condition.691 In the absence
of any express provision to the contrary, it will be implied that it was not the intention of
the parties that either should be entitled to rely on his own breach of the contract to
avoid the contract or obtain a benefit under it.692 If a term can be implied that the party
will not do an act that, if done, would prevent the fulfilment of a condition precedent,
then the doing of that act will be a breach of contract; if a term can be implied that a
party will not do an act that, if done, would cause a condition subsequent to be fulfilled,
then the doing of that act will be a breach of contract. But if a suitable term cannot be
implied into the contract, it will take effect according to its tenor.693 A Government
works contractor was entitled to costs of delay that could have been prevented if the
Government had stepped in to maintain law and order and prevent interruption of work
by antisocial elements, thereby implying this as an obligation of the Government.694
[s 9.12.2] Duty to Co-operate
A promise may be implied on the part of each party to do all that is necessary to secure
the performance of the contract.695 Thus "where in a written contract it appears that
both parties have agreed that something shall be done, which cannot effectively be
done unless both concur in doing it, the construction of the contract is that each agrees
to do all that is necessary to be done on his part for the carrying out of that thing,
though there may be no express words to that effect".696 A contract is not merely a
meeting point for conflicting interests but must also be viewed, to a certain extent, as a
common project. This view can be said to relate to the principle of good and fair
dealing,697 and to the obligation to mitigate the harm in the event of non-performance.
The degree of cooperation is determined not by what is reasonable, but to the limited
extent of what is necessary to make the contract workable, to be determined by the
obligations imposed, expressly or impliedly, upon the party by the agreement itself, and
the surrounding circumstances.698 The duty must be so limited as not to upset the
allocation of duties in the performance of the contract, for some contracts may involve
a duty not to interfere in the course of performance by the other party, while others may
envisage active cooperation from parties. The UNIDROIT principles require from a party
such cooperation as may be reasonably expected for the performance by the other
party.699
[s 9.12.3] Duty to Achieve Specific Result and Duty of Best Efforts
The duty of diligence required in the performance of the contract varies according to
the nature of obligation incurred. Where the party has undertaken to exert best efforts,
eg, "to take best efforts in promoting and sales", a duty is implied upon that party to
exert such efforts as a reasonable person would exert in the same circumstances. If a
party has agreed to achieve a specific result, e.g., "to achieve sales of Rs 1 lakh in a
month", a duty is implied upon the party to achieve that result.700 The nature of the duty
would depend upon various factors, which may include, apart from the express terms
in the contract, for example, the price, the degree of risk involved in achieving the result,
the qualifications, expertise and experience of the party, and the ability of the other
party to influence the performance of the obligation. Obtaining no-objection certificate
from the Income Tax Department, securing title deeds after clearing certain loans are
incidental and implied covenants on the part of the vendors to do the needful to give
effect to the agreement.701
Where the contract is contingent upon the happening of an event, there is no
undertaking by either party that the event shall occur, but a term may also be implied
that one of the parties will use all reasonable efforts to secure the fulfilment of the
condition or bring about the event,702 without any absolute undertaking that the efforts
would succeed. If a property cannot be transferred under the provisions of a statute
without the permission, consent or approval of an authority, the agreement to transfer
the property must be deemed subject to an implied condition that the transferor will
obtain the sanction of the authority concerned.703 It is also implied that such
permission or sanction must be obtained within reasonable time.704
[s 9.12.4] Performance in Foreign Country
Where a contract requires an act to be done in a foreign country, it is generally an
implied term of the continuing validity of the contract that the act will not be illegal by
the law of that country.705
[s 9.12.5] Payment of Price
Price is a material term of a contract, but if it is not expressed, a term may be implied
that a fair and reasonable price was intended by the parties.706 In a contract for
purchase of several tons of iron scrap belonging to the government, it not being
possible to weigh such quantities to the last ounce, it was an implied term that if on
actual weighing, the goods were found to be less than the approximate quantity, the
excess price was to be refunded and
vice versa.707
[s 9.12.6] Termination of Contract
Whether a contract containing no express provision for its termination can be
determined by reasonable notice by one or both of the parties, depends upon
implication of term to that effect, moreover, it may be a question of construction of
ascertaining the common intention of the parties to that effect when they entered into
the agreement.708 It has been held that even in the absence of specific clauses, the
parties could terminate the contract relating to commercial transaction.709A provision
of termination by giving reasonable notice has been implied in contracts where there
was no provision of determination, e.g., contracts of licence to occupy a theatre,710
between agent and principal for terminating the agency,711 between solicitor and
client,712 between manufacturer and distributor for terminating the distributorship,713
between employer and employee for terminating the employment.714 In Her Highness
Maharani Shantidevi P. Gaikwad v Savjibhai Haribhai Patel,715 the contract provided that
the development agreement could not be terminated after the owner gave possession
to the developer. The Supreme Court held that this meant that it could be terminated at
will before possession..
[s 9.12.7] Implied Terms in Written Contracts
A Court may be reluctant to imply a term where the parties have entered into a detailed
and carefully drafted contract.716 A term permitting quarrying of minerals could not be
implied into a lease deed on a basis that what was not expressly prohibited was
deemed to be permitted.717 If a contract is reduced into writing, no unexpressed
condition should be considered as implied in the contract except such terms as are
necessary to give the transaction the efficacy which the parties must have intended to
give it. Therefore, if the contract can be performed as it stands and is effective, no term
or condition can be imported simply because it would seem reasonable to imply such a
term.718"The touchstone is always necessity not reasonableness."719 It will not rewrite
a contract for the parties or imply additional provisions merely because it would be
reasonable to do so.720The reference in the purchase order to respondent's general
conditions of contract obtainable on request was sufficient to incorporate into the
contract between the parties the general conditions of contract and the meaning
reasonably to be attributed to the reference was that the conditions referred to were
those current at the date of the contract.721
[s 9.13] Implied Terms in Particular Contracts
[s 9.13.1] Agency
A term may be implied to remunerate for extra work done by the agent.722 Inthe
absence of any provision in the termination clause in the contract enabling termination
without cause with immediate effect, a provision requiring reasonable notice of
termination would be implied in the contract of exclusive distributorship.723 No term is
implied in a contract where one person employs another as an agent on commission to
provide him with the means of earning his commission;724 or in a contract between an
estate agent and a vendor that the prospective purchaser should be able and willing to
purchase,725 or that a good title would be made out.726
[s 9.13.2] Loans, Debts, Lending, Banking
A covenant to repay is implied in every transaction of loan.727 An implied contract to
pay compound interest may arise from a long course of dealings.728The liability to pay
interest cannot be imported into a contract containing no stipulation to that effect
either under Hindu or English law, unless there is a mercantile usage.729There is an
implied term that the lender must exercise an express power to vary the rate of interest
payable by its customer "without dishonesty, capriciousness or for an improper
purpose".730No terms were implied into a contract between a banker and customer
that the customer would take reasonable precautions in his business to prevent
forgeries by his employees.731 A person accepting money for appropriation upon a
certain contingency is under an implied promise to refund the same if the contingency
does not arise and there is no appropriation of the amount.732
[s 9.13.3] Employment
A term is implied in a contract of service that the employee will observe good faith
towards his employer,733 will not divulge information obtained in the course of his
employment,734 and will not be required to do any unlawful act.735
It is an implied term of a contract of service that the employer would give to the
employee sufficient work to enable him to earn what the parties have contemplated he
should earn.736It is an implied term that an employee who is asked to work overtime,
will be paid for the same.737 An employer is under an implied obligation that he would
not conduct his business in a manner likely to destroy or seriously damage the
relationship of confidence and trust between employer and employee; he would not
conduct a dishonest or corrupt business.738 This duty to look to the employee's
interests includes a duty not to do damage to the employee's future employability.
There is no implied term to improve the employee's future job prospects, but only to
refrain from damaging them.739 This implied term of mutual trust and confidence does
not require the employer to warn an employee of more financially advantageous ways
of exercising his rights.740 A term is implied in a contract of employment that if a
reference was supplied by the employer in respect of his employee, past or present, to
a prospective future employer, due care and skill would be exercised in its
preparation.741 This term would be implied where the contract related to an
engagement of a class where it was the normal practice to require a reference from a
previous employer before employment was offered, and the employee could not enter
into that class of employment except on the basis of the reference given by his exemployer.742 There is an implied term allowing the employer to claim against the
employee if he has taken more leaves than his entitlement.743 It has been held that in
Bengal, payment of puja bonus is an implied term of the employment agreement.744
A term may be implied in a contract for employment of a director, that the articles of
the company will not be altered and then acted upon so as to terminate his contract of
service.745 There exists an implied contract that the master is liable to indemnify the
servant for the loss sustained by the latter during the course of employment.746
No term was implied in a contract of service that wageswere not to be paid during
absence of an employee owing to illness;747 or that the employer would indemnify the
employee in respect of torts committed in the course of employment;748 or that he
would insure the employee when abroad, against accidental injury, or advise the
employee to obtain such insurance for himself.749 Nor can a term be implied in an
ordinary contract of master and servant, giving the right to the employer to suspend the
employee in the sense of right to forbid the servant to work. Such power can be created
by statute or an express term in the contract.750
In Johnstone v Bloomsbury,751the contract of employment allowed the employer to
require junior doctors to work 48 hours overtime a week. A question arose whether a
term could be implied that the employee could not be called on to work at such hours
as it endangered his own health. The Court of Appeal held that the implied term was
subordinate to express ones, but it was suggested752 that where the express term was
subject to the employer's discretion, then the discretion, though not the term itself,
could be fettered by the implied term.
[s 9.13.4] Export and Import Licences
The parties to an international contract for sale of goods may expressly provide who is
to assume the responsibility of obtaining any necessary licence, but, in the absence of
any express term, there may be an implied term to this effect.753 Assuming there is
such a term, it is a matter of construction whether the party placed under the duty
promised: (i) to use his best endeavours to obtain a licence;754 or (ii) undertook
absolutely that a licence would be obtained.755 A promise to co-operate with one
another for obtaining the licence may also be implied.756 A contractor for the shipping
of goods from Brazil was "subject to any Brazilian export licence" but the goods could
not be shipped as the Bank of Brazil could not give a licence except on payment of
prices, higher than the contract prices. The Court did not insert an implied term that if
the sellers could not obtain a licence at the contract prices, they would have an option
to cancel.757
[s 9.13.5] Housing, Building, Construction
A contract by which dwelling units in a council block were let to tenants contained
"conditions of tenancy" which imposed obligations upon the tenants but was silent as
to the obligations of the landlord. The House of Lords implied an obligation on the part
of thelandlord to take reasonable care to keep the essential means of access and other
communal facilities in reasonable repair.758
A term may be implied into a building contract where work commenced long before the
contract was made, that the agreement would operate retrospectively;759 or that the
time of completion of a phase of the work should be extended so as to take into
account delays in the completion of an earlier phase of the contract.760 A term was not
implied into a construction contract for payment for extra unexpected de-watering work
required in the foundation.761 But where the contract required the contractor to pay
"fair wages" to the labour employed by him, a term could be implied that the employer
would reimburse the increased expense to the contractor on account of rise in the
minimum wages prescribed by law.762
A term may be implied in a contract by an architect to prepare plans for a site, an
implied licence to use those plans for all purposes connected with the buildings on the
site;763 and in a contract by consultant engineers to design a building for a particular
purpose, that the design should be fit for the purpose;764 in a contract to design a
building at a nominal fee for the purpose of obtaining planning permission, that the
client was entitled to use the plan for the purpose of erecting the building.765
No term was implied in a contract for exchange of two incomplete housing estates that
the building work was of good quality.766 No term is implied in a contract for sale of a
piece of land with a house on it, that the house is habitable;767 but where a vendor sells
a piece of land and covenants to build or complete a house on it, there is an implied
term at common law that:
(i) the work will be done in a good and workmanlike manner;
(ii) that he will supply good and proper materials; and
(iii) that the house will be reasonably fit for human habitation when built or
completed.768
[s 9.13.6] Insurance
No contract is implied into a contract of insurance that the insurers would indemnify
the insured in respect of expenditure incurred by him in preventing or minimising a loss
which might fall to them under the policy;769 into a contract between insurers and the
assignee of the policy to inform him that the insured was dishonestly jeopardising the
cover provided by the insurers;770 into a contract between insurers and a reinsurer that
they could recover a pro rata share of their costs of investigating, settling or defending
claims on the underlying policies.771 The court while construing the terms of an
insurance policy is not expected to venture into extra liberalism that may result in
rewriting the contract or substituting the terms which were not intended by the
parties.772
[s 9.13.7] Leases
Where the provisions of a lease cannot be carried out and must remain inoperative
without implying an easement of necessity into the lease, the Court should read the
lease in such a way that ut res magis valeat quam pereat and therefore the right course
is to imply an easement of necessity.773 Ina lease to run a ferry with steamers owned
by the lessor, it is an implied term that the lessor has to supply steamers in working
order at the commencement of the lease.774 No term was implied into a lease that the
leased premises are or will be fit for habitation or for any particular use;775 or that the
lessor would keep a drain in repair.776 No term could be implied into a lease granted for
quarrying blue metal rough stone permitting the lessee to quarry any mineral; for what
is not specifically permitted must be deemed to have been impliedly prohibited.777
[s 9.13.8] Supply of Services
In the case of a contract under which a person agrees to carry out a service, other than
a contract of service or apprenticeship, where the supplier is acting in the course of
business, there is an implied term that the supplier will carry out the service with
reasonable care and skill, and if the person has agreed merely to arrange for services
provided by others, there will be an implied term that he would use reasonable care and
skill in selecting those other persons.778 It is implied that a contractor will provide
properly skilled and qualified labour to carry out the contract work.779 In England, this
is implied under section 13 of the Supply of Goods and Services Act, 1982. The service
is of an artisan, it must be carried out in a good and workmanlike manner.780 Whether
the supplier warrants that his services will produce a particular result, or only that the
product of his service will be reasonably fit for the purpose for which it is required,
would depend on the circumstances of the case.781 In a contract for services, a
covenant is implied to pay for any work done;782 in a contract for laying a carpet, that it
should be done in a proper and workmanlike manner.783 If a contract for work is found
to be invalid, it is assumed, unless the express contract excludes it, that there is an
implied contract to pay the contractor reasonably for the work done.784
If the contract is one for supply of professional services, the degree of care and skill
required of a professional man is that which is to be expected of a member of his
profession (that of a specialist if he is one) of ordinary competence and experience.785
The standard of care imposed on an engineer preparing tender documents does not
require him to advise prospective contractors of the need to obtain permits or
approvals to do the work by the particular method they propose.786
An adviser charging his client on the basis of time and effort spent has an implied duty
to provide account to his client in a sufficiently organised form, and to give details of
the work performed over the time.787
No term can be implied in the contract between a doctor and patient entitling the
patient to access to all the matters in his medical record.788
[s 9.13.9] Transport and Carriage
A term is implied in a contract for the shipment of tractors, that the tractors would be
carefully loaded.789 No implied term was implied into a voyage charter party that the
charterers would indemnify the shipowners against claims made by the cargoowners;790 or that the shipowners would use due diligence to obtain, and would obtain,
any necessary Government permission to load;791Bilticut contracts include the liability
of the seller to take the goods to the railway station and get the railway receipts
prepared at his own expense; and in the case of "station delivery" contracts, it is the
seller's duty to take the goods to the railway station but expenses of getting the railway
receipt prepared are borne by the buyer. In either case, the railway freight is paid by the
buyer.792
[s 9.13.10] Miscellaneous
The headmasters of secondary schools allow their pupils to appear for examinations
of the secondary board under implied terms of the contract of education.793 A term
may be implied in a father's contract to pay for such of his child's expenses as could be
capable of being approved by him, that such consent should not be unreasonably
withheld;794 in an arbitration agreement, that the arbitration award should be in such a
form that it would be capable of being enforced as a judgment under a relevant
statute;795 in a contract between a driving school and its customer, that any car
provided under the contract would be covered by insurance.796 A term was implied into
the Articles of Association that the directors of an insurer could not exercise their
discretion in a manner as would defeat the reasonable expectation of policyholders.797
A term is implied that in a contract of Turkish bath, the couches for reclining on are free
from vermin.798 No term was implied into a contract for the sale of a patent to a
company that the company would keep the patent alive.799
[s 9.14] Construction of Terms
When the parties differ in their views about the meaning of their contract, and its effect
on their rights and obligations, it falls upon the Court to settle these differences. Such
settlement often depends upon a proper construction of the terms of the contract. The
object of construction is to discover the mutual intention of parties. "The expression
'construction', as applied to a document... includes two things: first the meaning of the
words; and secondly, their legal effect, or the effect which is to be given to them".800
Although, the former is referred to as interpretation,801 and the latter as construction,
these terms are used interchangeably. Once the true meaning of the words in the
instrument has been ascertained as a fact, construction becomes a question of law.
Rules of construction are aids for ascertaining the intention of the parties and need not
be resorted to when the intention of the parties is unequivocally expressed.802 When
the words are clear and unambiguous, there is no scope for drawing upon hypothetical
considerations or supposed intention of the parties.803
A rule of construction is a presumption rather than a rule of law. They are merely
guidelines to the presumed intention of the parties in the light of events which have
occurred. Accordingly, a rule of construction will be applied only when a contrary
intention is not expressed in the contract.
[s 9.15] Purpose of Construction
The professed object of the Court in interpreting a written contract is to discover the
mutual intention of the parties, the written declaration of whose minds it is.804 This is
determined objectively, because the parties cannot give direct evidence of the intention
they had at the time of making the contract. Although, the purpose of construction is to
ascertain the intention of the parties, this does not correctly express the actual task of
construction. First, the parties cannot give evidence as to what their intention was at
the time of making the contract. Secondly, the words selected may not exactly express
what they wish to achieve. They may have been selected, yet the parties may express
rival points of view. Further, the contract may have been made by their lawyer or some
other person. Therefore, the real object of construction is to ascertain the presumed
intention of the parties, on the assumption that both parties are reasonable persons
who seek to achieve reasonable results, fairness and efficacy.805 The endeavour of the
Courts should always be to interpret the words used in the contract in the manner that
will best express the intention of the parties.806 The purpose of interpretation is to
assign to the language of the text the most appropriate meaning which the words can
legitimately bear.807
Rather than apply the rules of construction rigidly, the modern approach is "to
assimilate the way in which documents are interpreted by judges to the common-sense
principles by which any serious utterance would be interpreted in ordinary life".808 If
detailed semantic and syntactical analysis of words in a commercial contract is going
to lead to a conclusion that flouts business common sense, it must yield to business
common sense.809
[s 9.16] Ascertaining the Intention of the Parties
The intention of the parties must be ascertained from the language they have used,
considered in the light of the surrounding circumstances and the object of the contract,
in so far as that has been agreed or proved.810
In a contract, between the joint intent of the parties and the intent of the reasonable
person, joint intent triumphs and the Court should interpret the contract accordingly.811
The UNIDROIT Principles expressly provide that in ascertaining the intention of the
parties, be it the subjective intention or the "reasonableness" test, regard shall be had
to the following circumstances:
(a) preliminary negotiations between the parties;
(b) practices which the parties have established between themselves;
(c) the conduct of the parties subsequent to the conclusion of the contract;
(d) the nature and purpose of the contract;
(e) the meaning commonly given to terms and expressions in the trade concerned;
(f) usages.812
The first three may be more relevant in applying the "subjective" test, and the latter in
applying the "reasonableness test".
[s 9.16.1] Ascertain Intention from Document Itself
A contract comprises the joint intent of the parties.813 There is no intention
independent of the meaning of the words used in the contract by the parties. The word
"intention" is not used here to mean motive, purpose, desire, as a state of mind, but as
meaning intention as expressed.814 When the Court ascertains the intention, it does
not study what the parties intended to do, but what the language employed shows that
they did; "in other words, they are not constructing a contract on the lines of what may
be thought to have been what the parties intended, but they are construing the words
and expressions used by the parties themselves".815 The construction of a contract
cannot be governed or affected by the intention or belief of one of the parties not
communicated to the other.816 It is not the intent of a single party; it is the joint intent
of both parties and the joint intent is to be discovered from the entirety of the
contract.817 The importance of this rule lies, first because parties are unlikely to use
language in a sense different from that usually attached to it, and secondly, because
even if this were to be the case, it would be difficult, once dispute has arisen, to prove
that a particular meaning claimed by one party to have been their common intention
was shared by the other party when they made the contract.
In construing a contract, the Court must look primarily at the words used in the contract
itself,818 unless they are such that one may suspect that they do not convey the
intention correctly. If the words are clear, there is very little the Court can do about it.819
This precludes the parties from giving direct evidence to show that their real intention
was different from that reflected in the document.820 To ascertain the parties'
intentions the court does not inquire into the parties'subjective states of mind but
makes an objective judgment based on the materials already identified.821
Where the terms of a policy of burglary insurance described burglary to mean theft by
use of force or violence or threat, the insurer was not liable where the goods insured
were found to be stolen without use of force.822 Where tenders were invited for
collection and purchase of a lot, and a lot was described as the quantity in a godown,
the seller was liable to sell the entire quantity in the godown even if it exceeded the
notified quantity.823 A policy covering theft of jewellery contained a clause that
excluded loss occassioned by theft of dishonesty by any customer in respect of
property insured "entrusted" to them by the insured. In a claim for theft of jewellery by
customer, it was held that the insurer was liable because jewellery was not entrusted to
him.824 It was held that the terms of an airway bill applied to loss of goods from a truck
after it had left the airport, because parties had agreed that delivery will be made in
accordance with consignee's instructions, and the definition of "carrier" indicated
services incidental to air carriage.825 Where an assignment of copyright was silent
about the term, but the negative covenant and payment of royalty was limited to 25
years, the assignment was not absolute in terms of time.826
The principles of construction of contracts are applicable also to compromise
decrees.827
The UNIDROIT Principles in a separate chapter for the purpose, provide the rules of
interpretation of contracts. The Principles provide that a contract shall be interpreted
according to the common intention of the parties. It is only when the intention cannot
be established, that the contract shall be interpreted according to the meaning that
reasonable persons of the same kind as the parties would give it in the same
circumstances.828
[s 9.16.2] Objective Test
"When one speaks of the intention of the parties to the contract one speaks objectively...and
what must be ascertained is what is to be taken as the intention which reasonable people
would have had if placed in the situation of the parties".829 As stated by Mason J. in Codelfa
Construction Pty Ltd v State Rail Authority of NSW:830
... when the issue is which of two or more possible meanings is to be given to a
contractual provision we look, not to the actual intentions, 'aspirations or expectations
of the parties before or at the time of the contract, except in so far as they are
expressed in the contract, but to the objective framework of facts within which 'the
contract came into existence, and to the parties' presumed intention in this setting. We
do not take into account the actual intentions of the parties and for the very good
reason that an investigation of those matters would not only be time consuming but it
would also be unrewarding as it would tend to give too much weight to these factors at
the expense of the actual language of the written contract.
The meaning of a contract is that which the instrument would convey to a reasonable
person having all the background knowledge which would reasonably be available to
the audience to whom the instrument is addressed.831
The UNIDROIT Principles provide as regards unilateral statements, that the statements
and other conduct of a party shall be interpreted according to that party's intention if
the other party knew or could not have been unaware of that intention; else according
to the meaning that a reasonable person of the same kind as the other party would give
to it in the same circumstances.832
[s 9.16.3] Surrounding Circumstances
There is no standard formula to ascertain the actual nature of transaction under a
contract.833 It depends on the terms of the contract, nature of obligations to be
discharged and surrounding circumsntaces.834 The intention of the parties must be
ascertained from the language they have used, considered in the light of the
surrounding circumstances and the object of the contract.835 Joint intent of both
parties to a contract is to be discovered from the entirety of the contract and the
circumstances surrounding its formation.836 For correct interpretation of the contract,
the Courts have to look primarily to the document itself, but may also take into
consideration surrounding circumstances,837 namely, circumstances in which it was
written, the drafting abilities of the parties, the intention which the writing was to
convey and how the parties acted under it.838 In the construction of written
instruments, it is legitimate in order to ascertain the true meaning of the words used
and if that be doubtful, then to have regard to the circumstances surrounding their
creation and the subject matter to which it was designed and intended to apply.839
Interpretation is the ascertainment of the meaning which the document would convey
to a reasonable person having all the background which would reasonably have been
available to the parties in the situation in which they were at the time of the
contract.840But if the words are clear in the context of the surrounding circumstances,
the Court cannot rely on them to attribute to the author an intention contraryto the plain
meaning of the words used in the document.841 The producer of a film assigned to X
all "negative rights" in the film. The claim of the assignee of X to the television and
video rights of the film was negatived on the ground that the claimant could not claim a
right which was not contemplated at the time of the original assignment in the year
1961, when neither party could have foreseen the scientific advancement of videos,
satellites.842 Similarly, the right of consumers of electricity supply to claim rebate was
not lost by a specific clause in the agreement under which they agreed to pay charges
at such rates as may be revised by the electricity board from time to time, since the
development rebate was beyond the contemplation of the parties at the time of the
agreement.843
[s 9.16.4] Prior Negotiations and Correspondence
In construing written contracts, the Courts ought not to resort to evidence of prior
negotiations except to the extent necessary for clarifying what is ambiguous in the
contract;844 then the Court would place itself in the position of the parties to ascertain
their intention. There are sound policy reasons for excluding evidence of precontract
negotiations. "[P]re-contractual negotiations will be drenched in subjectivity and may, if
oral, be very much in dispute", and admission of such evidence "would create greater
uncertainty of outcome in disputes over interpretation and add to the cost of advice,
litigation or arbitration".845 It has been stated:
The reason for not admitting evidence of these exchanges is not a technical one or even
mainly one of convenience, (though the attempt to admit it did greatly prolong the case and
add to its expense). It is simply that such evidence is unhelpful. By the nature of things,
where negotiations are difficult, the parties' positions, with each passing letter, are changing
and until the final agreement, though converging, still divergent. It is only the final document
which records a consensus. If the previous documents use different expressions, how does
constructionof those expressions, itself a doubtful process, help on the construction of the
contractual words? If the same expressions are used, nothing is gained by looking back:
indeed, something may be lost since the relevant surrounding circumstances may be
different. And at this stage there is no consensus of the parties to appeal to.846
An arbitrator's interpretation based on pre-contract negotiations was upheld by the
Supreme Court.847 The meaning of the term "factory-cum-godown" in an insurance
policy was interpreted to exclude goods lying in the open, having regard to the answers
given by the insured in his proposal.848
[s 9.16.5] Subsequent Conduct
"One may not look at what the parties did under the contract for the purpose of
construing the terms".849 The true construction of an agreement must depend upon
the import of the words used and not upon what the parties choose to say
afterwards.850 Nor does subsequent conduct of the parties in the performance of the
contract affect the true effect of the clear and unambiguous words used in the
contract.851"Otherwise, one might have the result that a contract meant one thing on
the day it was signed, but by reason of subsequent events, meant something else a
month or a year later".852 But where the meaning of an instrument is ambiguous,
subsequent interpreting statement is admissible.853 Where the agreement is partly
written and partly oral,854 or where there is no writing,855 subsequent conduct may be
examined for the purpose of determining what were the full terms of the contract.
Subsequent conduct may be relevant to show that the contract exists, or to show
variation in the terms of the contract, or waiver or estoppel.856 The Court can also take
into account how the parties understood the terms.857
[s 9.16.6] Custom of Trade
When a custom is relied upon, there is necessarily a variation from the written contract,
but the variation must not be in contradiction of, or repugnant to, the written word.858
Extrinsic evidence is allowed to prove custom or usage.859 Custom or usage of a trade
cannot modify the express term of a contract which is clear and unambiguous.860
[s 9.16.7] Other Documents
Where the document is expressed to be supplemental to another document, the whole
of such other document may be looked into. When there are several documents which
form a part of one transaction and are contemporaneously executed, they have similar
effect for similar purposes and as such are relevant as if they are one deed.861Where
the terms and conditions of the supply of the first contract were incorporated by
reference in the second contract, only the normal incidents of terms and conditions of
supply which are connected with supply such as, its mode and process, time factor,
inspection and approval, if any, reliability for transit, incidental expenses, etc., stood
incorporated in the second contract and not the arbitration clause. The arbitration
clause of an earlier contract can, however, by reference be incorporated in a latter
contract, provided it is not repugnant to or inconsistent with the terms of the contract in
which it is incorporated.862
A contract must be interpreted by itself and without reference to another contract,
unless the expressions used in both and the facts and surrounding circumstances also
are the same or identical.863 Where parties entered into two agreements, one for
construction and the other for interior designing, and only the construction agreement
enabled reference to arbitration of issues arising under that agreement but also
connected disputes, it was held that disputes under both the contracts would be
covered by the arbitration clause in the construction agreement.864 In the words of
Lord Wright in Luxor (Eastbourne) Ltd v Cooper,865however similar the contracts may
appear, the decision as to each must depend on the consideration of the language of
the particular contract and in the light of material circumstances of the parties in view
of which the contract is made.866 Where the question was what exactly were the terms
and conditions of a contract of carriage by sea in a particular case, reference to other
bills of lading issued by the shipping company in connection with the same voyage also
cannot be made.867
A contract must be construed according to its own terms and cannot be explained or
interpreted by any antecedent contract;868 even a formal antecedent contract cannot
be looked at, to control the terms of the conveyance, much less mere communications,
which would only show what they intended to do but cannot show what they did.869 But
an agreement to sell may be used to clear an ambiguity in the sale deed.870 The Courts
have sometimes been ready to read an earlier oral statement and a later formal
document forming together a single comprehensive contract, i.e., the parties have
made their contract partly in writing and partly by word of mouth.871 A preliminary
contract is governed by the subsequent deed, if there be a difference between them,872
but two agreements can be read together in order to find out the intention of the parties
and to arrive at the terms finally agreed.873
[s 9.17] Meaning of Words and Language
Even though the immediate object of enquiry may be to ascertain the meaning of an
isolated clause, every contract is to be considered with reference to its object and the
whole of its terms and accordingly the whole context must be considered in
endeavouring to collect the intention of the parties.874In interpreting a contract, the
Court cannot place emphasis on an isolated provision divorced from the context and
unrelated to the other provisions which govern contractual obligations.875
"A word is not a crystal; transparent and unchanged; it is the skin of a living thought and
may vary greatly in colour and content according to the circumstances and the time in
which it is used".876
...Law is not concerned with the speaker's subjective intentions. But the notion that the law's
concern is therefore with the 'meaning of his words' conceals an important ambiguity. The
ambiguity lies in a failure to distinguish between the meanings of words and the question of
what would be understood as the meaning of a person who uses words. The meaning of
words, as they would appear in a dictionary, and the effect of their syntactical arrangement,
as it would appear in a grammar, is part of the material which we use to understand a
speaker's utterance. But it is only a part; another part is our knowledge of the background
against which the utterance was made. It is that background which enables us, not only to
choose the intended meaning when a word has more than one dictionary meaning but
also…to understand a speaker's meaning, often without ambiguity, when he has used the
wrong words.877
The meaning which a document (or any other utterance) would convey to a reasonable
man is not the same thing as the meaning of its words. The meaning of words is a
matter of dictionaries and grammar; the meaning of the document is what the parties
using those words against the relevant background would reasonably have been
understood to mean.878
[s 9.17.1] Plain (ordinary) Meaning
It is the court's duty to give effect to the bargain of the parties according to their
intention; in doing so the intention is to be looked for in the words used unless they are
such that one may suspect that they do not convey the intention correctly. If those
words are clear, there is very little that the court has to do. The court must give effect to
the plain meaning of the words however it may dislike the result.879 When the words
are clear and unambiguous, there is no scope for drawing upon hypothetical
considerations or supposed intention of the parties.880 Equally, when the language is
clear, it is not legitimate to speculate the reasons which prompted the contracting
parties to include a particular clause.881 Where the agreement was drafted by experts
in the field and the terms are clear, it would be difficult to hold that the intention of the
parties was different from the language used therein.882 When the term of exemption
was specific and unambiguous, the plain meaning has to be given effect to.883
An author of a formal document intended to be acted upon by others should be
presumed to have used words with meaning.884 Contracts ought to be construed
according to the primary and natural meaning of the language chosen by the
parties,885 and grammatical or natural or usual meaning given to the words used in the
contract.886 Oral evidence can be adduced to show how that word is to be
understood.887 The Court must, as far as possible, avoid a construction which would
render the words used by the author of a document meaningless and futile or reduce to
silence any part of document and make it inapplicable.888 Therefore, where an
insurance policy provided that the "insurance may be terminated at any time at the
request of the insured" and "the insurance may be terminated at any time at the
instance of the company" the words "at any time" can only mean at any time the party
concerned likes, or to put it differently, it means either party may at its will terminate
the policy.889 Word "employee" not defined in the contract of insurance, is to be given
meaning it has in common parlance and an apprentice being a trainee would not be an
employee.890 An agent who agreed to receive commission on completion of the sale of
a property was not entitled to commission, based on the clear language of the terms,
where the buyer purchased shares of the company that owned that property, rather
than the property itself.891
Contract being a creature of an agreement between the parties has to be interpreted
giving literal meaning unless, there is some ambiguity therein. The contract has to be
interpreted without any outside aid.892 The circulars issued by Government may
provide useful guidance to the authorities involved in the implementation of the project
but they would not be conclusive of the correct interpretation of the terms of the
agreement and in any event, will not be binding on courts.893 While construing a
document the court should not supply any words which the author did not use.894
It is not necessary that the same meaning ought to be given to an expression in every
part of the document in which it appears.895
A heading of a clause cannot control the interpretation of the clause if its meaning is
otherwise plain and unambiguous, but it can certainly be referred to as indicating the
general drift of the clause and affording a key to a better understanding of its
meaning.896
In construing all written instruments, the grammatical and ordinary sense of the words
is to be adhered to, unless that would lead to some absurdity, or some repugnance or
inconsistency with the rest of the instrument, in which case, the grammatical and
ordinary sense of the words may be modified, so as to avoid that absurdity and
inconsistency, but no further.897 This does not mean the dictionary meaning of the
word, but that in which it is generally understood.898
[s 9.17.2] Technical Words and Words with Special Meaning
When a word has both an ordinary meaning and a special meaning, the specialised
meaning will be applied only when it is proved that the parties intended to use the word
in the latter sense. Section 98 of the Indian Evidence Act, 1872 allows extrinsic
evidence to be given to show that technical words are used in a peculiar sense. The
presumption is that a certain word was to bear a proper technical meaning, and
something must be found in the context, or in the surrounding circumstances so as to
justify in giving the word a qualified meaning.899
[s 9.17.3] Commercial Contracts
While reading the contents of commercial documents, intention of the parties has to be
taken into consideration.900 Commercial transactions couched in easy and
understandable language contained in a contract have to be respected according to
their tenor, because the parties have entered into them with open eyes and are
conscious of the merit of the letter and spirit of the contract's clauses.901 The Courts
should not, in commercial transactions, defeat the efficacy of documents which parties
have acted on. The Court should put itself in a frame of mind which would make itself
possible to understand how commercial minds work.902The duty of the Court when
called upon to assess where the balance lies in a dispute concerning a commercial
contract, is to read the contract as a whole in order to understand the business
meaning which the parties attributed to their obligations.903While considering whether
the expenditure is a capital expenditure or a revenue expenditure, it was held that the
surrounding circumstances will have to be looked into to ascertain the real nature of
the transaction from a commercial point of view.904
The Bombay High Court while considering the interpretation of commercial contracts in
Mumbai Metropolitan Region Development Authority v Unity Infraproject Ltd,905 held as
follows:
A business like interpretation of contractual provisions must be adopted in construing
contracts entered into by persons of business to govern business dealings. The Court must
ensure that interpretation of law in commercial cases must not be disjointed from the intent
and object which those having business dealings seek to subserve. Unless interpretation of
contracts effectuates a business meaning for persons of business, the law will not fulfill its
purpose and object of being a facilitator for business and providing a structure of ordered
certainty to those who carry on business here. The legal system must innovate constantly to
keep abreast with rapid changes in technology and business.
