CA Foundation Solutions For Business Laws – Nature of Contract

Nature of Contract

Law Indian Contract Act 1872

Section 1: Short Title

Section 2: Interpretation Clause

Section 3: Communication, acceptance, and revocation of proposals

Section 4: A proposal is accepted from the date its acceptance is sent by the post

Section 5: A proposal can be revoked at any time before the communication of its acceptance

Section 6: Revocation How made

Section 7: Acceptance must be absolute

Section 8: Acceptance by performing conditions, or receiving consideration

Section 9: Promises, express or implied

Section 10: Defines the essential elements of a contract, Defines “Consideration”

Section 11: Defines requirements for competency for competency of parties to the contract

Section 12: What is a sound mind for contracting?

Section 13: “Consent” defined

Section 14: “Free Consent” defined

Section 15: “Coercion” defined

Section 16: Undue influence” defined

Section 17: “Fraud” defined

Section 18: Misrepresentation” defined

Section 19: “Void ability of agreements without free consent”

Section 19 A: Power to set aside contract induced by undue influence

Section 20: Agreement void where both parties are under mistake of fact

Section 21: Effect of mistakes as to law

Section 22: Contract caused by mistake of one party as to matter of fact

Section 23: What considerations and objects are lawful, and what not

Section 24: Agreements void, if consideration and objects unlawful in part

Section 25: Agreements without consideration, void, unless it is in writing and registered, or is a promise to compensate for something done

Section 26: Agreement in restraint of marriage void

Section 27: Agreement in restraint of trade void

Section 28: Agreements in restraint of legal proceedings void

Section 29: Agreement void for uncertainty

Section 30: Agreement by way of wager, void

Section 31: “Contingent contract” defined

Section 32: Enforcement of contracts contingent on an event happening.

Section 33: Enforcement of contacts contingent on an event not happening

Section 34: When an event of which contract is contingent to be deemed impossible if it is the future conduct of a living person

Section 35: When contracts become void, which are contingent on the happening of specified event within the fixed time

Section 36: Agreements contingent on impossible events, void

Section 37: Obligation of parties to contracts

Section 38: Effect of refusal to accept the offer of performance

Section 39: Effect of refusal of a party to perform promise wholly

Section 40: Person by whom promise is to be performed

Section 41: Effect of accepting performance from third person

Section 42: Devolution of joint liability

Section 43: Any one of the joint promisors may be compelled to perform

Section 44: Effect of release of one joint promisor

Section 45: Devolution of joint right

Section 46: Time for performance of promise, where no application is to be made and no time is specified

Section 47: Time and place for the performance of the promise, where time is specified and no application is to be made

Section 48: Application for performance on a certain day to be at the proper time and place

Section 49: Place for the performance of the promise, where no application is to be made and no place fixed for performance

Section 50: Performance in the manner or at the time prescribed or sanctioned by the promisee

Section 51: Promisor not bound to perform unless reciprocal promisee ready and willing to perform

Section 52: Order of performance of reciprocal promises

Section 53: Liability of party preventing event on which contract is to take effect

Section 54: Effect of default as to that promise which should be first performed, in a contract consisting of reciprocal promises

Section 55: Effect of failure to perform at a fixed time, in a contract in which time is essential

Section 56: Agreement to do an impossible act

Section 57: Reciprocal promise to do things legal and also other things illegal

Section 58: Alternative promise, one breach being illegal

Section 59: Application of payment where debt to be discharged is indicated

Section 60: Application of payment where debt to be discharged is not indicated

Section 61: Application of payment neither party appropriates

Section 62: Effect of novation, rescission, and alteration of contract

Section 63: Promisee may dispense with or remit performance of promise

Section 64: Consequence of rescission of voidable contract

Section 65: Obligation of person who has received advantage under void agreement, or a contract that becomes void

Section 66: Mode of communicating or revoking rescission of voidable contract

Section 67: Effect of neglect of promisee to afford promisor reasonable facilities for performance

Section 68: Claim for necessaries supplied to a person incapable of contracting, or on his account

Section 69: Reimbursement of person paying money due by another, in payment of which he is interested

Section 70: Obligation of person enjoying the benefit of non – gratuitous act

Section 71: Responsibility of finder of goods

Section 72: Liability of person to whom money is paid, or thing delivered, by mistake or under coercion

Section 73: Compensation for loss or damage caused by breach of contract

Section 74: Compensation for breach of contract where penalty stipulated for

Section 75: Party rightfully rescinding contract entitled to compensation.

Nature Of Contract Questions And Answers

Question 1. What is a Contract?
Answer:

Contract

• Section 2(h) of the Indian Contract Act defines a contract as: “An agreement enforceable by law.”
  Contract = Agreement + Enforceability by law
• Contract is made by acceptance of one party of an offer made to him by the other party, to do or abstain from doing some act.
  Contract = Agreement + Obligation
• Agreement: Section 2(e) of the Indian Contract Act defines it as, “Every promise or every set of promises forming the consideration for each other”.

It has two characteristics:

1. Two or more persons are required to agree.
2. Both parties must agree to the same thing in the same sense at the same time.

Section 2(b) of the Indian Contract Act defines a promise as “A proposal (offer) when accepted becomes a promise”.

Agreement = Promise

= Accepted Proposal

= Offer + Acceptance

Question 2. Distinguish between Agreement and Contract.
Answer:

Difference between Agreement and Contract

Question 3. What are the Elements of a Valid Contract?
Answer:

The Elements of a Valid Contract

Section 10 of the Indian Contract Act states, “All agreements are contracts if they are made

1. By free consent of parties, competent to contract.
2. For a lawful consideration.
3. With a lawful object, and
4. Not hereby expressly declared to be “void”.

Elements include:

1. Two Parties: There, should be at least two parties to make a contract. One cannot contract with himself or herself.

Case law: Gujarat v/s Ramanlal S and Co. Property distributed at the time of dissolution of partnership firm to its partners is not sale as one cannot be both buyer, as well as seller and partner and partnership, are same persons.

2. Intention to Create Legal Relationships:

• Agreements about social matters and
• Domestic arrangements between husband and wife, and agreements between family members are not contracts due to the absence of legal obligation.

Case Law: Balfour v/s Balfour

Facts: Mr. A promised to pay his wife $30 per month as a household allowance, later, the husband failed to pay the amount.

Decision: Held, the wife could not claim as there was no intention to create a legal obligation and thus, it is not enforceable by law.

3. Other’Formalities to be Complied with in Certain Cases:

• It must be in writing.
• It must be registered under the law in force.

4. Certainty of Meaning:

• Agreement must not be vague or indefinite.
• It must be certain.

