The Indian Contract Act, 1872

Question 1

Definition of Offer

Answer 1

According to Section 2(a) of the Indian Contract Act, 1872

When one person signifies to another his willingness to

do something

or to abstain from doing anything with

a view to obtaining the assent of the other to such out of abstinence, he is said to make proposal.

Question 2

Classification of Offer

Answer 2

1. General Offer
2. Special Offer
3. Cross Offer
4. Counter Offer
5. Standing Offer

Question 3

General Offer

Answer 3

It is an offer made to public at large and hence anyone can accept it and do the desired act
Anyone performing the conditions of the offer can be considered to have accepted the offer.
Case Law: Carlill Vs. Carbolic Smoke Ball Co.]

Question 4

Special Offer

Answer 4

When the offer is made to a specific ascertain person
Specific offer can be accepted only by that specified person to whom the offer has been made. [Boulton Vs Jones]

Question 5

Cross Offer

Answer 5

When two parties exchange identical offer in ignorance at the time of each other’s offer
There is no binding contract in such case because offer made by a person cannot be construed as acceptance of the another’s offer

Question 6

Counter Offer

Answer 6

When the offeree offers to qualified acceptance of the offer subject to modification and variation in terms of original offer
Counter offer amounts to rejection of the original offer. It is also called as Conditional Acceptance.

Question 7

Standing Offer

Answer 7

An offer which is allowed to remain open for acceptance over a period of time.

Question 8

Essentials of a Valid Offer

Answer 8

1. It must be capable of creating legal relations: if the offer does not intend to give rise to legal consequences and creating relations, it is not considered as valid offer the eye of law.
2. It must be certain, definite and not vague: If the terms of offer an are vague or indefinite, it’s acceptance cannot create any contractual relationship.
3. It must be communicated to the offeree: An offer, to be complete, must be communicated to the person to whom it is made, otherwise there can be no acceptance of it. [ Lalman Shukla Vs. Gauri Dutt]
4. It must be made with a view to obtaining assent of the other party: and not merely disclose the intention of making or offer.
5. Offer should not contain a term the non-compliance of which would amount to acceptance: One cannot say that if acceptance is not communicated by a certain time the offer would be considered accepted.
6. It may be conditional
7. The offer may be express or implied.
8. The offer may be either specific or general.
9. Offer is different from a mere statement of intention, invitation to offer, a mere communication of information, a prospectus and Advertisement.

Question 9

Definition of Acceptance

Answer 9

In terms of Section 2(b) of the Indian Contract Act 1872, the term “acceptance’ is defined as follows:

When the person to whom the proposal is made signifies his assent thereto, proposal is said to be accepted. The proposal, when accepted, becomes a promise.

Question 10

Legal Rules regarding a valid acceptance

Answer 10

1. Acceptance can be given only by the person to whom offer is made.
   Case Law: Boulton Vs Jones.

In case of a general offer, it can be accepted by any person who has the knowledge offer. Case Law: Carlill Vs Carbolic Smoke Ball Co.

2. Acceptance must be absolute and unqualified
3. The acceptance must be communicated
4. Acceptance must be in the prescribed mode
5. Acceptance must be given within the specified time
6. Mere silence is not acceptance
7. Acceptance by conduct / Implied Acceptance

Question 11

Explain: Acceptance must be absolute and unqualified

Answer 11

As per section 7 of the Act, acceptance is valid only when it is absolute and unqualified and is also expressed in some usual and reasonable manner unless the proposal prescribes the manner in which it must be accepted

Case Law: Neale Vs Merrel
Case Law: Union of India Vs Bahulal

Question 12

Explain: The acceptance must be communicated

Answer 12

To conclude a contract between the parties, the acceptance must be communicated in some perceptible form. Any conditional acceptance. or acceptance with varying or too deviant condition, is no acceptance. When a proposal is accepted, the offeree must have the knowledge of offer made to him. [Lalman Shukla Vs. GauriDutt]

Question 13

Explain: Acceptance must be in the prescribed mode

Answer 13

When the mode of acceptance is prescribed in the proposal, it must be accepted in that mannar. But if the proposer does not insist on the proposal being accepted in a manner prescribed after it has been accepted otherwise, the proposer is presumed to have consented to the acceptance.

