Law of Contract - 1

BBA LLB

By

The_Lawgical_World
 SYLLABUS
Unit-I: Definition and essentials of a valid Contract - Definition and essentials of
a valid Offer - Definition and essentials of valid Acceptance - Communication of
Offer and Acceptance - Revocation of Offer and Acceptance through various
modes including electronic medium - Consideration - salient features -
Exception to consideration - Doctrine of Privity of Contract - Exceptions to the
privity of contract - Standard form of Contract.
Unit-II: Capacity of the parties - Effect of Minor's Agreement - Contracts with
insane persons and persons disqualified by law - Concepts of Free Consent -
Coercion - Undue influence - Misrepresentation - Fraud - Mistake - Lawful
Object - Immoral agreements and various heads of public policy - illegal
agreements – Uncertain agreements - Wagering agreements - Contingent
contracts - Void and Voidable contracts.
Unit-III: Discharge of Contracts - By performance - Appropriation of payments -
Performance by joint promisors - Discharge by Novation - Remission - Accord
and Satisfaction - Discharge by impossibility of performance (Doctrine of
Frustration) - Discharge by Breach - Anticipatory Breach - Actual breach.
Unit-IV: Quasi Contract - Necessaries supplied to a person who is incapable of
entering into a contract - Payment by an interested person - Liability to pay for
Non gratuitous acts - Rights of finder of lost goods – Things delivered by
mistake or coercion - Quantum merit - Remedies for breach of contract - Kinds
of damages – liquidated and unliquidated damages and penalty - Duty to
mitigate.
Unit-V: Specific Relief - Recovering possession of property - Specific
performance of the contract - Rectification of instruments - Rescission of
contracts - Cancellation of instruments-Declaratory Decrees-Preventive Relief-
Injunctions - Generally - Temporary and Perpetual injunctions - Mandatory &
Prohibitory injunctions – Injunctions to perform negative agreement.
Unit-1:
Definition and essentials of a valid Contract - Definition and essentials of a valid
Offer - Definition and essentials of valid Acceptance - Communication of Offer
and Acceptance - Revocation of Offer and Acceptance through various modes
including electronic medium - Consideration - salient features - Exception to
consideration - Doctrine of Privity of Contract - Exceptions to the privity of
contract - Standard form of Contract.
Contract and Types of Contracts:
A contract is an agreement made between two or more persons which is
intended to be enforceable at law, and is constituted by the acceptance
by one party of an offer made to him by the other party to do or abstain
from doing some act. If both the parties are willing, then only a contract
is formed. It is moral and legal obligation on both the parties of contract.
If any one of the parties breaches the terms of contract, he is liable to
pay damages to the other party.
The phrase ‘the law of contract’ might suggest that there is a single
model of contract law applicable to all types of contract.
A valid contract is a written or expressed agreement between two parties
to provide a product or service.
In a large class of cases known as implied contracts, the law recognizes
a duty or obligation sometimes arising out of a preceding contract,
sometimes independently of any contract.
In cases where the duty or obligation arises out of a preceding contract,
the violation of the duty is a breach of contract; however, such cases
present some features in common with those implied contracts which
embrace duties independent of any contract.
A man cannot sue upon a contract when there is no privity between
himself and the defendant. Privity between the parties is absolutely
necessary to support an action ex contractu, whereas in the case of an
action ex delicto the right to action has nothing to do with privity
between the parties, but exists simply because a right has been withheld
or violated.
When there is a privity of contract between two parties, there are two
classes of cases in which the remedy for a breach of duty arising out of
the contract is an action in tort, namely, when the damage is caused by
negligence or fraud.
Contract is enforceable covenant or agreement between two or more
persons, with a lawful consideration or cause. Contract is a deliberate
engagement between competent parties, upon a legal consideration to do
or to abstain from doing some act.
A contract requires two parties to it and a man in one character can, with
difficulty, contract with himself in another character. In every contract
there must be quid pro quo, for contractus est quasi actus contra actus.
If both parties are willing, then only a contract is formed. It is moral and
legal obligation on both the parties to contract. If any one of the parties
breaches the terms of contract, he is liable to pay damages to the other
party.
Freedom of contract is recognized by law. It is legal right and hence,
without any justification, such right cannot be violated. It is now well
recognized that, one should not interfere with a contract that exists
among others.
Types of Contracts:
In connection with contracts, there are four types of classifications.
Types of contract law are:
1. On the basis of Formation,
2. On the basis of Nature of Consideration,
3. On the basis of Execution and
4. On the basis of Validity.
1. Types of Contracts on the basis of Formation:
On this base Contracts can be classified into three groups, namely
(i) Express Contracts,
(ii) Implied Contracts, and
(iii) Quasi Contracts.
(i) Express Contracts: The Contracts where there is expression or
conversation are called Express Contracts. For example: A has offered to
sell his house and B has given acceptance. It is Express Contract.
(ii) Implied Contract: The Contracts where there is no expression are
called implied contracts. Sitting in a Bus can be taken as example to
implied contract between passenger and owner of the bus.
(iii) Quasi Contract: In case of Quasi Contract there will be no offer
and acceptance so, Actually there will be no Contractual relations
between the partners. Such a Contract which is created by Virtue of law
is called Quasi Contract. Sections 68 to 72 of Contract Act read about
the situations where court can create Quasi Contract.
Sec. 68: When necessaries are supplied
Sec. 69: When expenses of one person are paid by another person.
Sec. 70: When one party is benefited by the activity of another party.
Sec. 71: In case of finder of lost tools.
Sec. 72: When payment is made by mistake or goods are delivered by
mistake.
Example: A case on this occasion is Chowal Vs Cooper. In this case A's
husband becomes no more. She is very poor and therefore not capable of
meeting even cost of cremation. B, one of her relatives, understands her
position and spends his own money for cremation. It is done so without
A's request. Afterwards B claims his amount from A, where A refuses to
pay. Here court applies Sec. 68 and creates a Quasi Contract between
them.
2. Types of Contracts on the basis of Nature of Consideration:
On this base, Contracts are of two types. Namely
(i) Bilateral Contracts and
(ii) Unilateral Contracts.
(i) Bilateral Contracts: If considerations in both directions are to be
moved after the contract, it is called Bilateral Contract.
Example: A Contract has got formed between X and Y on 1st Jan,
according to which X has to deliver goods to Y on 3rd Jan and Y has to
pay amount on 3rd Jan. It is bilateral contract.
(ii) Unilateral Contract: If considerations is to be moved in one
direction only after the Contract, it is called Unilateral Contract.
