Mohori Bibee Case and the Tryst of Minors with the Contract Law

Reading Time: 10 minutes

Introduction

Mohori Bibee v. Dharmodas Ghose (1903 SCC OnLine PC 4. ) (Mohori Bibee)was a Privy Council judgement pronounced at the dawn of the twentieth century which aptly dealt with the ambit of minor’s agreement. The court interpreted the relevant provisions pertaining to the Indian Contract Act, 1872 (The Act) in considering the validity of an agreement with a minor. This case in many ways put an end to a dilemma which was initiated in the English judicial system before the passage of the Infants Relief Act, 1874 regarding the legal implications of contracts with minors.

With such legislation in hand, the status of contracts with minors shifted from being voidable (with the infant having a right to  enforce them against the third party, rather than vice versa) to mostly void, albeit with a few exceptions. The colonial rule mirrored the fundamentals of English common law jurisprudence in India. But the Indian judiciary’s interpretation of the Colonial perspective saw a change with Mohori Bibee which vehemently held that an agreement with a minor is void ab-initio. It paved the way for a lot of legal implications concerning minors as stakeholders or beneficiaries.

The Factual Scenario

Dharmodas Ghose who was a minor at the commencement of the transaction, was the sole owner of an immovable property. His mother was appointed as a legal custodian of his property. The minor mortgaged his property to Brahmo Dutta, a moneylender at a certain amount. The minority of the party was aptly communicated to the mortgagee and his attorney on the date of commencement of such mortgage. On careful appreciation, a discrepancy was discovered with respect to the amount paid. The plaintiff, taking the plea of his minority at the time of execution of the mortgage, filed a suit against the defendant, rendering such an arrangement to be void and inoperative. The defendant inter alia contended that there was misrepresentation by the plaintiff and such request of cancellation of mortgage could only be given effect after a refund of the partial amount of money that had already been advanced to him.

Issues Raised

The main issues revolved around the validity of the agreement. The contentions revolved around the fact whether such an agreement was void under Section 2, 10(5) and 11(6) of the Act or not? The second point of contention was whether such agreement with a minor was to be considered voidable or void. Lastly, the question revolved around the consideration of a minor as  a ‘beneficiary’ and the fate of such legal obligations.

The Judgement

The Privy Council held contractual arguments with minors to be void and not voidable. It further held that the effect of minority on contractual obligations was to be assessed on a comprehensive reading of Sections 10 and 11. Section 10 vehemently requires the unconditional consent and competence of the contracting parties for such contract to be legally viable. As per Section 11 of the Act, persons who are of unsound mind as well as those disqualified from contracting by any law which they are subject to are incapable of forming a contractual obligation by reason of such disqualification. The court held minority to be one such disqualification. It further held that a contract by a minor would be non-executable against the other party even after such minor had attained majority, as enshrined by a collective reading of Sections 7 and 58 of the Transfer of Property Act, 1882.  The penultimate part of the judgement held that the minor could not be forced to return the money advanced to him as he was not legally bound by such promise. Further it iterated that a minor was not bound by such contract unless it was related to his necessities.

Critical Analysis

The position of minors with respect to the execution of contracts had been in a turmoil. Although Section 3 of the Majority Act, 1875 fixed the attainment of 18 years as the standard measure for the age of majority (subject to personal laws), it was silent as to how such fixation would result in contractual obligations involving minors. Mohori Bibee struck a sharp contrast between the Indian and the British interpretations of the legal consequences of minority in a contractual obligation. The British law, drawing its foundation from the common law principles of England, considered such contracts to be voidable with respect to the minors to mostly void with a few general exceptions. (Anson, Law of Contract 184 (1969)). Each case was evaluated on the basis of the factual circumstances, being highly subjective. The Mohori Bibee case put an end to such subjectivity and treated all such contracts as void ab initio, thus providing a uniformity in the treatment of the cases.

Mohori Bibee lacked certain aspects. For instance, it didn’t discuss the applicability of the principle of estoppel, as discussed under Section 115 of the Indian Evidence Act, 1872, with respect to the contracts involving minors. The principle of estoppel is applicable where a person when making a statement while entering into a transaction cannot retract from such promise when the liability arises. Whether the principle of estoppel was applicable to minors or not was entailed thoroughly in Vaikuntarama Pillai v. Authimoolam Chettiar which clearly stated that the incompetence of the minor takes precedence over the factor of estoppel, hence, holding that a minor due to his incompetence is incapable of incurring any liability for any debt, even the factor of estoppel cannot make him liable.

Although the minors are able to enjoy the goods, they are stopped from obtaining undue benefit from any transaction. The doctrine of restitution comes to play, requiring such minors to restore back the exact goods that have been transferred to them, so long as they are traceable and in their possession. (Leslie (R) Ltd. v. Sheill, (1914) 3 KB 607). But the doctrine is inapplicable in case such goods are consumed, transferred or become non-traceable.

Modern Implications

The Indian Contract Act, though restricts the competency of a minor to enter into a contract, however, it does not  prevent them from deriving benefits by virtue of incompetency. Hence, as per Section 30 of the Partnership Act, 1930 minors are not allowed to be  partners but it is in favour of such minors being admitted to the benefits of partnership. But rendering him beneficiary rights does not automatically render a right of dissolution on the favour of the minors. (Commissioner of Income-Tax, Andhra Pradesh, Hyderabad v. Messrs. Kesarimal Hirachand, (1970) 2 Andh W343.)

The term necessities has been given a conducive interpretation in Tejaswini Gaud v. Shekhar Jagdish Prasad Tewari, which held that the term “necessities” had to interpreted keeping in mind the holistic welfare of the child. Hence, it should be inclusive of factors like ethical upbringing, economic well being of the guardian, child’s ordinary comfort, contentment, health, education, etc.

Conclusion

The entire judicial mechanism helps minors, with the judges as their councilors and law as their guardian. But merely protecting the minors’ interest should not amount to their unjust enrichment, creating unnecessary hardships for the persons dealing with a minor. (A.V. v. iParadigms, Co., 544 F. Supp. 2d 473 E.D. Va. 2008) The Law Commission of India in their different reports suggested some amendments, thus new sections are designed and proposed in doctrine of estoppels, Specific Relief Act and Indian Contract Act. Minority should be used as a shield and not a sword. The judgment in Mohori Bibee case should not be applicable where a minor knowingly misrepresents the minority either directly or indirectly. It is suggested that the majority should not be strictly based on age but on the psychological capacities of the minors at the time of forming such an agreement. A minor must do equity, if he anticipates the same.

Author: Shouraseni Chakraborty, student of National University Of Study And Research In Law, Ranchi. 

Law of Contract: Contingent Contracts

Reading time: 8-10 minutes.

The word ‘contingent’ means when an event or situation is depends on some other event or fact. The ‘contingent contract’ means enforceability of that contract is directly depends upon happening or not happening of an occasion. The word was used to mean conditional in the Indian Contract Act, 1872. Uncertainty is the indication of the future.

Estimating the probabilities of an uncertainty becoming certain, calculating the results if the event doesn’t happen then measuring the potentiality to affect its consequences are all about contingent contracts. Parties may stipulate that performance of obligations under a contract depends on a contingency, even though the contract is validly formed. The parties agreeing to the conditions agree that the rights are going to be enforced and therefore the obligations are going to be due on the happening of the contingency on the contracting of a valid contract.

What is a Contingent Contract?

Section 31 of the Indian Contract Act, 1872 describes the term ‘Contingent Contract’ as:

A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen’.

In simple words, contingent contracts are those where the promisor perform his obligation only when certain conditions are met. The contracts of insurance, indemnity, and guarantee are some samples of contingent contracts.

Illustration: M is a private insurer and enters into a contract with N for insurance of M’s house. According to the terms, M agrees to pay N an amount of Rs 1 lakh if his home is burnt against an annual premium of Rs 8,000. This is often contingent contract.

Characteristics of Contingent contracts

A Contingent Contract must have three essential characteristics. These are:

  1. The performance of the contract depends on the happening or non-happening of a particular event in future. This dependence on a probable future event distinguishes a contingent contract from a standard contract.
  2. This event must be uncertain, meaning happening or non-happening of the future event isn’t certain, i.e., it might or might not happen.
  3. The event must be collateral or incident to the contract.

Relevant legal provisions

  • Section 32: Where the performance of a contingent depends on the happening of an uncertain future event, it can’t be enforced till the event takes place. And if the event’s happening becomes impossible, those contracts become void.

Example- M contracts to sell N, a bit of land if he wins the legal case involving that piece of land. M loses the case. The contract becomes void.

  • Section 33: Where the success of a contingent contract depends on a potential occurrence not occurring, the contract is also enforced if it is difficult to do so.

Example- X agrees to sell his house to Y if M dies. This contract cann’t be enforced till M is alive.

  • Section 34: If the contract depends on the way in which an individual will act at an unspecified time, the event shall be considered to become impossible when such person does anything that makes it impossible for him to act in such a way in any definite time or otherwise than in the context of further contingencies.

Example- A promises to pay B Rs 5,000 if he marries M. However, M marries N. M’s act thus renders the event of B marrying her impossible.

  • Section 35: Contingent contract to do or not do anything, if a specified uncertain event occurs within a hard and fast time, becomes void if the event does not occur and the time expires or its occurrence becomes impossible before the time expires.

Example- A promises to pay B Rs 10,000 if the ship named ‘Shark’ which leaves on a dangerous mission returns before July 01, 2020. This contract is legally enforceable if the ship returns within the prescribed time. But if the ship sinks, then the contract is void.

  • Section 35(1): Contingent contract to do or not to do anything, if a selected event doesn’t happen within a specified time, could also be enforced when the time so specified expires and such event doesn’t happen, or before the time so specified it becomes certain that such event will not happen.

