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CHAPTER

Basics of a Contract
1
THIS CHAPTER COMPRISES OF
L What is a Contract L Essential elements of a valid contract L Types of Contract
L Proposal and Offer L Acceptance L Communication of offer L Acceptance and
Performance L Revocation of offer and Acceptance.

Marks of Objective, Short Notes, Distinguish Between, Descriptive & Practical

Questions

* Questions upto November - 2006 are from CA Foundation, PE - II Gr. I and from May - 2007
onwards are from PCC Gr. I
Q&A-2.1
 Q&A-2.2 O Solved Scanner IPCC Gr. I Paper - 2A

™ OBJECTIVE QUESTIONS
State with reason whether the following statements are correct or incorrect :
1998 - May [1] (I) All kinds of obligations created between the parties form part of the
contracts. (2 marks)
Answer :
Incorrect: According to Section 2 (h) an agreement which gives rise to legal obligation
is the one which is enforceable at law. The agreements giving rise to social moral or
domestic obligation cannot be termed as contracts.
1998 - Nov [1] (I) Communication of an offer is complete when the letter is posted
though it has not reached the person to whom the offer is made. (2 marks)
Answer :
Incorrect: Communication of an offer is complete when it comes to the knowledge of
the person to whom it is made, according to Section 4. When the letter containing the
offer is posted, the offer gets completed only when the letter reaches the person to
whom it was made.
1999 - May [1] (I) Where the mode of acceptance is prescribed in the proposal, it need
not be accepted in that manner. (2 marks)
Answer :
Incorrect: Where the mode of acceptance is mentioned in the proposal, then it must be
accepted in that manner only.
1999 - Nov [1] (I) A proposal when accepted becomes a contract. (2 marks)
Answer :
Incorrect: Section 2 (b) of the Act, 1872 which defines the terms acceptance and state
in relation to it that the proposal when accepted becomes a promise. Hence, the
acceptance creates a promise not a contract.
2000 - May [1] (I) Every agreement is necessarily regarded a contract. (2 marks)
Answer :
Incorrect: According to Section 10 of the Indian Contract Act, 1872 an agreement is
regarded as a contract when it is enforceable by law. Hence, every agreement cannot
necessarily be regarded as contract but every contract is an agreement.
2000 - Nov [1] (I) Social agreements are enforceable in the Courts “of India”.
(2 marks)
Answer :
Incorrect: Social agreement are not enforceable in the courts, as they do not
contemplate legal relationship.
2001 - May [1] (i) The proposal should always be communicated to the person to whom
it is made. (2 marks)
 [Chapter # 1] Basics of a Contract O Q&A-2.3

(ii) A tender does not amount to an offer. (2 marks)

Answer :
(i) Correct : Section 4 of the Act states that the communication of a proposal is
complete when it comes to the knowledge of the person to whom it is made.
(ii) Correct : A tender is in the same category as a quotation of price. It is not an
offer. It is simply an invitation to an offer.
2002 - May [1] (i) Communication of acceptance of an offer is complete as against the
acceptor the moment it comes to the knowledge of the offeror. (2 marks)
Answer :
Correct : Section 4 para 2 of the Indian Contract Act, 1872 states that the
communication of acceptance is accomplished as against the acceptor when it comes
to the knowledge of the proposer because it will be then out of the power of the acceptor
to revoke.
2007 - Nov [1] {C} (b) (ii) Pick!up the correct answer from the following :
(a) In case of void agreements, collateral transactions are
(1) Also void
(2) Unenforceable
(3) Not affected
(4) Illegal (1 mark)
Answer :
(3) Not affected
2008 - Nov [1] {C} (c) Pick-up the correct answer from the following and give reasons:
(I) When a person without expressing his final willingness proposes certain terms
on which he is willing to negotiates he makes :
(1) Counter Offer
(2) Standing Offer
(3) Offer
(4) Invitation to an Offer. (1 mark)
Answer :
(I) Counter Offer : When a person without expressing his final willingness
proposes certain terms on which he is willing to negotiate then he makes a
counter offer. Counter offer by the offeree terminates the original offer. When in
place of accepting the terms of an offer as they are, the offeree accepts the
same subject to certain condition or qualification, then a counter offer is said to
be made.

