INDIAN CONTRACT ACT

UNIT 1

Q.1 Define the following terms

(a) contract
(b) agreement
(c) promise
(d) Enforce ability by law
Ans.
 Contract [Section 2(h)] — An agreement enforceable by law.
 Agreement [Section 2(e)] — Every promise and every set of promises, forming the
consideration for each other”.
 Promise - Section [2(b)] — When the person to whom the proposal is made signifies his
assent there to, the proposal is said to be accepted. Proposal when accepted, becomes a
promise”.
 Enforceability by law — An agreement to become a contract must give rise to a legal
obligation which means a duly enforceable by law.

Q.2 Difference between agreement and contract.

Ans.

BASIS AGREEMENT CONTRACT

Meaning Every promise and every set of Agreement enforceable by law.

promises, forming the consideration Agreement + Legal enforceability
for each other. Offer + Acceptance

Scope It’s a wider term including both legal It is used in a narrow sense with the
and social agreement. specification that contract is only legally
enforceable agreement.

Legal It may not create legal obligation. An Necessarily creates a legal obligation. A
obligation agreement does not always grant contract always grants certain rights to
rights to the parties every party.

Nature All agreement are not contracts. All contracts are agreements.

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ESSENTIALS OF A VALID CONTRACT

Q.3 What are the essential elements of a valid contract ?

Ans.

As given by Section 10 Not given by Section 10 but are also considered

essential

Agreement Two parties

Free consent Intention to create legal relationship

Competency of the parties Fulfillment of legal formalities

Lawful consideration Certainty of meaning

Legal object Possibility of performance

Not expressly declared to be void

Two Parties: One cannot contract with himself. A contract involves at least two parties- one party
making the offer and the other party accepting it ( State of Gujarat Vs. Ramanlal & co.)
Parties must intend to create legal obligations: There must be an intention on the part of the
parties to create legal relationship between them. Social or domestic type of agreements are not
enforceable. ( Balfour v Balfour )
Other Formalities to be complied with in certain cases: In case of certain contracts, the
contracts must be in writing like insurance contracts , registration of immovable property.
Certainty of meaning :The agreement must be certain and not vague or indefinite
Possibility of performance of an agreement : The terms of agreement should be capable
of performance.Anagreementtodoanactimpossibleinitselfcannotbeenforced.
Offer and Acceptance or an agreement : A proposal when accepted, becomes a promise”.
An agreement is an outcome of offer and acceptance.
Free Consent : Two or more persons are said to consent when they agree upon the same thing in
the same sense. Consent would be considered as free consent if it is not caused by coercion,
undue influence, fraud or, misrepresentation or mistake.
Capacity of the parties : Section 11 of the Indian Contract Act specifies that every person is
competent to contract who
(a) Is of the age of majority according to the law to which he is subject and
(b) is of sound mind and
(c) is not otherwise disqualified from contracting by any law to which he is subject.
Consideration : A valuable consideration in the sense of law may consist either in some right,
interest, profit, accruing to one party, or some forbearance, loss suffered or responsibility given,

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by the other
Lawful Consideration and Object : The consideration and object of the agreement must be
lawful [Section 23]
Not expressly declared to be void : The agreement entered into must not be which the law
declares to be either illegal or void.

Q.4 What are the various types of contract on the basis of

(a) Validity
(b) Formation
(c) Performance
Ans.

ON THE BASIS OF THE VALIDITY

Valid Contract An agreement enforceable by Law [Sec. 2(h) ]

Void Contract Section 2 (j) A contract which ceases to be enforceable by law becomes void
when it ceases to be enforceable.

Voidable Contract An agreement which is enforceable by law at the option of one or

Section 2(i) more parties thereto, but not at the option of the other or others is a
voidable contract.

Illegal Contract It is a contract which the law forbids to be made.

All illegal agreements are void but all void agreements are not
necessarily illegal.

