Contract - I Questions 1 to 10

Q1. What is a Contract? Mention any three essential elements a valid contract?

A contract is an agreement which is enforceable by law. Hence, when we use word ‘contract’ it satisfies all legal requirement. Hence the word “Void contract” is wrong. It should be “void agreement”. Thus, contracts can only be valid or voidable. Section 10 of the Indian Contract Act – 1972 defines the criteria of valid contracts.

An agreement is a contract if satisfies all the following criteria

The agreement should be by the free consent (free from coercion, undue influence, misrepresentation, mistake or fraud) (section 13 to 22)
The parties involved in the contract are competent. (Section 11 and 12)
The agreement is for a lawful consideration and a lawful object. (Section 23 to 25)
It is not an agreement expressly declared to be void. Social, moral and religious agreements are void with respect to contract. (Section 26 to 30)
The agreement should be legally enforceable.

If any of this condition is not satisfied it is a void agreement and not a contract.

Q2. Define Proposal. Mention any three essentials of a valid Proposal.

The term “proposal” of the Indian Contract Act is synonymous to the term “Offer” in English law. Section 2(a)of the Indian Contract Act, 1872 defines proposal as “when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal”. The person making proposal/offer is called the proposer/offeror and the person to which the proposal is made is called propose or offeree.

Essential Elements of an Offer / A Proposal:

There must be two parties.
The offer must be communicated to the offeree.
The offer must show the willingness of offeror.
The offer must be made with a view to obtaining the assent of the offeree.
An offer may involve a positive act or abstinence by the offeree.
A mere expression of willingness or expression made jokingly or desire does not constitute an offer.

Q3. Define Acceptance. Mention any three essentials of a valid Acceptance.

A contract comes into being from the acceptance of an offer. Section 2(b) of the Act defines acceptance as follows: “When the person to whom the offer is made signifies his assent thereto, the proposal is said to be accepted”. The acceptance of the offer must be absolute and unqualified i.e. it cannot be conditional.

It must be absolute and unqualified.
The Acceptor must in indicate an intention to fulfill the promise.
It must be communicated:
It must be in the mode prescribed:
Silence cannot be prescribed as a mode of acceptance:
It must be given within the time stipulated or within a reasonable time if time is not mentioned.
Acceptance and its communication must be made by the offeree or his authorized agent.
If the proposal is made through an agent, it is sufficient if the acceptance is communicated to him.

Q4. Mention any three types of Offers.

Express Offer: When the offer is made by express communication then the offer is said to be an express offer. The express offer can be made face to face or via telephone. The express offer in written format can be made via text messages, advertisements, letters or e-mail.
Implied Offer: when the offer is not communicated expressly but communicated by conduct or by the circumstances of the case, then offer is called an implied offer. When we are waiting for a bus to go to a certain place, the bus which can take us to the place where we desire to go arrives and halts at the bus stop. We enter the bus and pay requisite fair. A ticket is given to us. When destination comes, we board down the bus. The bus halts at the stop. By this conduct, he is giving an offer to us. By entering the bus, we accept the offer. Thus, acceptance is also by conduct. Such offers are implied offers.
Special Offer: Special offer means an offer made to (a) a particular person or (b) a group of persons. It can be accepted only by that person to whom it is made. communication of acceptance is necessary in case of a specific offer. ‘A’ offers to buy a car from B for Rs 10 Lakh. Thus, a specific offer is made to a specific person, and only B can accept the offer. Communication from B for acceptance or rejection is necessary.
General Offer: General offer means an offer which is made to the public in general. A General offer can be accepted by anyone. If offeree fulfills the terms and conditions which are given in offer then offer is accepted. Communication of acceptance is not necessary in the case of a general offer
Cross Offer: When two parties exchange identical offers in ignorance at the time of each other’s offer the offers are called cross offer. Two cross offers do not constitute a contract. In the cross offer, the offers are made by the same parties to one another, each party not knowing about the offer made by the other party. The terms and conditions contained in cross offers are the same. Note that in this case, both are offeror and same time offerree.
Counter Offer: When the offeree gives a qualified acceptance of the offer subject to
modified and variations in the terms of the original offer, then the offer made by the original offeree is called counter-offer. The counter-offer amounts to the rejection of the original offer.
Standing or Open or Continuous Offer: An offer is allowed to remain open for acceptance over a period of time is known as standing, open or continually offer.

Q5. Mention any three circumstances under which an Offer gets revoked.

The word ‘revocation’ means “taking back”. The Indian Contract Act lays out the rules of revocation of an offer in Section 5. It says the offer may be revoked any time before the communication of the acceptance is complete against the proposer/offeror. Once the acceptance is communicated to the proposer, revocation of the offer is now not possible.

