a) Elucidate on "Standard from contracts".

[8]
b) Elucidate on "of certain relations resembling these created by
contract". [8]
Ans-
Standard Form Contracts: A Detailed Overview
Introduction
Standard form contracts, also known as adhesion contracts, are pre-drafted agreements prepared
by one party, typically the stronger party in terms of bargaining power (e.g., corporations, service
providers). These contracts are offered on a "take-it-or-leave-it" basis, leaving the other party (usually
the consumer) with little or no room for negotiation. Such contracts are widely used in modern
commerce due to their efficiency in standardizing terms across a large number of transactions.
Characteristics of Standard Form Contracts
1. Pre-drafted Terms: The terms and conditions are pre-written, often favoring the drafting party.
2. Non-Negotiable: The weaker party is generally required to accept the contract as is.
3. Mass Usage: Commonly used in industries such as insurance, banking, e-commerce, and
transportation.
4. Uniformity: Promotes consistency in contractual relationships.
Examples
• Insurance policies.
• Loan agreements with banks.
• Terms and conditions of online platforms.
• Tickets for travel (airlines, buses, railways).
Advantages
1. Efficiency: Saves time and costs in drafting individual agreements for every transaction.
2. Consistency: Ensures uniformity in business dealings.
3. Ease of Use: Facilitates quick execution of contracts in routine commercial transactions.
Disadvantages
1. Imbalance of Power: Often one-sided, heavily favoring the drafting party.
2. Lack of Understanding: Consumers may not fully understand the implications of the terms
due to legal jargon or fine print.
3. Unfair Terms: May include clauses that are detrimental to the consumer, such as exemption
clauses or penalty clauses.

1
Legal Position in India
Under the Indian Contract Act, 1872, standard form contracts are governed by the same principles as
other contracts, such as free consent, lawful object, and consideration. However, courts have
developed specific rules to address the potential for abuse in such contracts:
1. Rule of Reasonableness:
o Courts may strike down terms that are unfair or unreasonable to the weaker party.
o For instance, in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly,
the Supreme Court invalidated an unfair termination clause as being against public
policy.
2. Doctrine of Contra Proferentem:
o Ambiguities in the terms are interpreted against the party that drafted the contract.
3. Unconscionable Contracts:
o Courts may refuse to enforce contracts or clauses that are excessively one-sided or
oppressive.
4. Judicial Scrutiny:
o Exemption clauses and limitation clauses are closely examined to ensure they are not
unreasonable or contrary to public policy.
Consumer Protection
The Consumer Protection Act, 2019, provides additional safeguards against unfair trade practices,
including the abuse of standard form contracts. It empowers authorities to address grievances arising
from exploitative or unfair terms.
Conclusion
Standard form contracts are indispensable in modern commerce due to their efficiency and
uniformity. However, the inherent imbalance of power necessitates judicial oversight to ensure
fairness and protect consumer rights. The development of consumer awareness and legal safeguards
has been instrumental in mitigating the risks associated with such contracts.
b) Of Certain Relations Resembling Those Created by Contract
The concept of "relations resembling those created by contract" is addressed under Sections 68 to 72
of the Indian Contract Act, 1872. These provisions govern situations where obligations are imposed
not because of a formal contract but due to the principles of equity, justice, and good conscience.
Such obligations are referred to as quasi-contracts or constructive contracts.
Meaning of Quasi-Contracts
A quasi-contract is not a contract in the traditional sense, as it lacks mutual consent and a formal
agreement. Instead, it is an obligation imposed by law to prevent unjust enrichment—where one party
benefits at the expense of another unfairly.
Features of Quasi-Contracts

2
 1. Imposed by Law: They arise by operation of law, not by the agreement of parties.
2. No Intention to Contract: There is no consent or intention to create a contract.
3. Restitutionary Obligation: The primary objective is to restore the injured party to the position
they would have been in had the unjust enrichment not occurred.
4. Legal Remedy: Courts enforce these obligations as if there were a contractual relationship.
Key Provisions under Sections 68 to 72
1. Section 68: Supply of Necessities
o If a person incapable of entering into a contract (e.g., a minor or a person of unsound
mind) receives necessaries suited to their condition in life, the supplier is entitled to be
reimbursed from the property of the incapable person.
o Example: A minor's guardian orders medical supplies for the minor. The supplier can
claim reimbursement.
2. Section 69: Payment by Interested Person
o If a person pays for something which another is legally bound to pay, the person making
the payment is entitled to be reimbursed.
o Example: A tenant pays property tax on behalf of the landlord to avoid penalties. The
landlord must reimburse the tenant.
3. Section 70: Obligation of a Person Enjoying Benefit
o When one party lawfully delivers something to another who voluntarily accepts it, the
recipient must compensate the giver, provided the delivery was not intended as a gift.
o Example: A farmer delivers surplus grains to a neighbor during a flood, and the neighbor
uses them. The neighbor must pay for the grains.
4. Section 71: Finder of Goods
o A person who finds goods belonging to another must take care of them as a bailee and
return them to the owner. The finder is entitled to expenses incurred for preserving the
goods.
o Example: A person finds a lost watch and incurs costs for its safekeeping. The owner
must reimburse those costs upon reclaiming the watch.
5. Section 72: Money Paid or Delivered by Mistake or Under Coercion
o A person who receives money or goods by mistake or under coercion is bound to return
them.
o Example: If a bank credits money to the wrong account, the recipient must return it.
Legal Implications

3
Quasi-contracts serve to uphold the principles of fairness and equity, preventing one party from being
unfairly enriched at the expense of another. Courts treat these obligations as enforceable, ensuring
restitution for the aggrieved party.
Conclusion
The provisions under Sections 68 to 72 emphasize justice and equity, ensuring that even in the
absence of formal contracts, obligations are enforced to prevent exploitation or unjust enrichment.
These quasi-contractual relations highlight the law's role in addressing real-life situations beyond
traditional contractual frameworks.

a) Write a note on "discharge by impossibility of performance". [16]

Ans- Discharge by Impossibility of Performance
Introduction
Contracts are binding agreements that oblige the parties to fulfill their obligations. However,
unforeseen circumstances may arise, rendering performance impossible. Under such situations, the
contract is discharged due to impossibility of performance, a doctrine recognized under the Indian
Contract Act, 1872. This principle relieves parties from their contractual obligations when fulfilling
them becomes genuinely unachievable due to reasons beyond their control.
Legal Basis
The doctrine of impossibility is addressed in Section 56 of the Indian Contract Act, which states:
• An agreement to do an act impossible in itself is void.
• A contract becomes void when, after it is made, an act becomes impossible, or by reason of
some event, the act becomes unlawful.
This is often referred to as the doctrine of frustration in legal parlance.

Types of Impossibility
1. Initial Impossibility:
• Definition: If the act required by the contract is impossible at the time the agreement is
entered into, the contract is void ab initio (from the outset).
• Example: Agreeing to sell a nonexistent or destroyed item, such as a ship already sunk.
2. Subsequent Impossibility:
• Definition: When a contract, initially possible, becomes impossible due to an unforeseen
event occurring after its formation.
• Example: A contract to organize an event becomes void if the venue is destroyed by an
earthquake.

Conditions for Discharge by Impossibility

4
The impossibility must meet the following criteria to discharge the contract:
1. Unforeseen Event: The event causing the impossibility was not anticipated by the parties.
2. Beyond Control: The event is beyond the control of the parties.
3. Genuine Impossibility: The performance is not just difficult but truly impossible.
4. No Fault of Parties: The impossibility must not be due to the fault or negligence of the parties.