2009 - May [1] {C} (c) Pick out the correct answer from the following and give reasons:
(i) An agreement to subscribe or contribute a plate or prize of the value of ` 500 or
above to be awarded to the winner of a horse race is
 Q&A-2.4 O Solved Scanner IPCC Gr. I Paper - 2A

(1) Void
(2) Valid
(3) Illegal
(4) Unenforceable. (1 mark)
Answer :
(i) Valid: As per Sec. 30 of Indian Contract Act, 1872, an agreement to subscribe
to or contribute a plate or prize of the value of ` 500 or above to be awarded to
the winner of horse race is valid.
2010 - Nov [1] {C} (b) (II) Choose the correct answer from the following and give
reasons.
(iii) Cash is withdrawn by the customer of a bank from the automatic teller machine
is an example of:
(a) express contract
(b) void contract
(c) tacit contract
(d) illegal contract. (1 mark)
Answer :
(c) Tacit contract
Reason : Tacit Contracts are those that are inferred through the conduct of parties.
Hence, this is a tacit contract.
2011 - Nov [6] (c) State whether the following statements are correct or incorrect :
(i) A specific offer can be accepted only by that person to whom offer has been
made. (1 mark)
Answer :
(i) Correct
2012 - May [6] (c) State whether the following statements are correct or incorrect :
(ii) ‘All contracts are agreements, but all agreements may not be contracts’.
(1 mark)
Answer :
(ii) Correct
2012 - Nov [6] (c) State whether the following statements are correct or incorrect:
(i) A proposal may be revoked by the proposer before the posting of the letter of
acceptance by the acceptor. (1 mark)
Answer:
(i) Correct: According to sec. 5 of Indian Contract Act, 1856, an offer can be revoked
any time before its acceptance. We know that for an offeror, the communication of
acceptance is complete when it is put in a course of transmission so as to be out
of the power of the acceptor. It means that an offer may be revoked at any time
before the letter of acceptance is posted by the acceptor.
 [Chapter # 1] Basics of a Contract O Q&A-2.5

™ SHORT NOTES
1998 - May [7] Write short notes on the following :
(a) Kinds of offer. (5 marks)
Answer :
1. Express Offer : When an offer is made by words spoken or written it is called an
express offer.
2. Implied Offer : When an offer is implied by conduct of parties or circumstances of
the case it is called an implied offer.
3. General Offer : When an offer is made to the public at large it is called general
offer. This offer may be accepted by anyone. For example, an offer to give reward
to anybody who finds the lost horse is a general offer. Though the general offer is
made to the public at large, the contract in this case comes to an end when any
person acts upon the conditions of the offer.
4. Specific Offer : Specific offer is an offer, which is made to a specific or an
ascertained person. In this case, the person to whom the offer is made is only liable
to accept the offer.
5. Counter Offer : Counter offer by the offeree terminates the original offer. When in
place of accepting the terms of an offer as they are, the offeree accepts the same
subject to certain condition or qualification, then a counter offer is said to be made.
6. Cross Offer : Where two parties make identical offer to each other, in ignorance
of each others offer, this offer is termed as cross offer. In this case, there is no
contract because out of the two parties no one can be called for acceptance.
7. Standing Offer : When an offer is allowed to remain open for acceptance over a
period of time, it is called standing, open or continuing offer. Tenders are the
example of standing offer.
1999 - May [7] Write short notes on the following :
(c) Executed and executory contracts (5 marks)
Answer :
1. Executed Contract: A contract in which both the parties performed their
respective promises. When a contract has been completely performed, it is termed
as executed contract, i.e. it is a contract where, under the terms of a contract,
nothing remains to be done by either party. A contract may be executed at once i.e.
at the time when it is made. For example, in case of cash sales, the contract is
executed at once. It may become executed in some future date when the terms of
the contract are carried out.
2. Executory contract : A contract in which the promises of both the parties have yet
to be performed. Thus, executory contract is that where under the terms of a
contract something remains to be done by the parties. In other words, where one
or both the parties to the contract have still to perform their obligations in future, the
contract is termed as executory contract.
 Q&A-2.6 O Solved Scanner IPCC Gr. I Paper - 2A

For example : X agreed to sell his car to Y for ` 2,00,000. Car was to be delivered
by X on 20th of next month, and price was to be paid by 30th of that month. It is an
executory contract, as both the parties have to perform their respective obligation
in future.
Suppose X delivered the car on due date i.e. on 20th. The contract is still
executory, because Y is still under obligation to pay the price on 30th of the month.
In such cases, the contract as a whole is executory one, though it may be said that
it is partly executed and partly executory.

™ DISTINGUISH BETWEEN
2000 - Nov [4] (b) Distinguish between :
(I) Void agreement and an Illegal agreement. (5 marks)
Answer :
Distinguish between Void and Illegal Agreements
Basis Void Agreements Illegal Agreements
Scope A void agreement may not be An illegal agreement is always
illegal; being void due to some void.
other factor.
Effect on If an agreement is merely void Collateral transaction to an
collateral and not illegal, the collateral illegal agreements also
transactions transactions to the agreement becomes illegal and hence
may be enforced for execution. cannot be enforced.
Void-ab-intio. V a l i d C o n t r a c t s m a y Illegal agreements are void
subsequently become Void. from the very beginning.
Punishments There is no punishment for a In illegal agreement there are
parties to a void agreement. punishments.