By Notice of Revocation (S. 6 Clause 1): A proposal is revoked by a proposer by communication of notice of revocation proposal to the propose only before the proposee sends the communication of acceptance.
By Lapse of Time (S. 6 Clause 2): A proposal is revoked by the lapse of the time prescribed in such proposal for acceptance, or, if no time is prescribed by the lapse of a reasonable time, without communication of the acceptance.
By Non-Fulfilment of a Condition Precedent to Acceptance (S.6 Clause 3): Sometimes, the offeror may ask the offeree to fulfill certain conditions before acceptance. If the offeree fails to comply with the conditions prescribed in the communication of offer, then offeror can revoke the offer. Thus if these conditions are not fulfilled, the offer lapses.
By Death or Insanity of the Proposer (S. 6 Clause 4): A proposal can be revoked by death or insanity of the proposer if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance. Death of the offeror revokes the proposal and if acceptance is made it has no effect.
By Counter Offer: When the offeree gives a qualified acceptance of the offer subject to modified and variations in the terms of the original offer, then the offer made by the original offeree is called counter-offer. The counter-offer amounts to the rejection of the original offer.
By Acceptance not Being Accepted in the Mode Prescribed: If the offeror has prescribed a mode of acceptance, it should be strictly followed by the offeree. If the offer is not accepted in the mode prescribed, the offeror can reject acceptance by giving notice to the offeree within a reasonable time that offer should be accepted in the mode prescribed and not otherwise.
By Rejection of the Offer by Offeree: An offer also comes to an end when the offeree does not accept it and an offer once rejected cannot be revived again by him.
Before Fall of Hammer: In an auction sale, a bidder may withdraw his bid at any time before the fall of the hammer (acceptance).

Q 6 Explain the case of Lalman Shukla V/s Gauri Dutt.

In Lalman Shukla v. Gauri Datt (1913) All LJ 489 case ‘A’s nephew has absconded from his home. He sent his servant to trace his missing nephew. When the servant had left, ‘A’ then announced that anybody who has discovered the missing boy would be given the reward of Rs.500. The servant discovered the missing boy without knowing the reward. When the servant came to know about the reward, he asked for the same from ‘A’. ‘A’ refused to give the reward. The servant brought an action against ‘A’ in the court of law to recover the same. But the court held that when the servant discovered the boy, he was not aware of the reward. Thus, the offer was not communicated to him. Hence, he is not liable to get the reward from A.

Essential Elements of an Offer / A Proposal:

There must be two parties.
The offer must be communicated to the offeree.
The offer must show the willingness of offeror.
The offer must be made with a view to obtaining the assent of the offeree.
An offer may involve a positive act or abstinence by the offeree.
A mere expression of willingness or expression made jokingly or desire does not constitute an offer.

Q 7 Distinguish between Void Agreement and Voidable Contract.

Void Agreement	Voidable Contract
Section 2(g) of the Indian Contract Act, 1872 defines void agreement as: “An agreement not enforceable by law is said to be void.”	According to Section 2(i) of the Indian Contract Act 1872, “An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.”
It is void due to lack of any essentials of a valid contract except free consent.	It is voidable because the consent of a party is not free.
A void agreement is void-ab-initio, i.e., void from the very beginning.	The contract will remain in effect until the party whose consent is not free revokes it.
In the case of void ‘agreement’, there is no remedy available in law. In a void agreement the person is not entitled to compensation for loss arising due to the non-performance of the agreement.	The injured person has the right to take legal action to recover damages. In a voidable contract, a person is entitled to compensation for loss arising due to non-performance of the contract.
A collateral agreement to void agreement is a void contract.	A collateral agreement to a voidable contract is not a void contract.
A third party does not obtain any rights under a void agreement.	A third party that buys goods in good faith and for consideration before the contract is rejected gets rights under a voidable contract.
A void agreement can never become a valid contract by consent of the parties, or upon the lapse of a reasonable time.	A voidable contract becomes a valid contract upon the lapse of a reasonable time, or upon affirmation, ratification, waiver of the right, or acquiescence of the consent of the party whose consent was not free.

Q 8 What is an Invitation to an Offer? Mention two examples of Invitation to Offer.

An offer must be distinguished from an invitation to offer (Invitation to treat by English Law). 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.

Invitation for Tenders: An invitation or a request for tenders is a formal, structured invitation to suppliers to submit a bid to supply products or services. Thus, a person may invite tenders for the supply of specific goods or services. Thus, a tender is the response to the request of tenders, and it is an offer.
Auctions: It is a public sale in which goods or property are sold to the highest bidder. an advertisement for auction is an example of an invitation to offer. In auction sales, the offer proceeds from the bidder, and it is for the auctioneer to accept it or not. In an auction, the acceptance of the offer is signified by the fall of the hammer. But the offer can be revoked before such acceptance.
Proposals for Insurance: When a person submits a proposal form to the insurance company, it is an invitation to offer. Now the insurance company gives an offer which is accepted by the person after paying the premium. After paying the premium the contract is concluded. Once the premium is paid, it is immaterial that the insurance company has issued the policy or not.