The Supreme Court while considering a clause in a contract which said "subject to the
usual force majeure clause", held that abbreviated references in a commercial
instrument are, in spite of brevity, often self-explanatory or susceptible of definite
application and that if commercial documents are expressed in language which does
not, on its face, bear a clear meaning, the effort of Courts is to give a meaning, if
possible.906The dealings of men should, as far as possible, be treated as effective and
the law may not incur the reproach of being the destroyer of bargains.907 It would not
be right while interpreting a contract which is a commercial document entered into
between parties, to apply strict rules of construction which are ordinarily applicable to
formal documents. The meaning of such a contract must be gathered by adopting a
common sense approach and it must not be allowed to be thwarted by a narrow
pedantic and legalistic interpretation.908 In case of ambiguity, that interpretation will
follow that most accords with "business common sense".909 Since creation of a
monthly tenancy brings the tenant under the protection of the Rent Control Laws and in
such case, eviction is not possible excepting upon certain specified grounds, taking a
common sense view and assuming that human conduct and business life proceed in
the usual manner in accordance with the ordinary motives of human character and
preservation of self interest, it is quite proper for the commercial courts to assume,
that a monthly tenancy is not lightly agreed upon by the parties, because the landlord
wishes to protect his interest; but of course, it can be proved by the tenant positively,
that the parties had actually agreed upon such monthly tenancy.910
Considering the uncertain conditions which had prevailed at the time when the contract
was entered into, and the fact that the defendant was aware that the goods were not
being directly imported by the Plaintiff, the Court adopted a natural business meaning
of a sentence which required the defendant to take delivery of the goods as received
and clarified that the Plaintiff will not be responsible for any late shipment or nonshipment, and held that the effect of the sentence was to oblige the defendants to
accept the goods as they were received by the plaintiffs and to disentitle the defendant
from raising objections on the ground of late shipment.911
Mere difficulty of interpretation is not synonymous with vagueness. Contracts should
not be readily declared invalid for uncertainty or vagueness. If the Court is satisfied that
there was ascertainable and determinative intention, it must give effect to that
intention. Documents embodying business agreements should be construed fairly and
broadly so as to give business efficacy.912 A bank guarantee given for "money that may
become payable by our said client to you in relation to the said goods whether on
account of security or of the price of the said goods as dispatched or delivered by you"
covered demand for sales tax and entry tax in respect of the supplies.913 In Sumitomo
Heavy Industries Ltd v Oil and Natural Gas Co,914 the contract provided for
compensation in the event the contractor was subjected to extra cost arising on
account of change of law. The question arose whether reimbursement of tax made by
the contractor to his sub-contractor arising from an amendment to income tax law
could be recovered from the employer. It was argued that this must be interpreted
strictly, as the Court would construe contracts of indemnity or insurance. The Supreme
Court upheld the wide interpretation given by the arbitral tribunal from the point of view
of the commercial purpose.
It is well settled that if the contract is in several parts, some of which are legal and
enforceable and some are unenforceable, lawful parts can be enforced provided they
are severable. In a proper case, Courts would sever, where the severance can be made
by using a "blue pencil". But it could be done only in those cases where the part so
enforceable is clearly severable and not where it could not be severed. By such
process, main purport and substance of the clause cannot be ignored or
overlooked.915 The blue pencil rule was applied to a case where the clause was found
to be redundant and unnecessary.916
[s 9.17.4] Specific contracts
Certain contracts will be construed more strictly than others. Thus, a contract of
indemnity or of insurance will be strictly interpreted.917 It is a settled legal proposition
that while construing the terms of a contract of insurance, the words used therein must
be given paramount importance, and it is not open for the Court to add, delete or
substitute any words. It is also well settled, that since upon issuance of an insurance
policy, the insurer undertakes to indemnify the loss suffered by the insured on account
of risks covered by the policy, its terms have to be strictly construed in order to
determine the extent of the liability of the insurer.918
[s 9.17.5] Interpretation of Some Words
The addition of the word "usual" refers to something which is invariably to be found in
contracts of a particular type.919 Force majeure is not a French version of vis major. It is
a term of wider import. Strikes, breakdowns of machinery though not included in vis
major are included in force majeure. By use of the term "force majeure", the intention is
to save the performing party from the consequences of anything over which he has no
control. Force majeure clauses may assume a variety of forms and must be construed
in the light of the nature of the contract and its general terms. Where the word "usual" is
used with the words "force majure",its meaning may be made certain to the parties by
leading evidence about their intention.920 But the term does not include the inability of
a seller to get an export licence except at a sale price which was higher than the
contract price.921 Unlike a situation that "prevents" in a force majeure clause, a
situation that "hinders" or "disrupts" does not render performance impossible, and
might cover situations of commercial impracticability.922
The expressions "arising out of" or "concerning" or "in connection with" or "in
consequence of" or "relating to the contract" in an arbitration clause are of sufficient
amplitude to take in a dispute as to the validity of an agreement.923
The use of the word "approximately" in a tender issued by the government for the sale
of iron scrap which is filled in by a buyer and accepted by the government only means
that in case the quantity is slightly less, the buyer will get a refund to that extent and if
it is more he will have to pay for the excess.924 Where the contract for supply of
manganese ore mentioned that it may have "phosphorus minimum 0.23%
(...approximately)", the clause regarding approximation could not be read so as to allow
a percentage below the rejection limits.925 Where a variation clause allowed the
employer to vary the extent of a contract work both upwards and downwards up to 25%
and entitled the contractor to a revised rate for any variation beyond that limit, the
clause was applicable where the sum total of additions and deletions exceeded 25% of
the contract price and not the basis of net difference between increass and
decreases.926The term "bilticut" means a contract for the price being payable against
the delivery of railway receipt.927
The ordinary meaning of the word "compensation" in an insurance policy meant all
damages of whatever character, including exemplary damages, especially in the light of
the terms of the policy covering claims against assault, wrongful arrest, malicious
prosecution and false imprisonment, which by their nature attracted claims for
exemplary damages.928Word "employee" not defined in the contract of insurance, is to
be given meaning it has in common parlance and an apprentice being a trainee would
not be an employee.929The term "free of income-tax" in the case of salary to be paid to
an officer meant "free of taxes on incomes" and to include super-tax also, super-tax
being additional income-tax; because although the Income Tax Act, 1961 made a
distinction between the two, the parties cannot be attributed the same wisdom of
making this distinction.930 The use of the word "may" in a clause that the parties "may
refer the dispute to arbitration" was an enabling provision, and did not disclose any
intention that arbitration was to be the sole remedy.931 A burglary insurance policy
covered loss of cash or jewellery in a "safe". Where valuables were stolen from a cash
box, it was held not to be a "safe" and hence not covered by the policy.932"Inherent vice"
in the exclusion of a marine insurance policy meant the risk of deterioration of the
goods because of their natural behaviour in the ordinary course of the voyage without
the intervention of any fortuitous external accident or casualty.933
Where it was agreed that any necessary and reasonable cost caused by changes in
legal provisions would be paid, it was held that the term "cost" would include payments
arising from refund of some other party's tax.934
The question whether some money paid at the time of making the contract is a deposit
or earnest money or advance or part payment depends upon not the words used, but
the intention of the parties and surrounding circumstances.935
The meaning of the words "on demand" depend on the context. When applied to a loan,
they mean "always payable"; and when applied to a deposit, they mean "when demand
is made".936
Where one party has agreed not to do something without written consent of the other,
"which consent shall not be unreasonably withheld", the withholding party need not
show that the consent was correct or justified; it is enough if the refusal is reasonable
in the circumstances, which is a question of fact. In deciding what is reasonable, he is
only required to consider his own interests, and need not balance his interests with the
party seeking consent.937
[s 9.17.6] Ut Res Magis Valeat Quam Pereat: Words with two Meanings
Where different parts of an instrument are inconsistent, effect must be given to that
part which is calculated to carry into effect the real intention of the parties as gathered
from the instrument as a whole and that part which would defeat it, must be rejected. A
term may be rejected if it is repugnant to the intention of the parties as it appears from
the written contract. However, an effort should be made to give effect to each clause of
the agreement and a clause should not be rejected unless it is manifestly inconsistent
with or repugnant tothe rest of the agreement.938 If apparent inconsistency is found in
the literal construction of the words used, and it can be reconciled with any other
possible construction,939 the words must receive a meaning which will make the
instrument valid rather than void and ineffective. Where a deed was capable of two
interpretations, one favouring or advancing the right to sue, and the other hampering it,
the proper construction was the one which favoured the right to sue, which was the
liberal of the two.940
The appellants carried out the annual overhaul of the respondent's electrical equipment
every year. In their last purchase order to the appellants of July 1970 for an overhaul,
there was reference to the respondents' conditions of contract "24001, obtainable on
request". There were three versions of these conditions, the latest being of March
1970. It was held that the conditions of March 1970, being the latest, were intended to
be and were incorporated inthe contract between the parties. If the appellants had
asked for the conditions, they would have been supplied the latest version.941
[s 9.17.7] Ex antecedentibus et consequentibus fit optima interpretatio: The
Whole of the Agreement
The deed must be read as a whole in order to ascertain the true meaning of its several
clauses,942 and the words of each clause should be interpreted so as to bring them
into harmony with the other provisions of the deed if that interpretation does no
violence to the meaning of which they are naturally susceptible.943 The document must
be construed as a whole in order to ascertain the meaning of several clauses.944 All
terms in the contract must be given effect rather than deprive some of them of the
effect.945 This is because when drafting their contract, parties would not use the words
without a purpose and therefore it is impermissible to hold that a particular term was
never intended to be acted upon.946 An agreement should be so interpreted that no
part of the agreements or words used is rendered redundant.947 In construing a
particular clause of the contract, it is only reasonable to hold that the words and the
terms used therein must be given effect to and one part of a contract cannot be
rendered otiose. When the parties had agreed to the terms, it is impermissible to hold
that a particular term was never intended to be acted upon.948 Striking a note of
caution that presumption against surplusage should not be stretched too far, it was
observed that draftsmen traditionally employ linguistic overkill and and try to obliterate
the conceptual target by using a number of phrases expressing more or less the same
idea.949
Where royalty was payable on manufacture of salt, and the manufacturer failed to
manufacture the minimum quantity specified in the agreement, on construction, it was
held that royalty was payable on the stipulated minimum quality.950
In principle, there is no hierarchy among the terms in one contract, and their
importance for interpretation of the remaining part of the contract is the same
regardless to the order in which they appear, unless parties themselves expressly
provide for a hierarchy among the different provisions or part of the contract. In case of
conflict, the provisions of a specific character prevail over general provisions.
[s 9.17.8] Expressio Unios Est Exclusio Alterius
Where there is an express mention in the instrument of a certain thing, it will exclude
any other thing of a similar nature. A mortgage was stated to mortgage an iron foundry
and two dwelling-houses together with fixtures in them. This was held to exclude
fixtures in the foundry.951 One clause in a distributorship agreement enabled
termination with immediate effect by the manufacturer, in the event of breach of
agreement by the distributor. Another clause provided for termination by either of the
parties at any time with or without cause. Applying this rule and construing the clause
contra proferentum, it was held that the distributorship could not be terminated without
cause with immediate effect, and without giving reasonable notice.952
[s 9.17.9] Ejusdem Generis Rule
Where the particular things named have some common characteristic which
constitutes them a genus and the general words can be properly regarded as in the
nature of a sweeping clause designed to guard against accidental omissions, then the
rule ejusdem generis will apply, and the general words will be restricted to things of the
same nature as those which have already been mentioned.953
Where a particular enumeration is followed by such words as "or other", the latter
expression ought, if not enlarged by the context, be limited to matters ejusdem generis
with those specially enumerated.954 The meaning of general words may be narrowed
or restricted by specific and particular descriptions of the subject-matter to which they
are to apply. Ina charterparty, liability to deliver cargo was excluded if it was not
possible to do so by reason of "war, disturbance, or any other cause". The words "any
other cause" were interpreted to restrict to causes like war or disturbance, but did not
cover ice.955
A contract of sale of fallen and standing trees provided for the sale of "excluding
sandalwood, coconut, arecanut and all specified fruit trees and tamarind trees or 10 or
15 silver oak trees of below 36' girth grown and standing in...Estate". It was argued that
mango and jackfruit being fruit trees were excepted because mango and jackfruit trees
are considered timber, but there was no clause of the contract which excluded these
trees which were also timber, and fruit trees. Hence, the contention was repelled.956 A
power-of-attorney giving power to the attorney to present for registration, documents
"such as sale-deeds", could be interpreted to give him the authority to present a deed of
mortgage for registration.957
[s 9.17.10] The Contra Proferentum Rule
Verba chartarum fortius acciputur contra proferentum, rule, of Latin origin, means words
are to be taken most strongly against him who uses them.958 It is a rule of construction
whereby if words of a contract are unclear, ambiguous or of two equally possible
meanings, they should be interpreted against the author, drafter or writer of the
contract and not against the other party.959 Where there is ambiguity, the court will
apply the contra proferentem rule. This rule, however, only becomes operative where
the words are truly ambiguous; it is a rule for resolving ambiguity and it cannot be
invoked with a view to creating a doubt.960 One must not use the rule
ambiguity - one must find the ambiguity first. The words should receive
and natural meaning unless that is displaced by a real ambiguity either
the face of the policy or, possibly, by extrinsic evidence of
to create the
their ordinary
appearing on
surrounding
circumstances.961
A contract of insurance is likely to be construed contra proferentem that is against the
company in case of ambiguity or doubt.962 In a contract of insurance, where the words
used are free from ambiguity in the sense that, fairly and reasonably construed, they
admit of only one meaning, the rule has no application.963
When there is a doubt or ambiguity in the words of an exclusion clause, the words are
construed more forcibly against the party putting forth the document, and in favour of
the other party.964 While considering whether the insurance policies were transferable
and assignable in accordance with the provisions of the Insurance Act, 1938 and in
terms of the contract of life insurance, the rule of contra proferentum was applied and
it was held that rule is extremely relevant inasmuch as it was the Life Insurance
Corporation that had drafted the insurance policy and was, therefore, well positioned to
include clauses making it specifically impermissible to assign policies.965 In a case
concerning liability to the Bank towards past transactions, it was held that since the
Bank had drafted the guarantee deed, in case of doubt, the document will have to be
read against the Bank applying the contra proferentum rule.966
This rule of construction when used in respect of leases, were always intended to help
the lessee by increasing the term of lease and construing it against the grantor. The
rule cannot get perverted and cannot be used by the lessee for the purpose of saying
that the deed must be construed in his favour, by construing the deed for a shorter
term. That would not be a right application of the rule. If by applying the rule, the
increment of term of lease happens to help the lessor, then it, although oddly, may be
so applied.967
The rule of contra proferentum dictates that standard form agreement should be
construed against the drafting parties in case of any doubt or ambiguity.968The rule
can have no application in a commercial contract, which is a bilateral document
mutually agreed upon.969 Even where a clause by itself is ambiguous if, by looking at
the whole policy, its meaning becomes clear, there is no room for the application of this
rule.970
[s 9.18] Additions to Printed Forms
In the event of any inconsistency between the printed and the written provisions, the
printed words cannot be discarded; attempt to derive the real meaning must be made
from the printed as well as the written words,971 and between them, greater weight
must be given to written clauses972 or type-written clauses973 than the printed clauses,
because, as Lord Ellenborough said in a judgment repeatedly approved,974"... where a
contract is partly printed in a common form and partly written, the words added in
writing are entitled, if there should be any reasonable doubt upon the sense and
meaning of the whole, to have a greater effect attributed to them than to the printed
words; inasmuch as the written words are the immediate language and words selected
by the parties themselves for the expression of their meaning, and the printed words
are a general formula adapted equally to their case and that of all other contracting
parties upon similar occasions and subjects". These rules proceed on the basis that
the printed form contained the original terms and changes were incorporated by the
cyclostyled amendments, followed by changes by typewritten additions and lastly the
handwritten additions. Another parallel principle is that where the contract has several
attachments/annexures prepared at different points of time, unless a contrary intention
is apparent, the latter in point of time would normally prevail over the one earlier in
point of time.975 So also a special agreement or clause between parties added to the
printed form must be given greater weight than the clauses of the printed form.976
Where a typed "paramount clause"977 was included in a charterparty without words of
limitation, all the rules referred to in the paramount clause would form part of the terms
of the charterparty and would take precedence over the printed terms of the charter
party.978 But where a document consists otherwise, of print, type and ink writing, the
most natural inference to draw of an addition to that in pencil is that it is not, and is not
intended to be operative and final alteration.979
[s 9.19] Name of the Document and Nature of the Transaction
Neither the nomenclature of the document nor any particular activity undertaken by the
parties to the contract would be decisive in ascertaining the purport and object with
which the parties thereto entered into a contract.980
Unless prohibited by statute, the Court can go behind the document to determine the
nature of the transaction, irrespective of the form of the document,981 or the name or
title given to it,982 or the description of the party in the contract;983 for the party cannot
escape the consequences of law merely by describing an agreement in a particular
form though in substance it may be a different transaction.984 The name given by the
parties is not conclusive to determine its real legal nature and effect.985 For
determining the category of the document, the Court must look at the substance of the
agreement, and not the words describing its category.986
Although the nomenclature and description given to a contract is not determinative of
the real nature of the document or of the transaction thereunder, these have to be
determined from all the terms and clauses of the document and all the rights and
results flowing therefrom and not by picking and choosing certain clauses and the
ultimate effect or result to bring it within the ambit of a particular statute relevant for
the purpose of the dispute before the Court.987
In a Madras case, the question to be decided was whether a deed described as a
partnership between the plaintiffs and the defendants was really a partnership, it was
held that it was never intended to be acted upon as such as there was intrinsic
evidence that it was only a working arrangement between the parties.988 A document
described as receipt in the title but containing all essential ingredients of an agreement
of sale of a plot of land and signed by both the parties was a contract which could be
specifically enforced.989 But where the parties to a contract of leave and licence were
not ordinary persons but companies, it could be presumed that the agreement was
made after full understanding, and the words mentioned to avoid any wrong inference
of intention. When the parties were capable of fully understanding their rights, and
expressly agreed and declared that the document should not be construed as a
tenancy agreement, such relationship could not be inferred.990 Whether a contract is
an option to repurchase or an agreement of sale would depend on the interpretation of
its provisions.991 A document called "memorandum of understanding" (MOU) can be
enforceable.992 In the absence of words like "unequivocal", "unconditional", "absolute"
etc in the document, and the language, the contract was held to be one of indemnity
given by a bank and not a bank guarantee.993 Mere use of the name "joint venture" or
"collaboration" for an agreement between a land owner and a developer will not make it
so; where there is no joint control, parties are not accountable to each other, and the
owner shall not interfere with construction, there was no community of interest, nor
joint control or management, nor sharing of profits and losses.994 Although a "letter of
comfort" suggests lack of contractual intention,995 it can be binding if read as a whole
it shows the intention of being bound.996 The expressions "principal" and "agent" used
in a document are not decisive. Documents are to be construed having regard to the
context thereof wherefor "labels" may not be of much relevance.997
[s 9.20] Condition Precedent
In Ganga Saran v Firm Ram Charan Ram Gopal,998one of the terms of the contract was,
"We shall continue sending goods as soon as they are prepared to you ... we shall go on
supplying goods to you of the Victoria Mills as soon as they are supplied to us by the
said Mill". The Supreme Court agreeing with the interpretation of somewhat similar
phrase in Harnandrai Fulchand v Pragdas Budhsen,999held that the words did not mean
that the goods will not be supplied at all. The words "prepared by the Mills" were only a
description of the goods to be supplied and the expression "as soon as they are
prepared" and "as soon as they are supplied to us by the said Mill" simply indicated the
process of delivery. The Bombay High Court in Navnit Lal & Co v Kishanchand &
Co,1000held that the term "the goods will be shipped to your friends as soon as they are
delivered to us by the Allegappa Textile Cochin Ltd" was not a term of contingency or
any condition precedent to the performance of the contract. The words of the term are
regulatory of the mode of performance and not of the very obligation to perform the
contract.
[s 9.21] Assignability
Absence of a specific clause against transferability is not conclusive, and it would be
legitimate to take into account the surrounding circumstances for ascertaining the
intention of the parties.1001 What has to be seen is whether it would be held on a
reasonable interpretation of the contract aided by such considerations as can
legitimately be taken into account that the agreement was not to be transferred.1002 A
contract for delivery of goods at a future date, even though for a specific price and of
specific quality of goods, can be excluded from the definition of non-transferability, if it
is shown on a reasonable interpretation of the contract, that it is not transferable.1003
[s 9.22] Extrinsic Evidence
Extrinsic evidence is admissible to determine the effect of the instrument if there
remains a doubt about its true meaning.1004
Sections 91 and 92 of the Indian Evidence Act, 1872 define the cases in which
documents are exclusive evidence of the transactions they embody. Sections 93–98
provide allowing extrinsic evidence for interpretation of documents.
When the terms of a contract, or of a grant, or of any other disposition of property, have
been reduced to the form of a document, and in all cases in which any matter is
required by law to be reduced to the form of a document, no evidence shall be given in
proof of the terms of such contract, grant or disposition, or of such matter, except the
document itself.1005 This section applies only when the parties have reduced all the
terms of a contract, etc., into writing. If they have intended only to reduce to writing a
portion of the terms, they are entitled to give oral evidence of the terms which they did
not intend to reduce to writing.1006 It does not exclude oral evidence to show that there
was no agreement between the parties, and therefore no contract; nor does it preclude
evidence to show that the real contract1007 was different from what was found in the
deed.1008
When such terms of a contract, etc., or matter referred above is proved by producing
the document, no oral agreement or statement can be admitted as between the parties
to any such document for the purpose of contradicting, varying, adding to, or
subtracting from its terms.1009 But such oral agreement or statement can be admitted
to prove:1010
(i) any fact which would invalidate the document, or entitle any person to any
decree or order relating thereto, such as fraud, intimidation, illegality, failure of
consideration, mistake in fact or law;
(ii) separate oral agreement as to any matter on which the document is silent, and
which is not inconsistent with its terms;
(iii) separate oral agreement constituting a condition precedent to the attaching of
any obligation under the document;
(iv) subsequent oral agreement to rescind, or modify any such contract, except
where such contract is required to be in writing, or has been registered;
(v) any usage or custom by which incidents not expressly mentioned in any
contract are usually annexed to such contracts, if they are not repugnant to or
inconsistent with its express terms;
(vi) any fact which shows in what manner the language of the document is related
to existing facts.
This bar also applies where the written instrument appears to contain the whole
contract,1011 and does not preclude giving of evidence to show that the transaction
itself was different than what it purported to be.1012
Sections 93–98 of the Indian Evidence Act, 1872 deal with rules of construction of
documents:
Section 93. Exclusion of evidence to explain or amend ambiguous document.— When the
language used in a document is, on its face, ambiguous or defective, evidence may not
be given of facts which would show its meaning or supply its defects.
Section 94. Exclusion of evidence against application of document to existing facts.—
When language used in a document is plain in itself, and when it applies accurately to
existing facts, evidence may not be given to show that it was not meant to apply to
such facts.
Section 95. Evidence as to document unmeaning in reference to existing facts.—When
language used in a document is plain in itself, but is unmeaning in reference to existing
facts, evidence may be given to show that it was used in a peculiar sense.
Section 96. Evidence as to application of language which can apply to one only of several
persons.—When the facts are such that the language used might have been meant to
apply to anyone, and could not have been meant to apply to more than one, of several
persons or things, evidence may be given of facts which show which of those persons
or things it was intended to apply to.
Section 97. Evidence as to application of language to one of two sets of facts, to neither
of which the whole cottectly applies.—When the language used applies partly to one set
of existing facts, and partly to another set of existing facts, but the whole of it does not
apply correctly to either, evidence may be given to show to which of the two it was
meant to apply.
Section 98. Evidence as to meaning of illegible characters, etc.— Evidence may be given
to show the meaning of illegible or not commonly intelligible characters, of foreign,
obsolete, technical, local and provincial expressions, of abbreviations and of words
used in a peculiar sense.
[s 9.22] Entire Agreement Clauses
A contract may contain a clause indicating that the document completely embodies the
terms on which the parties have agreed, namely, "this contract contains the entire
agreement between the parties". By this clause, the parties express their intention that
the document is to contain all the terms of the agreement. The terms of such a
document cannot be contradicted or supplemented by evidence of prior statements or
agreements, nor can extrinsic evidence be given to prove terms other than those in the
document. However, such statements or agreements may be used to interpret the
document. The effect of such a term would depend upon its precise wording. Thus, a
clause superseding any prior provisions, agreements, representations, undertakings or
implications, will exclude claims for breach of collateral warranty, but not liability for
claims based on misrepresentations; any such exclusion must be clearly stated.1013
[s 9.24] Standard Forms
Standard Form contracts are those type of contracts in which the conditions are fixed
by one of the parties in advance and are open to acceptance by anyone. The contract,
which frequently contains many conditions is presented for acceptance and is not
open to discussion.1014 It has been held that courts will not enforce and will, when
called upon to do so, strike down an unfair and unreasonable contract, or an unfair and
unreasonable clause in a contract, entered into between parties who are not equal in
bargaining power or when a party has no choice, or rather no meaningful choice, but to
give his assent to a contract or to sign on the dotted line in a prescribed or standard
form.1015This principle may not apply where both parties are businessmen and the
contract is a commercial transaction.1016 Standard contracts have to be examined in
the light of the express language found therein and by implication nothing can be read
which obviously would be miles away from the real intention of the persons signing
such contracts in standard forms.1017
In a standard form of contract, if the standard clauses have been settled over the years
and have been widely adopted and used by parties whose bargaining power is fairly
matched there is a strong presumption that their terms are fair and reasonable.1018
Commenting on use of standard form contracts, the Supreme Court has stated the
following:
Where a large number of documentation is required to be done by officers not conversant
with the nuances of drafting, use of standard forms with several choices or alternative
provisions is found necessary. The person preparing the document is required to delete the
terms/clauses which are inapplicable. But that is seldom done. The result is that the
documents executed in standard forms will have several irrelevant clauses.1019
In AIB Group (UK) plc v Martin,1020 a bank lent money to X and Y together for which they
charged several properties that they owned jointly under the terms of the bank's
standard form mortgage under which the mortgagor covenanted to pay all sums
advanced to the mortgagor by the bank. The deed also provided that if the mortgagor
was more than one person, the expression shall be construed as referring to all and/or
any of those persons, and the obligations of such persons shall be joint and several.
The bank also lent to X and Y separately for property mortgaged in their own respective
names. A question arose whether X was liable for the debt of Y secured by Y's
mortgage. Holding that he was liable, it was stated:
A standard form is designed to be used in a wide variety of different circumstances. It
is not context specific. Its value would be much diminished if it could not be relied upon
as having the same meaning on all occasions. Accordingly the relevance of the factual
background of a particular case to its interpretation is necessarily limited. The danger
... is that a standard form may be employed in circumstances for which it was not
designed. Unless a particular case shows that this has happened, however, the
interpretation of the form ought not to be affected by the factual background.
[s 9.25] Construction of Exemption Clauses
Exemption clauses in standard form contracts deserve special rules of construction
because they are often ungenerous or unfair in their application.1021 Such clauses in
standard form contracts are binding only if brought sufficiently to the notice of the
contracting party whom they are sought to bind. Clauses excluding jurisdiction or
limiting liability must be brought to the notice of the consignor specifically and
adequately before the contract.1022 This aspect has been dealt with in the comments
below section 3 of the Contract Act.1023 The rules of construction of such clauses
have also been evolved so as to work in favour of the party seeking to establish the
liability in question.
Exemption clauses perform a useful function in business contracts. They anticipate
future contingencies likely to hinder or prevent performance; they may contain
procedures for making claims, and mainly provide for the allocation of risks as
between parties to the contract.1024 An exemption clause indicates which of the
parties must insure for the risk of the contract. The rules of construction are not
designed to make the contract ineffective.
The principles of construction of exemption clauses are also applicable to clauses by
which one party agrees to indemnify the other party against the consequences of the
other's liability to third parties;1025 and to clauses regulating the time within which
claims must be made under the contract;1026 and also, though not as rigourously, to
clauses limiting a party's liability for breach of contract.1027
Although such clauses are strictly construed in cases of consumer contracts and
standard form contracts, in commercial contracts "negotiated between businessmen
capable of looking after their own interests and of deciding how risks...can be most
economically borne...it is wrong to place a strained construction upon words in an
exclusion clause which are clear and fairly susceptible of one meaning".1028 If the term
of exemption is specific and unambiguous, the plain meaning will have to be given
effect to.1029
An express warranty given at or before the written contract will override an exemption
clause contained in the contract.1030
[s 9.25.1] Strict Interpretation
"If a person is under a legal liability and wishes to get rid of it, he can only do so by
using clear words".1031
The exemption clause must cover exactly the nature of the liability in question. It has
been held that a clause excluding liability for "latent defects" did not exclude condition
as to fitness of purpose;1032 that for excluding any guarantee or warranty did not
exclude breach of condition;1033 that for excluding implied conditions and warranties
did not exclude express term;1034 or a clause restricting liability for loss or damage of
goods in a carriage contract did not apply to loss caused by unauthorised delivery.1035
A clause exempting liability from any loss suffered by "any person" meant loss of a
third party, and not losses suffered by the plaintiff because of the defendant's
breach.1036 A clause that excluded liability in contract for any loss profits suffered by
the contractor was held to be restricted to liability for defective performance only, and
not to loss of profits.1037 A clause that exempted liability arising from an accident
where a passenger of a motor coach "occupied a … seat fitted with a safety belt if the
safety belt was not worn", applied only to the times when the passenger was seated,
and not when the passenger stood up or moved around the coach.1038
The degree of strictness may vary according to the extent of the exemption sought to
be conferred by the exemption clause. In Photo Production Ltd v Securicor Transport
Ltd, Lord Diplock stated:1039
Since the presumption is that the parties entered into the contract intended to accept the
implied obligations, exclusion clauses are to be construed strictly and the degree of
strictness appropriate to the construction may properly depend on the extent to which they
involve departure from the implied obligations.
[s 9.25.2] Exclusion of Liability for Negligence, Wilful Defaultand Fraud
The Unfair Contract Terms Act, 1977 restricts in England, the ability of the parties to
exclude the liability for negligence.1040 But even otherwise, Courts have construed
such clauses strictly on the ground that it is inherently improbable that the innocent
party would have agreed to the exclusion of the negligence of the party breaking the
contract. Thus, where a contract of bailment provided that the goods in the godown
shall be at the risk of the borrower-bailor, the bailee could not avoid liability for
negligence resulting in loss of goods while in bailee's possession.1041
Exclusion of such liability will not be construed unless it is excluded clearly and
unambiguously, or unless that party has no liability other than a liability in
negligence.1042 There must be clear and unmistakable reference to the word
"negligent" or "negligence".1043 Liability for negligence stood excluded by use of the
words "will not in any circumstances be responsible",1044"arising from any cause
whatsoever",1045 or "will not be liable for any damage however caused".1046 Once
liability under contract for negligence is excluded, it does not permit the other party to
sue in tort.1047Goods were stolen from the bailee's premises under circumstances that
indicated it an "inside job". A limitation clause in their contract provided "the company's
liability howsoever arising and notwithstanding that the cause of the loss or damage is
unexplained shall not exceed … ". It was held that dishonesty of employees was a
foreseeable risk in the storage business, and hence the limitation clause was binding. It
was possible to exclude liability arising from wilful default of one's own employees.1048
While liability for negligent misrepresentation can be excluded, as also liability for fraud
of an agent, liability for one's own fraud cannot be excluded.1049
[s 9.25.3] Limitation Clauses
The approach of construction of clauses limiting liability (but not excluding it) is less
rigorous. Although the contra proferentem rule is applicable, such clauses are not to be
construed with the same strict standard as the clauses excluding liability altogether,
the reasons being first, that a contracting party would more probably agree to a clause
limiting liability than one totally excluding it, and secondly, that such clauses are
directly concerned with the risks allocated under the contract in terms of the charges
for the thing contracted for. A limitation clause is "related to other contractual terms, in
particular to the risks to which the defending party may be exposed, the remuneration
which he receives and possibly also the opportunity of the other party to insure".1050
[s 9.25.4] Fundamental Breach
It was a doctrine developed in the 1950s and early 1960s by the Court of Appeal that
where one party had committed a fundamental breach of the contract, he was not
permitted to rely on the provisions in the contract which excluded or limited his
liability.1051 This applied as a rule of law, irrespective of the intention of the parties. But
in Photo Production Ltd v Securicor Transport Ltd,1052the House of Lords held that there
was no rule of law which prevented an exemption clause from applying in the case of a
fundamental breach of contract "...the question whether, and to what extent, an
exclusion clause is to be applied to a fundamental breach, or a breach of a
fundamental term, or indeed to any breach of contract, is a matter of construction of
the contract."The presumption that parties do not intend that either should be able to
rely on their own breach to avoid a contract is subject to any clear provision to the
contrary in the contract.1053
However, in BV Nagaraju v Oriental Insurance Co Ltd,1054a goods vehicle was entitled to
carry six workmen; and its insurance policy did not cover use for carrying passengers in
the vehicle except employees, and excluded liability if more employees were carried. At
the time of accident, it was carrying some passengers picked up by the driver and
cleaner in the vehicle. It was held that this was not so fundamental a breach as to
afford ground to exclude liability. The exclusion clause was read down in the light of
the "main purpose" of the contract.