Example: A has lost his purse and B is its finder. There after B searches
for A and hands it over to A. Then A offers to pay Rs. 1000/- to B to
which B gives his acceptance. Here, after the Contract consideration
moves from A to B only. It is Unilateral Contract.
3. Types of Contracts on the basis of Execution:
On this base Contracts can be classified into two groups. namely,
Executed and Executory Contracts.
(i) Executed Contract: If performance is completed, it is called
executed contract.
(ii) Executory Contract: In case where contractual obligations are to be
performed in future, it is called executor contract.
4. Types of Contracts On the basis of Validity:
On this base Contracts can be classified into 5 groups. namely
(i) Valid Contracts,
(ii) Void Contracts,
(iii) Voidable Contracts,
(iv) Illegal Contracts and
(v) Unenforceable Contracts.
(i) Valid Contracts: The Contracts which are enforceable in a court of
law are called Valid Contracts. To attain Validity the Contract should
have certain features like consensus ad idem, Certainty, free consent,
two directional consideration, fulfillment of legal formalities, legal
obligations, lawful object, capacity of parties, possibility of
performance, etc.
Example: There is a Contract between X and Y and let us assume that
their contract has all those above said features. It is Valid Contract.
(ii) Void Contracts: A Contract which is not enforceable in a court of
law is called Void Contract. If a Contract is deficient in any one or more
of the above features (Except free consent and legal formalities). It is
called Void Contract.
Example: There is a Contract between X and Y where Y is a minor who
has no capacity to contract. It is Void Contract.
(iii) Voidable Contract: A Contract which is deficient in only free
consent, is called Voidable Contract. That means it is a Contract which
is made under certain pressure either physical or mental. At the option of
suffering party, a voidable contract may become either Valid or Void in
future. For example: there is a Contract between A and B where B has
forcibly made A involved in the Contract. It is voidable at the option of
A.
(iv) Illegal Contract: If the contract has unlawful object it is called
Illegal Contract.
Example: There is a contract between X and Z according to which Z has
to murder Y for a consideration of Rs. 10000/- from X. It is illegal
contract.
(v) Unenforceable Contract: A contract which has not properly
fulfilled legal formalities is called unenforceable contract. That means
unenforceable contract suffers from some technical defect like
insufficient stamp etc. After rectification of that technical defect, it
becomes enforceable or valid contract.
Example: A and B have drafted their agreement on Rs. 10/- stamp where
it is to be written actually on Rs. 100/- stamp. It is unenforceable
contract.
Void Contracts and Illegal Contracts:
All Illegal Contracts are void, but all void contracts are not illegal; An
Illegal Contract will not be implemented by court. So, illegal contract is
Void. A void contract may not be illegal because its object may be
lawful.
The Contracts which are collateral to illegal contract are void, But the
contracts which are collateral to Void contract may be Valid: An illegal
makes not only itself Void but also the contracts connected to it. But a
contract collateral to void contract may attain Validity because object of
main contract is lawful.
Void Contracts and Voidable Contracts
Becoming Valid: A Voidable Contract may become Valid at the option
of suffering party. But a Void Contract can never and never become
Valid.
Third Party Rights: In case of Voidable Contracts third party may
attain rights on concerned property, If the third party gets the property
before the Voidable Contracts gets declared as Void. But in case of Void
Contract third party cannot get any right.
Essentials of a Valid Contract:
A contract is an agreement which creates an obligation between the
parties. The Indian Contract Act, 1872 defines the term contract as "an
agreement enforceable by law".
Contract = Agreement + Enforceability
The essential elements of a valid contract are:
1. Two parties
2. Agreement
3. Consent
4. Intention to create a legal relationship
5. Contractual Capacity
6. Consideration
7. Lawful Consideration
8. Certainty
9. Possibility to perform
10. Legal Formalities
11. Lawful object
1. Two Parties: To constitute a contract, there must be at least two
parties, i.e. one making an offer and the other party accepting the offer.
The one who is making an offer is called an offeror/proposee; and the
one who accepts the offer is offeree/proposee.
The terms of offer must be definite. Offer means when a person reveals
his willingness, to another, to do or to decline from doing something.
Acceptance means when the person to whom the acceptance is made
signifies his assent to it.
2. Agreement: A contract is initially an agreement when the person to
whom the offer has been given signifies his acceptance on it. There
arises an agreement which is the foundation of a contract.
3. Consent: The parties must agree to the same thing in the same sense
and at the same time. An agreement without consent is not legally
binding.
Free Consent: The parties are said to be in consent when they agree
upon the same thing in the same sense. To constitute a valid contract,
there must be a free and genuine consent of the parties to the contract i.e.
not to be obtained by misrepresentation, fraud, undue influence or
mistake. If the consent is not free, the contract becomes revocable.
4. Intention to create a legal relationship: There must be an intention
by both parties to create a legal relationship and to legally bind
themselves as a result of such an agreement. Thus, agreements of social
or household nature are not contracts, because the parties do not intend
to create a legal relationship.
5. Contractual Capacity: The parties to the agreement must be capable
of entering into a valid contract. According to the Act, every person is
competent to contract if he/she,
(i) is of the age of majority;
(ii) is of sound mind; and
(iii) is not disqualified from contracting by any law.
6. Consideration: An agreement by an incompetent person is not valid.
A valid contract must be supported by consideration. Consideration
means something in return. It can be cash, kind or an act. It can be past,
present or future.
Consideration must be real and lawful.
7. Unlawful Consideration: Quid pro quo means something in return,
which means that the parties must accrue in the form of some profit,
rights, interest, etc. or seem to be having some form of valuable
consideration. The consideration must be lawful. According to the Act,
the consideration of an agreement is said to be unlawful, if
(i) It is forbidden by law,
(ii) It is of such nature that, if permitted it would defeat the provisions of
any law;
(iii) It is fraudulent,
(iv) It involves or implies, injury to the person or property of another,
and
(v) The court regards it as immoral.
Example: A, B and C enters into an agreement for the division of
amount acquired by them through fraud. The agreement is void as its
object is forbidden by law.
8. Certainty: Terms of agreement must be certain and not vague.
9. Possibility to perform: The promises made under a valid contract
must be executable. An agreement to do some impossible act is
cancelled from the beginning and never converted into the contract.
10. Legal formalities: Indian Contract Act does not provide any
formality to enter into a contract. A contract may be express (oral or
written) or even implied (by conduct). However, where the law requires,
it must comply with all legal formalities such as in writing, registration
and attestation.
11. Lawful object: Objectives of an agreement should be lawful. An
agreement will become valid only when it has a lawful object and lawful
consideration. Unless it is forbidden by law, it is considered as lawful.
