UNIT 1: Indian Contract Act - 1872

Question Bank Answer

1. What do you understand by ‘breach of contract’?

Answer: If a party to a contract fails to perform his obligation according to the time and
place specified, then he is said to have committed a breach of contract.
Also, if a party repudiates a contract before the agreed time of performance of a
contract, then he is said to have committed an anticipatory breach of contract

2. Define the term ‘agreement’.

Answer: The Indian Contract Act, 1872, under section 2(h), defines the term contract as
“an agreement enforceable by law”. Thus,
Contract = Agreement + Enforceability
In other words, we can say that a contract is anything that is an agreement and
enforceable by the law of the land.

3. What are Characteristics of Agreement

Answer: Characteristics of an agreement
1. Plurality of persons: Agreement is an expression of common intention of two or
more persons. The first characteristic of an agreement is thus plurality of persons.

2. Consensus ad-idem: Consensus ad idem means meeting of minds, mostly used in

contract law, which refers to the fact that there is an agreement among the parties to
contract. It simply means that there exists a mutual agreement among all parties to a
contract.
The agreement is one of the essential ingredients that constitute a contract. If the
parties do not reach a stage of mutual assent then a valid contract can not be formed.
The phrase is commonly used to refer to a situation of mutual understanding in the
formation of a contract over the same thing. Therefore, it can be understood in a way
that in the absence of meeting of minds, a contract so formed is void ab initio (i.e. null
and void from the very beginning).
 3. Promise or Reciprocal promises: A promise is an accepted proposal. When the
person to whom the proposal is made gives the approval, the proposal is said to be
accepted. Agreements is thus a promise, or a set of “reciprocal promises”.

4. What are kinds of Agreement.

Answer: Kinds of agreement
• Social agreement: They are of social nature and od not enjoy the benefits of law.
An agreement to attend a dinner at a friend’s house or to attend a marriage or a
religious function, to see a movie, etc. are the examples of social agreement.

• Legal (Valid) agreement: Valid agreement is said to be valid if it can be

enforceable in the Court of Law. Section 2(h) of the Indian Contract Act, 1872 says that,
"an agreement enforceable by law is a contract".

It is the sum of
(a) An agreement
(b) An intention to create legal obligation.
However such an act or abstinence may relate to social or legal matters. It is a valid
agreement which is enforceable at law.
• Void agreement:
According to Section 2(g) of the Indian Contract Act, 1872 an agreement is not
enforceable by law is said to be void.

Section 24 to 31and 56 of the Indian Contract Act, 1872 lay down the provisions relating
to the agreements which are declared void are as follows:

i. If consideration and objects are unlawful in part. ( Section 24)

ii. Agreement without consideration(Section 25)
iii. Agreement in restraint of marriage (Section 26)
iv. Agreement in restraint of trade (Section 27)
v. Agreement in restraint of legal proceedings (Section 28)
vi. Uncertain Agreements (Section 29)
vii. Wagering Agreement (Section 30)
viii. Agreement contingent on impossible event (Section 31)
ix. Agreement to do impossible acts (Section 56)
x. Agreement to minor
 xi. When both parties are under mistake of law.
All agreements are not enforceable by law and therefore, all agreements are not
contracts.
• Voidable agreement: A voidable agreement is one which is enforceable by law at
the opinion of one or more of the parties involved, but not at the option of other.

• Unenforceable agreement: Such an agreement is valid in the eyes of law, but

cannot be enforced in the courts because of some technical defect in the procedural
matters of formation and enforcement, eg. Want of stamping, registration, etc.

• Illegal agreement: An illegal agreement is one which is against the provisions of

the law.

• Agreement to agree in future: An agreement to agree in future is a contradiction.

It is absurd to state that a person enters into an agreement till the terms of the
contracts are settled.

