LAW OF CONTRACT

ASSIGNMENT
LL.B 1ST YEAR SEMESTER 1
SUBMITTED BY- ADITI SRIVASTAVA
ROLL NO.- 33
SUBMITTED TO- MS. SHITAL NAVANDAR
QUESTION.1
What test would you apply to ascertain whether an
agreement is a contract?

INTRODUCTION
CONTRACT- According to section 2(h) of Indian contract act,
1872 contract is defined as an agreement enforceable by law.
AGREEMENT-according to section 2(e) of Indian contract act,
1872 “AGREEMENT” is defined as every promise and every
set of promises, forming the consideration for each other.
“all contracts are agreements, but all agreements are not
contracts.”
DEFINATION- according to salmond, contract is an agreement
creating and defining obligations between parties.”
Similarly, Sir Fedrick pollock has defined the word “contract”
as follows: -
“every agreement and promise enforceable by law is a
contract”
ESSENTIAL ELEMENTS OF A CONTRACT-
According to section 10 of Indian contract act, 1872 For an
agreement to become a contract it must have the following
essential elements.
1. OFFER AND ACCEPTANCE- There must be two or more
parties to the agreement i.e. one making the offer
and other accepting it.
 CASE LAW- Lalman Vs Gauri Datt
2. INTENTION TO CREATE LEGAL RLATIONSHIP-
Agreement should be attached by legal consequences
and create a legal obligation.
CASE LAW- Balfour Vs Balfour
3. LAWFUL CONSIDERATION- SECTION 2(d) of Indian
contract act, 1872defines consideration as, when at
the desire of the promisor, the promise or any other
person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain
from doing, something, such act or abstinence or
promise is called a consideration from the promise.
CASE LAW- Durga Prasad vs Baldeo
4. CAPACITY-
 Must attain the age of majority
 Person of sound mind
 Person should not be disqualified by law.
CASE LAW- Mohri Bibi Vs Dharmodas
Ghose
An agreement with a minor is void ab initio
5. FREE AND GENUINE CONCENT- Consent is free when
not caused by-
 Coercion (Section 15) - Threatening to commit act
by IPC or detaining property.
 Undue Influence (Section 16) - In a position to
dominate will of another and uses that position to
obtain an unfair advantage over the other.
  Fraud (Section 17)- Deceive another party or
to induce him to enter into a contract by:
o The suggestion of a false fact as true.
o The active concealment of a fact by one having
knowledge or belief of the fact.
o Promise without any intention of performing it
o Any other act fitted to deceive.
o Any such act or omission as the law specially
declares to be fraudulent.
o Unless duty to speak, silence is not equal to
fraud.
 Misrepresentation (Section 18)-
o Positive assertion of false facts, though he
believes it to be true.
o Breach of duty which, without an intent to
deceive, gains an advantage to one by
misleading another to his prejudice.
o Causing, however innocently, a party to an
agreement, to make a mistake as to the
substance of the thing is the subject of the
agreement.
 Mistake (Section 20)- where both the parties
to an agreement are under a mistake as to a
matter of a fact essential to the agreement, the
agreement is void.

CASE LAW- Muthia Vs Muthu

6. LAWFUL OBJECT – Objects should not be-
 o Forbidden by law
o Of a nature to defeat provisions of law
o Fraudulent
o Imply injury to another
o Immoral or opposed to public policy
CASE LAW- Udhoo Dass vs Prem Prakash

7. AGREEMENTS NOT DECLARED VOID- Void agreements

as per Indian Contract Act:
o Agreement without consideration (Section 25)
o Agreement in restraint of marriage (Section 26)
o Agreement in restraint of trade (Section 27)
o Agreements in restraint judicial proceedings (Section 28)
o Agreement by way wager (Section 30)

8. CERTAINITY AND POSSIBILITY OF PERFORMANCE

9. LEGAL FORMALITIES

DIFFERENCE BETWEEN AGREEMENT AND CONTRACT.

BASIS AGREEMENT CONTRACT

1.SECTION AN AGREEMENT IS CONTRACT IS
DEFINED UNDER DEFINED UNDER
SECTION 2(E) SECTION 2(H)
2. MEANING Every promise or It is an agreement
set of promises enforceable by
following court of law.
consideration for
each other is an
agreement.

3. FORMATION Offer and Agreement and its

acceptance enforceability at
constitute an law constitute a
agreement. contract.
4.SCOPE Its Scope is very Its scope is limited
wide
5. EFFECT All agreement does All contract
not create legal necessarily creates
obligation that is legal obligation.
social and moral
agreement.
6. NATURE An agreement can Only valid
be both legal and agreements are
illegal. called contracts.
7. RELATION An agreement is A contract cannot
first or primary be formed without
stage of forming the formation of an
contract. agreement.
Therefore, a
contract includes
agreements.
8. ESSENTIALS An agreement may But contract must
fulfil all essentials of always fulfil all
valid contract or essentials of valid
not. contract.

CONCLUSION
Thus by concluding all these essentials and differences we
can determine whether an agreement is a contract or not.
Various factors comes into play to form the relationship
between a contract and an agreement.
QUESTION. 2- “IN COMMERCIAL AND BUSINESS
AGREEMENTS, THE PRESUMPTION IS THAT THE
PARTIES INTENDED TO CREATE LEGAL RELATION”.
DISCUSS.