When the object of a contract is not lawful, the contract will be
considered as void.
Offer and Acceptance:
A contract is an agreement giving rise to obligations which are enforced
or recognised by law. Agreements are usually thought to arise via a
process of offer and acceptance; a proposal by one party which is,
eventually, assented to in broadly the same terms by the other party.
Offer:
An offer is a legal commitment, a proposal which invites eventual
acceptance. In simple, an offer is a proposal of such a kind that it can be
converted into a binding contract by the simplest response.
Definition of an offer
According to Section 2(A) of the Indian Contracts Act, 1872,
When a person expresses his willingness to another person to do or to
abstain from doing something and also obtain the consent of such
expression, it is called an offer.
The person who makes an offer is called “Offerer” or “ Promiser” and
the person to whom the offer is made is called the “Offeree” or
“Promisee”.
Illustration- Mr. A says to Mr. B, “Will you purchase my car for
Rs.1,00,000?” In this case, Mr. A is making an offer to Mr. B. Here A is
the offeror and B is the offeree.
Essentials of a valid offer
There are mainly three essential elements of a valid offer:
(1) The offer must be Communicated:
Communication or expression of the willingness by the offerer to enter
into a contract or abstain from doing so is essential for a valid offer.
Mere desire or willingness to do or not to do something is not enough
and will not constitute for an offer.
In Lalman Shukla vs Gauri Dutt (1913) it was held that mere knowledge
of an offer does not imply acceptance by the offeree.
(2) Terms of the offer must be clear and definite:
Knowledge of the Intention of the parties is very essential as without this
the courts will not be able to decide what the parties want to do.
Therefore, the terms of the offer must be clear and definite and not
vague and loose.
Example: Ram offers Shyam to sell fruits worth Rs 600/-. This is not a
valid offer since what kinds of fruits or their specific quantities are not
mentioned.
(3) Must create a legal relationship:
It is essential for a valid proposal that it must be made with the intention
of creating a legal relationship otherwise it will only be an invitation. A
social invitation may not create a social relationship. An offer must lead
to a contract which creates legal obligations and legal consequences in
the case of non-performance of the contract.
Example- A lunch invitation extended by A to B is not a valid offer.
Ways in which an offer can be communicated
(1) By words (whether written or oral):
The written offer can be made by letters, telegrams, E-mail,
advertisements, etc. The oral offer can be made either in person or over
the telephone.
(2) By conduct:
The offer may be communicated by making positive acts or signs to the
offeree. However, the silence of a party does not amount to an offer.
Example– When you board a taxi, you are accepting to pay the taxi fare
via your conduct.
Auctions: The general rule is that the advertisement of an auction and,
indeed, the announcement of the lots for sale by the auctioneer are
merely invitations to treat. The bidders successively make offers to buy
the goods, until, finally, acceptance is signified by the auctioneer
bringing down the hammer.
Unilateral Offers:
The concept of the ‘unilateral contract’ would indicate a ‘one sided’
contract, an idea which fits very uneasily with the idea of contract as
being based on agreement. In truth, what is really being discussed is a
‘uni-promise’ contract – the key distinction between a ‘unilateral’ and a
‘bilateral’ contract lies in the fact that, in the former, there is no
exchange of promises – a promise is given in return for an act.
Unilateral contracts are traditionally seen as exceptions, indeed, as
exceptions which cause difficulties, to the normal process of offer and
acceptance.
A unilateral contract is a contract agreement in which an offeror
promises to pay after the occurrence of a specified act. An example of a
unilateral contract is an insurance policy contract, which is usually
partially unilateral. In a unilateral contract, the offeror is the only party
with a contractual obligation.
Difference between offer and an invitation to offer
An offer is defined in section 2 (a) of the Indian Contract Act, 1872.
Conversely, an invitation to offer is not defined in the Indian Contract
Act, 1872.
The major difference between the two is that the purpose of an offer is to
enter into a contract whereas the purpose of an invitation to offer is to
receive an offer in order to enter into a contract.
Illustration- A sees an article marked Rs 50 in B’s shop. He tells B he
will buy it and offers him Rs 50.B says that he doesn’t wish to sell that
article.
In this case, there is no contract at all and the price tag is not an offer but
an invitation to offer. It is on the discretion of the shopkeeper if he wants
to sell his article or not.
Therefore, an offer is the final willingness of the party to create legal
relations. An invitation to offer is not the final willingness but the
interest of the party to invite the public to offer him.
Case Laws:
(1) Balfour vs. Balfour (1919)
Mr. Balflour was a civil engineer and worked for the government as the
Director of Irrigation in Ceylon(now Sri Lanka). In 1915 both of them
came back to England when Mr. Balflour was on leave but due to an
illness(arthritis) of Mrs. Balfour, she was unable to come back to Ceylon
with her husband. The husband promised to pay 30 euros per month to
his wife until she rejoined him in Ceylon. The husband failed to pay her
the said amount hence the wife sued him for the amount. The court held
that the husband was not liable as there was no intention to create a legal
relationship.
(2) Jones v Padavatton(1969)
Mrs. Violet Laglee Jones agreed with her daughter Mrs. Ruby
Padavatton that if she would give up her job in the USA and studied for
the bar exam in England, the mother would pay her an allowance of
200$ per month. In 1964 the mother bought a house and varied the
agreement by giving the daughter a part of the house to stay and a part to
rent so as to cover her expenses and her maintenance. In 1967 the parties
had an argument and as a consequence, the mother brought an action for
the possession of the house. The mother based her claim on the
allegation that the agreement was not made with the intention of creating
a legal relationship. It was held that there was no intention to create a
legal relationship and gave possession to the mother.
Acceptance:
At its simplest, an acceptance is an unconditional assent to the terms
proposed in the offer. Much of the relevant law is reasonably straight
forward and capable of being reduced to a series of propositions. In
essence, a valid acceptance comprises the following elements:
• the offer must still be in force and open to acceptance;
• the acceptance must be unconditional and must not introduce any fresh
terms of a significant or material nature;
• the acceptance is only valid, in general, when received by the offeror.
Definition of Acceptance
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.
Example -Anita offers to buy Priya’s car for Rs.10 lakhs and Priya
accepts such an offer. Now, this has become a promise.
Essentials of a valid acceptance:
Section 7 of The Indian Contract Act,1872 lays down two essentials of a
valid acceptance.
(1) Must be unconditional and absolute
Conditional Acceptance will not be a valid acceptance as it would
amount to a counter offer which would nullify the original offer.