5. Possibility of Performance of an Agreement:

• Agreements which are to do any impossible act cannot be enforced.
• Essential elements of a valid contract include
  • Offer and Acceptance: An agreement is the result of offer and acceptance.
  • Free Consent: Consent must be free, i.e. it must not be obtained through coercion, undue, influence, fraud, misrepresentation, or mistake.
  • Capacity of the Parties: Persons competent to contract is who :
    • is of the age of majority i.e. 18 years or above
    • is of sound mind i.e. not a lunatic, drunken
    • is not disqualified from contracting i.e. should riot be foreign sovereign, alien enemy, convicted, etc.
  • Consideration:
    • It means something in return i.e. quid pro quo.
    • It can be either any right or interest or profit, etc.
  • Lawful Consideration and Object:
    • It should not be prohibited by law i.e. it should not defeat the provisions of law in force.
  • Not Expressly Declared to be Void:
    • Void agreements are not enforceable as they are without any legal effects.
    • The agreement must not be illegal.

Question 4. What are the various Types of Contracts?
Answer:

The various Types of Contracts

Question 5. What is the Definition of Void Contract?
Answer:

The Definition of Void Contract

• It is not a contract at all as it is without legal effect.
• Section 2(j) of Indian Contract Act, 1 872 defines it as:
• “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”.

Voidable Contracts:

• It is an agreement that is binding and enforceable but due to lack of one or more essentials of a valid contract, it may be repudiated.
• Section 2(i) of the Indian Contract Act, 1 872 defines it as “All agreements which are enforceable by law at the option of any one of the parties, and other party has no such option, are known as voidable contracts”.

Question 6. Distinguish between Void and Voidable Contracts.
Answer:

Difference between Void and Voidable Contracts

Question 7. What are Quasi Contracts and E-Contracts?
Answer:

Quasi Contract:

• An obligation imposed by law upon a person for the benefit of another even in the absence of a contract.
• It is based on principles of equity, justice, and good conscience.

E-Contracts:

• Contracts are entered into through electronic mode including e-mails.
• These contracts are also called Cyber Contracts, mouse click contracts, and electronic data interchange (EDI) contracts.

Question 8. What is the Definition of an Offer or Proposal Under the Indian Contract Act, of 1872?
Answer:

Proposal or Offer [Section 2(a) of the Indian Contract Act, 1872]:

• It refers to a “proposal” by one party to another to enter into a legally binding agreement with him.
• Section 2(a) defines it as
• “When one party signifies to another his willingness to do or abstain from doing something, to obtain the assent of that other to such act or abstinence, he is said to propose”.

Question 9. Describe the Essentials of the Proposal or Offer.
Answer:

The Essentials of the Proposal or Offer

• The person making a promise is called a ‘promisor’ and to whom it is made i.e. who accepts the promise is called the ‘acceptor’ or ‘promisee’.
• For entering a valid contract expression of willingness must be made to obtain the acceptance of the other.
• An offer can be for ‘doing’ something i.e. (positive) or ‘not doing’ something i.e. (negative).

Question 10. Describe the Essentials of a Valid Offer.
Answer:

The Essentials of a Valid Offer

• It must be capable of creating legal relations.
• It must be certain definite and not vague.
• It must be expressed or implied.
• It must be distinguished from an invitation to offer.
• It may be specific or general.
• It must be communicated to the offeree [Case Law: Lalman Shukla v/s Gauri Dutt].
• It must be made to obtain the consent of the offeree.
• It may be conditional.
• It should not contain such terms, the noncompliance of which would amount to acceptance.
• A statement of price is not an offer.

Question 11. Distinguish between an offer and an invitation to make an offer.
Answer:

Difference between an offer and an invitation to make an offer

• Offer is made to get the consent of the other party.
• An invitation to offer is made to initiate the offer according to the invitation.
• Offer is made with an object to make a contract.
• Invitation to offer does not result in any contract formation.
• Example of invitation to offer:
  • Display of goods in a shop window with prices marked upon them.
  • Price catalogs, etc.
• Offer is different from a mere statement of intention.’ Example Announcement of a coming auction sale.

Relevant Case Law:

• Harris v/s Nickerson
• When particular goods are advertised, for sale by auction, the auctioneer does not contract with anyone who attends the sale and intends to purchase those goods when they are put up for sale.
• Offer is different from mere communication of information in the course of negotiation.

Example – Price statement considering negotiation.

Relevant Case Law:

• Harvey V/s Facey
• Only a statement of the lowest price at which the vendor would sell contains no implied contract to sell at that price to the person inquiring.

Question 12. Define the term of Acceptance and Discuss the Legal Provisions relating to communication of Acceptance.
Answer:

Acceptance

• It means consent to the offer.
• Section 2(b) of the Contract Act defines it as “A proposal is said to be accepted when the person to whom the proposal (offer) is made signifies his assent thereto”.

Relationship between Offer and Acceptance:

• “Acceptance is to offer what a lighted match is to a train of gun powder”.
• It means once acceptance is done, the same cannot be undone, i.e. it cannot be revoked.
• Offer remains an offer until accepted, after acceptance, it becomes a contract.

Question 13. When is the Communication of an offer and Acceptance through post-completion?
Answer:

Communication of Offer and Acceptance:

1. Communication of offer:
   • It is complete when it comes to the knowledge of the person to whom it is made.
   • It may be communicated either by words spoken or written or may be inferred from the conduct of parties.
   • If made by post, it will be completed, when the letter containing the offer reaches the intended person.
2. Communication of Acceptance:

• It is complete:
  • As against the proposer: When it is put in the course of transmission to him to be out of the power of the acceptor to withdraw the same.
  • As against the acceptor: When it comes to the knowledge of the proposer.
• If sent by post, it is complete:
  • As against the proposer: When the letter of acceptance is posted.
  • As against the acceptor: When the letter reaches the proposer.

Question 14. Write a short note of Modes of Acceptance.
Answer:

Modes of Acceptance

• By act i.e., by any expression of words whether written or oral.
• By omission to do something which is conveyed by conduct or by forbearance on the part of one party to convey his/her willingness.
• By conduct i.e. conveying acceptance by his or her conduct.
• Example – The act of boarding a bus, etc., it must be noted that merely mental unilateral assent in one’s thoughts does not amount to communication.

Question 15. Describe the Special Condition of Communication.
Answer:

The Special Condition of Communication

• A situation where an agreement entered has special conditions that are conveyed and accepted tacitly or without even realizing it.
• If a passenger receives a railway ticket with the words printed, “this ticket is issued subject to the notices, regulations, and conditions in the current timetables of the railway”. He is bound to accept the terms and conditions whether he has read them or not.
• lf no reasonable notice’ on the face of the document contains special conditions, then the acceptor will not incur any contractual obligation.

Question 16. Write Short Notes on Communication of Performance.
Answer:

Communication of Performance

Acceptance of the proposal from the viewpoint of

• Proposer: When acceptance is put in the course of transmission, out of the power of the acceptor.
• Acceptor: When it comes to the knowledge of the proposer. If sent by post, it is complete
  • As against the proposer: When the letter of acceptance is posted.
  • As against the Acceptor: When the letter reaches the proposer.

Question 17. What do you understand by Revocation of Offer and Acceptance? Describe the Condition of Communication of Revocation.
Answer:

Revocation of Offer:

• It means withdrawal or taking back of an offer.
• It can be revoked anytime before its acceptance.

