Essentials of valid consideration

Consideratipon Definition

Consideration is the price of the contract and it can be right, interest or responsibility etc. According to section 2(d) of the Indian Contract Act “when at the desire of the promisor, promisee or any other person has done or abstained from doing or does or abstains from doing or promises to do or to abstain from doing something, such act or abstinence, or promise is called a consideration for the promise.”.

Essentials

1. Something should be done or abstained from doing at the desire of the promisor only.
2. Promisee or any other person has done or abstained from doing something at the desire of the promisor.
3. It can be Past, Present or Future.
4. It is not necessary that Consideration must be adequate.
5. Consideration must be Real and Not Illusory or Impossible.
6. It must be Lawful.

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Revocation of Offer and Acceptance

If there are specific requirements governing the making of an offer and the acceptance of that offer, we also have specific law governing their revocation.
In term of Section 4, communication of revocation (of the proposal or its acceptance) is complete.

(i) as against the person who makes it when it is put into a course of transmission to the person to whom
it is made so as to be out of the power of the person who makes it, and
(ii) as against the person to whom it is made, when it comes to his knowledge.

Ordinarily, the offeror can revoke his offer before it is accepted. If he does so, the offeree cannot create a contract by accepting the revoked offer.
Example 58: the bidder at an auction sale may withdraw (revoke) his bid (offer) before it is accepted by the auctioneer by fall of hammer.

Modes of revocation of offer
(i) By notice of revocation:
Example 61: A offered B to sell goods at Rs. 5,000 through a post but before B could accept the offer
A received highest bid for the goods from C. So, A revoked the offer to B by informing B over the
telephone and sold goods to C.
(ii) By lapse of time: The time for acceptance can lapse if the acceptance is not given within the specified
time and where no time is specified, then within a reasonable time. This is for the reason that proposer
should not be made to wait indefinitely.
(iii) By non-fulfilment of condition precedent: Where the acceptor fails to fulfill a condition precedent to
acceptance the proposal gets revoked. This principle is laid down in Section 6 of the Act. The offeror for
instance may impose certain conditions such as executing a certain document or depositing certain
amount as earnest money. Failure to satisfy any condition will result in lapse of the proposal. As stated
earlier ‘condition precedent’ to acceptance prevents an obligation from coming into existence until the
condition is satisfied. Suppose where ‘A’ proposes to sell his house to be ‘B’ for ` 5 lakhs provided ‘B’
leases his land to ‘A’. If ‘B’ refuses to lease the land, the offer of ‘A’ is revoked automatically.
(iv) By death or insanity: Death or insanity of the proposer would result in automatic revocation of the
proposal but only if the fact of death or insanity comes to the knowledge of the acceptor.
(v) By counter offer
(vi) By the non-acceptance of the offer according to the prescribed or usual mode
(vii) By subsequent illegality:

Communication of performance

We have already discussed that in terms of Section 4 of the Act, communication of a proposal is complete when it comes to the knowledge of the person to whom it is meant. As regards acceptance of the proposal, the same would be viewed from two angles. These are:
(i) from the viewpoint of proposer and
(ii) the other from the viewpoint of acceptor himself
From the viewpoint of proposer, when the acceptance is put in to a course of transmission, when it would be out of the power of acceptor. From the viewpoint of acceptor, it would be complete when it comes to the knowledge of the proposer.

At times the offeree may be required to communicate the performance (or act) by way of acceptance. In this case it is not enough if the offeree merely performs the act but he should also communicate his performance unless the offer includes a term that a mere performance will constitute acceptance.

Communication of Offer and Acceptance

One important common requirement for both ‘offer’ and ‘acceptance’ is their effective communication. Effective and proper communication prevents avoidable revocation and misunderstanding between parties.

When the contracting parties are face-to-face, there is no problem of communication because there is
instantaneous communication of offer and acceptance. In such a case the question of revocation does not arise since the offer and its acceptance are made instantly.

The difficulty arises when the contracting parties are at a distance from one another and they utilise the services of the post office or telephone or email (internet). In such cases, it is very much relevant for us to know the exact time when the offer or acceptance is made or complete.
The Indian Contract Act, 1872 gives a lot of importance to “time” element in deciding when the offer and
acceptance is complete.
Communication of offer: In terms of Section 4 of the Act, “the communication of offer is complete when it comes to the knowledge of the person to whom it is made”
Example 54: Where ‘A’ makes a proposal to ‘B’ by post to sell his house for ` 5 lakhs and if the letter containing the offer is posted on 10th March and if that letter reaches ‘B’ on 12th March the offer is said to have been communicated on 12th March when B received the letter.

Mere receiving of the letter is not sufficient, he must receive or read the message contained in the letter.