Example: Anita offers to sell her bag to Priya for 3000/-. Priya says she
accepts if Anita will sell it for 1500/-. This does not amount to the offer
being accepted and it will count as a counteroffer.
(2) Must be expressed in some usual and reasonable manner
If the offeror does not describe any prescribed manner then it must be
expressed in the normal and reasonable manner, i.e. as it would be in the
normal course of business.
Difference between an acceptance and a counter offer
A counter offer is an offeree’s new offer that varies the terms of the
original offer and therefore, constitutes a rejection of the original offer.
In John Hancock Mutual Life Insurance Co. v. Dietlin (1964), an
acceptance which is upon the condition or with a limitation is a
counteroffer and requires acceptance by the original offeror before a
contractual relationship can exist.
In Ardente v. Horan (1976), the defendants offered to sell their house to
the Plaintiff who agreed to buy the house but he requested that certain
furniture and fixtures should also come with the property. The
Defendants refused to sell their furniture and fixtures along with the
house and returned the unsigned agreement as well as the Plaintiff’s
deposit. The Plaintiff sued for specific performance. It was held that a
valid contract was not formed as the defendants never accepted the
counteroffer. A contract is considered valid when the acceptance is
definite and unequivocal, conditional acceptances shall be construed as
counter-offers.
Case Laws
(1) In L’Estrange v Graucob (1934)
A buyer signed an agreement for the purchase of a cigarette vending
machine without reading its terms. One of the terms excluded liability
for all kinds of defects in the machine. The machine supplied was
defective but the court held that the supplier was not liable.
(2) In Lalman Shukla vs Gauri Dutt (1913)
The plaintiff was in defendants service as a Munim. The defendant’s
nephew absconded and the plaintiff went to find the missing boy. In the
plaintiff’s absence, the defendant issued handbills, offering a reward of
Rs 501 to anyone who might find the boy. The plaintiff traced him and
claimed the reward. The plaintiff did not know of the handbills when he
found the boy. The court held that the plaintiff was not entitled to a
reward.
Conclusion
Offer and acceptance analysis is a traditional approach in contract law
used to determine whether an agreement exists between two parties. An
offer is an indication by one person to another of their willingness to
contract on certain terms without further negotiations. A contract is then
formed if there is an express or implied agreement. A contract is said to
come into existence when acceptance of an offer has been
communicated to the offeror by the offeree.
The communication of an offer is complete when it comes to the
knowledge of the person to whom the offer is made and the
communication of an acceptance is complete when the acceptance is put
in a course of transmission to the offerer. Therefore, Offer and
acceptance is the essential elements of a contract and in either case, it
should be done out of one’s free will and with an intention to enter into a
legally binding agreement.
Communication of Offer
Section 4 of the Indian Contract Act 1872 says that the communication
of the offer is complete when it comes to the knowledge of the person it
has been made to. So when the offeree (in case of a specific offer) or any
member of the public (in case of a general offer) becomes aware of the
offer, the communication of the offer is said to be complete.
So when two people are talking, face-to-face or via telephone, etc the
communication will be complete as soon as the offer is made. Example
if A tells B he will fix his roof for five thousand rupees, the
communication is complete as soon as the words are spoken.
Let us take the same example. A writes to B offering to fix his roof for
five thousand rupees. He posts the letter on 2nd July. The letter reaches
B on 4th July. So the communication is said to complete on 4th July.
Communication of Acceptance
It is necessary to make a binding contract, not only that the proposal be
accepted, but also that the acceptance be notified. An acceptance is not
complete unless and until it is communicated to the proposer in some
perceptible form which may be by speech, writing or other acts or
omissions.
The offeree must signify his assent or communicate the acceptance. The
communication of acceptance is deemed to be made by any act or
omission of the party accepting, by which he intends to communicate
such acceptance, or which has the effect of communicating it.
When the parties are face to face, communication could be oral. When
they are at a distant place, communication could be made by post, by
telegram, by a message on phone, through a messenger, or in any other
reasonable manner. Sometimes, the conduct of a person might indicate
his assent
Mode of Acceptance
In this case of communication of acceptance, there are two factors to
consider, the mode of acceptance and then the timing of it. Let us first
talk about the mode of acceptance. Acceptance can be done in two ways,
namely:
Communication of Acceptance by an Act: This would include
communication via words, whether oral or written. So, this will include
communication via telephone calls, letters, e-mails, telegraphs, etc.
Communication of Acceptance by Conduct: The offeree can also
convey his acceptance of the offer through some action of his, or by his
conduct. So say when you board a bus, you are accepting to pay the bus
fare via your conduct.
Timing of Acceptance
The communication of acceptance has two parts. Let us take a look
As against the Offeror: For the proposer, the communication of the
acceptance is complete when he puts such acceptance in the course of
transmission. After this it is out of his hand to revoke such acceptance,
so his communication will be completed then. So, for example, A
accepts the offer of B via a letter. He posts the letter on 10th July and the
letter reaches B on 14th For B (the proposer) the communication of the
acceptance is completed on 10th July itself.
As against the Acceptor: The communication in case of the acceptor is
complete when the proposer acquires knowledge of such acceptance. So
in the above example, A’s communication will be complete on 14th
July, when B learns of the acceptance.
Revocation of Offer
The Indian Contract Act lays out the rules of revocation of an offer in
Section 5. It says the offer may be revoked anytime before the
communication of the acceptance is complete against the
proposer/offeror. Once the acceptance is communicated to the proposer,
revocation of the offer is now not possible.
Let us take the same example of before. A accepts the offer and posts the
letter on 10th July. B gets the letter on 14th July. But for B (the
proposer) the acceptance has been communicated on 10th July itself. So
the revocation of offer can only happen before the 10th of July.
Section 6 of the Contract Act provides that, "a proposal is revoked-
1. by the communication of notice of revocation by the proposer to the
other party
2. by the lapse of the 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;
3. by the failure of the acceptor to fulfil a condition precedent to
acceptance; or
4. by the death or insanity of the proper, if the fact of his death or
insanity comes to the knowledge of the acceptor before acceptance.
Revocation of Acceptance
Section 5 also states that acceptance can be revoked until the
communication of the acceptance is completed against the acceptor. No
revocation of acceptance can happen after such date.
Again, from the above example, the communication of the acceptance is
complete against A (acceptor) on 14th July. So till that date, A can
revoke his/her acceptance, but not after such date. So technically
between 10th and 14th July, A can decide to revoke the acceptance.