[s 9.25.4.1] Release
Although a party can, especially in a compromise agreement supported by valuable
consideration, agree to release claims or rights of which he was not, and could not be
aware, the Court would also be slow to infer that he had done so, in the absence of
clear language to that affect. Whether the parties intended to provide for release and
surrender of claims which they could not have contemplated at all at the time of
release or compromise is a matter of construction.1055
[s 9.25.4.2] Exemption Clauses under the UNIDROIT Principles
The Principles recognise that exemption clauses are common in international contract
practices, and also that they tend to give rise to much controversy between the parties.
Although the Principles do not contain a general rule permitting a Court to strike down
abusive or unconscionable contract terms, Article 7.1.6 gives a broad discretionary
power to the Court. A clause which limits or excludes one party's liability for nonperformance or which permits one party to render performance substantially different
from what the other party reasonably expected, may not be invoked if it would be
grossly unfair to do so, having regard to the purpose of the contract.
571 Chitty on Contrac ts referred to in Haji Mohammed Ishaq Wd.S.K.Mohammed v Mohamad
Iqbal & Mohamed Ali & Co, (1978) 2 SCC 493 .
572 Law Commission of India, 13th Report, para 33.
573 Financings Ltd v Stimson, [1962] 3 All ER 386 : [1962] 1 WLR 1184 (CA).
574 Eccles v Bryant, [1948] Ch 93 : [1947] 2 All ER 865 (CA).
575 L'Estrange v F Graucob Ltd, [1934] 2 KB 394 : [1934] All ER Rep 16 ; Curtis v Chemical
Cleaning and Dyeing Co Ltd, [1951] 1 KB 805 : [1951] 1 All ER 631 (CA).
576 Atlas Export Industries v Kotak & Co, AIR 1999 SC 3286 (conditions of Standard Contract
No. 15 of GAFTA incorporated by reference).
577 State of Madras v Ramalingam & Co, AIR 1956 Mad. 695 (case under Sale of Goods Act,
1930).
578 See the Indian Evidence Act, 1872, sections 90–100; see below "Extrinsic Evidence".
579 See below "Construction of Contracts", section 20.
580 Alapaty Ramamoorthy v Polisetti Satyanarayana, AIR 1958 AP 550 at 554.
581 It often depends on the true construction of an agreement whether it is a contract or not;
and for this purpose, there is no difference between express and implied terms; see Meherulla v
Sariatulla, (1929) 57 Cal 1093 at 1095 : AIR 1930 Cal 596 .
582 A E Farr Ltd v The Admiralty, [1953] 2 All ER 512 : [1953] 1 WLR 965 ; Tappenden v Artus,
[1964] 2 QB 185 : [1963] 3 All ER 213 (CA); Gardiner v Moore, [1969] 1 QB 55 : [1966] 1 All ER 365
.
583 Brogden v Metropolitan Railway Co, [1877] 2 App Ca 666, (this might also be regarded as a
case of acceptance by acting on the terms of a proposal); Bajranglal Maniram Singhvi Agarwal v
Anandilal Ramchandra Potdar, (1944) Nag 101 : AIR 1944 Ngp 124 ; (the conduct of the parties
coupled with a chitti found sufficient to prove an agreement to pay).
584 JK Jain v Delhi Development Authority, (1995) 6 SCC 571 ; Atlas Export Industries v Kotak&
Co, (1999) 7 SCC 61 .
585 Dwarkadas & Co v Daluram Goganmull, AIR 1951 Cal 10 : 54 Cal WN 544 (FB).
586 Dwarkadas & Co v Daluram Goganmull, AIR 1951 Cal l0 at 19 .
587 Chloro Controls India Pvt Ltd v Severn Trent Water Purification Inc, (2013) 1 SCC 641 .
588 BSNL v BPL Mobile Cellular Ltd, (2008) 13 SCC 597 .
589 Bharat Sanchar Nigam Ltd v BPL Mobile Cellular Ltd, AIR 2009 SC (Supp) 1005 : (2008) 13
SCC 597 .
590 M. Dayanand Reddy v A.P. Industrial Infrastructure Corpn. Ltd, (1993) 3 SCC 137 .
591 Alimenta S.A, v National Agricultural Coop. Marketing Federation of India Ltd, (1987) 1 SCC
615 .
592 Dwarkadas & Co v Daluram Goganmull, AIR 1951 Cal 10 : 54 Cal WN 544 (FB).
593 Vessel M.V.Baltic Confidence v State Trading Corp of India Ltd, (2001) 7 SCC 473 .
594 Olympus Superstructures Pvt Ltd v Meena Vijay Khetan, (1999) 5 SCC 651 .
595 General Assurance Society Ltd v Chandmull Jain, AIR 1966 SC 1644 : (1966) 3 SCR 500 ;
United India Insurance Co Ltd v Orient Treasures Pvt Ltd, (2016) 3 SCC 49 : 2016 SCC OnLine SC
32.
596 Sudip Das v Mookherjee Biswas & Pathak, 2016 SCC OnLine Cal 917.
597 M R Engineers and Contractors Pvt Ltd v Som Datt Builders Ltd, AIR 2009 SC (Supp) 1786 :
(2009) 7 SCC 696 .
598 Payal Chawla Singh v Coca Cola Co, (2015) 13 SCC 699 : 2015 SCC OnLine SC 327.
599 Suresh Arjundas Bakhtiani v UOI, 1990 Mah LJ 1243 : (1991) 1 Bom CR 26 .
600 Haji Mohammed Ishaq v Mohamad Iqbal and Mohamed Ali and Co, (1972) 2 SCC 493 .
601 P.B. Desai v State of Maharashtra, (2013) 15 SCC 481 : 2013 SCC OnLine SC 840.
602 Indian Drugs& Pharmaceuticals Ltd v ESI Corpn, (1997) 9 SCC 71 : 1997 SCC (L&S) 1038 .
603 Umedsingh Hamirasingh v Marsden Mills Ltd, AIR 1959 Bom 143 .
604 Haridas Ranchordas v Mercantile Bank of India, (1920) 47 IA 17 : 44 Bom 474 : 55 IC 522 :
AIR 1920 PC 61 (distinguished in Gaddar Mal v Tata Industrial Bank Ltd, (1927) 49 All 674 : 100
IC 1023, (noted as 1927 All), AIR 1927All 407, where no usual course of business was proved);
Hulas Kunwar v Allahabad Bank Ltd, AIR 1958 Cal 644 ; Batakrishna Pramanik v Bhawanipur
Banking Corpn. Ltd, 59 Cal 662 : AIR 1932 Cal 521 ; Konakalla Venkata Suryanarayana v State
Bank of India, AIR 1975 AP 113 at 119.
605 Sheffield Corpn v Barclay, [1905] AC 392 ; approved in Secretary of State v Bank of India Ltd,
AIR 1938 PC 191 (implied indemnity).
606 Naylor Group Inc v Ellis-Don Construction Ltd, [2001] 2 SCR 943 (Supreme Court of Canada).
607 Khardah Co Ltd v Raymon & Co (India) Pvt Ltd, AIR 1962 SC 1810 ; Jiwibai v Ramkuwar
Shriniwas Murarka Agarwala, AIR 1947 Ngp 17 , 24 (FB).
608 Gaddar Mal v Tata Industrial Bank Ltd, AIR 1927 All 407 .
609 Food Corpn. of India v Vikas Majdoor Kamdar Sahkari Mandli Ltd, (2007) 13 SCC 544 .
610 Imam Din v Dittu, AIR 1925 Lah 174 .
611 Sardar Gulab Singh v Punjab Zamindara Bank Ltd, AIR 1942 Lah 47 .
612 KA Mathai v Kora Bibbikutty, (1996) 7 SCC 212 , where the word "implied" is used to indicate
that the court was presuming a term to exist in a written agreement which was not before the
court.
613 Shirlaw v Southern Foundries, (1939) 2 All ER 113 (CA).
614 Deviprasad Khandelwal & Sons v UOI, AIR 1969 Bom 163 .
615 Nullagine Investments Pty Ltd v Western Australia Club Inc, (1993) 177 CLR 635 , at 647–48.
616 Satya Jain v Anis Ahmed Rushdie, (2013) 8 SCC 131 .
617 Marks and Spencer plc v BNP Paribas Services Trust Co(Jersey) Ltd, (2015) UKSC 72 .
618 Malik v Bank of Credit and Commerce International SA (in liquidation), [1997] 3 All ER 1 (HL).
619 Halsbury's Laws of England, Vol 9(1), 4th Edn Reissue, 30 June 1998, "CONTRACT", para
778.
620 Kunjilal Manohar Das v Durgaprasad Debiprosad, 58 Ind Cas 761 : AIR 1920 Cal 1021 ,
quoting from The Moorcock, [1889] 14 PD 64 : [1886–89] All ER Rep 530 (CA).
621 Insurance Co of Africa v Scor (UK) Reinsurance Co Ltd, [1983] 1 Lloyd's Rep 541.
622 Satya Jain v Anis Ahmed Rushdie, (2013) 8 SCC 131 : AIR 2013 SC 434 .
623 Suresh Kumar Joon v Mool Chand Motors, 2012 SCC OnLine Del 4303.
624 Scammell v Outston, [1941] AC 251 : [1941] 1 All ER 14 ; Hillas & Co v Acros Ltd, (1932) 147
LT 503 : [1932] All ER Rep 494 .
625 Harmony Innovation Shipping Ltd v Gupta Coal India Ltd, (2015) 9 SCC 172 : 2015 SCC
OnLine SC 190 quoting from Cargill International S.A. v Bangladesh Sugar & Food Industries
Corpn. [(1998) 1 WLR 461 : (1998) 2 All ER 406 (CA).
626 Haridas Ranchordas v Mercantile Bank of India Ltd, AIR 1920 PC 61 .
627 British Crane Hire Corp. Ltd v Ipswich Plant Hire Ltd, [1975] QB 303 : [1974] 1 All ER 1059
(CA).
628 Yam Seng Pte Ltd v International Trade Corp Ltd, [2013] EWHC 111 (QB): duty of providing
honest information, and a duty not to approve a domestic retail price for a product which
undercut the duty free retain price.
629 See the Indian Evidence Act, 1872, section 92, proviso (5) (to the extent annexing of such
incident would not be repugnant to, or inconsistent with, the express terms of the contract).
630 See Jiwibai v Ramkuwar Shriniwas Murarka Agarwala, (1946) Nag 824 at 838 : AIR 1947 Ngp
17 (FB); Federal Bank Ltd v VM Jog Engineering Ltd, AIR 2001 SCC 3166 : (2001) 1 SC 663 (even
though the Uniform Customs and Practices for Documentary Credits formulated by the
International Chamber of Commerce do not apply in a contract unless expressly incorporated,
they may be taken into account as part of mercantile customs and practices).
631 Juggomohun Ghose v Manickchand, (1859) 7 Moo Ind App 263 , a new trial was ordered on
the ground that the evidence of mercantile usage had not been sufficiently considered. On the
new trial, the evidence was found insufficient, and on a fresh appeal, the Privy Council refused to
disturb the judgment— Juggomohun Ghose v Kaisreechund, (1862) 9 Moo Ind App 256 ; Alapaty
Ramamoorthy v Polisetti Satyanarayana, AIR 1958 AP 550 ; Deviprasad Khandelwal & Sons v UOI,
AIR 1969 Bom 163 .
632 Magnum Films v Golcha Properties Pvt Ltd, AIR 1984 Del 162 at 164.
633 Juggomohun Ghose v Kaisreechand, (1862) 9 Moo Ind App 256 (PC).
634 See for example, section 55 (rights and liabilities of buyer and seller), section 65 (impied
contract by mortgagor), section 108 (rights and liabilities of lessees) of the Transfer of Property
Act, 1882; sections 14–17 (implied conditions and warranties) and sections 20–4 (terms
implied about passing of property) of The Sale of Goods Act, 1930.
635 Southern Foundries, (1926) Ltd v Shirlaw, [1940] AC 701 at 717 : [1940] 2 All ER 445 (HL),
per Lord Atkin.
636 Navnitlal& Co v Kishanchand & Co, AIR 1956 Bom 151 ; Umedsingh Hamirasingh v Marsden
Mills Ltd, AIR 1959 Bom 143 ; Gulabchand Gambhirmal v Kudilal Govindram, AIR 1959 MP 151 ;
Koduri Krishnarao v State of Andhra, AIR 1962 AP 249 ; Nadiad Borough Municipality v Nadiad
Electric Co Ltd, AIR 1964 Guj 30 ; Deviprasad Khandelwal & Sons v UOI, AIR 1969 Bom 163 ; Re an
Arbitration between the Anglo-Russian Merchant Traders Ltd v John Batt & Co (London) Ltd, [1917]
2 KB 679 .
637 Shirlaw v Southern Foundries, (1926) Ltd, [1939] 2 KB 206 per MacKinnon LJ. at 227.
638 Moorcock, The (1889) 14 PD 64 : [1886–90] All ER Rep 530 (it was safe for the ship to be at
the wharf) quoted with approval in Satya Jain v Anis Ahmed Rushdie, (2013) 8 SCC 131 ; see also
Kleinert v Abosso Gold Mining Co Ltd, (1913) 58 Sol Jo 45; Delhi Cloth& General Mills Ltd v KL
Kapur, AIR 1958 Punj 93 at 101 (if it is so obvious that it goes without saying); Kotharaju
Narayana Rao v Tekumalla Ramachandra Rao, AIR 1959 AP 370 at 374; UGS Finance v National
Mortgage Bank of Greece and National Bank of Greece, [1964] 2 Lloyd's Rep 446, 543 per Pearson
LJ.
639 Delhi Cloth and General Mills Co Ltd v KL Kapur, AIR 1958 Punj 93 ; Koduri Krishnarao v State
of Andhra Pradesh, AIR 1962 AP 249 ; Delhi Cloth & General Mills Co Ltd v K L Kapur, AIR 1958
Punj 93 .
640 KC Sethia, (1944) Ltd v Partabmull Rameshwar, [1950] 1 All ER 51 at 59 (CA); Compagnie
Algerienne de Munerie v Katana Societa di Navigatione Marittima SpA, [1960] 2 QB 115 : [1960] 2
All ER 55 ; Deviprasad Khandelwal & Sons v UOI, AIR 1969 Bom 163 .
641 Peter Cassidy Seed Co Ltd v Osuustukkukauppa, [1957] 1 All ER 484 .
642 Trollope and Colls Ltd & Holland & Hannen & Cubbits Ltd v Atomic Power Construction Ltd,
[1962] 3 All ER 1035 .
643 Wong v Beaumont Property Trust Ltd, [1964] 2 WLR 1325 at 1333 (CA) : [1965] 1 QB 173 .
644 See Liverpool City Council v Irwin, [1975] 3 All ER 658 (CA) : [1976] 2 All ER 39 : [1977] AC
239 (HL); Tai Hing Cotton Mills Ltd v Liu Chong Hing Bank Ltd, [1986] AC 80 : [1985] 2 All ER 947
(PC).
645 British School of Motoring Ltd v Simms, [1971] 1 All ER 317 .
646 Silverman v Imperial London Hotels Ltd, (1927) 137 LT 57 : [1927] All ER Rep 712 .
647 Alpha Trading Ltd v Dunnshaw-Patten Ltd, [1981] 1 Lloyd's Rep 122 : [1981] 1 QB 290 : [1981]
1 All ER 482 (CA).
648 Anjum Nath v British Airways, (2016) 226 DLT 306 : 2015 SCC OnLine Del 14373.
649 State of Maharashtra v Saifuddin Mujjaffarali Saifi, AIR 1994 Bom 48 .
650 Food Corp of India v Chandu Construction, (2007) 4 SCC 697 ; See below: "Express Terms
Prevail".
651 State of Maharashtra v Saifuddin Mujjaffarali Saifi, AIR 1994 Bom 48 ; Anjum Nath v British
Airways, (2016) 226 DLT 306 : 2015 SCC OnLine Del 14373.
652 Bell v Lever Bros Ltd, [1932] AC 161 : [1931] 1 KB 337 : [1931] All ER Rep 1 at 32 (per Lord
Atkin).
653 BP Refinery (Westernport) Pty Ltd v Shire of Hastings, (1977) 180 CLR 266 : (1976) 52 ALJR
20; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales, (1982) 149 CLR 337 ;
The Moorcock, [1889] 14 PD 64 : [1886–9] All ER Rep 530 (CA).
654 D Vanjeeswara Ayyar v District Board, South Arcot, AIR 1941 Mad. 887 .
655 Food Corp of India v Chandu Construction, (2007) 4 SCC 697 ; Ruttonsey Rawji v Bombay
United Spinning and Manufacturing Co Ltd, AIR 1916 Bom 4 ; AK Abdul Azeez v VC Ramalingam,
AIR 1961 Mad. 281 (no term implied with reference to custom); Magnum Films v Golcha
Properties Pvt Ltd, AIR 1984 Del 162 at 164. Rashtriya Ispat Nigam Ltd v Dewan Chand Ram
Saran, AIR 2012 SC 2829 : 2012 (5) SCC 306 .
656 Provash Chandra Dalui v Biswanath Banerjee, 1989 Supp (1) SCC 487 .
657 Trollopes & Colls Ltd v NW Metropolitan Regional Hospital Board, [1973] 2 All ER 260 (HL).
658 UOI v Vasudeo Agarwal, AIR 1960 Pat. 87 ; Girija Proshad Pal v National Coal Co Ltd, AIR
1949 Cal 472 .
659 Luxor (Eastbourne) Ltd v Cooper, [1941] 1 All ER 33 at 39 (HL).
660 State of Maharashtra v Saifuddin Mujjaffarali Saifi, AIR 1994 Bom 48 .
661 Nadiad Borough Municipality v Nadiad Electric Co Ltd, AIR 1964 Guj 30 .
662 Foo Jong Peng v Phua Kiah Mai, [2012] SGCA 55 (Singapore Court of Appeal), [2012] 4 Serv
LR 1267.
663
Navnitlal& Co v Kishanchand & Co, AIR 1956 Bom 151 ; Reigate v Union Mfg Co
(Ramsbottom) Ltd, [1918] 1 KB 592 : [1918–19] All ER Rep 143 (CA); British Movietonews Ltd v
London and District Cinemas Ltd, [1952] AC 166 : [1951] 1 KB 190 : [1951] 2 All ER 617 (HL);
Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd, [1959] AC 133 at 174 : [1958] 1 All
ER 725 at 744 (HL).
664 Russell v Duke of Norfolk, [1949] 1 All ER 109 (CA).
665 Trollope& Colls Ltd v North West Metropolitan Regional Hospital Board, [1973] 1 WLR 601 at
609.
666 FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd, [1916] 2 AC 397
at 422 per Lord Parker : [1916–17] All ER Rep 104 (HL).
667 Walford v Miles, [1992] 2 WLR 174 : [1992] 2 AC 128 : [1992] 1 All ER 453 .
668 Re an arbitration between Nott and the Corporation of Cardiff, [1918] 2 KB 146 at 168 (CA);
on appeal sub nom Brodie v Cardiff Corpn, [1919] AC 337 (HL).
669 Liverpool City Council v Irwin, [1977] AC 239 at 266 : [1976] 2 All ER 39 (HL) partly affirming
[1975] 3 All ER 658 (CA); B P Refinerty (Westenport) Pty Ltd v Shire of Hastings, (1977) 180 CLR
266 : (1976) 52 ALJR 20.
670 Orman v Saville Sportswear Ltd, [1960] 1 WLR 1055 : [1960] 3 All ER 105 .
671 Duke of Westminster v Guild, [1985] QB 688 .
672 Harmony Shipping Co SA v Davis, [1980] 1 Lloyd's Rep 44 : [1979] 3 All ER 177 .
673 Ben Shipping Co (Pte) Ltd v An Bord Bainne The (Joyce), [1986] 2 Lloyd's Rep 285 : [1986] 2
All ER 177 QBD.
674 Tai Hing Cotton Mill Ltdh v Liu Chong Hing Bank Ltd, [1986] AC 80 .
675 Cryne v Barclays Bank, (1987) BCLC 548 (CA).
676 Bremer Vulkan Schiffban and Maschinenfabrik v South India Shipping Corpn. Ltd, [1981] AC
909 : [1981] 1 All ER 289 (HL).
677 Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd, [1992] 1 AC 233
: [1991] All ER, reversing [1990] 1 QB 818 : [1989] 3 All ER 628 , reversing [1988] 1 L Loyal's Rep
514, (CA).
678 Deyong v Shenburn, [1946] 1 All ER 226 .
679 Edwards v West Herts Group Hospital Management Committee, [1957] 1 All ER 541 .
680 Re Railway & Electric Appliances Co., (1888) 38 ChD 597 .
681 KC Sethia, (1944) Ltd v Partbmull Rameshwar, [1951] 2 All ER 352 (HL).
682 Compagnie Algerenne de Meuniere v Katana Societa, [1960] 2 WLR719 at 724 : [1960] 2 QB
115 : [1960] 2 All ER 55 (CA); dictum of Scrutton LJ, Re an arbitration between Comptoir
Commercial Anversois & Power Son & Co, [1920] 1 KB 868 at 899 : [1918–19] All ER Rep 661
applied: "It must be such a necessary term that both parties must have intended that it should
be a term of the contract and have only not expressed it".
683 Jones v Lowe, [1945] KB 73 : [1945] 1 All ER 194 ; Raja Ram Jaiswal v Ganesh Prasad, AIR
1959 All 29 .
684 Hargreaves Transport Ltd v Lynch, [1969] 1 WLR 215 : [1969] 1 All ER 455 .
685 Roxborough v Rothmans of Pall Mall Australia Ltd, [2001] HCA 68 (High Court of Australia),
(2001) 208 CLR 516 .
686 Tan Juay Pah v Kimly Construction Pte Ltd, [2012] SGCA 17 (Singapore Court of Appeal),
[2012] 2 Serv LR 549.
687 KP Chowdhry v State of Madhya Pradesh, AIR 1967 SC 203 at 206; section 10 below:
"Contracts with Government", and section 65.
688 Ibid at 206–07; State of Bihar v Karam Chand Thapar & Brothers Ltd, AIR 1962 SC 110 :
[1962] 1 SCR 827 ; Bikhraj Jaipuria v UOI, AIR 1962 SC 113 : [1962] 2 SCR 880 ; State of West
Bengal v BK Mondal & Sons, AIR 1962 SC 779 : [1962] Supp 1 SCR 870; UOI v AL Rallia Ram,
[1964] 3 SCR 164 : AIR 1963 SC 1685 ; section 10 below.
689 Steel Authority of India Ltd v State of M.P., (1999) 4 SCC 76 .
690 Rhodes v Forwood, (1876) 1 App Cas 256 : [1874–80] All ER Rep 476 (HL); Southern
Foundries, (1926) Ltd v Shirlaw, [1940] AC 701 : [1940] 2 All ER 445 (HL); William Cory& Son Ltd v
City of London Corpn, [1951] 2 KB 476 at 484 : [1951] 2 All ER 85 at 88.
691 Inchbald v Western Neilgherry Coffee, Tea and Cinchona Plantation Co Ltd, (1864) 17 CBNS
733 : [1861–73] All ER Rep 436 ; MacKay v Dick, (1881) 6 App Cas 251 (HL); Hickman& Co v
Roberts, [1913] AC 229 : [1911–13] All ER Rep Ext 1485 (HL); George Trollope & Sons v Martyn
Bros, [1934] 2 KB 436 (CA).
692 Amalgamated Building Contractors Ltd v Waltham Holy Cross Urban District Council, [1952] 2
All ER 452 ; Alghussein Establishment v Eton College, [1988] 1 WLR 587 ; see also Cheall v
Association of Professional, Executive, Clerical and Computer Staff, [1983] 2 AC 180 : [1983] 1 All
ER 1130 ; Thompson v ASDA-MFI Group plc, [1988] ChD 241 : [1988] 2 All ER 722 ChD.
693 Thompson v ASDA-MFI Group plc, [1988] 2 All ER 722 .
694 K N Sathyapalan v State of Kerala, (2007) 13 SCC 43 .
695 MacKay v Dick, (1881) 6 App Cas 251 at 263 (HL), per Lord Blackburn; Sprague v Booth,
[1909] AC 576 at 580 (PC), per Lord Dunedin; Kleinert v Abosso Gold Mining Co Ltd, (1913) 58 Sol
Jo 45 (PC); Luxor (East bourne) Ltd v Cooper, [1941] AC 108 at 118 : [1941] 1 All ER 33 at 39 (HL);
per Viscount Simon LC; A v Pound & Co Ltd v M W Hardy & Co Inc, [1956] AC 588 at 608 : [1956] 1
All ER 639 at 648 (HL), per Viscount Simonds at 611 and per Lord Somervell at 650; Sunbeam
Shipping Co Ltd v President of India, [1973] 1 Lloyd's Rep 482 at 486; Metro Meat Ltd v Fares Rural
Co Pty Ltd, [1985] 2 Lloyd's Rep 13; Nissho Iwai Petroleum Inc v Cargill International SA, [1993] 1
Lloyd's Rep 80.
696 MacKay v Dick, [1881] 6 AC 251 at 263 (HL).
697 UNIDROIT Principles, Article 1.7; this principle does not form part of common law of
contract.
698 MacKay v Dick, (1881) 6 App Cas 251 at 263 (HL); Hargreaves Transport v Lynch, [1969] 1
WLR 215 : [1969] 1 All ER 455 ; Liverpool City Council v Irwin, [1977] AC 239 : [1976] 2 All ER 39
(HL) partly affirming [1975] 3 All ER 658 (CA).
699 UNIDROIT Principles, Article 5.3.
700 UNIDROIT Principles, Article 5.4.
701 J.P.Builders v A. Ramadas Rao, (2011)1 SCC 429 .
702 Motilal v Nanhelal, AIR 1930 PC 287 at 290.
703 Nathulal v Phoolchand, AIR 1970 SC 546 at 547; relying on Motilal v Nanhelal, AIR 1930 PC
287 (issue of contingent contract was not argued); Chandnee Vtdyawati Madden v C L Katyal
(Dr), AIR 1964 SC 978 (defendant had agreed to obtain permission); Bishambhar Nath Agarwal v
Kishan Chand, AIR 1998 All 195 (whether term about permission stipulated or implied).
704 HPA International v Bhagwandas Fateh Chand Daswani, AIR 2004 SC 3858 : (2004) 6 SCC
537 .
705 Foster v Driscoll, [1929] 1 KB 470 (CA) : [1928] All ER Rep 130 CA; Ralli Bros v Compania
Naviera Sotay Aznar, [1920] 2 KB 287 : [1920] All ER Rep 427 ; Kahler v Midland Bank, [1950] AC
24 : [1949] 2 All ER 621 (HL); Zivnostenska Banka National Corpn v Frankman, [1950] AC 57 :
[1949] 2 All ER 671 ; Regazzoni v K C Sethia, (1944) Ltd, [1958] AC 301 : [1957] 3 All ER 286 (HL).
706 Gulabchand Gambhirmal v Kudilal Govindram, AIR 1959 MP 15 l; HDFC Bank Ltd v Delhi
Gymkhana Club Ltd, AIR 2013 Del 10 (payment for charges for publishing advertisements).
707 Deviprasad Khandelwal & Sons v UOI, AIR 1969 Bom 163 .
708 Winter Garden Theatre (London) Ltd v Millennium Productions Ltd, [1948] AC 173 : [1947] 2
All ER 331 ; Martin-Baker, Aircraft Co Ltd v Canadian Flight Equipment Ltd, [1955] 2 QB 556 :
[1955] 3 WLR 212 : [1955] 2 All ER 722 ; Staffordshire Area Health Authority v South Staffordshire
Waterworks Co, [1978] 1 WLR 1387 : [1978] 3 All ER 769 .
709 Rajasthan Breweries Ltd v Stroh Brewery Co, AIR 2000 Del 450 ; Chaurangi Builders and
Developers Ltd v Maharashtra Airport Development Co Ltd, 2013 SCC OnLine Bom 1530.
710 Winter Garden Theatre (London) Ltd v Millennium Productions Ltd, [1948] AC 173 : [1947] 2
All ER 331 .
711 Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd, [1955] 2 QB 556 : [1955] 3 WLR
212 : [1955] 2 All ER 722 .
712 JH Milner & Son v Percy Bilton Ltd, [1966] 1 WLR 1582 : [1966] 2 All ER 894 .
713 Hillis Oil and Sales v Wynn's Canada, [1986] 1 SCR 57 (Supreme Court, Canada).
714 Machtinger v HOJ Industries Ltd, [1992] 1 SCR 986 (Supreme Court of Canada).
715 Her Highness Maharani Shantidevi P. Gaikwad v Savjibhai Haribhai Patel, AIR 2001 SC 1462 :
(2001) 5 SCC 101 .
716 Jones v St John's College Oxford, (1870) LR 6 QB 115; Lynch v Thorne, [1956] 1 WLR 303 ;
Shell UK Ltd v Lostock Garage Ltd, [1976] 1 WLR 1187 : [1977] 1 All ER 481 ; J Lauritzen A/S v
Wijsmuller BV, [1990] 1 Lloyd's Rep l.
717 State of Tamil Nadu v M Malayandi, AIR 1996 Mad. 1 .
718 Navnit& Co v Kishanchand & Co, AIR 1956 Bom 151 at 153; Harmandrai Fulchand v Pragdas,
AIR 1923 PC 54 relied on; Ganga Saran v Firm Ram Charan Ram Gopal, [1952] SCR 36 : AIR 1952
SC 9 ; the observations of Seller J quoted in Brauer & Co (Great Britain) Ltd v James Clark (British
Materials) Ltd, [1952] 2 All ER 497 at 500.
719 Liverpool City Council v Irwin, [1977] AC 239 : [1976] 2 All ER 39 (HL); partly affirming [1975]
3 All ER 658 (CA); Harmony Shipping Co SA v Davis, [1980] 1 Lloyd's Rep 44 : [1979] 3 All ER 177 ;
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd, [1986] AC 808 ; National Bank of Greece SA v
Pinios Shipping Co (No, 1), [1988) 2 Lloyd's Rep 126 at 219, CA Hevered in [1990] 1 All ER 781 :
[1989] 1 All ER 213 (CA).
720 Anson's Law of Contract, 30th Edn 2016, p8
721 Smith v South Wales Switchgear Co Ltd, [1978] 1 All ER 18 .
722 SVAR Vellayam Chetty v KLST Kulandaveluappa Chetty, AIR 1915 Mad. 931 .
723 Hillis Oil & Sales v Wynn's Canada, [1986] 1 SCR 57 (Supreme Court of Canada).
724 Rhodes v Forwood, (1876) 1 App Cas 256 : [1874–80] All ER Rep 476 (HL); Northey v
Trevillion, (1902) 18 TLR 648 ; Moon v Camberwell Corpn, (1903) 89 LT 595 (CA); but see Turner v
Goldsmith, [1891] 1 QB 544 (CA) : [1891–94] All ER Rep 384 ; Devonald v Rosser & Sons, [1906] 2
KB 728 : [1904–07] All ER Rep 988 ; and Bauman v Hulton Press Ltd, [1952] 2 All ER 1121
(implied term that a master would give to the servant reasonable work and wages until
termination).
725 Scheggia v Gradwell, [1963] 3 All ER 114 : [1963] 1 WLR 1049 (CA).
726 Blake & Co v Sohn, [1969] 3 All ER 123 : [1969] 1 WLR 1412 .
727 Joykrishna Mohapatra v Radha Krishna Mohopatra, AIR 1934 Pat. 433 .
728 Haridas Ranchordas v Mercantile Bank of India Ltd, AIR 1920 PC 61 .
729 Juggomohan Ghose v Kaisreechand, (1862) 9 Moo Ind App 256 (PC).
730 Paragon Finance plc v Nash, [2001] EWCA Civ 1466 : [2002] 1 WLR 685 .
731 Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd, [1986] AC 80 : [1985] 2 All ER 947 (PC).
732 UOI v Bhagwan Industries Ltd, AIR 1957 All 799 (DB).
733 Robb v Green, [1895] 2 QB 315 : [1895–99] All ER Rep 1053 (CA).
734 Kirchner & Co v Gruban, [1909] 1 ChD 413 : [1908–10] All ER Rep 242 .
735 Gregory v Ford, [1951] 1 All ER 121 (implied term that the employer would insure the lorry
against third party risks).
736 Bauman v Hulton Press Ltd, [1952] 2 All ER 1121 ; Turner v Goldsmith, [1891] 1 QB 544 (CA);
Devonald v Rosser & Sons, [1906] 2 KB 728 : [1904–07] All ER Rep 988 .