Examples of Subsequent Impossibility

1. Destruction of Subject Matter:
o If the subject matter of the contract is destroyed without fault of the parties, the
contract is discharged.
o Example: Selling a house that is destroyed by fire before transfer.
2. Change in Law:
o If a change in law renders the performance illegal, the contract becomes void.
o Example: An export agreement becomes void if the government bans the export of the
agreed goods.
3. Death or Personal Incapacity:
o In contracts requiring personal skills or qualifications, the death or incapacity of the
obligated party leads to discharge.
o Example: An artist contracted to paint a portrait cannot fulfill the contract if they pass
away.
4. Outbreak of War:
o Contracts involving parties in enemy countries are discharged as trade becomes illegal.
o Example: A contract between an Indian and a foreign firm is void if war breaks out
between their countries.

Legal Doctrine and Case Law

1. Doctrine of Frustration:
• Impossibility of performance is also referred to as frustration of contract.
• Established in the landmark case Taylor v. Caldwell (1863):
o A music hall was destroyed by fire before a scheduled concert. The court held the
contract void due to impossibility.
• Indian courts have adopted this principle under Section 56.
2. Leading Indian Cases:
5
 • Satyabrata Ghose v. Mugneeram Bangur & Co. (1954):
o The Supreme Court explained that frustration occurs when a supervening event
radically alters the contractual obligations.
• Krell v. Henry (1903):
o A room rented for viewing a coronation procession became useless when the event was
canceled. The contract was discharged due to frustration.

Exceptions to Discharge by Impossibility

The following circumstances do not discharge the contract:
1. Self-Induced Impossibility:
o If the impossibility arises from a party's own actions or negligence, they cannot claim
discharge.
o Example: A contractor failing to complete a project due to mismanagement.
2. Foreseeable Events:
o If the event was foreseeable at the time of the contract, the parties are expected to have
made provisions for it.
o Example: Heavy rain during monsoon season delaying a construction project.
3. Commercial Hardship:
o Increased costs or economic unviability does not constitute impossibility.
o Example: A supplier cannot refuse to deliver goods just because market prices have
risen.

Effects of Discharge by Impossibility

1. Void Contract:
o The contract is declared void, relieving both parties of further obligations.
2. Restitution:
o If any benefit has been received under the contract, it must be returned under Section
65 of the Indian Contract Act.
3. No Damages:
o Since the contract is void due to an unforeseen event, neither party can claim damages
for non-performance.

Implications in Modern Times

6
The principle of impossibility is particularly relevant in scenarios involving:
1. Pandemics:
o Contracts during COVID-19 often invoked frustration due to lockdowns and restrictions.
o Example: Cancellation of travel bookings and events.
2. Environmental Catastrophes:
o Natural disasters, such as earthquakes or floods, may make contracts impossible to
perform.
3. Technological Failures:
o In tech-based contracts, sudden unavailability of crucial infrastructure (like servers)
could invoke impossibility.

Conclusion
Discharge by impossibility ensures that parties are not unfairly burdened by unforeseen and
uncontrollable events. While the doctrine upholds fairness, it requires careful judicial scrutiny to
balance the interests of both parties and prevent misuse. Courts play a crucial role in interpreting
these cases to ensure justice and equity, keeping in mind the specific circumstances of each
contract.

a) Joint promissors and the nature of their liability.

b) Effect of failure to perform the contract in time.
Ans- Joint Promisors and the Nature of Their Liability
Introduction
In contractual agreements involving multiple parties, joint promisors are those who collectively
undertake an obligation to perform a promise. Under the Indian Contract Act, 1872, provisions
related to joint promisors are primarily covered under Sections 42 to 44. These sections outline the
liability of joint promisors and the rights of the promisee and the co-promisors.

Meaning of Joint Promisors

When two or more persons make a promise together to another party, they are referred to as joint
promisors. The promisee has the right to demand performance from any one or more of them.
Example:
• A, B, and C jointly promise to pay ₹30,000 to D. Here, A, B, and C are joint promisors, and D is
the promisee.

Nature of Liability of Joint Promisors

7
1. Joint and Several Liability (Section 42):
• Unless specified otherwise in the contract, joint promisors are jointly and severally liable for
fulfilling the promise. This means the promisee can enforce the entire obligation against any
one of the promisors or all of them together.
• The liability does not reduce if only one promisor is sued, as the promisee has discretion to
claim the whole performance.
Example: If A, B, and C promise to pay ₹30,000 to D, D can recover the entire amount from any one of
them, such as A alone.
2. Right of Contribution Among Joint Promisors (Section 43):
• If one promisor is compelled to perform the entire obligation, they can seek contribution from
the other co-promisors.
• The contribution is proportionate unless otherwise agreed.
Example: If D recovers ₹30,000 from A, A can demand ₹10,000 each from B and C, assuming an equal
share of liability.
3. Indemnity for Default of Co-Promisor:
• If a co-promisor fails to contribute their share, the performing promisor can recover the
defaulted amount from the defaulter.
Example: If B fails to pay their ₹10,000 share, A can recover ₹20,000 (their share and B’s default) from
C.

Release of a Joint Promisor (Section 44)

When the promisee releases one of the joint promisors:
1. No Discharge for Remaining Promisors:
o The release of one promisor does not absolve the other promisors from their obligations
unless the promisee explicitly agrees to discharge the entire liability.
2. Liability of Released Promisor:
o The released promisor is no longer liable to the promisee but may still be liable to the
co-promisors for their contribution.
Example: If D releases A, B and C remain liable for the entire ₹30,000. A may still be liable to B and C
for their contribution if they pay the amount.

Exceptions to Joint and Several Liability

1. Express Agreement:
o If the contract specifies that the liability of the promisors is separate or limited, the
terms of the agreement prevail.
8
Example: A, B, and C agree to pay ₹30,000, with A responsible for ₹15,000 and B and C responsible
for ₹7,500 each. D can claim only the specified amounts from each promisor.
2. Special Statutory Provisions:
o Certain statutory laws may modify the nature of liability in specific situations, such as in
partnership law.

Important Judicial Interpretations

1. Case: Chitty on Contracts:
o It was observed that in the absence of a contrary agreement, joint promisors are equally
responsible for fulfilling the promise.
2. Indian Jurisprudence:
o Courts in India have upheld the principle that a promisee can sue one or more
promisors without releasing others from their obligations.

Rights of the Promisee

1. Demand Performance from Any Joint Promisor:
o The promisee has the right to demand the entire performance from any one or more of
the joint promisors.
2. No Obligation to Consider Internal Arrangements:
o The promisee is not bound by the internal arrangements among joint promisors
regarding their respective shares of liability.

Conclusion
The doctrine of joint promisors balances the rights and liabilities of all parties in a contract. It ensures
that the promisee's interests are protected by enabling them to recover the entire performance from
any of the promisors. Simultaneously, the law provides safeguards for joint promisors by allowing
them to claim contributions from their co-promisors. This framework reinforces fairness and equity in
contractual relationships.
b) Effect of Failure to Perform the Contract in Time
Time plays a crucial role in contractual performance. The effect of failing to perform a contract on
time depends on whether time is of the essence in the agreement. Under the Indian Contract Act,
1872, the implications are as follows:

1. When Time is of the Essence

9
 • If the contract explicitly states that time is of the essence, failure to perform on time
constitutes a breach.
• The aggrieved party has the right to:
o Treat the contract as voidable.
o Claim damages for non-performance or delay.
• Example: A construction contract requiring completion by a specific date may be voided if the
deadline is missed.
Relevant Case: Commercial Aviation and Travel Co. v. Vimal Pannalal
• The court held that delay in performance rendered the contract voidable as time was explicitly
essential.