Question 14

Explain: Acceptance must be given within the specified time

Answer 14

Acceptance must be given within the specified time if any, and if no time is stipulated, acceptance must be given within. the reasonable time and before the offer lapses. What is reasonable time is nowhere defined in the law and thus would depend on facts and circumstances.

Question 15

Explain: Mere Silence is Not Acceptance

Answer 15

The acceptance. of offer cannot be implied from the an silence of the offeree or his failure to answer, unless the offeree has in any previous conduct indicated that his silence is the evidence of acceptance
Case Law: Felthouse Vs Bindley

Question 16

Explain: Acceptance by conduct / Implied Acceptance

Answer 16

Section 8 of the Act lays down that the performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise, which may be offered with a proposal, constitutes an acceptance of the proposal.

Question 17

When is communication of offer complete

Answer 17

In terms of Section 4 of the act, the communications of offer is complete when it comes to the knowledge of the person to when it is made.

Question 18

When is communication of acceptance complete

Answer 18

In terms of [Section 4], communication of acceptance is complete

i] As against the proposer, when it is put course of transmission to him so as to be out of the power of the acceptor to withdraw the same.

ii] As against the acceptor, when it comes to the knowledge of the proposer

Question 19

Name Modes of communication of Acceptance

Answer 19

Section 3 of the Act prescribes in general terms two modes of communication of acceptance namely,

a) Communication by act
b) Communication by omission to do something

Question 20

Explain Communication by Act

Answer 20

Communication by act would include any expression of words whether written or oral. Written words. will include letters, telegrams, faxes, emails, advertisement. Oral words will include telephone messages.
Again communication would include any conduct intended to communicate the positive act or sign so that the other person understands what the ‘person acting’ or ‘making signs’ means to say or convey.

Question 21

Explain Communication of acceptance by omission to do something.

Answer 21

Such omission is conveyed by a conduct or forbearance on the part of one person to convey his willingness or assent. However, silence would not be treated as communication by ‘omission’.

Question 22

When is communication of revocation of offer complete

Answer 22

In term of Section 4

i) As against the person who makes it, when it is put into a course of transmission to the person to whom it is made so as to be out of the power. of the person who makes it.

ii) As against the person to whom it is made, when it comes to his knowledge

Question 23

Until when an offer and acceptance can be revoked

Answer 23

In terms of Section 5 of the Act

A proposal can be revoked at any time before the communication of its acceptance is complete against proposor.

An acceptance may be revoked at any time before the communication of acceptance is complete as against the acceptor.

Question 24

Name Modes of revocation of Offer

Answer 24

Section 6

i) By notice of revocation

ii] By lapse of time.

iii) By non-fulfilment of condition precedent: Where the acceptor fails to fulfill a condition precedent acceptance, the proposal gets revoked

iv) By death or insanity: Death or insanity of the proposes would result in automatic revocation of the proposal but only if the fact of death on insanity comes to the knowledge of the acceptor

v) By counter offer

vi)By the non-acceptance of the offer according to the prescribed as usual mode

vii) By subsequent illegality.

Question 25

Define Consideration

Answer 25

Section 2(d) defines consideration as follows

When at the desire of the promisor, the promisee or any other person has done or abstained from doing,

or does or abstains from doing or

promises to do or abstain from doing something,

such an act of abstinence or promise is called consideration for the promise.