INTRODUCTION
Contracts and agreements are important factors for
conducting business for all sizes of companies. In earlier
decades, there were few written business contracts, and
many business and personal deals were done with a
handshake. If a problem arose, the two parties could take the
issue to court, and a judge would hear the case even if the
contract was not put into writing.
While a verbal contract is still legal (except for in specific
situation), most contract are documented in written form.
Contracts have become increasingly detailed these days, and
every effort is made to make all possibilities and eventualities
clear.
Intention to Create Legal Relationship:
A Separate concept of element Intention of the parties to
create legal relations is one of the essential elements of
contract that the two parties entering into a contract must
necessarily have the intention to bind the other party with
the involved legal obligations.
The agreements involving just some social or domestic
obligations cannot constitute a contract. Suppose an
agreement was supported by consideration, but one of the
parties claimed that it was never their intention to create a
legally binding relationship.
Thus, on the one hand, according to the principles of contract
law, a contract is formed and binding. On the other hand, it
was a part of the agreement itself that the agreement would
not be binding. The courts have had to think through this
consideration.
Case law- Blue v Ashley
The facts of this case were that Mr. Blue, an investment
banker, was drinking at the pub, with the famous
businessman Mr. Ashley to whom he was providing
consultancy services. During the course of the evening, they
talked about payments to me. Blue should he deliver
profitable results. Mr. Blue’s evidence was that Mr. Ashley
had told him that if share prices in his company, were to go
from £4 a share to over £8 a share, Mr. Ashley would pay him
£15 million. When the share price did go above £8 Mr. Blue
tried to claim his £15 million. His case was that there was an
oral agreement regarding the share price which had been
formed that night in the pub. Mr. Ashley claimed not to
remember such agreement and that they had drunk a lot of
alcohol that night.
Mr. Ashley accepted that such a conversation may have
taken place but said that, if it did, it would have been in a
context of the general banter that he was having with others
and it would have been obvious that he was joking. Mr.
Ashley also claimed that he was drunk that evening. Justice
Leggatt concluded that the conversation in the bar was
conducted under the influence of a lot of alcohol and was
jovial in nature. “The fact that Mr. Blue has convinced himself
that the offer was a serious one, and that a legally binding
agreement was made, shows only that the human capacity
for wishful thinking knows no bounds”.
Enforceable Contracts = Valid Contracts
Illustrative Examples
a) The foundation for advancement of education
announced to a college that it would give an award of rupees
20,000 to all the students who secure more than 90 per cent
marks in the board examination. Mohan secured 92 per cent
marks but the foundation refused to give the money to him
as they had run out of funds. Does Mohan have a legal claim?
The relationship between Mohan and foundation has all the
constituents of a contract. The foundation has made a
unilateral offer and Mohan has accepted it. The
consideration for Mohan is rupees 20,000, and for the
foundation it is performance of the condition of getting more
than 90 per cent marks. It is an enforceable contract.
On the other hand if Mohan’s father had promised to give
his son rupees 10,000 on securing more than 90 per cent
marks but refused to fulfil it. The father made a promise but
never contemplated that he could be taken to court of law to
fulfil it. The father was committed enough to make the
promise but never intended to create legal relationship. In
other words, it was implied by the parties that they were not
creating legal relations. The Indian Contract Act does not
provide for intention as a prerequisite for entering into a
legal relationship.
This prompted the Supreme Court to express its reservation
about the need of this separate concept of ‘intention to
contract’ under the Act. The landmark case on intention to
create legal relation Balfour v/s Balfour applied in India. In
following case, the Supreme court recognized the principle.
In CWT v/s Abdul Hussain Mulla Mohd Ali (1988)3 SCC562
the court observed that the requirement of intention was
necessitated in systems where consideration was not
requisite for enforceability of contract. However, the courts
have applied the principle in certain cases and thus, it is not
totally excluded.
Under the English law, a proposal must be intended to and
capable of creating legal obligations. The parties must have
intended to enter into binding legal obligations for creation
of a contract. To create a contract there must be a common
intention of the parties to enter into legal obligations. (Rose
and Frank Co. case)
Intention to create legal relationship is defined as an
intention to enter a legally binding agreement or contract.
Intention to create legal relations is one of the necessary
elements for the formation of a contract. It is therefore
intention to create legal relations consists of readiness of a
party to accept the legal sequences of having entered into an
agreement. There must be an intention on the part of the
parties to the agreement to create a legal relationship.
Although there is no express provision in the ICA requiring
that a proposal or its acceptance must be made with the
intention of creating a legal relationship, yet, in the English
law is well settled principle that ‘to create a contract there
must be a common intention of the parties to enter into legal
obligations’.
In our Indian law the intention to create legal relations is not
given as an essential ingredient of contract law, but even the
apex court of India has expressed its reservation about the
need of this separate requirement of “intention to contract”
under the Contract Act. It is sufficient if the parties show that
consideration is part of contract to legally bind the parties. It
is presumed that there exists an intention to create contract,
when the parties show that the agreement contained clause
as to consideration.
Consideration is one of the essential elements of a valid
contract. A mere promise is not enforceable at law.
Consideration is the price for which the promise of the other
contracting party is bought. Nevertheless, this price need not
be in terms of money. If the promise is not supported by
consideration, the promise will be nudum pactum (a bare
promise) and is not enforceable at law. Furthermore, the
consideration must be real and lawful. The test of contractual
intention is objectivity, not subjectivity. The deciding factor is
not what the parties had in mind, but what a reasonable man
would think, in the circumstances, their intention to be.
Prior to this in CASE LAW- Banwari Lal v. Sukhdarshan
Dayal, the case was about a plot that was reserved for
dharmashala was sold to one Manohari Devi who in turn sold
to defendant. Defendant constructed a wall around the plot.
Plaintiff than filed a permanent injunction that the plot was
reserved for dharmashala and hence should be restored. But
the court held that sufficient consideration was paid showed
they had intention to sell to any one and not construct
dharmashala. It was a contract. This case shows that
consideration plays a vital role to conclude whether the
parties intended to contract or not. The doctrine of
consideration is supposed to identify the intention of the
parties as to their desire to make the agreement legally
enforceable.
The assumption in the case of business relations is that the
parties intend to create legal relations. However, the parties
can exclude this by specifically providing for it.
CASE LAW- Jones V/S Padmaavatan (1969)
In this case mother pressurized her daughter to leave
service, to take legal education in England and settle in
Trinidad with her and undertook to foot the expenses. The
mother bought a house in England, part of which was used by
daughter and rest was rented out. The daughter couldn’t
complete her five years education and also got married.
Differences arose between the mother and daughter and the
mother stopped making payment and also commenced legal
proceedings to evict the daughter from her house. It was
held that there was no intention of creating a contract and
thus the mother was not bound by the assurances to
daughter.
There are a few concepts of intention to create legal
relations. Intention to create legal relations also means an
intention to be serious about agreement significance. The
contracting parties mind will be obvious to enter a serious
contract.
When two parties decided to enter in the environment of a
contract, their mind will understand the contents of the
contracts. This is due to their ‘intention’ to be consenting
mind which both of the parties have to agree. If there is no
agreement by both of the parties, it may make the contact
being a void agreement. Thus, both of the contracting parties
will enable to be serious into the contract.
b) If there is no intention to create legal relations the
contract would not be enforceable, legal and binding
Intention to create a legal relation is one of the essential
elements of contract. So, if there is no intention to create a
legal relation, the contract can be assumed as not legal. Due
to that, the contract may not being enforceable because
there is no intention to create legal relations at the beginning
which not making contracting parties to be legally binding.
c) Without intention to create legal relations, the parties
cannot sue each other. With no intention to create legal
relations, it may cause the contracting parties are not being
legally binding. Therefore, when the contract is not
enforceable, the contracting parties cannot sue each other
and this will spoil their business crisis. This will make the
contracting parties hard to enquire their justice.
d) Without intention to create legal relations the contract
may become a mere promise. Mere promises simply like a
simple promise arise when there is no intention to create
legal relations.
Based on the case of studies, the situation of mere promises
can be seen when Nathan, the Comfortable Furniture Sdn
Bhd salesman have no intention to create legal relations. He
did not accept cash deposit from Mr. John to obey the
company policy. When the mere promise occurs, the
salesman still can sell the dining set to other people because
they is no legal contract between Nathan and Mr. john.
e) Without intention to create legal relations the contract
may lack the binding effect. Besides that, when there is no
intention to create legal relations, it will make the contract or
agreement become less powerful due to whether one or
both of the parties does not have a consent mind. So, if the
contract lack of binding effect, it will cause the difficulty to
the party involved in future.
CONSIDERATION
Consideration is one of the essential elements of contract. A
promise made without consideration is merely gratuitous
and, however sacred and binding in honour it may be, it
cannot create a legal obligation. An analysis of any contract
shows that it consists of two parts:
(i) promise and
(ii) consideration for the promise. A person makes a
promise to do or abstain from doing something as a
return or equivalent of some loss, damage, or
inconvenience that may have been occasioned to the
other party in respect of the promise. The benefit so
received and the loss, damage or inconvenience so
caused is considered in law as the consideration for
the promise.
Hence, a contract cannot be thought of without
consideration; however, there are some exceptions to this
general rule. There are a number of provisions concerning
consideration in the Indian Contract Act.
✓ Essential of Business Contract
✓Offer, Acceptance, Consideration and Mutual Consent.
Consent Every contract must include a specific offer and
acceptance of that specific offer. Both parties must consent
to their free will. Neither party can be coerced or forced to
sign the contract nor must both parties agree to the same
terms. Implied in these three conditions is the intent of the
parties to create a binding agreement. If one or both parties
are not serious, there’s no contract.
There must also be consideration, something of value
exchanged between the parties. The thing of value may be
money or services, but both parties must give something. If
someone gets something for nothing, that’s a gift, not a
contract and it’s not binding.
 o Competence- Both parties must be of “sound mind” to
comprehend the seriousness of the situation and
understand what is required. This definition requires
that neither party be minors, both must be sober (not
under the influence of drugs or alcohol when singing the
contract) and neither can be mentally deficient. If one
party is not competent the contract is not valid and the
non-competent party can ignore the contract.
o Legal Purpose-The contract must be for a legal purpose.
It cannot be something illegal, like selling drugs pr
prostitution. It is not illegal to enter into a contract that
doesn’t have all these essential items; it just means that
if an essential is missing the contract cannot be enforced
by a court.