Example- A promises to pay B Rs 5,000 if the ship named ‘Shark’ which leaves on a dangerous mission does not return before July 01, 2020. This contract is enforceable by law unless the ship returns within the agreed period. Also, if the ship sinks or is burnt, the contract is enforced by law since the return isn’t possible.

  • Section 36: Where a contingent contract is dependent on the occurrence or non-occurrence of an impossible event, such a contract shall be void. This is often no matter the very fact if the parties to the contract are conscious of the impossibility or not.

Example- X promises to pay Y Rs 10,000 if the sun rises in the west the subsequent morning. This contract is void, because it is impractical for the event to happen.

Case Laws

  1. Chandulal Harjivandas, Jamnagar v. Commissioner Of Income-Tax [1967 SCR (1) 921]

In this case all insurance and indemnity contracts would be held to be contingent.

  1. HPA International v. Bhagwandas Fateh Chand Daswani and Ors.

The contract stipulated that the entire interest in the property of the vendor’s and reversionary’ property would be transferred, therefore, one single indivisible contract, subject to the Court’s sanction. Therefore it had been in contemplation of parties that transfer of entire interest was conditional upon sanction of the Court been granted, hence, the requirement of vendor to transfer his own title was also subject to the Court’s sanction, unless the agreement varied.

  1. Rojasara Ramjibhai Dahyabhai v. Jani Narottamdas Lallubhai (Dead) by Lrs. & Anr. [1986 SCR (2) 447]

It was held that the contract was a contingent one and because the contingency failed, there was no contract which could be made the idea for a decree for performance.

Critical Analysis

The benefits offered by contingent contracts are that they motivate parties to perform at or above contractually specified levels. That’s the drive behind the utilization of contingent contracts in all sorts of compensation arrangements, from sales commissions to stock options. Sports teams and entertainment companies routinely use contingent contracts to motivate athletes and artists. But contingent contracts are useful not only for motivating individuals. They can also motivate companies. By rewarding outstanding results, contingent contracts motivate outstanding performance.

Conclusion

For a contract to be a contingent contract, certain essential elements need to be there. These elements form a contingent contract and without them, a contract won’t be contingent. There must be a legitimate contract to do or not to do something. The performance of the contract must be conditional. The said event should be collateral to such contracts and the event should not be at the promisor’s discretion. These are some rules that need to be followed for a contingent contract to be enforceable. For instance, on the happening of an occasion, on the event not happening and on the event not happening within a specified time.

Author: Deeksha Shrivastava from Fairfield Institute of Management and Technology, Guru Gobind Singh Indraprastha University.

Editor: Silky Mittal, Junior Editor, Lexlife India.

Law of Contract: Free Consent

Reading time: 8-10 minutes.

Every day-to-day transaction that is conducted involves the usage of contracts, whether verbal or written. Contracts are an indispensable part of any individual’s life and are utilized at every part. Contracts are essentially a bundle of rights and obligations that tend to bind one party with another in exchange for some consideration. In India, the making and enforcement of contracts is governed by the Indian Contracts Act 1872, which extends to the whole of India except Jammu and Kashmir.

This act defines Contracts as an agreement between two or more parties, which is enforceable by law. Thus, it is pertinent to note that only those agreements which are able to be enforced by law can be termed as contracts. The agreement must satisfy certain essential conditions as laid down in Section 10 of the Indian Contract Act in order to be enforceable. These conditions are-

  • It is essential to have an agreement between both the parties. In order to have an agreement, there must be a proposal by one party and it should be accepted by the other party.
  • The parties entering into the agreement must be competent to contract.
  • It is essential to have a lawful consideration and lawful object in the agreement.
  • Free consent must be given by both parties while entering into a contract.
  • The agreement should not expressly be declared void by the law.

There are 3 types of contracts which are valid contract, which is an agreement enforceable by law; void contract is an agreement which is not enforceable by law and voidable contract which is valid at the option of the party which is aggrieved. In case there is flawed consent, it would amount to voidable contract.

What is free consent?

In order for a valid contract to persist, it is essential to ensure free consent of the parties. There is a concept of consensus-ad-idem which implies that the parties entering into the contract must mean the same thing in the same sense. The understanding about the terms of the contract between both the parties should be on the same subject matter and footing. The entire structure of law of contract is based on the concept of consent, which is placed on the highest pedestal during any agreement. In order to validate the formation of a contract, the main ingredient would be the obtainment of genuine and free consent of the parties. Thus, the mere acquisition of consent is not enough but the consent must be obtained in a free and voluntary manner.

According to the Indian Contract Act, consent is said to be achieved in all situations except when it is caused by coercion, undue influence, fraud, misrepresentation or mistake. These methods of obtaining consent render the agreement voidable at the instance of the aggrieved party and can invalidate the contract. However, if mistake was a part in obtaining consent, the agreement is said to be void. The main objective of this aspect is to be fair to both the parties and ensure that the judgment of either of the party was not clouded or influenced before entering into a contract. This doctrine helps in the promotion of individual autonomy and freedom to contract.

Relevant legal provision(s)

Section 13 and 14 of the contract Act define consent and free consent respectively. Consent, under Section 13, is said to be achieved when two or more individuals agree upon the same thing in the same manner. The elements that are said to vitiate consent are also given under the Indian Contract Act and are Coercion (Section 15), Undue Influence (Section 16), Fraud (Section 17), Misrepresentation (Section 18) or Mistake (Sections 20, 21 and 22).

  • Coercion can be defined as the physical or mental force that is used upon a person to enter into a contract against his will. The consent in such a situation is not free and there is usage of force or threats to obtain consent. Section 15 of the Indian Contract Act defines coercion as committing or threatening to commit any act forbidden by law in the IPC or unlawful detention or threaten to detain any property or person with the aim of causing a person to enter into a contract. Coercion makes a contract voidable at the instance of the aggrieved party. If any consideration is paid or goods are delivered at such a time, it must be returned or delivered if the contract is void. The burden of proof rests on the party who wants to avoid the contract and he must prove that the consent was not given freely.
  • Undue Influence refers to a situation wherein the relations between the two parties are such that one party is in a position to dominate the other and thus, uses said position to influence the other party and obtain an unfair advantage. This is given under Section 16 of the Act. This situation can occur if the people are in a fiduciary or superior – subordinate relationship. This can also occur when a contract is made with a person whose mental capacity is affected by age, illness or distress. However, for an agreement to become voidable, it must be proved that the dominant party had the objective to take advantage of the other party. The burden of proof, here, rests on the dominant party to prove the absence of influence.
  • Fraud, under Section 17, occurs when a person deceits another person by making false statements, thereby compelling him to enter into contracts. This is done with the complete knowledge that the statement is untrue or in a manner that is reckless without checking its validity and thus impairs free consent. According to Section 17, there are certain instances where frauds occur which are suggesting a fact that it is not true and there is no belief of it being true, the active concealment of fact, a promise made without any intention of it being performed. It is essential that the aggravated party suffer from some actual loss due to the fraud and has incurred damages. The false statement must be a fact rather than an opinion to constitute a fraud.
  • Misrepresentation, as given in Section 18 occurs when a party makes a statement that is false and inaccurate. However, the misrepresentation is supposed to be innocent and non intentional and the party making it must believe it to be true. There can be 3 ways in which misrepresentation occurs and it is that the person makes a positive assertion believing it to be true. However, the breach of duty should lack the intent to deceive and the breach gives the person committing it an advantage by misleading the other. The third way is when one party acts innocently and thus, causes the other party to make any mistake with respect to the subject matter of the agreement. The burden of proof is placed on the party claiming the occurrence of misrepresentation and this becomes voidable.
  • Mistake occurs when there is a misunderstanding with respect to legal provisions when it comes to obtaining consent. If it weren’t for the misunderstanding, the party would not have consented to enter the agreement. There are 2 types of mistake namely mistake of law and mistake of fact. Mistake of law occurs when a party has any misunderstanding with respect to any legal provision, and in most cases the contract cannot be avoided as ignorantia juris non excusat (ignorance of law is no excuse) prevails. However, if the parties have any confusion or misunderstanding with respect to the subject matter or terms of contract, it is said to be mistake of fact. The agreement is valid if there is misunderstanding on the part of one party.

Case laws

  • Chikkam Ammiraju v. Chikkam Seshama (1917) 32 MLJ 494

This is a case involving coercion wherein the question before the Court was whether coercion could be caused by a threat to commit suicide. In this case, a husband threatened to commit suicide and thus induced his wife and son to execute a release deed in favor of his brother in respect if certain properties that they claimed to be their own. It was held that a threat to commit suicide amounted to coercion and the deed was voidable.

  • Wajid Khan v. Raja Ewaz Ali Khan, (1891) ILR 18 CAL 545

In this case, an old and illiterate woman conferred a high monetary benefit onto her manager without any valuable consideration and it was held that undue influence was applied. The burden of proof was on the manager to show that it was a bonafide transaction and no undue influence was exercised.

  • Shri Krishan v. Kurukshetra University, 1976 AIR 376

The plaintiff was a candidate for the LLB exam. The candidate was short of attendance and failed to mention it in the admission form of the exam. Neither the head of the department not University authorities bothered to conduct a check and discover the truth. The Court held that the candidate had not committed any fraud and there was no power in the University to withdraw the candidature of the candidate.

  • Long v. Lloyd, [1958] 1 WLR 753

The defendant, in this case, sold his lorry to the plaintiff by making a representation which was false that the lorry was in excellent condition. However, after buying it the plaintiff discovered serious defects in the lorry and instead of rescinding the contract, accepted the defendants offer of half the cost of repairs. Subsequently, the lorry broke completely and the plaintiff wanted to rescind the contract however the court held that this right did not exist any more as the plaintiff had affirmed the contract by accepting to share costs.

Critical analysis

The concept of free consent is a very important one in the law of contracts and provides the basis in making contracts. However, it becomes hard to prove consent in cases and thus proper scrutiny is required. It is essential that there be meeting of minds, i.e., both the parties must agree on the same thing in the same manner. Only then will consent be fulfilled. In order for there to be informed consent, it is essential to embody volition, information and comprehension. In order to be able to exercise ones own free will, there must not be any undue influence or coercion. Coercion occurs when a person threatens to do something to harm the other party or his property if consent is not given.