Q 9 Mention any three Exceptions to the general rule No Consideration No Contract.

Consideration is an integral part of a contract. The rules of consideration state that it is essential to have consideration for a contract. But there are some specific exceptions to the “No consideration no contract” rule. Section 25 lists the exceptions under which the rule of no consideration no contract does not hold, as follows:

Natural Love and Affection: If an agreement is in writing and registered between two parties in close relation (like blood relatives or spouse), based on natural love and affection, then such an agreement is enforceable even without consideration.
Past Voluntary Services: If a person has done a voluntary service in the past and the beneficiary promises to pay at a later date, then the contract is binding provided: the service was rendered voluntarily in the past, it was rendered to the promisor, the promisor was in existence when the voluntary service was done (especially important when the promisor is an organization), the promisor showed his willingness to compensate the voluntary service
Promise to pay a Time-Barred Debt: If a person makes a promise in writing signed by him or his authorized agent about paying a time-barred debt, then it is valid despite there being no consideration. The promise can be made to pay the debt wholly or in part.
Creation of an Agency: According to section 185 of the Indian Contract Act, 1872, no consideration is necessary to create an agency.
Gifts: The rule of no consideration no contract does not apply to gifts. Explanation (1) to Section 25 of the Indian Contract Act, 1872 states that the rule of an agreement without consideration being void does not apply to gifts made by a donor and accepted by a donee.
Bailment: Section 148 of the Indian Contract Act, 1872, defines bailment as the delivery of goods from one person to another for some purpose. This delivery is made upon a contract that post accomplishment of the purpose, the goods will either be returned or disposed of, according to the directions of the person delivering them. No consideration is required to effect a contract of bailment.
Charity: If a person undertakes a liability on the promise of another to contribute to charity, then the contract is valid. In this case, the no consideration no contract rule does not apply.
Remission: Sec. 63 of the Indian Contract Act, 1872 lays down that where a person agrees to receive less than what is due to him, such an agreement is said to be an agreement of remission. No consideration is required for a contract of remission.
Guarantee: Sec. 127 of the Indian Contract Act, 1872 lays down that under the contract of guarantee, no consideration is received by the surety, even then the contract of guarantee is valid.

In Rajlakhi Debi v. Bhootnath Mukerjee case (1900) 4 Cal WN 488, a husband promised to pay to his wife, after constant quarrels between them, a fixed monthly amount for her maintenance and separate residence without any consideration. The promise was in writing and registered When he refused to pay, the wife filed a case. She was not allowed anything by court on the ground that the exception was not applicable as there was no natural love left between them.

Q 10 What is Doctrine of Privity of Contract? Mention any one exception to it.

The Indian Contract Act clearly states that there cannot be a stranger to a contract. It means any third party which is not a part of the contract for breach of contract. There are some exceptions. These exceptions are explained through the Doctrine of Privity of a Contract.

In general, from the Indian Contract Act, a contract creates rights and obligations only between the parties to the contract. A third party neither acquires a right nor any liabilities under such contract i.e. the law does not allow a stranger to file a suit on the contract. This right is available only to a person who is party to the contract. This is what the proclaimed doctrine of “privity of contract”

Example: A has borrowed some money from B. A owns property and decides to sell it to C. C promises to pay B on behalf of A. However, if C fails to pay, then B cannot sue C since C is a stranger to the contract between A and B.

The doctrine of Privity has exceptions which allow a stranger to enforce a Contract through an agent.

Trust: This is the most common exception to the doctrine of privity of contract. If a contract is made between the trustee of a trust and another party, then the beneficiary of the trust can sue by enforcing his right under the trust, even if he is a stranger to the contract.
Family Settlement (Marriage/Partition): If a contract is made under a family arrangement to benefit a stranger (person not a party to the contract), then the stranger can sue in his own right as a beneficiary of the contract.
Contract Through Agent: If a person enters into a contract through an agent, where the agent acts within the scope of his authority and in the name of the person (principal). In this case, the principal gets rights and obligations under contracts entered through agent provided agent acts within the authority and on behalf of the principal.
Acknowledgment or Estoppel: If a contract requires that a party pays a certain amount to a third-party and he/she acknowledges it, then it becomes a binding obligation for the party to pay the third-party. The acknowledgment can also be implied.
A Covenant running with the Land: When a person purchases a piece of land with the notice that the owner of the land will be bound by all duties and liabilities affecting the land, then he can sue upon a contract between the previous land-owner and a settler even if he was not a party to the contract.

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