In terms of Section 4 of the Act, it is complete,
(i) As against the proposer, when it is put in the course of transmission to him so as to be out of the power of the acceptor to withdraw the same;
(ii) As against the acceptor, when it comes to the knowledge of the proposer.
Where a proposal is accepted by a letter sent by the post, the communication of acceptance will be complete as against the proposer when the letter of acceptance is posted and as against the acceptor when the letter reaches the proposer.
For instance in the above example, if ‘B’ accepts, A’s proposal and sends his acceptance by post on 14th, the communication of acceptance as against ‘A’ is complete on 14th, i.e. when the letter is posted. As against ‘B’ acceptance will be complete, when the letter reaches ‘A’.

Essential of a valid offer

1. It must be capable of creating legal relations: Offer must be such as in law is capable of being
   accepted and giving rise to legal relationship. If the offer does not intend to give rise to legal
   consequences and creating legal relations, it is not considered as a valid offer in the eye of law. A social
   invitation, even if it is accepted, does not create legal relations because it is not so intended.
2. It must be certain, definite and not vague: If the terms of an offer are vague or indefinite, its
   acceptance cannot create any contractual relationship. Thus, where A offers to sell B 100 quintals of oil,

there is nothing whatever to show what kind of oil was intended. The offer is not capable of being
accepted for want of certainty.

3. It must be communicated to the offeree: An offer, to be complete, must be communicated to the
   person to whom it is made, otherwise there can be no acceptance of it. Unless an offer is communicated,
   there can be no acceptance by it. An acceptance of an offer, in ignorance of the offer, is not acceptance
   and does not confer any right on the acceptor.
   This can be illustrated by the landmark case of Lalman Shukla v. GauriDutt
   Facts: G (Gauridutt) sent his servant L (Lalman) to trace his missing nephew. He then announced that
   anybody who traced his nephew would be entitled to a certain reward. L traced the boy in ignorance of
   this announcement. Subsequently when he came to know of the reward, he claimed it. Held, he was not
   entitled to the reward, as he did not know the offer.
4. It must be made with a view to obtaining the assent of the other party: Offer must be made with a
   view to obtaining the assent of the other party addressed and not merely with a view to disclosing the
   intention of making an offer.
5. It may be conditional: An offer can be made subject to any terms and conditions by the offeror.
   Example 39: Offeror may ask for payment by RTGS, NEFT etc. The offeree will have to accept all the
   terms of the offer otherwise the contract will be treated as invalid.
6. Offer should not contain a term the non-compliance of which would amount to acceptance: Thus,
   one cannot say that if acceptance is not communicated by a certain time the offer would be considered
   as accepted.
   Example 40: A proposes B to purchase his android mobile for `5000 and if no reply by him in a week,
   it would be assumed that B had accepted the proposal. This would not result into contract.
7. The offer may be either specific or general: Any offer can be made to either public at large or to the
   any specific person. (Already explained in the heading types of the offer)
8. The offer may be express or implied: An offer may be made either by words or by conduct.
   Example 41: A boy starts cleaning the car as it stops on the traffic signal without being asked to do so,
   in such circumstances any reasonable man could guess that he expects to be paid for this, here boy
   makes an implied offer.
9. Offer is Different from a mere statement of intention, an invitation to offer, a mere communication
   of information, Casual Equity, A prospectus and Advertisement.

Classification of Offer or Proposal

Classification of offer
An offer can be classified as general offer, special/specific offer, cross offer, counter offer, standing/ open/
continuing offer.

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

(b) Special/specific offer: When the offer is made to a specific or an ascertained person, it is known as a
specific offer. Specific offer can be accepted only by that specified person to whom the offer has been
made. [Boulton v. Jones]
Example 36: ‘A’ offers to sell his car to ‘B’ at a certain cost. This is a specific offer.

(c) Cross offer: When two parties exchange identical offers in ignorance at the time of each other’s offer,
the offers are called cross offers. There is no binding contract in such a case because offer made by a
person cannot be construed as acceptance of the another’s offer.
Example 37: If A makes a proposal to B to sell his car for 2 lacs and B, without knowing the proposal of A, makes an offer to purchase the same car at 2 lacs from A, it is not an acceptance, as B was not
aware of proposal made by A. It is only cross proposal (cross offer). And when two persons make offer
to each other, it cannot be treated as mutual acceptance. There is no binding contract in such a case.

(d) Counter offer: When the offeree offers to qualified acceptance of the offer subject to modifications and variations in the terms of original offer, he is said to have made a counter offer. Counter-offer amounts to rejection of the original offer. It is also called as Conditional Acceptance.
Example 38: ‘A’ offers to sell his plot to ‘B’ for 10 lakhs. ’B’ agrees to buy it for 8 lakhs. It amounts to counter offer. It will result in the termination of the offer of ’A’. If later on ‘B’ agrees to buy the plot for 10 lakhs, ’A’ may refuse.

