Essential Concepts of Contract Law: Offer, Consent, and Consideration
Types of Offer and Proposal
Definition (Section 2(a), Indian Contract Act, 1872)
When one person signifies to another his willingness to do or abstain from doing something, with a view to obtaining the assent of that other person to such act or abstinence, he is said to make a proposal or offer.
Explanation
An offer is the first step in the formation of a contract. It expresses a person’s readiness to enter into a legal relationship on specific terms.
Classification of Offers
- Express Offer: Made by words, spoken or written.
Example: A writes to B, “I offer to sell my car for ₹2,00,000.” - Implied Offer: Inferred from conduct or action, not spoken or written.
Example: A bus driver stopping at a bus stop implies an offer to carry passengers. - General Offer: Made to the public at large. Anyone fulfilling the condition can accept it.
Example: A reward notice for finding a lost item. - Specific Offer: Made to a specific person or group, and only that person can accept it.
- Cross Offer: When two persons make identical offers to each other without knowledge of the other’s offer.
- Counter Offer: When an offeree changes the terms of the original offer; it cancels the original offer.
- Standing / Continuing Offer: Open for acceptance over a period of time.
Example: Tender offers to supply goods regularly.
Coercion: Definition and Examples
Definition (Section 15, Indian Contract Act, 1872)
Coercion means committing or threatening to commit any act forbidden by the Indian Penal Code (IPC), or unlawfully detaining or threatening to detain any property, with the intention of forcing any person to enter into an agreement.
Detailed Explanation
- Nature of Coercion: It involves physical or mental pressure used to obtain consent from a person unwilling to give it.
- Acts Covered: Includes acts that are criminal or unlawful under the IPC — such as threat, assault, or wrongful confinement.
- Purpose: The intention must be to cause a person to enter into a contract against their free will.
- Legal Effect: A contract formed by coercion is voidable at the option of the aggrieved party (Section 19).
- Location: Coercion can take place inside or outside India.
- Restoration: If any benefit is received under coercion, it must be restored once the contract is avoided.
- Difference from Undue Influence: Coercion uses physical force, while undue influence involves moral pressure.
Examples of Coercion
- A threatens to harm B’s brother if B does not sign a contract.
- A detains B’s goods unlawfully to make him pay a debt.
- Threatening false criminal prosecution to force a person to agree.
Consent and Free Consent Explained
Section 13 – Consent
Two or more persons are said to consent when they agree upon the same thing in the same sense (consensus ad idem).
Example: A agrees to sell his car to B, and B agrees to buy the same car — there is consent.
Section 14 – Free Consent
Consent is free when it is not caused by:
- Coercion (Sec. 15)
- Undue Influence (Sec. 16)
- Fraud (Sec. 17)
- Misrepresentation (Sec. 18)
- Mistake (Secs. 20–22)
Explanation of Free Consent
- For a valid contract, consent must be genuine and voluntary.
- If consent is influenced by any of the above factors, it is not free.
- The contract becomes voidable at the option of the aggrieved party.
- Free consent ensures fairness and honesty in agreements.
Example: If A forces B to sell his land at a low price, the consent is not free — the contract is voidable.
Consideration: Definition and Essential Features
Definition (Section 2(d), Indian Contract Act, 1872)
“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, such act or abstinence is called consideration for the promise.”
Explanation
Consideration is the price of a promise — something of value exchanged between the parties that forms the basis of every valid contract.
Features of Consideration
- Must Move at the Desire of Promisor: It should be done at the request of the person making the promise.
- May Move from Promisee or Any Other Person: A stranger can also provide consideration.
- Can be Past, Present, or Future: It may be something already done, being done, or to be done in the future.
- Must be Real and Lawful: It cannot be illegal, immoral, or impossible.
- Need Not Be Adequate: The law requires some value, not necessarily equal value.
- No Consideration = No Contract (Sec. 25): Except in special cases like natural love and affection, voluntary service, or time-barred debts.
Example: A agrees to sell his bike to B for ₹10,000. The money is consideration for A, and the bike is consideration for B.
E-Contracts: Meaning and Examples
Meaning
An E-Contract (Electronic Contract) is a contract formed through digital means such as emails, websites, or mobile applications.
Legal Recognition
Under the Information Technology Act, 2000, electronic records, digital signatures, and online agreements are legally valid and enforceable.
Features of E-Contracts
- Electronic Mode: Formed through emails, web forms, or “click-wrap” agreements.
- No Physical Presence: Parties need not meet physically; everything happens online.
- Digital Signature: Electronic consent is accepted through digital or OTP-based signatures.
- Legality: E-contracts are governed by both the Indian Contract Act, 1872, and the IT Act, 2000.
- Evidence: Emails and electronic records are admissible as proof under the Evidence Act.