Revocation of Acceptance:

• It means withdrawal or taking back of acceptance by the acceptor.
• It may be revoked at any time before its communication is completed as against the acceptor, but not afterward.

Communication of Revocation:

• It is completely against the person who makes it: When it is put into a course of transmission to the person to whom it is made to be out of the power of the person who makes it.
• By Post: Communication of offer when complete: When the offer comes into the knowledge of the offeree.
• Communication of acceptance when complete: When the offeree or acceptor posts the letter of acceptance it becomes out of the power of the acceptor to withdraw it.
• As against the person to whom it is made: When it comes to his knowledge.

Question 18. What do you mean by Lapse of Offer and in which ways there can be a Lapse of Offer?
Answer:

Lapse of Offer

• It means the end of an offer.
• The offer should be accepted before it lapses.
• Offer may lapse in the following ways:
  • By communication of notice of revocation
  • By lapse of time [Case Law: Ramsgate Victoria Hotel v/s Montifiore]
  • Failure to accept condition precedent
  • By death or insanity of the offeror
  • By counteroffer by the offeree
  • By not accepting the offer in the prescribed mode
  • By rejection of the offer by the offeree
  • By change in law or circumstances.

Nature Of Contract Objective Questions And Answers

Question 1. State with reasons whether the following statement is True or False: If the offeree does not accept the offer according to the mode prescribed by the offeror, the offer does not lapse automatically.

Answer:

Correct:

An offer must be accepted in the manner prescribed by the offeror. Where it is not so made,’ the offeror can treat it as lapsed, but he should inform the offeree about his decision. If he does not inform the offeree about his rejection, the offer does not stand lapsed.

Question 2. State with reasons whether the following statement is correct or incorrect:

1. All kinds of obligations created between the parties form part of the contracts.
2. A contract to purchase a black horse, which was dead at the time of the bargain, is voidable.

Answer:

1. Incorrect: An agreement should give rise to a legal obligation i.e. obligation which is enforceable at law [Section 2(h)]. Agreements that give rise only to social, moral, or domestic cannot be termed as contracts.
2. Incorrect: According the Section 20 of the Indian Contract Act, where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Since neither party was aware of the fact that the horse was dead at the time of the bargain, the contract is void, and not voidable.

Question 3. State with reasons whether the following statement is Correct or incorrect: Communication of an offer is complete when the letter is posted though it has not reached the person to whom the offer is made.

Answer:

Incorrect: Communication of an offer is complete when it comes to the knowledge of the person to whom it is made (section 4 of the Indian Contract Act, 1872). When the letter containing the offer is posted, the offer will be complete only when the letter reaches the person to whom it is made.

Question 4. State with reasons whether the following statement is Correct or Incorrect: Where the mode of acceptance is prescribed in the proposal, it need not be accepted in that manner.

Answer:

Incorrect: Where the mode of acceptance is prescribed in the proposal; it must be accepted in that manner. Section 7(2) of the Indian Contract Act, of 1872 lays down that if the proposal prescribes the manner of acceptance and the acceptance is not made accordingly, the proposer may within a reasonable time, insist on following the mode of acceptance prescribed and not otherwise.

Question 5. State with reasons whether the following statements are correct or incorrect:

1. A proposal when accepted becomes a contract.
2. An illegal contract is fatal to the main contract, but not to collateral transactions.

Answer:

1. Incorrect: Section 2(b) of the Indian Contract Act, 1 872, which defines the term ‘acceptance’ states that a proposal when accepted becomes a promise. Thus, acceptance creates the promise and not a contract because to create a contract, the element of enforceability is necessary.
2. Incorrect: An illegal agreement is one, which has been expressly declared as unlawful. Such an agreement is a nullity and hence cannot be enforced. When an agreement is illegal, collateral agreements to such illegal agreements are also illegal. Hence the question of their enforcement does not arise.

Question 6. State with reasons in brief whether the following statement is correct or Incorrect:

Every agreement is necessarily regarded as a contract.

Answer:

The statement is incorrect:

As per Section 10 of the Indian Contract Act, of 1872, an agreement is regarded as a contract when it is enforceable by law. In other words, an agreement that the law will enforce is a contract. Hence, every agreement cannot essentially be regarded as a contract, but every contract is an agreement.

Question 7. State with reasons in brief whether the following statements are correct or incorrect:

1. The proposal should always be communicated to the person to whom it is made.
2. A Tender does not amount to an offer.

Answer:

1. Correct: The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made (Section ‘4 of the Indian Contract Act, 1872).
2. Correct: A tender is in the same category as a quotation of price. It is not an offer. It is merely an invitation to an offer. When a tender is approved, it is converted into a standing offer. A contract arises only when an order is placed based on a tender.

Question 8. State with reasons in brief whether the following statement is correct or incorrect: 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 void.

Answer:

Incorrect: According to Section 2(i) of the Indian Contract Act, 1872, an agreement that is enforceable by law at the option of one or more of 1he parties thereto, but not at the option of the other or others, is a voidable contract and not void.

Question 9. State with reasons in brief whether the following statement is correct or incorrect: Communication of acceptance of an offer is complete as against the acceptor the moment it comes to the knowledge of the offeror.

Answer:

Correct: The communication of acceptance is complete as against the acceptor when it comes to the knowledge of the proposer since it will then be out of the power of the acceptor to revoke. (Section 4 para 2 of the Indian Contract Act 1872).

Question 10. State with, reasons in brief whether the following statement is correct or incorrect: Offer may be revoked after the letter of acceptance is posted by the acceptor.

Answer:

Incorrect: A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterward (Section 5 of the Indian Contract Act). The Communication of acceptance is complete as against the proposer when the letter of acceptance is posted (Section 4 of the Indian Contract Act). As the letter of acceptance is posted, the offer cannot be revoked in this case.

Nature Of Contract Short Notes

Question 1. Write a short note on the following: Kinds of offer.

Answer:

The kinds of offers may be discussed as follows:

1. General Offer: It is an offer made to the public at large and hence anyone can accept and do the desired act (Carlill v. Carbolic Smoke Ball Co. 1893). For instance, an offer to give a reward to anybody who finds a lost dog is a general offer. Although a general offer is made to ‘ the public at large, the contract is concluded only with that person who acts upon the terms of the offer.
2. specific Offer: When the offer is made to a specific or an ascertained person it is known as a specific offer. A specific offer can be accepted only by that specified person to whom the offer has been made (Bottom v. Johns).
3. Cross Offer: When two parties exchange identical offers in ignorance at the time of each other’s offer, the offers are called Cross Offers. There is no binding contract in such a case because an offer made by a person can not be treated as an acceptance of the other’s offer.
4. Counter Offer: When the offeree offers qualified acceptance of the offer subject to modifications and variations in the terms of the original offer, he is said to have made a counter offer. A counteroffer amounts to a rejection of the original offer (Hyde B. v. Wrench 1840).
5. Standing Open or Continuing Offer: An offer that is allowed to remain “open for acceptance over some time is known as a standing, open, or continuing offer. A tender for the supply of goods is a kind of standing offer.