(e) Standing or continuing or open offer: An offer which is allowed to remain open for acceptance over a
period of time is known as standing or continuing or open offer. Tenders that are invited for supply of
goods is a kind of standing offer.

Meaning and Definition of Offer/Proposal Sec 2(a)

Definition of Offer/Proposal:
According to Section 2(a) of the Indian Contract Act, 1872, “when one person signifies to another his
willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal”.
Analysis of the above definition
Essentials of a proposal/offer are-

1. The person making the proposal or offer is called the ‘promisor’ or ‘offeror’: The person to whom
   the offer is made is called the ‘offeree’ and the person accepting the offer is called the ‘promisee’ or
   ‘acceptor’.
2. The person making the proposal or offer is called the ‘promisor’ or ‘offeror’: The person to whom
   the offer is made is called the ‘offeree’ and the person accepting the offer is called the ‘promisee’ or
   ‘acceptor’.

2. For a valid offer, the party making it must express his willingness ‘to do’ or ‘not to do’ something:
   There must be an expression of willingness to do or not to do some act by the offeror.
   Example 31: A willing to sell his good at certain price to B.
   Example 32: A is willing to not to dance in a competition if B pays him certain sum of money.
3. The willingness must be expressed with a view to obtain the assent of the other party to whom
   the offer is made.
   Example 33: Where ‘A’ tells ‘B’ that he desires to marry by the end of 2019, it does not constitute an
   offer of marriage by ‘A’ to ‘B’. Therefore, to constitute a valid offer expression of willingness must be
   made to obtain the assent (acceptance) of the other. Thus, if in the above example, ‘A’ further adds,
   ‘Will you marry me’, it will constitute an offer.
4. An offer can be positive as well as negative: Thus “doing” is a positive act and “not doing”, or
   “abstinence” is a negative act; nonetheless both these acts have the same effect in the eyes of law.
   Example 34: A offers to sell his car to B for ` 3 lacs is an act of doing. So in this case, A is making an
   offer to B.
   Example 35: When A ask B after his car meets with an accident with B’s scooter not to go to Court and
   he will pay the repair charges to B for the damage to B’s scooter; it is an act of not doing or abstinence.

Classification of contracts on the basis of the performance of the contract

On the basis of the performance of the contract

1. Executed Contract: The consideration in a given contract could be an act or forbearance. When
   the act is done or executed or the forbearance is brought on record, then the contract is an
   executed contract.

Example 27: When a grocer sells a sugar on cash payment it is an executed contract because
both the parties have done what they were to do under the contract.

2. Executory Contract: In an executory contract the consideration is reciprocal promise or
   obligation. Such consideration is to be performed in future only and therefore these contracts
   are described as executory contracts.
   Example 28: Where G agrees to take the tuition of H, a pre-engineering student, from the next
   month and H in consideration promises to pay G 1,000 per month, the contract is executory because it is yet to be carried out. Unilateral or Bilateral are kinds of Executory Contracts and are not separate kinds. (a) Unilateral Contract: Unilateral contract is a one sided contract in which one party has performed his duty or obligation and the other party’s obligation is outstanding. Example 29: M advertises payment of award of 5000 to any one who finds his
   missing boy and brings him. As soon as B traces the boy, there comes into existence
   an executed contract because B has performed his share of obligation and it remains
   for M to pay the amount of reward to B. This type of Executory contract is also called
   unilateral contract.
   (b) Bilateral Contract: A Bilateral contract is one where the obligation or promise is
   outstanding on the part of both the parties.
   Example 30: A promises to sell his plot to B for 1 lacs cash down, but B pays only 25,000 as earnest money and promises to pay the balance on next Sunday. On the
   other hand, A gives the possession of plot to B and promises to execute a sale deed
   on the receipt of the whole amount. The contract between the A and B is executory
   because there remains something to be done on both sides. Such Executory
   contracts are also known as Bilateral contracts.