Question 26

Legal Rules regarding consideration

Answer 26

i) Consideration must move at the desire of the Promisor

ii) Consideration may move from promisee or any other person

iii) Consideration may be past, present or future

iv) Consideration need not be adequate

v) Performance of what one is legally bound to perform is not consideration

vi) Consideration must be real and not illusory

vii) Consideration must not be unlawful, immoral, or opposed to public policy

Question 27

Explain: Consideration must move at the desire of the Promisor

Answer 27

Consideration must be offered by the promisee or third party at the desire or request of the promisor

Case Law: Durga Prasad Vs. Baldeo

Question 28

Explain: Consideration may move from promisee or any other person

Answer 28

In India, consideration may proceed from the promisee or any other person who is not a party to the contract. There can be a stranger to a consideration but not strange to a contract.

Case Law: Chinnayya V/S Ramayya

Question 29

Explain: Executed and Executory Consideration

Answer 29

A consideration which consists in the performance of an act is said to be executed.
When it consists in a promise, it is said to be executory.
The promise by one party may be the consideration for an act by some other party, and vice versa.

Question 30

Explain: Consideration may be past, present or future

Answer 30

The words “has done or abstained from doing [as contained in Section 2(d)] are a recognition of the doctrine of past consideration.

The consideration, if past, may be the motive but cannot be the real consideration of subsequent promise.

But in the event of the services being rendered in the past at the request or the desire of the promisor, the subsequent promise is regarded as an admission that the past consideration was not gratuitous.

Question 31

Explain: Consideration need not be adequate

Answer 31

Consideration need not to be of any particular value. It need not be approximately of equal value with the promise for which it is exchanged but it must be something which the law would regard as having some value.

Question 32

Explain: Performance of what one is legally bound to perform is not consideration

Answer 32

The performace of on act by a person who is legally bound to perform the same cannot be consideration for a contract

Question 33

Explain: Consideration must be real and not illusory

Answer 33

Consideration must be real and must not be illusory. It must be something to which the law attaches some value. If it is legally or physically impossible it is not considered valid consideration.

Question 34

Explain: Consideration must not be unlawful, immoral, or opposed to public policy

Answer 34

Only presence of consideration is not sufficient it must be lawful. Anything which is immoral or opposed to public policy also cannot be valued as valid consideration

Question 35

Explain: Doctrine of privity of contract

Answer 35

Though under the Indian Contract Act, 1872, the consideration for or agreement may proceed from a third party, the third party cannot sue on contract. Only a person who is party to a contract can sue on it.
Thus, the concept of stranger to consideration, is valid and is different from stranger to a contract
This rule that stranger to a contract cannot sue is known as a “doctrine of privity of contract”

Question 36

Exceptions to doctrine of privity of contract

Answer 36

1) In the case of trust

2) In the case of a family settlement

3) In the case of certain marriage contracts/arrangements

4) In the case of assignment of a contract

5) Acknowledgement or estoppel

6) In the case of covenant running with the land

7) Contracts entered into through agent

Question 37

The general rule is that an agreement without consideration is void
What are exceptions to this?

Answer 37

1) Natural Love and Affection

2)Compensation for past voluntary services

3) Promise to pay time barred debt

4) Agency

5) Completed gift

6) Bailment

Question 38

Consideration is not necessary in a contract made out of natural love and affection. But what are some conditions for this

Answer 38

i) It must be made out of natural love and affection between the parties

ii)Parties must stand in near relationship to each other

iii) It must be in writing

iv) It must also be registered under the law.

Question 39

What is Bailment

Answer 39

Bailment means 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 to either be returned or disposed of, according to the direction of the person delivering them

Question 40

Who is competent to contract?

Answer 40

Section 11
“Every person is competent the 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.”

Question 41

Laws relating to position of minor in contract

Answer 41

1. A contract made with or by minor is void ab-initio
2. No ratification after attaining majority
3. Minor can be a beneficiary or can take benefit out of a contract
4. A minor can always plead minority
5. A claim for necessaries supplied to a minor is enforceable by law.
6. Minor’s guardian can under certain circumstances enter into a valid contract on minor’s behalf.
7. No specific performance required by minor
8. Minor cannot be declared insolvent
9. Minor cannot be partner in partnership firm, he can be admitted to the benefits of partnership
10. Minor can be agent
11. Minon cannot bind parent or guardian
12. Minor cannot be shareholder
13. Minos is liable for torts.