2001 - Nov [6] (b) Distinguish Between :

(ii) Offer and invitation to an offer. (5 marks)
Answer :
1. The offer is made to get the consent of the other party, while invitation of offer is
made to initiate the offer according to the invitation.
2. Offer is made for the purpose of performance, if it is accepted. But there is no
question of performance in invitation of offer.
3. Offer is made either in general or is specific to individual, while invitation of offer
is in general, like a public notice.
4. ‘Offer’ is a request, while invitation of offer is an information in general.
 [Chapter # 1] Basics of a Contract O Q&A-2.7

5. In the former there are two or more parties, while in the latter there is only one
party.
6. The object of the former is to make a contract, while in the latter no contract is
formed, but information is given in general.
7. Communication of offer is necessary, while there is no question of communication
of invitation of offer.

™ DESCRIPTIVE QUESTIONS
1998 - Nov [3] (a) Who is competent to accept an offer? Explain the rules relating to an
offer, as provided in the Indian Contract Act, 1872. (10 marks)
Answer :
Competence to accept an offer : It depends upon the nature of offer :

Legal rules relating to an offer :

(1) An offer must be capable of creating legal relations : An offer must be such that
when accepted it will result in a valid contract. A mere social invitation cannot be
regarded as an offer, because if such an invitation is accepted it will not give rise
to any legal relationship.
(2) The offer must be distinguished from mere statement of intention : The terms
of an offer should be clear so that there is no confusion whether, it is a valid offer
or a mere statement of intention. Sometimes, a person declares that he has the
intention to do something, this does not amount to an offer. Such statements
merely indicate the intentions that an offer will be made in future or an offer will be
invited in future.
(3) The offer must be distinguished from an invitation to receive offer : The terms
of an offer should be clear so that there is no confusion whether it is a valid offer
or an invitations to receive offer. Sometimes, a party does not make an offer but
simply proposes certain terms and invites the other party to make an offer on
proposed terms.
(4) An offer may be express or implied : An express offer is made by words of
mouth or it is written, while an implied offer means an offer made by conduct.
Example of an express offer :–
X says to Y, “Will you purchase my white horse for ` 12,000?”
Example of an implied offer :–
 Q&A-2.8 O Solved Scanner IPCC Gr. I Paper - 2A

A transport company runs buses on a particular route. There is an implied offer

from the transport company to carry passengers on the route who are prepared to
pay the specified fare. The acceptance of the offer is complete as soon as the
passengers board the bus. A passenger who enters the bus also impliedly
promises to pay the prescribed fare.
(5) An offer may be general or specific : A specific offer is one which is made to an
ascertained person. And a general offer is one which is not made to a specific
person, but to the public at large. It may be noted that in case of a general offer, the
contract is not made with the entire world. But it is made only with the person, who
having the knowledge of the offer, comes forward and acts according to the
conditions of the offer.
(6) An offer may be conditional : An offer to be valid may contain a condition and in
that case it has to be accepted along with the condition stated therein. However,
no offer can contain a term or condition the non compliance of which would amount
to acceptance.
(7) The terms of an offer must be certain, definite and not vague : The terms of an
offer must be definite, clear and certain. If the terms of the offer are vague and
uncertain, no contract will come into existence. The reason for the same is that
when the offer is vague or uncertain, it cannot be said what exactly the parties
intended to do.
(8) An offer must be communicated to the other party : It is an important and
essential element of a valid offer. The first part of the definition of the offer,
emphasises this requirement. According to this, the willingness to make offer
should be ‘signified’ (i.e. indicated or declared). In other words, the offer is
completed only when it has been communicated to the offeree. It may be noted that
until the offer is communicated, it cannot be accepted.
Thus, an offer accepted without its knowledge, does not confer any legal rights on
the acceptor.
(9) The offer must be made with a view to obtain the consent of the offeree : The
second part of the definition of offer emphasises the requirement that an offer must
be made with a view to obtain the consent of the offeree to the proposed act or
abstinence. Thus, when a person is making an offer it means that he is making it
with a view to obtain the consent of the offeree. As soon as the offeree accepts it,
the offeror is bound by it.
1999 - May [2] Comment on the following (Give brief answers) :
(b) Offer is lighted match while acceptance is a train of gunpowder. (5 marks)
Answer :
Offer is lighted match while acceptance is a train of gun powder : It is one of the
most important rule relating to acceptance that once the acceptance has been given to
an offer the contract is complete. Anson has described the acceptance in the following
words.
 [Chapter # 1] Basics of a Contract O Q&A-2.9