2. When Time is Not of the Essence

• If time is not of the essence, failure to perform on time does not void the contract.
• The aggrieved party can:
o Seek compensation for losses due to the delay.
• Example: A supplier delivering goods late but still within a reasonable period may be liable for
damages, not termination.

3. Determining if Time is Essential

• Explicit terms in the contract.
• Nature of the contract (e.g., perishable goods or market-sensitive deals).
• Circumstances surrounding the agreement.

Conclusion
Failure to perform a contract on time can lead to serious consequences, depending on whether time
is of the essence. To avoid disputes, parties should clearly specify deadlines and their significance in
the contract.

a) Write a note on contingent contract citing provisions and case laws.

[16]
Ans- Contingent Contracts: An Overview
Introduction
A contingent contract is a type of agreement whose enforceability depends on the occurrence or non-
occurrence of a future uncertain event. These contracts are governed by Sections 31 to 36 of the
10
Indian Contract Act, 1872. The principle of contingent contracts reflects the idea that certain
agreements are conditional and their performance is tied to external factors beyond the control of the
contracting parties.

Definition of Contingent Contract

As per Section 31, a contingent contract is defined as:
• "A contract to do or not to do something, if some event, collateral to such contract, does or
does not happen."
Example:
A promises to pay B ₹10,000 if B’s house is destroyed by fire. This is a contingent contract because the
performance depends on the occurrence of a collateral event, i.e., the house being destroyed.

Essential Features of a Contingent Contract

1. Conditional Nature:
o The contract's performance depends on a future uncertain event.
2. Collateral Event:
o The event must not be a part of the contract's consideration; it must be independent or
collateral.
3. Event Uncertain:
o The occurrence or non-occurrence of the event must be uncertain.
4. Legal Validity:
o The contract must fulfill all the essentials of a valid contract.

Provisions Under the Indian Contract Act

1. Section 32: Enforcement of Contracts Dependent on Event Happening
• If the contract is contingent upon the happening of an event, it becomes enforceable only if the
event occurs.
• Example: A agrees to sell goods to B if a ship carrying the goods arrives. The contract is
enforceable only when the ship arrives.
2. Section 33: Enforcement of Contracts Dependent on Event Not Happening
• If the contract is contingent on an event not happening, it becomes enforceable when it is
certain that the event will not occur.
• Example: A agrees to sell a plot to B if a certain government policy is not enacted. The contract
becomes enforceable when the policy is confirmed not to be implemented.
11
3. Section 34: When Event is Considered Impossible
• If the event becomes impossible, the contingent contract becomes void.
• Example: A promises to pay B ₹5,000 if C marries D. If C or D dies, the event becomes
impossible, and the contract is void.
4. Section 35: Contracts Contingent on Future Conduct
• Contracts dependent on the future act or conduct of a person are void if the act becomes
impossible.
• Example: A agrees to pay B if B convinces C to sign a deal. If C refuses permanently, the
contract is void.
5. Section 36: Agreement Contingent on Impossible Events
• If a contract depends on an impossible event, it is void from the beginning.
• Example: A promises B to pay ₹10,000 if B can touch the moon. This is void as the event is
impossible.

Case Laws Related to Contingent Contracts

1. Carlill v. Carbolic Smoke Ball Co. (1893)
• Facts: The defendant company promised to pay £100 to anyone contracting influenza after
using their product as directed. When the plaintiff fell ill despite using the product, the
company argued the promise was a contingent one.
• Judgment: The court held the promise enforceable as the condition (non-cure) occurred. This
case highlights how contingent conditions make contracts binding upon fulfillment.
2. N.P. Ramsay v. Babulal Kriparam (1924)
• Facts: A contract was made to sell goods contingent upon the arrival of a ship carrying those
goods.
• Judgment: The court held that the contract was enforceable only if the ship arrived,
demonstrating the principle under Section 32.
3. Gujarat State Financial Corporation v. Lotus Hotels (1983)
• Facts: The defendant promised to finance the plaintiff if a project was approved by the
government. The project’s approval acted as a contingency.
• Judgment: The court ruled that the contingency’s occurrence made the contract enforceable.
4. Rajendra Kumar v. Shrikant Kashinath Jituri (1999)
• Facts: The performance of a contract depended on obtaining a government license.
• Judgment: The court held that if obtaining the license became impossible, the contract would
be void, aligning with Section 34.

12
Practical Applications of Contingent Contracts
1. Insurance Contracts:
o Insurance agreements, such as life or fire insurance, are classic examples of contingent
contracts.
2. Financial Transactions:
o Performance-based bonuses, where payment depends on achieving specific targets.
3. Construction and Real Estate:
o Agreements contingent on obtaining necessary permits or approvals.
4. Supply Chain Agreements:
o Contracts based on the timely delivery of raw materials or goods.

Limitations of Contingent Contracts

1. Uncertainty:
o The outcome depends entirely on future events, creating risk for the parties.
2. Impossibility:
o If the event becomes impossible, the contract automatically becomes void.
3. Delayed Enforcement:
o The enforceability is delayed until the contingency is resolved, which may cause
inconvenience.

Conclusion
Contingent contracts play a vital role in modern commerce, offering flexibility and security by
accounting for uncertainties. Governed by Sections 31 to 36 of the Indian Contract Act, they ensure
fairness by enabling enforceability when conditions are met or voiding agreements when
contingencies fail. Through case laws and practical applications, the doctrine underlines the
importance of clarity, certainty, and justice in conditional agreements.

a) Explain legality of object and consideration with the help of Section 23

of the Indian Contract Act, 1872 along with citing of relevant case laws.
[16]
Ans- Legality of Object and Consideration under Section 23 of the Indian Contract Act, 1872
Introduction
For a contract to be valid under the Indian Contract Act, 1872, it must have lawful consideration and
a lawful object. Section 23 of the Act explicitly states that the consideration and object of an

13
agreement are unlawful if they are forbidden by law, defeat the purpose of any law, involve fraud,
injury to a person or property, are immoral, or oppose public policy.

Text of Section 23
The section states: "The consideration or object of an agreement is lawful unless:
• It is forbidden by law.
• It is of such a nature that, if permitted, it would defeat the provisions of any law.
• It is fraudulent.
• It involves or implies injury to the person or property of another.
• The court regards it as immoral or opposed to public policy."

Key Elements of Section 23

1. Forbidden by Law
• If the consideration or object is prohibited by legislation, the contract is void. Acts prohibited
by law include those punishable under criminal law or specific statutes.
Example: A agrees to smuggle goods for B in exchange for ₹50,000. The agreement is void because
smuggling is illegal.
Case Law: Pearce v. Brooks (1866)
• A contract to supply a prostitute with a carriage for immoral purposes was held unenforceable.

2. Defeating the Provisions of Any Law

• A contract that undermines the intent or provisions of any law is void.
Example: A agrees to sell land to B, who intends to use it for constructing an unauthorized structure.
This contract would be void as it defeats building regulations.
Case Law: Rajat Kumar Rath v. Government of Orissa (1969)
• An agreement to evade land ceiling laws was held void as it defeated the provisions of the law.