Undue influence consists of the exercise of power or dominance from a person who is in a fiduciary relationship with the other party or a person with authority. Another aspect of consent is the requirement of information and to achieve this, it is pertinent that there is no fraud or misrepresentation. Comprehension would occur when there is no mistake on the part of either of the parties in understanding the terms of the agreement. Contracts are the most intricate part of any transaction and must be handled delicately so. A contract is voidable when there is absence of free will.

Conclusion

The concept of consent is an integral part of any decision making process and is the basis for contract making. However, in recent times it has become extremely hard to ascertain free consent. Thus, there is a need to come up with means to find out whether consent has been given freely or not. People tend to rely on the defenses if they are being charged for coercion, undue influence etc.

The ways in which consent can be influenced are discussed and in cases of coercion, undue influence, fraud and misrepresentation, the contract tends to be voidable at the option of the aggrieved party. However, in case of mistake, the parties can only avoid the contract in situations where there exists a bilateral mistake of the party with respect to the important facts of the agreement or if there is a problem regarding knowledge of foreign law.

Author: Ankita Sethi from Symbiosis Law School, Pune.

Editor: Dhawal Srivastava from Rajiv Gandhi National University of Law, Patiala.

Law of Contract: Capacity to Contract

Reading time: 8-10 minutes.

An agreement enforceable by law is a Contract. ‘Capacity’ is one of those often used terms while discussing about Law of Contract. In today’s globalized era, it is of utmost importance for a party to have the capacity to contract in order to enter into commercial transactions. This article will be dealing with how one person is or is not competent to come into a valid contract with another, and will majorly revolve around the Indian Contract Act, 1872 (hereinafter ‘the Act’), relating case laws, followed by a critical analysis of the subject in the Indian context. Moreover, every Indian aspect will be dealt along with its origin in English Law as well.

What is capacity to contract?

The term ‘capacity’ under English Law refers to the ability of the contracting parties to come into legally binding relations with each other. If any party fails to comply by this condition, the subsequent contracts may be deemed to be invalid, relying on the facts and circumstances of the case. Since the Indian Contract Law is primarily based on the English Common Law, hence Capacity to Contract carries the same importance as under the latter law, and qualifies to be one of the most essential elements of a valid contract.

A person is considered as capable to enter into a valid contract if he satisfies three conditions under the Act, namely, person has to be major, he or she should not be of unsound mind, and lastly he or she should not be disqualified by any law from entering into a contract. However, it is pertinent to note that the subject of the contract should not be illegal or even void for the reasons of public policy.

Relevant legal provisions

The Act lays down three provisions which makes capacity as its centre of attraction. The first in order is Section 10, which states the pre-requisites of a valid contract. One of the conditions laid down is that, an agreement is a contract if they are made by the free consent of the parties who are competent to contract. Following this, Section 11 classifies the parties to contract into three categories who are competent to contract. And lastly, it is Section 12 which lays down the situations when a person is considered to be of unsound mind, in order to give clarity to Section 11.

The first factor is the age of majority. It provides that a minor i.e. eighteen years old, is not competent to contract. It is presumed that a man is the best judge of his own interests, but this is inapplicable with respect to minors to protect themselves from fraud, unscrupulous traders, etc. Hence, Minor contracts under the Act are generally considered to be void or voidable, barring exceptions. So, minor agreements, being void are not capable of being ratified after attainment of majority. Under common law, the contracts benefiting the minors are valid. For instance, if an infant enters into a contract in order to provide himself or herself with the means of self-support, then it shall be valid.

However, a guardian can step into the shoes of the minor to supplement for the minor’s incapacity to contract. When contract is entered into, on behalf of the minor, such as contracts of marriage, then those contracts have been held to be valid on the ground of customs. Also, a contract which is completely executed from the minor’s side can be enforced by the minor because there exists no liabilities and nothing needs to be done by him or her further, because it would end up as being for the benefit for the incapacitated persons. Furthermore, Section 68 of the Act is the provision which relates to the position of necessities supplied to the minor.

The second factor concerns with soundness of mind. Consent is considered to be an act of reason which has to be combined with deliberation. It is possible for a man to behave normally, but he may be incapable of understanding the transaction, and thus being unable to form a rational judgment, which results in unsoundness of mind. According to Section 12 of the Act, a person is considered to be one of a sound mind if he is capable of understanding and making a rational judgment at the time when he comes into a contract. This implies that a person who is usually of unsound mind and partially of sound mind, then he or she should come into a contract when he is of sound mind, and if it is vice-versa, then the person should avoid making a contract when he or she is of unsound mind. Unsoundness of mind goes on to further render the contract as a void one. But, sanity is presumed in favour of that person, which implies the capacity to understand and make rational decisions as to their interests. For instance, if a person alleges the other that the person has become incapable of understanding his business due to old age, then the onus is on the person to prove the unsoundness of mind of the other. Unsoundness of mind can be because of various reasons such as insanity, drunkenness, mental idiocy and old age.

The last factor is with respect to the persons disqualified by law to enter into a contract. These include several types of people. First is alien enemies i.e. according to Section 83 of Civil Procedure Code (hereinafter ‘CPC’), no one is allowed to come into a contract with an alien if any war is subsisting, unless the government allows for the same. The second is regarding the foreign sovereigns which is embodied under Section 86 of the CPC. The next is an insolvent person, who cannot be subject to any contractual agreement because when he is declared insolvent, his properties are with the official assignee and that he or she can only enter into a contract in correspondence with that property as per Section 141(1)(b) of the Insolvency and Bankruptcy Code, 2016. And lastly, contracts with the government is also to be complied with some formalities, and if not done, then it would be deemed to be void. This is not the exhaustive list, but some of the categories which come under the ones who are disqualified by law.

Case laws

Mohari Bibee v. Dharmadas Ghose [ILR (1903) 30 Cal]

In this case, the respondent was a minor who was the sole owner of an immovable property. His mother was the legal custodian. He misrepresented his age to a person and mortgaged his property. Later his mother clarified regarding his minority. But that person sought to enforce the contract of mortgage once he attained majority. The Calcutta High Court went on to hold that any contract entered into with a minor or an infant qualifies to be void-ab-initio. So, they held in the context of the case that the mortgage contract was void as it was entered into by the minor respondent.

Leslie v. Sheill [1914 3 KB 607]

Here, defendant was a minor who obtained a loan from the plaintiff by misrepresenting his age. Later, the plaintiff sued on the grounds that the minor is liable for fraud and he shall be compelled in equity to restore the money. But the court took a different view and held that making is compulsory for the minor to pay an equivalent sum out of his present and future resources would amount to enforcement of a void contract, and hence, it cannot be done even if the infant entered into the contract by fraud.

Raghava Chariar v. Srinivasa [ILR (1916) 40 Mad 308]

In this case, the issue which arose was, whether a mortgage which is in favour of minor who has advanced the mortgage money in full, is enforceable in the court of law by the minor or any other person on his behalf, or not. The Madras High Court came to a conclusion that a minor can enforce any contract which is of benefit to him or her, where there is no obligation to be borne by him or her.

Sirkakulam Subramanyam v. Kurra Subba Rao [AIR 1948 PC 25]

A guardian entered into a contract to purchase a certain immovable property, on behalf of the minor. Later, the minor sued the other party for specific performance in order to recover its possession. It was concluded that any contract can be specifically enforced by or against the minor if: it is for his or her benefit, and if the guardian who has entered into the contract on behalf of the minor, is competent to do so. This case basically laid down the Doctrine of Maturity under the Contract Law of India.

Campbell v. Hooper [(1855) 3 Sm&G 153]

The mortgagee, in this case, obtained a decree to repay the debt. But there was evidence leading to a conclusion that the mortgagor was a lunatic at the time of entering the contract, and the mortgagee was unaware of the same. Under English Law, it was held that mere fact of lunacy cannot make a contract invalid, and if the other party had the knowledge of lunacy, then it would become voidable at the option of the lunatic. Thus, knowledge is an important factor under English Law.

Critical analysis

After critically going through the legal provisions under the English and the Indian law, it was noticed that under the latter, it is not clearly specified in the statute as to whether a minor agreement is void or voidable. Though, Mohari Bibee case cleared it to an extent that it is void-ab-initio, but it has still attracted a lot of controversy on this point. But, meanwhile the law regarding the same is pretty clear in England, where it is provided that the minor can enter into a contract which would be deemed as voidable till the time he or she does not reach eighteen which implies that after attaining the majority, upon their will, they can either enforce the contract or terminate it.

But in India, they cannot ratify in absence of some special circumstances. Again, there has been variety of judicial decisions on this point which makes the situation unclear. Further, it is pertinent to note that under English Law, an unsound person is competent to contract, but he can avoid the contract if he satisfies the court that he was incapable to understand and the other party was aware of it. In India, situation differs, and a contract by an unsound person is rendered as void i.e. completely invalid.

Conclusion

At the end, one point which comes to the notice is that though Indian Contract Law has its origin in the English Law, but the interpretation and the stands in both the countries differ on several aspects, as stated earlier. To be precise, English law is comparatively clearer than the Indian law, as what is to be interpreted is already codified and grey areas are not left to be filled through judicial decisions, as in India. Lastly, the English Common law proves to have a wider ambit as it deals with unsoundness under incapacity which even includes public corporations, minorities apart from intoxicated and mentally ill people.

Author: Jaanvi Singh from School of Law, Bennett University.

Editor: Dhawal Srivastava from Rajiv Gandhi National University of Law, Patiala.

Law of Contract: Communication of Offer

Reading time: 8-10 minutes.