"Acceptance is to offer what a lighted match is to a train of gun powder." The meaning
of this quotation is that the acceptance does something, which cannot be recalled or
undone. But the powder can be laid till it has become damp. So an offer may lapse for
want of acceptance or withdrawn before acceptance. Acceptance changes the offer into
promise and then it becomes too late to withdraw it.
Thus, in this case gunpowder stands for offer and the lighted match stands for
acceptance. This means that when a lighted match is brought near to a train of
gunpowder, it explodes and cannot be withdrawn. In same way an offer once accepted
cannot be revoked. Thus, no relationship exists between the parties till the offer made
is accepted, but as soon as it is accepted by the offeree, legal relationship is
established between the parties. After the expiry of the reasonable time offer which is
accepted cannot be revoked.
1999 - May [5] Answer the following :
(b) When the revocation of a proposal may be made otherwise than by
communication? (5 marks)
Answer :
Revocation of proposal otherwise than by Communication : According to Sec. 6
a proposal may be revoked otherwise than by communication in any of the following
way :–
1. By lapse of time : According to Section 6(2), a proposal may be revoked by the
lapse of time mentioned in such proposal for its acceptance and if no time is given
then by the lapse of the reasonable time.
2. By non-fulfillment of condition precedent : When the acceptor fails to cover up
the condition precedent to the acceptance of the proposal the proposal is
withdrawn. The proposal gets lapsed on such failure.
3. By death or insanity : As per the Indian law, death or insanity of the proposer,
works as the revocation of the proposal. This happens only when the death or
insanity comes to the knowledge of the acceptor.
4. By counter offer : When a counter offer is made by the offeree, the original offer
comes to an end.
5. By the non-acceptance of the offer according to the prescribed or usual
mode : If an offer is not accepted according to the prescribed or usual mode then
it stands to be revoked.
6. By subsequent illegality : An offer is withdrawn if it becomes illegal after it is
made and before it is accepted.
1999 - Nov [5] Explain the following :
(ii) Offer and invitation to offer. (5 marks)
(v) Consensus - ad - idem. (5 marks)
 Q&A-2.10 O Solved Scanner IPCC Gr. I Paper - 2A

Answer :
(ii) Offer and invitation to offer : 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 known to make an offer or a proposal. An offer
must be capable of creating legal relations and also its terms must be definite.
Offer is distinguished from an invitation to offer. In the case of an invitation
to offer there is no intention on the part of the person sending out the invitation
to obtain the assent of the other person to such invitation. The aim is to circulate
information of his readiness to negotiate business with anybody who on such
information comes to him. Examples of invitation to offer is to display goods in
the shop with the price tags, catalogues with description of goods auction sales,
price list etc.
(v) Consensus -ad-idem : Section 10 of the Act provides the essential elements
of a valid contract. One of the essential elements of a contract is that the parties
to the agreement must agree about the same thing in the same sense and at the
same time. Thus, when the minds of both the parties act identically this means
that they are ad-idem. For example, if A who owns two cars one Ambassador
and the other. Maruti, offers to sell B one car, A intending it to be the
Ambassador, and B, also accepts the offer thinking it to be Ambassador. This
shows that there is consensus-ad-idem and hence, contract exists between the
parties.
2000 - May [2] Explain the following :
(i) An acceptance must be made before the proposal lapses. (5 marks)
Answer :
Lapse of a proposal means end of the proposal.
A proposal is made with a view to obtain assent thereto. When the proposal lapses
or comes to an end the question of accepting it does not arise at all. This is so because,
if the proposal lapses, then there is nothing to accept. Thus, an acceptance should be
made before the proposal lapses.
A valid contract can arise only when the acceptance is given before the offer has
elapsed or withdrawn. An acceptance which is made after the withdrawal of the offer is
invalid, and does not create any legal relationship.
Example : X offered, by a letter, to sell his horse to Y for ` 2500. Subsequently. X
withdrew his offer by a telegram which was also received by Y. After the receipt of this
telegram. Y accepted the offer by a letter, and posted the same. In this case, the
acceptance is invalid as it was made after the effective withdrawal of the offer.
2000 - Nov [3] (a) State the rules relating to `acceptance' of a Contract. (10 marks)
 [Chapter # 1] Basics of a Contract O Q&A-2.11