Conclusion
Intension to create legal relations is often overlooked, but
this case highlights how this can sometimes be critical to the
enforceability of a contract.
QUESTION. 3- EXPLAIN IN DETAIL WITH THE HELP OF CASE
LAWS THE RULES LAID DOWN FOR A VALID OFFER
AND ACCEPTANCE.

INTRODUCTION
It is often said that acceptance is to an offer what a lighted
match is to a barrel of gunpowder. For a successful contract,
there must be a valid offer followed by the offer being
accepted.
Contracts play an important role in our everyday life ranging
from insurance policies to employment contracts.
Sometimes, we enter contracts even without thinking, for
example, while buying a movie ticket or downloading an app.
The contract is oral or written agreements between two or
more parties. Parties entering a contract might include
individual people, companies, non-profits, or government
agencies. The whole process of entering a contract starts
with an offer by one party, an acceptance by another party
and an exchange of consideration (something of value).
1. Proposal or Offer-
❖ The entire process of entering into a contract
begins with the proposal or an offer made by one party to
another. The proposal must be accepted to enter into an
agreement.
❖According to the Indian Contract Act 1872, proposal is
defined in Section 2(a) as “when one person will signify to
another person his willingness to do or not do something
(abstain) with a view to obtain the assent of such person to
such an act or abstinence, he is said to make a proposal or an
offer.”
Features of a valid offer-
o The person making the offer/proposal is referred to as
the “promiser” or the “offeror”. And the person who
accepts an offer is referred to as “promise” or the
“acceptor”.
o The offeror must express his willingness to do abstain
from doing an act.
o There have to be at least two parties a person making
the proposal and the other person agreeing to it.
o Communication of the proposal is mandatory. An offer
is valid if it is conveyed to the offeree. The
communication can either be express or implied.
Section 4 of the Indian Contract Act says that the
communication of a proposal is complete when it
comes to the awareness of the person to whom it is
made.
o There must be intension to create legal relation. A mere
social invitation cannot be regarded as an offer,
because if such an invitation is accepted it will not give
rise to any legal relationship.
2.
Offer and Invitation to Treat-
CASE LAW- Harvey v. Facey
In this case, the quotation of the price was held not to be an
offer. In this case, the defendants were the owners of a plot
of land known as Bumper Hall Pen. The plaintiffs being
interested in purchasing the same sent a telegram to the
defendants- “Will you sell us Bumper Hall Pen? Telegraph
lowest cash price.” The defendant’s in reply telegraphed-
“lowest price for Bumper Hall Pen, £900.”
The plaintiffs in the Court contented that the second
telegram from defendants quoting the lowest price was an
offer and the same had been accepted by the plaintiff, hence
the contract was complete. In the case it was eventually held
that the exchange of aforesaid telegrams had not resulted in
formation of a contract. It was observed that the first
telegram had asked two questions, one regarding willingness
to sell and other regarding the lowest price. In reply only
lowest price was quoted and this quoting of the price was not
an offer. That the third telegram from the plaintiffs saying we
agree to buy was only an offer and not the acceptance of an
offer. Since this offer had not been accepted by defendants,
there was no binding contract between the parties.