Question 2. Write a short note on the following: Executed and executory contracts.

Answer:

Executed and Executory Contracts: Based on execution or performance, contracts may be classified into two groups i.e. executed and executory.

An executed contract is a contract where both parties have fulfilled their respective terms and obligations, and where nothing remains to be done by either party.

Thus, executed is a contract that has reached its maturity of performance and completion of contractual obligations. On the other hand executory contract is a contract where both the parties have still to perform their respective contracted obligations. In such contracts, some acts remain to be performed at a future date.

Question 3. Write a short note on the following: Offer and invitation to offer.

Answer:

Offer and Invitation to Offer: When one person signifies to another his willingness to do or to obtain from doing anything to obtain the asset of that other to such act or abstinence.

He is said to make an offer or proposal(Section 2(a) Indian Contract Ad, 1 872]. A valid offer must meet the tods of (1) contractual intention of definiteness and (2) communication to the offeree.

• Offer is different from an invitation to offer. In an offeror expresses his willingness to contract in terms of his offer with such finality that the only thing to be awaited is the assent of the other party.
• Where a party without expressing Is final willingness, proposes certain terms on which is willing to negotiate, he does not make an offer. Ho only invites the other party to make an offer on those loans.
• An invitation to traders to make lenders, an invitation by n company to the public to subscribe to its chares, a display of goods for sale In chop windows, auction solos, quotation of prices in reply to a query, are nil oxamploh of invitation to offer – buy or sell as the case may be.

Question 4. Write short notes on Iho following: Void Contracts

Answer:

Void Contracts (road ns void agreements): An agreement which is not onforconblo by law i3 void. Such grooming has some legal defects and therefore cannot be enforced in a Court of Law. Section 2(i) defines a void contract as “a contract which coasts to bo onforconblo by law becomes void when It COOBOO to be enforceable.”

I hus, void grooming does not have any legal effect i.e., the party not performing his part of the promise renders a void contract cannot be used in a law court, rather does not have any legal obligations.

Examples of Void Contracts:

1. A contract vitiated by mistake as to fact and both the parties are mistaken ns to tho Idontlly, oilstone of Iho subject matter of the contract otc. (Section 20)
2. Where Iho consideration or object of the contract 13 unlawful (Section 23).
3. Whore Ilia’s contract Is not supported try consideration.
4. Agreements declared expressly void by the Contract Act, such as;
   • Agreement in restraint of marriage (Section 26)
   • Agreement in restraint of trade (Section 27)
   • Agreement in restraint of legal proceedings (Section 28)
   • Agreement by v/ay of the wager (Section 30).

There may be cases of such contracts where in the beginning they are valid but later on become void due to impossibility of performance due to operation of law.

Question 5. Write a short note on the following: When is the communication of an offer and acceptance through post-complete

Answer:

The communication of an offer and acceptance through post-complete

Communication of an offer is complete through post when it comes to the knowledge of the person to whom it is made i.e., when the letter containing the offer reaches the offeree. (Section 4 Indian Contract Act, 1872). Communication of acceptance has two aspects:

• As against the proposer.
• As against the acceptor.

Against the proposer, the communication of acceptance is complete when it Is put in the course of transmission to him, to be out of the prior of the acceptor, but it shall be complete as against the acceptor when it comes to the knowledge of the proposer, For Example. A proposer by letter to sell a house to B at a certain price. B accepts A’s proposal by a letter sent by post.

The communication of acceptance is complete;

• As against A, when the letter is posted by B.
• As against B, when the letter is received by A.

Thus, an offer can be revoked till a duly addressed letter of acceptance is put In the course of transmission and not thereafter. It is immaterial whether the loiter of acceptance reaches the other party or is lost in transit.

The acceptance can, however, be revoked till the letter of acceptance reaches the offeror and he learns of its contents.

Question 6. Write a short note on the following: Executed and Executory contracts.
Answer:

Executed and Executory contracts.

An executed contract is one in which both parties have performed their respective obligations. In other words, if the consideration for the performance of the obligation is paid, it is a contract for executed consideration For example, A agrees to write an article to B for? 5,000.

• When A writes the article and B pays the price, i.e. when both parties have performed their obligations, the contract is called an ‘Executed’ Contract. An executory contract is one in which both parties have not yet performed their obligations.
• In other words, if the consideration to the performance of obligations is still to be payable, the contract is known as a contract for executory consideration. Thus, in the above example, the contract is executory if A has not yet written the article and B has not paid the price.

Question 7. Write a short note on the following: Rules regarding acceptance.

Answer:

Rules relating to Acceptance of Offer:

The following are the Rules relating to the Acceptance of the Offer:

1. Absolute and Unqualified: As per Section 7 of the Indian Contract Act, 1872, an acceptance is valid when it is absolute and unqualified and is expressed in some unusual and reasonable manner unless the proposal prescribes how it is to be accepted.
2. Communicated to Offeror: An acceptance with a variation is no acceptance. It is simply a counter-proposal, which shall have to be accepted by the original proposer before a contract can be deemed to have come into existence.
   • A counter-proposal is an offer by the offeree and can result in a contract only if the other party accepts it. It must further be remembered that an acceptance must specifically relate to the offer made. An offer made by the intended offeree without the knowledge that an offer has been made to him cannot be deemed as an acceptance thereto.
3. Mode Prescribed: Where the mode of acceptance is prescribed in the proposal, it must be accepted in that manner. But if the proposer does not insist on the proposal being accepted in the manner prescribed after it has been accepted otherwise, i.e. not in the prescribed manner, the proposer is presumed to have consented to the acceptance.
4. Reasonable Time: Acceptance must be given within a reasonable time and before the offer lapses.
5. Mere Silence is not Acceptance: Acceptance may be expressed or implied. Acceptance must be given after knowing the offer. Acceptance must be given by the person to whom the proposal is made.
6. By Conduct Also: The assent means that acceptance has been signified either in writing by word of mouth or by performance of some act. Therefore, 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.

Distinguish Between Nature Of Contract

Question 1. Distinguish between a void agreement and an Illegal agreement.

Answer:

Distinction Between Void and Andillegal Agreements: According to Section 2(g) of the Indian Contract Act, 1872, an agreement not enforceable by law is “void. Both agreements are not enforceable by the law courts. The points of distinction, however, of both these agreements can be made on the following basis:

1. Scope: An illegal agreement is always void while a void agreement is not always illegal being void due to some other factor For Example., an agreement in which the terms of the agreement are uncertain.
2. Effect of collateral transactions: If an agreement is merely void and not illegal, the collateral transaction to the agreement may be enforced for execution, but collateral transactions of an illegal agreement cannot be enforced since they are also declared to be illegal.
3. Punishment: Illegal agreements are punishable under Indian law, while void agreements are not.
4. Void-ab-initio: Illegal agreements are void from the very beginning, but sometimes void agreements are not. Sometimes a valid contract may be subsequently void For Example. the doctrine of supervening impossibility may apply.

Question 2. Distinguish between: Wagering agreements and contingent contracts.