The use of digital contracts and electronic signatures has become the norm in this era of the worldwide pandemic. The Indian Contract Act, 1872 states that the term “Contract” under its definition clause of Section 2(h) as an agreement that can be enforced by law, or an agreement which intends to create a legal relationship. When we break down this definition, it has two significant parts to it: 1. agreement and 2. enforceable by law. Communication of offer is part of one of the most essential elements of a contract- “offer”. Only if offer is communicated, there can be acceptance, such that we can move onto other stages of formation of a contract, like capacity to contract and consideration.

With the outbreak of COVID-19, domestic and international trade has been put at a unpredicted pause, which resulted in the adverse effect on the domestic market and its network of supply chain. Even the Indian Supreme Court had invoked its absolute powers under Article 142 of the Constitution to extend the limitation period in all cases against the usual timeline, due to the possibility of non-performance as extrapolated under the Limitation Act, 1963.

Although the term “force majeure” is not expressly defined in Indian law, its interpretation of referral can be seen in Section 56 of the 1872 Act. This type of provision in a commercial contract is an exact set of circumstances in which performance under the contract will be delayed or dismissed for an unspecified time period, until the situation comes back to normal.

This French expression has a wider meaning than the “act of God”, though it may be unclear if this includes all “causes you cannot prevent”. Section 56 of the Act, allows for non-permanent release of obligations on grounds of impossibility in eg. any untoward event or changes in the situation that is totally contravenes the basis upon which the parties entered into agreement. The “sine qua non” or an essential condition for invoking such a clause is 1. an existence of a valid contract between the parties, 2. the contract is yet to be performed, during the period of temporary struggle, 3. the contract after it is entered into becomes, because of fact or law, impossible to perform.  

What is communication of offer?

Section 4 of the Indian Contract Act 1872 deals with the completion of a proposal, acceptance and revocation enumerates that the communication of the offer is completed when it has come to the knowledge of the person that it was supposed to have been made to. When the offeree (specific offer) or any member of the public (general offer) becomes aware/knows of the offer, the communication of the offer is said to be complete. When 2 people are talking, face-to-face or via telephone, etc.,  the communication will be complete as soon as the offer is made. Eg. A writes a letter to B offering to install plug points around A’s new home for Rs. 5,000. He mails it via the post office on 3rd July, 2020. The letter reaches B on 6th July, 2020. Thus, communication of offer is said to be done on 6th July, 2020.

Relevant legal provision(s)

The Specific Relief Act, 1963 and the Sales of Goods Act, 1860 is often related to this Act. Sections 3 to 9 of the Contract Act talk about communication of offers and acceptance, revocation of proposals and acceptance.

Section 3: Communication of offer, acceptance and revocation of proposals.

The types of communication etc., are said to be done by any act or omission, by which he intends to communicated such proposal, acceptance or revocation, or which has the effect/impact of communicating the offer. 

Section 4: Communication when complete.

The acceptance’s communication is done against the proposer, when it is put in a course of transmission to him outside the acceptor’s control; as against the acceptor, when it comes to the knowledge of the proposer. The communication of a proposal is fulfilled only when the person to whom it is made has the knowledge of it.  

Section 5. Revocation of proposals and acceptance.

An acceptance may be abrogated at any time before acceptance is communicated as against the acceptor, but not after it is communicated. Proposals can be repealed at any time before the acceptance is delivered against the proposer, but not afterwards. 

Section 6: How the revocation is made.

An offer can be taken back through communication via notice of revocation by the proposer to the other party for many reasons: 1. due to the death or insanity of the proposer, 2. if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance by the lapse of the time prescribed in such proposal for its acceptance, 3. by the negligence of the acceptor to fulfil a condition before acceptance, 4. if devoid of communication of acceptance in case there is no time limit prescribed, a reasonable standard will be applied.

Section 7: Acceptance must be absolute.

The transformation from a proposal to a promise should be accompanied by a absolute and unqualified assent. The acceptance should be shown in a rationale and prudent manner, unless the proposal specified in the contract decided the mode in which it is to be accepted. If the proposal explicitly states the method, but is not adhered to, the proposer may insist that his proposal shall be accepted in the prescribed manner, within a reasonable time after the acceptance is communicated to him and not otherwise. If he defaults on doing, he accepts the acceptance. 

Section 8: Acceptance through performing the terms of the contract or getting payment.

Performing the conditions of proposal/acceptance of any consideration for a bilateral promise along with the offer, is an acceptance of the proposal. 

Section 9: Express and implied promises.

If the proposal or acceptance of any promise is expressed on paper on words, it is said to be expressly/explicitly given. If it is not in words/documented, it is said to be an implied promise.

Case laws

  1. Lalman Shukla v. Gauri Dutt, 1913 40 ALJ 489.

The defendant’s nephew eloped from his house. The plaintiff (defendant’s servant) was sent to search for the missing boy. After the plaintiff had left in search of the boy, the defendant announced a reward to anyone who might find the boy. The plaintiff, who was unaware of this reward, was successful in getting the boy back. When he found about the reward declared by the defendant, he brought an action against the defendant to claim the compensation/prize money, as he had found the boy for no money in advance. The court held that because the plaintiff did not know of the reward offer, his act of finding the boy who was lost did not mean he accepted the offer as he only came to know after finding the boy. Thus, he was not entitled to claim the reward. An offer can be accepted only after the same has come to the knowledge of the offeree, as per contract law. It means that the offer has to be proposed by the offeror, so that there is acceptance by the other party, the offeree. This case law shows how communication of offer is essential.

2.      Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas and Co. and Ors., AIR 1966 SC 543

The plaintiffs offered to buy cotton seed cake from the defendants, and the resultant contract was negotiated over long distance telephone on 22.07.1959 as an oral contract. The court claimed that the parties are in presence of each other, indirectly, assuming the callers are the parties, on telephones. The court placed reliance on the English case law of Entores Ltd. v. Mills Far East Corporation, (1955) 2 Q.B.D 327, in which it was held that in cases of instantaneous communication, the contract is only complete when the seller receives a “yes” and the contract is created according to the place at it is formed, to clear up jurisdictional issues in case of a breach.

The court contended that with regard to the essential nature of a telephonic conversation, the parties are in a sense in the presence of each other and negotiations are concluded by instantaneous communication. They opined that in cases where contract is to be concluded through instantaneous modes of communication, the contract will only be concluded when the acceptance of the offer reaches the offeree, and there will be non-application of exception for modes of communication that are not immeadiate. This case law shows the significance of instantaneous communication of offer.

Critical analysis

Lacunae in the specification of the modes of communication

  • The provisions governing digital communication have been delineated in the Information Technology Act, 2000, but it does not deal with using messaging tools to create contracts. There are 2 types of modern communication: instantaneously and non-instantaneously.
  • Although e-mail or Facebook communication is covered under the ambit of Section 4, no specific rule is constituted whether postal rule or rule of instantaneous communication will be considered same as “contracts” made through Facebook/e-mail/Instagram DMs, etc. If someone sends a message through Facebook or e-mail and opposite party replies instantly, it is considered as instantaneous communication; but if opposite party does not reply instantly, then it seems to be non-instantaneous communication in nature, but this is a rationale assumption, and isn’t verified. Therefore, social messaging tools are a mix of both forms of modern communication.

           Suggestion for application of the rule of communication

  • The transmission of an electronic record, under Section 13 of the Information Technology Act, 2000, happens when it gains access to a  computer resource outside originator’s control. In the case of e-mail when the message enters the offeree’s electronic mailbox, there would be a receipt of the offer, so the contract is formed when the message enters into the mailbox of the person to whom they are addressing.
  • In the Entores Ltd. case (supra)., the judge said that the postal rule cannot be applied to instantaneous mode of communications, such as telephone and telex. If a phone line got disconnected, just before the offeree accepted, it would be incorrect to assume that the contract was formed and the parties would not have to call each other back, which applied to telex. London was the place where the contract was created, since the contract was to be formed when and where the telex was received.
  • In N.M. Superannuation Pty. Ltd. vHughes, the New South Wales Supreme Court’s decision, the judge held that if a fax was left switched on, its owner shows, by this action, his preparedness to receive messages on it and was considered enoguh for a notice to be communicated by fax in this situation, even though the document might arrive outside normal business hours. Courts have not tested whether these principles apply to digital means of communication, so hopefully this will be done in the near future.
  • When the initiative of negotiation is of a non-delayed nature, the instantaneous communication should be applied, regardless of the completion of the negotiation’s nature is, and contract is  when acceptance comes to the knowledge of the proposer. When the nature of negotiation is not instant, there should be application of the postal rule, and the contract is complete when the acceptance is sent and gone beyond the control of the acceptor.

Conclusion

Thus, Section 4 of the Contract Act, 1872 lacks to keep pace with the modern world.

The Supreme Court in Bhagwandas case (supra) has held that Section 4 of the Contract Act is only applicable to forms of communication that are not instantaneous. Also, taking the example of the 2019 amendment of the Consumer Protection Act, we need to incorporate our digital lifestyle into legislations. Where social distancing has become the norm, we need to ratify international conventions governing e-contracts. Countries like Cayman Islands, Bahrain, USA, Thailand are paving the way for communication of offer, and are setting an example for India to keep up with this fast-changing digital world.

Author: Anjali Baskar from CHRIST (Deemed to be University).

Editor: Dhawal Srivastava from Rajiv Gandhi National University of Law, Patiala.

Law of contract: Illegal agreements

Reading time: 8-10 minutes.

In order to understand the concept at hand with utmost clarity and in detail, it is essential to begin from the basics of ‘contracts’. Two parties enter into a legal relationship of a contract after making a proposal followed by the acceptance of such proposal. A contract consists of three essentials, which form its definition. These essentials are –

  1. Offer
  2. Consideration
  3. Acceptance

In addition to this, for an agreement to be considered as a valid contract, free consent of the parties should be involved, along with the assurance that the “object” of such a contract is lawful. Without these certain conditions being fulfilled, a contract cannot be considered to be valid in the eyes of law. Under the Indian Contract Act, an important determinant of an illegal agreement is the ‘object’ of consideration. This can be formulated into an illustration for a more precise understanding –

A enters into a contract with his friend B. One of the terms of the contract states that B will be paid a sum of Rupees 10,000/- by A on the condition that B commits theft of a prized artifact from the house of a third party, C.