3. Intention to create legal relationship

CASE LAW- Balfour v. Balfour
The concept of intention to create legal relationship was
implied in the case of Balfour v. Balfour. In this case, the
defendant who was employed on a government job in
Ceylon, went to England with his wife on leave. The husband
promised to pay £300/month as maintenance to wife for the
time she lived apart. The husband however failed to pay the
amount and was eventually sued by his wife. In case it was
held that the husband was not liable to pay as there was no
intention to create a legal relationship between the parties.
4. Communication of offer is Necessary
CASE LAW- Lalman Shukla v. Gauri Dutt
Under the Law of Contract an offer can be accepted only
after the same has come to the knowledge of the offeree. It
means that the offer has to be communicated to the offeree
in order that the offeree can accept it. Section 4 of the Indian
Contract Act states that the communication of a proposal id
complete when it comes to the knowledge of the person to
whom it is made. In Lalman case the defendant’s nephew
absconded from home. The plaintiff who was defendant’s
servant was sent to search for the missing boy. After the
plaintiff had left in search for the boy, the defendant issued
handbills announcing a reward of Rs. 501 to anyone who
might find out the boy. The plaintiff, who was unaware of
this reward, was successful in searching the boy. When he
came to know of the reward, which had been announced in
his absence, he brought an action against the defendant to
claim this reward. It was held that since the plaintiff was
ignorant of the offer of reward, his act of bringing the lost
boy did not amount to the acceptance of the offer and
therefore he was not entitled to claim the reward.
 5. Acceptance
The Indian Contract Act 1872 defines acceptance in Section
2(b) as “When the person to whom the proposal has been
made signifies his assent thereto, the offer is said to be
accepted. Thus the proposal when accepted becomes a
promise.”
So as the definition states, when the offeree to whom the
proposal is made, unconditionally accepts the offer it will
amount to acceptance. After such an offer is accepted the
offer becomes a promise.
For example, A offers to buy B’s car for rupees two lacs and B
accepts such an offer. Now, this has become a promise.
When the proposal is accepted and it becomes a proposal it
also becomes irrevocable. An offer does not create any legal
obligations, but after the offer is accepted it becomes a
promise. And a promise is irrevocable because it creates legal
obligations between parties. An offer can be revoked before
it is accepted. But once acceptance is communicated it
cannot be revoked or withdrawn.

Rules regarding Valid Acceptance

1) Acceptance can only be given to whom the offer
was made.
In the case of a specific proposal or offer, it can only be
accepted by the person it was made to. No third person
without the knowledge of the offeree can accept the offer.
Let us take the example of the case study of Boulton v. Jones.
Boulton bought Brocklehurst’s business but Brocklehurst did
not inform all his creditors about the same. Jones, a creditor
of Brocklehurst placed an order with him. Boulton accepted
and supplied the goods. Jones refused to pay since he had
debts to settle with Brocklehurst. It was held that since the
offer was never made to Boulton, he cannot accept the offer
and there is no contract.
When the proposal is a general offer, then anyone with
knowledge of the offer can accept it.
2) It has to be absolute and unqualified.
Acceptance must be unconditional and absolute. There
cannot be conditional acceptance, that would amount to a
counter offer which nullifies the original offer. For example, A
offers to sell his cycle to B for 2000/-. B says he accepts if A
will sell it for 1500/-. This does not amount to the offer being
accepted, it will count as a counteroffer.
Also, it must be expressed in a prescribed manner. If no such
prescribed manner is described then it must be expressed in
the normal and reasonable manner, i.e. as it would be in the
normal course of business. Implied acceptance can also be
given through some conduct, act, etc.
However, the law does not allow silence to be a form of
acceptance. So the offeror cannot say if no answer is
received the offer will be deemed as accepted.
3) Acceptance must be communicated.
For a proposal to become a contract, the acceptance of such
a proposal must be communicated to the promisor. The
communication must occur in the prescribed form, or any
such form in the normal course of business if no specific form
has been prescribed.
Further, when the offeree accepts the proposal, he must
have known that an offer was made. He cannot communicate
acceptance without knowledge of the offer.
For example, when A offers to supply B with goods, and B is
agreeable to all the terms. He writes a letter to accept the
offer but forgets to post the letter. So since the acceptance is
not communicated, it is not valid.
4) It must be in the prescribed mode.
Acceptance of the offer must be in the prescribed manner
that is demanded by the offeror. If no such manner is
prescribed, it must be in a reasonable manner that would be
employed in the normal course of business.
But if the offeror does not insist on the manner after the
offer has been accepted in another manner, it will be
presumed he has consented to such acceptance.
For example, A offers to sell his farm to B for ten lakhs. He
asks B to communicate his answer via post. B e-mails A
accepting his offer. Now A can ask B to send the answer
through the prescribed manner. But if A fails to do so, it
means he has accepted the acceptance of B and a promise is
made.
5) Implied Acceptance
Section 8 of the Indian Contract Act 1872 provides that
acceptance by conduct or actions of the promisee is
acceptable. So if a person performs certain actions that
communicate that he has accepted the offer, such implied
acceptance is permissible.
For example, A agrees to buy from B 100 bales of hay for
1000/- and B sends over the goods, his actions will imply he
has accepted the offer.
Case law-Bhagwandas Goverdhandas Kedia v.
Girdharilal Parshottamdas and Co. and Ors
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 immediate. This case
law shows the significance of instantaneous communication
of offer.
Acceptance should be communicated
CASE LAW- Felthouse v. Bindley
For a valid contract the acceptance should be communicated
and moreover such communication should be made to the
offeror. Another point of law explained in the case was that
the offeror cannot impose upon the offeree duty to reply and
therefore an offeror cannot say that failure to reply will be
deemed to be acceptance of the offer.
Communication of Acceptance can be made by Offeree or
his authorized agent
CASE LAW- Powell v. Lee
In order that an acceptance is treated as valid, it is necessary
that the same must be communicated to the offeror either
by the offeree or by some duly authorized person on his
behalf. If the communication is made by an unauthorized
person, it does not result in a contract.