Answer:

Wagering Agreements and Contingent Contracts: The two can be distinguished below:

1. A wagering agreement is a promise to give money or money worth upon the determination or ascertainment of an uncertain event. A contingent contract, on the other hand, is a contract to do or not to do something if. some event, collateral to contract does or does not happen.
2. A wagering agreement consists of reciprocal promises, while a contingent contract may not contain reciprocal promises.
3. In a wagering agreement, the uncertain event is the sole determining factor, while in a contingent contract, the event is only collateral.
4. A wagering agreement is essentially contingent whereas a contingent contract may not be contingent.
5. A wagering agreement is void, while a contingent contract is valid.
6. In a wagering agreement, the parties have no other interest in the subject matter of the agreement except the winning or losing of the amount of the wager. In other words, a wager is a game of chance, but this is not so in the case of a contingent contract.

Question 3. Distinguish between: Offer and an Invitation to Offer.

Answer:

Offer and an Invitation to Offer: When a person communicates to another his willingness to do or abstain from doing something to obtain the assent of that other person towards the act or abstinence, the person making the communication is said to be making an offer.

An invitation to offer is a mere statement of intention inviting a person to come and negotiate. Therefore, it is a prelude to an offer. It is devoid of any legal effects., For Example.,

• Goods are displayed in the show window with price tags thereon.
• A prospectus issued by a company inviting the public to apply for shares.
• Price lists or catalogs.
• Circulars sent to potential customers.
• Tender notice.
• Auction notice.

Question 4. Distinguish between Void Contract and Voidable Contract according to the Indian Contract Act, of 1872.

Answer:

Difference between Void Contract and Voidable Contract according to the Indian Contract Act, of 1872.

Nature of Contract Descriptive Questions And Answers

Question 1. Answer in brief on the following: What is an illegal agreement? State the effects of illegality.

Answer:

Illegal agreement

Illegal agreements are those that involve committing a crime or act of moral turpitude or acts opposed to public morals. An illegal agreement is not only void as between the immediate parties, but its collateral transactions are also illegal.

Effects of illegality: Generally in law, no action is allowed on an illegal agreement so people will be discouraged from entering into an illegal agreement. Thus, no action can be taken for recovery of money paid or property transferred under an illegal agreement and for breach of an illegal agreement.

In the case of equal guilt in an illegal agreement, the position of the defendant is better than that of the plaintiff. However, the plaintiff may sue on an illegal agreement where he was induced to agree by fraud or undue influence and where an essential part of the agreement has not been carried out and he is truly repentant.

Question 2. Comment on the following: Counteroffer to an offer lapses the offer.

Answer:

Counteroffer to an offer lapses the offer

When the offeree offers to qualify for acceptance of the offer subject to modifications and variations in the terms of the original offer, he is said to have made a counteroffer. A counteroffer amounts to a rejection of the original offer.

• The rule is based on the principle that unless the parties have consensus-ad-idem i.e. are of one mind there cannot be agreement between them. The rule is in itself necessary for words of acceptance that do not correspond to the proposal.
• Made are not an acceptance of anything and therefore, can amount to nothing more than a new proposal, or, as it is frequently, called a counter offer. Making a counteroffer amounts to a rejection of the original offer, which offer can not be thereafter accepted.

Question 3. Define the term ‘Acceptance’. Discuss the legal provisions relating to communication of acceptance.

Answer:

According to Section 2(b), the term ‘acceptance’ is defined as follows: “When the person to whom the proposal is made signifies his assent thereto,’ the proposal is said to be accepted. A proposal, when accepted, becomes a promise.”

• An acceptance to be valid must be absolute, unqualified, accepted according to the mode if any prescribed within a reasonable time, and communicated to the offeror.
• Acceptance can also be made by way of conduct. The legal provisions relating to communication of acceptance are contained in Section 4.
• The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

The communication of an acceptance is complete:

1. As against the proposer, when it is put in a course of transmission to him, to be out of the power of the acceptor;
2. As against the acceptor, when it comes to the knowledge of the proposer.

Illustrations: A proposes, by letter, to sell a house to B at a certain price:

1. The communication is complete when B receives the letter.
2. B accepts the proposal by a letter sent by post. The communication is complete:

as against A, when the letter is posted.

As against B when the letter is received by A.

Section 3 of the Act prescribes, in general terms, two modes of communication, namely: (1 ) by any act or (2) by omission, intending thereby to communicate to the other or which has the effect of communicating it to, the other. This first method would include any conduct and words whether written or oral.

• Written words would include letters, telegrams, telex messages, ‘ advertisements, etc. Oral words would include telephone messages. Any conduct would include positive acts or signs so that the other person understands what the person acting or making signs means to say or convey.
• The omission would exclude silence but include such conduct or forbearance on one’s part that the other person takes it as his willingness or assent. These are not the only modes of communication of the intention of the parties.
• There are other means as well, For Example., if. you as the owner, deliver the goods to me as the buyer thereof at a certain price, this transaction will be understood by everyone, as acceptance by act or conduct, unless there is an indication to the contrary.

The phrase appearing in Section 3 “which has the effect of communicating if, clearly refers to an act or omission or conduct which may be indirect but which results in communicating an acceptance or nonacceptance.

However, a mere mental but unilateral act of assent in one’s mind does not tantamount to communication, since it cannot have the effect of communicating it to the other.

Question 4. Who is competent to accept an offer? Explain the rules relating to an offer, as provided in the Indian Contract Act, .1872.

Answer:

Who can accept an offer?

When an offer is made to a particular person it can be accepted by him alone. If it is accepted by any other person, there is no valid acceptance.

However, in the case of a general offer, it can be accepted by anyone, who knows the offer. The persons who want to accept the offer must be competent to enter into a contract, as per requirements of the Indian Contract Act.

Legal Rules relating to an offer:

Offer must be such as in law is capable of being accepted and giving rise to a legal relationship. A social invitation, even if it is accepted, does not create any relation because it is not so intended.

Terms of the offer must be definite, unambiguous, and certain and not loose and vague.

1. Offer must be distinguished from:
2. a declaration of intention and an announcement and
3. an invitation to make an offer or do business.
4. Offer must be communicated, otherwise there can be no acceptance of it. An acceptance of the offer, in ignorance of the offer, is no acceptance and does not confer any right on the acceptor.
5. Offer must be made to obtain the assent of the other. party addressed and not merely to disclose the intention of making an offer.
6. The offer should not contain a term the non-compliance of which may be assumed to amount to acceptance. Thus, a man cannot say that if acceptance is not communicated by a certain time, the offer would be considered accepted.
7. A statement of price is not an offer.

Question 5. Comment on the following: Offer is a lighted match while acceptance is a train of gunpowder.

Answer:

Offer is a lighted match while acceptance is a train of gunpowde

It is a cardinal rule as regards acceptance that once the acceptance has been made to an offer the contract is complete. According to “Sir William Anson” Acceptance is to offer what a lighted match is to a train of gunpowder”.

