contracts
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This chapter provides an introduction to the general principles of contract law. Contract law carries 15 marks in the All India Bar Exam – this includes general principles of contracts, special contracts (pledge, bailment, agency, guarantee and indemnity), specific relief, transfer of property and negotiable instruments. This chapter discusses the general principles of contract law. For reference to the other areas of contract law, please refer to the other study materials and quizzes. 

What is a contract and how is it made? 

(a) 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/ offer. 

(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise: 

(c) The person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee” 

(d) When, at the desire of the promisor, the 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: 

(e) Every promise and every set of promises, forming the consideration for each other, is an agreement and an agreement enforceable by law is a contract

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What kind of obligation does it involve and why do people fulfil a contract and the role of law in fulfilling contract 

  • Formation of contract leads to legal obligations enforceable by a court of law. Breach of contract has legal implication. If one of the parties does not abide by the contract, the other party can go to the court of law for the enforcement of contract. 
  • In case of breach of contract, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. The aggrieved party can go to the court of law to seek damages if the defaulting party refuses to pay damages. 

Do we enter into contracts in our daily life? 

We enter into contract in our day to day life. 

Example of contract – Contract between A and B in which A agrees to sell his house to B. 

A contract can be oral or inferred from conduct. For example, do we enter into contract when we board public transport or buy potato from the market? This is an example of an implied contract contract (we’ll discuss this more in detail below). 

Does entering into a contract means signing of a document? 

Contract can be either oral or written. A contract can be by words of mouth or via written document. It’s not necessary that a contract has to be in written form only. 

Many contracts which are of a particular are required to be in writing or they may even require registration. Some contracts may require attestation, that is, a third person (usually understood as a witness) has seen the parties put their signature to it. For example, an arbitration agreement must be made in writing. Similarly, a transfer of any immovable property (e.g. a house) which is more than Rs. 100 must be registered. 

Intention to create Legal Relationship 

It is important that those who enter into a contract do so as a matter of serious business. They should mean to enter into a contract. The test is, ‘whether the parties were willing to be bound by a legal obligation’ when they purportedly entered into a contract. Therefore, if Nostradamus threatens to commit suicide if not given a sports car and to stop him his mother promises to buy him a Ferrari, that does not create a binding 

obligation as his mother did not mean to be legally bound by the promise. The promise was made to calm him down. 

Maya is told by Angelu that he absolutely loves her and they must enter into a romantic relationship. He really means it from the bottom of his heart. Is there an intention on part of Angelu to enter into a legal relationship? 

How is the intention to be identified? 

If a person expects to gain or obtain a real service and makes a promise on such expectation, it is a hallmark that he has an intention to be legally bound. Similarly, generally an advertisement would purport that there is an intention to be legally bound by the promise. 

Offer 

For the formation of contract, an offer has to be made first. ‘When one person signifies* to another his willingness* to do or abstain from doing anything,* with a view to obtaining the assent of that other to such act or abstinence,* he is said to make an offer.’ 

Offer is a kind of promise, with a quid pro quo objective. 

Distinguishing feature: The willingness to do or to abstain from doing something is the proposal or the offer. It is made with a view to obtaining the assent of the other party. If the assent is not obtained, the promise lapses. It is not to be enforced unilaterally. 

When a person signifies his willingness to do or abstain from doing something, he is called an offeror and the person to whom the offer is made is called offeree. The offer when accepted becomes the promise. 

Types of offer 

Standing offer 

A standing offer is an offer which can be accepted at any point of time. It does not perish with lapse of a fixed time period and time is not essence of such a contract. The offer, however, once accepted and a binding contract created, ceases to exist. It cannot be accepted again to form another contract. For example, consider that A tells B that he can let his yacht on hire for INR 100,000 per day on any one day within the next 6 months. This is a standing offer valid for the next six months. 

Continuing offer 

This is an offer that does not cease to exist when it is accepted. It continues during a period of time even after it is accepted. It can be accepted more than once, resulting in multiple contracts. 

Ramu and Shamu enter into a contract which states Shamu that Ramu can procure pulses and rice over the next six months from Ramu’s store at a 10 percent discount to market price. This is a continuing offer as Shamu can accept the offer multiple times over the next 6 months. 