Question 42

Define person of sound mind

Answer 42

According to Section 12 of the 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 is capable of understanding it and forming a rational judgement as to it’s effect upon his interest.”

Question 43

Contract by disqualified person

Answer 43

Besides minors and persons of unsound mind, there are also other persons who are disqualified from contracting, partially or wholly so that the contracts by such persons are void. Incompetency to contract may arise from political status, corporate status, legal status etc. Eg. Foreign Ambassadors, Alien enemy, Corporations, Convicts, Insolvent etc.

Question 44

Definition of Consent

Answer 44

“two or more persons are said to consent when they agree upon the same thing in the same sense.”

•Same thing must be understood as the whole content of the agreement.

• When parties to a contract make some fundamental as to the nature of the transaction, or as to person dealt with or as to the subject-matter the of the agreement, it cannot be said they have agreed upon the same thing in the same sense. No contract would exist between them as they were not ad idem (of same mind)

Question 45

Definition of Free Consent

Answer 45

Consent is said to be free when it not cause by

1) Coercion (Section 15)
2) Undue Influence (Section 16)
3) Fraud (Section 17)
4) Misrepresentation (Section 18)
5) Mistake (provisions Section 20, 21, 22)

Question 46

Define Coercion

Answer 46

Coercion” is the committing, or to commit threatening any act forbidden by the Indian Penal Code or the unlawful detaining, or threatening to detain any property. to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement (Section 15)

Question 47

Effect of coercion under section 19

Answer 47

Contract induced by coercion is voidable at the option of the party whose consent was so obtained.

When the aggrieved party cancels the voidable contract, the other party who had received benefited by coercion should restore such benefits so far as may be applicable.

A person to whom money has been paid or anything delivered under coercion must repay or return it.

Question 48

Define Undue Influence

Answer 48

“A contract is said to be induced by ‘undue influence’ where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and he uses that position to obtain an unfair advantage over the other.” (Section 16)

Question 49

Effect of undue influence

Answer 49

When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.

Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit there under, upon such terms and conditions as to the court may seem just.

Question 50

Define Fraud

Answer 50

“Frand’ means and includes any of the following acts committed by a party to contact or by his agent with intent to deceive another party or his agent to induce him to enter into the contract:

i] the suggestion, as a fact, of that which is not true, by one who does not believe it to be true.

ii] the active concealment of a fact by one having knowledge or belief of the fact.

iii] a promise made without any intention of performing it

iv] any other act fitted to deceive

v] any such act or omission as the law specially declared to be fraudulent

Question 51

Mere silence is not fraud but silence is fraud when..

Answer 51

A party to the contract is under no obligation to disclose the whole truth.

Silence is fraud when:

1.Duty of person to speak :
i] Fiduciary Relationship.
ii] Contract of insurance
iii] Contract of marriage
iv] Contract of family settlement
v] Share Allotment contracts

2.Where the silence itself is equivalent to speech:
for example, A says to B “If you do not deny it I shall assume that the house is sound.”, B says nothing, this silence amounts to speech

Question 52

Effect of Fraud

Answer 52

The contract is voidable at option of the party defrauded and he has the following remedies

i] He can rescind the contract within a resonable time.

ii] He can sue for damages

iii] He can insist on the performance of the contract on the condition that he shall be put in the position in which he would have been had the representation made true.

Question 53

Define Misrepresentation

Answer 53

Misrepresentation means and includes -

i] the positive assertion, in a manner not warranted by the person making it, of that which is not true, though he believes it to be true.

ii] any breach of duty which, without an intent to deceive, gains an advantage to the person committing it by misleading another to his prejudice

iii] causing, however, innocently, a party to make a mistake as to the substance of the things which is the subject of the agreement

Question 54

Effect of Misrepresentation

Answer 54

The contract is voidable at the option of the party whose consent was caused by misrepresentation.