• The effect is that the acceptance produces something which cannot be recalled or undone. But the man who led the train may remove it before the match is applied. So an offer may lapse for want of acceptance, or be revoked before acceptance. Acceptance converts the offer into a promise.
• and then it is too late to revoke it. This means that as soon as a lighted match is brought in contact with a train of gunpowder, the gunpowder explodes. Offer is compared to gunpowder and acceptance to a lighted match.
• Gunpowder (i.e. the offer) by itself is inert, it is the lighted match i.e. the acceptance Which causes the gunpowder to explode. The meaning is that an offer by itself cannot create legal relations between the parties.
• But as soon as it is accepted by the offeree, a legal relationship is established between the parties, Once an offer is accepted it becomes a promise and cannot be revoked or withdrawn.

Question 6. When the revocation of a proposal may be made otherwise than by communication?

Answer:

Revocation of proposal otherwise than by communication: A proposal may be revoked not only by the communication of the notice of revocation by the proposer or by his authorized agent to the other party but also;

• By lapse of time [Section 6(2)]: Proposer is not bound to keep his proposal open indefinitely the reason being that it would amount to a promise without consideration, and such a promise is unenforceable.
• By non-fulfillment by the offeree of a condition precedent to acceptance [Section 6(3)]: A proposal is also revoked by the failure of the acceptor to fulfill a condition precedent to the acceptance.
  • A condition precedent is a condition that prevents an obligation from coming into existence until the condition is satisfied. An offeror may impose conditions such as executing a certain document or depositing a certain amount as earnest money. Failure to satisfy any such condition shall make a proposal lapse.
• By the death or insanity of the proposer: Death or insanity of the proposer, under Indian law, operates as the revocation of the proposal, only if the fact of the death or insanity has come to the knowledge of the acceptor.
  • If the acceptor accepts an offer in ignorance of the death or insanity of the offeror, the acceptance is valid.
• If a counteroffer is made to it: The counteroffer lapses the offer made by the offeror.
• If an offer is not accepted according to the prescribed or usual mode, provided the offeror gives notice to the offeree within a reasonable time that the acceptance is not according to the prescribed or usual mode. If the offeror keeps quiet, he is deemed to have accepted the acceptance [Section 7(2)].

An offer can, however, be revoked subject to the following rules:

• It can be revoked at any time before its acceptance is complete as against the offeror.
• The revocation takes effect only when it is communicated to the offeree.
• If the offeror has agreed to keep his offer open for a certain period, he can revoke it before the expiration of the period only.
  • if the offer has in the meantime not been accepted or
  • if there is no consideration for keeping the offer open.

Question 7. Comment on the following: An acceptance must be made before the proposal lapses.

Answer:

An acceptance must be made before the proposal lapse

Under Section 5 of the Indian Contract Act, 1872, a proposal may be revoked at any time, before the communication of its acceptance is complete as against the proposer but not afterwards.

An acceptance may be revoked at any time before the communication of acceptance is complete as against the acceptor but not afterwards. Therefore an acceptance must be made before the offer lapses or is revoked.

Question 8. What are implied contracts? State the various implied contracts:

Answer:

Implied contracts

Under certain circumstances, a person may receive a benefit to which the law regards another person as better entitled, or for which the law considers he should pay to the other person, even though there is no contract between the parties.

Such relationships are termed as “Quasi-Contracts” or Implied Contracts. A quasi-contract rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.

Sections 68 to 72 of the Indian Contract Act, of 1872 have prescribed the following relationships creating quasi-contractual relationships:

1. Supply of necessaries: Under Section 68, if a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person with necessaries suited to his conditions ‘in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.
2. Payment by an interested person: It has been laid down in Section 69 of the Indian Contract Act that 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.
3. Obligation to pay for non-gratuitous Act: Section 70 of the Indian Contract Act states that where 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 in respect of or to restore, the things so done or delivered.
4. Responsibility of finder of goods: Under Section 71 of the Act, a person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee.
5. The case where money is paid by mistake or under coercion: Finally, Section 72 of the Indian Contract Act provides that a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

Thus, a quasi-contractual right is always a right to the money and generally, though not always to a liquidated sum of money. It does not arise from any agreement between the parties concerned but is imposed by the law.

It is a right that is not available against the whole world but against a particular person or persons only. There is no contract between the parties in cases of quasi-contracts, yet they are put in the same position as if, there were a contract between them.

Question 9. State the rules relating to acceptance of a Contract

Answer:

The rules relating to acceptance of a Contract

1. Rules Relating to Acceptance of a Contract: The Indian Contract Act, of 1872 specifies the following rules relating to the acceptance of a contract. It means that a valid contract can be made only by adhering to the following rules relating to the acceptance of an offer. These are:
2. Acceptance must be absolute and unqualified: Acceptance shall be valid only when it is absolute and unqualified and is expressed in some usual and reasonable manner unless the proposal prescribes how it is to be accepted.
3. Acceptance must be communicated to the offeror: Acceptance must be brought to the knowledge of the offeror. Unless the offeror knows about the acceptance, he can not be bound by the acceptance given by the offeree. Mere silence is no acceptance.
4. Acceptance must be in the mode prescribed: Where the mode of acceptance has been prescribed in the proposal, it must be accepted in the manner prescribed, otherwise, it shall not bind the offeror. However, the offeror may later on waive this condition and bind himself from the acceptance not given in the prescribed mode.
5. Time: Acceptance must be given within the prescribed time and where no time is prescribed, within the time that is reasonable and does not allow the offer to lapse.
6. Acceptance may be expressed i.e. words of mouth or in writing, or even implied i.e. by the conduct of the party concerned.
7. Acceptance must be made by the person to whom the offer is made: Acceptance given by some other person or even on behalf of the person to whom the offer is made, is not valid acceptance.
8. It cannot precede an offer. If it does, it is not a valid acceptance and does not result in a contract.
9. It must show an intention on the part of the acceptor to fulfill the terms of the offer.
10. It must be given before the offer lapses or before the offer is withdrawn.

Question 10. When does an offer come to an end?

Answer:

An offer may come to an end by revocation lapse or rejection. According to Sections 6 and 7 of the Indian Contract Act, 1 872, an offer comes to an end in the following cases:

1. If the offerer revokes his offer before it has been accepted by the offeree, the offer comes to an end.
2. The offer comes to an end if it is not accepted within the time fixed in the offer, or within a reasonable time as the case may be. What is a reasonable time is a question of fact.
3. If there is a condition mentioned in the proposal, before the fulfillment of which the acceptor can not accept the proposal, the offer will automatically be revoked if the acceptor fails to fulfill that condition precedent.
4. If the fact of the death or insanity of the proposer comes to the knowledge of the acceptor before acceptance, the offer of the proposal is revoked. (Section 6)
5. Sometimes, the mode of acceptance is specifically prescribed in the offer. In such a case, if the proposal is not accepted in the prescribed form or method, it stands revoked. [Section 7(2)f.
6. An offer comes to an end as soon as it is rejected by the offeree.
7. An offer lapses if it becomes illegal before it is accepted.

Question 11. Comment on the following: All contracts are agreements, but all agreements are not contracts.