737 Indian Drugs& Pharmaceuticals Ltd v ESI Corpn, (1997) 9 SCC 71 : 1997 SCC (L&S) 1038 .
738 Malik v Bank of Credit and Commerce International SA (in liquidation), [1997] 3 All ER 1 (HL).
739 Ibid; Hedley, [1997] Cambridge Law Journal 485.
740 University of Nottingham v Eyett, [1999] 2 All ER 437 (information about better pension
entitlements if retired on later date).
741 Spring v Guardian Assurance plc, [1994] 3 All ER 129 (HL).
742 [1994] 3 All ER 129 (HL) per Lord Woolf, at 179.
743 Lim Suat Hua v Singapore Health Partners Pte Ltd, [2012] 2 Serv LR 805 (Singapore High
Court).
744 Ispahani Ltd v Ispahani Employees Union, AIR 1959 1147 : 1960 SCR (1) 24 .
745 Southern Foundries Ltd v Shirlaw, [1940] AC 701 : [1940] 2 All ER 445 (HL).
746 Raman v Cochin Devaswom Board, 2015 SCC OnLine Ker 14793 : (2015) 2 KLJ 791 : (2015)
3 Ker LT 928 .
747 Orman v Saville Sportswear Ltd, [1960] 1 WLR 1055 : [1960] 3 All ER 105 .
748 Lister v Romford Ice and Cold Storage Co Ltd, [1957] AC 555 : [1957] 1 All ER 125 (HL).
749 Reid v Rush& Tompkins Group plc, [1990] 1 WLR 212 : [1989] 3 All ER 228 (CA).
750 Management Hotel Imperial v Hotel Workers' Union, [1960] 1 SCR 476 : AIR 1959 SC 1342 ; T
Cajee v U Jormanik Siem, AIR 1961 SC 276 ; Balvantray Ratilal Patel v State of Maharashtra,
(1968) 2 SCR 577 : ( AIR 1968 SC 800 ); V.P.Gindroniya v State of Madhya Pradesh, AIR 1970 SC
1494 .
751 Johnstone v Bloomsbury, [1992] 1 QB 333 : [1991] 2 WLR 1362 : [1991] 2 All ER 293 .
752 1991] 2 All ER 293 per Sir Nicolas Browne Wilkinson at 305 (All ER).
753 HO Brandt & Co v HN Morris & Co Ltd, [1917] 2 KB 784 (CA).
754 Re an arbitrations between the Anglo-Russian Merchant Traders Ltd and John Batt & Co
(London) Ltd, [1917] 2 KB 679 (CA); Brauer & Co (Great Britain) Ltd v James Clark (Brush
Materials) Ltd, [1952] 2 All ER 497 (CA).
755 Mitchell Cotts& Co (Middle East) Ltd v Hairco Ltd, [1943] 2 All ER 552 at 555 (CA); Peter
Cassidy Seed Co Ltd v Osuustukkukauppa, [1957] 1 All ER 484 : [1957] 1 WLR 273 .
756 AV Pound & Co Ltd v MW Hardy & Co Inc, [1956] AC 588 at 608 : [1956] 1 All ER 639 at 648
(HL), per Viscount Simonds at 611 and Lord Somervell at 650.
757 Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials Ltd), [1952] 2 All ER 497 at
500.
758 Liverpool City Council v Irwin, [1977] AC 239 : [1976] 2 All ER 39 (HL), partly allowing, [1975]
3 All ER 658 (CA); Duke of Westminster v Guild, [1985] QB 688 ; Sim v Rotherham Metropolitan
Borough Council, [1987] ChD 216 .
759 Trollope Colls Ltd and Holland, Hannen and Cubbits Ltd v Atomic Power Constructions Ltd,
[1962] 3 All ER 1035 : [1963] 1 WLR 333 .
760 Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board, [1973] 2 All ER 260 :
[1973] 1 WLR 601 (HL).
761 State of Maharashtra v Saifuddin Mujjaffarali Saifi, AIR 1994 Bom 48 .
762 Tarapore & Co v State of Madhya Pradesh, (1994) 3 SCC 521 .
763 Blair v Alan S Tomkins and Frank Obsorne, [1971] 2 QB 78 : [1971] 1 All ER 317 : [1971] 2
WLR 503 (CA).
764 Greaves & Co (Contractors) Ltd v Baynham Meikle and Partners, (1974) 118 Sol Jo 595 :
[1975] 3 All ER 99 .
765 Stovin-Bradford v Volpoint Properties Ltd, [1971] ChD 1007 : [1971] : 3 All ER 570 : [1971] 3
WLR 256 (CA).
766 Barratt Southampton Ltd v Fairclough Building Ltd, (1988) 27 Const LR 623.
767 Hoskins v Woodham, [1938] 1 All ER 692 ; Lynch v Thorne, [1956] 1 WLR 303 : [1956] 1 All ER
744 .
768 Lawrence v Cassel, [1930] 2 KB 83 : [1930] All ER Rep 733 ; Miller v Cannon Hill Estates Ltd,
[1931] 2 KB 113 : [1931] All ER Rep 93 ; Jennings v Tavener, [1955] 1 WLR 932 : [1955] 2 All ER
769 ; Hancock v BW Brazier (Anerley) Ltd, [1966] 2 All ER 901 at 903 : [1966] 1 WLR 1317 : [1966]
2 KB 113 .
769 Yorkshirewatn Water Services Ltd v Sun Alliance & London Insurance plc, [1997] 2 Lloyd's Rep
21.
770 Bank of Nova Scotia v Hellenic Mutual War Risks Assn "(Bermuda)" Ltd (the Goodluck), [1990]
1 QB 818 (reversed on other grounds, [1992] 1 AC 283 : [1989] All ER 628 reversed on other
grounds, [1991] 3 All ER 1 .
771 Baker v Black Sea & Baltic General Insurance Co Ltd, [1998] 1 WLR 974 .
772 Vikram Greentech India Ltd v New India Assurance Co Ltd, (2009) 5 SCC 599 .
773 Wong v Beaumont Property Trust Ltd, [1964] 2 WLR 1325 : 1333 (CA), [1965] 1 QB 173 .
774 Koduri Krishnarao v State of Andhra, AIR 1962 AP 249 .
775 Edler v Auerbach, [1950] 1 KB 359 : [1949] 2 All ER 692 ; Hills v Harris, [1965] 2 QB 601 :
[1965] 2 All ER 358 (CA).
776 Duke of Westminster v Guild, [1985] QB 688 .
777 State of Tamil Nadu v M Malayandi, AIR 1996 Mad. 1 .
778 Wong Mee Wan v Kwan Kin Travel Services, [1995] 4 All ER 745 (PC) (case from Hong Kong).
779
Kay Lim Construction & Trading Pte Ltd v Soon Douglas (Pte) Ltd, [2012] SGHC 186
(Singapore High Court), [2013] 1 Serv LR 1.
780 Kimber v William Willett Ltd, [1947] KB 570 : [1947] 1 All ER 361 (CA).
781 Samuels v Davis, [1943] KB 526 : [1943] 2 All ER 3 ; Greaves& Co "Contractors" Ltd v
Baynham Meikle and Partners, (1974) 118 Sol Jo 595 : [1975] 3 All ER 99 ; St Alban's City and
District Council v International Computers Ltd, [1996] 4 All ER 481 .
782 D Vanjeeswara Ayyar v District Board, South Arcot, AIR 1941 Mad. 887 .
783 Kimber v William Willett Ltd, [1947] KB 560 : [1947] 1 All ER 361 (CA).
784 D Vanjeeswara Ayyar v District Board, South Arcot, AIR 1941 Mad. 887 .
785 Bolam v Friern Hospital Management Committee, [1957] 1 WLR 582 : [1957] 2 All ER 118
QBD; Chin Keow v Govt of Malaysia, [1967] 1 WLR 813 ; Greaves & Co (Contractors) Ltd v Baynham
Meikle and Partners, [1975] 1 WLR 1095 : [1975] 3 All ER 99 ; Saif Ali v Sydney Mitchell & Co,
[1980] AC 198 : [1978] 3 All ER 1033 ; Whitehouse v Jordan, [1981] 1 WLR 246 : [1981] 1 All ER
267 (HL); Maynard v West Midlands Regional Health Authority, [1984] 1 WLR 634 : [1985] 1 All ER
635 ; Bolitho v City and Hackney Health Authority, [1998] AC 232 : [1997] 4 All ER 771 .
786 Auto Concrete Curb Ltd v South Nation River Conservation Authority, [1993] 3 SCR 201
(Supreme Court, Canada).
787 eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd, [2013] SGCA 27 (Singapore
Court of Appeal).
788 Julie Breen v Cholmondeley W Williams, FC 96/025, (High Court of Australia), the Court
refused to imply such term in the contract, and refused the right even on the grounds of
existence of fiduciary relationship; Sidaway v Governors Bethlem Royal Hospital Authority, [1985]
AC 871 per Lord Templeman at 904 : [1985] 1 All ER 643 ; R v Mid Glamorgan Family Health
Services Authority, [1995] 1 WLR 110 : [1995] 1 All ER 356 ; but see McInerney v MacDonald,
[1992] 2 SCR 138 (Supreme Court of Canada, recognised the right of access arising out of
fiduciary relationship between doctor and patient).
789 A Hamson & Son (London) Ltd v S Martin Johnson & Co Ltd, [1953] 1 Lloyd's Rep 553.
790 Ben Shipping Co Pvt Ltd v An-Board Bainne, [1986] 2 Lloyd's Rep 285.
791 Compagnie Algerienne de Meunerie v Katana Soci Di Navigotione Marittima Spa, [1960] 2 QB
115 : [1960] 2 All ER 55 : [1960] 2 WLR 719 (CA).
792 Firm Bachhraj Amolakchand v Firm Nand Lal Sitaram, AIR 1966 MP 145 .
793 Sophy Kelly v State of Maharashtra, AIR 1968 Bom 156 at 168–69.
794 Addison v Brown, [1954] 1 WLR 779 , 786 : [1954] 2 All ER 213 .
795 Margulies Brothers Ltd v Dafnis Thomaides & Co (UK) Ltd, [1958] 1 All ER 777 : [1958] 1 WLR
398 ; Jugoslavenska Oceanska Plovidba v Castle Investment Co Inc. (The Kozara), [1973] 3 All ER
498 : [1973] 3 WLR 847 (CA).
796 British School of Motoring Ltd v Simms, [1971] 1 All ER 317 .
797 Equitable Life Assurance Co Ltd v Hyman, [2000] All ER (D) 1026 : [2002] 1 AC 408 .
798 British School of Motoring Ltd v Simms, [1971] 1 All ER 317 .
799 Silverman v Imperial London Hotels Ltd, [1927] All ER Rep 712 : (1927) 137 LT 57 .
800 Chatenay v Brazilian Submarine Telegraph Co, [1891] 1 QB 79 per Lindley LJ at 85 : [1886–
90] All ER Rep 1135 at 1138.
801 State of Jammu and Kashmir v Thakur Ganga Singh, AIR 1960 SC 356 at 359.
802 K Appukuttan Panicker v SKRAKR Athappa Chettiar, AIR 1966 Ker. 303 .
803 UOI v Kishorilal Gupta & Bros, AIR 1959 SC 1362 .
804 Anson's Law of Contract, 30th Edn 2016, p179.
805 DLF Universal Ltd v Town & Country Planning Department, (2010) 14 SCC 1 .
806 Suraj Mal Ram Nivas Oil Mills Pvt Ltd v United India Insurance Co Ltd, (2010) 10 SCC 567 ;
Export Credit Guarantee Corp of India v Garg Sons International, (2014) 1 SCC 686 .
807 Equitable Life Assurance Society v Hyman, (2000) 3 All ER 961 at 969.
808 UOI v D.N. Revri & Co, (1976) 4 SCC 147 : (1977) 1 SCR 483 ; Investors Compensation
Scheme Ltd v West Bromwich Building Society, [1998] 1 WLR 896 per Lord Hoffman at 912.
809 Antaios Cia Naviera SA v Salen Rederierna AB, (1985) A.C. 191 .
810 Provash Chandra Dalui v Biswanath Banerjee, 1989 Supp (1) SCC 487 .
811 DLF Universal Ltd v Town & Country Planning Department, (2010) 14 SCC 1 .
812 UNIDROIT Principles, Article 4.3.
813 DLF Universal Ltd v Town & Country Planning Department, (2010) 14 SCC 1 .
814 Inland Revenue Commissioners v Raphael, [1935] AC 96 per Lord Wright at 145 : [1934] All
ER Rep 740 at 779 (HL).
815 Great Western Railway v Bristol Corpn, (1918) 87 LJ Ch 414 per Lord Shaw.
816 Hepburn v A Tomlinson (Hauliers) Ltd, [1966] AC 451 : [1966] 1 All ER 418 : [1966] 2 WLR
453 at 456 (HL); Waters v Monarch Fire & Life Assurance Co, (1856) 5 E&B 870.
817 DLF Universal Ltd v Town & Country Planning Department, (2010) 14 SCC 1 .
818 State of Gujarat v Variety Body Builders, AIR 1976 SC 2108 : (1976) 3 SCC 500 .
819 Central Bank of India v Hartford Fire Insurance Co Ltd, AIR 1965 SC 1288 .
820 The Indian Evidence Act, 1872, section 92; British Movietonews Ltd v London and District
Cinemas Ltd, [1952] AC 166 : [1951] 2 All ER 617 (HL); Waters v Monarch Fire & Life Assurance
Co, (1856) 5 E&B 870.
821 BCCI v Ali, (2001) 1 A.C.251 .
822 United India Assurance Co Ltd v Harichand Rai Chandan Lal, AIR 2004 SC 4794 .
823 State of Madhya Pradesh v Ramswaroop Vaishya, AIR 2003 SC 1067 : (2003) 2 SCC 254 .
824 National Insurance Co Ltd v Ishar Das Madan Lal, AIR 2007 (Supp) 508 : (2007) 4 SCC 105
(held that burden lay on insurer to show that the exclusion applied, and explains with reference
to contra proferentem rule)
825 Siemens Ltd v Schenker International (Australia) Pty Ltd, [2004] HCA 11 (High Court of
Australia).
826 Saregama India Ltd v Suresh Jindal, AIR 2006 Cal 340 .
827 Balkishen Das v W F Legge, (1899) 22 All 149 : (1899) 27 IA 58 : (1899) 2 Bom LR 523 ;
Maung Kyin v Ma Shwe Law, (1918) 45 Cal 320 : AIR 1917 PC 207 : (1918) 20 Bom LR 278
(between parties to absolute conveyance, oral evidence to show that the transaction was
intended to be a mortgage is excluded). See also Habib Main v Mukhtar Ahmad, AIR 1969 All 296
.
828 The UNIDROIT Principles, Article 4.1.
829 Reardon-Smith Line Ltd v Hansen Tangen, [1976] 3 All ER 570 per Lord Wilberforce at 575.
830 Codelfa Construction Pty Ltd v State Rail Authority of NSW, (1982) 149 CLR 337 at 352.
831 Attorney General of Belize v Belize Telecom Ltd, (2009) 1 W.L.R 1988 .
832 UNIDROIT Principles, Article 4.2; Lakshmi Prasad v Gopi Prasad, AIR 1964 All 526 .
833 State of A.P. v Kone Elevators (India) Ltd, (2005) 3 SCC 389 .
834 Commercial of Commercial Taxes v Hindustan Aeronautics Ltd, (1972) 1 SCC 395 ; State of
A.P. v Kone Elevators (India) Ltd, (2005) 3 SCC 389 ; Kone Elevators India Pvt Ltd v State of Tamil
Nadu, (2014) 7 SCC 1 .
835 BOI v K.Mohandas, (2009) 5 SCC 313 .
836 DLF Universal Ltd Town & Country Planning Department, (2010) 14 SCC 1 .
837 Govindram Mihamal v Chetumal Villardas, AIR 1970 Bom 251 : 72 Bom LR 653.
838 Raja Ram Jaiswal v Ganesh Prasad, AIR 1959 All 29 ; UOI v Nand Kishore, AIR 1966 HP 54 (if
language is vague).
839 Rajah Vatsavaya Venkata Subhadrayyamma Jagapati Bahadur Garu y Poosapati Venkatapati
Raju Garu, AIR 1924 PC 162 Gulabchand Gambhirlal v Kudilal Govindram, AIR 1959 MP 151 : AIR
1966 SC 1734 ; Provash Chandra Dalui v Biswanath Banerjee, 1989 Supp (1) SCC 487 .
840 Investors Compensation Scheme Ltd v West Bromwich Building Society, (1998) 1 WLR 896 :
912
841 Kamla Devi v Takhatmal, AIR 1964 SC 859 .
842 Raj Video Vision v K Mohanakrishnan, AIR 1998 Mad. 294 ; but see Maganlal Savam v Rupam
Pictures, AIR 2000 Bom 416 (the term "exploitation" used in an assignment of the film rights held
to cover all scientific and technological devices invented in the future, and hence, would include
satellite rights).
843 Pawan Alloys and Casting Pvt Ltd v Uttar Pradesh State Electricity Board, AIR 1997 SC 3910 :
(1997) 7 SCC 251 .
844 Joseph Darmanin v Carmel Micallef, AIR 1946 PC 50 ; Miryala Venkateswarlu & Co v Battula
Venkataperaiah and Venkateswarlu and Co, AIR 1969 AP 88 .
845 Chartbrook Ltd v Persimmon Homes, [2009] 4 All ER 677 : [2009] UKHL 38 , per Lord
Hoffman.
846 Prenn v Simmonds, [1971] 3 All ER 237 : [1971] 1 WLR 1381 per Lord Wilberforce at 1384.
847 Sumitomo Heavy Industries Ltd v Oil and Natural Gas Co, AIR 2010 SC 3400 : (2010) 11 SCC
296 .
848 Polymat India Pvt Ltd v National Insurance Co Ltd, AIR 2005 SC 286 : (2005) 9 SCC 174 .
849 L Schuler AG v Wickman Machine Tool Sales Ltd, [1974] AC 235 : [1973] 2 All ER 39 per Lord
Kilbrandon at 631 (HL).
850 Ganga Saran v Firm Ram Charan Ram Gopal, [1952] SCR 36 at 40 : AIR 1952 SC 9 : [1952]
SCR 36 ; Gastho Behari v Surs' Estate Ltd, AIR 1960 Cal 752 (merely calling it a contract not
enough); Dhulipudi Namayya v UOI, AIR 1958 AP 533 ; Central Bank of India v Hartford Fire
Insurance Co, AIR 1965 SC 1288 ; BOI v K.Mohandas, (2009) 5 SCC 313 .
851 Ottoman Bank of Nicosia v Ohanes Chakarian, AIR 1938 PC 26 at 29; UOI v Kishorilal Gupta &
Bros, AIR 1959 SC 1362 ; State of Jammu & Kashmir v Mohd Khalil, AIR 1959 J&K 24 ; State of
Orissa v Harichandan Babu, AIR 1964 Ori. 73 ; Jaykumar Jain v Om Prakash, AIR 1970 MP 119 ;
BOI v K.Mohandas, (2009) 5 SCC 313 .
852 James Miller and Partners Ltd v Whitworth Street Estates (Manchester) Ltd, [1970] AC 583 :
[1970] 1 All ER 796 per Lord Reid at 798 : [1970] 2 WLR 728 .
853 Godhra Electricity Co Ltd v State of Gujarat, [1975] 2 SCR 42 : AIR 1975 SC 32 at 37–38 :
(1975) 1 SCC 199 .
854 Wilson v Maynard Shipbuilding Consultants AB, [1978] QB 665 : [1978] 2 All ER 78 .
855 Gannmani Anasuya v Parvatini Amarendra Chowdhary, AIR 2007 SC 2380 .
856 James Miller and Partners Ltd v Whitworth Street Estates (Manchester) Ltd, [1970] AC 583 :
[1970] 1 All ER 796 at 805 : [1970] 2 WLR 728 (HL).
857 Rashtriya Chemicals and Fertilizers Ltd v Chowgule Brothers, AIR 2010 SC 3543 : (2010) 8
SCC 563 .
858 Ruttonsi Rawji v Bombay United Spinning and Weaving Co Ltd, (1916) 41 Bom 518 : AIR 1916
Bom 4 : 18 Bom LR 532.
859 Hind Mercantile Corpn. Ltd v Miryala Venkateshwarlu & Co, AIR 1959 AP 545 ; Bejoy Krishna
Saha v North Bengal Sugar Mills Co Ltd, AIR 1949 Cal 490 ; Juggomohun Ghose v Manickchund
and Kaisreechund, (1857–60) 7 Moo Ind App 263 (PC). The Indian Evidence Act, 1872, section
92, proviso (5): Any usage or custom by which incidents not expressly mentioned in any
contract are usually annexed to contracts of that description, may be proved; provided that the
annexing of such incident would not be repugnant to, or inconsistent with, the express terms of
the contract.
860 Magnum Films v Golcha Properties Pvt Ltd, AIR 1984 Del 162 .
861 CIT v Shiv Rajiv Gupta, (2014) SCC OnLine Del 7305.
862 Alimenta SA v National Agricultural Co-op Mktg Federation of India Ltd, (1987) 1 SCC 615 at
620.
863
Patiram Banerjee v Kankinarra Co Ltd, AIR 1916 Cal 548 at 550; Navnit Lal & Co v
Kishanchand & Co, AIR 1956 Bom 151 at 152.
864 Olympus Superstructures Pvt Ltd v Meena Vijay Khetan, AIR 1999 SC 2102 .
865 Luxor (Eastbourne) Ltd v Cooper, [1941] AC 108 : [1941] 1 All ER 33 at 48; Kotharaju
Narayana Rao v Tekumalla Ramchandra Rao, AIR 1959 AP 370 at 374.
866 KC Sethia (1944) Ltd v Partabmull Rameshwar, [1950] 1 All ER 51 (CA), on appeal [1951] 2
All ER 352 .
867 Muhammadi Steamship Co v Keserishih Vallabdas, AIR 1957 TC 133 at 134.
868 Nawabjada K Atikulla v Md Mobarak Hossein, AIR 1949 Cal 174 ; Gulabchand Gambhirlal v
Kudilal Govindram, AIR 1959 MP 151 at 161 (FB); Raghunath Enamels Ltd v UOI, AIR 1962 P H
383 at 384.
869 Bomanji Ardeshir Wadia v Secretary of State, 56 IA 51 : AIR 1929 PC 34 : 53 Bom 322 (PC).
870 Desikhacharyulu v Narasimhacharyulu, AIR 1958 AP 278 ; following Suleman Vadu v Trikamji
Velji, 12 Bom HCR 10.
871 Birch v Paramount Estate Ltd, [1956] 167 EG 396 ; cited in Oscar Chess Ltd v Williams, [1957]
1 All ER 325 at 329.
872 D Kondal Rao Naidu v Dhauakoti Ammal, AIR 1938 Mad. 81 .
873 Buland Sugar Co Ltd v UOI, AIR 1962 All 425 at 429.
874 Bihar State Electricity Board v Green Rubber Industries, (1990) 1 SCC 731 .
875 Metropolitan Region Development Authority v Unity Infraproject Ltd, (2008) 5 Bom. CR. 196 .
876 Towne v Eisner, (1918) 245 US 416 per Holmes J at 425.
877 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, [1997] AC 749 per Lord
Hoffman at 775 : [1997] 3 All ER 352 at 376.
878 Investors Compensation Scheme Ltd v West Bromwich Building Society, [1998] 1 WLR 896
per Lord Hoffman at 913.
879 Central Bank of India Ltd v Hartford Fire Insurance Co Ltd, AIR 1965 SC 1288 ; S.K. Jain v
State of Haryana, (2009) 4 SCC 357 .
880 UOI v Kishorilal Gupta & Bros, AIR 1959 SC 1362 .
881 M.S.R.T.Corpn., Bangalore v S.K.Athani, (1973) 2 SCC 540 .
882 Oil& Natural Gas Corp Ltd v Saw Pipes Ltd, (2003) 5 SCC 705 .
883 Delhi Development Authority v Jitender Pal Bhardwaj, (2010) 1 SCC 146 .
884 Ramana Dayaram Shetty v International Airport Authority of India, AIR 1979 SC 1628 at 1633.
885 Panchanan Pal v Nirode Kumar Biswas, AIR 1962 Cal 12 ; Lakshmi Prasad v Gopi Prasad, AIR
1964 All 526 ; Pran Krishna Das v Controller of Estate Duty, AIR 1968 Cal 496 ; Teamco Pvt Ltd v
TMS Mani, AIR 1967 Cal 168 .
886 China Cotton Exporters v Beharilal Ramcharan Cotton Mills Ltd, AIR 1961 SC 1295 at 1296;
Sohanlal Pachisia & Co v Bilasray Khemani, AIR 1954 Cal 179 at p182; Ramamoni v Kasinath, AIR
1960 Ori. 199 at 202.
887 The Indian Evidence Act, 1872, sections 93–99.
888 Ramana Dayaram Shetty v International Airport Authority of India, AIR 1979 SC 1628 at 1633.
889 Central Bank of India v Hartford Fire Insurance Co, AIR 1965 SC 1288 .
890 New India Assurance Co. Ltd v Abhilash Jewellery, (2009) 2 SCC 661 .
891 Estafnous v London & Leeds Business Centres Ltd, [2011] EWCA Civ 1157 .
892 Rajasthan State Industrial Development & Investment Corp v Diamond & Gem Development
Corp Ltd & anr, (2013) 5 SCC 470 ; United India Insurance Co Ltd v Harchand Rai Chandan Mal,
(2004) 8 SCC 644 .
893 Vishnu by LRs v State of Maharashtra, (2014) 1 SCC 516 .
894 State Bank of India v Mula Sahakari Sakhar Karkhana Ltd, (2006) 6 SCC 293 .
895 S Kadir Ibrahim Rowther v Noor Mohammad Rowther, AIR 1966 Mad. 60 relying on John
Lachlan McGillivray Watson v Bertha Elinor, AIR 1928 PC 115 .
896 UOI v Raman Iron Foundry, AIR 1974 SC 1265 at 1270–73.
897 Grey v Pearson, (1857) 6 HL Cas 61 per Lord Wensleydale at 106 : [1843–60] All ER Rep 21 .
898 Robertson v French, (1803) 4 East 130 at 135 : [1803–13] All ER Rep 350 .
899 Surajmani v Rabi Nath Ojha, (1908) ILR 30 All 84 at 89 (PC).
900 ICICI Bank Ltd v United Breweries (Holdings) Ltd, (2016) 1 Bom CR 641 .
901 Kamala Sugar Mills Ltd v Ganga Bishen Bhajan Singh, AIR 1978 Mad. 178 : (1977) 1 Mad LJ
149.
902 Navnit Lal & Co v Kishanchand & Co, AIR 1956 Bom 151 at 153; Sirius International Insurance
Co (Publ) v FAI General Insurance Ltd, [2005] 1 All ER 191 : [2004] UKHL 54 .
903 Metropolitan Region Development Authority v Unity Infraproject Ltd, (2008) 5 Bom CR 196 .
904 CIT v Travancore Sugar and Chemicals Ltd, (1973) 3 SCC 274 .
905 Mumbai Metropolitan Region Development Authority v. Unity Infraproject Ltd, (2008) 5 Bom
CR 196 .
906 Dhanrajamal Gobindram v Shamji Kalidas & Co, [1961] 3 SCR 1020 at 1035 : AIR 1961 SC
1285 quoting Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd, [1959] AC 133 at 158 :
[1958] 1 All ER 725 (HL); Hillas & Co v Arcos Ltd, (1932) All ER 494 and Bishop & Baxter Ld v
Anglo-Eastern Trading & Industrial Co Ld, [1944] 1 KB 12 .
907 Hillas & Co Ltd v Acros Ltd, (1932) 147 LT 503 per Lord Tomlin at 512 : [1932] All ER Rep
494 at 499; Coffee Board Bangalore v Janab Dada Haji Ibrahim Halari, AIR 1966 Kant. 118 ;
Dhanrajamal Gobindram v Shamji Kalidas & Co, [1961] 3 SCR 1020 : AIR 1961 SC 1285 .
908 UOI v D.N. Revri& Co, (1976) 4 SCC 147 : (1977) 1 SCR 483 .
909 Rainy Sky SA v Kookmin Bank, [2011] UKSC 50 : [2012] 2 AllER 1137 .
910 Transport Corp of India Ltd v Pratima Bose, 2003 SCC OnLine Cal 136 : (2003) 3 CHN 500 :
(2003) 4 ICC 125.
911 S.Sivarama Aiyar v K.M.Subbiar & Sons, (1922) 15 LW 9 : AIR 1922 Mad. 28 .
912 UOI v DN Revri& Co, AIR 1976 SC 2257 at 2262; Kandamath Cine Enterprises Pvt Ltd v John
Philipose, AIR 1990 Ker. 198 .
913 Punj Lioyd Ltd v India Cements Ltd, AIR 2005 Del 389 .
914 Sumitomo Heavy Industries Ltd v Oil and Natural Gas Co, AIR 2010 SC 3400 : (2010) 11 SCC
296 .
915 Shin Satellite Public Co Ltd v Jain Studios Ltd, (2006) 2 SCC 628 ; Beed District Central Coop
Bank Ltd v State of Maharashtra, (2006) 8 SCC 514 .
916 CIPLA Ltd v Anant Ganpat Patil, 2007 SCC OnLine 1011 : (2008) 1 Mah LJ 477 .
917 Deokar Exports Pvt Ltd v New India Assurance Co Ltd, AIR 2009 SC 2026 : (2008) 14 SCC
598 ; Sumitomo Heavy Industries Ltd v Oil and Natural Gas Co, AIR 2010 SC 3400 : (2010) 11 SCC
296 .
918 Suraj Mal Ram Nivas Oil Mills Pvt Ltd v United India Insurance Co Ltd, (2010) 10 SCC 567 ;
Export Credit Guarantee Corp of India v Garg Sons International, (2014) 1 SCC 686 .
919 Dhanrajamal Gobindram v Shamji Kalidas & Co, AIR 1961 SC 1285 at 1291.
920 Dhanrajamal Gobindram v Shamji Kalidas & Co, [1961] 3 SCR 1020 : AIR 1961 SC 1285 at
1291; Lebeaupin v Richard Crispin & Co, [1920] 2 KB 714 : [1920] All ER Rep 353 ; Cf English
Electrical and Associated Industries (Cardiff) Ltd v Patley Pressings Ltd, [1953] 1 All ER 94
(subject "force majeure conditions" held vague) Scammell v Ouston, [1941] AC 251 : [1941] 1 All
ER 14 (HL) ("on hire purchase terms" held vague) distinguished; Shamrock SS& Co v Storey & Co,
(1899) 5 Com Cas 21 : (1899) 81 LT 413 (CA); referred to in Bishop and Baxter Ltd v AngloEastern Trading and Industrial Co Ltd, [1944] 1 KB 12 : [1943] 2 All ER 598 CA; Hillas & Co Ltd v
Acros Ltd, (1932) 147 LT 503 : [1932] All ER Rep 494 (HL); Adamastos Shipping Co Ltd v AngloSaxon Petrolium Co Ltd, [1959] AC 133 at 158 : [1958] 1 All ER 725 (HL) (board meaning to be
given to commercial documents).
921 Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd, [1952] 2 All ER 497 ;
Coloniale Import-Export v Loumidis Sons, [1978] 2 Lloyd's Rep 560 at 562 (refusal of licence).
922 Holcim (Singapore) Pte Ltd v Precise Development Pte Ltd, [2011] SGCA 1 (Singapore Court
of Appeal) : [2011] 2 Serv LR 106 (increase in prices).
923 Khardah Co Ltd v Rayman & Co (India) Pvt Ltd, [1963] 3 SCR 183 : AIR 1962 SC 1810 ; Ruby
General Insurance Co Ltd v Pearey Lal Kumar, AIR 1952 SC 119 : [1952] 1 SCR 501 .
924 Deviprasad Khardelwal & Sons v UOI, AIR 1969 Bom 163 .
925 State Bank of India v Manganese Ore (India) Ltd, AIR 1997 SC 254 : (1996) 11 SCC 113 .
926 National Fertilizers v Puran Chand Nangia, AIR 2001 SC 53 : (2000) 8 SCC 343 .
927 Moolji Jaitha and Co v Seth Kirodimal, AIR 1961 Ker. 21 ; Firm Seth Hajarimal v Gulabchand
Udechand Firm, 1955 Nag 722 : AIR 1956 Ngp 118 .
928 Lancashire County Council v Municipal Mutual Insurance Ltd, [1996] 3 All ER 545 .
929 New India Assurance Co. Ltd v Abhilash Jewellery, (2009) 2 SCC 661 .
930
Bharat Fire & General Insurance Ltd v Parameshwari Prasad Gupta, AIR 1968 Del 68 ,
distinguishing State of Madhya Pradesh v Sirajuddin Khan, AIR 1965 SC 198 ; Re Reckitt, Reckitt v
Reckitt, [1932] 2 ChD 144 : [1932] All ER Rep 961 .
931 Wellington Associates Ltd v Kirit Mehta, (2000) 4 SCC 272 : AIR 2000 SC 1379 .
932 Oriental Insurance Co Ltd v Samayanallur Primary Agricultural Coop Bank, AIR 2000 SC 10 .
933 Global Process Systems Inc v Syarikat Takaful Malaysie Berhad, [2011] UKSC 5 .
934 Sumitomo Heavy Industries Ltd v Oil and Natural Gas Co, AIR 2010 SC 3400 : (2010) 11 SCC
296 .
935 Videocon Properties Ltd v Bhalchandra Laboratories, AIR 2004 SC 1787 : (2004) 3 SCC 711 .
936
Syndicate Bank v Channaveerappa Beleri, AIR 2006 SC 1874 : (2006) 11 SCC 506 (a
guarantor who has agreed to pay on denand is not liable unless demand is made).
937 Porton Capital Technology Funds v 3M UK Holdings Ltd, [2011] EWHC 2895 (Comm).
938 See Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd, [1959] AC 133 : [1958] 1
All ER 725 ; Bremer Handelsgesellschaft GmbH v J H Rayner & Co Ltd, [1979] 2 Lloyd's Rep 216;
Sudatlantica Navegacion S A v Devamor Shipping Corp, [1985] 2 Lloyd's Rep 271; Pagnan SPA v
Tradox Ocean Transportation SA, [1987] 2 Lloyd's Rep 342 at 349 : [1987] 3 All ER 565 .