Offer and invitation to offer 

The distinction between offer and invitation to offer is very important from a legal perspective. There are many communications that seem to be an offer at glance, but legally speaking, they are something short of an offer. These communications are called invitation to offer. 

Often, questions are asked in the Bar Exam which tests the knowledge of a candidate on whether a particular action amounts to an offer. For your guidance, a list of communications which are treated as invitation to offer is being provided here: 

  • A price catalogue 
  • Quotation of prices 
  • Letter asking for quotation or catalogue 
  • Invitation to auction 
  • Announcing minimum price at auction 
  • Advertisement on print/ visual media 
  • Article’s kept in show case or shop window with price tags 
  • Invitation to submit tenders (the actual tender is a binding offer) 
  • Letter proposing to ‘do business’ without specific terms such as price, quality, quantity etc. 

When a person is invited to offer, he can make an offer, which the offeree can accept or reject. 

Acceptance 

Before moving on to the details of acceptance, let’s take a look at some critical points: 

  1. Only where there is a clear and valid offer, the question of acceptance arises. 
  2. When there is a valid offer, it has to be accepted by the offeree to constitute promise or set of promise. Promises forming set of consideration are known as an agreement. An agreement enforceable by court of law forms contract. An offer, if not accepted, cannot lead to a contract. Acceptance has to be clear, unconditional and unequivocal.
  3. The mirror image test is to be discussed at this point. The offeree must accept all the terms of the offer to accept that offer validly. Any modification to the terms proposed by the offeror would be considered to be a Counteroffer in eyes of law, and not an acceptance. Counteroffer is a new offer in itself that can be accepted to conclude the contract. However, the counteroffer, if rejected, leads to no contract. 
  4. Only the person to whom an offer was made can accept it.
  5. When time is of essence to the contract, the acceptance must be timely. 

Communication of offer and acceptance 

How is an offer communicated? 

An offer is usually communicated through common communication mediums like letter, telegram, email, telephone, advertisements, or just oral, face to face, as done in a marketplace. 

Is it possible to communicate an offer silently? 

Yes, an offer can be silently communicated. The test is, as long as a reasonable man would understand the conduct of a person to be a clear offer, it is a valid offer regardless of what the person who so conducted actually meant. If a hawker selling toys on the streets has written on his trolley “PICK ANY ONE RS. 10 ONLY” and he holds one of those toys under your nose without saying a word, it is a clear offer because a reasonable person would understand it to be an offer. 

In a similar way, on 1st of April, if you go to your friends place with a briefcase in hand and show him all the legal documents proving your ownership of your three-storeyed house and ask him to buy it for Rs. 50,000, it will be a valid offer although you thought it to be an April Fool’s Day fun way of making a fool out of your friend. This is a valid offer because your conduct and communication will be understood by a reasonable person to be a bonafide offer. Therefore it is an offer in eyes of law. 

The same rule is applicable for communication of acceptance. 

When is the contract concluded, in cases where the acceptance is communicated by mail? 

When acceptance is communicated by mail or by similar methods where the acceptance takes time to reach the offeror, when can we consider the contract concluded? Is it when the offeree decides to accept the offer? Is it when he writes down the acceptance? Is it when he posts the acceptance and he has no more control over it? Or is it when the acceptance reaches the offeror and he comes to know about it? Answering this question 

is important, because it will determine at which point the parties become bound by the contract. 

Until the point the offeree posts the letter, it remains in his control. At any point of time till then, he can change his decision and not post the letter. However, once it is posted, it goes out of his hand and he cannot call it back. Therefore, in law, it is considered to be the final acceptance. The offeror is bound by his acceptance once the offeree posts the letter. The offeree himself becomes bound once the offeror comes to know about his acceptance by receiving it. 

This is popularly known as the Postal Rule

Consensus ad idem 

A cardinal rule of contract law is that the offer and accept should not only match, they must agree on the same things in the same sense. 