Answer:

“All contracts are agreements, but all agreements are not contracts”: 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 that 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 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. For example, A invites B to see a football match and B agrees.

But A could not manage to get the tickets for the match, now B cannot enforce this promise against A i.e. no compensation can be claimed because this was a social agreement where there was no intention to create a legal relationship.

All contracts are agreements: For a contract, there must be two things

• an agreement and
• enforceability by law.

Thus the existence of an agreement is a pre-requisite for the 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.

Question 12. Explain the modes of revocation of an offer as per the Indian Contract Act, 1 872.

Answer:

The modes of revocation of an offer as per the Indian Contract Act, of 1872 are:

1. By notice of revocation
2. 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. This is for the reason that the proposer should not be made to wait indefinitely.
3. By non-fulfilment of condition precedent where the acceptor fails to fulfill a condition precedent to acceptance, the proposal gets revoked. This principle is laid down in Section 6 of the Act. The offer for instance may impose certain conditions such as executing a certain document or depositing a certain amount as earnest money.
4. By death or insanity
5. By counter offer
6. By the noh-acceptance of the offer according to the prescribed or usual mode
7. By subsequent illegality.

Question 14. Define the term acceptance under the Indian Contract Act, of 1872. Explain the legal rules regarding a valid acceptance.

Answer:

Definition of Acceptance:

• In terms of Section 2(b) of the Indian Contract Act, “the term acceptance” is defined as follows:
• “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. The proposal when accepted, becomes a promise”.

Analysis of the above definition

1. When the person to whom the proposal is made – for example, if A offers to sell his car to B for ₹ 2,00,000. Here, the proposal is made to B.
2. The person to whom the proposal is made i.e. B in the above example and if B signifies his consent on that proposal., then we can say that B has signified his consent on the proposal made by A.
3. When B has signed his consent on that proposal, we can say that the proposal has been accepted.
4. The accepted proposal becomes a promise.

Legal Rules regarding a valid acceptance

1. Acceptance can be given only by the person to whom the offer is made: In case. of a specific offer, it can be accepted only by the person to whom it is made. Case Law: Boulton vs. Jones (1857).

Facts: Boulton bought a business from Brocklehurst. Jones, who was Brokiehurst’s creditor, placed an order with Brocklehurst for the supply of certain goods. Boulton supplied the goods even though the order was not in his name.

• Jones refused to pay Boultan for the goods because by entering into the contract with Blocklehurst, he intended to set off his debt against Brocklehurst.
• Held, as the offer was not made to Boulton, therefore, there was no contract between Boulton and Jones. In the case of a general offer, it can be accepted by any person who knows the offer.

2. Acceptance must be absolute and unqualified: 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 how it must be accepted.

• If the proposal prescribes how it must be accepted, then it must be accepted accordingly.
• M offered to sell his land to N for £ 280. N replied purporting to accept the offer but enclosed a cheque for £ 80 only.
• He promised to pay the balance of £ 200 in monthly installments of £ 50 each. It was held that N could not enforce his acceptance because it was not an unqualified one.
• A offers to sell his house to B for ₹ 1,00,000/-. B replied “I can pay ₹ 80,000 for it. The offer of “A” is rejected by “B” as the acceptance is not unqualified, B however changes his mind and is prepared to pay ₹ 1,00,000/-. This is also treated as a counter offer and it is up to A whether to accept it or not.

Example: “A” enquires from “B”, “Will you purchase my car for ₹ 2 lakhs?” If “B” replies “I” shall purchase your car for ₹ 2 lakhs, if you buy my motorcycle for ₹ 50,000/-, here “B” cannot be considered to have accepted the proposal.

• If on the other hand “B” agrees to purchase the car from “A” as per his proposal subject to the availability of a valid Registration Certificate book for the car, then the acceptance is in place though the offer contained no mention of R.C. book.
• This Is because expecting a valid title for the car is not a condition. Therefore, the acceptance in this case is unconditional.

3. The acceptance must be communicated: 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 conditions is no acceptance.

• Such conditional acceptance is a counter-proposal and has to be accepted by the proposer if the original proposal has to materialize into a contract. Further, when a proposal is accepted, the offeree must know about the offer made to him.
• If he does not know, there can be no acceptance. The acceptance must relate specifically to the offer made. Then only it can materialize into a contract. The above points will be clearer from the following examples: Brogden vs. Metropolitan Railway Co. (1877)

Facts: B a supplier, sent a draft agreement relating to the Supply of Coal to the Manager of Railway Co. viz, Metropolitan Railway for his acceptance.

• The manager wrote the word “Approved” on the same and put the draft agreement in the drawer of the table intending to send it to the company’s solicitors for a formal contract to be drawn up.
• By an oversight, the draft agreement remained in the drawer. Held, that there was no contract as the manager had not communicated his acceptance to the supplier, B.
• Where an offer made by the intended offeree without the knowledge that an offer has been made to him cannot be deemed as an acceptance thereto. (Bhagwandas v. Girdharilal)
• A mere variation in the language not involving any difference in substance would not make the acceptance ineffective.

Example: A proposed B to marry him. B informed A’s sister that she is ready to marry him. But Jiis’s sister didn’t inform A about the acceptance of the proposal.

There is no contract as acceptance was not communicated to A.

4. Acceptance must be in the prescribed mode: Where the mode of acceptance is prescribed in the proposal, it must be accepted in that manner.

But if the proposer does not insist on the proposal being accepted in the manner prescribed after it has been accepted otherwise, i.e., not in the prescribed manner, the proposer is presumed to have consented to the acceptance.

Example: If the offeror prescribes acceptance through messenger and the offeree sends acceptance by email, there is no acceptance of the offer if the offer informs the offeree that the acceptance is not according to the mode prescribed.

But if the offer or fails to do So, it will be presumed that he has accepted the acceptance and a valid contract will arise.

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

Example: A offered to sell B 50 kgs of bananas at ₹ 500. B communicated the acceptance after four days. Such is not a valid contract as bananas being perishable items could not stay for a week.

Four days is not a reasonable time in this case. Example: A offers B to sell his house at ₹ 10,00,000. B accepted the offer and communicated to A after 4 days. Held the contract is valid as four days can be considered as reasonable time.in case of sell of house.

6. Mere silence is not acceptance: The acceptance of an offer cannot be implied from the 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 (1862)

Facts: (Uncle) offered to buy his nephew”s horse for £30 saying “If I hear no more about it I shall consider the horse mine at £30.” The nephew did not reply to F at all.

He told his auctioneer, B to keep the particular horse out of sale of his farm stock as he intended to reserve it for his uncle. By mistake, the auctioneer sold the horse. F sued him for conversion of his property. Held, F could not succeed as his nephew had not communicated the acceptance to him.

Example: “A” subscribed to the weekly magazine for one year. Even after the expiry of his subscription, the magazine company continued to send him magazines for five years.

Also “A” continued to use the magazine but refused to pay the bills sent to him. “A” would be liable to pay as his continued use of the magazine was his acceptance of the offer.