In the aforementioned illustration, A has made an offer to B, receiving an acceptance from him. However, the object of this contract, i.e. commission of the offence of theft by B, is not lawful and is of a criminal nature. This very object of the agreement makes it an illegal agreement. Both parties to this contract are criminally liable for their actions which fall under the scope and ambit of the Indian Penal Code (IPC). Additionally, this contract is void ab initio, i.e. void from the beginning. This contract cannot be enforced lawfully as it requires the performance of a specific act that is prohibited by law and is a punishable offence.

What are Illegal agreements?

To define Illegal Agreements in their most basic form, they are considered to be those agreements that violate existing laws in the particular domain and are of criminal nature. Agreements that are immoral and opposed to public policy also fall under the category of illegal agreements. Under the Indian Contract Act, there exists another concept of ‘Void’ agreements. A common misunderstanding exists in this domain where the concepts of Void and Illegal agreements are assumed to be overlapping. This however is not the case. There exist substantial differences between the two, in matters of nature and even consequence.

Differences:

Contrary to an Illegal agreement, a void agreement can be defined as an agreement that is not legally binding. Such agreements carry no enforceability in the eyes of law as they do not bind the parties under any rights or obligations. No transactions made in relation to a void agreement are considered valid and effective. Agreements can either be void ab initio, i.e. void from the beginning; or they can turn void later after losing their legal enforceability due to an act committed in the duration of performance. Illegal agreements are illegal from the beginning due to the object of consideration being unlawful and punishable in the eyes of law.

Additionally, the scope and ambit of void agreements is wider than that of illegal agreements. Not all void agreements can be categorized as illegal; however, all illegal agreements are void from their inception. Void agreements are not punishable in the eyes of law. The parties are not criminally liable for entering into void agreements. On the contrary, illegal agreements are governed under the Indian Penal Code and thus, parties to an illegal agreement are criminally liable for their actions as a part of performance of such agreements.

Legal provisions:

All contracts in the whole of India are governed by the Indian Contract Act, 1872. This particular legislation deals with various types of contracts, along with enumerating essentials that are fundamental to the formulation of valid, enforceable contracts. The Act also puts into place various definitions that make their way into the legal jargon concerning contracts. In addition to this, the Act also clarifies what objects and considerations are lawful and what are not. A limitation gets created on the freedom of a person with respect to entering into contracts, subject considerations of the public policy and other contingencies mentioned under the provision. As mentioned before, the term “object” is given adequate importance even under the ambit of this section, which connotes to mean the “purpose” of a contract.

This does not fall into the same meaning as consideration and is not used in the same sense. Following this connotation, if a contract has a lawful and real consideration, it will not prevent the contract from being rendered illegal of the object, i.e. purpose of the contract is illegal an opposed to public policy. In order to determine the illegality of a contract, the thumb rule that is generally followed is to pose the question – “Are the parties doing something opposed to law by engaging themselves into the contract?” If this question yields a positive answer, then the contract is illegal and unenforceable. Section 23 of the Indian Contract has various parts to it that determine the illegality of a contract.

This provision is not extended to the motive or reasons that might be applicable for the parties entering into illegal contracts. In the case of Neminath v. Jamboorao, the court highlighted three main principles on which Section 23 of the Indian Contract Act is based. This was done with an aim of providing a clearer perspective for future references. Firstly, a contract is deemed void if the purpose of it is the commission of an illegal act. Secondly, an agreement is rendered void if it is either expressly, or impliedly prohibited by any law in force at the time of the contract formulation. Lastly, a contract is void if its performance is not possible to be executed without the disobedience of any law in force. These principles, explain in a concise manner, the aim and objectives along with the substance of Section 23.

There are a few key elements of section 23, which are discussed herewith:

  1. Forbidden by law

A generalized confusion persists with regard to the meaning of the phrase “forbidden by law” to mean the same as ‘void’. Both these terms, however carry different meanings which make them non-interchangeable in the legal context. What is considered to be ‘void’ does not necessarily have to be ‘forbidden by law’. This argument was approved by the court in the case of Gherulal Parakh v. Mahadeodaswhere the Supreme Court held that it was the intention of provisions under Section 23 to have a restricted meaning. This was put in pace in order to avoid overlapping of two concepts.

  • If permitted, it would defeat the provisions of any law

This particular provision of the Indian Contract Act deals with the intention of the parties. In this case, if the court finds that the parties intend to transgress a particular law or mutual benefits, the contract will be rendered illegal, without enforceability. This particular object of the contract deems it to be invalid and with punishable consequence.

  • Fraudulent

In case the consideration or the object of the agreement is unlawful, it is ‘fraudulent’ in the eyes of law. However, the court has observed certain exceptions in various precedents and has laid focus on various occasions over the phrase pacta convent quae neque contra leges neque dolo mall inita sunt omnimodo observanda sunt. Every contract that the parties enter into, must be fair to both participants of a transaction, and must not put either of them in an unfair position with respect to transactions involved and performance of the contract.

  • Injury to person or property

No claim is sustainable for any contract that requires parties to cause harm to the person or property of any individual. Because such conditions are punishable under criminal laws, courts cannot enforce such contracts, rendering them void in its entirety.

  • Opposed to public policy

In the legal context, it is very difficult to award one particular definition to the concept of ‘public policy’. It has a huge scope and is equivalent to the policy of law. On various occasions, it is considered to be a variable quantity that expands its ambit and definition according to situations and circumstances at hand. Even in the opinion of the Court, public policy should be given a wider meaning to connote matters which concern public interest and good. What is harmful or helpful for the public changes from time to time and the same should apply to the definition of public policy.

With respect to determining the definition of Public policy and what falls under its scope and ambit, Lord Atkin in the case of Fender v. St. John Mildayopined that the term Public Policy is vague and unsatisfactory in nature, which causes errors and uncertainty while its application is being decided upon. According to him, the term in its most ordinary sense includes actions that are best for common good. In his opinion, while applying the doctrine of a contract being ‘opposed to public policy’; not only focusing on harmful effects of the contract is important. Harmful tendencies also have to be taken into adequate consideration due to the ground being less safe and treacherous. This analysis of his has also been taken as basis for a few Indian precedents, including the Gherulal Parekh case.

In addition to Section 23, Section 24 also mentions illegal contracts under the Indian Contract Act. According to this provision, contracts that have considerations or objects which are partially unlawful are also considered illegal. Additionally, one or any part of one of several considerations for a single object of a contract is unlawful; such an agreement is considered void in the eyes of law.

Critical analysis:

The particular provision of the Indian Contract Act in question at the current instance provides in detail, what objectives behind entering into a contract might render it illegal and void. These provisions are clear and detailed, and have been commented on by judicial experts in multiple precedents over the years. However, the segment involving ‘opposed to public policy’ still creates an area of ambiguity with respect to determining if a contract is illegal or not. As mentioned in a few cases, public policy is generally construed to be something for public good; however its definition keeps evolving according to circumstances. Therefore, the interpretation of this provision does not stay uniform and concrete. It has to be determined based upon the situation, which sometimes is largely based on opinions. Such opinions are subjective and fall on how a particular person choses to analyze a given situation. This creates an ambiguous and unsettling circumstance for decision makers.

Conclusion:

Section 23 of the Indian Contract primarily focuses on the object, i.e. the purpose of entering into a contract. It determines that if such object is illegal and opposed to public policy, the contract itself is illegal and void, having no legal enforceability. Such types of contracts create no valid obligations of the parties of its performance, and bind them with criminal liability in case the act performed in lieu of consideration is illegal in nature.

In the article, various principles enshrined under the provision have been explored along with the aid of case laws in order to determine judicial position on illegal contracts. Additionally, these provisions have been analyzed in order to determine their meaning and application based on the situations and circumstances in which they are used. The three important principles illustrated in the article are essentially the governing principles and determinants of illegal contracts and agreements in the Indian judicial system.

Author: Kanishka Mittal from Symbiosis Law School, Hyderabad.

Editor: Anmol Mathur from Symbiosis Law School, NOIDA.

Plea regarding protection of migrant workers

Reading time: 8-10 minutes.

The recent COVID-19 pandemic highlighted an aspect to society that we once took for granted; migrants. Migrants in India often are those who leave their original homes in search of newer, greener pastures. Most migrants are unskilled labourers who leave their agrarian village with little in search of opportunities in the city, making them vulnerable in places such as these.

In April, amidst the lockdown, the government permitted these stranded migrants to return home, but did not have adequate resources to facilitate that movement through transport methods, leaving the stranded with no option to make the journey on foot or other unconventional means.

In this process, numerous migrants died of exhaustion, accidents or other complications that arose in the course of their journey, which happened to be a reality check for the judiciary, who then decided to take cognizance of the issue when a plea was made in the Supreme Court to protect the rights of vulnerable migrants, which was, to dismay, rejected.

Background

The background for this plea can be understood by the three distinct elements that entail the reason.

Politically, migrants are an asset during times of normalcy, as they aid the economy through their activities. However, during the lockdown, no government wanted to look after the migrants; for the home state, they were a threat of spread, for the base state they were a liability. Moreover, the pass and registration process followed by many states made crossing once porous borders a tangle of bureaucratic Red Tapism. In this turmoil, the migrants were the rope that facilitated a tug-of-war game that both teams wanted to lose.

Legally, there were numerous laws and provisions were violated with respect to the basic rights of these migrants, including human rights and the emergency guidelines put forth by the states and the Central Governments.