The acceptor can revoke the offer until the communication of the
acceptance is complete against the said acceptor. Such communication is
complete when the proposer receives the letter of acceptance. So in the
time frame between posting the letter and the letter being received by the
proposer, the acceptor can revoke the acceptance.
Communication of Revocation of Proposal and Acceptance:
According to Section 4 of the Contract Act, "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 power of the person who makes it; as against the person to
whom it is made, when it somes to his knowledge.
Where the offer having already made an offer to the acceptor and
decides to revoke such offer may do so by sending a communication of
revocation to the acceptor. Such communication of revocation is
complete and binding against the offeror, the moment it is put into the
course of transmission to the acceptor to whom it is made, so as to be
out of power of the offeror who makes it.
The communication of revocation of offer is complete and binding on
the acceptor only when such communication comes to his knowledge.
When the acceptor revokes his acceptance, the revocation of acceptance
is complete as against the acceptor the moment such communication of
revocation is put into the course of transmission so as to the out of
power of the acceptor who makes it. But as against the offeror, the
revocation of acceptance is complete and binding on him only when the
revocation of acceptance comes to his knowledge.
The revocation of acceptance put in the course of transmission shall be
binding on the acceptor but not aganst the offeror until such time it
comes to the knowledge of the offeror.
Modes of Communication:
If the parties to the conrtact are present at the same place, one can make
the offer orally and the other can communicate the acceptance orally,
both the parties become bound immediately. The problem arises when
the parties are at different places and the communication of offer and
acceptance and revocation of proposal and acceptance is mad \e by post
or telegram, or telephone, or fac or e-mail through electonic medium.
1. Communication through Post
2. Communication through Telegrams
3. Communication over Telephone or Telex or Fax
4. Communication pof proposal and acceptance through electronic
medium
5. Communication of acceptance through computer internet
6. Time and place of the completion of contract through internet
7. Acknowledgement of Electronic Records
8. Electronic Signature
1. Communication through Post: It is the non instantaneous mode of
communication.
An offer is complete only when it is communicated to the offeree. It can
be revoked by the offer before it reaches the offeree. The posting of
letter by the acceptor is sufficient to create a contract. In India, the
completion of acceptance is differentiated between the offeror and
offeree. Acceptance is complete against the acceptor only when the letter
reaches the offeror. Hence, according to Section 5, acceptance can be
revoked by a telegram before the letter reachess the offeror. But in
England, once acceptance letter is posted, the contract is formed and the
acceptor cannot revoke. In India, According to Section 4 of the Contract
Act, revocation once made cannot be cancelled because it will be
complete against the person making it as soon as the letter is put into
transaction. But in England, revocation letter after being posted can be
further revoked by means of a telegram.
Illustration-
A proposes, by letter, to sell a house to B at a certain price. (The
communication of the proposal is complete when B receives the letter.)
B accepts the proposal of A, by a letter sent by post. (The
communication of acceptance is complete, as against A, when the letter
is posted, and as against B, when the letter is received by A.)
‘A’ revokes his proposal by telegram. (The revocation is complete as
against A when the telegram is dispatched. It is complete as against B
when B receives it.)
Example: Henthorn v. Fraser, [1892 (2) Ch. 27]
In this case, 'A' made an offer to 'B' on 7th July to sell his house. On the
next day, i.e. on 8th July, between 12 p.m. and 2 p.m., 'A' sent a letter to
'B' revoking his offer. On the same day, at 3:50 p.m., 'B' accepted the
offer and posted his letter of acceptance. At 5:30 p.m., 'B' received the
letter of revocation. A suit was filed by 'B' for the performance of
contract. It was held that the posting of letter of revocation is not
sufficient but it must be duly communicated to the offeree. As the
acceptance was complete before the revocation letter reached B, the
contract came into existence. Thereforethe suit was decreed in favor of
'B'.
2. Communication through Telegrams:
The rule in regard to telegraphs is the same as in the case of letters by
post, i.e., the acceptance is complete when the telegram is handed over
for dispatch to the telegraph office. When by agreement, course of
conduct or usage of trade, acceptance by telegraph is authorised, the
bargain is struck and the contract is complete when the acceptance is put
into course of transmission by the offeree dispatching a telegram.
3. Communication over Telephone or Telex or Fax:
It is the instantaneous mode of communication. Both in India and
England, the law with regard to contracts over Telephone or Telex is
same. Contracts over Telephone or Telex have the same effect as when
the parties are face to face. The offeree must make sure that his
acceptance is heard, understood and received by the offeror. Otherwise,
there is no binding contract.
4. Communication of proposal and acceptance through electronic
medium:
An offer and acceptance, like any other expression of will or intention,
may be communicated by any means, including by data messages in
electronic form, i.e. 'electronic record'. Where messages in electronic
records are used in the formation of a contract, that contract shall not be
denied validity or enforceability in the sole ground that data messages
was used for that purpose.
Under Section 2 cluse (za) of Information Technolody Act, 2000,
originator means a person who sends, generates, stores or transmits any
electronic message or causes any electronic message to be sent,
generated, stored or transmitted to any person but not include an
intermediary.
According to Section 11 of Information technology Act, 2000, the
expressions of proposer and acceptor as used in regular contracts are
substituted by the words, 'originator' and 'addressee' in case of electronic
contract'.
Section 11 of the IT Act, 2000 states:
An electronic record shall be attributed to the originator:
(a) if it was sent by the originator himself;
(b) by a person who had the authority to act on behalf of the originator in
respect of that electronic record; or
(c) by an information system programmed by or on behalf of the
originator to operate automatically.
In case of e-contacts, the originator may send the offer by means of
electronic record. The originator may not be sure whether the electronic
record sent by him has been received by the addressee. The originator
may, therefore, desire to have, an acknowledgement from the addressee,
the receipt of electronic record sent by him.
5. Communication of acceptance through computer internet:
The originator places his proposal in internet by means of electronic
media. The addressee has to transmit his acceptance when he decided to
accept the proposal by means of electronic record to the originator.
Electronic contracts, being instantaneous contracts are deemed to be
completed only on such acceptance is received by the originator. If the
originator changes his mind and desires to revoke the proposal, he may
do so before the acceptances reach him. Generally, the addressee after
transmitting the acceptance cannot revoke the acceptance as it reaches
the originator within seconds.
As per Section 4 of the Contract Act, 1872, the communication of
acceptance is complete as against the acceptor only when it comes to the
knowledge of the proposer. Where the originator fails to open the mail
box and thereby acceptance does not come to his knowledge, there
cannot be a contract. A contract through computer internet is legally
complete only when an acceptance is received at the end of the
originator.