7. Acceptance by conduct or implied Acceptance: 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.

This section provides the acceptance of the proposal by conduct as against other modes of acceptance i.e. verbal or written communication. Therefore, 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.

Example: when a tradesman receives an order from a customer and executes the order by sending the goods, the customer’s order for goods constitutes the offer, which has been accepted by the tradesman subsequently by sending the goods. It is a case of acceptance by conduct.

Example: When a cobbler sits with a brush and polish, a person giving his shoes for polishing constitutes acceptance by conduct.

Nature of Contract Practical Questions And Answers

Question 1.

1. Mr. Ramesh promised to pay ₹ 50,000 to his wife Mrs. Lali so that she could spend the sum on her 30th birthday. Mrs. Lali insisted her husband make a written agreement if he loved her. Mr/Ramesh made a written agreement and the agreement was registered under the law. Mr. Ramesh failed to pay the specified amount to his wife Mrs. Lali. Mrs. Lali wants to file a suit against Mr. Ramesh and recover the promised amount., Referring to the applicable provisions of the Contract Act, of 1872, advise
2. A shopkeeper displayed a pair of dresses in the showroom and a price tag of ₹ 2,000 was attached to the dress. Ms. Lovely looked at the tag. and rushed to the cash counter. Then she asked the shopkeeper to receive the payment and pack up the dress. The shopkeeper refused to hand over the dress to Ms. Lovely in consideration of the price stated in the price tag attached to the dress..Ms. Lovely seeks your advice on whether she can sue the shopkeeper for the above cause under the Indian Contract Act, of 1872. whether Mrs. Lali will succeed.

Answer:

1. Parties must intend to create legal obligations: There must be an intention on the part of the parties to create a legal relationship between them. Social or domestic type of agreements are not enforceable in a court of law and hence they do not result in contracts.

• In the given question, Mr. Ramesh promised to pay ₹ 50,000 to his wife so that she could spend the same on her birthday. However, subsequently, Mr. Ramesh failed to fulfill the promise, for which Mrs. Lali wants to file a suit against Mr. Ramesh.
• Here, in the given circumstance wife will not be able to recover the amount as it was a social agreement and the parties did not intend to create any legal relations.

2. The offer should be distinguished from an invitation to offer. An offer is definite and capable of converting an intention into a contract. Whereas an invitation to an offer is only a circulation of an offer, it is an attempt to induce offers and precedes a definite offer.

• Where a party, without expressing his final willingness, proposes certain terms on which he is willing to negotiate, he does not make an offer but invites only the other party to make an offer on those terms. This is the basic distinction between offer and invitation to offer.
• The display of articles with a price in it in a self-service shop is merely an invitation to offer. It is in no sense an offer for sale, the acceptance of which constitutes a contract.
• In this case, Ms. Lovely by selecting the dress and approaching the shopkeeper for payment simply made an offer to buy the dress selected by her. If the shopkeeper does not accept the price, the interested buyer cannot compel him to sell.

Question 2. Mr. B proposed to Mr. S by post to sell his house for ₹ 10 lakhs and posted the letter on 10th April 2020 and the letter reached Mr. S on 12th April 2020. He reads the letter on 13th April 2020. Mr. S sends his letter of acceptance on 16th April 2020 and the letter reaches Mr. B on 20th April 2020. On 17th April Mr. S changed his mind and sent a telegram withdrawing his acceptance. Telegram reaches to Mr. B on 19th April 2020.

Examine the Indian Contract Act, of 1872:

1. On which date, the offer made by Mr. B will complete?
2. Discuss the validity of acceptance
3. What would be the validity of acceptance if the letter of revocation and letter of acceptance reached together?

Answer:

1. The offer made by Mr. B will be completed on 13 April 2020. (when it comes to the knowledge of Mr. S)
2. Here, acceptance is not valid as he revoked his acceptance by telegram before the letter of acceptance reached Mr. B.
3. If the letter of acceptance and letter of recavation reaches together then two situations may arise.
   • It will be decided based on the letter that he reads first like if he reads acceptance then acceptance is valid and if revocation is first then acceptance is revoked.
   • In the absence of any such information, revocation is absolute.

Question 3. X agrees to pay Y ₹ 1,00,000/-if Y kills Z. To pay Y, X borrows ₹ 1,00,000/- from W, who is also aware of the purpose of the loan. Y kills Z but X refuses to pay. X also refuses to repay the loan to W. Explain the validity of the contract.

1. Between X and Y.
2. Between X and W

Answer:

Illegal Agreement: It is an agreement that the law forbids to be made. As an essential condition, the lawful consideration and object are a must to make the agreement valid. (Section 10).

As per Section 23 of the Indian Contract Act, 872 an agreement is legal and void if the consideration and object is unlawful or contrary to law i.e. if forbidden by law. Such an agreement is void and is not enforceable by law.

Even the connected agreements or collateral transactions to illegal agreements are also void. In the present case,

1. X agrees to give ₹ 1,00,000 to Y if Y kills Z. Thus, the agreement between X and Y is void agreement being illegal.
2. X borrows ₹ 1,00,000 from W, and W is also aware of the purpose of the loan. Thus, the agreement between X and W is void as the connected agreements of illegal agreements are also void.

Question 4. Radha invited her ten close friends to celebrate her 25^th birthday party on 1^st January 2023 at 7:30 P.M. at a well-known “Hi-Fi Restaurant” at Tonk Road Jaipur. All invited friends accepted the invitation and promised to attend the said party.

At the request of the hotel manager, Radha deposited ₹ 5,000/- as non-refundable security for the said party. On the scheduled date and time, three of the ten invited friends did not turn up for the birthday party and did not convey any prior communication to her.

Radha, enraged with the behavior of the three friends, wanted to sue them for the loss incurred in the said party. Advise as per the provisions of the Indian Contract Act, of 1872.

Would your answer differ if the said party had been a “Contributory 2023 New Year celebration Party” organized by Radha?

Answer:

As per the provisions of the Indian Contract Act, of 1872, there must be an intention on the part of the parties to create a legal relationship between them. Social or domestic type of agreements are not enforceable in a court of law and hence they do not result in contracts.

• As per the case law of Balfour v. Balfour, the husband agreed to pay his wife a certain amount as maintenance every month. Husband failed to pay the promised amount wife sued him for the recovery of the amount but could not recover it as it was a social agreement and the parties did not intend to create legal relations.
• In the above case, Radha invited her ten close friends to celebrate her birthday party. She deposited ₹ 5,000/- as non-refundable security with the restaurant, he among ten invited friends did not turn up for the party and Radha wanted to sue therefore loss incurred at the party.
• Here, is unlawful or contrary to law i.e. if forbidden by law. Such an agreement is as per the above-mentioned provisions of the Indian Contract Act, of 1872, Radha can not sue or recover loss from her friends as it was a social agreement and the parties did not intend to create legal relations.
• If the party organized by Radha had been a ‘Contributory 2023 New Year celebration Party’, Radha can sue her friends for the loss incurred in the party as the agreement could have been contributory thus, creating legal relations between the parties.