3. Fraudulent
• Agreements that involve deceit or fraud as their consideration or object are void.
Example: A sells counterfeit goods to B, claiming them to be genuine. This agreement is void due to
fraud.
Case Law: Gherulal Parakh v. Mahadeodas Maiya (1959)

14
 • A partnership formed to carry out fraudulent activities was declared void.

4. Causing Injury to Person or Property

• If the agreement's consideration or object causes harm to another's person or property, it is
unlawful.
Example: A hires B to damage C’s house. Such a contract is void because it involves injury to property.
Case Law: Allen v. Rescous (1676)
• A promise to pay for causing harm to a third party was held void.

5. Immoral
• Agreements that involve immorality are void, even if the act is not explicitly illegal.
Example: A agrees to lease a house to B for operating a brothel. This contract is void as it is immoral.
Case Law: Srinivas Ayyangar v. Saraswathi Ammal (1922)
• A contract based on immoral consideration (living in adultery) was held unenforceable.

6. Opposed to Public Policy

• Agreements that harm the public good or are detrimental to society are void. Public policy is an
elastic concept, evolving with societal norms and interests.
Example: Agreements restraining trade or marriage without valid justification are considered against
public policy.
Case Law: Raj Rani v. Prem Adib (1949)
• A contract restricting an individual’s right to marry was held void as it opposed public policy.

Illustrations Under Section 23

1. Lawful Object but Unlawful Consideration:
o A agrees to sell goods to B for a sum derived from illegal activities. The object (sale of
goods) is lawful, but the consideration (money from illegal activities) is unlawful. Hence,
the contract is void.
2. Unlawful Object but Lawful Consideration:
o A agrees to pay B ₹10,000 to commit theft. While the payment is lawful, the object
(theft) is unlawful, making the agreement void.
3. Both Object and Consideration Unlawful:

15
 o A agrees to smuggle goods for B in return for a sum of money. Both the object and the
consideration are unlawful, rendering the agreement void.

Exceptions and Validity

Certain agreements may appear unlawful at first but can be valid under specific circumstances:
• When authorized by law: Agreements that might otherwise defeat the law are valid if
authorized by statutory provisions.
• Protective Clauses: Agreements safeguarding minors or weaker parties may involve public
policy considerations but are upheld for social welfare.

Landmark Case Laws on Section 23

1. Kedar Nath v. Gorie Mohammad (1886)
• Facts: A contractor agreed to build a market but later refused, claiming the contract lacked
lawful consideration.
• Judgment: The court held the agreement enforceable as it had a lawful object and
consideration.
2. Nixon v. Phillippatos (1969)
• Facts: A contract to supply military goods to a nation under embargo was challenged.
• Judgment: The court held the agreement void as it violated international trade laws.
3. Muralidhar v. State of U.P. (1954)
• Facts: An agreement between government officials and contractors to restrict open bidding
was challenged.
• Judgment: The court declared the agreement void as it was against public policy.

Practical Applications
1. Contracts in Business
• Contracts must ensure compliance with regulatory frameworks like tax laws, labor laws, and
corporate governance to remain lawful.
2. Real Estate Transactions
• Agreements to sell land contingent on evading stamp duty or property registration
requirements are void under Section 23.
3. Insurance Contracts
• Life insurance policies taken to harm the insured (as in cases of fraud or illegal gains) are
unlawful.
16
4. Employment Agreements
• Non-compete clauses or restraint of trade without reasonable justification may be void as they
oppose public policy.

Conclusion
Section 23 of the Indian Contract Act, 1872, plays a vital role in ensuring fairness and legality in
contractual dealings. It establishes clear guidelines about what constitutes lawful consideration and
object, thus promoting justice and ethical business practices. By citing relevant case laws, courts
have continuously shaped the interpretation of Section 23 to adapt to evolving societal values,
ensuring that contracts uphold the principles of law and morality.

a) "Consent obtained by mistake is also not free consent." Explain

mistake.
Ans- Consent Obtained by Mistake: Explanation of Mistake in the Context of the Indian Contract
Act, 1872
Introduction
For a contract to be valid under the Indian Contract Act, 1872, it is essential that the consent of the
parties involved is free and genuine. Section 14 of the Indian Contract Act defines free consent as
consent that is not obtained by coercion, undue influence, fraud, misrepresentation, or mistake. The
concept of mistake plays a significant role in determining whether consent is truly free, as an
agreement made under a mistaken belief may not be enforceable.

Meaning of Mistake in Contract Law

A mistake in contract law refers to a misunderstanding or incorrect belief about a material fact at the
time of entering into a contract. The Indian Contract Act, 1872, recognizes two types of mistakes:
1. Mistake of Fact
2. Mistake of Law
Mistake, when it affects consent, makes the agreement voidable because it renders the consent
unfree. The consent is not voluntary or based on an accurate understanding of the circumstances,
which is necessary for the formation of a valid contract.

Mistake of Fact
A mistake of fact occurs when one or both parties to the contract have an erroneous belief regarding a
fact that is material to the contract. The mistake can be either:
• Unilateral: Where only one party is mistaken about a material fact.
• Bilateral: Where both parties are mistaken about a material fact.

17
1. Unilateral Mistake
A unilateral mistake occurs when only one party is under a mistaken belief about a fact. Generally, a
contract made under a unilateral mistake is not voidable unless the other party is aware of the
mistake and takes advantage of it.
• Example: A sells a painting to B, believing it to be an original work by a famous artist, but B
knows that the painting is a forgery. A’s consent is obtained under a mistake of fact, but B's
consent is not. A can claim to void the contract based on unilateral mistake.
2. Bilateral Mistake
A bilateral mistake occurs when both parties are mistaken about a material fact. If both parties are
unaware of a fact that is essential to the contract, the contract can be void. In such cases, both
parties’ consent is affected by the mistake, making the contract unenforceable.
• Example: A agrees to sell B a car, believing it to be a new model, and B buys it thinking it’s an
old model. Both parties are mistaken about the car's condition. This mutual mistake can
render the contract void.

Mistake of Law
A mistake of law occurs when a party enters into a contract based on a misunderstanding or
ignorance of the law. Under Section 20 of the Indian Contract Act, mistakes of law generally do not
affect the validity of the contract, except in certain situations. The general principle in Indian law is
that ignorance of the law is not an excuse, meaning that a mistake of law will not render a contract
void, unless the mistake is regarding a foreign law.
• Example: A contracts with B to do something prohibited by Indian law. Even if A is unaware of
the law, the contract will still be enforceable because ignorance of Indian law is not a valid
defense.