A party to contract, whose consent was so caused by fraud or misrepresentation may if he thinks fit, insist that the contract shall be performed and that he shall be put in the position in which he would have been if the representation made had been true.

Question 55

Define Mistake

Answer 55

Mistake may be defined as innocent or erroneous belief which leads the party to misunderstand the other

Question 56

Two Types of Mistake

Answer 56

Mistake of Law

Mistake of Facts

Question 57

Define Mistake of Law

Answer 57

A mistake of law does not render a contract void as one cannot take excuse or ignorance of the law of his own country.

Mistake of foreign law is excusable and is treated like a mistake of fact.

Question 58

Define Mistake of Fact

Answer 58

Where the contracting parties
misunderstood each other and are at cross purposes, there is bilateral mistake

Where both the parties to an agreement are under a mistake as to the matter of fact essential to the agreement, the agreement is void.

Question 59

The consideration or object of an agreement is lawful, unless

Answer 59

1. It is forbidden by law; or
2. Is of such a nature that, if permitted, it would defeat the provision of any law; or
3. Is fraudulent
4. Involves injury to the person or property of another
5. The court regards it as immoral; or
6. Opposed to public policy

Question 60

Agreements opposed to public policy are:

Answer 60

Trading with enemy

Stifling Prosecution

Maintenance & Champerty

Trafficking relating to Public Office and titles

Agreements tending to create monopolies

Marriage brokerage agreement

Interest against obligation

Question 61

Maintenance means

Answer 61

Maintenance is an agreement in which a person promises to maintain a suit in which he has no interest.

Question 62

Champerty means

Answer 62

Champerty is agreement in which a person agrees to assist another in litigation in exchange of a promise to hand over a portion of the proceeds of the action.

Question 63

List Void Agreements

Answer 63

1] Made by incompetent parties

2] Agreements made under Bilateral mistake of fact

3] Agreements the consideration or object of which is unlawful

4) Agreements made without consideration

5] Agreements in restraint of marriage

6] Agreements in restraint of trade

7] Agreement in restraint of legal proceeding

8] Agreement the meaning of which is uncertain

9] Agreement to do impossible Acts

10] Wagering Agreement

Question 64

Define Wagering agreement

Answer 64

An agreement wherein two parties in which one of the parties agrees to pay money if some unknown event occurs, with the understanding that if the event does not happen, the other party must pay the same amount back, is called an agreement of Wager.

Question 65

Essentials of a Wager

Answer 65

1. There must be a promise to pay money or money’s worth
2. Promise must be conditional on an event happening or not happening.
3. There must be uncertainty of event
4. There must be two parties, each party must stand to win or lose
5. There must be common intention to bet at the time of making such agreement
6. Parties should have no interest in the event except for stake

Question 66

Transactions similar to wager

Answer 66

Lottery transaction: Lotteries are illegal and even collateral transactions to it are tainted with illegality.

Crossword Puzzles & Competition: Crossword puzzles in which prizes depend upon the correspondence of the competitor solution with the previously prepared solution is wager

Speculative transaction: an agreement or a share marks transaction where the parties intend to settle the difference between the contract price and the market price of certain goods or shares on a specified day is gambling & void

Horse Race Transaction: A horse race competition where prize payable to the bet winner is less than 500 is a wager.

Question 67

Transactions resembling with wagering transaction but are not void

Answer 67

Chit Fund

Commercial transactions ar share market transaction

Games of skill and Athletic Competition

A contract of insurance

Question 68

Define Contingent Contract

Answer 68

“A contract to do or not to do something, if some event, collateral to such contract, does or does not happen.”

Question 69

Essentials of contingent contract

Answer 69

1) The performance of a contingent contract would depend upon the happening or non-happening of some event or condition.

2) The event referred to as collateral to the contract.

3) The contingent event should not be a mere ‘will’ of the promisor

4) The event must be uncertain

Question 70

Define Quasi Control

Answer 70

Sometimes the law implies a promise imposing obligations on one party and conferring in the favour of the other even when there is no offer, no acceptance, no genuine consent, lawful consideration etc and in fact neither agreement nor promise.

