Definition and Legal Requirements of a Valid Offer

The formation of a contract begins with a proposal or offer. It is the initial step where one party expresses their willingness to enter into a legal relationship on certain terms.

Definition under Section 2(a) of the Indian Contract Act, 1872

Section 2(a) defines "Proposal" as:

"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."

Breaking down this definition reveals the fundamental elements of a valid offer:

• There must be a signification of willingness. This means the offer must be communicated.
• The willingness must be to do or abstain from doing something. This covers both positive actions and negative restraints.
• The willingness must be expressed with the intention of obtaining the assent of the other party. This is the purpose behind making the offer.

Legal Requirements (Essentials) of a Valid Offer

Based on the definition and various provisions of the Act, coupled with judicial interpretations, a valid offer must satisfy the following requirements:

Intention to create legal relations

The offer must be made with the intention to create a legally binding obligation if accepted. As discussed previously (in the context of agreements), social or domestic invitations do not typically carry this intention, and therefore, even if accepted, they do not result in contracts. The parties must contemplate legal consequences arising from the agreement.

Example: Offering a friend a ride home is not an offer intended to create a legal obligation.

Offer must be certain and definite

The terms of the offer must be clear, unambiguous, and capable of being understood. A vague or uncertain offer cannot be accepted because the offeree would not know precisely what they are agreeing to. If the terms are indefinite, the Court cannot enforce the agreement.

Example: Offering to sell "some goods" at a "reasonable price" is too vague to be a valid offer.

Communication of Offer

An offer is effective only when it is communicated to the person to whom it is made (Section 4). An offer cannot be accepted unless the offeree has knowledge of the offer. Communication can be made by any act or omission of the party proposing by which he intends to communicate such proposal or which has the effect of communicating it (Section 3).

Example: If a reward is offered for finding a lost item, but a person finds and returns the item without knowing about the offer, they cannot claim the reward because the offer was not communicated to them before they performed the act constituting acceptance.

Offer may be express or implied

An offer can be made by words (spoken or written) (express) or by conduct (implied) (Section 9).

Example (Implied Offer): Stepping into a public bus is an implied offer to pay the fare.

Offer may be specific or general

An offer can be made to a particular person or group of persons (specific) or to the public at large (general). (Discussed in detail under Types of Offers).

Offer must be distinguished from Invitation to Offer

An offer is a proposal made with the intention of getting assent. An invitation to offer (or invitation to treat) is merely an invitation or announcement to other persons to make offers. The person making the invitation is not bound to accept any offer made in response. Examples include displays of goods in shop windows with price tags, advertisements inviting tenders, auction sales, and railway timetables.

Example: Displaying goods in a shop window with prices is an invitation to the customer to make an offer to buy. The shopkeeper is not bound to sell if the customer offers to buy.

Offer must not contain a term that non-compliance amounts to acceptance

The offeror cannot stipulate that if the offeree does not respond within a certain time, the offer will be deemed to have been accepted. Acceptance must be positive and communicated.

Example: Stating "If you do not reply within 7 days, I shall assume you accept my offer" is invalid.

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Types of Offers

As discussed briefly under the requirements of a valid offer, proposals can take various forms depending on how they are made and to whom they are addressed.

Express Offer

An express offer is one that is made by words, either spoken or written. The offeror explicitly states their willingness to do or abstain from doing something.

Example: Writing a letter stating, "I offer to sell my laptop to you for Rs. 25,000/-" is an express offer.

Implied Offer

An implied offer is one that is made not by words but by the conduct of the parties or the circumstances of the case (Section 9). The willingness to make a proposal is inferred from the actions or behavior of the offeror.

Example: A transporter allowing passengers to board his vehicle on a specific route implies an offer to carry them to their destination upon payment of the fare.

Specific Offer

A specific offer is made to a particular identified person or a definite group of persons. Only the person or group to whom the offer is made can accept it.

Example: Mr. Ashok offers to sell his painting only to Ms. Bina. This is a specific offer to Ms. Bina.

General Offer (Carlill v. Carbolic Smoke Ball Co.)

A general offer is made to the public at large or the world at large. It can be accepted by anyone who, having knowledge of the offer, performs the conditions specified in the offer. The performance of the condition itself is deemed to be the acceptance.