Answer :
Rules Relating to Acceptance :
1. Acceptance must be given by the person to whom the proposal is made : An
acceptance to be valid must be given only by a person to whom offer has been
given. In other words, acceptance must move from the offeree and no one else.
Example : X offered to sell his house to Y. Here only Y can accept the offer.
However, acceptance can also be given by an Agent on behalf of his principal.
2. Acceptance can be given only when the acceptor has the knowledge of the
offer : Acceptance therefore cannot be given without the knowledge of offer, as in
case of Lalman Shukla Vs Gauri Dutt.
3. The acceptance must be absolute and unconditional : It is another important
essential element of a valid acceptance. A valid contract arises only if the
acceptance is absolute and unconditional. It means that the acceptance should be
in total (i.e. of all the terms of the offer), and without any condition.
Thus, an acceptance with a variation is no acceptance. It is simply a counter
offer. A counter offer puts an end to the original offer, and it cannot be revived by
subsequent acceptance.
Example : X offered to sell his house for ` 1,80,000 to Y. Y wrote a letter stating
that he was prepared to buy it for ` 1,60,000. This is a counter offer, and not
acceptance. Now, if Y accepts the original offer to buy the house for ` 1,80,000, X
will not be bound to sell the house, because B’s counter offer has put an end to the
original offer. [Nihal Chand Vs. Amarnath, AIR 1926 Lah. 645]
If only a part of offer is accepted, then the acceptance is invalid and without
any legal effect.
If the offer is accepted with some condition then also the acceptance is invalid
and without any legal effect.
4. The acceptance must be given within the time prescribed or within a
reasonable time : Sometimes, the time limit is fixed within which an acceptance
is to be given. In such cases, the acceptance must be given within the fixed time
limit. In case, no time is prescribed, the acceptance should be given within a
reasonable time. The term ‘reasonable time’ depends upon the facts and
circumstances of each case.
Example : X applied for shares in a company in July. The allotment (acceptance)
of shares was made in late December. X refused to take shares. It was held that
the allotment of shares was not within a reasonable time, therefore X was not
bound by the allotment.
[Ramsgate Victoria Hotel Co. Vs. Monteflore (1866) LR I Ex. 109]
5. The acceptance must be given before the lapse of offer : A valid contract can
arise only when the acceptance is given before the offer has elapsed or withdrawn.
An acceptance which is made after the withdrawal of the offer is invalid, and does
not create any legal relationship.
 Q&A-2.12 O Solved Scanner IPCC Gr. I Paper - 2A

Example : X offered, by a letter, to sell his horse to Y for ` 2500. Subsequently, X

withdrew his offer by a telegram which was also received by Y. After the receipt of
this telegram. Y accepted the offer by a letter, and posted the same. In this case,
the acceptance is invalid as it was made after the effective withdrawal of the offer.
6. The acceptance must be communicated : It is an important and essential
element of a valid acceptance. The definition of acceptance as given in Sec. 2(b)
emphasises this requirement. According to this, the consent to the offer should be
signified (i.e. indicated or declared). In other words, the acceptance is completed
only when it has been communicated to the offeror. It may be noted that until the
acceptance is communicated, it does not create any legal relations.
Example : X offers to buy Y’s plot of land for ` 10 lakhs. Y discusses the proposal
with Z his own lawyer, and agrees to sell the plot for ` 10 lakh. But Y does not
communicate the acceptance to X. In this case, no contract comes into existence
between X and Y.
Thus, a mere mental determination to accept is not acceptance unless it is
accompanied by an external indication. The requirement is that there should be
some external manifestation of acceptance.
7. The acceptance must be communicated to the offeror himself : A valid
contract arises only if the acceptance is communicated to the offeror himself. If
acceptance is communicated to the person, other than the offeror, it will not create
any legal relationship. In fact, such communication is no communication at all.
Example : X offered to purchase Y’s horse and wrote a letter saying, “If I hear no
more about the horse. I shall consider the horse mine at £35". To this letter no reply
was sent, but Y instructed Z an auctioneer, not to sell the horse as it was already
sold to X. By mistake, Z put up the horse for auction and sold it. X filed a suit
against Z on the ground that under the contract the horse had becomes his
property and Z is liable for conversion of his property. But his action failed. In this
case X in his own mind accepted the offer. But he had not communicated his
acceptance to Y. [Felthouse Vs. Bindley (1863) 7 LT 835]
However, if the offer is made by an agent on behalf of his principal, then the
acceptance may be communicated, either to the principal or his agent.
8. The acceptance must be in the prescribed manner : It is the legal rule of the
acceptance that it must be accepted in the prescribed manner. If the offer is not
accepted in the prescribed manner, then the offeror may reject the acceptance
within reasonable time. It may, however, be noted that, if the offeror does not reject
the acceptance within a reasonable time then he becomes bound by acceptance.
[Sec. 7(2)]
Example : X offered through a letter, to sell his car to Y for ` 2,70,000. He also
wrote that it should be accepted by letter only. Y instead of writing a letter, sent his
authorised agent to X conveying the message that he has accepted the offer. Y’s
acceptance is not in the prescribed manner. X may reject it within reasonable time.
 [Chapter # 1] Basics of a Contract O Q&A-2.13

