True or false: silence as acceptance; contracts by a lunatic; agreements with an alien enemy

(i)True A proposal becomes a contract only when the offeree accepts it, and acceptance has to be shown by some word or act. It cannot be inferred from the offeree's silence or from his failure to reply. The offeror therefore cannot bind the other party by announcing that silence will count as acceptance.

• Felthouse v. Bindley (1862). An uncle wrote to his nephew offering £30 for his horse and added that if he heard nothing more he would treat the horse as his. The nephew never replied, although he told his auctioneer to keep the horse out of a farm sale. The auctioneer sold it by mistake, and the uncle's action failed: the nephew had never communicated an acceptance.
• The only exception: silence can count where the offeree's own earlier conduct has shown that his silence is to be taken as acceptance.

Example: a Lucknow tile dealer writes to a builder, "If I do not hear from you by Monday, I shall treat my quotation as accepted and dispatch the tiles." The builder does not answer, and there is no contract. It would be different only if the builder had himself earlier told the dealer that a quotation he did not reject within two days would stand accepted.

(ii)False Under section 12 a person is of sound mind for contracting if, at the time he makes the contract, he can understand it and form a rational judgment about its effect on his interests. The test looks at that moment, not at the person's general condition. The section states that “A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind”, and its first illustration allows a patient in a lunatic asylum to contract during his intervals of sound mind (section 12).

• A lunatic does not have a sound mind while his illness lasts, and a contract he makes in that state is void.
• Even then the law does not leave him wholly outside its reach: under section 68, a person who supplies him (or anyone he is legally bound to support) with necessaries suited to his condition in life is entitled to be reimbursed from his property. That right is imposed by law and is not a contract.

Example: Ravi suffers from a mental illness that comes in episodes. In a period when he is fully lucid he signs a lease of a shop in Kanpur, understanding its terms. The lease binds him. A lease signed during an episode would be void.

(iii)False An alien enemy is a person who owes allegiance to a government at war with India. Trading with such a person without a licence from the Government of India is void, because the object of the agreement is opposed to public policy: it tends to harm the interests of the State in time of war. Section 23 makes the consideration or object of an agreement unlawful where the court regards it as opposed to public policy, and section 11 states that a person is not competent to contract if he is "disqualified from contracting by any law to which he is subject".

• Contracts made before the war may be suspended or dissolved when hostilities begin.
• With a licence from the Government of India the bar on trading does not apply.

Example: while India is in a war-like situation with a neighbouring country, a Surat textile firm agrees, without any government licence, to import dyes from a firm in that country. The agreement is void.