The most famous illustration of a general offer is the English case of Carlill v. Carbolic Smoke Ball Co. (1893) 1 QB 256. The Carbolic Smoke Ball Company advertised their product, the "carbolic smoke ball", claiming it could cure influenza. They offered to pay £100 to anyone who used the smoke ball as directed but still contracted influenza. To show their sincerity, they deposited £1000 in a bank. Mrs. Carlill used the smoke ball as directed but caught influenza. She claimed the £100 reward. The company argued, among other things, that the offer was not made to any specific person and that she hadn't communicated her acceptance. The Court held that the advertisement was a general offer to the world at large. By using the smoke ball as directed, Mrs. Carlill had performed the condition stipulated in the offer, and this performance constituted acceptance. She was entitled to the reward.

This case established that acceptance of a general offer does not require prior communication of acceptance to the offeror; performing the condition is sufficient.

Cross Offers

When two parties make identical offers to each other simultaneously, in ignorance of each other's offer, these are called cross offers. Cross offers do not constitute acceptance of each other, and thus, no agreement is formed. For an agreement to arise, there must be an offer by one party and a knowledge-based acceptance by the other.

Example: Mr. A sends a letter offering to sell his car to Mr. B for Rs. 5 Lakhs. At the same time, Mr. B sends a letter offering to buy Mr. A's car for Rs. 5 Lakhs. If they were unaware of each other's letter at the time of sending, these are cross offers. No contract is formed unless one party accepts the other's offer after becoming aware of it.

Standing Offer (or Open Offer)

A standing offer is a tender or offer that remains open for acceptance over a period of time. It is an offer to supply goods or services as and when required, usually up to a certain quantity or value, within a specified period.

Example: A tender to supply 1000 bags of cement to a construction company over the next year as and when they place orders. Each order placed by the company constitutes an acceptance of the standing offer for that specific quantity, resulting in a separate contract for that quantity.

A standing offer is effectively a continuous offer. It can be revoked by the offeror at any time before it is accepted by placing an order, unless there is a separate contract to keep the offer open (which would require its own consideration).

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Lapse of Offer

An offer does not remain open indefinitely. It comes to an end, or lapses, under various circumstances provided in the Act and judicial decisions. Once an offer lapses, it can no longer be accepted.

Revocation (Section 6)

An offer can be revoked by the offeror at any time before acceptance is complete as against the offeror (Section 5). The communication of revocation must be complete as against the person to whom it is made, i.e., when it comes to their knowledge (Section 4).

Section 6 lists modes of revocation:

• By communication of notice of revocation: The offeror explicitly informs the offeree that the offer is withdrawn.
• By lapse of time: If a time is prescribed for acceptance, by the expiration of that time. If no time is prescribed, by the lapse of a reasonable time.
• By failure to fulfil a condition precedent to acceptance: If the offer is made subject to certain conditions, and the offeree fails to fulfil those conditions.
• By the death or insanity of the offeror: If the death or insanity of the offeror comes to the knowledge of the offeree before acceptance.
• By non-acceptance of the offer by the offeree: If the offeree rejects the offer, or makes a counter-offer (which implies rejection of the original offer).
• By subsequent illegality or destruction of subject matter: If the object of the offer becomes unlawful or the subject matter of the offer is destroyed before acceptance.

Lapse of time

If the offer specifies a time period for acceptance, the offer lapses automatically upon the expiry of that time if it has not been accepted. If no time period is specified, the offer remains open only for a 'reasonable time'. What constitutes a reasonable time depends on the nature of the offer, the subject matter, and the circumstances. For instance, an offer to buy shares in a rapidly fluctuating market would lapse after a shorter time than an offer to sell land.

Failure to fulfil condition precedent

Sometimes, an offer is made conditional upon the offeree performing a specific act or meeting a certain requirement before acceptance. If the offeree fails to fulfil this condition, the offer lapses.

Example: An offer to sell a property at a certain price, provided the buyer obtains a loan sanction from a specific bank within 15 days. If the buyer fails to get the loan sanction within 15 days, the offer lapses.

Death or insanity of offeror

The death or insanity of the offeror causes the offer to lapse, but only if the fact of the offeror's death or insanity comes to the knowledge of the offeree *before* the offeree accepts the offer (Section 6(4)). If the offeree accepts the offer in ignorance of the offeror's death or insanity, the acceptance is valid, and the legal representatives of the deceased offeror would be bound by the contract (provided the contract is not of a personal nature). The rule is different if it is the offeree who dies before acceptance; in that case, the offer lapses, and the offeree's legal representatives cannot accept it.