5. What are features of Valid proposal

Answer: Features of a valid proposal
i. It must be the expression of willingness to do or to abstain from doing an act.
ii. It must be made to another person.
iii. It must be made with a view to obtain the assent of the second party to such act
or abstinence.
iv. The expression of willingness must be made with a view to create legal
obligations.

6. What are types of offer.

Answer: 1. Express and Implied offers:
If an offer is made by words (spoken or written), it is known as Express offer.
If the offer is derived from the conduct (actions or circumstances) of the parties, it is
known as Implied offer.
2. Specific and General offer:
When an offer is made to a specific person or group of people which can be accepted by
the same person or group, it is called as specific offer.
 When the offer is made to the world at large, which can be accepted by anyone, and
therefore have the right to the rewards/consideration, it is called a general offer.
3. Positive and Negative offer:
The offer may be positive or negative. An offer to do something is a positive offer. An
offer not to do something is a negative offer.
4. Cross offer and Counter offer:
Two parties make a cross-offer under certain circumstances. It means that both make
the same offer at the exact time to each other. However, in either case, the cross-offer
will not amount to accepting the offer.
A counter-offer is an answer given to an initial offer. A counter-offer means that the
original offer has been refused and replaced by another. The counteroffer offers three
choices to the original offerer; accept, refuse, or make another offer.
5. Standing Offer:
Standing Offer is an agreement between a supplier and buyer where supplier agrees to
provide the desired goods and services to the supplier as and when asked at a
predetermined price. It is of continuous nature.
Standing offer is not a contract, it is in nature of a tender. It is only valid for a set period
after which it needs to be renewed. It is an offer which opens for acceptance over a time
period. It is also known as continuing or open offer.
It is the same thing as an invitation to an offer.
An offer for a continuous supply of a certain article at a certain rate over a definite
period is called a standing order.immaterial if the terms are hard and ridiculous. If a
person accepts such an offer, he cannot plead ignorance of conditions later on.

7. Explain Termination of contract.

Answer: Section 6 mentions various modes of termination (revocation or lapse) of an
offer. In all these cases, an offer comes to an end.
i. By notice of revocation: An offer can be revoked at any time before acceptance.
The offerer does this by giving notice of revocation to the offeree.
The communication of a revocation 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; as against the person to whom it is
made, when it comes to his knowledge.
 ii. By lapse of time: A proposal is revoked by the lapse of time prescribed in such
proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable
time, without communication of the acceptance.

iii. By failure of the acceptor to fulfil a condition precedent to acceptance.

iv. By the death or insanity of the proposer [Section 6(4)]: An offer comes to an end
if the fact of his death or insanity comes to the knowledge of the acceptor before
acceptance.

8. Define Acceptance?
Answer: Acceptance is an expression by the offeree of his willingness to be bound by the
terms of the offer.
The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person
to whom the proposal has been made signifies his assent thereto, the offer is said to be
accepted. Thus the proposal when accepted becomes a promise.”
Therefore once an offer is accepted it cannot be revoked because it has become a
promise which creates a legal obligation between the parties.

9. What are essentials of valid acceptance.

Answer: The acceptance must be:
a. absolute and unconditional: Conditional Acceptance will not be a valid
acceptance as it would amount to a counter offer which would nullify the original offer.

b. expressed in some usual and reasonable manner, unless the proposal prescribes
the manner in which it is to be accepted.
If the proposal prescribes a manner in which it is to be accepted, and the acceptance is
not made in such manner, the proposer may, within a reasonable time after the
acceptance is communicated to him, insist that his proposal shall be accepted in the
prescribed manner, and not otherwise; but, if he fails to do so, he accepts the
acceptance.
10. Define Consideration?
Answer: Consideration is a technical term used in the sense of quid pro quo (something
in return). When a party to an agreement promises to do something, he must get
‘something’ in return. That ‘something’ is defined as a Consideration.
Subject to certain exceptions, an agreement made without consideration in nudum
pactum (a nude contract) and is void.
Section 2(d) of The Indian Contract Act, 1872 defines it as follows: “when at the desire
of the promisor, the promise or any other person has done or abstained from doing, or
does or abstains from doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a consideration for the promise.”

