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Test Paper no. 1: The Indian Contract Act, 1872 – Unit 1 and 2
Time: 1 Hour Marks: 30
Question no. 1 is compulsory.
Answer any 3 of the remaining 4 questions.
1)
a) Mr. Ram Lal Birla was a big businessman of city Pune having two sons and one
married daughter. He decided to gift his one house to his daughter. For this purpose,
he called his lawyer at his house and made a written document for such gift. The
lawyer advised him to get the transfer document properly registered. When they
both were going for registration of document, they met with an accident and both of
them died. Later, his daughter found the document and claimed the house on the
basis of that document. Explain, whether she can get the house as gift under the
Indian Contract Act, 1872? (6
Marks)
Answer:
Provision: Section 25 of Indian Contract Act, 1872 provides that an agreement made
without consideration is valid if it is expressed in writing and registered under the law
for the time being in force for the registration of documents and is made on account
of natural love and affection between parties standing in a near relation to each
other.
Fact of the case: In the instant case, the transfer of house made by Mr. Ram Lal Birla
on account of natural love and affection between the parties standing in near
relation to each other is written but not registered.
Conclusion: Hence, this transfer is not enforceable and his daughter cannot get the
house as gift under the Indian Contract Act, 1872.

b) Mr. B makes a proposal to Mr. S by post to sell his house for ₹10 lakhs and posted the
letter on 10th April 2020 and the letter reaches to Mr. S on 12th April 2020. He reads
the letter on 13th April 2020. Mr. S sends his letter of acceptance on 16th April 2020
and the letter reaches Mr. B on 20th April 2020. On 17th April Mr. S changed his
mind and sends a telegram withdrawing his acceptance. Telegram reaches to Mr. B
on 19th April 2020.
Examine with reference to the Indian Contract Act, 1872:
i) On which date, the offer made by Mr. B will complete?
ii) Discuss the validity of acceptance.

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iii) What would be validity of acceptance if letter of revocation and letter of
acceptance reached together? (6 Marks)

Answer:
(i) According to Section 4 of the Indian Contract Act, 1872, “the communication of
offer is complete when it comes to the knowledge of the person to whom it is made”.
When a proposal is made by post, its communication will be complete when the
letter containing the proposal reaches the person to whom it is made. Further, mere
receiving of the letter is not sufficient, he must receive or read the message contained
in the letter.
In the given question, Mr. B makes a proposal by post to Mr. S to sell his house. The
letter was posted on 10th April 2020 and the letter reaches to Mr. S on 12th April
2020 but he reads the letter on 13th April 2020. Thus, the offer made by Mr. B will
complete on the day when Mr. S reads the letter, i.e., 13th April 2020.

(ii) When communication of acceptance is complete: Where a proposal is accepted by

a letter sent by the post, in terms of Section 4 of the Act, 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.
Revocation of Acceptance: The acceptor can revoke his acceptance any time before
the letter of acceptance reaches the offeror, if the revocation telegram arrives before
or at the same time with the letter of acceptance, the revocation is absolute.
In the given question, when Mr. S accepts Mr. B’s proposal and sends his acceptance
by post on 16th April 2020, the communication of acceptance as against Mr. B is
complete on 16th April 2020, when the letter is posted. As against Mr. S acceptance
will be complete, when the letter reaches Mr. B i.e., 20th April 2020. Whereas,
acceptor, will be bound by his acceptance only when the letter of acceptance has
reached the proposer.
The telegram for revocation of acceptance reached Mr. B on 19th April 2020 i.e.,
before the letter of acceptance of offer (20th April 2020). Hence, the revocation is
absolute. Therefore, acceptance to an offer is invalid.

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(iii) It will not make any difference even if the telegram of revocation and letter of
acceptance would have reached on the same day, i.e., the revocation then also would
have been absolute. As per law, acceptance can be revoked any-time before the
communication of acceptance is complete. Since revocation was made before the
communication of acceptance was complete and communication can be considered
as complete only when the letter of acceptance reaches the proposer i.e., Mr. B.