Conclusion
The communication of the offer shall be complete when it
comes to the knowledge of the person to whom the offer is
made and the communication of the acceptance shall be
complete when the acceptance is put in a course of
transmission to the offeror. Therefore, offer and acceptance
are the essential elements of a contract and in either case; it
should be done on the basis of the one’s free will and with
the intention of concluding a legally binding agreement.
 QUESTION.4. WHAT IS MEANT BY “CAPACITY” TO ENTER
INTO A CONTRACT? WHAT IS RULE AS TO MINOR
AGREEMENT. EXPLAIN IN THE LIGHT OF “LANDMARK CASE
LAWS” (NATURE AND EFFECT OF MINOR AGREEMENT)

INTRODUCTION
An agreement enforceable by law is a Contract. ‘Capacity’ is
one of the often used terms in 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.
Section 11 of the Indian Contract Act, 1872, defines the
capacity to contract of a person to be dependent on three
aspects; attaining the age of majority, being of sound mind,
and not disqualified from entering into a contract by any law
that he is subject to.
According to Section 11, “Every person is competent to
contract who is of the age of majority according to the law to
which he is subject, and who is of sound mind and is not
disqualified from contracting by any law to which he is
subject.”
There are three main aspects:
1.Attaining the age of majority
2. Being of sound mind
3.Not disqualified from entering into a contract by any law
that he is subject to.
1.Attaining the Age of Majority
A minor is one who has not attained the age of 18, and for
every contract, the majority is a condition precedent.
According to Indian law, minor’s agreement is a void one,
meaning thereby that it has no value in the eye of the law,
and it is null and void as it cannot be enforced by either party
to the contract. And even after he attains majority, the same
agreement could not be ratified by him. The difference is that
minor’s contract is void/null, but is not illegal.
CASE LAW- Mohiri Bibi v. Dharmodas Ghosh
For the first time, the Privy Council held that a minor’s
contract is “VOID AB INITIO” that it is void from the
beginning.
Facts- The plaintiff Dharmodas Ghosh, when he was a minor,
mortgaged his property to the defendant, a moneylender. At
that time, defendant’s attorney had the knowledge about
plaintiff’s age. The plaintiff later paid only Rs 8000 but
refused to pay rest of the money. The plaintiff’s mother was
his legal guardian at that time, so he commenced an action
against the defendant saying that at the time of making of a
contract, he was a minor, so the contract being a void one,
he is not bound by the same. The court held that unless the
parties have competence under Section 11 of the Act, no
agreement is a contract.
Exception to general rule-
For providing protection to a minor, his agreement is void.
But there are certain exceptions as well:
• When minor has performed his obligation: In a contract, a
minor can be a promise but not a promisor. So if the minor
has performed his part of the promise, but the other party
hasn’t the minor being in the position of a promise he can
enforce the contract.

• A contract entered into by guardian of minor for his

benefits: Under certain circumstances, a guardian of a
minor can enter into a valid contract on behalf of the
minor. In that case, a minor can sue the other party when
it does not perform its promise.
• A minor is always given the benefit of being a minor: Even
if a minor falsely represents himself as a major and takes a
loan or enters into a contract, he can plead minority. The rule
of estoppels cannot be applied against a minor. He can plea
his minority in defence.
• Insolvency: a minor cannot be declared insolvent as he
cannot avail debts. Also, if some dues are pending from the
properties of the minor, he is not personally liable for the
same.
2. Person of Sound Mind
According to Section 12 of the Indian Contract Act, 1872, for
the purpose of entering into a contract, a person is said to be
of sound mind if he is capable of understanding the contract
and being able to assess its effects upon his interests. It is
important to note that a person who is usually of an unsound
mind, but occasionally of a sound mind, can enter a contract
when he is of sound mind. No person can enter a contract
when he is of unsound mind, even if he is of temporarily. A
contract made by a person of an unsound mind is void.
3.Disqualified Persons
Apart from minors and people with unsound minds, there are
other people who cannot enter into a contract, i.e., they do
not have the capacity to come into a contract. Some such
persons are foreign sovereigns and ambassadors, alien
enemy, convicts, insolvents, etc.
QUESTION.5- WHO IS A PERSON OF “UNSOUND MIND”
ACCORDING TO THE INDIAN CONTRACT ACT. CAN SUCH
PERSON ENTER INTO A VALID CONTRACT?

INTRODUCTION
In order to be competent to contract, a person must be
of sound mind. A person of unsound mind is one who is
suffering from temporary or permanent mental
derangement.
Unsoundness of mind is another circumstance which
renders a contract void. To constitute a valid and
binding contract, a party contracting must have the
capacity to arrive at a reasoned judgement, as to the
consequences of the transactions he is entering into.
This does not mean that he must necessarily be
suffering from lunacy to disable him from entering into
a contract. A man incapable of looking after his affairs
and judging the consequences of the contract he
enters into ought not to be held bound and responsible
for his contracts.
According to Section 12 of Indian Contract Act, “A
person is said to be of sound mind for the purpose of
making a contract if at the time when he makes it, he is
capable of understanding it and of forming a rational
judgment as to its effect upon his interest. A person,
who is usually of unsound mind, but occasionally of
sound mind, may make contract when he is of sound
mind. A person, who is usually of sound mind, but
occasionally of unsound mind, may not make a
contract when he is of unsound mind.”
CASE LAW- Inder Singh v Parmeshwardhari
Singh
In this case, a property worth about Rs. 25,000 was
agreed to be sold by a person for Rs. 7,000 only. His
mother proved that he was a born idiot incapable of
understanding the transaction. The court held sale to
be void. The court observed: “According to Section 12,
the person entering into a contract must be person
who understands what he is doing and is able to form a
rational judgment as to whether what he is about to do
is to his interest or not. The crucial point, therefore, is
to find out whether he is entering into the contract
after he has understood it and in regard to his interest.
It does not necessarily mean that a man must be
suffering from lunacy to disable him from entering into
a contract. A person may behave in a normal fashion,
but at the same time, he may be incapable of forming a
judgment of his own. In the present case he was
incapable of exercising his own judgment.”
Person of unsound mind cannot enter into a valid
contract-
❖ Lunatic- A person who is of sound mind for certain
duration of time and unsound for the remaining
duration is known as a lunatic. When a lunatic enters
into a contract while he is of sound mind, i.e. capable
of understanding the nature of the contract, it is a valid
contract. Otherwise, it is void.
ILLUSTRATION- A enters into a contract with B for sale
of goods when he is of sound mind. A later becomes of
unsound mind. The contract is valid.
❖ Idiots- An idiot, in medical terms, is a condition of
mental retardation where a person has a mental age of
less than a 3-year-old child. Hence, idiots are incapable
of understanding the nature of the contract and it will
be void since the very beginning.
❖People under the influence of the drug- A contract
signed under the influence of alcohol/drug may or may
not be valid. If a person is so drunk at the time of
entering into a contract so that he is not in a position
to understand the nature and consequences, the
contract is void.
ILLUSTRATION- A enters into a contract with B under
the influence of alcohol. The burden of proof is on A to
slow that he was incapable of understanding the
consequences at the time of entering the contract and
B was aware of his condition.
QUESTION. 6- ‘THESE CONTRACTS ARE FOR THE BENEFIT OF
THE COMMON MAN BUT ARE OFTEN ONE SIDED AS THEY
IMPOSE WIDE EXEMPTION CLAUSEA ND OFTEN APPEAR TO
BE ONE SIDED AND CREATE A QUESTION, WHETHER THEY
ARE A CONTRACT IN THE REAL SENSE’. WRITE A CRITICAL
ANALYSIS OF STANDARD FORM CONTRACT ALONG WITH
THE PRINCIPLES LAID DOWN BY THE JUDICIARY TO PROTECT
THE EXPLOITATION OF THE COMMON MAN. (ALONG WITH
CASES).