But if he does not reject within reasonable time, he shall be deemed to have
accepted the acceptance, and a valid contract will arise between X and Y.
9. The acceptance must be given in some usual and reasonable manner : It is
another important legal rule of an acceptance that where no mode is prescribed,
acceptance must be given in some usual and reasonable manner. In such cases,
the mail course is considered, a very reasonable manner.
[Dunlop Vs. Higgins (1848) I HLC 381]
10. The acceptance must show an intention that acceptor is willing to fulfil the
terms of the offer: A valid contract can arise only when the acceptance is given
with the intention of fulfilling the terms of the contract. An acceptance which is
made jokingly and without any intention of entering into a contract, is invalid and
does not create any legal relationship.
11. The acceptance may be express or implied : An acceptance, which is expressed
by words written or spoken, is called an express acceptance. [Sec 9]
Example : X wrote to Y in a letter, “I want to sell my black horse for ` 12,000".Y
replied by a letter “I am ready and willing to buy your black horse for ` 12,000".
Here B’s acceptance is express acceptance as it is made in writing. Acceptance
is implied when it is inferred from the conduct of the parties.
Example : At an auction sale of a car, X is the highest bidder. The auctioneer
accepts the bid (i.e. offer) by striking the hammer on the table. It is an implied
acceptance. Here, auctioneer’s conduct of striking the hammer on the table shows
that the auctioneer has accepted the highest bid.
12. The acceptance cannot be presumed from silence : Sometimes, the acceptor
does not convey his decision to the offeror/and keeps silent. In such a case, his
silence does not amount to acceptance. Similarly, the offeror does not have the
legal rights to say that if no answer is received within a certain time, the offer shall
be deemed to have been accepted.
He (the offeror) cannot impose a condition that offeree’s silence will be
regarded as equivalent to acceptance. [Felthouse Vs. Bindley (1863) 7 LT 835].
Example : X offered his car to Y for ` 95,000, and wrote that if he did not hear from
him (Y) within a week, he would assume that he has accepted offer. No reply was
given by Y. In this case, no valid contract is concluded between X and Y.
2001 - Nov [2] Briefly answer the following :
(c) Ratification tantamounts to acceptance. (5 marks)
Answer :
Ratification tantamounts to acceptance : Ratification is done subsequent to the
performance of the act by a person without the approval of the prior authority. Thus it
is an agency arising after the happening of some event where a person acts for some
one but without his knowledge or authority and the other person subsequently accepts
the act or ratifies it. This means that he is accepting the right and liabilities of the act.
 Q&A-2.14 O Solved Scanner IPCC Gr. I Paper - 2A

Ratification is mostly done by the principal to undertake the liability of a person who
pretends to act.
Ratification relates back to the original date of the act ratified.
Example : Suppose A makes an offer to B which C accepted in B's name without
authority and afterwards B ratified his acceptance. The offer will be deemed to have
been accepted by B on the date in which C had accepted it, Further. A cannot withdraw
the offer between the date of acceptance and ratification by B.
2001 - Nov [5] Briefly answer the following :
(a) When is the communication of an offer and acceptance through post complete?
(5 marks)
Answer :
According to Section 4 of the Indian Contract Act,1872 communication of an offer is
complete through post when the letter containing the offer reaches the offeree.
Communication of Acceptance has two aspects :
1. As against the proposer, the communication of acceptance is complete when it is
put in the course of transmission to him, so as to be out of the control of the
acceptor.
2. As against the acceptor, communication of acceptance is complete when it comes
to the knowledge of the proposer
Thus, an offer can be withdrawn before the duly addressed letter of acceptance is
put in the course of transmission and not after that. It is of no matter whether letter of
acceptance reaches the other part or is lost in transit. The acceptance can be withdrawn
till the letter of acceptance actually reaches the offeror and he learns of its contents.