2) Define the term acceptance under the Indian Contract Act, 1872. Explain the legal rules
regarding a valid acceptance. (6 Marks)
Answer:
Definition of Acceptance: In terms of Section 2(b) of the Indian Contract Act, 1872 the
term acceptance is defined as “When the person to whom the proposal is made signifies
his assent thereto, proposal is said to be accepted. The proposal, when accepted,
becomes a promise”.
Legal Rules regarding a valid acceptance:
(1) Acceptance can be given only by the person to whom offer is made. In case of a
specific offer, it can be accepted only by the person to whom it is made. In case of a
general offer, it can be accepted by any person who has the knowledge of the offer.
(2) Acceptance must be absolute and unqualified: As per section 7 of the Act,
acceptance is valid only when it is absolute and unqualified and is also expressed in
some usual and reasonable manner unless the proposal prescribes the manner in which
it must be accepted. If the proposal prescribes the manner in which it must be accepted,
then it must be accepted accordingly.
(3) The acceptance must be communicated: To conclude a contract between the
parties, the acceptance must be communicated in some perceptible form. Further when
a proposal is accepted, the offeree must have the knowledge of the offer made to him. If
he does not have the knowledge, there can be no acceptance. The acceptance must
relate specifically to the offer made. Then only it can materialize into a contract.
(4) Acceptance must be in the prescribed mode: Where the mode of acceptance is
prescribed in the proposal, it must be accepted in that manner. But if the proposer does
not insist on the proposal being accepted in the manner prescribed after it has been
accepted otherwise, i.e., not in the prescribed manner, the proposer is presumed to
have consented to the acceptance.
(5) Time: Acceptance must be given within the specified time limit, if any, and if no time
is stipulated, acceptance must be given within the reasonable time and before the offer
lapses.
(6) Mere silence is not acceptance: The acceptance of an offer cannot be implied from
the silence of the offeree or his failure to answer, unless the offeree has in any previous
conduct indicated that his silence is the evidence of acceptance.

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(7) Acceptance by conduct/ Implied Acceptance: Section 8 of the Act lays down that the
performance of the conditions of a proposal, or the acceptance of any consideration for
a reciprocal promise which may be offered with a proposal, constitutes an acceptance of
the proposal. This section provides the acceptance of the proposal by conduct as against
other modes of acceptance i.e., verbal or written communication.
Therefore, when a person performs the act intended by the proposer as the
consideration for the promise offered by him, the performance of the act constitutes
acceptance.

3)
a) Mr. Y is a devotee and wants to donate an elephant to the temple as a core part of
ritual worship. He contacted Mr. X who wanted to sell his elephant. Mr. X contracted
with Mr. Y to sell his elephant for ₹20 Lakhs. Both were unaware that the elephant
was dead a day before the agreement. Referring to the provisions of the Indian
Contract Act, 1872, explain whether it is a void, voidable or a valid contract.
(4 Marks)
Answer:
Provision: As per Section 2(j) of the Indian Contract Act, 1872 a contract which
ceases to be enforceable by law becomes void when it ceases to be enforceable. The
fact of impossibility may be known or unknown to the promisor or promisee.
It may be added by clarification here that the term “contract” shall be understood as an
“agreement”.
Thus, when the parties agree on doing something which is obviously impossible in
itself the agreement would be void.
Fact of the case: In this case, Mr. X and Mr. Y were ignorant of the fact that the
elephant was dead and therefore the performance of the contract was impossible from
the very start (impossibility ab initio).
Conclusion: Hence, this contract is void being not enforceable by law.

b) Define consideration (2 Marks)

Answer:
Definition of Consideration-Section 2(d): “When at the desire of the promisor, the
promise or any other person has done, or does or abstains from doing of promises to
do or abstain from doing something, such an act or abstinence or promise is called
consideration for the promise”
4) “Only a person who is party to a contract can sue on it”. Explain this statement and
describe its exceptions, if any. (6 Marks)
Answer:

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Though under the Indian Contract Act, 1872, the consideration for an agreement may
proceed from a third party, the third party cannot sue on contract. Only a person who is
party to a contract can sue on it. Thus, the concept of stranger to consideration is valid
and is different from stranger to a contract.
The aforesaid rule, that stranger to a contract cannot sue is known as a “doctrine of
privity of contract”, is however, subject to certain exceptions.
In other words, even a stranger to a contract may enforce a claim in the following cases:
1. In the case of trust, a beneficiary can enforce his right under the trust, though he
was not a party to the contract between the settler and the trustee.
2. In the case of a family settlement, if the terms of the settlement are reduced into
writing, the members of family who originally had not been parties to the
settlement may enforce the agreement.
3. In the case of certain marriage contracts, expenses made on the partition of the
Hindu a female member can enforce a provision for marriage Undivided Family.
4. In the case of assignment of a contract, when the benefit under a contract has
been assigned, the assignee can enforce the contract.
5. Acknowledgement or estoppel – where the promisor by his conduct
acknowledges himself as an agent of the third party, it would result into a binding
obligation towards third party.
6. In the case of covenant running with the land, the person who purchases land
with notice that the owner of land is bound by certain duties affecting land, the
covenant affecting the land may be enforced by the successor of the seller.
7. Contracts entered into through an agent: The principal can enforce the contracts
entered by his agent where the agent has acted within the scope of his authority
and in the name of the principal.
OR
“No consideration, no contract” Comment. (6 Marks)
Answer:
No consideration, no contract: Every agreement, to be enforceable by law must be
supported by valid consideration. An agreement made without any consideration is void.
A gratuitous promise may form a subject of a moral obligation and may be binding in
honour but it does not cause a legal responsibility.
Example: A promises to pay ₹100 to B. This promise cannot be enforced by B because he
is not giving anything to A for this promise. No consideration, no contract is a general
rule. However, Section 25 of the Indian Contract Act provides some exceptions to this
rule, where an agreement without consideration will be valid and binding.