Practically, it is almost impossible to facilitate smooth movement for 268 million intra-state migrants amidst a lockdown, keeping social distancing norms that prevail at times like these as well as the lack of infrastructure that the government can provide. It is also necessary to note that the lack of work has drained the savings of most migrants, who are now unable to pay for the services that are offered by the government as well.

The issue was highlighted when 16 migrants going to their villages were run over by a train in Maharashtra while resting on the tracks.

Keeping all these factors in mind, the cacophony caused by the migrant crisis was taken to the supreme court in order to amicably resolve the issue at hand.

However, the Supreme Court, taking the volume of the issue at hand, rejected the plea stating ‘we can neither monitor, nor restrict their movement on roads’.

Main arguments

The main arguments were put forth by Advocate Alakh Alok Srivastava on part of the petitioner and the Solicitor General of India, Tushar Mehta on part of the Respondents.

The Petitioners in this plea sought to extend relief to stranded migrants through the District Magistrate’s office, where the District Magistrate would Identify, shelter and facilitate Inter-State Transportation of migrant labourers, arguing that these migrants were helpless and required the aid of State agencies to ensure they reach their destination.

These was also a call for parity between citizens of the country as all efforts were being made to repatriate migrants residing in foreign countries, yet no adequate measure was being made to repatriate those living within the country. It was argued that travelling to London was easier than travelling to Uttar Pradesh, even if the distance was a fifth.

The Central Government argued that the jurisdiction as to who is permitted to enter a state and who is not lies with individual state governments, who decided who enters and when they enter.

However, the Respondents (The Central Government), taking cognizance of the volume of migrants moving, responded that facilities for free transportation between states was being arranged for and every person would get a chance to travel, however this would require some time and those stranded need to remain patient.

In this situation, the Government argues that using force would be counter-productive as it would simply create unrest among the migrant community specifically and the nation at large.

Furthermore, the Government argued that simply filing a plea would not address the issue at hand practically. ‘It is impossible to keep track of everyone on the street and their movement’ they argued. The Government could only request citizens to keep off the roads, but could not completely restrict them from doing so.

Finally, the Government argued on lines of other statutory provisions such as The Railways Act, stating that illegally crossing or intervening with railway land is punishable with imprisonment, as prescribed under Section 147 of the Act.

Relevant legal provisions

  • Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act,1979:

Before the current crisis, very few Indians were aware of the Inter-State Migrant Workmen Act of 1979.

This act came about in a time when labour contractors recruited large number of migrants from the rural heartlands to work in the cities. These labourers were often ill-treated, lived in sub-human conditions and were often denied pay as well.

Taking cognizance of this issue, the government formulated this act to protect the labourers, who were often employed in the unorganized sector, with little or no literacy. The government mandated the requirement of the contractor to obtain a licence from the origin state as well as the receiving state.

Moreover, this act stipulates that the employer of these labourers must obtain a certificate of eligibility, which stipulates their remuneration as well as role.

The act also stipulates adequate accommodation, medical facilities and protective clothing must be provided to migrants.

  • Occupational Safety, Health and Working Conditions Code, 2019:

This code was introduced in the Lok Sabha in 2019 and aims to do away with 13 labour codes in the country in order to strengthen protection for labourers.

The code mandates that if a contractor is yet to obtain a licence, all labourers contracted by him/her are directly employed by the principal employer. The code also reiterates the prevalence of the displacement allowance equal to 50% of the wage to facilitate any emergency that arises.

The bill was subject to review by a committee in February 2020, where they agreed to provide a chapter solely on the protection of Migrant Labourers and unanimously agreed to implement the provisions of the bill.

These two statutory provisions protect the interest of migrant labourers after considering their economic plight and vulnerability.


Critical analysis

The plea to protect migrant workers was made in good faith and with the required legal backing. However, it is essential to understand that implementation of these laws practically is a daunting task, often impossible to complete.

With thousands of labourers and migrants travelling through the country, it is a herculean task to keep a mob that large from doing so without resorting to violence. Applying violence would fix the issue on an immediate basis, but would create a sense of distrust and fear among labourers, who may not co-operate with authorities completely.

The clandestine nature of these labourers, given their frequent movement to seek work also makes it difficult to trace and identify these individual as they carry little or no identity proof, making it very hard to trace them.

Moreover, the fact that these migrants have little or no awareness of the law makes them vulnerable to exploitation as they are unaware of the benefits and securities that they are entitled to.

The fact that state governments are allowed to decide on the matter of the movement of migrant labourers creates great confusion for those who wish to travel to their homes as it often involves routes that traverse multiple states, each with their own set of rules and regulations, making it an epicentre of bureaucratic entanglement. A person moving from Mumbai to Varanasi would have to travel through Maharashtra, Madhya Pradesh and Uttar Pradesh, each with a requirement of travel passes and medical certification, making it a hassle for labourers to arrange for all the paperwork.

The conditions in labour camps and shelters in many parts of the country also stand to be inhumane, with labourers not being paid or suppled with necessities. This simply furthers the frustration of the migrant class to move back to their hometowns by any means available.

The government lacks adequate infrastructure to facilitate the movement of all the labourers swiftly. Although Trains and buses ply, they are limited, both in terms of capacity and destinations, owing to social distancing norms, limiting the number of travellers who can travel at a time on such modes of transport, which makes the process of moving back a time-consuming one.

One viable alternative for the government to protect these labourers would be to set up shelter spots along the routes these migrants walk across. These shelters could be Schools, government buildings or large tents which provide food, water and shelter to those in need. It must comply with social distancing norms and also provide medical aid to those who require it as heatstroke and other similar incidents are common in precarious situations such as these.

Conclusion

The driving factor constituting the mass movement of labourers on highways can largely be attributed to the trust deficit among the labourers as they don’t trust the government’s intentions or are in denial of losing their livelihood.

The government must not resort to empty words to gain the trust of migrant labourers, rather they must do so by showing actual commitment with food programmes or actual cash transfer.

Although numerous solutions have been propounded by different stakeholders, they are required to pass a test of practicality. One cannot simply cross jurisdictions or pay for programmes without having the capital to do so.

The fact that tracking labourers is a herculean task also makes the transfer process a daunting one. Although money transfers have been promised, only registered workers receive the benefits. This can be resolved by ensuring the government provides the funds to contractors, who then distribute the benefits to the labourers, as they have better knowledge of the same.

Lastly, it is essential to acknowledge migrants as an asset of a state as they bridge the labour deficit of a particular state. It is important to ensure their safety and needs to help them overcome their vulnerabilities so as to prevent restlessness and resentment to the loss of livelihood.

Author: Kshitij Kasi Viswanath from KPMSOL, NMIMS.

Editor: Priyanshu Grover from Symbiosis Law School, NOIDA, Uttar Pradesh.

Law of contract: Void and voidable contracts

Reading time: 8-10 minutes.

In the court of law, an agreement can only be protected if it is enforceable, which can only be possible after the agreement meets certain terms and conditions to become a valid contract. In India, these conditions are met under the Indian Contract Act, 1872. Similarly, the Law of Contract, in Common law, also specifies the grounds under which a certain agreement may not be enforceable or valid either absolutely or under the discretion of one of the parties to the contract. When it’s absolutely invalid, then the contract is said to be void, but when one of the parties to a contract merely has the option to void the contract, then it is said to be voidable.

These provisions under Contract Law usually aim at ensuring fairness in the process. It protects the parties from being at an unjust disadvantage or from making a contract, which is contrary to the law of the land. This basically means that anyone who is taken for granted as a result of the contract may be protected from loss if the contract turns out to be void or voidable at the option of said party.

Therefore, any contract which is made involuntarily or by unlawful means may not be enforceable in the court of law. This provision is particularly useful for unsuspecting people such as children and those with an unsound mind who are prone to fraudulent schemes. In the context of India, the law on this matter has been codified and harbors a good deal of authority. In cases of civil law such as this one, judicial precedents are also extremely helpful in clarifying any ambiguities in the law. Overall, void contracts and voidable contracts not only differentiate the terms, but they lay down the basis for an invalid contract, which is extremely significant.

What are Void and voidable contracts?

  • Void contracts:

This particular category is defined under Section 2(g) of the Indian Contract Act, 1872, which states that contracts or agreements that are not enforceable by law are known as void contracts. Simply put, a contract that cannot be enforced by either of the parties to the contract is one which has been rendered void. It is as if any agreement between the parties never existed, and thus no obligations by either of the parties have to be fulfilled. 

The grounds for a contract to be rendered void include the use of unlawful means, incompetency to enter into a contract, supervening impossibility, and so on. For instance, if A enters into a contract with B to smuggle contraband items into a city, then such agreement will not be enforceable under the law. This is because the subject matter of the contract was illegal and opposed to public policy.

  • Voidable contracts:

Section 2(i) of the Indian Contract Act, 1872 defines voidable agreements as those which are valid as long as one of the parties or both the parties can decide to void their agreement. Mostly, cases involving a voidable contract relate to a situation where there was a lack of free consent from one of the parties. Therefore, if the party accepts the terms of the contract, it remains valid, and if they don’t, then the contract between them ceases to exist.

The basis for deciding whether a contract is voidable at the option of either of the parties depends on factors such as coercion, misrepresentation, undue influence, and so on. Since it’s at the option of one of the parties, the aggrieved party gets to decide whether or not to make the contract void.

For example, A holds B at gunpoint and asks her to sell him her house at an extremely low price, and B does so accordingly, fearing for her life. In this situation, B was coerced into an agreement by A, and thus her consent was not freely obtained. Therefore, she can choose to void the contract on this basis.

Relevant legal provisions: –

Law of Contract in India is governed under the Indian Contract Act, 1872, which is based on the principles of English Common law. There are several provisions under this Act dealing with Void and voidable contracts.

Void contracts:

  • Mistake of Fact (Section 20) –

This provision states that if the parties to a contract are under a mistake as to a matter of fact essential to the agreement. Therefore, any agreement with a bilateral mistake is void. 