939 Raneegunge Coal Association Ltd v Tata Iron and Steel Co Ltd, AIR 1940 PC 151 at 152–53;
Karan Raj v Chunnilal, AIR 1964 Raj. 72 at 75.
940 Karan Raj v Chunnilal, AIR 1964 Raj. 72 at 75; Jethmal v Ambsingh, AIR 1955 Raj. 97 (FB).
941 Smith v South Wales Switchgear Ltd, [1978] 1 WLR 165 : [1978] 1 All ER 18 at pp 21–23
(HL).
942 BOI v K.Mohandas, (2009) 5 SCC 313 .
943 Provash Chandra Dalui v Biswanath Banerjee, 1989 Supp (1) SCC 487 quoting Lord Davey in
North Eastern Rail Co v Lord Hastings, [1900] AC 260 , at 267 : [1900–3] All ER Rep 199 ; Sandvik
Asia Pvt Ltd v Vardhman Promoters Pvt Ltd, 2007 (94) DRJ 762 .
944 Thakkar Hemraj Keshavji v Shah Haridas Jethabhai, [1964] 3 SCR 686 : AIR 1964 SC 1526 ;
Navnit Lal& Co v Kishanchand & Co, AIR 1956 Bom 151 ; State of WB v Narendra Nath Roy, AIR
1958 Cal 21 , Gulabchand Gambhirlal v Kudilal Govindram Rati Lal Bhagwandas & Co on appeal,
AIR 1959 MP 151 (FB); Soundararajan and Co Ltd v KPAT Annamalai Nadar, AIR 1960 Mad. 480 ;
Ram Lal Jagan Nath v State of Punjab, AIR 1966 Punj 436 (FB); Abdul Kader Laskar v State of
West Bengal, AIR 1967 Cal 99 ; UNIDROIT Principles, Article 4.4.
945 Life Insurance Corpn. of India v Dharam Vir Anand, (1998) 7 SCC 348 ; M Arul Jothi v Lajja
Bal, (2000) 3 SCC 723 : AIR 2000 SC 1122 .
946 Life Insurance Corpn. of India v Dharam Vir Anand, (1998) 7 SCC 348 (the terms "date of
policy" and "date on which the risk under the policy has commenced" were different dates).
947 M.Arul Jothi v Lajja Bal(deceased), (2000) 3 SCC 723 .
948 L.I.C. of India v Dharam Vir Anand, (1998) 7 SCC 348 .
949 Tea Trade Properties Ltd v CIN Properties Ltd, (1990) 1 E.G.L.R. 155 .
950 State of Gujarat v Dhrangadhra Chemical Works Ltd, AIR 1985 SC 609 .
951 Hare v Horton, (1833) 5 B & Ad 715.
952 Hillis Oil & Sales v Wynn's Canada, [1986] 1 SCR 57 (Supreme Court of Canada).
953 Halsbury's Laws of England, Vol 9(1), 4th Edn Reissue 30 June 1978, "CONTRACT", para
773.
954 Sun Fire Office v Hart, [1889] 14 AC 98 per Lord Watson at 103 (HL).
955 Tillmans v Steamship Knutsford Ltd, [1908–10] All ER Rep 174 affirmed in [1908] AC 406 ;
Thorman v Dowgate Steamship Co Ltd, [1910] 1 KB 410 : [1908–10] All ER Rep 549 .
956 TA Sankunni v BJ Philips, AIR 1972 Mad. 272 at 274; Pirthi Din v Ram Lal, AIR 1926 Oudh
136 ; Krishnarao v Babaji, (1900) 24 Bom 31.
957 Ali Abbas v Babu Moghal Sah, AIR 1958 Pat. 63 : (1957) 5 BLJR 641 .
958 The Law Lexicon by P.Ramanatha Aiyar.
959 BOI v K. Mohan Das, (2009) 5 SCC 313 ; Shahebzada Mohammad v Jagdish Chandra Deo,
AIR 1960 : SC 953; Gamma Investments v National insurance Co Ltd, 2009 SCC OnLine Del 105 :
(2009) 157 DLT 25 .
960 United India Insurance Co Ltd v Orient Treasures Pvt Ltd, (2016) 3 SCC 49 : 2016 SCC OnLine
SC 32 quoting from Halsbury's Laws of Englad (fifth edition).
961 Industrial Promotion and Investment Corp of Orissa Ltd v New India Assurance Co Ltd, 2016
SCC OnLine SC 842 quoting MacGillivray on Insurance Law (9th Edn 1997).
962 General Assurance Society Ltd v Chandmull Jain, AIR 1966 SC 1644 : (1966) 3 SCR 500 ;
Peacock Plywood Pvt Ltd v Oriental Insurance Co Ltd, (2006) 12 SCC 673 .
963 United India Insurance Co Ltd v Orient Treasures Pvt Ltd, (2016) 3 SCC 49 : 2016 SCC OnLine
SC 32.
964 United India Insurance Co Ltd v Pushpalaya Printers, (2004) 3 SCC 694 .
965 LIC v Insure Policy Plus Services Pvt Ltd, (2016) 2 SCC 507 : 2015 SCC OnLine SC 1384.
966 Central Bank of India v Virudhunagar Stell Rolling Mills Ltd, (2015) 16 SCC 207 .
967 Transport Corp of India Ltd v Pratima Bose, 2003 SCC OnLine Cal 136 : (2003) 3 CHN 500 :
(2003) 4 ICC 125 : (2003) 2 Cal LJ 158 .
968 Madhucon Projects Ltd v Indian Oil Corp Ltd, (2007) 140 DLT 654 : 2007 SCC OnLine Del 645
: (2007) 140 DLT 654 : (2007) 2 Arb LR.
969 Rashtriya Ispat Nigam v Dewan Chand Ram Saran, (2012) 5 SCC 306 : 2012 SCC OnLine SC
372; Export Credit Guarantee Corp of India v Garg Sons International, (2014) 1 SCC 686 .
970 Industrial Promotion and Investment Corp of Orissa Ltd v New India Assurance Co Ltd, 2016
SCC OnLine SC 842.
971 Paul Beier v Chotalal Javerdas, (1904) 30 Bom 1.
972 China Cotton Exporters v Beharilal Ramcharan Cotton Mills Ltd, [1961] 3 SCR 845 : AIR 1961
SC 1295 at 1297; Noorbhai Gulam Hussein Makali v M Allabux & Co, 42 IC 820 : AIR 1917 Bom
246 at p 248 : (1917) 19 Bom LR 845 ; Ratilal M Parikh v Dalmia Cement & Paper Marketing Co
Ltd, AIR 1943 Bom 229 at 236; Bengal Agency and Stores Syndicate v T N Khanna, AIR 1949 Cal
231 at p 233; United Bank of India Ltd v Nederlandsche Standard Bank, AIR 1962 Cal 325 at 330.
973 Ratilal M Parikh v Dalmia Cement & Paper Marketing Co Ltd, AIR 1943 Bom 229 ; Sha
Moolchand Kesarimull v Associated Agencies, (1941) 2 Mad LJ 281 : AIR 1942 Mad. 139 ; The
Athinoula, [1980] 2 Lloyd's Rep 481.
974 Robertson v French, (1803) 4 East 130 at 135 : [1803–13] All ER Rep 350 approved in
M.K.Abraham & Co v State of Kerala, (2009) 7 SCC 636 ; Glynn v Margeston, [1893] AC 351 at 357
(CA); Noorbhai Gulam Hussein Makali v M Allabux & Co, 42 IC 820 : AIR 1917 Bom 246 : (1917)
19 Bom LR 845 ; Sha Moolchand Kesarimull v Associated Agencies, (1941) 2 Mad LJ 281 : AIR
1942 Mad. 139 ; Riley v Coglan, [1967] 1 WLR 1300 at 1308 : [1968] 1 All ER 314 ; China Cotton
Exporters v Beharilal Ramcharan Cotton Mills Ltd, AIR 1961 SC 1295 : [1961] 3 SCR 845 ;
Gesselschaft Burgerlichen Rechts v Stockholms Rederiaktiebolog Svea (The Brabant), [1967] 1 QB
588 : [1966] 1 All ER 961 .
975 M.K.Abraham& Co v State of Kerala, (2009) 7 SCC 636 ;
976 Riley v Coglan, [1967] 1 WLR 1300 at 1308 : [1968] 1 All ER 314 ; China Cotton Exporters v
Beharilal Ramcharan Cotton Mills Ltd, AIR 1961 SC 1295 : [1961] 3 SCR 845 (manuscript prevails
over printed matter); but see Jacques v Lloyd D George & Partner Ltd, [1968] 1 WLR 625 (a
printed form containing an unreasonable clause cannot be enforced in the case of an estate
agent); but see Ram Tahal Modi v Ratan Lal, AIR 1989 Pat. 13 at 20 (since the case statutorily
prescribed form for rent receipt did not provide for incorporating any terms and conditions of
tenancy printing of a term on the inner foil of the rent receipt that rent was payable by fifth of the
next following month did not constitute a contract).
977 A "paramount clause" is a clause which incorporates the Hague Rules into the contract. Its
purpose is to give the Hague Rules contractual force; so that, although the bill of lading may
contain very wide exceptions, the Rules are paramount and override any express exemption or
condition inconsistent with it.
978 Nea Agrex SA v Baltic Shipping Co Ltd, [1976] 2 All ER 842 , applying Adamastos Shipping Co
Ltd v Anglo-Saxon Petroleum Co Ltd, [1959] AC 133 at 158 : [1958] 1 All ER 725 .
979 Cooperative Bank plc v Tipper, [1996] 4 All ER 366 ChD.
980 Super Poly Fabriks Ltd v CCE, (2008) 11 SCC 398 .
981 Sundaram Finance Ltd v State of Kerala, AIR 1966 SC 1178 at 1185; Ratan Chand Chordia v
Special Assistant Commercial Tax Officer, (1967) 1 Mad LJ 352.
982 State of Orissa v Titaghur Paper Mills Co Ltd, AIR 1985 SC 1293 (document a Will, and not a
gift deed); CIT Punjab v Panipat Woollen and General Mills Co Ltd, AIR 1976 SC 640 .
983 Employees State Insurance Corpn v Tata Engineering and Locomotive Co Ltd, AIR 1966 Pat.
445 (apprentice or workman).
984 CIT Punjab v Panipat Woollen and General Mills Co Ltd, AIR 1976 SC 640 .
985 Laiqram v Agar Das, AIR 1967 HP 29 .
986 Damodar Valley Corpn v State of Bihar, AIR 1961 SC 440 at 446; Suresh Kumar v Dignity
Motors Finance Ltd, AIR 2011 HP 123 (hire purchase agreement, or agreement of loan); Subodh
Lallubhai Bhansali v Pandarinath Moreshwar Dahanukar, AIR 2012 Bom 144 (agreement of sale or
or loan).
987 State of Orissa v Titaghur Paper Mills Co Ltd, AIR 1985 SC 1293 at 1346, 1347—overruling
State of Madhya Pradesh v Orient Paper Mills Ltd, AIR 1977 SC 687 .
988 KEM Mohamed Ibrahim Marcan v Perumal Padayachi, (1974) 1 Mad LJ 507 at 513.
989 Nanak Builders and Investors Pvt Ltd v Vinod Kumar Alag, AIR 1991 De1 315 at 318; relying
upon Nawab Major Sir Mohammad Akbar Khan v Attar Singh, AIR 1936 PC 171 ; CIT, Punjab v
Panipat Woollen and General Mills Co Ltd, AIR 1976 SC 640 .
990 Delta International Ltd v Shyam Sundar Ganeriwalla, (1999) 4 SCC 545 .
991 V Pechimuthu v Gowrammal, AIR 2001 SC 2446 : (2001) 7 SCC 617 ; Shanmugam Pillai v
Annalakshmi Ammal, AIR 1950 FC 38 .
992 Narinder Kumar Malik v Surinder Kumar Malik, AIR 2009 SCW 6561 : (2009) 8 SCC 743
(enforceability not disputed).
993 State Bank of India v Mula Sahakari Sakhar Karkhana Ltd, AIR 2007 SC 2361 : (2006) 6 SCC
293 .
994 Faqir Chand Gulati v Uppal Agencies Pvt Ltd, (2008) 10 SCC 345 .
995 United Breweries (Holding) Ltd v Karnataka State Industrial Investment, AIR 2012 Kant. 65 (a
mere recommendatory letter).
996 Associated British Ports v Ferryways NV, [2009] EWCA Civ 189 : (2008) Lloyds Rep 353 .
997 Assam Small Scale Industries Development Corpn. Ltd v J.D. Pharmaceuticals, (2005) 13
SCC 19 : (2005) 8 Scale 298 .
998 Ganga Saran v Firm Ram Charan Ram Gopal, [1952] 1 SCR 36 : AIR 1952 SC 9 .
999 Harnandrai Fulchand v Pragdas Budhsen, (1922) 50 IA 9 : AIR 1923 PC 541 .
1000 Navnit Lal& Co v Kishanchand & Co, AIR 1956 Bom 151 ; Harnandrai Fulchand v Pragdas
Budhsen, (1922) 50 IA 9 : AIR 1923 PC 54 ; Ganga Saran v Firm Ram Charan Ram Gopal, [1952] 1
SCR 36 : AIR 1952 SC 9 .
1001 Khardah& Co Ltd v Raymon & Co (India) Pvt Ltd, [1963] 3 SCR 183 : AIR 1962 SC 1810 ;
Virjee Daya & Co v Ramkrishana Rice & Oil Mills, AIR 1956 Mad. 110 approved; Thakkar Hemraj
Keshavji v Shah Haridas Jethabhai, [1964] 3 SCR 686 : AIR 1964 SC 1526 ; Modi Co v UOI, AIR
1969 SC 9 .
1002 Modi Co v UOI, AIR 1969 SC 9 ; Thakkar Hemraj Keshavji v Shah Haridas Jethabhai, [1964] 3
SCR 686 : AIR 1964 SC 1526 ; Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd,
[1959] AC 133 at 158 : [1958] 1 All ER 725 ; Dhanrajamal Gobindram v Shamji Kalidas & Co, [1961]
3 SCR 1020 at 1025 : AIR 1961 SC 1285 .
1003 Thakkar Hemraj Keshavji v Shah Haridas Jethabhai, [1964] 3 SCR 686 at pp 697–8 : AIR
1964 SC 1526 at 1530; Khardah& Co Ltd v Raymon & Co (India) Pvt Ltd, AIR 1962 SC 1810 ; relied
on [1963] 3 SCR 183 .
1004 Godhra Electricity Co Ltd v State of Gujarat, [1975] 2 SCR 42 : AIR 1975 SC 32 at 37–8 :
(1975) 1 SCC 199 .
1005 The Indian Evidence Act, 1872, section 91.
1006 Jamna Doss v Srinath Roy, (1889) 17 Cal 176 at 177; Ramgopal v Tulshi Ram, (1928) 51 All
79 : AIR 1928 All 641 ; Ghasilal v Deobai, AIR 1953 MB 303 .
1007 Tyagaraja Mudaliyar v Vedathanni, 59 Mad 446 : 38 Bom LR 373 : (1936) : AIR 1936 PC 70 .
1008 Arumoorthi Chettiar v Secondary Education Committee, AIR 1962 Mad. 360 .
1009 The Indian Evidence Act, 1872, section 92.
1010 Ibid.
1011 GM Cutts v TF Brown, (1880) 6 Cal 328 at 337.
1012 Heirs of Jatashankar Fulchand Mehta v Heirs of Mavji Trikam, AIR 1969 Guj 169 .
1013 AXA Sun Life Services Plc v Campbell Martin Ltd, [2011] EWCA Civ 133 .
1014 Bihar State Electricity Board v Green Rubber Industries, (1990) 1 SCC 731 .
1015 Central Inland Water Transport Corp Ltd v Brojo Nath Ganguly, (1986) II LLJ 171 SC; Indian
Oil Corp Ltd v Nilofer Siddiqui, (2015) 16 SCC 125 .
1016 Ibid.
1017 Pawan Alloys & Casting Pvt Ltd v U.P. SEB, (1997) 7 SCC 251 .
1018 Bihar State Electricity Board v Green Rubber Industries, (1990) 1 SCC 731 .
1019 Economic Transport Organization v Charan Spg. Mills Pvt Ltd, (2010) 4 SCC 114 .
1020 AIB Group (UK) plc v Martin, [2002] 1 All ER 353 : [2001] UKHL 63 .
1021 The 199th Report of the Law Commission of India, 2006, makes detail recommendations
about identifying and dealing with unfair contract terms.
1022 Road Transport Corpn v Kirloskar Brothers Ltd, AIR 1981 Bom 299 : (1981) 83 Bom LR 173
(condition behind a consignment note issued by a common carrier); Singhal Transport v Jesaram
Jamumal, AIR 1968 Raj. 89 .
1023 Section 3: above "Communication of Exemption Clauses and Other Special Conditions in
Printed Documents".
1024 Anson's Law of Contract, 29th Edn 2010, p 172.
1025 Canada Steamship Lines Ltd v R, [1952] AC 192 : [1952] 1 All ER 305 (PC); Lictor Anstalt v
Mir Steel UK Ltd, [2012] EWCA Civ 1397 .
1026 Atlantic Shipping and Trading Co Ltd v Louis Dreyfus & Co, [1922] All ER Rep. 559 : [1922] 2
AC 250 (HL); section 28 below: "Such Clauses may be Void Under this Act".
1027 Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd, [1983] 1 All ER 101 : [1983] 1 WLR 964 ;
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd, [1983] 2 AC 803 : [1983] 2 All ER737.
1028 Photo Production Ltd v Securicor Transport Ltd, [1980] AC 827 : [1980] 1 All ER 556 per
Lord Diplock at 565; see also Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd, [2005] 2 All ER
(Comm) 783 : [2004] EWHC 1502 (Comm).
1029 Delhi Development Authority v Jitender Pal Bhardwaj, (2010) 1 SC 146 .
1030 Anti-Corrosion Pte Ltd v Berger Paints Singapore Pte Ltd, [2011] SGCA 57 (Singapore Court
of Appeal), [2012] 1 Serv LR 427.
1031 Alison (J Gordon) Co Ltd v Wallsend Shipway and Engineering Co Ltd, (1927) 43 TLR 323
per Scrutton J at 324.
1032 Kendall (Henry)& Sons v Lillico (William) & Sons Ltd, [1969] 2 AC 31 : [1968] 2 All ER 444
(HL).
1033 Baldry v Marshall Ltd, [1925] 1 KB 260 : [1924] All ER Rep. 155 CA.
1034 Andrew Brothers (Borremouth) Ltd v Singer & Co Ltd, [1934] 1 KB 17 : [1933] All ER Rep 479
CA.
1035 Federal Chemical Works Ltd v Nutso (Nigeria) Ltd, AIR 2001 Del 25 .
1036
Kay Lim Construction & Trading Pte Ltd v Soon Douglas (Pte) Ltd, [2012] SGHC 186
(Singapore High Court), [2013] 1 Serv LR 1.
1037 Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd, [2013] EWCA Civ 38
.
1038 Insight Vacations Pty Ltd v Young, [2011] HCA 16 (High Court of Australia).
1039 Photo Production Ltd v Securicor Transport Ltd, [1980] AC 827 : [1980] 1 All ER 556 per
Lord Diplock at 567.
1040 See section 2(1).
1041 Canara Bank v Bhavani Oil Co, AIR 2004 Ker. 273 .
1042 Rutter v Palmer, [1922] 2 KB 87 (CA) : [1922] All ER Rep. 3671 .
1043 Smith v South Wales Switchgear Co Ltd, [1978] 1 WLR 165 : [1978] 1 All ER 18 per Viscount
Dilhorne at 22; Lamport & Holt Lines Ltd v Coubro& Scrutton (M&l) Ltd, [1982] 2 Lloyd's Rep 42.
1044 Harris Ltd v Continental Express Ltd, [1961] 1 Lloyd's Rep 251; John Carter (Fine Worsteds)
Ltd v Hanson Haulage (Leeds) Ltd, [1965] 2 QB 495 : [1965] 1 All ER 113 (CA).
1045 AE Farr Ltd v The Admiralty, [1953] 2 All ER 512 : [1953] 1 WLR 965 ; Lamport& Holt Lines
Ltd v Coubro & Scrutton (M&I) Ltd, [1982] 2 Lloyd's Rep 42.
1046 Joseph Travers & Sons Ltd v Cooper, [1915] 1 KB 73 : [1914–15] All ER Rep 104 ; Ashby v
Tolhurst, [1937] 2 KB 242 : [1937] 2 All ER 837 (CA); White v Blackmore, [1972] 2 QB 651 : [1972]
3 All ER 158 .
1047 Hall v Brooklands Auto-Racing Club, [1933] 1 KB 205 per Scrutton LJ at 419 : [1932] All ER
Rep 208 ; Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd, [1986] AC 80 per Lord Scarman at
p107 : [1985] 2 All ER 947 at 957.
1048 Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd, [2005] 2 All ER (Comm) 783 : [2004]
EWHC 1502 (Comm).
1049 HIH Casualty and General Insurance Ltd v Chase Manhattan Bank, [2003] 1 All ER (Comm)
349 : [2003] UKHL 6 .
1050 Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd, [1983] 1 All ER 101 : [1983] 1 WLR 964 .
1051 Karsales (Harrow) Ltd v Wallis, [1956] 1 WLR 936 : [1956] 2 All ER 866 .
1052 Photo Production Ltd v Securicor Transport Ltd, [1980] AC 827 : [1980]1 All ER 556 .
1053 BDW Trading Ltd (T/A Barratt North London) v JM Rowe (Investments) Ltd, [2011] EWCA Civ
548 .
1054 BV Nagaraju v Oriental Insurance Co Ltd, (1996) s4 SCC 647; following Skandia Insurance
Co Ltd v Kokilaben Chandrawadan, (1987) 2 SCC 654 : AIR 1987 SC 1184 .
1055 Bank of Credit and Commerce International SA v Ali, [2000] 3 All ER 51 (CA) affirmed [2001]
1 All ER 961 (HL).
The Indian Contract Act, 1872
CHAPTER II Of Contracts, Voidable Contracts and Void Agreements
S 10. What agreements are contracts—
All agreements are contracts if they are made by the free consent of parties competent
to contract, for a lawful consideration and with a lawful object, and are not hereby
expressly declared to be void.
Nothing herein contained shall affect any law in force in India, and not hereby expressly
repealed, by which any contract is required to be made in writing or in the presence of
witnesses, or any law relating to the registration of documents.
[s 10.1] Introduction
A contract is an agreement enforceable by law. In order to be enforceable, the
agreement must satisfy the requirements given in this section. The first paragraph
gives the requirements of substantial or essential validity, and the second paragraph
about the formalities.
The conditions of essential validity are:
(i) competent parties (sections 11, 12);
(ii) existence of consent of parties (section 13);
(iii) consent being free (sections 14–22);
(iv) existence of consideration (sections 2(d), 25);
(v) consideration and object being lawful (section 23); and
(vi) the agreement not being expressly declared to be void (sections 23–30).
The Contract Act does not affect provisions of any law prescribing formalities of
writing, attestation, and registration.
[s 10.2] Freedom of Contract
A contract is a consensual act and the parties are free to settle any terms as they
please.1. This freedom has been evident in the reluctance of the courts to strike down
contracts only on the ground of inequality of bargaining power, in the refusal to imply a
term into a contract because it would be reasonable to do so, or in the rules of
construction for giving effect to the express terms provided by the parties. This
freedom lies in choosing the party with whom to contract, in the freedom to fix the
terms of the contract, in excluding or limiting the liability for damages or limiting the
remedies available for the breach. The concept of freedom of contract has two
meanings. The first is the freedom of a party to enter into a contract on whatever terms
it may consider advantageous to its interests, or to choose not to. But it also refers to
the idea that as a general rule there should be no liability without consent embodied in
a valid contract.2.
This freedom is subject to certain exceptions. Statutes may prohibit refusing to enter
into certain contracts on the grounds of caste,3. race,4. or sex5. of a person. Bodies
providing services of public utility like water or electricity cannot refuse supply of these
services,6. or discriminate or show undue preference to any person.7. Entering into an
association with others for forming a co-operative society and subscribing to its bye
laws are matters voluntarily undertaken by a citizen. His rights merge in the rights of
the society and are controlled by the Act, Rules and Bye laws. Just as a stream cannot
rise higher than the source, the member cannot seek to get out of his obligation by
resort to the principle of public policy based on constitutional protections given to an
individual against State action.8. The Government may control sale of certain
commodities by regulating their supply, distribution, price as well as production.9.
A statute may also compel a person to enter into a contract. A person who owns a
motor vehicle for the purposes of plying on a public road must have an insurance policy
to cover certain third party risks, whether he wishes to so insure or not.10.
A person wanting to enter into a contract may always be totally free to determine the
terms. The freedom may be restricted because one party, usually a consumer, is unable
to negotiate or seek variation in the "standard form" of contract offered by the other
party, and is forced to contract on terms which he may not have liked to, if he had the
choice. A number of contractual relationships, namely, in the areas of consumer
protection, employment, landlord and tenant, hire purchase, building and construction
of ownership flats11., etc. may be regulated by statutes, which may restrict terms,12.
impose or imply terms,13. some of which terms a party cannot contract out of.14.
Statutory provisions may also override the terms of an agreement or contract.15. The
voluntary aspect of the contract appears in the choice available to one party whether to
enter into a contract or not, and if so, with whom, and in respect of certain terms which
under the statute can be avoided by providing to the contrary. Once the relationship
forms, the obligations flow from the statute.
There may be other indirect techniques of regulating contracts. Laws requiring the
carrying on of certain businesses or profession, subject to licences or authorisations
affect the freedom of contract. Laws relating to prevention of monopolistic and
restrictive trade practices also affect contracts. These can be seen either as an
intervention in the market, thereby restricting the freedom of contract; or as
mechanisms to ensure proper functioning of the market, and therefore promoting the
principle of freedom of contract,16. or for preventing deception of the public.17.
Where the parties do not enjoy freedom in the making of the contract, can the
relationship be described as a contract at all? In Vishnu Agencies (Pvt) Ltd v
Commercial Tax Officer,18. a question arose whether cement sold to various allottees
under orders passed under the Cement Control Act of West Bengal was a sale. It was
stated:19.
Although the terms of the contract...are predetermined by law, it cannot be said that there is
no area at all in which there is no scope for the parties to bargain... The circumstance that in
these areas, though minimal, the parties to the transactions have the freedom to bargain,
militates against the view that the transactions are not consensual...It is not obligatory on a
trader to deal in cement nor on anyone to acquire it...the decision of the trader to deal in an
essential commodity is volitional...The consumer too, who is under no legal compulsion to
acquire or possess cement, decides as a matter of his volition to obtain it on the terms of
the permit or the order of allotment issued in his favour...Thus though both parties are
bound to comply with the legal requirements governing the transaction, they agree as
between themselves to enter into transaction on statutory terms... It is therefore not correct
to say that the transactions between the appellant and the allottees are not consensual.
They, with their free consent, agreed to enter into the transaction.
So long as the parties trade under controls at fixed price and accept these as any other
law of the realm because they must, the contract is at a fixed price, both sides having,
or deemed to have agreed, to such price. It is no less a contract because it lacks
volition, or is made under compulsion. An agreement which is made under the
requirement of law is a contract within section 10.20. Although a permit-holder for a
stage carriage, by reason of a condition in the permit, is under an obligation to carry for
remuneration mails when called upon to do so by the postal authorities, the agreement
is still a contract.21.
The legal consequence of a concluded contract will remain irrespective of how a
particular party in a given situation might abuse the rights flowing from it. The
possibility of abuse of a right cannot determine whether the right exists as a matter of
law.22.
[s 10.3] Requirements for Enforceability
[s 10.3.1] Parties
A valid contract may be made by natural persons, and by any other persons who have a
legal personality, namely, corporations, companies, universities, statutory corporations,
Governments (the Union of India or the State), and foreign states. Some bodies cannot
contract except through their constituents, namely, partnership firms, trusts, clubs, and
registered societies. Some persons may be incompetent to contract, namely minors,
persons of unsound mind,23. etc.; the contractual capacity of others like corporations,
companies or Governments may be restricted in extent or as to manner.
A contract implies two parties.24. A contract can only be bilateral.25. If one of the two
parties was a non existent party when the contract was made (the company being
incorporated after conclusion of the agreement), there is no contract in the eye of
law.26. S. 5 of the Transfer of Property Act, 1882 envisages transfer of property by a
person to "one or more living persons or to himself, or to himself and one or more other
living persons". Therefore, a transfer of property between a person with himself and
others is valid27.
It is necessary and sufficient that the identity of the parties be ascertainable.28.
A question may arise whether a person enters into a contract on his own behalf or on
behalf of some one else.29. A person may contract for himself or on behalf of another.
If he contracts on behalf of another, the capacity of that other is relevant.
[s 10.3.2] Consent
From the language used in the sections 10, 13 and 14, it can be concluded, first, that in
order to constitute a contract, both the parties must consent to the agreement,30. and
secondly, even if both the parties have consented to the agreement, consent of one of
them may not be said to be free if the same had been obtained by coercion, undue
influence, etc. The distinction between the total lack of consent and a tainted consent
is real. It is only in those cases in which a tainted consent has been obtained or
procured from one of the parties that a contract at his instance shall be held to be
voidable and may be set aside.31.
[s 10.3.3] Lawful Consideration and Object
The consideration and object of the contract must be lawful. Consideration has been
defined in section 2(d) of the Contract Act as an act, forbearance or promise done or
given at the desire of the promisor. Consideration must be real and of some value in
the eyes of law. It need not be adequate. Section 23 states that consideration or object
is not lawful if it is prohibited by law, or it is such as would defeat the provisions of law,
for instance, if it is fraudulent or involves injury to the person or property of another, or
the court regards it as immoral and opposed to public policy. Section 25 states that an
agreement without consideration is void, unless it falls within the three exceptions
given in that section. A gift validly made, cannot be challenged on the ground of lack of
consideration. Consideration is the doctrine designed to establish which promises
should be legally enforceable.32.
[s 10.3.4] Not Expressly Declared Void
If the agreement is declared void by the Contract Act (sections 23–30) or by any other
law, it is not enforceable.
[s 10.4] Formalities
The Contract Act provides that a contract is concluded in the manner set out in
sections 2 to 10 of the Act, and does not require any writing or form. Formal
requirements may be prescribed for special or particular contracts by statute. The
function of the provisions of law specifying formal requirements is first, to provide clear
evidence of the conclusion of contract and its contents and terms, and exclude the
testimony of witnesses for the purpose;33. secondly, to enable persons with an
opportunity of giving thoughtful consideration to the transaction, to urge them to take
benefit of legal advice, and to protect them from surprise, and thereby discourage hasty
and ill-considered contracts; thirdly, to confirm the seriousness of intention; fourthly, to
help make a demarcation between a finalised transaction and the negotiations
preceding it. Formal requirements, especially when they require that an agreement
must be in a form prescribed for the purpose, are a device to protect the weaker party
to the contract.
The formalities required by different statutes may vary. Statutes may require an
instrument, general writing, note or memorandum. Some statutes may specify even the
size of lettering and colour of print and paper.34.
Non-observance of formalities may produce various effects under the statutes. It may
make the agreement unenforceable. It may preclude the document from being used as
evidence of the transaction,35. allowing its use for collateral purposes. Sometimes,
failure to comply with the formal requirements may also be a criminal offence.36.
The requirements of formalities in the second paragraph must be read with the first
paragraph of the section which prescribes conditions of enforceability. It is therefore
submitted, that unless the statute prescribing the formalities specifically provides a
specific effect for non-compliance, an agreement should not be enforceable unless the
formality is complied with.
Where any law prescribes formalities, those should be complied with for creating a
contract capable of attaching liability. A party acting upon a contract, which the law
requires to be executed in a particular manner or form and not so executed, cannot sue
for breach of such contract. If not so executed, the Court cannot look at the terms of
the contract even to determine the nature of the transaction.37. However, if the
provisions of the special law are not mandatory, the contract does not become
unenforceable if not executed according to its provisions.38.
[s 10.4.1] Oral and Written Contract
[s 10.4.1.1] Oral Contract
An oral contract by which itself the parties intend to be bound is valid and
enforceable,39. unless required by any other law to be in writing; but, oral agreements
require clear and satisfactory evidence about formation and contents.40. Where a party
seeks to enforce an oral agreement, heavy burden of proof lies on such party to prove
that a contract is concluded and the terms of the contract were meant to be given
effect to.41. In the absence of any law requiring an agreement of sale to be in writing or
to be made in the presence of witnesses or to be registered, an oral agreement to sell is
valid under section 10; a written agreement signed by one of the parties, evidencing an
oral agreement will also be valid if the intention was that the agreement would be
complete on the vendor's execution.42.
[s 10.4.1.2] Contract in Writing
A written contract may be a single document, each party being bound by signing it. The
parties may have two copies of the document, each party signing one copy and
exchanging the signed copy. A party may send a written document as an offer to be
signed by the other party by way of acceptance. One party making an offer by letter and
the other by accepting it may conclude a contract. The contract may likewise be
formed by applying for membership of an association, or by recording the minutes of
agreement after discussion. A statute may prescribe that the contract may be made
simply in writing, an "instrument",43. or may be derived from exchange of letters,44. or
emails.45. A written document may be handwritten in any language, or may be printed
or made in any mechanical equivalent of handwriting. Documents in electronic form
are treated as equivalent of writing.46. Electronic form includes information generated,
sent, received or stored in media, magnetic, optical, computer memory, micro film,
computer generated microfiche or similar device.
The court may go behind the document and look at the substance of the transaction to
determine the nature or type of contract for ascertaining the formalities required. The
title, description or form are not decisive of its nature.47.