Such cases are not contract in the strict sense but the court recognises them as relation resembling those of contract and enforces them as if they were contracts.
Hence the term Quasi-contract (i.e resembling a contract)

Question 71

Cases Deemed as Quasi Contract

Answer 71

Claim for necesscowes supplied to person incapable of contracting

Payment by an interested person

Obligation of person enjoying benefits of non gratuitous act

Responsibility of finder of goods

Money paid by mistake or under coercion

Question 72

A contract is discharged when…

Answer 72

the obligations created by it come to an end.

Question 73

Ways to discharge a contract

Answer 73

1) Discharge by Performance

2) Discharge by mutual agreement

3) Discharge by impossibility of performance

4) Discharge by lapse of time

5) Discharge by breach of contract

6) Promisee may waive performance of the promisor

7) Effect of neglect of promisee to afford promisor reasonable facilities for performance.

8) Merger of rights

Question 74

Breach means

Answer 74

Failure of a party to perform his or her obligation under a contract

Question 75

Anticipatory breach of contract

Answer 75

When the promisor refuses altogether to perform his promise and signifies his unwillingness even before the time of performance has arrived.

Question 76

Actual breach of contract

Answer 76

It is a case of refusal to perform the promise on the scheduled date when the performance is due or during the performance.

Question 77

Remedies for breach of contract

Answer 77

1) Suit for damages

2) Rescission of contract

3) Suit for specific performance.

4) Suit for Injuction

5) Suit upon quantum meruit

Question 78

Types of Damages

Answer 78

1) Ordinary Damages

2) Special Damages

3) Vindictive or Exemplary Damages

4) Nominal Damages

5) Damages for deterioration caused by delay

6) Prefixed Damages

Question 79

Ordinary Damages

Answer 79

Compensation for any loss or damage caused, which naturally arose in the usual course of things from such breach or which the parties know, when they made the contract.

Question 80

Special damages

Answer 80

Where a party receives a notice of special circumstances affecting the contract, he will be liable not only for damages arising naturally and directly from the breach but also for special damages

Question 81

Vindictive or Exemplary Damages

Answer 81

In case of

[a] breach of promise to marry

[b] wrongful dishonour by a banker of his customer’s cheque.

Question 82

Nominal damages

Answer 82

Nominal damages are awarded where the plaintiff has proved there has been a breach of contract but he has not infact suffered any real damages

Question 83

Damages for deterioration caused by delay

Answer 83

In case of deterioration caused to goods by delay, damages can be recovered from the carrier even without notice

Question 84

Types of Prefixed damages according to English law

Answer 84

1) Liquidated Damages - actual anticipated loss

2) Penalty - unreasonable amount

Question 85

Define Quantum Meruit

Answer 85

Where one person has rendered services to another in circumstances which indicate an understanding between them that it is to be paid for although no particular remuneration has been fixed, the law will infer a promise to pay

Question 86

Suit for Specific performance

Answer 86

Where damages are not an adequate remedy, the court may in it’s discretion on a suit for speciflc performance, direct the party in breach to carry out his promise

Question 87

Suit for Injunction

Answer 87

Where a party to a contract is negating the terms of a contract, the count, may by issuing an ‘injunction orders’, restrain him from doing what he promised not to do.

Question 88

Application of payments where debt to be discharged is indicated

Answer 88

Where a debtor, owing several distinct debts to one person, makes a payment to him either with express intimation or implying that the payment is to be applied to discharge a particular, debt, the payment, if accepted, must be applied accordingly

Question 89

Application of payment where debt to be discharged is not indicated

Answer 89

Where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt whether it is time barred or not

Question 90

Application of payment of debt where neither party appropriates

Answer 90

The payment shall be applied in discharge of the debts in order of time, whether time barred or not. If the debts are of same standing, the payment shall be applied proportionately.