  • Mistake of Law (Sections 23 & 24) –

If either the consideration or the object of a contract is illegal, then the agreement is void as it defeats the provisions of the law. This applies to contracts which the court may deem as immoral or opposed to public policy, such as fraudulent agreements, which may cause financial loss to a person.

However, if the legal part of the contract is severable from the illegal part, then the former can be enforced in the court of law.

  • Agreements without Consideration (Section 25) –

This section provides that a contract without any consideration would be rendered void unless it is a gift made on account of natural love and affection; it is a time-barred debt, or it is compensation to someone who has voluntarily done something for the promisor.

  • Agreements in restraint of marriage (Section 26) –

Any agreement which is made in restraint of marriage, either partially or absolutely, of a person is void as it the policy of the law to protect a person’s freedom to choose their marital partner. 

  • Agreements in restraint of trade (Section 27)-

Agreements made in restraint of trade are also rendered void as the law protects a person’s right to carry on their choice of trade or profession, given that it is not illegal in nature.

The exception to this section is laid out in the proviso to Section 27 pertaining to the sale of goodwill, which restrains a buyer from carrying on similar trade with other sellers.

  • Agreement in restraint of legal proceedings (Section 28)-

An agreement by which a person is restrained to enforce his/her legal rights is void on the grounds of public policy as it is in contravention to the jurisdiction of judicial bodies. 

  • Uncertainty/Impossibility of performance (Sections 29, 30 & 36) –

These sections provide that an agreement, the terms of which are uncertain, based on uncertain events or based on impossible occurrences, are void except in certain cases such as that of horse racing. Basically, wagering agreements such as betting or gambling are not enforceable in the court of law. However, the formation of a contingent contract is perfectly valid.

Voidable contracts:

  • Lack of free consent (Sections 19 & 19-A) – 

These sections provide that any contract wherein consent is not freely obtained from a party is voidable at the option of that party. In such circumstances, consent may be obtained by coercion, misrepresentation, or undue influence, which makes it contrary to free consent by law.

  • Prevention of performance by the other party (Section 53)-

When a contract is based upon a reciprocal promise, and one of the parties prevents the other from fulfilling his/her obligations under the contract, then it becomes voidable at the option of the party who was prevented from performing on his/her promise.

  • Failure to perform in fixed time (Section 55)-

There are certain contracts in which time is of the essence, and thus they need to be performed during that period itself. However, when there is a failure to perform the contract on time, then the contract becomes voidable at the option of the aggrieved party.

  • Consequences of rescission (Section 64)-

When a person, at whose option the contract is voidable, rescinds it then the other party need not perform any obligations relating to the contract. At the same time, the person who has voided the contract must restore any benefits he/she may have received.

Similarities and differences: –

Similarities:

  • Both the provisions under the Indian Contract Act, 1872 relate to the non-performance of an agreement between the parties who may or may not wish for the same.
  • If a party in a voidable contract decides to rescind the same, then it has the same effect as that of a void agreement wherein it is assumed as if the agreement never existed.
  • Both the provisions deal with the formation of a contract through immoral and illegal practices that go against the public policy.
  • The primary object of adding these provisions was to ensure that people are not taken advantage of as a result of an agreement made by them unsuspectingly.

Differences:

  • A void contract is invalid from the moment it is agreed upon by the parties, whereas a voidable contract is still enforceable unless one of the parties decides to invalidate the same.
  • An agreement that is voidable is under the discretion of either of the parties to be invalidated, but an agreement that already offers no choice to any of the parties with regards to the enforceability of the agreement is a void one.
  • A void contract is not binding on any of the parties. However, a voidable contract is binding on at least one of the parties.

Case studies: –

  • Void Agreements-Collins v Godefroy: In this case, the defendant, Godefroy, had received a subpoena to provide evidence in the court of law. Instead of going to court himself, Godefroy promised to pay Collins a certain amount if he attended court on behalf of Godefroy. However, later Godefroy refused to pay the sum, and thus Collins brought an action against him. The court held that Collins’s action was not maintainable as the performance of an existing legal duty is not proper consideration. Thus, their agreement was void on the grounds that there was no consideration from the plaintiff’s side.
  • Voidable agreements- Bawlf Grain Co. v. Ross: An intoxicated wheat producer under the influence of alcohol entered into a contract but did not perform his obligations once he saw the price of wheat increase. It was a landmark judgement which held that any contract wherein a party is inebriated is voidable at the option of the aggrieved party.

Critical analysis: –

The provisions or sections relating to void as well as voidable contracts under the Indian Contract Act are not only simplistic but possess immense clarity as well. The fact that this law is applicable to this day, without the need of any amendments stands as a testimonial to its element. Furthermore, it takes a protective approach with contract law in the sense that it guards people from fulfilling unreasonable, illegal, and immoral obligations of an agreement, which may cause them severe loss. It is extremely easy for some people to influence others who may be at a weak bargaining point and thus get exploited. Provisions such as these prevent such agreements from having any legal or official authority.

The sections relating to void and voidable contracts complement other laws as well, such as the Sales of Goods Act, 1930, or any other statute relating to transactions between parties. They are an integral part of understanding the formation of a contract, as it is equally important to highlight the don’ts of the process. Lastly, the law on the subject of void as well as voidable contract strikes a balance between flexibility and rigidity of its application as it could adapt to the facts of the case while maintaining its terms and conditions.

Conclusion: –

To sum up, the provisions surrounding void and voidable contracts in the law of contract can render an agreement unenforceable by law, thus making it invalid. An agreement may be void when it cannot be enforced by either party due to it being unsatisfactory of the standards of a valid contract. On the other hand, voidable contracts are valid contracts but may be invalidated at the option of the suffering party. These provisions highlight the factors which may cause an agreement between people to cease from existence. Therefore, these provisions are instrumental to the law of contract all over the world.

Author: Amitabh Abhijit from National Law Institute University, Bhopal.

Editor: Avani Laad from Symbiosis Law School, Pune.

Law of contract: Implied offer

Reading time: 8-10 minutes.

The term ‘offer’ is one of the fundamental concepts of the law of contracts. It is a term used in the English Common Law, synonymous with the term ‘proposal’ under the Act. The Indian Contract Act, 1872 is based on the English Common Law. The Preamble of the ’Act’ mentions that it has been passed to define and amend certain parts of the law relating to contracts.

The definition of the term ‘proposal’ in the ambit of Section 2(a) of the Indian Contract Act, 1872 reads as follows,

“When one person signifies to another his willingness to do or to abstain from doing anything, to obtain the assent of that other to such act or abstinence, he is said to propose.”

The person making the offer or proposal is called an ‘offeror’ or ‘promisor’ and the person who may accept such an offer is known as the ‘acceptor’ or ‘promisee’. It is pertinent to note that an offer to do or to abstain from doing something must be made to be agreed by the other party. A voluntary act done by a person and informing the other of his willingness or desire to do such an act, with no intent to obtain the assent of the other party does not constitute an offer or proposal.

 “I will serve the nation whenever required“, is a statement expressing the willingness of the person but does not constitute an offer as there is no intent to obtain the assent of another party. But a statement, “I am willing to sell you this book for Hundred Rupees” is an offer made with the intent to obtain the assent of another party.

A valid offer is the one that gives rise to a valid contract. The offer should create or be with a capacity to create legal relations. Mere social or moral relations, for instance: an invitation to dinner does not give rise to legal relations.

Thus, an Offer is an important constituent of the Indian Contract Act, 1872 and possesses a legal duty to do or to abstain from doing something to amount to a contract. An Offer, by the virtue of this Act, can be Expressed, Implied, General, or Specific. It can also be a Cross Offer or a Standing/Open Offer.

What are implied offers?

Implied Offer is an offer conveyed through an act or signs. Such an offer is only implied rather than overtly stated. However, if the opposite party remains silent over the offer, the offer itself is not valid.

The offer is stemmed from the belief that the product or service offered is proper and legally valid. For instance, a person buying a product from a seller assumes that the product functions properly without a seller explicitly claiming that the product works.

This offer is inferred by the act of a person or circumstances of a particular case. For instance, when a taxi driver offers his service for you to reach your desired destination, it implies that the taxi driver is offering his service for some payment. Such an offer would be an implied offer. In the above-mentioned scenarios, an agreement stems from the offer which is construed to be the proposal as per the act.

As per the Indian Contract Act, a person who makes an offer, when he or she implies to another party regarding the validity of a product or service, he/she has officially entered into an implied offer agreement. An implied offer agreement is of two kinds: in- fact and at law.

An implied offer agreement in-fact is construed to be a legal substitute for an agreement assumed to have taken in place. Such agreements are neither written nor oral but if the conduct of the party creates an obligation of some kind, the law rules that both the parties had an in-fact agreement. The legal elements of implied-in-fact agreements encompass: (i) Acceptance and offer; and (ii) Consideration and mutuality of intent, with which, some terms should be deducted from the actions of the party.

In an English Book of Law, namely, Benjamin’s Sale of Goods, 8th Ed. at page 68 the law as to mutual assent is stated as:

 “The assent need not be as a general rule be expressed. It may be implied from their language or their conduct; may be signified by a nod or a gesture, or may even be inferred from silence in certain cases; as if a customer takes up wares off a tradesman’s counter and carried them away and nothing is said on another side, the law presumes an agreement of sale for the reasonable worth of the goods. But the assent must constitute a valid contract, be mutual, and intended to bind both sides. It must also co-exist in the same moment”.

Implied at-law agreements apply when the law levies a duty to perform an agreement and enforces an agreement against a person’s wishes, if necessary. This can take place in cases where one party would stand to benefit at the expense of the other party. Since a party would unjustly enrich him or herself, the beneficiary must pay fair value or make restitution on all services.