[s 10.4.2] Contracts Required in Writing
The following Acts require contracts to be in writing:
(i) The Apprentices Act, 1961, section 4;
(ii) The Arbitration and Conciliation Act, 1996, section 7: arbitration agreements;
(iii) The Cine-Workers and Cinema Theatres Workers (Regulation of Employment)
Act, 1981, section 3;
(iv) The Indian Contract Act, 1872, section 25(1): agreement without consideration
between near relations; section 25(3): promise to pay a time-barred debt;
section 28, Exception 2: agreement to refer to arbitration;
(v) The Companies Act, 2013, section 7 memorandum of Association & Articles of
Association; section 9 form of contracts by companies; section 56 (transfer of
shares and debentures of a company);
(vi) The Copyright Act, 1957, section 19: assignment of copyright, section 30A:
license of copyright;
(vii) The Designs Act, 2000, section 30(3): assignment, mortgage, licence or
creation of any interest in a design
(vii) The Income Tax Act, 1961, section 269UC: any transaction for transfer of
immovable property having such value of more than 5 lakhs as may be
prescribed shall be by an agreement reduced in writing;
(viii) The Limitation Act, 1963, section 18: acknowledgment to pay a debt (not
strictly a contract);
(ix) The Patents Act, 1970, section 68: assignment, mortgage, licence, etc, of
patent;
(x) The Trade Marks Act, 1999, sections 38–39 read with section 2(b): assignment
of a registered or unregistered trade mark;
(xi) The Transfer of Property Act, 1882, section 54: sale of immovable property;
section 59: mortgage; section 107: lease; section 123: gift; section 130:
assignment of actionable claim;
(xii) The Indian Trusts Act, 1882, section 5: trust of immovable property (these are
not strictly contracts).
[s 10.4.3] Signature
It is not necessary for the existence of a written agreement that parties should put their
signatures to the document embodying the terms of the agreement.48. However,
statutory provisions requiring signature must be complied with, else there is no
contract.49.
A contract in writing does not require signature of both the parties. A bond signed by
one party and delivered to the other and accepted by him completes the agreement.50.
A contract for sale of land signed by the vendor, but not by the purchaser, can be
enforced.51. If it is definitely ascertained that a party who has signed an instrument
intended to be bound by it as a concluded contract, the fact that his signature is not at
the end of the document as usual but at some other place on the document will not
render the execution ineffective.52. A signature does not necessarily mean writing a
person's Christian name and surname, but any mark which identifies it as the act of the
party. In order to render a document operative, the signature should be accompanied by
an intention to do so.53. But where a person has signed a document, which is intended
to affect legal relations, and there is no question of misrepresentation, duress, mistake,
or any other vitiating element, the fact that the person has signed the document
without reading it does not put the other party in the position of having to show that
due notice was given of its terms.54. Although notarisation is not essential for validity
of any contract, it can enable a court to assume that the instrument is genuine.55.
Some States have prescribed procedures for notarisation, viz., numbering in serial
order and entry in notarial register, which must be fulfilled.56.
When a document is required to be executed, it involves not mere signing, but all acts
necessary to make the parties to the contract bound thereby. It has been held that
where the mortgagors signed the contract but never put it into possession of any other
person, there was no execution.57.
A subscriber of a digital signature58. or electronic signature59. can authenticate
electronic record by using the digital signature or electronic signature.60.
[s 10.4.4] Attestation by Witnesses
Statutes may provide that a contract be executed in the presence of a certain number
of witnesses, and the manner in which it is to be so signed by the executant and the
witnesses. It is a mandatory requirement of the Karnataka Registration Rules that an
executant mentions and describes the interlineation, erasure, alteration etc. at the foot
of the document and duly signs the same prior to registration. The insertion made to
convert the absolute sale deed into a conditional sale deed subsequent to the
execution of the document, without noting and signing against the interlineations
renders the addition void.61. Section 3 of the Transfer of Property Act, 1882 prescribes
that when a document is required to be attested under that Act, such a document must
be signed by the executant in the presence of the witness(es), or the witness(es) must
have received an acknowledgment from the executant about his signature. It is not
necessary that the witnesses should have signed in the presence of each other.
Some contracts that require execution in the presence of witnesses by law are, the
Transfer of Property Act, 1882, section 59 (mortgage, except one by deposit of title
deeds); section 123 (gift of immovable property).
[s 10.4.5] Registration
[s 10.4.5.1] The Registration Act, 1908
The obligation to register a document is given by the provisions of the substantive law,
namely, the Transfer of Property Act, 1882 while the Registration Act, 1908 provides the
machinery for registering those documents.62. If such a document is not registered, the
transfer is void,63. there is no transfer and the property described in the instrument
does not pass,64. for example, a mortgage does not become complete and enforceable
until it is registered.
The Registration Act, 1908 provides that any written instrument of the type specified in
section 17 of the Registration Act, 1908 must, and other instruments may be, registered
under the Registration Act, 1908.
If a document required by section 17 of the Registration Act, 1908 is not registered,
neither shall it affect any immovable property, nor shall it be received as evidence of
the transaction affecting such property.65. The arbitration clause in such an instrument
is separable from the main documents as an agreement independent of the rest of the
document, unless it is shown that the arbitration clause is also void and
unenforceable.66. Under proviso to section 49, Registration Act, it can be received in
evidence to show existence of a contract in a suit for specific performance or as
evidence of any collateral transaction not required to be effected by registered
instrument. Courts have relied on documents in terms of proviso to section 49 in cases
where specific performance is sought,67. or for grant of injunction.68.
Such a document cannot be received as evidence of the transaction, but it can be
admitted in evidence for other purposes. It can be used to show factum of the
transaction, but not the content.69. It cannot be used to prove an important term.70. A
document not so registered has been held to be admissible for other collateral
purposes,71. namely, to prove the fact of possession,72. to show that the transferee is
in possession,73. the date when the possession of the transferee began,74. the date of
termination of possession,75. the nature of possession,76. as evidence of collateral
transaction,77. to show payment of earnest money,78. as an acknowledgment of
liability,79. or to show the state of mind of an executant who alleges undue influence or
fraud.80.
In a suit for recovery of rent, when reliance is placed on an unregistered lease deed, in
respect of the terms of lease and the rate of rent agreed between the parties, the
contention that the document was relied on merely for establishing collateral
transaction was not accepted.81. An arbitration clause in a contract is a collateral term
relating to resolution of disputes, unrelated to the performance of the contract and
therefore if the main contract is a document affecting immovable property, the
challenge to it as being unregistered, will not affect the arbitration clause.82.
[s 10.4.5.2] Other Laws Requiring Registration
Other statutes may require registration of agreements with authorities implementing
the statute, and may also state the effect of non-registration, which may include
rendering the transaction ineffective or invalid, or also in some cases, punishable.
Registration is compulsory under some; it may also be optional, conferring the benefit
of presumption of validity after registration.
Transactions requiring such registration are:
(i) employment agreements under the Cine Workers and Cinema Theatre Workers
(Regulation of Employment) Act, 1981, section 3;
(ii) agreement under the Apprentices Act, 1961, section 4.
(iii) assignment, mortgage, licence etc of design under the Designs Act, 2000,
section 30(3)
Registration is optional under the Trade Marks Act, 1999. Registration of a trademark is
prima facie evidence of validity of the trade mark83. and the registered owner is entitled
to obtain relief in respect of infringement of the trade mark.84. The registered owner is
also entitled to file the suit in a court within whose jurisdiction the plaintiff carries on
business. Registration of assignment or licence under the Copyright Act, 1957 is
optional, and if registered, gets the benefit of presumption under section 48 of that Act.
Registration of assignment, transmission, mortgage or licence of a patent is not
compulsory; however, a suit for infringement cannot be filed, nor can the patent be
assigned or licenced by the assignee without registration.85.
[s 10.4.6] Payment of Stamp Duty
An instrument not duly stamped86. is incapable of being used as evidence until it is
stamped properly.87. A plaint cannot, however, be rejected merely because the
instrument on which suit is based is not duly stamped.88. If a document is not properly
stamped, the court can act on it only after deficit duty and penalty are paid and the
defect is cured.89.
[s 10.4.7] Agreements in Prescribed Forms
If a statute requires an agreement to be in a form, or according to a prescribed form,90.
it is sufficient compliance if the agreement is substantially in that form and a minor
variation does not amount to a violation or non-compliance of the statute,91. unless the
terms in the form are mandatory.92. If there be any discrepancy between the contract
and the prescribed form, it may affect the valid formation of a contract.93. Statutes may
also prescribe the contents of agreements and contracts. There cannot be a contract
except in the manner prescribed in the statute.94.
[s 10.4.8] Article 299 of the Constitution of India
Article 299 of the Constitution of India requires that all contracts made in the exercise
of the executive power of the Union or of a State must be executed by a person duly
authorised by the President or Governor, as the case may be, on behalf of the President
or Governor, and expressed to be made by the President, or by the Governor.95. There
can be no implied contract between the Government and another person because that
would nullify the provisions of Article 299(1)96. and, therefore, no contract can be
inferred from the facts and circumstances of the case, and a contract not complying
with the provisions of Article 299(1) is not a contract at all and is not enforceable
against or by the Government.97. A contract may validly be made as much by a formal
written document as by an informal document, by correspondence, by an offer and
acceptance in writing, provided the conditions of Article 299 are satisfied.98. A lawful
agreement of lease is a contract. When such contract was not made in accordance
with Article 299 of the Constitution of India, it was not a valid or binding document.99.
[s 10.5] Effect of Validity
Once the contract is concluded, its terms cannot be changed according to the will of
one party.100. A true contract requires the agreement of parties freely made with full
knowledge and without any feeling of restraint. A party cannot compel the state to have
certain conditions which will be advantageous to him for the contract. Thus, a
condition that cash deposit of 50% of the bid amount before contract must be given,
could not be challenged in a writ petition on the ground that only moneyed people
could take part in the auction.101. A contract for collection of tehbazari entered into
with the free consent of parties—the contractor and the municipality—competent to
contract for a lawful purpose and lawful consideration and not being void under any
law would be a contract within section 10.102. A licence (an electricity licence in this
case), which gives an option of purchase is a contract, and does not involve
compulsory acquisition within the meaning of Article 31 of the Constitution.103. The
administrative rules framed by the education board are binding on the students when
they agree to take up examination in accordance with those rules.104.
The subsequent waiver by a party of any of his rights is not relevant to the question
whether a binding contract was concluded between the parties on the day on which it
is alleged to have been entered into.105.
When a contract is invalid, every part of it including an arbitration clause, is invalid and
perishes with it.106. The position under the Arbitration and Conciliation Act, 1996 is
different. Section 16 of the Act warrants that the Arbitral Tribunal will decide on
objections with regard to existence or validity of the arbitration agreement and for such
purpose the arbitration clause in a contract, will be considered to be an independent
agreement.
[s 10.6] Evidence
The Act does not deal with the kind of proof required to establish the facts constituting
a contract. The making of the contract, or its terms may be proved like any other fact,
i.e., by oral or documentary evidence. However, when the terms of a contract, grant or
other disposition of property have been reduced to the form of a document, or any
matter required by law to be in the form of a document, no evidence shall be given of
the terms of such contract, grant or disposition of property or of such matter, except
the document itself, or secondary evidence of its contents in cases in which secondary
evidence would be admissible.107. Further, no evidence of any oral agreement or
statement shall be admitted, as between the parties to any such instrument or their
representatives in interest, for the purpose of contradicting, varying, adding to or
subtracting from its terms.108. However,109. oral evidence may be given of facts which
would invalidate the document or prove fraud, intimidation, illegality, failure of
consideration, mistake of fact or law; or of a separate oral agreement as to any matter
on which the document is silent, or which constitutes a condition precedent to the
attaching of any obligation under the document. In spite of the fact that an agreement
is embodied in a document, if the parties could show even by oral evidence that when
the document was signed, they intended that it should not operate as an agreement,
then there is no contract at all.110. The burden of proof lies upon the party who alleges
that the contract was not intended to be acted upon.111.
Oral evidence can also be given to prove any subsequent oral agreement to modify or
rescind a contract, unless such a contract is required by law to be in writing or
registered. According to established commercial usage, if there is a variation between
bought and sold notes, there is no binding contract and if the bye-laws make it
obligatory on the parties to have a contract in writing, no evidence may be led apart
from the bought and sold notes to prove the terms of a contract.112.
[s 10.7] Incomplete Agreements
Although the parties may have reached "an agreement" by the process of offer and
acceptance, the contract may not be concluded because the terms are uncertain113. or
the parties have left some points unresolved, or they contemplate another future
agreement between them. Unless all the material terms of the contract are agreed,
there is no binding obligation.114. An agreement to agree in the future is not a contract;
nor is there a contract if a material term is neither settled nor implied by law and the
document contains no machinery for ascertaining it.115. The court will put a fair
construction on the express terms and their conduct, and try to make "certain" the
terms of the bargain. It may have regard to the express terms, the conduct of parties,
the context in which the parties have expressed the terms, the relative importance of
the unsettled matter and whether the parties have provided machinery for settling it.
Whereas, on the one hand, the law is anxious to uphold bargains, on the other hand, the
court should not impose a new contract upon the parties. Even where the court decides
that there is no contract, liability for payment for benefits received or work done may
arise under the principle of quantum meruit,116. or in tort, e.g., for misrepresentation.
If the parties have not resolved all the terms or matters, a question may arise whether
the agreement is complete. After lengthy negotiations and agreement on certain
points, differences may arise, and one party may assert that a contract has been made,
and the other may insist that matters have not travelled beyond the stage of discussion
or negotiation. The court may hold the parties to the contract, if the correspondence
shows that an agreement was reached at any moment of its course. If the
correspondence shows that the parties have definitely come to terms, even though
certain material points are left open, subsequent negotiations would not affect the
contract. However, if there are some terms still in the stage of negotiations and the
parties do not intend to conclude a contract without settling them, there would be no
contract.117. If the negotiations fail, a concluded contract does not emerge.118. Law
does not recognise a contract to enter into a contract.119. It is a question of
construction whether the execution of the further contract is a condition or a term of
the bargain or it is a mere expression of the desire of the parties as to the manner in
which the transaction already agreed to will go through.120. When an agreement is
entered into subject to ratification by third parties, a concluded contract is not arrived
at.121.
[s 10.7.1] Reference to Further Agreement
Where the parties have agreed on material terms, but contemplate executing further
contract; it is a question of construction whether the execution of the further contract
is a condition or term of the bargain, or it is a mere expression of the desire of the
parties as to the manner in which the transaction already agreed will go through.122.
[s 10.7.2] Letters of Intent
During negotiations, parties may reach "points of agreement", record the terms already
agreed in the form of a "memorandum of understanding", or may exchange "letters of
intent"123. or "letters of comfort".124. By doing so, they do contemplate that a formal
document would be drawn up later. If such letter or document expressly negatives
contractual intention, there would be no contract. However, if the language of the
document does not indicate so, the courts might hold the parties bound to the
document. A letter of intent merely indicates a party's intention to enter into a contract
with the other party in future. A letter of intent may be construed as a letter of
acceptance if such intention is evident from its terms. The question whether the letter
of intent is merely an expression of an intention to place an order in future or whether it
is final acceptance of the offer thereby leading to a contract, is a matter to be decided
with reference to the terms of the letter.125. The question whether a binding contract
has been concluded, is a matter of interpretation for the court, and depends on the
facts of each case.126. In construing whether a particular agreement does or does not
amount to a contract, the court would look for the intention of the parties, the nature of
the transaction, the language employed in the informal agreement and other relevant
circumstances. None of these is conclusive in itself. Parties may have commenced
performance on the basis of the informal agreement pending the execution of the
formal contract. In such cases, if the formal contract is executed, the court may imply a
term that the formal contract would have retrospective effect from point of the informal
agreement.127. The fact that parties contemplate that the letters or an informal
agreement would be superseded by a more formal one, does not prevent it from taking
effect as a contract.128. If the letter of intent is acted upon,129. especially for a length
of time, the court is likely to hold the parties bound to the contract.
While holding that that the letter of intent merely expressed an intention to enter into a
contract subject to certain conditions and hence there was no binding legal
relationship between the parties, the question whether a party who incurred expenses
in anticipation of entering into a contract could recover them from the other party if the
other party rightly declined to enter into a contract, was left open by the Supreme
Court.130.
If no formal contract is executed, liability may still arise for work done or goods
delivered under the principle of quantum meruit.131. Where the contractor commenced
preparatory work for a contract after the issue of letter of intent on condition for
payment for such work, the court construed an ancillary contract for the preliminary
work.132.
[s 10.7.3] Agreement to Negotiate
An agreement to negotiate is not a contract because it is too uncertain to have any
binding force. No obligations attach to such an agreement, nor is there any obligation
to use best endeavours to reach agreement.
Whether a concluded contract has been made or not, is a question of fact to be
determined in each case by considering all relevant circumstances and facts and does
not depend on the parties' or solicitors' description of the situation either as a contract
or as negotiation.133. Thus, a document titled "Basis of Negotiation" was held
enforceable for enabling return of amount paid according to its terms, but not for
enforcing compensation for breach of the contract which was being negotiated.134. But
so long as one of the parties to the transaction could back out of it at his choice, there
can be no binding or concluded contract between the parties, although they have an
agreement on the material terms.135.
An agreement to negotiate in good faith is not enforceable.136. In Courtney and
Fairbairn v Tolaini Brothers (Hotels) Ltd,137. C agreed with T to introduce a financier who
would finance the proposed project of T on condition that the building contract would
be given to C. The parties could not agree on the price of construction and the contract
fell through. T employed other contractors to do the work and C claimed that T was in
breach of the contract in employing others. It was held that T agreeing to give the
building contract to C, under conditions mentioned above, did not give rise to an
enforceable contract and a contract to negotiate, even though supported by
consideration, was not a contract known to the law since it was too uncertain to have
any binding force.138. However, the Singapore Court of Appeal has held that an express
agreement that they shall negotiate in good faith is not against public policy, and can
be upheld.
The court will not imply a term that parties must negotiate in good faith, because such
a term is too uncertain to enforce;139. other reasons being:
… it is difficult (if not impossible) to say whether a termination of negotiations is in good
faith or bad; … that since it can never be known whether good faith negotiations would have
produced an agreement at all, or what terms would have been agreed if one was reached, it
is impossible to assess loss….140.
A negotiating party is entitled to advance his own interests during negotiations. It has
been suggested that if the parties have reached agreement on essential points, but
have left others open, and they intend to be legally bound by the agreement, the court
may imply a term that they must negotiate in good faith to settle the outstanding
details.141.
[s 10.7.4] Lock-out Agreements
A lock-out agreement, whereby one party for good consideration agrees, for a specified
period of time, not to negotiate with anyone except the other party in relation to the
sale of his property, is an enforceable agreement. However, an agreement to negotiate
in good faith for an unspecified period was not enforceable and nor could a term to
that effect be implied in a lock-out agreement for an unspecified period, since the
vendor was not obliged under such an agreement to conclude a contract with the
purchaser, as he would not know when he was entitled to withdraw from the
negotiations. Also, in Walford v Miles,142. it was held the High Court could not be
expected to decide whether, subjectively, a proper reason existed for the termination of
negotiations.143.
In a later case, a vendor's promise not to negotiate with third parties for two weeks was
held to be sufficiently certain, since the purchaser had provided consideration for it by
promising in turn to complete the transaction within that time.144.
[s 10.7.5] Marriage Agreements
An agreement between a man and a woman to marry, both being sui juris, is a contract,
the promise of the one being the consideration for the promise of the other, but not an
agreement between the parents of a minor boy and a minor girl, for their marriage.145.
A betrothal is in the nature of a contract to which the Contract Act has been
applied.146.
[s 10.7.6] Settlement, Compromises in Court Proceedings
An agreement or compromise which is void or voidable under the Contract Act shall not
be deemed to be a lawful compromise in terms of the Explanation to O XXIII R 3 CPC. A
compromise decree is a creature of an agreement, on which it is based, and is subject
to all incidents of such agreement. It is a contract with the command of the judge
added to it. In construing its provisions, the principles governing the construction of
contracts are applicable.147. Where there was no evidence to suggest that the
compromise was entered into under coercion, the compromise could not be
questioned.148.
[s 10.7.7] Doctrine of Promissory Estoppel
The principle of promissory estoppel has been stated in India thus:
Where one party has by his words or conduct made to the other a clear and unequivocal
promise, which is intended to create legal relations or affect a legal relationship to arise in
the future, knowing or intending that it would be acted upon by the other party to whom the
promise is made and it is in fact so acted upon by the other party, the promise would be
binding on the party making it and he would not be entitled to go back upon it, if it would be
inequitable to allow him to do so having regard to the dealings which have taken place
between the parties, and this would be so irrespective of whether there is any pre-existing
relationship between the parties or not.149.
The foundation of the doctrine of promissory estoppel is that an unconscionable
departure by one party from the subject-matter of an assumption which may be of fact
or law, present or future, and which has been adopted by the other party as the basis of
some course of conduct, act or omission, should not be allowed to pass muster.150.
For the applicability of promissory estoppel, a contract in writing between the parties, is
not necessary.151. The doctrine of promissory estoppel is neither in the realm of
contract nor in the realm of estoppel. It represents a principle evolved by equity to avoid
injustice. The basis of this doctrine is the interposition of equity which has always, true
to its form, stepped in to mitigate the rigour of strict law.152.
Long before the doctrine of promissory estoppel was formulated, the Calcutta High
Court recognised that the doctrine of estoppel was not confined only to the law of
evidence, but that a person may be estopped from doing acts or relying on particular
arguments or contention.153. In a later case, the Bombay High Court enabled the
municipality to resist the claim of the Secretary of State to be ejected from the ground
which the municipality had leveled, and erected movable stables, in the belief that they
had an absolute right not to be turned out unless other suitable ground was furnished,
a belief which was referable to an expectation created by the Government which the
Government knew that the municipality would act upon.154. Much later, the Supreme
Court applied the principle (with one judge actually using the term "promissory
estoppel") to preclude the Government from assessing land revenue in relation to a
market site, when it had earlier resolved not to charge any rent on markets for "markets
would be like other public buildings".155.
But it was in UOI v Anglo Afghan Agencies156. that the doctrine of promissory estoppel
"found its most eloquent exposition".157. In this case, the writ-petitioner had relied on
the export promotion scheme issued by the Central Government and exported woollen
goods, and then claimed the import entitlement certificate for the full value under the
scheme. The petitioner based its claim on reliance, and the Government pleaded
executive necessity. The Supreme Court negatived the defence of executive necessity,
and pointed out that it did not release the Government from its obligation to honour the
promise made by it, if the citizen, acting in reliance on the promise, had altered his
position, and that too, notwithstanding that the promise was not recorded in the form
required by Article 299 of the Constitution.
Later, in Century Spinning and Manufacturing Co. Ltd v Ulhasnagar Municipal Council,158.
the doctrine was applied to enforce a promise of exemption from payment of octroi
duty given by a municipal corporation. The court drew the distinction between
representation of the existing fact and representation that something would be done in
future was spelt out and it was observed:
A representation that something will be done in the future may result in a contract if another
person to whom it is addressed acts upon it. A representation that something will be done
in future is not a representation that it is true when made...If the representation is acted
upon by another person it may, unless the statute governing the person making the
representation provides otherwise, result in an agreement enforceable at law...
Ultimately, in Motilal Padampat Sugar Mills Co Ltd v State of Uttar Pradesh,159. the
Supreme Court dealt with the doctrine of promissory estoppel at great length and held
that it did afford a cause of action. In this case, the Government of Uttar Pradesh
declared a scheme exempting all new industrial units from sales tax for three years in
the newspaper. The appellant sugar company got the representation confirmed from
the Secretary, Industries Department, the Director of Industries, and the Chief Secretary,
stating that in view of the sales tax exemption announced by the Government, it
intended to set up a hydrogenation plant for vanaspati. It was held that the categorical
representation contained in the letters on behalf of the Government of Uttar Pradesh,
on the basis of which the appellant borrowed money from financial institutions and set
up a plant, invoked the doctrine of promissory estoppel and the Government was bound
to carry out the representation and exempt the appellant from the payment of sales tax
in respect of manufactured goods for a period of three years. The Supreme Court has
observed that the doctrine of promissory estoppel is a principle evolved by equity to
avoid injustice, and though commonly named "promissory estoppel", it is neither in the
realm of contract nor in the realm of estoppel, but it is a doctrine evolved by equity in
order to prevent injustice where promise is made by a person knowing that it would be
acted upon by the person to whom it is made and in fact it is so acted upon and it is
inequitable to allow the party making the promise to go back upon it, The decision in
Motilal Padampat Sugar Mills case has been affirmed by the Supreme Court in later
cases.160.
Whenever any action is taken in performance of a contract, it must conform to the law
in force at the time when action is taken. Doctrine of promissory estoppel is not
available when any action is desired to be taken in contravention of the provisions of
law.161.
[s 10.7.8] Promissory Estoppel as a Cause of Action
The earlier view was that promisorry estoppel does not create any cause of action
which did not exist before so that, where promise is made which is not supported by
any consideration, the promisee cannot bring an action on the basis of that
promise.162. However, the Supreme Court of India in the Motilal Padampat Sugar Mills'
case held that,it is true that to allow promissory estoppel to found a cause of action
would seriously dilute the principle which requires consideration to support a
contractual obligation, but that is no reason why this new principle, which is a child of
equity brought into the world with a view to promoting honesty and good faith and
bringing law closer to justice, should be held in fetters and not allowed to operate in all
its activist magnitude, so that it may fulfil the purpose for which it was conceived and
born.163. It has been held that promissory estoppel need not necessarily be a defence,
it also provides for a cause of action.164. In Manuelson Hotels Pvt Ltd v State of
Kerala,165. while citing the statements from English authorities which set out the
principles of promissory estoppel, it was held that there is one difference in the
application of the principles of promissory estoppel in India, which is that "under our
law, promissory estoppel can be the basis of an independent cause of action in which
detriment does not need to be proved. It is enough that a party has acted upon the
representation made."
Under the English law, promissory estoppel does not create new cause of action; "it is a
shield and not a sword".166. The justification for limiting the scope of the equitable
doctrine in the words of Roskill LJ. is "that it would be wrong to extend the doctrine of
promissory estoppel, whatever its precise limits at the present day, to the extent of
abolishing in this back-hand way the doctrine of consideration".167.
[s 10.7.9] Application of Promissory Estoppel
In the Motilal Padampat Sugar Mills' case,168. the Supreme Court, after a review of
Indian, English and American cases, held that:
(i) the principle can furnish a cause of action;
(ii) the applicability of the doctrine is not restricted to parties already contractually
bound to one another or having a pre-existing legal relationship;169.
(iii) the doctrine is not based on estoppel, nor can its operation be shackled by
consideration. It is not necessary to show any consideration for the applicability
of the doctrine of promissory estoppel;
(iv) the principle would be applied where the facts are such that injustice can be
avoided only by enforcement of promise;
(v) it is immaterial if no detriment is shown to have been caused, it is enough if
there is a change of position;
(vi) the state is not immune from liability for promissory estoppel and it cannot rely
on the doctrine of executive necessity not to fetter its future executive action. It
may be applied against the State, even in its Governmental or public or
sovereign capacity, if its application is necessary to prevent fraud or manifest
injustice. Executive necessity is no defence;
(vii) the doctrine of promissory estoppel must yield to equity when required, but it is
not enough to say that public interest will suffer. It will be for the court to decide
if the Government shows reasons therefor;
(viii) there is no promissory estoppel against the State in its legislative capacity;
(ix) the fact that the promise is not in the form of a formal contract required by
Article 299 of the Constitution will not affect the applicability of the doctrine.
The Supreme Court after considering the earlier case laws, has laid down the principles
which the courts must consider while examining the applicability of promissory
estoppel.170.
[s 10.7.10] Exceptions to the Doctrine of Promissory Estoppel
The following limits of the doctrine are recognised in the Motilal Padampat Sugar Mills'
case:
(i) The doctrine must yield to equity when required. The promise may not be
enforced against the Government if it would be inequitable to hold the
Government to it.171. If the Government contends that public interest would
suffer by enforcement, the Government will have to show the facts and
circumstances to the court, and it would be for the court to decide whether those
would render it inequitable to enforce liability against the Government.172. Mere
plea of change of policy is not enough, it would have to be justified. It is only if
the court is satisfied on proper and adequate material placed by the Government,
that overriding and overwhelming public interest requires that the Government
should not be held bound by the promise (the burden of showing it lies on the
Government), the court would refuse to enforce it;
(ii) No representation or promise made by an officer can preclude the Government
from enforcing a statutory prohibition. The doctrine cannot be availed to permit
or condone a breach of law. Nor can the Government or public bodies be
compelled to carry out the representation if it is contrary to law, or beyond their
authority or power.173. Nor can it be invoked against exercise of Legislative
power. The legislature also cannot be precluded by this doctrine from exercising
its function;
(iii) The promisor may be excused from performing the promise in exceptional
cases, where the subsequent events make it impossible or inequitable for the
promisor to perform his original obligation.174.
[s 10.7.11] Promise
The representation or promise relied upon must be unambiguous and unequivocal,175.
and not a matter of inference, or a mere hope or possibility.176. A mention of subsidy
on loan interest in five year plans or one-year-plan of a Union Territory did not entitle the
petitioner to subsidy.177. While an intention to affect legal relationship must be
established, such an intention may be deduced objectively, i.e., it may be shown that
the promisor in his own mind intended to affect legal relationship or that he voluntarily
so conducted himself that he cannot be heard to say that he did not intend this to be
the result.
[s 10.7.12] Detriment
To attract the applicability of the doctrine, it is not necessary that the promisee, acting
in reliance on the promise, should have suffered any detriment.178. What is only
necessary is that the promisee should have altered his position in reliance on the
promise.179. Altering position should mean such alteration in the position of the
promisee as it makes it appear to the court that holding the promisor to his
representation is necessary to do justice between the parties.180. The alteration of
position need not involve any detriment to the promisee unless "by detriment is meant
injustice to the promisee which would result if the promisor was to recede from his
promise".181. In order to invoke the doctrine of promissory estoppel clear, sound and
positive foundation must be laid by the party invoking the doctrine and bald
expressions without any supporting material to the effect that the party has altered its
position relying on the assurance would not be sufficient to press into aid the
doctrine.182.The development authority that accepted transfer of an industrial plot by
its original allottee was not entitled to cancel the allotment after the transferee had
constructed on the plot, even though the transfer violated regulations that required the
authority to call for tenders.183.
[s 10.7.13] Promissory Estoppel and Private Parties
It has been held that promissory estoppel cannot be invoked to compel the
Government or even a private party to do an act prohibited by law.184. However, the
doctrine has developed in India mainly in the field of administrative law.185. In all the
Indian cases, the representations constituting the promises were made by or on behalf
of the State or public bodies.
In the Century Spinning case,186. Shah J., speaking on behalf of the Court observed:
"Public bodies are as much bound as private individuals to carry out representations of
facts and promises made by them, relying on which other persons have altered their
position to their prejudice," thus refusing to make a distinction between private
individual and a public body as regards application of the doctrine of promissory
estoppel.187. It was suggested that the obligation could arise ex contractu, and if the
law required the contract to be in a certain form, it could be enforced in equity.
The Motilal Padampat Sugar Mills' case,188. after discussing the doctrine of promissory
estoppel in general, decided to what extent the doctrine was applicable against the
Government. The judgment however alludes to application of the doctrine to private
parties, observing: "It is true that promissory estoppel cannot be invoked to compel the
Government or even a private party to do an act prohibited by law";189. or "...promissory
estoppel cannot be invoked to compel the Government or even a private party to do an
act prohibited by law";190. and while it refers with approval to the observations in
Radhakrishna Agarwal v State of Bihar:191. "... public bodies or the State are as much
bound as private individuals to carry out obligations incurred by them...".192.
There is no case expressly applying the doctrine between private parties.193. Except for
a solitary observation that the principle has been held applicable to administrative law
and not between private parties,194. there is no observation precluding the application
of the principle between private parties (not Government or public bodies). Nor has the
Supreme Court limited the application of the doctrine while formulating it. It is
therefore submitted that the doctrine as propounded in the Motilal Padampat Sugar
Mills' case, applies with equal force to promises made by persons other than the
Government or public bodies.
[s 10.7.14] Promissory Estoppel and Contract
A contract in writing between the parties, is not necessary, for the applicability of the
principles of promissory estoppel.195. The principle of promissory estoppel cannot be
applied to frustrate contractual obligations.196. It could not be invoked where a specific
term in the contract empowered a bank to terminate the loan agreement;197. or the
administration cancelled the licence to run telephone booths on expiry of the term;198.
or where the authority refused to extend the mining licence beyond the agreed period
of six months;199. or where in respect of agency agreements for operating pay phones,
rate of commission was reduced and the amount of security deposit enhanced and the
agreement gave such powers to the Telephone Department.200.
But the principle has been applied to compel the Municipal Board to execute a lease
deed, where consequent upon a communication from the Board about allotment, the
petitioner had spent amounts on obtaining water and electricity connections, and put
up construction on the plot;201. or to prevent the Electricity Board from withdrawing the
rebate promised, even though the standard agreement with the electricity consumer
expressly provided that the consumers shall pay "such rates as may be revised by the
Board from time to time";202. the principle has been invoked, and applied for granting
compensation in a case involving breach of contract, where the defendant contended
that in the absence of a registered lease deed, it was a monthly tenancy which could be
terminated by giving 15 days notice, whereas the plaintiff had relied on the agreement
between the parties, based on which the plaintiff had made improvements to the
property to suit the requirement of the defendant, on the assurance that it will be taken
on lease by the defendant for three years.203.
The principle has been also applied to prevent town or housing development
authorities from making changes to schemes of allotments or to individual allotment of
plots or houses;204. or to compel such authorities to allot or hand over plots or
houses;205. or even to prevent such authorities from making changes in allotments by
revising their policies.206. It has also been applied to enforce promises of financial
institutions to give finance or loans.207.
[s 10.7.15] Estoppel and Promissory Estoppel
Estoppel is a rule of evidence and is not a cause of action.208. The doctrine of
promissory estoppel represents a principle evolved in equity to avoid injustice.209.