2002 - May [5] Briefly answer the following :

(a) When does an offer come to an end? (5 marks)
Answer :
Lapse of an offer means end of an offer. An offer should be accepted before it lapses
(i.e. comes to an end). An offer may come to an end in any of the following ways stated
in sec 6 of the Indian Contract. Act.
1. By communication of notice of revocation : An offer may come to an end by
communication of notice of revocation by the offeror. It may be noted that an offer
can be revoked only before its acceptance is complete for the offeror. In other
words, an offeror can revoke his offer at any time before he becomes bound by it.
Thus, the communication of revocation of offer should reach the offeree before the
acceptance is communicated. A notice of revocation will take effect only when it is
brought to the knowledge of the offeree. It may be noted that notice of revocation
must come from offeror or his duly authorised agent.
 [Chapter # 1] Basics of a Contract O Q&A-2.15

Example : X offered, by a letter, to sell his T.V. to Y for ` 15,000. The letter was
posted on 11th January, which reached Y on 14th January. Subsequently, X
changed his mind and sent a telegram on 14th January, revoking the offer which
reached Y on 15th January. However, Y accepted the offer and posted the letter of
acceptance on 16th January. In this case, acceptance is ineffective, because the
offer is validly revoked as Y had received the notice of revocation before he posted
his letter of acceptance.
2. By lapse of time : Sometimes, the time is fixed for the acceptance of the offer, and
it is not accepted within the fixed time. In such cases, the offer comes to an end
automatically on the expiry of fixed time.
Example : X offered on Thursday to sell wheat to Y. Three days time was given to
Y for acceptance. Y accepted the offer on Monday, but by that time X had already
sold the wheat after waiting for the allowed period of three days. It was held that
the offer had lapsed, and X was not bound by the acceptance.
[Head Vs. Diggon (1828) 2 M & R 97]
Where no time for acceptance is prescribed, the offer has to be accepted
within reasonable time. The offer lapses if it is not accepted within that time. The
term ‘reasonable time’ will depend upon the facts and circumstances of each case.
Example : X applied for shares of a company in June. The allotment (acceptance)
was made in November. It was held that the offer to take shares had lapsed as the
reasonable time had passed since the making of the offer, and X was not bound
to take shares.
[Ramsgate Victoria Hotel Co. Vs. Montefoir (1866) LR & Ex Ch. 109]
3. By failure to accept condition precedent : Sometimes, the offer requires that
some condition must be fulfilled before the acceptance of the offer. In such cases,
the offer lapses, if it is accepted without fulfilling the condition.
Example : X offered to sell his bike to Y for ` 14,000 subject to the condition that
Y should pay advance of ` 4,000 before certain date. Y accepted the offer but did
not send the advance of ` 4,000. In this case, the offer stands lapsed as the
advance is not paid.
4. By the death or insanity of the offeror : Sometimes, the offeror dies or becomes
insane. In such cases, the offer comes to an end if the fact of his death or insanity
comes to the knowledge of the acceptor before he makes his acceptance. But if the
offer is accepted in ignorance of the fact of death or insanity of the offeror, the
acceptance is valid. This will result in a valid contract, and legal representatives of
the deceased offeror shall be bound by the contract. It will be interesting to know
that there is no provision in the Indian Contract Act about the effect of the death of
an offeree, if he dies before acceptance. But it is an established rule, that the offer
comes to an end by operation of law, because death automatically bring about the
 Q&A-2.16 O Solved Scanner IPCC Gr. I Paper - 2A

termination of the offer. As an offer can be accepted only by an offeree and not by
any other person, therefore it cannot be accepted by his executors also.
In addition to the modes stated in Sec. 6, an offer is also revoked in the following
cases.
5. By counter-offer by the offeree : Sometimes, a counter-offer is made by the
offeree. In such cases, the original offer automatically comes to an end, as the
counter-offer amounts to rejections of the original offer.
Example : X offered to sell a farm to Y for ` 1,00,000. But Y offered to buy it for
` 95,000. X refused to sell for ` 95,000. Subsequently, Y offered to purchase the
farm for ` 1,00,000. It was held that no contract came into existence as Y, by
offering ` 95,000, had rejected the original offer. In fact, the counter-offer to an offer
amounts to the rejection of the original offer.
[Based on Hyde Vs. Wrench (1840) 3 Beav. 334]
6. By not accepting the offer, according to the prescribed or usual mode :
Sometimes, some manner of acceptance is prescribed in the offer. In such cases,
the offeror can revoke the offer if it is not accepted according to the prescribed
manner. It may be noted that within a reasonable time offeror should give notice
to the offeree that the offer should be accepted in the prescribed manner, and not
otherwise.
7. By rejection of offer by the offeree : Sometimes, the offeree rejects the offer. In
such cases, the offer comes to an end. Once the offeree rejects the offer, he
cannot revive the offer by subsequently attempting to accept it. The rejection of
offer may be express or implied. Express rejection is that where the offeree rejects
the offer by words, written or spoken. Implied rejection is that where offeree’s
conduct shows that he is not accepting the offer e.g. where the offeree makes a
counter-offer, or where he gives conditional acceptance.
8. By change in law : Sometimes, there is a change in law which makes the offer
illegal or incapable of performance. In such cases also, the offer comes to an end.
2003 - May [2] (a) Explain the general rules of relating to "Acceptance" under the Indian
Contract Act, 1872. (6 marks)
Answer :
Please refer 2000 - Nov [3] (a) on page no. 23
2012 - May [1] {C} (a) Explain in brief the rules relating to ‘acceptance’ of an offer under
the provisions of the Indian Contract Act, 1872. (5 marks)
Answer :
Please refer 2000 - Nov [3] (a) on page no. 23
 [Chapter # 1] Basics of a Contract O Q&A-2.17