11. Explain legal requirements for consideration.

Answer: Legal requirements for consideration
• Must move at the desire of the promisor- Section 2d of the Indian Contract Act,
1872, clearly mentions that the consideration should be at the desire of the promisor if
the consideration is made at the will of the third person or is not according to the
promisor then it is not a good consideration.
• Can move from the promisee or another person- Unlike English law in which the
consideration must move at the desire of the promisor, in Indian law as long as there is
consideration it is immaterial as to who has furnished it.
• Can be an act, abstinence or even a promise- If the promisee does something or
abstains from doing something for the promisor, at his desire, then it will be a good
consideration.
• Can be past, present or future:
PAST- When the consideration is given before the promise was made.
PRESENT- When the consideration is given at simultaneously to the promise made, then
this is present consideration or executed consideration.
FUTURE- When the consideration of the promise made is to be passed at a future date
then that is called future or executory consideration.
• Consideration need not be adequate- It is not necessary that the consideration is
equal or adequate for the promise made. However, it is mandatory that the
consideration should be something in which the law attaches some value. It is for the
parties to decide the value of the consideration and not a court of law.
• Should be real- although the consideration need not be adequate it should be
real and not illusory. The consideration should not be physically impossible, legally not
permissible or based on an uncertain event or condition.
 • Should not be something which the promisor is already bound to do- a
consideration to do something which the promisor is already required to do is not a
good consideration.
• Should not immoral, or against the public policy of the state- under Section 23 of
the Indian contract it is given that consideration should not be illegal, immoral or against
public policy. the court should decide the legality of the consideration and if found to be
illegal than no action on the agreement should be allowed.

12. Explain Exceptions to consideration?

And: Exceptions to consideration
• Marriage settlements- When an agreement is made with regards to marriage,
family settlement or partition and is made in such a way that it benefits another person
who is not a party to the contract then he may sue for the enforcement of the contract.

• Covenants running with the land- in cases of the contract of property the
purchaser will be bound by all the conditions and covenants of the land, even though he
was not a party to the original contract.

• Acknowledgement of estoppels- in case the terms of the contract require that an

agreement has to be made with the third party, then this has to be acknowledged. This
acknowledgement could be expressed or implied. This exception covers the areas where
the promisor either expressly or by conduct has posed himself to be an agent.

13. Define contingent contract.

Answer: According to Section 31 of Indian Contract Act, 1872, a contingent contract is a
contract to do or not to do something, if some event, collateral to such contract does or
does not happen.

14. What are Elements of contingent contract?

Answer: Elements of contingent contract
Following are the essential elements of Contingent Contract:
1. There should be a contract to do or not to do something, if some event, does or
does not happen.
2. Event should be collateral to such contract.
15. Explain Quasi contract?
Answer: Quasi Contract is not real contract entered into by parties intentionally. It
resembles a contract in which law imposes an obligation on a person to perform an
obligation on the ground of equity. It is called as consensual contract based on the
agreement of the parties.
In the absense of contract, but on the principle of equity, quasi contract imposes
obligation on the party/person. Such obligation is called Quasi Contractual Obligation. It
is same to a real contract between the Parties. These obligations come into existence by
a fiction of law.
According to Salmond, " There are certain obligations which are not in truth contractual
in the sense of resting on agreement, but which the law treats as if they were."

16. Define performance of contract.

Answer: ‘Performance of contract‘means that both, the promisor and the promisee
have fulfilled their respective obligations, which the contract placed upon them. For
instance, A visits a stationery shop to buy a calculator. The shopkeeper delivers the
calculator and A pays the price. The contract is said to have been discharged by mutual
performance.
Section 27 of Indian contract Act says that The parties to a contract must either
perform, or offer to perform, their respective promises, unless such performance is
dispensed with or excused under the provisions of this Act, or any other law