  • If the object and nature of the contract in contemplation of the two parties are different, while none of them realise that, there is no contract as there is no meeting of mind between the parties. 
  • The necessity is that there must be meeting of minds between the parties before a contract can be formed. 

What is consideration? 

Why would one be interested in entering into a contract? One enters a contract only when he is interested in the performance of the contract either in a direct or indirect way. When a surgeon has to perform an operation, on a patient he does not know otherwise, they enter into a contract first. Why would the doctor be interested?

His interest lies in the fact that carrying out such operations is a part of his profession and he would receive some consideration in return, which is generally money. On the other hand, the contractual obligation on part of the patient is to make timely payment. He is interested in carrying out that part so that he can be operated upon to resolve any medical condition that may have developed in his body. 

Thus in a contract, both sides generally receives something in return of carrying out their obligation. This is called quid pro quo. What they receive is consideration in legal terminology. 

The Indian Contract Act, defines consideration as – When at a desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing something, such act or abstinence or promise is called a consideration or promise

This definition lays down the essentials of a contract. 

Essentials of a contract 

The definition requires the following essentials to be satisfied in order that consideration may be classified as valid:- 

  1. Consideration to be given ‘at the desire of the promisor’ ii. Consideration to be given ‘by the promisee or any other person.’ iii. The consideration may be past, present or future, in so far as the definition says that the promisee: a) has done or abstained from doing or, b) does or abstains from doing, or c) promises to do or to abstain from doing, something.
  2. There should be some act, abstinence or promise by the promisee, which constitutes consideration for the promise. Each of these points needs to be elaborated further with illustrations. 

Valuable consideration 

Consideration for a promise must be a valuable consideration, i.e. something that has value in the eyes of law. It need not be adequate, but it must be real. When it is not so, there exists no contract. A contract not supported by valuable consideration is not a binding contract at all. A promise not supported by consideration can be withdrawn at any point of time without any legal consequence to the promisor. 

A person decides to sell his house for Rs. 10,000. This is totally inadequate as a price for what he is selling, but he has a right to sell it at any price he wants, and the contract to sell the house for Rs. 10,000 is valid because the price is real. Inadequate but valuable consideration makes a contract binding.

However, if the agreement was to sell the house for Rs. 10, that is not a real consideration. In the same way, a consideration that a wife would ever nag the husband again is not a real consideration that has any value in the eyes of law. 

Consideration must not be illegal or unlawful. In the same way, the object of the contract also must be legal and not against law. Consideration and object of the contract both must be legal and not contrary to law. 

Consideration is what one receives for performing his side of obligations, while object of the contract is the ultimate outcome directly intended for by performance of the contract. For instance, when a surgeon enters into a contract with a patient to operate on her heart, the consideration is the fee he receives while the object is the heart surgery. 

Consideration/object of a contract – when it is unlawful 

  • If it is forbidden by law: When something is forbidden by law, an agreement to do that act is unlawful. An agreement to do what has been prohibited by the Indian Penal Code or by any other law cannot be enforced. 
  • It is of such a nature that if permitted, it would defeat the provisions of any law, is fraudulent or aims to circumvent the law: Certain acts on the face of it may seem innocent and may not be expressly forbidden by law, but if the ultimate result is circumvention of any law or legal procedure, a contract contemplating such act cannot be allowed. If the object or consideration of an agreement is of such a nature that, if it is permitted, it would defeat the provisions of any law, such an agreement is void. 
  • Fraudulent purpose: If the consideration or object of an agreement is to commit fraud, the agreement is void per se. 

An agreement to avoid competition with one another cannot be considered to be either fraudulent or opposed to public policy. Thus an agreement not to outbid each other in an auction sale is valid and binding. 

  • If it involves injury to the person or property of another: If the consideration or object of an agreement is to cause an injury to the person or property of another, the agreement is unlawful and therefore void. In this context, injury means harm which is inflicted upon a third party without lawful justification. 
  • Immoral or opposed to public policy: If the consideration or object of an agreement is immoral or opposed to the public policy of the country, the agreement is unlawful. 

What is public policy? 

Public policy is the legitimate and lawful policy of the state which is decided in interest of the society. Very often, public policy is incorporated in the corpus of written law by legislation. 