Effect of Mistake on Consent and Contractual Validity

**1. Mistake as a Ground for Voidability
Consent obtained by mistake is not free consent. The presence of a mistake can make a contract
voidable at the discretion of the party who was mistaken. According to Section 20 of the Indian
Contract Act:
• "A contract is not voidable merely because it was caused by a mistake of law."
• "A contract is voidable if the consent of the party was caused by a mistake of fact."
Thus, a contract entered into under a mistake of fact can be voidable, and the mistaken party can
choose to rescind the contract.
**2. Effect of Unilateral Mistake

18
In cases where one party is mistaken and the other party knows of the mistake and takes advantage of
it, the mistaken party can rescind the contract. However, if the mistake is not apparent to the other
party, or the mistake does not affect the subject matter substantially, the contract may still be upheld.
• Example: A sells a vintage watch to B, thinking it is a copy, but B knows it’s an original. A can
rescind the contract due to the unilateral mistake of fact because B’s knowledge of the error
means B did not provide free consent.
**3. Effect of Bilateral Mistake
In cases of a bilateral mistake, where both parties are mistaken about a fundamental fact, the
contract is void. This is because both parties’ consent is flawed due to the shared mistaken belief.
• Example: A and B agree to sell and buy a painting, both mistakenly thinking it is by a famous
artist when it is not. The contract is void because both parties are under a mistake of fact
regarding a material element of the agreement.
**4. Mistake of Law and Its Impact
As mentioned earlier, mistakes of law typically do not affect the validity of a contract. Even if a party is
unaware of the law governing the subject matter of the contract, the agreement is still enforceable.
This is based on the principle that "ignorance of law is no excuse." However, a mistake regarding the
law of a foreign country may render the contract void.
• Example: A contracts with B to perform an action prohibited by Indian law. Even if A is unaware
that the action is prohibited, the contract remains enforceable.

Relevant Case Laws

1. Smith v. Hughes (1871)
• Facts: The buyer (Hughes) purchased oats from the seller (Smith), believing the oats to be new.
In reality, they were old oats. The court held that the buyer was mistaken about the quality of
the oats, but this was a unilateral mistake. The contract was upheld because the seller did not
intentionally deceive the buyer.
• Importance: This case shows that unilateral mistakes may not necessarily void the contract
unless the other party is aware of the mistake and takes advantage of it.
2. Raffles v. Wichelhaus (1864)
• Facts: The parties entered into a contract for the sale of goods (cotton) to be delivered by a
ship called "Peerless." Both parties were referring to different ships named "Peerless," one
arriving in October and the other in December. The court held that the contract was void due to
mutual mistake of fact.
• Importance: This case demonstrates how a bilateral mistake, where both parties are mistaken
about a material fact, can render a contract void.
3. Kumari Rani v. Union of India (1991)

19
 • Facts: The Supreme Court dealt with a case where a contract was made under the mistaken
belief about the legal status of certain provisions. The court ruled that a mistake of law
generally does not affect the validity of a contract, except where the law of a foreign country is
involved.
• Importance: This case reinforces the principle that a mistake of law does not usually affect the
validity of a contract.

Conclusion
Mistake, whether unilateral or bilateral, significantly impacts the validity of contracts under Indian
law. Mistake of fact renders consent unfree and makes the contract voidable at the discretion of the
mistaken party. Mistake of law does not usually affect the contract unless it concerns foreign law.
A clear understanding of how mistakes affect consent helps ensure that parties are not bound to
agreements that were formed under erroneous beliefs. Courts recognize the importance of free and
informed consent, and mistakes that impair this consent can lead to the rescission or voiding of
contracts.

a) Discuss 'coercion' with the help of statutory provisions and case laws.
[8]
b) Discuss 'fraud' with the help of statutory provisions and case laws. [8]
Ans- Coercion under the Indian Contract Act, 1872
Introduction
Coercion is one of the factors that vitiates free consent in contract law. Section 15 of the Indian
Contract Act, 1872 defines coercion and establishes that if consent is obtained through coercion, the
contract is voidable at the option of the party whose consent was coerced. Coercion affects the
voluntariness of consent and undermines the fundamental requirement of a valid contract.

Statutory Provisions: Section 15 of the Indian Contract Act

Section 15 defines coercion as:
• "Coercion is the committing or threatening to commit any act forbidden by the Indian Penal
Code, or the unlawful detaining, or threatening to detain, any property to the prejudice of any
person whatever, with the intention of causing that person to enter into an agreement."
In simple terms, coercion involves the use of force or threats to compel a person to enter into a
contract. The act threatened or committed must be unlawful under the Indian Penal Code (IPC), or
there must be unlawful detention of property.

Elements of Coercion
To establish that coercion has occurred, the following elements must be satisfied:
20
 1. Threat or Actual Use of Force: A threat to do something unlawful or the actual commission of
an unlawful act must take place.
2. Detaining Property: Unlawfully detaining someone's property to force them to enter into a
contract.
3. Unlawfulness of the Threatened Act: The act threatened must be prohibited by law, such as
criminal acts or acts that harm a person’s rights.
4. Intention to Influence Consent: The threat or act must be intended to force the other party
into making a contract they otherwise would not have entered into.

Types of Coercion
1. Physical Coercion: Using physical force to compel someone to enter into a contract, e.g.,
threats of violence.
2. Psychological Coercion: Using threats of harm, such as threatening to cause reputational
damage or harm to the family, to force the other party into a contract.

Case Laws on Coercion

1. Harrington v. N.T. Railway Co. (1874)
• Facts: The plaintiff was coerced into signing a release for damages by threatening to withhold
his wages.
• Judgment: The court held that the release was obtained under coercion and was therefore
voidable.
2. Bheemaiah v. K. Rajan (1996)
• Facts: A was forced to transfer property to B under the threat of physical harm to his family.
• Judgment: The court ruled that the agreement was voidable due to coercion, as the consent of
A was obtained through unlawful threats.
3. Chandrikabai v. Rajeshwar (1934)
• Facts: The defendant forced the plaintiff to sign a contract by threatening to harm her.
• Judgment: The court held that coercion occurred, and the contract was invalid as the
plaintiff’s consent was not free.
4. Raghunandan v. Arumugham (1961)
• Facts: The defendant threatened to kill the plaintiff’s family members if he didn’t sign a
document.
• Judgment: The court ruled that this was an instance of coercion, and the contract was
voidable.

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Effect of Coercion on the Contract
A contract entered into under coercion is voidable at the discretion of the coerced party. This means
the coerced party has the right to either:
• Rescind the contract (terminate the agreement), or
• Affirm the contract (choose to continue with the contract despite the coercion).

Conclusion
Coercion vitiates consent, making the contract voidable under Section 15 of the Indian Contract Act.
It occurs when a party is forced to agree to terms through threats or unlawful actions. The coerced
party has the right to rescind the contract, and courts have consistently upheld this principle in case
law, ensuring that contracts based on genuine consent remain enforceable.
b) Fraud under the Indian Contract Act, 1872
Introduction
Fraud is one of the factors that vitiates consent in contract law. Under the Indian Contract Act, 1872,
fraud is considered a serious form of misrepresentation that leads to an agreement being voidable at
the option of the party whose consent was obtained through fraudulent means. Section 17 of the
Indian Contract Act defines fraud and provides the legal framework for determining the consequences
of fraud in contracts.

Statutory Provisions: Section 17 of the Indian Contract Act, 1872

Section 17 defines fraud as:
• "Fraud means and includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agent, with the intention to deceive another party to the contract
or his agent, or to induce him to enter into the contract:
1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be
true.
2. The active concealment of a fact by one having knowledge or belief of the fact.
3. A promise made without any intention of performing it.
4. Any other act fitted to deceive.
5. Any such act or omission as the law specifically declares to be fraudulent."
In simpler terms, fraud includes making false statements, concealing material facts, making false
promises, and other deceptive actions intended to induce the other party into a contract.