Relevant legal provisions

While the Section 2(a) of the Indian Contract Act defines the term Offer – synonymous with Promise, which also includes of offers- express or implied, the term ‘Implied Offer’ can be construed in preliminary stages of the contract as well as in the case of contracts on the sale of goods or services. The relevant legal provisions of implied offer are:

  • As per Section 9 of the Indian Contract Act, 1872 describes Promises, express, and implied as:

‘In so far as the 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.’

  • As per Section 5(2) of the Sale of Goods Act, 1930:

‘Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of mouth or maybe implied from the conduct of the parties.’

  • Section 62 of the Sale of Goods Act denotes Exclusion of implied terms and conditions, in scenarios which are :

‘Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negative or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.’

Case laws

  • Vishnu Agencies (Pvt.) Ltd v. Commercial Tax Officer &Ors (AIR 1978 SC 449)

In the aforementioned case, where the view that on obtaining the necessary permit, the sugar mills on the one hand, and the Government of Madras on the other agreed to “sell” and “purchase” sugar could admit of no doubt, Hon’ble Hidayatullah. J observed that when the Province of Madras after receiving the permit, telegraphed instructions to despatch sugar and the mills despatched it, “a contract emerged and consent must be implied on both sides though not expressed antecedent to the permit.” The learned Judge summed up the matter as :

“So-long as the parties trade under controls at a fixed price and accept these as any other law of the realm because they must, the contract is at the fixed price both sides having or deemed to have agreed to’ such a price. Consent under the law of contract need not be expressed, it can be implied, The present is just another example of an implied contract with an implied offer and implied acceptance by the parties.”

  • M/s New India Sugar Mills Ltd v. Commissioner of Sales Tax, Bihar (1963 AIR 1207)

In the said case, the case of State of Madras v. Gannon Dunkerky & Co (1959) was relied upon, which relied on the case of The Tata Iron & Steel Co. Ltd. v. The State of Bihar (1958) The Hon’ble Hidayatullah, J. quoted as “In these transactions, there was a sale of sugar for a price and sales tax was payable in respect thereof.  Though consent is necessary for a sale, it may be express or implied, and it cannot be said that unless the offer and acceptance are in an elementary direct form there can be no taxable sale.   The controller permitted the assesses to supply sugar of a Stated quality and quantity to the State of Madras; thereafter the two parties agreed to “sell” and “purchase” the sugar.  So long as the parties trade under controls at a fixed price they must be deemed to have agreed to such a price; there was an implied contract with an implied offer and an implied acceptance.”

Critical analysis

The implication of an implied offer could be made obsolete merely by an act of expressed offer. There are also instances where an act of Implied offer is not given validity on account of inadequate representation of the conduct of the parties or where the words were spoken do not fall adequate for it to be construed as an Implied Offer.

As implied offer is primarily through words spoken or through conduct, there is no written representation of such an offer which makes it difficult to prove its validity when the same is questioned. As express offers are in oral as well as in writing and implied offers are solely through act or conduct, an express offer gains precedence over the implied offer for its strength to be ratified in writing which can be a valid proof in the court of law.

Conclusion

Implied Offer is an important subject in the law of contracts of sale of goods and services. Therefore the term, ‘Implied Offer’ finds its mention both in the Indian Contract Act, 1872 and the Sale of Goods Act, 1930.  The conduct or an act of a person is the basis of such an offer, if the intent to create such an offer is absent or there is no mutual agreement between the parties to the offer, the action of the implied offer would stand invalid.

As mentioned below, an agreement stems from an offer and thus an implied agreement stems from an implied offer.

If there is an implied agreement-in law where the law levies a duty to perform an agreement and enforces an agreement against a person’s wishes if necessary, there is no need to ratify the same. Such agreements abhor discrimination, where the beneficiary is bound to pay the fair value or make restitution of all the services provided.

Thereby, if there is profound applicability of such agreements backed by law, this would protect the interests of the offeror and bound the beneficiary with the duty to pay and acknowledge for the services provided.

Author: Vidhi S Shrivastav from University of Mumbai.

Editor: Yashika Gupta from Rajiv Gandhi National University of Law, Patiala.

Law of contract: Cross offer

Reading time: 8-10 minutes.

Contracts play a very important role in our everyday life. They range from insurance policies to employment contracts to sale deeds. We enter into contracts even without thinking. For example, when buying a movie ticket or downloading an app, we enter into a contract. A contract can be oral or written between two or more parties. Any party entering into a contract can include individuals, companies, non-profits as well as government agencies. The whole process of entering into a contract starts with an offer by one party, an acceptance by another party, and an exchange of consideration (something of value). But, sometimes there may arise a few exceptions to this general rule of entering into contracts.

What are cross offers?

Where two persons make identical offers to each other, and both such persons do not know about each other’s offer, then such offers are known as cross-offer. The essentials of a cross offer are as follows:

  • Same offer to one another: The first pre-requisite of a cross offer is that two or more persons should make similar offers with the same details.
  • Without knowledge: Such identical offers must be made in ignorance of the offer made by the other party.
  • The terms and conditions: The terms and the object of the offers must be the same. A set of offers would be considered to be cross offers only when the terms and conditions as well as the object of the offers are the same. If not, then such offers cannot be called a cross offer but a counter offer.

A cross offer does not mean acceptance of the offer. No binding contract is created.

Illustration: A from Delhi by a letter offers to sell his house to B of Bombay for Rs. 10 lakh. At the same time, B also makes an offer to A to buy A’s house for Rs. 10 lakh. Both the parties made an exact offer to each other without knowing about the offer being made by the other. The two letters cross each other. There is no concluded contract between A and B because both the parties are made a cross offer.

Relevant legal provisions

The Indian Contract Act, 1872 lays down provisions related to contracts. While there is no specific legal provision concerning the cross offer, various judgments have clarified the position of such an offer.

The entire process of entering into a contract begins with the proposal or an offer made by one party to another. According to section 2(a), when one person signifies his willingness to another person to do or abstain from doing anything with a view of obtaining that person’s assent, he is said to make a proposal. The Contract Act doesn’t specify the term “offer” but it is used interchangeably with the term “proposal”.

Features of a valid offer:

  • The person making the offer/proposal is the “promiser” or the “offeror”. The person who accepts the proposal is a “promisee” or an “offeree”.
  • The offeror must express his willingness to do or abstain from doing an act. Mere willingness or urge to do something is not enough. It must also be communicated.
  • The terms and conditions of the offer must be clear and not vague.
  • The offer must be made with the intention to form a legal relationship.
  • An offer can either be positive or negative. It can be a promise to do some act, and can also be a promise to abstain from doing any act/service. Both are valid offers.

Communication of the proposal is mandatory. An offer is valid if it is conveyed to the offeree. Section 4 of the Act deals with the communication of offers. It states that the communication of an offer is complete when it comes to the knowledge of the offeree. For example, A desires to sell his house to B at a certain price and sends his offer to B through a letter. The communication of this proposal would be complete when B receives the letter.

Section 2(b) states that on acceptance, an offer becomes a promise whereas section 2(d) defines consideration. Section 2(e) states that every promise made with consideration is an agreement.

Section 7 states that the acceptance of an offer must be absolute and unqualified. It must be expressed in a usual and reasonable manner. It is only then that an offer becomes a promise.

While, there is no specific provision regarding cross offers in the Act, the aforementioned sections in the Act, lucidly state that acceptance is a basic obligation for an offer to become a promise. And, in cross offers, there is no such acceptance or communication hence there is no contract between the parties.

Case laws

  • Tin v. Hoffman, (1873) 29 LT 271, is a major case law dealing with the concept of the cross offer. In this case, both the parties made identical offers to each other for the sale of 800 tons of iron. The price and terms of this offer were similar. The question arose whether there was a valid contract between the two. It was held that no contract existed between the two parties. A valid contract consists of an offer, acceptance, and communication. This was absent in the present case. There was no communication or acceptance. It was further held that two identical crossing offers do not form a contract as they lack the essentials of a valid contract.
  • In Bhagwandas Goverdhandas Kedia v M/S Girdharilal Parshottamdas & Co. and Others (1966 AIR 543), it was observed by the Hon’ble Supreme Court that “the acceptance and such an intimation of acceptance of the offer are both necessary to form a binding contract.” Thus, this case shows that an offer and acceptance are essential ingredients of a contract. This thus renders cross offers as invalid. They can never be contemplated as contracts.

Critical analysis

The principle of ‘cross offers’ is quintessential to the world being governed by industrialization and incessant contracts daily. The immediate principle shows the specificity of the contract laws in India. There are only a few cases involving cross offers when compared to the number of cases involving counter offers, general offers, and specific offers among others. But, the importance of the concept of cross offer can never be undermined. It plainly distinguishes itself from any other kind of offers and thus, aids in a better interpretation of the contracts. Such a step is necessary as an offer is the first step towards making a contract. And different offers present different rules.

An analysis of the legal provisions of the Indian Contract Act, 1872 reveals that the statute does not explain the concept of the various kinds of offers. But, since the Indian legal system is based on Common Law, many legal concepts are evolved based on judicial precedents. More than often, cases from England are also given precedence as the Indian contract law happens to be derived from the English common law. The concept of cross offers too is not specified with the Act, but is a result of the intelligence of the judicial minds, developed over the years.

Conclusion

Offer, acceptance, and communication are essential to forming a contract. It is the existence of these valid ingredients that helps to assess whether a contract persists between two parties or not. An offer is a sign of willingness. On acceptance, it becomes a promise. Both the offer and acceptance must be communicated. Cross offers can never lead to a valid contract as they lack all the essential ingredients. A cross offer is made when both the parties make identical offers to each other without knowing that the other has made a similar offer. It lacks acceptance and communication. Thus, it does not form a valid contract. The concept of cross offers is not explained within the Indian Contract Act but has been developed over the years through judicial precedents.

Authors: Devansh Garg from Vivekananda Institute of Professional Studies (VIPS) and Mansanwalpreet Singh from Rajiv Gandhi National University of law.

Editor: Shalu Bhati  from Campus Law Centre, Faculty of Law, University of Delhi.