Introduction
“Standard Form Contracts” are ‘take it or leave it’ contracts
i.e., a contract signed between two parties that has no room
for negotiation. The customer is in no position to renegotiate
the standard terms of the contract and the company’s
representative usually does not have the authority to do so.
Such contracts are also known as- “Contracts of adhesion”
which means that the individual has no choice ‘but to accept;
he does not negotiate, but merely adheres’. Standard
contracts are contracts which are drafted by one party and
signed by another party without any modification or change.
Though standard contracts present the advantage of pre-
printed standard format; they are essentially “take it or leave
it” contracts with no room for negotiations. These contracts
are criticized for killing the bargaining power of the weaker
party and open wide opportunity for exploitation.
Issues involved with Standard Form of Contracts-
1. Consent- As defined under Section 13 of Indian Contract
Act, 1872 two or more persons are said to consent, when
they agree upon the same thing in the same sense. Consent,
according to Section 14, is free, when it is not caused by
coercion, undue influence, fraud, misrepresentation, or
mistake.
Thus, where the parties with equal bargaining powers have
fairly consented to the terms of the contract without any
fraud, duress or mistake courts have refused to interfere.
2.Unfair Terms of the Contract- Courts have looked into the
terms of the contract in relation to the bargaining powers of
the parties and have interfered in cases where the bargaining
power of the parties was not equal. In Life Insurance
Corporation of India v. Consumer Education and Research
Centre and others the Hon’ble Supreme Court has held that
“if a contract or a clause in contracts is found unreasonable
or unfair or irrational one must look to the relative bargaining
power of the contracting parties. In dotted line contracts
there would be no occasion for a weaker party to bargain or
to assume to have equal bargaining power. He has either to
accept or leave the services or goods in term of the dotted
line contract. His option would be either to accept the
unreasonable or unfair terms or forego the service forever.
With a view to have the services of the goods, the party
enters into a contract with unreasonable or unfair terms
contained therein and he would be left with no option but to
sign the contract.”
3.Unconscionable Nature of the Contract-Basic test of
“unconscionability” of contract is whether under
circumstances existing at time of making of contract and
considering general commercial background and commercial
needs of particular trade or case, clauses involved are so one-
sided as to oppress or unfairly surprise party.
4. Inequality Of Bargaining Powers-court have strictly ruled
against those standard contracts which exploit the position of
an employee vis a vis the employer. They have repeatedly
held that in case of employment contract between the
employer and employee, there is a universal tendency on the
part of the employer to insert those terms, which are
favourable to him in a printed and standard form, leaving no
real meaningful choice to the employee except to give assent
to all such terms. In such a situation the parties cannot say to
be in even position possessing equal barraging powers.
Where the parties are put on unequal terms the standard
form of contract cannot be said to be the subject-matter of
negotiation between the parties and the same is said to have
been dictate by the party who higher bargaining power
enable him to do so.
The individual therefore deserves to be protected against the
possibility of exploitation inherent in such contracts.
Stated below are some of the important modes of
protection evolved by the judiciary:
1) Doctrine of Reasonable Notice: It is the prime duty of the
person delivering the document to give proper notice to the
offeree of the printed terms and conditions, especially ones
which can create a situation of ambiguity. Where this is not
done, the acceptor will not be bound by the terms of the
contract.
CASE LAW- Henderson v Stevenson
The plaintiff brought a steamer ticket on the face of which
was these words only: “Dublin to Whitehaven”; on the back
of the ticket certain conditions were printed which excluded
the liability of the company for any loss, injury or delay to the
passenger or his luggage. The plaintiff did not see the back of
the ticket and was unaware of these conditions and nor were
they brought to his notice. The plaintiff’s luggage was lost in
shipwreck caused by the company’s fault. He was held
entitled to recover the loss in spite of the exemption clauses
because the same were not brought to his notice.
2)Notice should be contemporaneous with the contract:
Notice as to the terms should before or at the time of the
contract. Subsequent notification will amount to
modification of the original contract and will not bind the
other party unless assented to.
CASE LAW- Olley v Malborough Court Ltd
In this case Olley had been staying at a residential hotel of
Malborough Court Ltd for several months. In each room of
the hotel there was a notice displayed behind the door
stating: ‘The proprietors will not hold themselves responsible
for articles lost or stolen, unless handed to the managers for
safe custody.’ One day Olley ordinarily left her key on the
rack at the reception and went out of the hotel. In the
meantime, an unauthorized person entered the hotel, took
her room key and stole her fur coat.
However, hotel staff had not notice anything. Consequently,
Olley brought an action against the hotel for negligence that
resulted in the loss of her coat. In response, the hotel replied
on the notice which they claimed was part of the contract.
Olley was successful in her claim and recovered the cost of
the stolen item in their entirety. The exclusion clause had not
been successfully incorporated into the contract because the
contract was concluded at reception, and the notice
purporting to exclude liability was not visible until after the
contract was formed, when the guest entered the bedroom.
3)Theory of fundamental breach: The aim of this theory is to
control the vast exemption clauses. Even if adequate notice
of the terms in the document is given, the party imposing
conditions may not be able to take benefit if there is breach
of contract which was fundamental. Every contract has a core
aspect, if that is not performed, no protection of exemption
clause them is applied.
CASE LAW- Alexander v Railway Executive
The plaintiff had been convicted of riding a train from Leeds
without having purchased a valid ticket. The penalty was a
fine and a period of imprisonment of fourteen days if he
defaulted on the fine. However, following the conviction, the
defendant published a notice that the plaintiff was convicted
and issued a fine or three weeks imprisonment if in default.
4)Strict Construction: If any ambiguity in the exemption
clause, it will be interpreted strictly and resolved in favour of
the weaker party.
CASE LAW- Hollier v Rambler Motors
Hollier had his car repaired by the defendant garage three or
four times over a period of five years. On at least two of
these occasions, he had signed a form which stated the
garage were exempted from liability for damage caused by
fire on their premises. Hollier had not read the form. On this
occasion there was an oral agreement for the repairs to be
conducted and Hollier had not signed a form. His car was
damaged by fire and Hollier claimed in negligence. Hollier
was successful in his claim. Three or four occasions in five
years were insufficient to amount to a course of dealing and
the exclusion clause had not, therefore, been imported into
the oral contract. Even if the clause had been so imported,
the language used was not so plain as to clearly exclude the
garage from liability for its own negligence.
103rd Report of Law Commission-
 The 103rd report of the Law Commission of India which
was specially constituted to look into this complex
matter of application of standard Form Contracts
analysed all the issues and the relevant provisions and
finally gave certain critical views to improve the
provisions of the Indian Contract act, 1872.
 Recommendation- Amendment of Indian contract Act,
1872 and inserting provisions similar to the (English)
Unfair Contract Terms Act, 1977, Consumer right Act
 2015 under English law and the Uniform Commercial
code of the United States.
 Suggestions- Short summary in front of a document
which can be read and comprehended before entering
into the contract. As it is next to impossible, that the
above suggestion will be adhered to in each and every
SFC drafted, the Indian Contract Act, 1872 should be
amended and a provision for mandatory adherence of
the same should be included in the provision.
 QUESTION. 7- WRITE SHORT NOTES ON-
(a) INVITATION TO MAKE AN OFFER
(b) PRIVITY OF CONSIDERATION
(c) IMPORTANCE OF CONSIDERATION
(d) CARLIL V. CARBOLIC SMOKE BALL CO.