Unlike estoppel, promissory estoppel can provide for a cause of action.210.
[s 10.7.16] Doctrine of Promissory Estoppel in other jurisdictions
The doctrine of promissory estoppel is based on an obiter dictum of Lord Denning J. in
Central London Property Trust Ltd v High Trees House Ltd.211.
In this case, the plaintiff leased a block of flats to the defendant in 1937 for 99 years at
a rent of GBP 2500 per annum. On account of the Second World War, many flats were
empty in 1940, and the plaintiff agreed to reduce the rent to GBP 1250. The situation
returned to normal in 1947 and the flats were all occupied. The plaintiff brought action
for recovery of full original rent for the last two quarters of 1945 and for the future. Lord
Denning observed that it was the intention of the parties that the reduced rent was a
temporary measure for the time the flats were not fully let out, and when the situation
returned to normal, full rent was payable for the last quarter of 1945. Had the plaintiff
sued for the full rent between 1940 and 1945 the plaintiff would have been estopped by
his promise from asserting his strict legal right to demand payment in full.
Later, Lord Denning LJ explained the principle in Combe v Combe:212.
The principle is that where one party has by his words or conduct, made to the other a
promise or assurance which was intended to affect the legal relations between them and to
be acted upon accordingly, then once the other party has taken him on his word and acted
upon it, the one who gave the promise or assurance cannot afterwards be allowed to revert
to the previous legal relations as if no such promise or assurance had been made by him,
but he must accept their legal relations, subject to the qualification, which he himself has so
introduced, even though it is not supported in point of law by any consideration, but only his
word.
Earlier in Hughes v Metropolitan Rail Co.,213. Lord Cairns had described the principle as
follows:
If parties who have entered into definite and distinct terms involving certain legal results—
certain penalties or legal forfeiture—afterwards by their own act or with their own consent
enter upon a course of negotiation which has the effect of leading one of the parties to
suppose that the strict rights arising under the contract will not be enforced, or will be kept
in suspense, or in abeyance, the person who otherwise might have enforced those rights will
not be allowed to enforce them where it would be inequitable having regard to the dealings
which have thus taken place between the parties.
Under English law, the principle has been invoked that in case of a clear and equivocal
promise (express or implied), where one party to a contract, in the absence of a fresh
consideration, agrees not to enforce his rights, since it is inequitable for the promisor to
go back on such promise, since the promisee must have "altered his position" in
reliance of the promise made, which need not necessarily be detrimental. The promisor
can resile from his promise on giving reasonable notice, which may not be formal,
giving the promisee a reasonable opportunity of resuming his position. The promise
would become "final and irrevocable" if the promisee cannot resume his position.214.
Promissory estoppel serves to suspend and not wholly extinguish the existing
obligation.215. The principle applies not only to contractual relationship, but also to
statutory rights, or to a relationship between neighbouring landowners.
When promissory estoppel is invoked, the promise or assurance necessary to support
it is inevitably less than a promise binding on the parties in contract—it would not be
necessary to invoke the doctrine of promissory estoppel at all if the promise held
contractual force. But, nevertheless, the promise supporting a promissory estoppel is
closely analogous in many respects to a promise having contractual effect. One of its
essential attributes is the same degree of "unequivocality", which with the giving of full
consideration would have clothed it with contractual effect.216. In the Court of Appeal,
Lord Denning MR referred to "the extraordinary consequences" of holding that an
assurance ineffectual (by reason of indefiniteness) to vary a contract was yet definite
to support a promissory estoppel bringing about the same result.217.
The US Restatement (Second) on Contracts, § 90 states:
A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does induce such
action or forbearance is binding if injustice can be avoided only by enforcement of the
promise.218.
[s 10.7.17] Remedies
The doctrine is based on reliance, and it developed for preventing injustice. Any remedy
should therefore be moulded for the purposes of preventing it.219.
The promise can be enforced by specific enforcement, by injunction, mandatory or
preventive. A fundamental question arises about the basis of granting compensation
instead of the above, when the nature of the transaction demands or when the above
remedies are inadequate.
When remedies in contract are concerned "to put the plaintiff in as good a position as
he would have occupied had the defendant performed his promise", they are said to
fulfill the expectations engendered and to protect the "expectation interest" of the
plaintiff. On the other hand, protection of reliance interest is concerned with putting
"the plaintiff in as good a position as he was in before the promise was made", i.e., to
put the plaintiff in the status quo.220. This can be illustrated with the following
examples, the first where the doctrine is used as a cause of action, and the second
where it is used as a defence.
(i) If A says to B, "I want to buy a car". B says, "Well, I will give you USD 1000". A then
proceeds to buy the car for USD 500. Is B liable to pay A USD 500 (being the
amount spent by A relying on the promise) or USD 1000 (the amount promised)?
221.
(ii) X promises Y that he will not enforce a debt owed of GBP 2000. In reliance on
this, Y incurs a commitment, which he cannot escape from, to the tune of GBP
800. Can X now claim the amount of GBP 1200?222.
If promissory estoppel is used for protecting the " status quo" interest of A and X
respectively, A will be entitled to claim USD 500 and X, GBP 1200. If promissory
estoppel is used for protecting their "expectation interest", A would be entitled to USD
1000, and X, nothing.
Section 90 of the Second Restatement on Contracts (USA) provides that such a
"promise...is binding if injustice can be avoided only by enforcement of the promise.
The remedy granted for breach may be limited as justice requires". The words "binding"
and "enforcement" seem to indicate that the promisee would be entitled to its
performance (and hence damages equivalent to it). It has been suggested that the last
sentence permits the remedy to be "limited".223.
[s 10.8] Contracts with Government
[s 10.8.1] Formalities: Article 299 of the Constitution of India
The executive power of the Union of India and the States to carry on any trade or
business, acquire, hold and dispose of property and make contracts is affirmed by
Article 298 of the Constitution of India.224. If the formal requirements required by
Article 299 are complied with, the contract can be enforced against the Union or the
states. The public policy and the public interest underlying Article 299(1) is that 'the
State should not be saddled with liability for unauthorised contracts which do not show
on their face that they are made on behalf of the State'.225. Article 299 of the
Constitution of India provides:
299. (1) All contracts made in the exercise of the executive power of the Union or of a State
shall be expressed to be made by the President, or by the Governor of the State, as the case
may be, and all such contracts and all assurances of property made in the exercise of that
power, shall be executed on behalf of the President or the Governor by such persons and in
such manner as he may direct or authorise.
(2) Neither the President nor the Governor shall be personally liable in respect of any
contract or assurance made or executed for the purposes of this Constitution, or for the
purposes of any enactment relating to the Government of India heretofore in force, nor shall
any person making or executing any such contract or assurance on behalf of any of them be
personally liable in respect thereof.
The formalities required by this Article apply to a contract made in the exercise of the
executive power of the Union or of the State,226. and not to a contract made by a
statutory authority in exercise of its powers conferred by the statute,227. or to a
compromise by parties during pendency of a suit where one of the parties is the
Government.228.
In order to comply with Article 299, the contract:
(i) must be executed by a person duly authorised by the President or Governor,229.
as the case may be;
(ii) must be executed by such person "on behalf of" the President or Governor, as
the case may be;
(iii) must be "expressed to be made by", the President or Governor, i.e., in the name
of the President or the Governor.230.
The use of the words "expressed to be made" and "executed" in the Article indicate that
there must be a formal written document.231. Where a contract is made by tender and
acceptance, the acceptance must be made by a duly authorised person and on behalf
of the President, and a valid contract may result from correspondence.232. Where
conditions of loan bonds in favour of the Government were incorporated into a
Government Order signed by authorised officers, the contract was valid even without
signatures of officers on the loan agreements.233. Acceptance of tender by telegram
cannot constitute a contract where authorisation is not proved.234. No contract can be
implied under this Article.235. All the conditions are mandatory,236. and none of them
can be waived.237. A contract entered into without complying with the mandatory
requirement cannot be subsequently ratified by the Government.238. Agreement in the
form of minutes drawn after discussions in meetings did not comply with Article
299.239.
The authority of the President or the Governor may be conferred by a general order or
an ad hoc order upon a particular officer for a particular contract. It may be proved by a
notification240. or by any other evidence.241. A special authority may validly be given in
respect of a particular contract or contracts by the Governor to an officer other than the
officer notified.242. Allotment of a parra by the tehsildar under authority of rules framed
by the Mandi Committee and approved by the rajpramukh was held to be done on behalf
of the Governor, though the agreement was not expressed in terms of Article 299.243.
A contract complying with the Article can be enforced by or against the Government. It
is subject to the general provisions of the contract law,244. and its terms cannot be
changed by resorting to Article 14 of the Constitution.245. A contract not complying
with any of the conditions of Article 299(1) of the Constitution is not binding on or
enforceable by the Government, and is absolutely void,246. though not so for collateral
purposes,247. and cannot be ratified.248. No damages can be claimed for breach unless
the contract is complete under this Article.249. Although, no suit can lie against the
Government on the basis of contract, relief can be had on restitutionary principles of
sections 65250. or 70251. of this Act for goods or services provided.252. Noncompliance of the conditions of the Article will also not bar enforcement of rights and
liabilities arising out of statute which is independent of contract.253.
The defence of invalidity of contract for non-compliance of Article 299 must be
specifically pleaded,254. unless it is patent from allegations in the plaint or evidence
adduced by the plaintiff.255.
This question has arisen in three types of cases:
(i) cases under sections 7(d) and 9A of the Representation of People's Act, 1951 in
connection with disqualification from being elected to the Parliament or state
legislatures;
(ii) where the contracts did not comply with the exact requirements of Article
299(1); and
(iii) contracts entered in the exercise of statutory powers.
An agreement not complying with Article 299 was held to be a contract for the
purposes of disqualifying a candidate for election,256. but the reasoning of
Chhaturbhuj's case that Article 299, though mandatory, did not render the contract void,
as it was capable of ratification, is no longer correct law in view of the later
decisions.257.
[s 10.9] Public Contracts
Public authorities which invite tenders should not be under any liability, under the
traditional rules of offer and acceptance, until the tender is accepted. But those who
tender are entitled that their tenders should be fairly considered according to the terms
of the invitation to tender. Public interest also requires that the tenders are properly
considered so as to obtain the best value for the tax-payer's money. A Government
contract is seen as a privilege or a largesse, and unlike a private person who may
choose with whom to contract, the Government or public body has to use its power of
contracting in public interest, as regards the person with whom it would contract, as
well as the terms of the contract.
The State and its authorities have to be just, fair and reasonable in all their activities
including those in the field of contracts. Even while playing the role of a landlord or a
tenant, the State and its authorties remain so and cannot be heard or seen to be
contravening Article 14 of the Constitution.258. Reasonableness and fairness are the
hallmarks of State action and it is not just in writ proceedings but even in a civil
proceeding, by applying the same tests, an unfair and unreasonable action will be set
aside.259.
The principles of judicial review would therefore apply to the exercise of contractual
powers by the Government and Government bodies to prevent arbitrariness or
favouritism under the principles laid down in Article 14 of the Constitution.260. There
are inherent limitations in the exercise of that power, because although the Government
is the guardian of finances of the state and is expected to protect the financial interest
of the State, the right to refuse the lowest or any tender is always available to the
Government. The right to choose is not an arbitrary power, and there is no question of
infringement of Article 14 if the Government tries to get the best person or the best
quotation. But if the power is exercised for collateral purpose, the exercise of that
power will be struck down.
[s 10.9.1] Judicial Review in Contractual Matters
Judicial quest in administrative matters has to find the right balance between the
administrative discretion to decide matters contractual or political in nature, or issues
of social policy and the need to remedy any unfairness. A State need not enter into a
contract with anyone, but when it does so, it must do so fairly without discrimination
and without unfair procedure;261. and its action is subject to judicial review under
Article 14 of the Constitution of India. Unlike a private party, whose acts uniformed by
reason and influenced by personal predilections in contractual matters may result in
adverse consequences to it alone without affecting the public interest, any such act of
the State or a public body even in this field would adversely affect the public interest.
Where the Government is dealing with the public, whether by way of giving jobs or
entering into contracts or issuing quotas or licences or granting other form of largesse,
it cannot arbitrarily use its power of discretion and in such matters must conform to
certain standard or norm which is not arbitrary, irrational or irrelevant.262. There must
be shown a public law element to the contractual decision, before the principles of
judicial review are exercised by a Government body of its contractual powers.263.
Freedom to contract is a common law civil liberty enjoyed by all persons. But when the
Government is contracting with private parties, this common law freedom is
circumscribed by the principles of administrative law which require larger public
interest to be taken into account.264.
While setting aside the general order issued by the Government of Uttar Pradesh,
terminating the appointments of all Government counsels in all the districts from a
specified date, and directing fresh panels for making appointments in place of the
existing incumbents as arbitrary and violative of Article 14 of the Constitution, the
Supreme Court observed:265.
...with the diversification of State activity in a Welfare State requiring the State to discharge
its wide ranging functions even through its several instrumentalities, which require entering
into contracts also, it would be unreal and not pragmatic, apart from being unjustified to
exclude contractual matters from the sphere of the State actions required to be nonarbitrary and justified on the touchstone of Article 14...In our view, bringing State activity in
contractual matters also within the purview of judicial review is inevitable and is a logical
corollary to the stage already reached in the decisions of the court so far...In our opinion,
decisions in Dwarakadas Marfatia & Sons266. and Mahabir Auto Stores267. also lead in the
same direction without saying so in clear terms. This appears to be also the trend of the
recent English decisions. It is in consonance with our commitment to openness which
implies scrutiny of every State action to provide an effective check against arbitrariness and
abuse of power.
The State and its instrumentalities cannot impose unconstitutional terms of employment
and in contracts between parties of unequal bargaining power, consent is absent. An unfair
or irrational clause in the contract is amenable to judicial review.268.
The legal position dealing with different aspects relating to contracts entered into by
the State/public authority with private parties has been succinctly summarized by the
Supreme Court in Joshi Technologies International Inc v UOI269. while holding that if the
contractual dispute between private party and the State/instrumentality and/or agency
of the State is under the realm of private law and there is no element of public law, the
normal course for the aggrieved party, is to invoke the remedies provided under
ordinary civil law rather than approaching the High Court under Article 226 of the
Constitution of India and invoking its extraordinary jurisdiction.
[s 10.9.1.1] Legitimate Expectation
Where persons are legitimately entitled to expect that certain entitlements would
continue with them, but they are not continued, the courts insist that the decision
affecting such expectation should be taken after giving to such persons an opportunity
of being heard.270. For example, a highest bidder has a legitimate expectation to have
his tender accepted. It has been stated:271.
If by reason of the existing state of affairs, a party is given to understand that the other
party shall not take away the benefit without complying with the principles of natural justice,
the said doctrine would be applicable. The legislature, indisputably, has the power to
legislate but where the law itself recognizes existing right and did not take away the same
expressly or by necessary implication, the principles of legitimate expectation of a
substantive benefit may be held to be applicable.
Expectation is not the same as anticipation.272. The expectation must be justifiable,
legitimate and protectable.273. It is different from a wish, however earnest and sincere,
or a desire, or a hope. It is distinguishable from a genuine expectation. The legitimacy
of expectation can be inferred only if it is founded on the sanction of law or custom or
an established procedure followed in regular and natural sequence. A case of
legitimate expectation would arise when a body by representation or by past practice
aroused expectation which would be within its powers to fulfil. It gives the applicant a
sufficient locus standi for judicial review. It entitles the person having the expectation to
a fair hearing.274. The mere reasonable or legitimate expectation of a citizen may not
by itself be a distinct enforceable right, but failure to consider and give weight to it may
render the decision arbitrary.275.
A decision or action disappointing an expectation is unfair without the expectant
person being heard; but if founded on policy, or in public interest, whether by legislation,
rules, or Government Orders, the decision denying legitimate expectation will not be
interfered with, unless it amounts to abuse of power.276. Larger public interest may
outweigh the legitimate expectation of the claimant.277. Doctrine of legitimate
expectation cannot be invoked when no public law element concerning the government
contract is involved.278.
[s 10.9.1.2] Scope of Judicial Review in Public Contracts
While reviewing decisions relating to public contracts, the courts will be concerned not
with the merits of the decision made, but will review the decision making process.
Neither is a court equipped nor is it desirable for it to review the merits of the decision.
If the contract has been entered without ignoring the procedure which can be said to be
basic in nature and after an objective consideration of different options available taking
into account the interest of the State and the public, then the court cannot act as an
appellate authority by substituting its opinion in respect of selection made for entering
into the contract.279.
The grounds on which administrative action would be subject to control by judicial
review could be classified as:
(i) illegality (namely, failure to give effect to the law that regulates the decision
making power);
(ii) irrationality, namely Wednesbury unreasonableness, the question "whether or
not they [the local authority] have taken into account matters which they ought
not to have taken into account, or...have refused to take into account or
neglected to take into account matters which they ought to take into account";
and
(iii) procedural impropriety.
Tata Cellular v UOI280. recognised the above principles as applicable in the judicial
review of administrative action in contract matters, and the Court also mentioned two
more facets of irrationality, namely: (a) a court could review the decision-makers'
evaluation of facts and intervene where the facts taken as a whole could not logically
warrant the conclusion of the decision-maker; and (b) a decision would be
unreasonable if it is unequal in its operation as between different classes.
In the contractual sphere, as in all other State actions, the State and all its
instrumentalities have to conform to Article 14 of the Constitution of India, in which
non-arbitrariness is a significant facet.281. However, in contracts having commercial
elements, some more discretion has to be conceded to authorities so that they can
enter into contracts with persons, keeping an eye on the augmentation of revenue; they
have the liberty to assess the overall situation for the purposes of deciding to whom
the contract shall be awarded and on what terms; and the court must grant a measure
of freedom of "play in the joints" to the executive.282. The award of contract, whether it
is by a private party or by a public body or the State, is essentially a commercial
transaction. Decisions in such transactions are arrived at with commercial
considerations. The State can choose its own method to arrive at a decision. It can fix
its own terms of invitation to tender, which will not be open to judicial scrutiny. It can
negotiate before deciding to accept the tender. It may not accept the offer even though
it is the highest or the lowest. But it is bound to adhere to the norms, standards and
procedures laid down by them, and cannot depart from them arbitrarily.283. If the
decision relating to award of contracts is bona fide and is in public interest, courts will
not exercise the power of judicial review and interfere.284.
In the matters of contract, the court can interfere in three categories of cases, i.e.,
quasi-judicial matters, administrative matters like price-fixing, and award of contracts.
Judicial review does not mean that the court should take over the contracting powers.
It can interfere in the matters which would be mala fide, biased, or so arbitrary to the
extent of perversity. The standard of proof of bias is higher after the decision of
awarding the contract is reached.285. There should be fair play in action;286. the action
should be legitimate and fair, and without any aversion, malice or affection. There
should be no impression of favouritism or nepotism.287.
[s 10.9.1.3] Principles
The principles deduced by the Supreme Court in Tata Cellular v UOI are:288.
(i) The modern trend points to judicial restraint in administrative action;
(ii) The court does not sit as a court of appeal but merely reviews the manner in
which the decision was made;
(iii) The court does not have the expertise to correct the administrative decision. If a
review of the administrative decision is permitted, it will be substituting its own
decision without the necessary expertise which itself may be fallible;
(iv) The terms of the invitation to tender cannot be open to judicial scrutiny because
the invitation to tender is in the realm of contract. Normally speaking, the
decision to accept the tender or award the contract is reached by the process of
negotiations through several tiers. More often than not, such decisions are
made qualitatively by experts;
(v) The Government must have freedom of contract. In other words, a fair play in
the joints is a necessary concomitant for an administrative body functioning in
an administrative sphere or quasi-administrative sphere. However, the decision
must not only be tested by the application of Wednesbury principle of
reasonableness (including its other facts pointed out above) but must be free
from arbitrariness not affected by bias or actuated by mala fides;
(vi) Quashing
decisions may impose heavy administrative burden on the
administration and lead to increased and unbudgeted expenditure.
In Asia Foundation and Construction Ltd v Trafalgar House Construction (I) Ltd,289. the
Supreme Court held that the power of judicial review in contractual transactions of
public bodies was intended to prevent arbitrariness, favouritism and use of power for
collateral purposes, and further, where it would be detrimental in public interest to
interfere. It was further held that courts must be conscious of the cost escalation of
the project as a result of the delay that may be caused by its interference. A decision
can be challenged on the Wednesbury Principle of Unreasonableness, i.e., the decision
was so unreasonable that no sensible person would have arrived at it; else, it should
not be disturbed; and that if a reasonable procedure had been followed, the decision
should not be challenged except on the Wednesbury Principle of
Unreasonableness.290.
Evaluation of tenders and awarding contracts are essentially commercial functions and
if the decision is bonafide and taken in the public interest, the superior courts should
refrain from exercising their power of judicial review.291. In contractual matters, the
courts exercising its constitutional jurisdiction should not interfere unless the decision
taken is totally arbitrary, perverse or mala fide.292.
[s 10.9.1.4] Public Interest
Even if a case is made out under Articles 14 or 226, the High Court may not interfere
only because it is lawful to do so. It may refuse to interfere in the larger interest of the
public,293. especially when time had elapsed after acceptance of tender and the work
had started;294. and damages awarded295. instead of directing reconsideration of
tenders. Relief has, for example, been refused on the ground of urgency in a contract
relating to drinking water supply facility.296.
In Raunaq International Ltd v IVR Construction Ltd,297. the Supreme Court discussed and
stated the principles for and the extent to which a court could interfere in cases
challenging awards of contract by public authorities or the Government. It held that:
(i) When a writ petition is filed in a High Court challenging the award of a contract
by a public authority or the state, the court must be satisfied that there is some
element of public interest involved in entertaining such a petition, especially so
when the dispute is purely between the two tenderers (the successful and the
disappointed tenderers). The court must also consider that its intervention may
delay the project and escalate the cost far more than any saving, which the order
of the court could effect in public money, by deciding the dispute in favour of one
or the other tenderer. Therefore, unless the court is satisfied that there is a
substantial amount of public interest, or the transaction is entered into mala fide,
the court should not intervene under Article 226 in disputes between rival
tenderers;
(ii) The court must satisfy itself that the party which has brought the litigation is
litigating bona fide for public good. The public interest litigation should not be a
mere cloak for attaining private ends of a third party or of a party bringing the
petition;
(iii) The court must weigh the conflicting public interests, especially since any delay
in the project would ultimately be paid for by the public in terms of escalated
costs, or would have to be short of the very service for which the project is
undertaken. The court should intervene when there is an overwhelming public
interest in entertaining it, even when the allegation is of mala fide in the
transaction.
[s 10.9.1.5] Locus Standi
Where the public authority accepted a tender when the tenderer was not qualified in
terms of the qualifications laid down in the invitation to tender, the action could be
challenged at a petition filed by a person who had not submitted a tender at all;
because if it were known to him that non-fulfilment of the condition of eligibility would
be no bar to consideration of the tender, he also would have submitted the tender.298.
Any member of the public could challenge the disposal of property by the Government
without auction.299. But the sub-contractors engaged by the contractor whose contract
has been terminated by the authority under the terms of his contract, were not entitled
to seek extension of time for completion of work.300.
[s 10.9.1.6] Relief
Relief, in a writ proceeding, of cancelling the tender procedure is refused when work
has commenced and expenses already incurred;301. or where there is an urgency to
carry out the work;302. or in large projects of high costs for which loans from
international bodies have been taken after following the specifications and procedure
of such bodies.303.
In Raunaq International Ltd v IVR Construction Ltd,304. the court held that any interim
order should be moulded to provide for restitution. It stated:
The party at whose instance interim orders are obtained has to be made accountable for the
consequences of the interim order. The interim order could delay the project, jettison finely
worked financial arrangements and escalate costs. Hence the petitioner asking for interim
orders in appropriate cases should be asked to provide security for any increase in cost as a
result of such delay, or any damages suffered by the opposite party in consequence of an
interim order. Otherwise public detriment would outweigh public benefit in granting such
interim orders. Stay order or injunction order, if issued, must be moulded to provide for
restitution.305.
and later:
...in granting an injunction or stay order....the court has to satisfy itself that the public
interest in holding up the project far outweighs the public interest in carrying it out within
reasonable time. The court must also take into account the cost involved in staying the
project and whether the public would stand to benefit by incurring such cost.306.
Where an unsuccessful tenderer filed a writ petition, in which the contract was stayed,
and the subject matter of the contract was damaged in the meantime, the successful
tenderer could not be compelled to deposit the price and carry away the goods.307.
[s 10.9.2] Judicial Review in the Tender Process
The most frequent instances of judicial review in public contracts are in connection
with the actions in the area of the process of inviting and accepting tenders, an area
where a civil court would not interfere in matters between private parties. The entire
process of selection of contractors in public contracts, upto the conclusion of the
contract, would be liable to scrutiny on principles described above, in writ proceedings
in the High Court or the Supreme Court respectively. A suit for declaration and
consequential mandatory injunction is not maintainable at the instance of an
unsuccessful bidder, as the court cannot accept the bid while exercising its powers of
judicial review.308. Principles of judicial review are summarized by the Supreme Court
as follows:309.
(i) If there are essential conditions, the same must be adhered to;
(ii) If there is no power of general relaxation, ordinarily the same shall not be
exercised and the principle of strict compliance would be applied where it is
possible for all the parties to comply with all such conditions fully;
(iii) If, however, a deviation is made in relation to all the parties in regard to any of
such conditions, ordinarily again a power of relaxation may be held to be
existing;
(iv) The parties who have taken the benefit of such relaxation should not ordinarily
be allowed to take a different stand in relation to compliance of another part of
tender contract, particularly when he was also not in a position to comply with
all the conditions of tender fully, unless the court otherwise finds relaxation of a
condition which being essential in nature could not be relaxed and thus the
same was wholly illegal and without jurisdiction.
(v) When a decision is taken by the appropriate authority upon due consideration of
the tender document submitted by all the tenderers on their own merits and if it
is ultimately found that successful bidders had in fact substantially complied
with the purport and object for which essential conditions were laid down, the
same may not ordinarily be interfered with.
(vi) The contractors cannot form a cartel. If despite the same, their bids are
considered and they are given an offer to match with the rates quoted by the
lowest tenderer, public interest would be given priority.
(vii) Where a decision has been taken purely on public interest, the Court ordinarily
should exercise judicial restraint.
In Jagdish Mandal v State of Orissa,310. a tender was rejected on the basis of complaint
and without hearing the tenderer on the ground that the entries in the pass book
concerning deposit of earnest money were found tampered. While upholding the
rejection, the Supreme Court set out two questions that would answer the decision to
interfere:
(i) Whether the process adopted or decision made by the authority is mala fide or
intended to favour someone, or whether the process adopted or decision made is so
arbitrary and irrational that the court can say: "the decision is such that no responsible
authority acting reasonably and in accordance with relevant law could have reached";
and (ii) whether public interest is affected.
If the answers are in the negative, there should be no interference by the court.
[s 10.9.2.1] Selection Process
Public auction or inviting of tenders should be the general rule; it ensures fairness,
legitimacy, non-discrimination and removes the impression of bias, favouritism and
nepotism. The object of inviting tenders for contracting a work are threefold; first, to
locate or select highly proficient and competent persons to do the work; secondly to
get the work done at a reasonably low cost; and thirdly, to give opportunity to all the
eligible tenderers to submit their tenders.311. Any departure from this rule should be
only in the rarest of rare, and exceptional cases, where it is not possible to hold public
auction or tender; and supported by sound, compelling rational and cogent reasons,
and not for convenience and compromise.312. Disposal of property of the Government
must be by public auction;313. but that an exception could be made if some directive
principle contained in Part IV of the Constitution was sought to be achieved.314.
For example, where the highest bidder for the sale of disputed property failed to pay the
tender amount, the property could be offered to the next highest bidder.315. Awarding
the contract on first-come-first-served basis,316. or by negotiating with one party only,
or distributing the work among few parties after tenders are invited, without accepting
or rejecting tenders would be arbitrary;317. but where only two parties submitted the
tenders for setting up five star hotels, and the Government negotiated with one of them,
the action was upheld;318. as was the entrustment of the work to a non-tenderer, even
after inviting the tender for spraying insecticides, because it had a helicopter at its
disposal.319.
The contract can be made directly by negotiation with one party if the method of
auction or inviting tenders is not feasible,320. or in rare and exceptional cases, stated
as "natural calamities, emergencies declared by Government, procurement is possible
from a single source only, supplier or contractor has exclusive rights over goods and no
reasonable alternative or substitute exists, where auction was held on several dates,
but there were no bidders, or bids were too low, etc".321. In special works requiring
special skill and expensive equipment, spending finances within a time frame, direct
invitations for negotiation without advertisement can be given to agencies who have
done similar jobs with other similar corporations.322. In Ramdas Shriniwas Nayak v
UOI,323. a contract between the Maharashtra State Electricity Board and the Dabhol
Power Corporation for setting up a project for generation of electricity at Dabhol was
challenged as arbitrary, on the ground that though being a contract of a vast
magnitude, it was finalised without resorting to competitive bidding by inviting global
tenders, and that finalisation of a contract by negotiations was not the permissible
mode of awarding such contracts by the State or its instrumentalities. In this case,
consequent upon the decision of the Government of India to encourage and invite
private entrepreneurs for setting power projects, only Enron Power Corporation (of
which Dabhol Power Corporation was a subsidiary) had responded to the offer of the
Government to set up a power project in Maharashtra and took interest in negotiating
the deal. No other entrepreneur having the necessary expertise and experience came
forward. There had been prolonged and detailed negotiations for three years between
the various authorities and contracting parties, and all expertise from India and abroad
was made use of for evaluating the project. Widest publicity was given to the project at
every stage. It was held that in this case negotiation only was the appropriate mode,
and not the inviting of tenders. Therefore, agreement by negotiation with Dabhol Power
Corporation (a subsidiary of Enron) without inviting global bids was held not arbitrary,
illegal or against public policy.
The Court has to apply the doctrine of restraint in complex fiscal evaluation. The
financial computation involved, the capacity and efficiency of the bidder and the
perception of feasibility of completion of the project have to be left to the wisdom of
the financial experts and consultants. The courts cannot really enter into the said realm
in exercise of power of judicial review.324. The constitutional Courts must defer to the
understanding and appreciation of the tender documents of the owner or employer of a
project, unless there are mala fides or perversity in the understanding or appreciation or
in the application of the terms of the tender conditions. The owner or employer of a
project giving an interpretation to the tender documents, which is not acceptable to the
constitutional Courts, by itself is not a reason for interfering with the interpretation
given.325. The condition in the bid to put a cap and make a classification not allowing
certain entities to bid is not an arbitrary one as it is based on the acceptable rationale
of serving the cause of public interest. It allowed new entrants and enabled the existing
entities to increase their cap to make the service more efficient. The Court cannot act
as an appellate authority in complex economic issues on the foundation of competitors
advancing the contention that they were not allowed to bid in certain spheres.326.
[s 10.9.2.2] Qualifications
A condition limiting the tender to persons who had already worked for their employer
was not arbitrary, the purpose being to get more experienced persons for increasing
efficiency;327. nor was it arbitrary to restrict the tenders to manufacturers only and
excluding manufacturer's representatives.328. The Government may give or may direct
the authorities to give preference to parties with special capabilities, cooperative
societies,329. public sector undertakings,330. registered small scale industrial units,331.
or units based in a geographical area, especially backward tribal areas.332. Restricting
entry to companies incorporated in India or those having majority shareholding from
companies of Japanese origin was not arbitrary in respect of a contract for running a
Japanese hotel cum restaurant.333. However, a condition in a tender for compiling,
printing and supplying telephone directories requiring the tenderer to have local
experience was irrational and arbitrary, and it could not be supported by the reason that
such condition will ensure timely delivery of the directories.334. Similarly, requiring
tenderers to have three similar completed works during previous three years was
arbitrary with reference to the value of the contract for which tenders were called,335.
as also a condition in a contract for supply of medicines requiring that the tenderer
shall have a GMP (Good Manufacturing Practices) Certificate.336.
Where tenders are invited from tenderers with certain qualifications, those persons
who do not fulfil them are not eligible to submit the tender. The object of restricting
competition to a certain category or kind of contractors with some credentials is to
have a person with some experience, ability and infrastructure as also necessary
machinery and equipment with technically competent personnel to complete the
work.337. The authorities inviting tenders can lay down a criteria not to deal with
contractors who had abandoned any earlier project,338. have a stated extent of prior
experience,339. or have the stated average and minimum average production.340.
Where conditions of tender required that tenderers shall have specified experience of
similar works, a partner's experience ought to be counted as experience of his firm.341.
Where conditions of bid required that the bidder shall have experience of completed
work, a bidder who had works in force was not qualified.342. To put a cap and make a
classification by not allowing certain entities to bid in allotment of spectrum is not an
arbitrary one as it is based on the acceptable rationale of serving the cause of public
interest and allowed new entrants and enabled the existing entities to increase their
cap to make the service more efficient.343.
The Government may short list contractors from a restricted class for special projects,
namely, high-tech projects, without issuing public notice, provided it was done after
selection of contractors by pre-qualification on the basis of advertisement.344.
[s 10.9.2.3] Pre-qualification
The object of pre-qualification of contractors is to finalise the process of awarding
contract by an expert body as expeditiously as possible. It has been held that if hearing
to tenderers is required at this stage, the process would be unduly impeded and would
also add to the cost. The tenderer for a Government contract is not entitled to a hearing
before his claims are rejected at a stage of determination of pre-qualification. Where
the Government refuses to enter into a works contract with a particular contractor on
the ground of his relative unsuitability, the rejection does not involve forfeiture of any
pre-existing right or interest. However, when an expert body is enjoined to evaluate the
relative suitability of the intending contractors, their decisions must not be arbitrary or
capricious;345. but where the selection is made qualitatively by experts and according
to conditions in the invitation, the action of the committee cannot be interfered
with.346. The conditions requiring greater degree of experience in similar nature of
work would not be unjustified in works involving heavy costs and requiring special
skills, and no personal hearing will be necessary where short-listing of tenderers is
done on the basis of materials and information supplied with the tenders.347. A
company cannot claim any vested right to be issued with any RFP when the vendor
registration procedure of the Defence Ministry was subject to a stringent procedure for
procurement of mission critical strategic defence products.348.