For example: Slave trade is against public policy. In India, public policy favours birth control measures. It may be against public policy to export certain goods. Carrying out trade with alien enemy is also against public policy. 

Exceptions where consideration is unnecessary 

Usually without consideration a contract is not valid, but there are particular exceptions to this rule. 

Agreement out of natural love and affection 

An agreement made without consideration can be valid if a) Parties are very closely related b) Shares a relationship of love and affection c) In writing d) Formalized into a deed and registered 

Past voluntary service 

A promise to compensate wholly or in part a person who has already voluntarily done some thing for the promisor is enforceable. In other words a promise to pay for a past voluntary service is binding. This kind of consideration is also known as past consideration. 

Payment of a time-barred debt 

A promise to pay a time barred debt is enforceable. The promise should be in writing. It should be signed by the promisor of by his agent generally or specially authorized in that behalf. The promise may be to pay the whole or any part of the debt. The debt must be such of which the creditor might have enforced payment but for the law for the limitation of suits. 

Gift actually made 

For validity a gift which is not an agreement does not require a consideration. The provision as to consideration does not effect as between donor and the donee the validity of any gift which has actually been made. More details about gift will be discussed in the chapter on Transfer of Property. 

Disqualification of parties intending to enter into a contract 

  1. a) Incompetence 

Minority and unsoundness of mind disqualifies a person from entering into a contract because they cannot give consent to a contract. Free consent, given freely, is a primary requirement of forming a contract. Those who are incapable of giving such consent cannot enter into a contract. A minor and a person suffering from unsoundness of mind cannot form an element of free consent in their mind as they are prevented from doing so due to reasons of tender age and insanity. People falling in both these categories lack legal competence to enter into a contract. 

When these legal disabilities are removed, the person becomes eligible to enter into a contract. 

b) Legal disqualification 

  1. Alien Enemies (a person from an enemy country or a person residing in or carrying on business in enemy territory irrespective of his nationality) are not entitled to enter into a contract within the territory of India or a contract to be governed by the law of India. 
  2. Insolvent person 
  3. Convict 

In course of imprisonment the convict becomes incompetent either to enter into contracts or to sue on contracts made before conviction in common law. In Indian law at present, there remains no such disability. 

  1. Foreign sovereigns and diplomatic missions 

They can enter into contracts only after the central government grants permission. However, in reality it is not a legal disability to enter into contractual obligations. They can enter into a contract as long as the central government does not object to it. 

Agreement by a minor 

An agreement by minor cannot be enforced in a court of law. If obligations are imposed on a minor, the agreement will be considered void and such obligations cannot be enforced against the minor as a minor cannot enter into contract. 

No estoppel against a minor 

Estoppel essentially means, ‘when a person by communicating in written or oral, or even by such a conduct that leads the other person to believe it to be true and then the person acts after having believed in it. Then he is prevented from denying the truth of that thing.’ A minor cannot be estopped from pleading minority and can therefore escape liability on ground of minority. 

Contractual obligations of a minor Nevertheless, this does not bar a minor from acquiring liability and enjoying benefits of a contract. When a contract is made by a lawful and competent guardian on behalf of the minor, it will be a valid contract if the contract was entered into for the benefit of the minor. However, if a guardian enters a contract against the interest of the minor, such a contract may be voidable at the option of the minor. 

Agreements beneficial to minors are valid contracts If the minor is a beneficiary, i.e. stands to benefit from the contract, the contract is valid and enforceable. Even then, the minor himself does not enter into the contract; it is always the guardian who does so on his behalf. 

When a contract is entered into in order to either buy or sell property in interest of the minor, it is valid. The judiciousness of the decision is not to be adjudicated upon by the court as long as the intention is to enter into a contract beneficial to the minor. 

Minor’s liability for necessaries When a minor is supplied with the necessaries of life, which are the basic articles needed to maintain the life at the standard of the person, including food, clothes, articles of daily use and education, by another person, the supplier of such necessaries is entitled to be reimbursed from the property of the minor. 

Unsoundness of Mind 

It is treated at par with minority. All the rules discussed above of no estoppel, validity of beneficial contract entered into by competent guardian and liability for necessaries, are applicable to people of unsound mind. 