™ PRACTICAL QUESTIONS
2004 - May [1] {C} Answer the following:
(a) Shambhu Dayal started "self service" system in his shop. Smt. Prakash entered
the shop, took a basket and after taking articles of her choice into the basket
reached the cashier for payments. The cashier refuses to accept the price. Can
Shambhu Dayal be compelled to sell the said articles to Smt. Prakash? Decide.
(4 marks)
Answer :
Invitation to Offer : The offer should be differentiated from an invitation to offer. An
offer is the last expression of willingness by the offeror to be bound by his offer when
the party decided to accept it . In case the party fails to express his last willingness and
proposes certain terms on which he is ready to negotiate, in the he does not make an
offer, but invites other party to make the offer on those terms. Thus this is the difference
between the two.
In the above problem, the display of articles with a price in it in a self-service shop
is simply an invitation to offer. It is in no sense an offer for sale, the acceptance of which
constitutes the contract. In this case, Smt. Prakash who has selected some articles and
approaches the cashier for payment, simply made an offer to buy the articles selected
by her. If the cashier refuses to accept the price, the interested buyer cannot force him
to sell. [Fisher Vs Bell (1961)]

2005 - May [1] {C} Answer the following:

(a) Father promised to pay his son a sum of ` one lakh if the son passed C.A.
examination in the first attempt. The son passed the examination in the first
attempt, but father failed to pay the amount as promised. Son files a suit for
recovery of the amount. State along with reasons whether son can recover the
amount under the Indian Contract Act, 1872. (4 marks)
Answer :
According to the provisions of the Indian Contract Act, 1872 the problem asked in the
question is based on Section 10 of the Act. As per the provision, the parties must intend
their agreement to result in legal relations. Agreements of a social or domestic nature
do not contemplate legal relationship and, as such are not contract and it cannot be
enforced by the law. The leading case on this point is Balfour vs. Balfour (1912 2KB.
571). Thus by applying the above provisions in the case it was held that the son cannot
recover the amount of ` 1 lakh from the father, because of the reason explained above.
2006 - May [1] {C} Answer of the following :
(a) Ramaswami proposed to sell his house to Ramanathan. Ramanathan sent his
acceptance by post. Next day, Ramanathan sends a telegram withdrawing his
acceptance. Examine the validity of the acceptance in the light of the following :
 Q&A-2.18 O Solved Scanner IPCC Gr. I Paper - 2A

(i) The telegram of revocation of acceptance was received by Ramaswami before

the letter of acceptance.
(ii) The telegram of revocation and letter of acceptance both reached together.
(5 marks)
Answer :
Communication of an acceptance is complete :
(i) As against the proposer, when it is put in course of transmission to him so as
to be out of the power the acceptor to withdraw the same
(ii) As against the acceptor, when it comes to the knowledge of the proposer.
When a proposal is accepted by a letter sent by post, the communication of
acceptance will be complete as against the proposer when the letter of acceptance is
posted as against the acceptor when the letter reaches the proposer.
(i) In this case, the revocation of acceptance will be valid as the telegram of
revocation reaches before the letter of acceptance. The acceptance as such will
not be valid.
(ii) If the telegram of revocation and letter of acceptance both reach together then
its validity will be judged by the letter which ever is first read.
2013 - May [1] {C} (a) Mr. D started “Self-Service,” system in his shop. Mr. A entered
the shop, took a basket and after taking article of his choice into the basket reached the
cashier for payments. The cashier refused to accept the price. Can Mr. D be compelled
by Mr. A to sell the said article? Decide. (5 marks)
Answer:
Please refer 2004 - May [1] {C} (a) on page no.29

Table Showing Marks of Compulsory Questions

Year 09 09 10 10 11 11 12 12 13 13
M N M N M N M N M N
Objective 1 1
Descriptive 5
Practical 5
Total 1 1 5