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These exceptions are as follows:
8. Natural Love & Affection [Section 25 (1)]: Where an agreement is expressed in
writing and registered under the law for the time being in force for the
registration of documents and is made on account of natural love and affection
between the parties standing in near relation to each other, the agreement is
enforceable, even though the consideration is absent.
9. Compensation for past voluntary service [Section 25 (2)]: A promise to
compensate, wholly or in part, a person who has already voluntarily done
something for the promisor, is enforceable even without consideration.
10.Promise to pay time barred Debt [Section 25 (3)]: The agreement is valid
provided it is made in writing and is signed by the debtor or by his agent
authorized in that behalf.
11.Completed Gift – [Explanation 1 to Section 25]: As per explanation 1 to section
25, nothing in section 25 shall affect the validity as between donor and done, on
any gift actually made. Thus, gifts do not require any consideration.
12.Agency (Section 185): No consideration is necessary to create an agency.
13.Bailment (Section 148): No consideration is required to affect the contract of
bailment.
14.Charity: If a promise undertakes the liability on the promise of the person to
contribute to charity, there the contract shall be valid.

2) Mr. Sohanlal sold 10 acres of his agricultural land to Mr. Mohanlal on 25th September
2020 for ₹25 Lakhs. The Property papers mentioned a condition, amongst other details,
that whosoever purchases the land is free to use 9 acres as per his choice but the
remaining 1 acre has to be allowed to be used by Mr. Chotelal, son of the seller for
carrying out farming or other activity of his choice. On 12th October, 2020, Mr. Sohanlal
died leaving behind his son and life. On 15th October, 2020 purchaser started
construction of an auditorium on the whole 10 acres of land and denied any land to the
son. Now Mr. Chotelal wants to file a case against the purchaser and get a suitable
redressal.
Discuss the above in light of provisions of Indian Contract Act, 1872 and decide upon Mr.
Chotelal’s plan of action? (6 Marks)

Answer:
Provision of The Indian Contract Act, 1872: Problem as asked in the question is based
on the provisions of the Indian Contract Act, 1872 as contained in section 2(d) and on

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the principle ‘privity of consideration’. Consideration is one of the essential elements to
make a contract valid and it can flow from the promisee or any other person. In view of
the clear language used in definition of ‘consideration’ in Section 2(d), it is not necessary
that consideration should be furnished by the promisee only. A promise is enforceable if
there is some consideration for it and it is quite immaterial whether it moves from the
promisee or any other person. The leading authority in the decision of the Chinnaya Vs.
Ramayya, held that the consideration can legitimately move from a third party and it is
an accepted principle of law in India.
Facts of the case: In the given problem, Mr. Sohanlal has entered into a contract with
Mr. Mohanlal, but Mr. Chotelal has not given any consideration to Mr. Mohanlal but the
consideration did flow from Mr. Sohanlal to Mr. Mohanlal on the behalf of Mr. Chotelal
and such consideration from third party is sufficient to enforce the promise of Mr.
Mohanlal to allow Mr. Chotelal to use 1 acre of land. Further the deed of sale and the
promise made by Mr. Mohanlal to Mr. Chotelal to allow the use of 1 acre of land were
executed simultaneously and therefore they should be regarded as one transaction and
there was sufficient consideration for it. Moreover, it is provided in the law that “in case
covenant running with the land, where a person purchases land with notice that the
owner of the land is bound by certain duties affecting land, the covenant affecting the
land may be enforced by the successor of the seller.
Conclusion: In such a case, third party to a contract can file the suit although it has not
moved the consideration. Hence, Mr. Chotelal is entitled to file a petition against Mr.
Mohanlal for execution of contract.
1. Paper will be discussed on Unacademy CA Foundation YouTube Channel.
2. Here is the Playlist Link for entire series -
https://www.youtube.com/playlist?list=PLTzX3SfK4zG4BZ5Jn9QgL9zyekR2b0oPa
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5. Watch One Shot Writing Practice of The Indian Contract Act, 1872 -
https://youtu.be/1TN0FGQcwU8
6. Watch Super Chart Revision Series -
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