Classification of contract on the basis of the formation

1. Express Contracts: A contract would be an express contract if the terms are expressed by
   words or in writing. Section 9 of the Act provides that if a proposal or acceptance of any promise
   is made in words, the promise is said to be express.
   Example 23: A tells B on telephone that he offers to sell his house for ` 2 lacs and B in reply
   informs A that he accepts the offer, this is an express contract.
2. Implied Contracts: Implied contracts in contrast come into existence by implication. Most often
   the implication is by action or conduct of parties or course of dealings between them. Section 9
   of the Act contemplates such implied contracts when it lays down that in so far as such proposal
   or acceptance is made otherwise than in words, the promise is said to be implied.
   Example 24: Where a coolie in uniform picks up the luggage of A to be carried out of the railway
   station without being asked by A and A allows him to do so, it is an implied contract and A must
   pay for the services of the coolie detailed by him.
   Example 25: A drinks a coffee in restaurant. There is an implied contract that he should pay
   for the price of coffee.
   Tacit Contracts: The word Tacit means silent. Tacit contracts are those that are inferred
   through the conduct of parties without any words spoken or written. A classic example of tacit
   contract would be when cash is withdrawn by a customer of a bank from the automatic teller
   machine [ATM]. Another example of tacit contract is where a contract is assumed to have been
   entered when a sale is given effect to at the fall of hammer in an auction sale. It is not a separate
   form of contract but falls within the scope of implied contracts.
3. Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is
   created by law under certain circumstances. The law creates and enforces legal rights and
   obligations when no real contract exists. Such obligations are known as quasi-contracts. In other
   words, it is a contract in which there is no intention on part of either party to make a contract
   but law imposes a contract upon the parties.
   Example 26: Obligation of finder of lost goods to return them to the true owner or liability of
   person to whom money is paid under mistake to repay it back cannot be said to arise out of a
   contract even in its remotest sense, as there is neither offer and acceptance nor consent. These
   are said to be quasi-contracts.
4. E-Contracts: When a contract is entered into by two or more parties using electronics means,
   such as e-mails is known as e-commerce contracts. In electronic commerce, different
   parties/persons create networks which are linked to other networks through ED1 – Electronic
   Data Inter change. This helps in doing business transactions using electronic mode. These are
   known as EDI contracts or Cyber contracts or mouse click contracts.

Classification of contracts on the basis of validity

On the basis of the validity

1. Valid Contract: An agreement which is binding and enforceable is a valid contract. It contains
   all the essential elements of a valid contract.
   Example 17: A ask B if he wants to buy his bike for Rs.10,000. B agrees to buy bike. It is
   agreement which is enforceable by law. Hence, it is a valid contract.
2. Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable by
   law becomes void when it ceases to be enforceable”. Thus a void contract is one which cannot
   be enforced by a court of law.
   Example 18: Mr. X agrees to write a book with a publisher. Such contract is valid. But after few
   days, X dies in an accident. Here the contract becomes void due to the impossibility of performance of the contract. Thus, a valid contract when cannot be performed because of some uncalled happening becomes void. Example 19: A contracts with B (owner of the factory) for the supply of 10 tons of sugar, but before the supply is effected, the fire caught in the factory and everything was destroyed. Herethe contract becomes void. It may be added by way of clarification here that when a contract is void, it is not a contract at all but for the purpose of identifying it, it has to be called a [void] contract.

3. Voidable Contract: Section 2(i) defines that “an agreement which is enforceable by law at
   the option of one or more parties thereto, but not at the option of the other or others is a
   voidable contract”.
   This in fact means where one of the parties to the agreement is in a position or is legally entitled
   or authorized to avoid performing his part, then the agreement is treated and becomes voidable.
   Such a right might arise from the fact that the contract may have been brought about by one of
   the parties by coercion, undue influence, fraud or misrepresentation and hence the other party
   has a right to treat it as a voidable contract.
   Example 20: X promise to sell his scooter to Y for ` 1 Lac. However, the consent of X has been
   procured by Y at a gun point. X is an aggrieved party and the contract is voidable at his option
   but not on the option of Y. It means if X accepts the contract, the contract becomes a valid
   contract then Y has no option of rescinding the contract.
4. 4. Illegal Contract: It is a contract which the law forbids to be made. The court will not enforce such a contract but also the connected contracts. All illegal agreements are void but all void agreements are not necessarily illegal. Despite this, there is similarity between them is that in both cases they are void ab initio and cannot be enforced by law. Example 21: Contract that is immoral or opposed to public policy are illegal in nature. Similarly, if R agrees with S, to purchase brown sugar, it is an illegal agreement. According to Section 2(g) of the Indian Contract Act, “an agreement not enforceable by law is void”. The Act has specified various factors due to which an agreement may be considered as void agreement. One of these factors is unlawfulness of object and consideration of the contract i.e. illegality of the contract which makes it void.
5. Unenforceable Contract: Where a contract is good in substance but because of some technical defect i.e. absence in writing, barred by limitation etc. one or both the parties cannot sue upon it, it is described as an unenforceable contract. Example 22: A bought goods from B in 2015. But no payment was made till 2019. B cannot sue A for the payment in 2019 as it has crossed three years and barred by Limitation Act. A good debt becomes unenforceable after the period of three years as barred by Limitation Act.