Types of Fraud

22
 1. False Representation: Making false statements as if they were facts, intending to mislead the
other party.
2. Concealment of Facts: Hiding or failing to disclose important facts that are material to the
contract.
3. False Promise: Making promises without the intention of fulfilling them, which is an act of
deceit.
4. Any Other Deceptive Act: Any act designed to deceive the other party, such as using forged
documents or impersonating someone.

Consequences of Fraud
If consent is obtained through fraud, the contract becomes voidable at the option of the deceived
party. The deceived party has the following remedies:
• Rescind the contract: The deceived party can cancel the contract and restore the position of
both parties as if the contract never existed.
• Claim damages: The deceived party may also claim damages for any losses suffered due to
the fraudulent act.

Case Laws on Fraud

1. Derry v. Peek (1889)
• Facts: A company misrepresented the future prospects of its tramway business to induce
investors. The misrepresentation was based on an opinion rather than a fact.
• Judgment: The House of Lords held that mere misrepresentation or a false opinion was not
sufficient to establish fraud. There must be a deliberate intent to deceive.
2. M.C. Chockalingam v. Chidambaram (1991)
• Facts: A party induced the other to enter into a contract by falsely representing the value of
land.
• Judgment: The court held that fraudulent misrepresentation had occurred, and the contract
was voidable. It emphasized that the intent to deceive is crucial in establishing fraud.
3. Ramakrishna Pillai v. V. Ramaswamy (1969)
• Facts: The defendant was found to have concealed material facts about a property sale.
• Judgment: The court ruled that the contract was voidable due to fraudulent concealment of
facts, and the plaintiff was entitled to claim damages for the loss incurred.
4. B. G. Maheshwari v. B. H. O. Suryanarayana (1973)
• Facts: A party was induced to enter into an agreement based on a promise that was never
intended to be fulfilled.

23
 • Judgment: The court ruled that the contract was voidable because the promise was
fraudulent, as there was no intention of performance.

Distinction Between Fraud and Misrepresentation

While both fraud and misrepresentation involve false statements, fraud is a more serious form of
deception, as it involves intentional deceit. In contrast, misrepresentation refers to false statements
made without the intent to deceive, and it may occur even without any intention to cause harm. Fraud
is willful and deliberate, while misrepresentation can sometimes be innocent or negligent.

Conclusion
Fraud is a deceptive act designed to induce the other party to enter into a contract based on false
information or concealment of material facts. Section 17 of the Indian Contract Act, 1872
specifically addresses fraud, providing remedies such as rescission of the contract and the possibility
of claiming damages. Courts consistently enforce this provision to protect individuals from entering
contracts based on deceit and to maintain the integrity of contractual agreements.

a) Nature of minor's agreement with the help of statutory provisions and

case laws.
b) Doctrine of restitution.
Ans- Nature of Minor’s Agreement under the Indian Contract Act, 1872
Introduction
Under the Indian Contract Act, 1872, a minor is defined as a person who has not attained the age of
majority, which is 18 years in India, as per Section 3 of the Indian Majority Act, 1875. The Indian
Contract Act, 1872, does not recognize minors as competent to contract, which is an essential
requirement for forming a valid contract. Consequently, any agreement entered into by a minor is
generally voidable. This is because, under the law, a minor's consent is considered not free and not
fully capable of understanding the nature and consequences of the agreement.

Statutory Provisions
The Indian Contract Act, 1872 does not provide a specific section that entirely deals with the status
of contracts made by minors, but the provisions related to capacity to contract in Section 11 and
Section 12 have significant implications for contracts made by minors.
• Section 11 of the Indian Contract Act states that:
o "Every person is competent to contract who is of the age of majority according to the
law to which he is subject, and who is of sound mind, and is not disqualified from
contracting by any law to which he is subject."
o This clearly excludes minors from the category of persons competent to contract.

24
 • Section 12 of the Indian Contract Act states:
o "A person is of sound mind for the purpose of making a contract if, at the time of making
it, he is not:
1. Incapable of understanding the nature of the contract, or
2. Of making a rational judgment as to its effect upon his interests."
o However, this provision also does not apply to minors, as they are presumed incapable
of fully understanding the nature of contracts due to their age.
Thus, by these provisions, a minor is not legally competent to enter into a binding contract, and any
contract made by a minor is typically void ab initio (void from the outset).

Nature of Minor's Agreement

The general rule under Indian contract law is that contracts entered into by minors are void and
unenforceable. However, certain exceptions apply, and the nature of such agreements can be better
understood through case law and statutory interpretation.
1. Voidable Agreements
Any contract entered into by a minor is voidable, meaning that while it may not be enforced against
the minor, it can still have an effect on the other party to the contract. The minor has the right to
repudiate or affirm the contract when they come of age.
• Case Law: Mohori Bibee v. Dharmodas Ghose (1903)
o Facts: In this landmark case, a minor, Dharmodas Ghose, entered into a mortgage
agreement with a lender. The minor later sought to set aside the contract on the grounds
of his minority.
o Judgment: The Privy Council held that since Dharmodas was a minor at the time of
entering the contract, the mortgage was void and unenforceable. The contract was
voidable because a minor lacks the capacity to understand the consequences of the
contract.
2. Exceptions to the General Rule
While the general rule is that minor contracts are void, certain exceptions allow some agreements
involving minors to be enforceable under specific circumstances:
• Contracts for Necessaries: A minor may be liable for contracts involving necessaries
(essential goods or services), as minors are presumed to be able to understand the need for
such agreements. However, the goods or services must be reasonable and appropriate for the
minor's age and status.
o Case Law: Ashwini Kumar v. M. M. Sharma (1984)
▪ Facts: A minor purchased goods on credit, and the supplier sought to recover
the amount. The court ruled that although the minor was not bound by the

25
 contract, if the goods were necessary for the minor, the minor could be held
liable for the payment.
▪ Judgment: The court affirmed that minors could be held liable for necessaries,
emphasizing the fact that contracts for necessaries are an exception to the
general rule.
• Contracts for Beneficial Agreements: In certain cases, if a minor enters into an agreement
that is for their benefit, the court may allow enforcement of such agreements. This is
particularly true when the contract does not place any undue burden or disadvantage on the
minor.
o Case Law: Ginn v. Hossack (1867)
▪ Facts: The case involved a minor who entered into a contract for the benefit of
his education. The court held that a minor could be bound by contracts that were
beneficial to their well-being and development.
▪ Judgment: The court ruled that the minor could be bound by contracts entered
into for their education and overall benefit.
3. Minor’s Liability for Tort
While a minor cannot generally be held liable for breach of contract, a minor can be held liable for
torts (wrongful acts) committed during the contract. For example, if a minor causes damage to
property or commits fraud during the execution of a contract, they can be sued for tortious liability.

Effect of Minor’s Agreement on Third Parties

• Contracts made with a Minor: Third parties who contract with minors need to understand the
potential risk, as such contracts are generally void. However, the minor can still enjoy the
benefits of the contract if they choose to affirm the contract when they come of age.
• Restitution and Returning of Property: A minor who enters into a contract is not required to
return the property they received under the contract if they repudiate it. The minor is generally
entitled to keep the benefits of the contract while repudiating the agreement.

Conclusion
Under the Indian Contract Act, 1872, a minor is generally incapable of contracting, and any
agreement made by a minor is considered voidable at the option of the minor. The principle behind
this rule is to protect minors from being taken advantage of due to their lack of understanding and
maturity. However, exceptions exist, such as contracts for necessaries, which can be enforceable
against the minor.
While minors are generally exempt from liability under contracts, they may be held accountable for
torts committed in the course of contract execution. Courts have consistently maintained that
contracts made by minors are void and unenforceable, thus ensuring that minors are not bound by
agreements they do not fully understand or have the capacity to form.