Void Agreement Sec. 2(g) An agreement not enforceable by law is void

Unenforceable Contract  Where a contract is good in substance

 but because of some technical defect i.e. absence in
writing, barred by limitation etc.
 one or both the parties cannot sue upon it, it is described
as an unenforceable contract

ON THE BASIS OF FORMATION OF CONTRACT

Express Contracts A contract would be an express contract if the terms are

expressed by words or in writing. [Sec.9]

Implied Contracts  When a proposal or acceptance is made otherwise than in

words, the promise is said to be implied. [Sec.9]
 The implication is by law and or by action
Example. Where a coolie in uniform picks up the luggage

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without being asked and is allowed to do so

Tacit Contracts  The word Tacit means silent.

 Tacit contracts are those that are inferred through the
conduct of parties without any words spoken or written
Example. Cash withdrawal from ATM or Fall of Hammer

Quasi Contract  A quasi-contract is imposed by law.

 The law creates and enforces legal rights and obligations
when no real contract exists. Such obligations are known
as quasi-contracts
 It is a contract in which there is no intention on part of
either party to make a contract but law imposes a contract
upon the parties.

E-Contracts  When a contract is entered into by two or more parties

using electronics means, such as e-mails is known as e-
commerce contracts.
 These are known as EDI contracts or Cyber contracts or
mouse click contracts.

ON THE BASIS OF PERFORMANCE OF THE CONTRACT

Executed Contract When the act is done or executed or the forbearance is

brought on record, then the contract is an executed contract.

Executory Contract  In an executor contract the consideration is reciprocal

promise or obligation.
 Such consideration is to be performed in future only

Unilateral Contract  Unilateral contract is a one sided contract in which

 one party has performed his duty or obligation and the
other party’s obligation is outstanding.

Bilateral Contract A Bilateral contract is one where the obligation or promise is

outstanding on the part of both the parties.

Q.5 Distinguish between Void and Illegal Agreement ?

Ans.

BASIS VOID AGREEMENT ILLEGAL AGREEMENT

Scope A void agreement is not An illegal agreement is always

necessarily illegal. void.

Nature Not forbidden under law. Are forbidden under law.

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Punishment Parties are not liable for any Parties to illegal agreements are
punishment under the law. liable for punishment.

Collateral Agreement It’s not necessary that agreements Agreements collateral to illegal
collateral to void agreements may agreements are always void.
also be void. It may be valid also.

Q.6 Distinguish between Void Contract and Voidable Contract?

Ans.

Basis VOID CONTRACT VOIDABLE CONTRACT

Meaning A Contract ceases to be An agreement which is enforceable

enforceable by law becomes void by law at the option of one or more
when it ceases to be enforceable. of the parties thereto, but not at the
option of the other or others, is a
voidable contract.

Enforceability A void contract cannot be It is enforceable only at the option

enforced at all of aggrieved party and not at the
option of other party.

Cause A contract becomes void due to A contract becomes a voidable

change in law or change in contract if the consent of a party
circumstances beyond the was not free.
contemplation of parties.

Performance of Avoid contract cannot be If the aggrieved party does not

contract performed. exercise his right to avoid the
contract, within reasonable time,
any party can sue the other for
claiming the performance of the
contract.

Rights A void contract does not grant The party whose consent was not
any right to any party. free has the right to rescind the
contract.

Q.7 Define the term OFFER/ PROPOSAL. What are the essentials of an offer or
proposal as per Sec 2(a)?
Ans. According to Section 2(a)
 “when one person signifies to another his willingness
 To do or to abstain from doing anything

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 With a view to obtaining the assent of that other
 To such act or abstinence, he is said to make a proposal”.

ESSENTIALS OF A PROPOSAL
 The person making the proposal or offer is called the ‘promisor’ or ‘offeror’. The person
accepting the offer is called the ‘promise ’or‘ acceptor’.
 For a valid offer, the party making it must express his willingness ‘to do ’or‘ not to do
’something’.
 Mere expression of willingness does not constitute an offer.
 An offer can be positive or negative.
 The willingness must be expressed with a view to obtain the assent of the other party to
whom the offer is made.