6. Time and place of the completion of contract through internet:
Section 13 of the Information Technology Act, 2000 provides provisions
referring to the time and place of dispatch and receipt of electronic
records. These provisions are as follows;
(i) The dispatch of an electronic record occurs when it enters a computer
resource outside the control of the originator;
(ii) The time of receipt of an electronic record shall be determined as
follows:
(a) if the addressee has designated a computer resource for the purpose
of receiving electronic records:
i. receipt occurs at the time when the electronic record enters the
designated computer resource, or
ii. if the electronic record is sent to a computer resource of the addressee
that is not the designated compter resource, receipt occurs at the time
when the electronic record is retrieved by the addressee.
(b) if the addressee has not designated a computer resource alongwith
specified timings, if any, receipt occurs when the electronic record
enters the computer resource of the addressee.
(iii) An electronic record is deemed to be dispatched at the place where
the originator has his place of business, and is deemed to be received at
the place where the addressee has his place of business.
(iv) For the purpose of this section:
(a) if the originator or the addressee has more than one place of business,
the principal place of the business shall be the place of business.
(b) if the originator or the addressee does not have a place of business,
his usual place of residence shall be deemed to be the place of business.
(c) 'usual place of residence' in relation to a body corporate, means the
place where it is registered.
These provisions provide a location for dispatch and receipt of the offers
or acceptances in the form of electronic record.
7. Acknowledgement of Electronic Records:
According to Section 12 of the Information Technology Act, 2000, a
person sending a message by electronic record may require the
addressee to acknowledge its receipt in a particular form or by a
particular method. If he has not stipulated, the acknowledgement may be
given by any form of communication or by conduct. Such originator of
the electronic record can exclude liability for the message by stipulating
that this record will not be binding on him unloess acknowledgement is
received. Then, if acknowledgement is not received, the electronic
record shall be deemed to have never been sent by te originator.
Therefore, where the originator of electronic record has stipulated for
acknowledgement, failure to give acknowledgement by the addressee
may absolve the originator of liability for the electronic record sent.
8. Electronic Signature:
Where a contract is entered into through the mode of computer internet,
acceptance was signified by the acceptor from the appropriate person.
The electronic signature of the parties, which would authenticate the
transaction, has to be taken into consideration. An electronic signature is
a personalized thumb print and it is the encryption of the electronic
document using a private key. An electronic signature performs three
functions, namely;
(i) discloses if there have been any tampering of the file or message;
(ii) the particulars of the persons signing the message can be verified,
and
(iii) after a person has sent a signed message, there is no chance of
disowning the message signed and sent by him.
CONSIDERATION
The word 'consider' is derived from the Latin word 'Considerare' and the
meaning of the word 'consideration' is 'payment or reward'.
Consideration is one of the most important essentials of a valid contract.
It is the foundation of every contract. It is the sign and symbol of
bargain. It is a legal evidence of the intention of the parties to affect their
legal relation.
When a party to an agreement promises to do "something", he must get
"something in return" for it. If he does not get something in return, the
contract is not valid. This "something in return" is called
"CONSIDERATION".
Consideration is the material cause, of any contract, without which it
will not generally be effectual or binding. It is reasonable equivalent or
other valuable benefit passed on by the promisor to the Promisee or by
the transfeor to the transferee.
Consideration may take the form of a money payment, a delivery of
goods, a promise of money payment.
Example:
‘A’ promises to type the manuscript of B's book and in return B
promises to teach him for a month. The promise of each party is
consideration for the promise of the other party.
Characteristics of Consideration
The consideration should be present in the formation of contract. The
characteristics of consideration are:
(i) The consideration should be legal and not unlawful.
(ii) The consideration should be real and not illusory.
(iii) It must not be uncertain or impossible. It should be certain and
possible.
(iv) It must be of some value.
Salient features of Consideration:
According to Section 10 of the Contract Act, all agreements are
contracts which are made by
(i) free consent of parties; (ii) competent to contract; (iii) for a lawful
consideration; and (iv) with a lawful object.
Hence, a lawful consideration is the most essential element of a valid
agreement to become a contract. The following are the legal rules or
salient features of consideration:
1. Promissory Estoppel (Consideration must prove at the desire of the
promisor)
2. Consideration may move from the promisee or any other person;
3. Consideration may be past, present or future;
4. Consideration need not be adequate;
5. Consideration must be real and not illusory.

1. Promissory Estoppel (Consideration must prove at the desire of

the promisor)
Consideration must proceed or move at the desire or request of the
promisor. In simple words, consideration must have been given at the
desire of the promisor. The desire of the promisor may be express or
implied. It is not necessary that the promisor himself should be benefited
by consideration. It is enough if the act is done at the request of the
promisor.
Example: A sees B's house on fire and A helps B in extinguishing the
fire. A cannot demand payment for his service, because, B never asked
him to come for his help.
Promissory Estoppel: Where a party, by his words of conduct made to
the other, a clear and equivocal promise which is intended to create legal
relations or affect a legal relationship to arise in future, knowing or
intending that it would be acted upon by the other party to whom the
promise is made. In fact, it is so acted upon by the other party, the
promise would be binding on the party making it. It is called promissory
estoppel.
2. Consideration may move from the promisee or any other person:
In English Law, consideration must move from the promisee alone. In
other words, consideration must be given by the promisee. It should not
move from a third party.
Under Indian Law, consideration may move from the promisee or any
other person. The rule under English Law is that consideration must
move from the promisee, whereas under the Indian Law, the
consideration may move from the promisee or from any other person.
3. Consideration may be past, present or future:
Consideration is the price for which the promise of the other is bought.
Under the Indian Law, consideration may be past, present or future. But
under the English Law, consideration may be present or future, but never
be past. In other words, past consideration is no consideration under the
English Law. Consideration may be executory or executed, but it must
not be past.
Present or executed consideration: When the promisor receives
consideration along with his promise, consideration is termed as 'present
consideration' or 'executed consideration'. All cash sales are the
examples of present consideration.
Future or executory consideration: WHere the promisor has to receive
consideration in future for his promise, the consideration is said to be
'future consideration' or 'executory consideration'. Mutual promises to
marry, or a promise to work in return of promise of payment are
examples of future consideration.
Past consideration: Where the promisor had received the consideration
before the date of promise, the consideration is 'Past Consideration' or
'Executed consideration'.
4. Consideration need not be adequate:
Consideration means 'something in return'. This 'something in return'
need not necessarily be equal in value to 'something given'.
Consideration need to be adequate, but must be real. According to
English Common Law, a payment made less than what is due under a
contract cannot be regarded as a consideration. Courts in India will not
inquire whether a promise is equivalent to the promise obtained. In other
words, the law only insists in the presence of consideration and not on
the adequacy of it.