26
b) Doctrine of Restitution
The Doctrine of Restitution is a legal principle that ensures a party who has received a benefit or
property under a contract that is subsequently void or rescinded must return that benefit to the other
party. Restitution aims to restore the status quo before the contract was made, preventing unjust
enrichment. This doctrine is closely linked to the principle of unjust enrichment, where one party
benefits at the expense of another without a valid legal reason.
In the context of contracts, restitution applies when:
• A contract is declared void, voidable, or rescinded.
• One party has received something from the other party, but the contract is undone, either due
to fraud, misrepresentation, mistake, or lack of capacity.
Key Aspects of Restitution:
1. Restoring Property or Value: The primary goal of restitution is to return the property or value
exchanged under the contract. If a contract is void, the party who received the benefit is
generally required to return the benefit or compensate the other party for it.
2. Application in Void or Voidable Contracts: If a contract is voidable and the consent was
vitiated (due to coercion, fraud, etc.), the party whose consent was impaired may rescind the
contract and demand restitution.
3. Not Always Full Compensation: Restitution doesn’t always equate to monetary
compensation but involves returning the exact value or property received.
Case Law Example:
In the case of Galyon v. Goddard (1875), the court held that where a contract is rescinded due to
fraud, the party who received benefits under the fraudulent contract must restore those benefits.
Conclusion:
The Doctrine of Restitution ensures fairness by preventing one party from unfairly retaining a benefit
gained under a contract that is later found to be legally invalid or rescinded. It protects against unjust
enrichment and strives to restore the position of both parties to what it was before the contract was
made.

a) Write a note on "privity of contract and exceptions to the rule" with

the help of statutory provisions and case laws. [16]
Ans- Privity of Contract and Exceptions to the Rule
Introduction
The doctrine of privity of contract is a fundamental principle in contract law which states that only
the parties involved in a contract have the rights and obligations under that contract. In simpler terms,
a contract only confers rights and imposes duties on the parties who are signatories to it. Third
parties—individuals or entities not party to the contract—cannot enforce the terms of the contract or
be held liable under it. This principle is established under the common law, and is reflected in Section
2(h) of the Indian Contract Act, 1872, which defines a contract as an agreement that is enforceable
by law.
27
However, there are several exceptions to this rule, allowing third parties in certain situations to either
benefit from or be bound by the contract.

Privity of Contract: Statutory Provisions

The Indian Contract Act, 1872, does not explicitly discuss the privity of contract in a single provision,
but it is implicitly recognized in several sections.
• Section 2(h): Defines a contract as an agreement that is enforceable by law, and implies that
only those who are parties to the agreement can enforce or be bound by its terms.
• Section 23: Deals with the legality of object and consideration in a contract. It specifies that
the consideration or object of an agreement must not be unlawful, which indirectly
emphasizes that the parties involved must have a legitimate interest in the contract's subject
matter to ensure enforceability.
• Section 55: States that when performance of a contract is delayed, the delay may discharge
the contract or allow for damages to be claimed. This provision emphasizes the role of the
contractual parties in ensuring the fulfillment of contractual duties.
Thus, under Indian law, the general rule follows the principle that only contractual parties have the
capacity to sue or be sued.

Exceptions to the Doctrine of Privity of Contract

Although privity is a strict rule, there are well-established exceptions where third parties may either
benefit from or be bound by a contract.
1. Agency
One of the main exceptions to the privity rule is the agency relationship. When a contract is made by
an agent on behalf of a principal, the principal, although not physically part of the contract, can sue
and be sued on the contract.
• Section 230 of the Indian Contract Act, 1872, defines an agent as a person who acts on behalf
of another (the principal).
• In an agency contract, the principal is considered to be a party to the agreement, and thus has
the right to enforce the terms, even though they did not sign the contract themselves.
Case Law:
In Halsbury’s Laws of England, it is stated that when an agent enters into a contract for a principal,
the principal becomes a party to the contract and thus may enforce it.
2. Contracts for the Benefit of Third Parties
Contracts that are expressly made for the benefit of a third party can, under specific conditions, allow
that third party to enforce the contract. This is known as a third-party beneficiary exception. Even
though they are not a signatory, the third party is granted rights under the agreement.

28
 • Section 2(d): Defines a contract as an agreement that results in obligations between the
parties. If the contract specifically mentions a third party as a beneficiary, that third party may
enforce the terms of the contract.
Case Law:
In the case of Donoghue v. Stevenson (1932), the House of Lords held that a manufacturer could be
sued by a person who was not a party to the contract but who was a direct beneficiary of the product.
This landmark case established the principle that a third party can sometimes have standing to sue if
the contract was made for their benefit.
3. Assignment of Contractual Rights
Another important exception arises when a party assigns their rights under a contract to a third party.
Assignment involves transferring one party’s rights (but not obligations) under a contract to a third
party. In such cases, the assignee becomes entitled to enforce the rights under the contract.
• Section 37 of the Indian Contract Act permits an assignment of rights, allowing third parties to
step into the shoes of one of the original contracting parties for the purpose of enforcing the
contract.
Case Law:
In Indian Oil Corporation Ltd. v. Amritsar Gas Service (1991), the Supreme Court held that a third
party could enforce the contract if the original contracting party assigned their rights in the contract.
4. Estoppel and Constructive Trusts
In certain circumstances, third parties can benefit from a contract due to the principle of estoppel or
constructive trusts. Estoppel prevents a party from denying the truth of a statement they have
previously made, and in some situations, it can create rights for a third party.
Case Law:
In K.K. Verma v. Union of India (1954), the Supreme Court held that if a third party relied on a
misrepresentation made by one of the parties to the contract, they could hold the misrepresenting
party liable for any damages resulting from that reliance.
5. Family Arrangements and Beneficiary Contracts
Under certain family arrangements, one party may enter into a contract on behalf of family members
or others, which benefits the non-signatory party. The non-signatory party can enforce such contracts
if their benefit is evident and directly acknowledged in the terms.
Case Law:
In Bharat Petroleum Corporation Ltd. v. Great Eastern Shipping Co. Ltd. (2002), the Bombay High
Court ruled that a family member who was a direct beneficiary of a contract entered into by another
family member could enforce the contract.
6. Promises for Which Consideration is Given by a Third Party
Sometimes, a contract may involve a third party who is not a signatory to the agreement but gives
consideration for the promise made in the contract. In such cases, the third party may have the right
to enforce the promise.

29
 • Section 25 of the Indian Contract Act recognizes the validity of agreements made without
consideration but allows for a contract where a third party provides the necessary
consideration.