Q.8 What are the various kinds of Offer ?

General offer  It is an offer made to public at large and hence any one can accept
and do the desired act (Carlill vs Carbolic Smoke Ball Co.).
 In terms of Section 8 of the Act, any one performing the conditions
of the offer can be considered to have accepted the offer .
 Until the general offer is retracted or withdrawn, it can be accepted
by any one at any time as it is a continuing offer .

Special/specific  When the offer is made to a specific or an as curtained person, it is

offer known as a specific offer
 Can be accepted only by that specified person to whom the offer
has been made. [Boulton v.Jones]

Cross offer  When two parties exchange identical offers

 In ignorance at the time of each other’s offer , the offer are called
cross offers

Counter offer /  When the offeree offers to qualified acceptance of the offer subject
Conditional to modifications and variations in the terms of original offer, he is
acceptance said to have made a counter offer.
 Counter-offer amounts to rejection of the original offer

Standing or  An offer which is allowed to remain open for acceptance over a

continuing or open period of time is known as standing or continuing or open offer
offer
 Tender

Express offer

Implied Offer

Q.9 What are the essentials/ rules of a Valid Offer ?

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Ans.
The following are the essentials of a valid offer :
 It must be capable of creating legal relations
 It must be certain, definite and not vague – its acceptance cannot create any contractual
relationship.
 It must be communicated to the offeree. An acceptance of an offer , in ignorance of the
offer , is not acceptance ( Lalman Shukla v. Gauri Dutt)
 It must be made with a view to obtaining the assent of the other party not merely with a
view to disclosing the intention of making an offer.
 It may be conditional.
 Offer should not contain a term the non-compliance of which would amount to acceptance
 The offer may be either specific or general.
 Offer is Different from a mere statement of intention, an invitation to offer, a mere
communication of information, Casual Equity, A prospectus and Advertisement ( Harvey
vs. Facie)
 The offer may be express or implied.

Q.10 Difference between offer and invitation to offer ?

OFFER INVITATION TO OFFER

 An offer is the final expression of  Where a party without expressing his final
willingness willingness proposes certain terms on
which he is willing to negotiate ,he does
 by the offer or to be bound by the offer
not make an offer
 if the other party chooses to accept it.
 But invites the other party to make offer on
those terms.

 If a person who makes the statement has  If a person has the intention of negotiating
the intention to be bound by it as soon as on terms it is called invitation to offer .
the other accepts, he is making an offer.

 An offer is definite and capable of  An invitation to an offer is only a

converting an intention into a contract. circulation of an offer, it is an attempt to
induce offers.

 Offer precedes Acceptance.  An invitation to offer is an act precedent to

making an offer.
 It must be distinguished from an answer to
a question or a statement of price( Harvey
v Facie ).

Examples: Examples:
 An invitation by a company to the public to
subscribe for its shares.
 Display of goods for sale in shop windows.
 Advertising auction sales ( Harris v

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Nickerson ) and
 Quotation of prices sent in reply to a query
regarding price.

Q.11 Define acceptance.

Ans.
 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.
[Section 2(b)]

Q.12 According to Sir William Anson “Acceptance is to offer what a lighted match is to
a train of gunpowder”. Comment.
Ans.
 The effect of this observation is that what acceptance triggers cannot be recalled or
undone.
 But there is a choice to the person who had the train to remove it before the match is
applied.
 It means that the offer can be withdrawn just before it is accepted. Acceptance converts
the offer into a promise and then it is too late to revoke it. This means as soon as the train
of gun powder is lighted it would explode.
 Train of Gunpowder [offer] in itself is inert, but it is the lighted match [the acceptance]
which causes the gunpowder to explode.
 The significance of this is an offer in itself cannot create any legal relationship but it is the
acceptance by the offeree which creates a legal relationship. Once an offer is accepted it
becomes a promise and cannot be withdrawn or revoked. An offer remains an offer so
long as it is not accepted but becomes a contract as soon as it is accepted.