(a) INVITATION TO MAKE AN OFFER- An offer must be

distinguished from an invitation to offer. An invitation to
offer is an action inviting other parties to make an offer to
form a contract. These actions may sometimes appear to be
offers themselves, and sometimes it is very difficult to
distinguish between the two. The distinction is important
because accepting an offer creates a binding contract while
“accepting” an invitation to offer is actually making an offer.
For example: Advertisements on media are usually invitation
to offer, which allows sellers to refuse to sell products at
prices mistakenly marked in the advertisement. Any word
showing intention to make a contract may make the
advertisement to be an offer.
In order to ascertain whether a particular statement amounts
to an ‘offer’ or an ‘invitation to offer’, the test would be
intention with which such statement intend to be bound by it
as soon as it is accepted by the offer or he intends to do
some further act, before he becomes bound by it.
CASE LAW- Harvey v. Facey
In this case the plaintiff telegraphed to the defendants,
writing, “Will you sell us Bumper Hall Pen Telegraph lowest
cash price”. The defendant replied, also by a telegram,
“Lower price for Pen, £900”. The plaintiff immediately sent
their last telegram sating, “We agree to buy Pen for £900
asked by you.” The defendant, however, refused to sell the
Pen at that price. The court held that the defendant only
quoted the lowest price and did not express their willingness
to sell the Pen. It can just be considered as an invitation to
offer.

(b) PRIVITY OF CONSIDERATION- The doctrine of privity of

consideration states that the consideration must only move
from the promises and the stranger to the contract, although
a beneficiary can enforce the terms of the agreement. The
principle of the doctrine of privity of consideration is not
applicable in India. As per the Indian Contract Act, 1872 the
definition of consideration in Section 2(d) states,
consideration may be furnished by “the promise or any other
person” as long as it is “at the desire of promisor”. Thus, the
consideration may move from promisee, or some other
person.
CASE LAW- Chinnaya v Ramayya
An old lady gave to the defendant, her daughter, and
certainly landed property by way of gift deed. The terms
being that a stipulated annuity of Rs. 653 should be paid
every year to the plaintiff, sister of the old lady. The
defendant executed in plaintiff’s favour, agreeing to give
effect to this stipulation. The plaintiff filed a suit upon the
failure of the defendant to pay the annuity. The defence put
forward by the defendant was that the promise, i.e. the
plaintiff had furnished no consideration. The consideration
for the agreement between the plaintiffs and the defendant
was furnished by the old, the plaintiff’s sister. The
consideration for the defendants promises to pay the annuity
was the gift deed made by the old lady and the consideration
was being furnished by the plaintiff. According to Section 2(d)
of the Indian Contract Act, 1872, the consideration may move
from the promise or any other person, at the desire of the
promisor. The defendant, the promisor agreed to the
agreement and executed an agreement in favour of the
plaintiff which shows that the term of the gift deed that the
consideration will move from the third person was at the
desire of the promisor.