- Speed and Convenience: E-contracts enable faster business transactions.
- Global Reach: Used in international trade and e-commerce platforms.
Examples of E-Contracts
- Buying a product on Amazon or Flipkart.
- Clicking “I Agree” to install software.
- Booking hotel rooms or movie tickets online.
Misrepresentation: Definition and Examples
Definition (Section 18)
Misrepresentation is the act of making an innocent but false statement that induces another party to enter into a contract.
Explanation
- It involves a false statement made without intent to deceive.
- The person making the statement believes it to be true.
- The statement must induce the other party to enter the contract.
- The contract becomes voidable at the option of the misled party.
- The aggrieved party can either rescind the contract or insist on performance as per the representation.
- Difference from Fraud: In fraud, there is an intent to deceive; in misrepresentation, there is not.
- If the other party had means to verify the truth, the contract may not be voidable.
Examples of Misrepresentation
- A says his car gives 25 km/l believing it, but it gives only 15 km/l.
- A company unintentionally gives wrong financial data in its prospectus.
- A seller describes a second-hand phone as “new” without knowing it is used.
Undue Influence: Definition and Scope
Definition (Section 16, Indian Contract Act, 1872)
A contract is said to be caused by undue influence when one party, in a position to dominate the will of the other, uses that position to obtain an unfair advantage.
Explanation
- The dominant party controls the weaker party’s will or judgment.
- Such dominance may arise from authority, trust, or mental weakness.
- Consent obtained is not free — the contract becomes voidable at the weaker party’s option.
- Examples of relationships where undue influence may arise: parent–child, guardian–ward, doctor–patient, lawyer–client, spiritual guru–devotee.
- The burden of proof lies on the person in the dominant position.
- The court can set aside or modify such contracts.
- Difference from Coercion: Coercion uses physical threat; undue influence uses mental pressure.
Examples of Undue Influence
- A spiritual leader persuading a follower to donate all property.
- A lawyer charging an unreasonable fee from an illiterate client.
Classification of Contracts
Contracts are classified under the Indian Contract Act, 1872, based on their validity, formation, and performance.
A. Based on Validity
- Valid Contract: Legally enforceable and fulfills all essentials.
- Void Contract (Sec. 2(j)): Not enforceable by law (e.g., impossible acts).
- Voidable Contract (Sec. 2(i)): Enforceable at one party’s option (e.g., obtained by coercion).
- Illegal Contract: Forbidden by law (e.g., gambling, smuggling).
- Unenforceable Contract: Cannot be enforced due to technical defects (e.g., missing stamp or signature).
B. Based on Formation
- Express Contract: Terms are expressed in words (oral or written).
- Implied Contract: Formed by conduct or circumstances.
- E-Contract: Formed electronically under the IT Act, 2000.
C. Based on Performance
- Executed Contract: Fully performed by both parties.
- Executory Contract: Yet to be performed by one or both parties.
Quasi-Contracts: Legal Basis and Examples
Meaning
A Quasi-Contract is not an actual contract but a legal obligation created by law to prevent one person from being unjustly enriched at another’s expense.
Legal Basis
Sections 68–72 of the Indian Contract Act, 1872.
Types of Quasi-Contracts (Sections 68–72)
- Section 68: Supply of necessities to a person incapable of contracting.
- Section 69: Reimbursement for payment made by an interested person.
- Section 70: Obligation of a person enjoying the benefit of a non-gratuitous act.
- Section 71: Responsibility of finder of lost goods.
- Section 72: Money or goods received by mistake or coercion must be returned.
Features
- No prior agreement exists.
- Obligation is imposed by law.
- Purpose is to ensure fairness and justice.
- Based on the principle of quantum meruit (as much as earned).
Examples
- A supplies food to a minor’s family — can claim payment.
- A mistakenly pays B ₹10,000; B must refund it.
- Finder of a lost phone must return it to its owner.
The Formula: Offer + Acceptance = Agreement
Statutory Basis (Indian Contract Act, 1872)
- Section 2(a): Offer — proposal by one person.
- Section 2(b): Acceptance — assent by another.
- Section 2(e): Agreement — when offer is accepted, it becomes an agreement.
Explanation
- An offer is the expression of willingness to enter into a contract.
- Acceptance signifies approval of that offer.
- Once accepted, the proposal becomes an agreement.
- All agreements are not contracts; only those enforceable by law become contracts (Sec. 2(h)).
- Offer and acceptance must be communicated clearly and lawfully.
- Both parties must intend to create legal relations.
- Consideration must support the agreement to make it binding.
Example: A offers to sell his bike to B for ₹10,000. B accepts. This results in an Agreement. When supported by consideration and legality, it becomes a valid contract.