Q.13 What are the legal rules regarding a valid acceptance ?

Ans.
LEGAL RULES REGARDING A VALID ACCEPTANCE
 Acceptance can be given only by the person to whom offer is made ( Boulton vs. Jones )
 Acceptance must be absolute and unqualified ( Sec. 7) and is also expressed in some
usual and reasonable manner.( Neale v Merret )
 The acceptance must be communicated in some perceptible form.( Brogden vs.
Metropolitan Railway Co.)
 Acceptance must be in the prescribed mode .But if the proposer does not insist on the
proposal being accepted in the manner prescribed after it has been accepted otherwise.
 Mere silence is not acceptance unless the offeree has in any previous conduct indicated
that his silence is the evidence of acceptance. ( Felthouse vs. Bindley )

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 Acceptance by conduct/Implied Acceptance ( Section 8 ) - when a person performs the act
intended by the proposer as the consideration for the promise offered by him, the
performance of the act constitutes acceptance.

Q.14 What are the rules regarding communication of offer and acceptance ?
Ans.
COMMUNICATION OF OFFER AND ACCEPTANCE

Communication of offer ( Section 4 ) Communication of acceptance is complete

 The communication of offer is  As against the proposer, when it is put in the

complete course of transmission to him so as to be out of

the power of the acceptor to withdraw the same;
When it comes to the knowledge of
the person to whom it is made.  As against the acceptor, when it comes to the
knowledge of the proposer.

Q15. What are the rules regarding revocation of offer and acceptance ?
Ans.
REVOCATION OF OFFER AND ACCEPTANCE
Communication of revocation (of the proposal or its acceptance) is complete.
 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, and
 as against the person to whom it is made, when it comes to his knowledge.

Q.16 Till when a proposal can be revoked

Or What is the time available for revocation of offer and acceptance ?

Ans.
TIME FOR REVOCATION OF OFFER AND ACCEPTANCE Section 5
 a proposal can be revoked at any time before the communication of its acceptance is
complete as against the proposer.
 An acceptance may be revoked at any time before the communication of acceptance is
complete as against the acceptor.

Q.17 What are the Modes of Revocation of an offer ?

Ans.
The following are the modes of revocation of an offer :
 By Notice of revocation.
 By Lapse of time: The time for acceptance can lapse if the acceptance is not given within
the specified time and where no time is specified, then within a reasonable time.
(Ramsgate Victoria Hotel Co. Vs Montefiore)

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 By Non fulfillment of condition precedent: Where the acceptor fails to fulfill a
condition precedent to acceptance the proposal gets revoked. (Section 6)
 By Death or insanity: Death or insanity of the proposer would result in automatic
revocation of the proposal only if the fact of death or insanity comes to the knowledge of
the acceptor.
 By Counter offer
 By the Non acceptance of the offer according to the prescribed or usual mode
 By Subsequent illegality.

Q.18 All contracts are agreements, but all agreements are not contracts .Comment
Ans.

 An agreement comes into existence when one party makes a proposal or offer to
the other party and that other party gives his acceptance to it.
 A contract is an agreement enforceable by law. It means that to become a contract an
agreement must give rise to a legal obligation i.e. duty enforceable by law. If an
agreement is incapable of creating a duty enforceable by law, it is not a contract.
 There can be agreements which are not enforceable by law, such as social, moral or
religious agreements. The agreement is a wider term than the contract. All agreements
need not necessarily become contracts but all contracts shall always be agreements.
 All agreements are not contracts: When there is an agreement between the parties
and they do not intend to create a legal relationship, it is not a contract.

 All contracts are agreements: For a contract there must be two things (a) an
agreement and (b) enforceability by law. Thus, existence of an agreement is a pre-
requisite existence of a contract. Therefore, it is true to say that all contracts are
agreements.
 Thus, we can say that there can be an agreement without it becoming a contract, but
we can’t have a contract without an agreement.

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