Only difference is that a person of unsound mind can recover sanity at times, and lapse into insanity after a period of time. In these cases, if any contract is entered into at the time when the person was sane, that would be a valid contract. In the same way, all the contracts entered into by a person before he became insane are all valid. 

Example- Khalil is a very nice guy. Therefore his friends lend him money whenever he wants. One day he became insane and it turned out that he has a huge debt against many of his friends. All the contractual obligations due to the borrowing he did while he was sane would remain valid. However, if one of his kind friends lends him money after he has become insane, Khalil would not be under any contractual obligation to return the money lent to him. 

Sometimes, law puts a hold on enforcement of existing contracts against those who have become insane subsequent to entering into a contract as the insane person is not able to protect his interests on his own. 

Usually without consideration, a contract is not valid, but – 

A promise to compensate wholly or in part a person who has already voluntarily done something for the promisor is enforceable. A promise to pay a time barred debt is enforceable. The promise should be in writing. Validity of a gift actually made does not depend on consideration. 

Contract Quiz 1 

Which of the following agreements are valid? 

1.) Am lent some money to In. In was lost in the sea and returned home after 7 years. In the meanwhile, the debt had become time barred. In wrote a letter to Am promising to return the money. Am has given no consideration for this renewed promise. Is there a valid agreement? 

A.) Valid 

B.) Not Valid 

2.) A has borrowed money from B but did not pay for 3 years. After 3 years, the debt became time-barred. B needed money to marry of his daughter so he asked for money from A. A promised to return the money orally. 

A.) Valid 

B.) Not Valid 

3.) Mummy has protected Tutu from danger of the desert in the past although Tutu never asked Mummy to do so. Now Tutu wanted to reward Mummy for his efforts so he promised to take him a trip to Egypt in a letter. Is there a valid agreement? 

A.) Valid 

B.) Not Valid 

4.) A and B decided to exchange their houses. They have done so orally but there is no written contract. B is now claiming that there is no valid agreement due to lack of consideration. Is there a valid agreement? 

A.) Valid 

B.) Not Valid 

Contract Quiz 2 

1.) John is a traveling salesman who sells water pistols made by Abraham. He is paid a meager amount monthly for doing this job along with 10% commission on what he sells. John often complains about his payment. One day Abraham told John that if he can sell 100 pistols in a day he will double John’s monthly payment. Is this an offer? 

A.) John is an agent of Abraham. There can be no offer between a principal and an agent. There is already a contract of agency, which has to be modified if needed. 

B.) John the travelling salesman has been made an offer. 

C.) There is no offer. What was said was said in order to stop John from nagging Abraham. 

D.) There is no offer. Selling 100 water pistols in a day is an impossible act. 

2.) Brutus goes to the Cinderella Shop. He sees a Furby doll in the showcase that he likes very much. There was a price tag of INR 200 attached with the doll. He goes to the counter with the money and tells them that he wants to buy the doll. He is told that the Furby doll is out of stock, he should come later. He points out that they have one in the showcase and they have put a price tag on it. It is written outside the showcase in large red letters “FOR SALE”. Now they should not refuse to sell the doll because they offered the doll for INR 20 and Brutus is accepting it. Is he right? 

A.) Brutus accepted the offer made by the Cinderella shop. The shop is legally bound by the offer they made. 

B.) Brutus’s conduct is an offer in reaction to an invitation to offer. The shop may accept or reject it. 

C.) None of the above. 

D.) Cannot be determined. 

3.) Anjana asks Vinayak to sell to her his entire Popsicle Gum True Hero cards collection for Rs. 1000 and an apple. Vinayak tells her he needs a night’s time to think over it. Next morning he tells her that he will give her the entire collection for all that, except for one favorite card that he wants to keep. Is there a concluded contract? 

A.) There is a concluded contract. 

B.) No. what Vinayak communicated was not an acceptance but a counteroffer. 

C.) No. Vinayak did not accept the offer that was made to him. 

D.) Yes. If Anjana is ready to accept his condition, there would be a concluded contract. 