Any reclassification on the basis of new criteria, in the lists of contracts maintained by
the Government or departments cannot be given retrospective effect, and cannot
deprive a tenderer from consideration of his tender when he qualifies according to the
classification laid down in the tender notice.349.
Where the joint venture agreement furnished by the tenderer stated that the
responsibilities under the contract were undertaken jointly and severally, and one of the
partners of the venture satisfied the qualification required, it was held that the rejection
of the application on the basis of the particulars furnished in the statements without
looking at the joint venture agreement was without application of mind, and was liable
to be set aside.350.
[s 10.9.2.4] Blacklisting
An order of blacklisting has civil consequences, especially affecting future business
prospects. In Erusian Equipment and Chemicals Ltd v State of West Bengal,351. it was
stated:
Blacklisting has the effect of preventing a person from the privilege and advantage of
entering into lawful relationship with the Government for purpose of gains. The fact that a
disability is created by the order of blacklisting indicates that the relevant authority is to
have an objective satisfaction. Fundamentals of fair play require that the person concerned
should be given an opportunity to represent his case before he is put on the blacklist.
Hence, a person put on the blacklist is entitled to be heard before he is blacklisted,352.
even if rules allow such action without giving prior notice.353. Such an order must give
reasons.354. Non-mentioning of the proposed blacklisting in the show cause notice,
renders the notice liable to be set aside since blacklisting is a harsh penalty with severe
consequences and hence amounts to prejudice being caused.355. Permanent
debarment of the contractor for all times to come is too harsh and heavy a punishment
and hence requires reconsideration.356. Blacklisting of tenderers cannot be done when
investigations are pending;357. or merely because an FIR had been lodged against the
tenderer.358. Where under the conditions of tender, the only liability for withdrawing the
bid was that of forfeiture of earnest money, an order of blacklisting passed against a
contractor for not extending his tender and withdrawing his bid was arbitrary, when
such condition was not a condition of the tender.359. The action of a Municipal
Corporation of debarring the petitioner from tendering for three years and
communicating the same to other Departments dealing with the execution of
construction works was disproportionate and arbitrary, once it had cancelled the
contract and forfeited the earnest money. Such action was equivalent to
blacklisting;360. so also deletion of the name from the panel of qualified painting
contractors.361. But the decision of rejecting the tender on comparative considerations
and on non-performance in previous works did not amount to blacklisting.362.
An order of blacklisting after the contractor failed to supply the goods, and after he was
given opportunity of being heard, was not arbitrary.363.
Once a contractor is blacklisted, even though by another Department of the
Government, it is not necessary for the authority to give him any hearing before
rejecting his tender in later works.364.
In Patel Engineering Ltd v UOI365. it has been observed: "The authority of State to
blacklist a person is a necessary concomitant to the executive power of the State to
carry on the trade or the business and making of contracts for any purpose, etc. There
need not be any statutory grant of such power." The source of such authority is Article
298 of the Constitution of India, which includes the right not to enter into a contract.
[s 10.9.2.5] Invitation to Tender
Tenderers cannot challenge terms and conditions of the tender.366. The terms of
invitation to tender are not normally open to judicial review, because the authority
issuing the notice knows how to get the best person and has a right to choose the
lowest or any other tender.
In reviewing such administrative action, the court will not substitute its own views as
an appellate authority,367. but can interfere if Article 14 of the Constitution is violated.
For example, the action of hiking the cost of the tender documents to Rs 8,000/-, and
the amount of earnest money to Rs 20 lacs to be retained in deposit for 270 days was
held to be arbitrary and unreasonable.368. Thus, it is not for the court to order
furnishing earnest money by bank guarantee where the tender notice had a condition
that earnest money shall be paid by demand draft or pay order.369.
Whatever procedure the Government proposes to follow in accepting the tender must
be clearly stated in the tender notice.370. Tender conditions can be relaxed where the
authority has power to do so.371. If a tender notice contains mistakes, it is the duty of
the authority issuing the tender either to issue a corrigenda or a fresh tender notice.372.
If the original terms of the tender notice are changed, all the tenderers should be given
an opportunity to resubmit their tenders in conformity with the changed terms;
eligibility and new conditions373. cannot be imposed which were not disclosed in the
tender notice.374.
[s 10.9.2.6] Publicity
It is necessary to publish the notice inviting tenders in the local newspapers even
though the rules allow the Government to invite tenders by alternative modes like
pasting in public places in the municipal area.375. Tender notices can be published on
websites, especially for avoiding costs of publication in newspapers.376. Publication in
only one newspaper, and not many, was held inadequate in circumstances of the
case,377. as also notice displayed on a notice board.378.
[s 10.9.2.7] Availability of Tender Form
Where a contractor is qualified, the tender form cannot be withheld from him.379. In a
case, the tender conditions required that the tenderer should have completed two
works of the type specified; denial of the tender forms to a tenderer who had
completed a major part of such works was correct.380. Failure to furnish documents
relating to work experience and annual turnover, required to be given as a pre-condition
for supply of tender books, makes the tenderer liable to be excluded from
consideration.381. But a tenderer whose tender was rejected for non-payment of fees
could not be denied the tender forms when the tenders were renotified.382.
[s 10.9.2.8] Eligibility
If the tender of a person not satisfying the conditions of qualifications is accepted, the
action is arbitrary and is liable to be struck down.383. Award of a contract to a tenderer
on the ground that he possessed special machinery, the requirement of which was not
mentioned in the tender notice, was arbitrary.384. Relaxing the condition of eligibility of
the tenderer by taking into account the experience of its partners collectively, when the
tenderer firm did not satisfy the condition, was held to be arbitrary, when the petitioner
could also have satisfied the condition in this manner.385. However, it has also been
held that a tender could not be rejected when the constituents of a joint venture
company possessed the experience required for eligibility.386. Besides, hiring the
services of an engineer with the requisite qualifications by the contractor was held to
be sufficient compliance of eligibility by the technical authorities.387.
[s 10.9.2.9] Compliance with Tender Conditions
When the procedure for giving approval was not prescribed, the condition in the tender
document that only a tenderer having that approval on the opening date of bids could
apply was arbitrary. Where the tender invited by the Department of Telegraphs (DoT)
required approval of DoT for the item under tender, but the authority for approval was
not indicated, the petitioner could not be disqualified from participating in the tender on
the ground that it did not possess such type of approval, when it had obtained approval
from another authority—the Structural Training Research Centre.388. State undertakings
could be exempt from depositing earnest money.389.
[s 10.9.2.10] Mandatory and Directory Conditions
An authority inviting tenders cannot be expected to give effect to every term mentioned
in the notice in meticulous detail, and is entitled to waive even a technical irregularity of
little or no significance. The requirements in a tender notice may be classified into two
categories; first, the essential conditions of eligibility which the authority must enforce
rigidly;390. secondly, ancillary or subsidiary conditions, in which case the authority may
deviate or may not insist strict compliance.391.
The following have been held to be essential or mandatory conditions, non-compliance
of which justified rejection of tenders: furnishing bank guarantee in the prescribed
format;392. supplying security deposit in a specified form;393. a condition entitling
rejection of the tender in the event of discrepancy between the rates quoted in words
and in figures;394. supplying the balance sheet and proof of experience as required by
the invitation to tender;395. making full signature in the tender,396. producing a valid and
active
ISO
9001:2000
certificate,397.
using
stated
types
of
machines
in
manufacture,398. requirement of joint and several liability of all members of a joint
venture that submitted the tender.399.
In Raunaq International Ltd v IVR Construction Ltd,400. the Supreme Court held that
where relaxation is granted in the requirements included in the tender conditions, for
bona fide reasons, if permitted by the tender conditions, and the decision is arrived at
for legitimate reasons after fair consideration of all offers, the court should hesitate to
intervene.
The following have been held non-essential conditions or collateral matters, the noncompliance of which would not justify rejection of tender; deposit of earnest money in
the form of term deposit receipt instead of the prescribed mode of demand draft;401.
the requirement of submitting character certificate, experience certificate,402. no-dues
certificate and non-submission of revenue stamp (these were satisfied if substantially
fulfilled);403. payment of earnest money by certified cheque instead of demand draft on
the prescribed bank,404. submitting a bank guarantee of place other than that
mentioned in the tender notice.405.
[s 10.9.2.11] Opening Tenders
Where the tenders were not opened until the expiry of the period for which they were to
be kept open, and the plaintiff apprehended that this was deliberately done so as to
enable calling fresh tenders, the plaintiff was held to have a cause of action for filing a
suit.406. The fact that the train ran unusually late and delayed the arrival of a tenderer
was not a justifiable ground for accepting the tender after the time fixed by the tender
notice.407. Allowing a tenderer after the opening of tenders to correct mistakes in the
bid which were neither arithmetical nor clerical, and which were attributed to faulty
computer functioning, was invalid.408. However, the deadline for submitting bids can be
extended if provided in the notice inviting tenders.409.
In Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council,410. a local authority
was held contractually bound to consider tenders submitted before the deadline, where
invitations were sent to selected parties, known to the authority and the invitation
stated that the tenders submitted after the deadline would not be considered.
[s 10.9.2.12] Discretion of Acceptance and Rejection of Tenders
The Government may enter into a contract with any person, but in doing so, the State or
its instrumentalities may not act arbitrarily. The tenders should be adjudged on their
intrinsic merits and according to the terms and conditions of the tender notice. Article
14 is not violated merely because one person is chosen in preference to the other. The
Government is entitled to make a choice. But the choice cannot be arbitrary or
fanciful.411. The Government had a right to enter into a contract with a person wellknown to it, especially one who has faithfully performed his contracts in the past, in
preference to an undesirable, unsuitable or untried person.412. The Andhra Pradesh
High Court has upheld a decision not to accept the highest tender of an existing
contractor who was in arrears and had dragged the authority into litigation.413.
Ordinarily, the courts should not interfere in the matter of accepting or rejecting the
tender, as the Government inviting the tenders was the appropriate authority to take
decision in the matter.414. If the Government reserves the right to accept or reject the
lowest offer, the condition is valid, but if done on a policy, should be on grounds which
are rational and reasonable.415. The Government may accept a lower tender in
preference to the highest one, if it thinks that the person offering the lower tender is on
an overall consideration to be preferred to the higher tenderer.416. But where the tender
notice stipulates that the highest rate would be accepted, the highest bidder has a
legitimate expectation, and the action allotting a quantity to another will be
arbitrary.417. The Government was entitled to split the work between the tenderers,
especially when the tender conditions expressly sought quotations for all the items of
works and separately for each item of the works, and the Government had the right to
delete any item of work.418. Upon the direction under the Toddy and Arrack Shop Rules
by the Collector for re-auction, and there being no higher bid at the re-auction, the
acceptance of the highest bid in the original auction, was valid.419. Practical
considerations and extreme urgency can justify reconducting the tenders, where no
tender qualified, and the only other option was to scrap the process.420.
A clause in the tender that tenders may be rejected without assigning reasons is
neither illegal, nor opposed to public policy.421.
[s 10.9.2.13] Rejection
The acceptance of the second lowest tender on comparative considerations and
suitability of the performance does not violate the principles of natural justice, and
hence, no notice or opportunity of hearing need be given before rejecting the lowest
tender.422. Calling fresh auction when an important condition was not inserted in the
earlier auction notice, was not illegal or arbitrary, and did not amount to rejection of the
highest bid.423. Rejection of tender is valid when tenders are received beyond the time
fixed for the purpose.424. A tenderer is not entitled to opportunity of hearing where the
tender is rejected as defective, even where it is based on a complaint received.425. The
government can cancel or annul the tender process, and in public interest call for fresh
tenders.426. A tender was rightly rejected when it declared liability of one of the two
parties of a joint venture, when the notice inviting tenders required liability to be joint
and several.427.
A tender could not be rejected on the ground that the tenderer had deposited the
money by a term deposit receipt instead of a demand draft as prescribed,428. or on the
ground that the firm did not have requisite qualifications ignoring the partner's
qualifications which complied with the conditions.429. When a bid is not accepted for a
collateral purpose of diverting the contract to a particular person, and not for the
purpose of obtaining the best possible price, the auction was struck down as mala fide,
and no contract was concluded.430.
[s 10.9.2.14] Negotiation before Acceptance
If the party calling the tenders desires to negotiate before acceptance, all tenderers
must be treated equally in matters of negotiation.431. The procedure, where a meeting
of the participating tenderers was held, and on the basis of the information received,
the criteria for selection were laid down, a list of five tenderers prepared from whom
selection was done, was not unfair.432. Where the highest bid was inadequate, and the
Government ignored it and negotiated with all the tenderers giving them the
opportunity to revise their tenders in order to fetch a higher price, the procedure was
fair;433. so also where negotiations were conducted with the second highest bidder
after the highest bidder could not pay the required earnest money, and the price raised
during negotiations;434. or when the petitioner had earlier informed that he would not
be prepared to work below a specified rate.435. In Cambatta Aviation Ltd v Cochin
International Airport Ltd,436. a public sector undertaking established for setting up new
private international airport, invited tenders from experienced companies for ground
handling facilities at the new airport. Its high level committee accepted the limited
global competitive bidding norms and tentatively recommended awarding the contract
to Cambatta, who made the highest offer. However, its Board of directors invited only
Air India (the other tenderer) for negotiations and sought a final offer, on the grounds
that being an airline and a national carrier, it would be in a position to handle more
traffic of Air India and other domestic airlines. This decision was not arbitrary.
No tenderer or bidder is entitled as a matter of right to insist that the authority inviting
tenders shall make further negotiations, unless the terms and conditions of notice
provides for such negotiations.437.
[s 10.9.2.15] Withdrawal of Tender
The tenderer is entitled to withdraw the proposal and get the refund of earnest money,
when, because of pending litigation, the Government was not in a position to accept or
reject the tender.438.
[s 10.9.2.16] Decision of Acceptance or Rejection
No person has the right to enter into a contract, and the Government may decide not to
deal with anyone.439. The terms and conditions of the notice inviting tenders may
include a provision entitling the authority calling tenders to accept any tender or to
reject all tenders, including the right to accept a tender higher than the lowest. The
Government has, for good and sufficient reasons, the right not to accept the lowest
tender,440. or not to accept any tender at all. But this does not give the Government the
power of conducting secret negotiations with one of the tenderers only.441. It is not
obligatory on the Government to accept the lowest quotation,442. nor does the highest
bidder have any right to compel acceptance when the invitation reserves the right to
reject any tender.443.
It was held that the Government cannot depart from accepting the lowest bid in a
supply contract (or the highest bid in a purchase contract) where no question of policy
was involved, namely, in a contract for supply of fresh milk.444.
Where very limited number of tenders were received and the board desired to have a
better price, it was justified in rejecting all the tenders. This is not a violation of the
principles of legitimate expectation.445.
[s 10.9.2.17] Decisions of Expert Committees
The decisions of the expert or technical or commercial committees in scrutinizing the
tenders will not be interfered with, unless the decision is taken with a mala fide
intention or is arbitrary.446. The court should not substitute its own decision for the
decision of the expert evaluation committee.447.
The Government is not bound to accept the recommendations of the committees set
up for the purpose of evaluating the tenders; and may decide to call fresh tenders;448.
but where the recommendations of technical experts and the finance department
requiring further negotiations on technical aspects were ignored by the authority, and
the decision was taken merely on the recommendation of the tender and purchase
committee without discussion or examining those recommendations, the decision of
the authority was arbitrary and unreasonable.449.
[s 10.9.2.18] Contractual Obligation to Consider the Tender-Other jurisdictions
The jurisprudence in some other common law jurisdictions takes the approach that,
depending upon the intentions of the parties, an invitation to tender can give rise to
contractual obligations upon the submission of a bid.450. By one view, when public
authorities invite tenders and prescribe clear procedures for their acceptance, the
obligation to consider conforming tenders and to adhere to the specified requirements
can be implied;451. and may give rise to a claim for damages.
In Blackpool and Fylde Aero Club v Blackpool Borough Council,452. the council invited
tenders from seven selected contractors and fixed a date for submitting the tenders.
The club submitted the tender in time, but the staff of the authority did not clear the
letterbox until the next day, and that tender was rejected as received late. The club
commenced action against the authority claiming breach of contract contending that
the council had warranted that if the tender was received before the deadline, it would
be considered, and the council had acted in breach of warranty. It was held that where
tenders were solicited from selected parties, all of whom were known to the invitor, and
invitation to tender prescribed a clear, orderly and familiar procedure, which included
draft contract conditions available for inspection but not open to negotiation, a
prescribed common form of tender, the supply of envelopes designed to preserve the
absolute anonymity of tenderers and an absolute deadline, it was to be implied that if
an invitee submitted a confirming tender before the deadline, he would be entitled as a
matter of contractual right to have his tender opened and considered along with any
other tenders that were considered. The case had come up only on the preliminary
issue of liability, the question of quantum damages to be decided later.
In Hughes Aircraft Systems International v Airservices, Australia,453. the petitioners
contended that the public corporation inviting tenders had not taken proper account of
the priority rankings set out in the criteria and had allowed the successful tenderer to
make a substantial reduction in price at a very late stage in the bidding. The court
implied a term that the corporation should conduct the tender evaluation fairly as
between the tenderers, and was under a contractual obligation to apply the criteria
scrupulously. This case was also heard on the preliminary issue of liability under
contract.
In MJB Enterprises of Canada v Defence Construction,454. the tender conditions
contained a "privilege clause" providing that the lowest of any tender would not
necessarily be accepted. The lowest bid was accepted, though it did not comply with
the tender conditions. A question arose whether the "privilege clause" in the tender
documents allowed the person calling tenders to disregard the lowest bid in favour of
any other tender, including a non-compliant one.
Allowing the appeal, the Supreme Court of Canada held that submitting a tender in
response to an invitation to tender gave rise to a contractual obligation (contract A)
quite apart from the obligations associated with the construction contract to be
entered into after acceptance of the tender (contract B). Contract A arose when a
person called for tenders which offered by inviting tenders, through a formal tendering
process, that involved complex documentation and terms, to consider bids for contract
B. Although, there was no express term in contract A imposing an obligation to award
the contract to the lowest tenderer, the effort and expense of tendering, the risk of not
being awarded the contract at all and the significant amount of security deposit
indicated that "... it was difficult to accept that the appellant or any of the other
contractors would have submitted a tender unless it was understood by all involved
that only a compliant tender would be accepted", and the Court implied a term to that
effect. In submitting the tender, the tenderers accepted this offer. The consideration for
the promise of the person calling tenders arose out of the significant cost incurred by
the tenderers and the giving of the security deposit amount. Under contract A, the
person calling tenders owed an obligation to the other tenderers that it would accept
only non-compliant tender; its breach gave rise to a claim for "expectation" damages.
The petitioner in this case was the second-lowest tenderer and was likely to be
awarded the contract if the lowest tenderer was rejected for non-compliance. The
petitioner was therefore entitled to damages being the amount of profits which it would
have realised had it been awarded contract B.
[s 10.9.3] Judicial Review in Concluded Contracts
Ordinarily a court will not in its writ jurisdiction enforce the terms of a contract.455. In
commercial contracts, the breach of contract can be properly adjudicated in a civil suit
and not in a writ petition;456. a civil suit is the proper remedy when disputed questions
of interpretation of contract or of facts are involved, as also where the contract
provides for alternate remedy.457. The doctrine of legitimate expectations also does
not apply after the contract is concluded.458. Occurrence of commercial difficulty,
inconvenience or hardship in performance of the conditions agreed to in the contract
can provide no justification for invoking the writ jurisdiction.459.
The court's jurisdiction of judicial review in matters of formation of contract are much
wider than in cases of enforcement of conditions of contract.460.
In Joshi Technologies International Inc v UOI,461. the Supreme Court has summarized
the law on this aspect and held as follows:
No doubt, there is no absolute bar to the maintainability of the writ petition even in
contractual matters or where there are disputed questions of fact or even when monetary
claim is raised. At the same time, discretion lies with the High Court which under certain
circumstances, it can refuse to exercise. It also follows that under the following
circumstances, "normally", the Court would not exercise such a discretion:
(1) The Court may not examine the issue unless the action has some public law
character attached to it.
(2) Whenever a particular mode of settlement of dispute is provided in the contract,
the High Court would refuse to exercise its discretion under Article 226 of the
Constitution and relegate the party to the said mode of settlement, particularly
when settlement of disputes is to be resorted to through the means of
arbitration.
(3) If there are very serious disputed questions of fact which are of complex nature
and require oral evidence for their determination.
(4) Money claims per se particularly arising out of contractual obligations are
normally not to be entertained except in exceptional circumstances.
[s 10.9.3.1] Unilateral Termination under Powers Conferred by Contract
The termination clause in the distributorship contract entered into between a State
owned petroleum corporation and a distributor was held to be invalid, the termination
was set aside and distributorship restored.462.
The question of contractual obligations cannot, as a rule, be gone into in the writ
jurisdiction of the High Court or the Supreme Court, e.g., termination of a contract
under the terms of the contract. Thus, where the state Government leased forest land
to the lessee for collecting sat seeds for 15 years on payment of royalty at a certain
rate, and it then revised the rate of royalty under the express provisions in the lease, the
cancellation of the lease did not violate Article 14 of the Constitution, because the
contract (of lease) governed the relations between the parties.463. Nor is the term
conferring power on the state to terminate unilaterally the contract against public
policy.464. The courts have, for example, refused to interfere in termination under the
provisions of the contract of a storage agency;465. and an agreement with retailers for
the distribution of levy sugar;466. recall of loan amount by a bank from the borrower,467.
or termination for reason of increase in international prices.468.
But where the contract has been cancelled on a ground de hors any of the terms of the
contract, and which is per se violative of Article 14 of the Constitution, the termination
can be challenged in the writ jurisdiction.469. It has been held that the authority must
give opportunity to the contractor before termination to explain why the contract should
not be terminated;470. a show cause notice is sufficient, personal hearing is not
necessary.471. The court may interfere where the contract is terminated in an arbitrary
manner, contrary to the binding executive instructions issued by the Government;472. or
to order refund of amount in the event of termination,473. or to quash an order of
resuming a plot on the ground the allottee did not construct on the plot within the
stipulated period.474. The decision was based on the ground that the terms of
allotment provided for penalty and interest in the event of delay in payment, and when
two remedies were available, powers under the contract ought to be exercised
reasonably, and a harsher remedy should be avoided.
But in the case of a contract for collection of royalty under Rule 34 of the Rajasthan
Mineral Rules, it was held that it could not be terminated on the ground of "public
interest" under condition 16 of the contract without showing a nexus between "public
interest" and such termination, and this issue was justiciable. The mere fact that the
state was losing lakhs in revenue did not justify termination on that ground;475. nor was
a termination valid on the ground of public interest where it was sought to be justified
on the basis that the contractor would earn large profits.
[s 10.9.3.2] Enforcement of Other Terms
A petitioner who had accepted the counter proposal of the employer to do only part of
the tendered work for which he had originally submitted the tender, could not challenge
the decision of the employer to award the remaining part to another as arbitrary.476.
The court would not interfere in the question of the discharge of loans to banks on the
ground that such a course would result in the deprivation of their right to carry on the
business and the matter fell within the domain of the law of contract.477. No writ lay for
preventing the enforcement of bank guarantee given to the Government;478. or for
deciding whether the deductions made towards sales tax and retention of that amount
by the Government were valid under the terms of the contract;479. or in respect of a
claim for amount due offered in full and final settlement of the contract and disputed
by the contractor;480. or where the financial agency did not disburse an instalment of
loan on account of breach by the petitioner.481.
But a writ was issued directing the authority to pay the rent which was in arrears, and
payment of which was not done for administrative reasons;482. for directing the
Government to execute and register the lease deed where it was not done, despite the
allottee having paid the entire price;483. for directing a nationalised insurer to renew
health insurance (mediclaim) policy;484. for setting aside an order arbitrarily reducing
prices, even though price was subject to rates fixed by a committee;485. for ordering
payment of amount due486. and when without the statute providing so, the dues are
sought to be recovered as land revenue.487.
By virtue of the Government Grants Act, 1895 the rights, privileges and obligations of
any grantee of the Government are completely regulated by the terms of the grant, even
if such terms are inconsistent with the provisions of any other law.488.
[s 10.9.3.3] Revision of Price, Rates, Payment Terms etc.
In Bareilly Development Authority v Ajay Pal Singh,489. a brochure inviting applications
for purchase of flats constructed by the Bareilly Development Authority, contained a
clause that the price indicated therein was only an estimated cost and it would
increase or decrease, according to the rise or fall in the cost at the time of the
completion of flats as may be revised by it. The authority then revised the cost and
demanded enhanced price from the allottees. It was held that the authority, even if was
a "State" under Article 12 of the Constitution, was no longer governed by the
constitutional provisions after entering the field, and the relations of the parties inter se
were governed by the terms of the contract. The allottees, having voluntarily accepted
the conditions imposed by the development authority, could only claim the rights
conferred upon them by the contract, and were bound by the terms of the contract.
The Government has the right to reduce the rates of commission receivable by the
telephone operators, because it had the right under the licence granted to them under
the Indian Telegraph Act, 1885 to modify the terms of the agreement;490. or to revise
the rates of deposit and call charges.491. Where a term in the contract allowed
enhancement of rent by the Government, the lessees were bound to pay the rent so
increased.492.
[s 10.9.3.4] Contract Binding on the Government
Tenders were invited by a Government company, the Hindustan Steel Works
Construction Ltd, from Indian suppliers of goods of foreign manufacturers, and the
petitioner's tender was the lowest and was accepted. The purchaser company could
not thereafter cancel the contract on the ground that it could have procured the goods
directly from a foreign supplier at a much cheaper rate.493.
[s 10.9.3.5] Exceptions
Statutory Contracts.—There is a distinction between contracts which are executed in
exercise of the executive powers of the Union or the state under Article 299(1) and
contracts which are statutory in nature. While in the former case, compliance of
requirement of Article 299(1) is mandatory and there is no question of estoppel or
ratification, in the latter case, compliance of statutory requirements is needed.494. In a
contract by a state with a person in exercise of the statutory power under the Contract
Act or the Rules framed under an Act, where the aggrieved party alleged breach on the
part of the state, it was held that the latter was bound by its constitutional obligation to
act in a reasonable, just and fair manner and the contract could not be arbitrarily or
unreasonably terminated;495. this was justiciable in a writ petition.496.
Relief in Exceptional Circumstances.—The Supreme Court has held that the High Court
in its extraordinary jurisdiction under Article 226 of the Constitution, would not
entertain a petition either for specific performance of contract or for recovering
damages and that a right to relief flowing from a contract has to be claimed in a civil
court where a suit for specific performance of contract or for damages could be
filed.497. However, there have been exceptional cases. Specific performance has been
granted in a writ petition enabling a petitioner to lift the items purchased by him in an
advertised sale.498. An order for payment of final bills was made in a writ petition
where the works were delayed by the changes made by the Government, the work was
admittedly delayed for no fault of the contractor and escalation rates were also
sanctioned by the Government, but final bills were not paid.499. Holding that relief can
be "rarely and sparingly" granted in a writ petition for breach of a concluded contract
when the circumstances were exceptional, where facts were not disputed,500. and
there was considerable delay in delivery of goods by the authority, the Madras High
Court ordered the authority to effect delivery on the delivery order already issued to the
petitioner.501.
[s 10.10] Statutory Contracts
A contract may be governed by statutory provisions, namely, by the provisions of an Act
or Rule, which provide for the terms and conditions subject to which the parties shall
have a contract. A number of cases have arisen in the context of exercise of the writ
jurisdiction in matters, especially relating to contracts for supply of electricity and of
liquor licences. The terms and conditions of such contracts are governed respectively
by the Electricity Act, or the Excise or Abkari statutes, and the Rules framed under
these. In such "contracts", the relationship is governed by the statute. The rights and
obligations have to be ascertained as a matter of statutory construction and
interpretation of the scheme of the Act and Rules alone.502. It has been held, for
example, that the provisions relating to arbitration in the Electricity Act, 1910 will prevail
over the provisions of the Arbitration Act, and will override any provision in the contract
relating to arbitration; thus matters not covered by the Electricity Act, 1910 could not be
referred to arbitration.503. After the enactment of the Electricity Act, 2003, it has been
held that the State Electricity Regulatory Commission has the power to either
adjudicate the dispute between the parties or refer such dispute to arbitration and that
section 86(1)(f) of the Electricity Act, 2003 being a special provision will override
section 11 of the Arbitration and Conciliation Act, 1996.504.
Merely because the written agreement is executed, it does not make the terms
contractual.505. A contract does not become statutory simply because it has been
awarded by a statutory body for the construction of a public utility. Contractual or
commercial activities of a statutory body need not necessarily raise issues of public
law. Disputes arising from such activities must be settled according to the principles of
the law of contract.506. Nor does a contract become statutory because it is made in the
exercise of an enabling power conferred by a statute. It would be a statutory contract if
the statute compels incorporation of the terms and conditions in it, and it is statutory to
the extent of such terms incorporated. Such contract may contain some terms settled
by mutual agreement.507.
The service conditions of teachers were laid down under an Ordinance made under the
University of Saugar Act, 1946. The ordinance also required the teachers to have
written contracts in prescribed form. It was held that the remedies for the teachers lay
not merely under the contract, but also under the statute, and the teacher could claim
remedies under the ordinance, though not provided by the contract.508. But where the
statute requiring the terms and conditions to be incorporated into the contract itself did
not have statutory force, the terms would not apply unless incorporated into the
contract.509.
Where a voluntary retirement scheme is statutory, and does not permit withdrawal of
application after a specified date, the scheme prevails over rights under this Act. The
rule giving the power to the applicant to withdraw his application does not apply, and
the employee cannot withdraw his application.510.
The conditions of supply of energy notified by the electricity board in the exercise of its
powers under the Electricity Act and Rules become part of statutory terms and
conditions, and govern the relationship between the parties. When notified, they apply
to all consumers availing supply.511. Neither party can depart from those conditions of
agreement stated in the statutes.512. It is not open to any officer, even a minister, to
modify, alter or amend the conditions.513.
Where the contract is not a statutory contract, it is governed by the provisions of the
Contract Act or the Sale of Goods Act, 1930 if applicable. Any dispute relating to
interpretation of the terms and conditions of such a contract cannot be agitated in a
writ petition.514. A writ petition under Article 226 of the Constitution of India is not
maintainable where the matter is in the realm of private contract, whether it relates to
interpretation,515. enforcement,516. or recovery of amounts due under the contract,517.
or to compel the authorities to remedy a breach of contract pure and simple.518.
Although, the writ jurisdiction cannot be invoked to avoid obligations voluntarily
incurred, a party to such a contract is not precluded from enforcing statutory provisions
governing the contract. Violation of every such provision does not furnish a ground to
interfere. If the provision is directory, substantial compliance of the provision is
enough. Unless it is established that violation of a directory provision has resulted in
loss or prejudice to the party, no interference is warranted. But if it is a mandatory
provision, the court should enquire in whose interest it is conceived. It can be waived, if
it is not conceived in the public interest.519.
1. State of Madras v Ramalingam & Co., AIR 1956 Mad. 695 at 701; Sat Narain v UOI, AIR 1961 P
H 314 at 316.
2. Anson's Law of Contract, 30th Edn,p 4.
3. Protection of Civil Rights Act, 1955, sections 5, 6.
4. In the UK Race Relations Act, 1976.
5. In the UK Sex Discrimination Act, 1975.
6. Electricity Act, 2003, section 43.
7. See the Electricity Act, 2003, sections 45, 62; the Railways Act, 1989, section 70 (no undue or
unreasonable preference or advantage to or in favour of any person, or any particular
description of traffic in the carriage of goods).
8. Zoroastrian Cooperative Housing Society Ltd v District Registrar, (2005) 5 SCC 632 : AIR 2005
SC 2306 .
9. The Essential Commodities Act, 1955, section 3.
10. The Motor Vehicles Act, 1988, section 146; section 196 of the Motor Vehicles Act, 1988
makes it punishable; the Public Liability Insurance Act, 1991, section 4; Inland Vessels Act, 1917,
section 54(c).
11. The Real Estate (Regulation and Development) Act, 2016.
12.
See the Foreign Exchange Regulation Act, 1973 (repealed by the Foreign Exchange
Management Act, 1999), section 47(i): No person shall enter into contract or agreement which
would directly or indirectly evade or avoid in any way the operation of any provision of the Act;
(see also the Patents Act, 1970, section 140, and the Designs Act, 2000, section 42) which
prohibit insertion in contracts and licences relating to sale or manufacture or working of a
patented Article, or Article in respect of which design is registered etc, of restrictive conditions
stated in the section.
13. Foreign Exchange Regulation Act, 1973 (repealed by the Foreign Exchange Management
Act, 1999), section 47(2):
Implying term in every contract that anything agreed to be done by a term of that contract which
is prohibited to be done under the provisions of the Act except with the permission of the
Central Government or the Reserve Bank of India, shall not be done unless such permission is
granted.
14. Employers' Liability Act, 1938, section 3A; the Minimum Wages Act, 1948, section 25; the
Payment of Wages Act, 1936, section 23; the Employees Compensation Act, 1923, section 17.
15. Beedi & Cigar Workers (Conditions of Employment) Act, 1966, section 40; the Cine-Workers
and Cinema Theatre Workers (Regulation of Employment) Act, 1981, section 21; the Contract
Labour (Regulation and Abolition) Act, 1970, section 30; the Maternity Benefit Act, 1961, section
27; the Motor Transport Workers' Act, 1961, section 37; the Payment of Bonus Act, 1965, section
34A; the Payment of Gratuity Act, 1972, section 14; the Sales Promotion Employees (Conditions
of Service) Act, 1976, section 11A; the Working Journalists and Other Newspaper Employees
(Conditions of Service) Act, 1955, section 16.
16. See the Competition Act, 2002 – section 3 (Prohibition of agreements likely to cause
adverse effect on