Conclusion
The doctrine of privity of contract is a fundamental principle of contract law, affirming that only
parties to a contract can enforce its terms or be bound by its obligations. However, there are
significant exceptions to this rule, allowing third parties to benefit from or enforce contracts in specific
situations, such as through agency, third-party beneficiary clauses, assignments, estoppel, and family
arrangements.
These exceptions have developed over time through statutory provisions and case law, reflecting a
balance between protecting the sanctity of contracts and providing avenues for third parties to seek
justice in situations where they are directly affected by the terms of an agreement.
The Indian Contract Act, though primarily upholding the privity rule, recognizes that fairness and
equity may require broader exceptions to safeguard the interests of third parties in particular contexts.

a) Essentials of offer.
b) Essentials of acceptance.
Ans- Essentials of an Offer
An offer is a fundamental concept in contract law, as it marks the beginning of a legally binding
agreement. A valid offer is one of the essential elements required for the formation of a contract, as
stipulated in the Indian Contract Act, 1872. According to Section 2(a) of the Act, an offer is defined
as a proposal made by one party to another, expressing the willingness to enter into an agreement on
specific terms, with the intention of creating a legal obligation upon acceptance.
For an offer to be valid, it must meet certain essential criteria. These are:
1. Clear and Definite Terms
The terms of the offer must be clear, specific, and unambiguous. An offer that is vague or indefinite
cannot be considered a valid offer. The party receiving the offer must be able to understand the terms
and be in a position to accept or reject them.
• Case Law: In Scammell v. Ousten (1941), the House of Lords held that an agreement that was
vague and unclear about essential terms, such as the price, could not be treated as a valid
offer.
2. Communication of the Offer
An offer must be communicated to the offeree (the person to whom the offer is made). Until the offer
is communicated, there can be no acceptance, and thus, no contract. Communication of the offer

30
can be done through words, written documents, or conduct, depending on the context of the
agreement.
• Case Law: In Henthorn v. Fraser (1892), the court ruled that an offer, if posted and not
communicated to the offeree, cannot be accepted until it reaches the offeree.
3. Intention to Create Legal Relations
The offeror must have the intention to create a legal obligation upon acceptance. This distinguishes
an offer from mere invitation to treat or casual statements. If the offer is made without any intention
to create legal relations, it is not a valid offer.
• Case Law: In Balfour v. Balfour (1919), the court held that agreements made between
spouses for domestic purposes were not intended to create legal obligations and were
therefore not valid offers.
4. Offer Must Be Made with the Intention to Obtain Acceptance
The offeror must make the offer with the intent to receive acceptance from the offeree. The offer
should be made with a view to forming a contract if accepted. An offer made in jest or without the
intent to be bound is not a valid offer.
• Case Law: In Routledge v. Grant (1828), it was held that an offer must be made with the
intention of creating a legal relationship and not as a mere formality or jest.
5. Offer Can Be Revoked Before Acceptance
An offer can be revoked at any time before it is accepted, provided the revocation is communicated to
the offeree. The revocation must be communicated clearly to prevent the offeree from unknowingly
accepting an offer that has been withdrawn.
• Case Law: In Byrne v. Van Tienhoven (1880), the court ruled that the revocation of an offer
must be communicated to the offeree to be effective.
6. Conditional Offer
An offer may include conditions that must be met before the offer can become a binding contract.
These conditions must be reasonable and clear, and the offer cannot be accepted unless these
conditions are fulfilled.
• Case Law: In Financings Ltd. v. Stimson (1962), the court held that the offeror can impose
conditions such as the approval of a third party, and such conditions must be clearly specified
for the offer to be valid.

Conclusion
An offer is the first step in creating a contract, and its validity depends on the clarity, communication,
and intent behind it. The offer must be clear, communicated properly, made with the intent to create a
legal relationship, and must express willingness to be bound upon acceptance. By fulfilling these
essentials, an offer becomes capable of forming the basis for a legally enforceable contract.
b) Essentials of Acceptance

31
Acceptance is an essential component in the formation of a contract. It follows an offer and, when
made in accordance with the terms of the offer, leads to the creation of a legally binding agreement.
Under the Indian Contract Act, 1872, the concept of acceptance is addressed through the doctrine
of mutual assent—the idea that an agreement is formed when one party accepts the offer made by
the other. Acceptance involves a clear and unequivocal agreement to the terms of the offer, without
any modifications.
For acceptance to be valid, it must meet certain essential criteria, which are outlined below:
1. Unconditional and Unambiguous
Acceptance must be unconditional, meaning that the offeree must agree to the terms of the offer
exactly as they are, without any changes. If the offeree alters any terms of the offer, such as the price,
time, or conditions, it is considered a counteroffer, not an acceptance.
• Case Law: In Hyde v. Wrench (1840), the court ruled that a counteroffer is not an acceptance.
If the offeree changes any terms of the original offer, it does not result in an acceptance, but a
new offer.
2. Communication of Acceptance
Acceptance must be communicated to the offeror. The communication of acceptance is essential for
the contract to be formed. Until the offeror is aware of the acceptance, no contract exists. The mode
of communication—whether oral, written, or implied through conduct—should be in accordance with
the method specified by the offeror, or, if no method is specified, a reasonable mode.
• Case Law: In Felthouse v. Bindley (1862), the court held that silence, or failure to
communicate acceptance, does not constitute acceptance. An offeror cannot be bound by an
agreement unless the offeree explicitly communicates acceptance.
3. Communication Must Be Made in the Prescribed Manner (If Any)
If the offer specifies a particular mode or manner of acceptance (e.g., in writing or by phone), the
offeree must accept in that manner. Failure to accept in the specified manner may lead to the offer
being deemed invalid or revoked.
• Case Law: In Couchman v. Hill (1947), the court held that when the offeror specifies a
particular mode of acceptance, the offeree must follow it, or the acceptance is not valid.
4. Acceptance Must Be Made by the Offeree
The acceptance must be made by the party to whom the offer was made. A third party who was not
the intended offeree cannot accept the offer. This is in line with the privity of contract rule, which
ensures that only the parties to a contract can have rights and obligations under it.
• Case Law: In Dawson v. Great Northern Railway (1905), the court ruled that only the person
to whom the offer is made can accept it, as acceptance by a third party does not constitute a
valid contract.
5. Timely Acceptance

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Acceptance must occur within the time frame specified by the offeror, or, if no time frame is given, it
must be within a reasonable time. If the acceptance is delayed beyond the stipulated or reasonable
period, the offer is considered expired and cannot be accepted.
• Case Law: In Ramsgate Victoria Hotel v. Montefiore (1866), the court ruled that an offer
lapses if the acceptance is not made within a reasonable time. The offeree had to accept
within a reasonable period after the offer was made, which had passed in this case.
6. Knowledge of the Offer
The offeree must have knowledge of the offer in order to accept it. If an offer is made, but the offeree
is unaware of it, they cannot be said to have accepted the offer. This is particularly relevant in cases
where an offer is made in a unilateral contract (e.g., a reward offer).
• Case Law: In Carlill v. Carbolic Smoke Ball Co. (1893), the court ruled that the offeror’s
advertisement constituted an offer, and once the offeree performed the action (using the
smoke ball as prescribed), it amounted to acceptance, despite the fact that the offeree did not
formally communicate their acceptance.
7. Absolute Acceptance
The acceptance must be absolute and unequivocal, meaning that the offeree must accept the offer in
its entirety, without adding or varying any terms. If the offeree adds conditions or attempts to modify
the offer, it will be regarded as a counteroffer, not an acceptance.
• Case Law: In Powell v. Lee (1908), the court held that for acceptance to be valid, it must
reflect a clear intention to accept the terms of the offer without modification.

Conclusion
Acceptance is the final step in the creation of a contract, and for it to be valid, it must meet the
essential criteria outlined above. It must be unconditional, communicated clearly, made by the
offeror’s intended recipient, and within the prescribed time frame. By ensuring that these
requirements are met, the law ensures that both parties to a contract are bound by mutual consent,
forming the foundation for enforceable agreements.

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