4.) Lady Lay of Didanya is in her deathbed. She calls her two sons beside her bed. It so happens that the two of them are mortal enemies. She asks her elder son to allow his younger brother to live with him in absence of her in his house, for which she wants to compensate him by giving him her diamond ring. The younger brother repeats the request after his mother. The elder son accepts the same and takes the ring from Lady Lay. When she dies, if he does not respect the pact, can the younger brother sue him for breach of contract? (Hint: Consideration can come from a party to the contract or even a third person when consideration is given by him for the benefit of a party.) 

A.) There is a contract between Lady Lay and his elder son. It can be enforced by his son now that the mother has died. 

B.) There is a contract between the two sons. It can be enforced by the younger son. 

C.) There is no contract. It was a family arrangement made out of love and affection. This is not enforceable by law. 

D.) There is no valuable consideration given or taken by the intended parties of the contract. Therefore no contract was ever created. 

5.)Runa is very cute. She won a contest where she was voted to be the cutest kid in the world. However, she is only 13. Film producers regularly call up her parents from Mumbai to let her act in Bollywood movies. Her parents entered into a contract with a producer to the effect that she would act in a lead role in a Bollywood adaption of Nabokov’s ‘Lolita.’ Runa thinks she should not do the movie as it would harm her studies. She also doesn’t like the idea of acting in that movie. Can the contract be enforced against her will? 

(Note: A contract entered into by the legal guardian of a minor on behalf of the minor is enforceable in law.) 

A.) Yes. It is a valid contract in all respect. Her will is immaterial as her guardian has consented on her behalf. 

B.) No. It’s unfair and illegal to force her into doing something undesirable like this. 

C.) No. her parents did not enter into the contract for her benefit. 

D.) Both b and c. 

Contract Quiz 3 

1.) Bro Car asks Jo Car, “Brother, I need to write a letter to Godfather. As you know, I am illiterate. Would you please write the letter for me? I shall dictate and you just write that down.” Jo Car respected his elder brother very much, so he said, “Sure, why not? But what do I get in return?” Bro Car said “Jo Car, I love you like anything. That is a good enough reason for me to give you everything. I’ll give you anything you want provided I have that.” Jo Car wrote the letter for Bro Car, and then asked him to transfer his house in name of Jo Car’s wife. Is Bro Car legally bound to do that? 

A.) No. He agreed to give anything to Jo Car, not to his wife. 

B.) No. He made the promise out of love and affection, not out of an intention to enter into a legal relationship. 

C.) Yes. He made the promise out of an intention to be legally bound. He must suffer if he made a careless promise. 

D.) No. There was no agreement. The terms were uncertain and ambiguous. 

2.)Bruno tells Purno, would you like to buy some oats? 

Purno: What oats? 

B: Next week my ship is arriving at Kolkata with 5000 Kg of top class oats from Cuba. You need? 

P: I need fodder class oat next week for my cows. Sell it to me. Rs. 20 per kg? 

B: Done. 

However, when the time of delivery comes, Purno discovers that the oats are genetically modified and there is a history of Indian cows suffering from diarrhea if they consumed genetically modified oats from Cuba. He claims that they did not agree on the same thing in the same sense as he was not aware of this bit of fact. There is no meeting of mind and therefore no contract. 

A.) Purno did not agree to buy genetically modified oats. There was no meeting of minds. They did not agree about the same thing in the same sense 

B.) They agreed about the same thing in the same sense because they agreed to buy and sell 5000 kg of oats as fodder for a certain price. 

C.) They did not agree on the same thing in the same sense as what was being sold was uncertain. 

D.) Both [a] and [c]. 

3.) Bamby is a childhood friend of Hanky. She was very sorry when Hanky’s wife died leaving behind two cute daughters. Bamby told Hanky that she will look after his motherless children if Hanky gives her a diamond ring within a week. Is this an offer? 

A.) This is an offer. Bamby signified her willingness to do something with a view to obtain Hanky’s assent. 

B.) This is not an offer. There is no intention to enter into a legal obligation. 

C.) This is not an offer. This is a promise by a friend. 

D.) None of the above. 