5. Consideration must be real and not illusory:
Although it is not necessary that the consideration should be adequate, it
is however, necessary that it should be real and should not be
unsubstantial, impossible, illusory, unreal or purely a moral obligation.
Unreal considerations: The following are not real considerations:
(i) Physical impossibility: If a person agrees to perform an impossible
act for a consideration, the promise is not enforceable. Such promise is
unreal.
(ii) Legal Impossibility: Whenever the performance of a promise is
legally impossible, consideration is not real.
(iii) Uncertain Consideration: Consideration is not real and is not
enforceable if it is uncertain or ambiguous.
(iv) Illusory Consideration: An illusory consideration is not real and is
unenforceable.
(v) Pre-existing legal obligation: A promise to do what one is already
bound to do, either by general law or under an existing contract, is not a
good consideration for a new promise. Similarly, a promise to perform a
public duty by a public servant is not a consideration.
Real or Good considerations:
The following are Real or good considerations:
(i) Forbearance to sue: Forbearance to sue is a kind of abstinence. It
means a person who has a right of action against another person refrains
from bringing the action. Forbearance to sue may be for ever or for a
short or limited time.
(ii) Compromise of a disputed claim: Compromise is a kind of
forbearance. The compromise of disputed claim is a good consideration
for the fresh agreement of compromise.
(iii) Composition with creditors: A person who is not in a position to
pay his debts fully may call a meeting of his creditors and request them
to accept a lesser amount. If the creditors agree to it, the agreement is
binding upon the debtor and creditors.
(iv) Consideration must be lawful: Consideration of an agreement
must be lawful. It must not be illegal, immoral or opposed to public
policy. If the consideration is illegal, the agreement cannot be enforced.
(v) Promise to perform an already existing contractual duty is no
consideration: If A is already bound to perform a particular contractual
duty owed to B, B's promise to pay something additional for the same
promise is no consideration.
Exceptions to consideration:
A contract without consideration is void i.e., No consideration, no
contract. In other words, the general rule is that an agreement without
consideration is void except under certain circumstances.
Exceptions to the general rule of consideration are:
Section 25 of the Contract Act provides that: "An agreement without
consideration is void, unless-
1. It is expressed in writing and registered under the law for the time
being in force for the registration of documents, and is made on account
of natural love and affection between parties standing in a near relation
to each other, or unless
2. It is a promise to compensate, wholly or in a part, a person who has
already voluntarily done something for the promisor, or something
which the promisor was legally compellable to do; or unless
3. It is a promise, made in writing and signed by the person to be
charged therewith, or by his agent generally or specially authorised in
that behalf, to pay wholly or in part a debt of which the creditor might
have enforced payment but for the law for the limitation of suits.
There are few exceptions where a contract is enforceable even though
there is no consideration. The exceptions are based on the principles of
equity. They are:
1. Promise made on account of natural love and affection (written in
writing and registered)
2. Promise to compensate for Voluntary services
3. Written promise to pay a time-barred debt
4. Contract of Agency
5. Completed gifts
6. Remission by the promisee of the performance of the promisee
7. Contract under seal
8. Negotiable Instruments
9. Others

1. Promise made on account of natural love and affection (written in

writing and registered):
Section 25(1) of the Contract Act states, "it is expressed in writing and
registered under the law for the time being in force for the registration of
documents, and is made on account of natural love and affection
between the parties standing in a near relation to each other".
Ecample: A, for natural love and affection, promises to give Rs. 1000 to
his son, B. A puts promise to B into writing and registered it. This is a
contract.
Thus an agreement without consideration will be valid, provided:
(i) It is expressed in writing;
(ii) It is registered under the law;
(iii) It is made on account of naturallove and affection;
(iv) It is between parties standing in a near relation to each other.
All gift deeds are the examples of this clause of exception.
2. Promise to compensate for Voluntary services:
According to Section 25(2) of the Contract Act, "it is a promise to
compense, wholly or in part, a person who has already voluntarily done
something for the promisor, or something which the promisor was
legally compellable to do;
A promise to pay for a past voluntary service is binding. Voluntary
service means service done without any request. To apply for this rule,
the following essentials must exist:
(a) The service should have been done voluntarily;
(b) The service should have been done for the promisor and nobody else;
(c) The promisor must have been in existence at the time when the
service was done.
(d) The intention of promisor must have been to compensate the
promise.
(e) The promisor to whom the service has been done need not be
competent to contract at the time the servant was done.
(f) The service rendered must also be legal.
3. Written promise to pay a time-barred debt:
According to Section 25(3) of the Contract Act, "it is a promise, made in
writing and signed by the person to be charged therewith, or by his agent
generally or specially authorised in that behalf, to pay wholly or in part a
debt of which the creditor might have enforced payment but for the law
for the limitations of suits" - in such case an agreement is a contract.
Example: A owes B, Rs. 1000, but the debt is barred by the Limitation
Act. A signs a written promise to pay B Rs. 500 on account of the debt.
This is a contract.
Section 25(3) permits a promisee to pay wholly or in part, a time-barred
debt. If a person promises to pay a portion of a time barred debt, he can
be sued for that portion alone and not for the whole. However, the
promise to pay the whole debt is there, then the whole of the amount can
be claimed.
4. Contract of Agency:
According to Section 185 of the Contract Act, "no consideration is
necessary to create a contract of agency".
5. Completed gifts:
The rule "No consideration, no contract" does not apply to completed
gifts. Gift does not require any consideration. Absence of consideration
shall not affect the validity of any gift actually made. Gifts once made
cannot be recovered on the ground of absence of consideration.
Example: A gave a watch as a gift to B on his birthday. Later on, A
cannot demand back his watch on the ground that there was no
consideration.
6. Remission by the promisee of the performance of the promisee:
A creditor can agree to give up a part of his claim and there will be no
consideration for such an agreement. Similarly, an agreement to extend
time for performance of a contract need not be supported by
consideration.
7. Contract under seal:
In English Law, a contract under seal is valid and enforceable even
without consideration. Contract under seal means a contract which is in
writing, signed, sealed and delivered to the other party.
8. Negotiable Instruments:
Consideration is not necessary in case of negotiable instruments where
consideration is presumed to have been received.
9. Others:
The following agreements have been held to be valid, though without
consideration:
(a) An agreement in the nature of a bona fide dispute as to the right of
succession to a priestly office.
(b) A mutual agreement to avoid futher litigation.