(c) IMPORTANCE OF CONSIDERATION- Section 2(d) of the

Indian Contract Act defines the term consideration, “When at
the desire of the promisor, the promise or any other person
Has done, or abstained from doing something.
OR
Does or abstains from doing something.
OR
Promises to do, or to abstain from doing something.
Then such act, abstinence or promise is called a
consideration for the promise. The term consideration means
‘something in return’ i.e., ‘QUID PRO QUO’.
Consideration is the foundation of every contract. The law
insists on the existence of consideration if a promise is to be
enforced as creating legal obligations. A promise without
consideration is null and void. ‘EX NUDO PACTO NON
ORITUR ACTIO’ states the importance of consideration,
means- no action arises from an agreement without
consideration.
Essentials of a valid consideration:
 Consideration must move at the desire of the
promisor: To constitute legal consideration, the act or
abstinence forming the consideration for the promise
must be done at the desire or request of the promisor.
Thus, acts done or services rendered voluntarily, or at
the desire of the third party, will not amount to valid
consideration so as to support a contract.
 Consideration may move from the promise or any
other person: As per the definition of consideration in
Section 2(d) of Indian Contract Act , consideration need
not move from the promise alone but may proceed from
a third person. Therefore, as long as there is a
consideration for a promise, it is immaterial who has
furnished it. It may move from the promise or from any
other person.
 Consideration must be something of value: The
consideration need not be adequate to the promise for
the validity of an agreement.
CASE LAW- Durga Prasad v. Baldeo
The plaintiff constructed a market at the desire of the
collector of the district. Defendant, a shopkeeper of the
market promised to pay commission to the plaintiff on the
sales affected by him. Later on defendant denies paying the
promised amount. Plaintiff filed a suit in the court for the
recovery of the amount.
The court held that the plaintiff cannot recover the amount
from the defendant because the plaintiff has constructed the
market at the desire of the collector, not at the desire of the
promisor i.e., the defendant. Consideration must move at the
desire or request of the promisor. Any act done at the desire
of a third party is not consideration.

(d) CARLIL V. CARBOLIC SMOKE BALL CO.-

Fact- A General offer may be accepted by any person from
among the public who has the knowledge of it. The
performance of conditions of offer will amount to
acceptance. The plaintiff, believing defendant’s
advertisement that its product would prevent influenza,
bought a Carbolic Smoke Ball and used it as directed, when
she caught the flu. Plaintiff brought suit to recover the £100,
which the court found her entitled to recover. Defendant
appealed.
Rule of law- This case considers whether an advertising
gimmick (i.e., the promise to pay £100 to anyone contracting
influenza while using the Carbolic Smoke Ball) can be
considered an express contractual promise to pay.
Facts- The defendant, the Carbolic Smoke Ball Co., placed an
advertisement in several newspapers, stating that its
product, “The Carbolic Smoke Ball”, when used three times
daily, for two weeks, would prevent colds and influenza. The
makers of the smoke ball additionally offered a £100 reward
to anyone who caught influenza using their product,
guaranteeing this reward by stating in their advertisement
that they had deposited £1000 in the bank as a show of their
sincerity. The plaintiff, Lilli Carlill, bought a smoke ball and
used it as directed. Several weeks after she began using the
smoke ball, plaintiff caught the flu.
Held- Defendant’s appeal was dismissed, plaintiff was
entitled to recover £100. The court acknowledges that in the
case of vague advertisements, language regarding payment
of a reward is generally a puff, which carries no
enforceability. In this case, however, defendant noted the
deposit of £1000 in their advertisement, as a show of their
sincerity. Because defendant did this, the court found their
offer to reward to be a promise, backed by their own
sincerity.
QUESTION.8- WHAT ARE QUASI CONTRACTS? WHAT ARE
THE BASIS OF QUASI CONTRACTS? EXPLAIN THE DIFFERENT
TYPES OF QUASI CONTRACTS. (INDIAN CONTRACT ACT)

Introduction
A quasi contract is a retroactive arrangement between two
parties who have no previous obligations to one another. It is
created by a judge to correct a circumstance in which one
party acquires something at the expense of the other.
Quasi contracts outline the obligation of one party to another
when the latter is in possession of the original party’s
property. These parties may not necessarily have had a prior
agreement with one another. The agreement is imposed by
law through a judge as a remedy when Person A owes
something to Person B because they come into possession of
Person A’s property indirectly or by mistake. The contract
becomes enforceable if Person B decides to keep the item in
question without paying for it.
A quasi contract is also known as an implied contract. It
would be handed down ordering the defendant to pay
restitution to the plaintiff. The restitution, known in Latin as
quantum meruit, or amount earned, is calculated according
to the amount or extent to which the defendant was unjustly
enriched.
Kinds of Quasi Contract
1. Supply of Necessities (Section 68)- If a person, incapable
of entering into a contract, or anyone whom he is legally
bound to support, is supplied by another with necessaries
suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from
the property of such incapable person.
Illustration- A supplies B, a lunatic, with necessaries suitable
to his condition in life. A is entitled to be reimbursed from B’s
property.
2. Payment by an interested person (Section 69)-A person,
who is interested in the payment of money which another
is bound by law to pay, and who therefore pays it, is
entitled to be reimbursed by the other.
Illustration- B holds land in Bengal, on a lease granted by A,
the Zamindar. The revenue payable by A to the govt. being in
the arrears, his land is advertised for sale by the govt. under
the revenue law the consequences of such sale will be
annulment of B’s lease. B to prevent the sale and the
consequent annulment of his own lease, pays to the govt. the
sum due from A. A is bound to make good to B the amount
so paid.
3. Obligation to pay for non-gratuitous acts (Section 70)-
When a person lawfully does anything for another person
or delivers anything to him, not intending to do so
gratuitously, and such other person enjoys the benefit
thereof, the latter is bound to make compensation to the
former in respect of or to restore, the things so done or
delivered.
Illustration- A, a tradesman, leaves goods at B’s house by
mistake. B treats the goods as his own. He is bound to pay for
them to A.
4. Responsibilities of finder of goods (Section 71)- A person,
who finds goods to another and takes them into his
custody, is subject to the same responsibilities as a bailee.
He is bound to take as much care of the goods as a man of
ordinary prudence would, under similar circumstances,
take of his own goods of the same bulk, quality and value.
If he does not, he will be guilty of wrongful conversion of
the property. Till the owner is found out, the property in
goods will vest in the finder and he can retain the goods as
his own against the whole world.
Illustration- A picks up a diamond on the floor on B’s shop.
He hands it over to B to keep it till true owner is found out.
No one appears to claim it for quite some weeks in spite of
the wide advertisement in the newspaper. A claims the
diamond from B who refuses to return. B is bound to return
the diamond to A who refuses to return. B is bound to return
the diamond to A who is entitled to retain the diamond
against the whole world except the true owner.
5)Mistake or Coercion (Section 72) A person to whom money
has been paid, or anything delivered, by mistake or under
coercion, must repay or return it to the person who paid it by
mistake or under coercion.
Illustration- A pays some money to B by mistake. It is really
due to C. B must refund the money to A. C, however, cannot
recover the amount from C is no Privity of contract between
B and C.