4.) Spandan Pawn has been suffering from schizophrenia for some time. At times, for months at length he goes into deep depression, when he does not behave like a reasonable person at all and stops going to work and locks himself up in his room. However, after a period of time, he becomes normal and behaves reasonably, goes to work and does well in every aspect of life. During such a good phase, he earned a lot of money by writing an autobiography. He entered into a contract with a promoter to build a house on a land he had. Afterwards, he again became schizophrenic and locked himself up in his room. Therefore he failed to look after the performance of the contract. When he became normal after two months, he discovered that none of the work has been done though the payment he had made has been usurped. He filed a case for breach of contract. The promoter claimed that the contract having been entered with a person of unsound mind, it is void and not legally enforceable. Decide 

A.) What the promoter did is not reasonable at all. He must enforce the contract. 

B.) The contract was entered into when Mr. Nawn was in a position to give consent. His consent is not vitiated due to unsoundness of mind. 

C.) A person of unsoundness of mind cannot enter into a contract. If he does, the contract will be void. 

D.) None of the above. 

5.) Chinky tells Pinky “I have 40 dolls. Would you buy them for Rs. 200? I need the money very much” Pinky being a lady is agreeable to such a proposition. But she has to protect her own interest too. So she says, “If you mean 40 dolls including your newly bought Dino doll, then I am game.” If when Chinky made the offer, she actually meant 40 dolls including the Dino doll, is there a concluded contract? 

A.) There is a concluded contract. The actual offer as it was made is accepted here. 

B.) There is no concluded contract. Regardless of what Chinky may have meant, a condition was added to the deal by pinky. Therefore what Pinky said was a new offer, not an acceptance. 

C.) There is a concluded contract because Pinky did not put any additional condition; she had only sought a clarification. 

D.) Both [a] and [c]. 

6.) Chinky tells Pinky, “Would you buy my barbie for 200 bucks?” Pinky asks, “How old is it?” Chinky says, “2 months only. Brand new. Then I understand you are buying it for that much?” Pinky says, “Yes, if it is two months old and brand new, I am ready to buy it for 200 bucks.” Is there a concluded contract? 

A.) The offer was accepted as it was made. There is a concluded contract. 

B.) The offer was not accepted unconditionally. It is not accepted. 

C.) It was a conditional acceptance. There is no concluded contract. 

D.) None of the above. 

7.) Pretenders Co. made an excellent offer to sell a cheap magic pill that enhances one’s brain capacity to Mr. JKD in writing and mentioned to him that the acceptance should be sent in writing only. Accordingly, JKD posted the acknowledgement of acceptance of the offer but forgot to put any postage on the envelop which carried the letter. He had, however, written the correct address. Pretenders Co. did not receive the acceptance. When JKD called up, they told him they did not receive the letter. JKD told them that he has posted the letter and Pretenders Co. became bound by his acceptance when he posted it. Pretenders Co. appreciated his knowledge of law but refused to accept that there was a valid contract. JKD wants to sue them and came to you for advice. Advise him. 

A.) JKD put his acceptance into communication. He has concluded the contract successfully. 

B.) JKD could not conclude the contract successfully. Putting an envelope into the mailbox without postage does not amount to communication. 

C.) JKD did not put any postage, therefore the contract is not concluded. 

D.) None of the above. 

8.) Brokerex is a brokers’ firm. Camellia asked them to buy shares of ARC over phone. The broker thought she wants to buy shares of Arvind Reptiles Company and bought the shares of that company. However, Camellia’s intention was to buy the shares of the Arvind Resources Corp. Is Camellia bound to pay for the shares bought by Brokerex for her? 

A.) Yes. She should have made clear what she meant by ARC. How can she expect a busy broker to read her minds? 

B.) No. the broker should have ascertained what she meant by ARC before buying the shares. He could have easily asked her. 

C.) No. It was the brokers fault to buy the wrong shares and he must pay for it. Did he think he can read minds? 

D.) No. There was no meeting of minds and therefore Camellia is not bound by any contractual liability that could have arisen from the contract. 


To solve another mock test for AIBE preparation, please Click Here. 


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