(c) A family arrangement providing for the marriage expenses of female
members of joint Hindu family on a partition of the joint family
property.
(d) An agreement entered into by a Hindu husband with his wife in
settlement of a doubtful claim for maintenance.
THE DOCTRINE OF PRIVITY OF CONTRACT
Doctrine of Privity of Contract - A stranger to contract cannot sue.
'Privity' means 'with knowledge and consent'. The term 'Privity' denotes
mutual or successive relationship to the same right of property. Privity is
a derivative kind of interest, founded upon or growing out of the contract
of another, as that which subsists between an heir and his ancestor,
between executor and testator, and between lessor and lessee and his
assignee; a relation which creates an obligation.
A contract cannot confer rights or impose obligations arising under it or
any person except the parties to it. No one but the parties to a contract
can be entitled under it, or bound by it. This principle is known as that of
'privity of contract'. This rule debars the third parties from having any
rights or obligations in a contract. It also prevents third party from suing
upon it even though the contract is for his benefit. Thus, a stranger to a
contract cannot sue upon it even though the contract may have been
entered into for his benefit. This rule prevents imposition of contractual
obligation upon a person without his consent.
Example:
A receives Rs. 5000 from B and promises B to deliver a watch to C.
Here C is a stranger to consideration as well as to contract. So he cannot
sue A for the delivery of watch.
The principle of 'stranger to contract cannot bring an action' is equally
applicable in India as in England. But Indian Law is more wider than
English Law.
Section 2(d) of the Contract Act, 1872 defines 'consideration' thus:
"When, at the desire of the promisor, the promisee or nay other person
has done or abstained from doing, or does or abstains from doing, or
promises to do or abstain from doing, something, such act or abstinence
or promise is called a consideration for the promise".
Exceptions to the privity of contract
Under the Indian Law, the following are the exceptions to the rule that 'a
stranger to a contract cannot sue':
1. Trust of Contractual rights or beneficiary under contract
2. Provision in marriage settlement
3. Provision for marriage or maintenance under family arrangement
4. Conduct, Acknowledgement or Admission
5. Charge created on specific immovable property
6. Assignee of a Contract
7. Contract by Agent
8. Collateral Contracts
9. Multilateral Contracts
1. Trust of Contractual rights or beneficiary under contract:
A trust is created for the benefit of a beneficiary. Hence the beneficiary
can enforce the provisions of the trust even though he is a stranger to the
contract creating a trust. The rights of the beneficiary are only equitable
and not contractual.
Example: 'A' creates trust in favor of 'B' and appoints 'C', 'D' and 'E' as
trustees of the trust. B can enforce the provisions of the trust although he
is not a party to the agreement.
2. Provision in marriage settlement:
A stranger to the contract can sue on the contract where a provision is
made for him in marriage settlement.
3. Provision for marriage or maintenance under family
arrangement:
Where, under a family arrangement, the contract is intended to secure a
benefit to a third party, he may sue in his own right as a beneficiary. In
case a provision is made for the marriage or maintenance of a female
member of the family on the partiton of a Hindu undivided family, the
female member can enforce the promise though she may be a stranger to
the contract.
4. Conduct, Acknowledgement or Admission:
Sometimes, there may be no privity of contract between the two parties,
but if one of them by his/her conduct, acknowledgement, or admission
recognizes the right of the other to sue him, he may be liable on the basis
of the law of estoppel.
Example: A pays B, Rs. 5000 to be given to C. B acknowledges to C,
that he holds that amount for him. C can recover the amount from B.
5. Charge created on specific immovable property:
where a charge on a specific immovable property is created for the
benefit of a third party, such a third party, though a stranger to the
contract, can enforce it.
Example: A charge was created on the assets of the company in favor of
debenture holders. Debenture holders being the beneficiaries can enforce
the charge if the company refuses to pay their claims.
6. Assignee of a Contract:
The benefit of a contract may be assigned. The assignee of a contract
can enforce that benefits of a contract though he is not a party to it.
Example: A assigns his insurance policy in favor of his wife. The wife
can enforce it although she is not a party to it.
7. Contract by Agent:
Contracts entered into by an agentacting within scope of his authority
can be enforced by the principal. Thus, a stranger to consideration can
sue to enforce it provided he is a party to the contract, but a person who
is not a party to a contract cannot file a suit in all cases to enofrce any if
the rights arising out of the contract.
8. Collateral Contracts:
A collateral contract between a third party and one of the parties to a
main contract may be associated with the main contract. Such a contract
may enable a third party to enforce the main contract. A manufacturer's
guarantee is an example of such contract collateral to the main contract
of purchase of goods.
9. Multilateral Contracts:
In Multiple contracts, a stranger to contract can sue. In a club or other
unincorporated association one member joining the club or assocation is
deemed to contract with other members. He does so without being aware
of the identity, and although his communication is oly with secretary.
Similarly, where a number of persons agree to enter into a competition
subject to rules, such persons contract not only with the organising club,
but also with each other.
Standard form of Contract:
An organisation prepares a standard form of contracts with fixed terms
and uses the same with the customers. Many contracts entered into by
public utility undertakings like the railways, took the form of a set of
terms fixed in advance leaving no room for any discussion or bargain
between the contracting parties, a 'take it or leave it' offer. Such
contracts were known as 'standard contracts'.
The term 'standard contract' is employed to denote the type of contract of
which the conditions are fixed by one of the parties in advance and are
open to acceptance by any one. In standard form of Contracts, the terms
and conditions are not made by the process of negotiation, between two
parties. One of the parties generally prepares draft of the contract, which
the other party is enabled or made to, or sometimes even deemed to,
agree to. Such contracts have become quite common in out everyday
life.
There is no legal bar on contracting with standard form. If the contract
has been properly entered into with the free consent of both the parties,
there is full understanding of the terms of the contract, and there is no
attempt on the part of the one party to take an undue advantage at the
cost of the other, there would arise a valid contract.
One of the parties being in a greater bargaining position generally drafts
the terms which suit him most, and at times tries to exclude or limit his
liability, without caring for the interest of the other side, who is in a
weaker bargaining position.
In view of the unequal bargaining, power of the two parties, the courts
and the legislatives, have evolved the following remedies or rules to
protect the interests of the weaker party:
1. There should be contractual document.
2. There should be no misrepresentation.
3. There should be a reasonable notice of the contractual terms.
4. Notice should be contemporaneous with the contract.
5. The terms of the Standard Form of Contract should be reasonable.
6. Protection to weaker party.
7. There should be no fundamental breach of contract.
8. No negation of liability
9. Liability towards third party
10. Enactments to give protection to weaker party.