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Definition and Legal Requirements of a Valid Acceptance

The second crucial step in the formation of a contract, after a proposal (offer) is made, is its acceptance. Acceptance signifies the willingness of the person to whom the offer is made to be bound by the terms of the offer. Without a valid acceptance, a proposal remains just a proposal and does not ripen into an agreement or a contract.

Definition under Section 2(b) of the Indian Contract Act, 1872

Section 2(b) defines "Acceptance" as:

"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."

This definition implies that acceptance is the act of the offeree giving their consent to the proposal. When this consent is signified and communicated, the offer is accepted, leading to a promise. As per Section 2(e), a promise (or a set of promises) with consideration forms an agreement, which if enforceable by law, becomes a contract.

Legal Requirements (Essentials) of a Valid Acceptance

For an acceptance to be legally effective and convert a proposal into a promise, it must comply with certain rules:

Acceptance must be absolute and unqualified

Section 7(1) states that "In order to convert a proposal into a promise, the acceptance must be absolute and unqualified." This is a fundamental rule. The acceptance must be of the entire offer and all its terms without any modifications, additions, or conditions. If the offeree attempts to accept the offer with some changes or conditions, it is not a valid acceptance but amounts to a counter-offer, which is a rejection of the original offer and the making of a new offer.

Example: If Mr. Anil offers to sell his bicycle to Mr. Bina for Rs. 5,000/-, and Mr. Bina replies, "I accept, provided you also give me the basket," this is not a valid acceptance. It is a counter-offer.

Acceptance must be communicated

Acceptance is effective only when it is communicated to the offeror (Section 3, Section 4). Mere mental acceptance or a decision to accept in one's own mind is not sufficient. The acceptance must be expressed in some outward manner, whether by words (spoken or written) or by conduct, so that the offeror becomes aware of it.

Example: Mr. Chetan decides in his office that he will accept Mr. Deepak's offer to buy his laptop. But he does not tell Mr. Deepak or send any message. Mr. Chetan's decision is not a valid acceptance.

Acceptance must be made by the person to whom the offer is made

A specific offer can only be accepted by the person or persons to whom it is specifically made. If anyone else attempts to accept a specific offer, it is not a valid acceptance and does not create any legal relationship. In the case of a general offer (made to the public at large), it can be accepted by any person who complies with the terms of the offer.

Example: If Mr. Eknath offers to sell his house specifically to Mr. Firoz, only Mr. Firoz can accept this offer. Mr. Gopal cannot validly accept the offer even if he comes to know about it.

Acceptance must be made in the prescribed mode

Section 7(2) states that if the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that the proposal shall be accepted in the prescribed manner, and not otherwise. If he fails to do so, he accepts the acceptance.

Example: If Ms. Hina offers to sell her furniture to Ms. Ila and asks her to reply by email, but Ms. Ila sends a reply by post, Ms. Hina can insist on an email reply. If Ms. Hina does not object to the postal reply within a reasonable time, the acceptance by post is deemed valid.

Acceptance must be made within the time limit (if any) or within a reasonable time

An offer lapses if not accepted within the time prescribed in the offer, or if no time is prescribed, within a reasonable time (Section 6(2)). Acceptance must therefore be communicated before the offer lapses or is revoked.

Acceptance must follow the offer

Acceptance cannot precede the offer. An act done in ignorance of an offer cannot be considered an acceptance of that offer.

Acceptance by Conduct

Acceptance can also be implied from the conduct of the offeree (Section 3, Section 9). If the offeree acts in a manner that clearly indicates their assent to the terms of the offer, such conduct can constitute valid acceptance, provided the act is done with the intention of accepting the offer and is communicated to the offeror.

Example: If a seller sends goods on buyer's order, the act of sending goods is an implied acceptance of the buyer's offer to buy.

Communication of Acceptance

The communication of acceptance is a critical aspect, especially when parties are not in each other's physical presence. Section 4 of the Indian Contract Act, 1872 provides specific rules regarding when the communication of acceptance is considered complete.

When Communication is Complete (Section 4)

Section 4 deals with the completion of communication of offer, acceptance, and revocation. For acceptance, it distinguishes between completion as against the proposer and as against the acceptor:

Communication against offeror

The communication of an acceptance is complete as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor.

Example: Mr. Prem in Kolkata offers by letter to sell his machine to Mr. Rajesh in Mumbai. Mr. Rajesh posts a letter of acceptance to Mr. Prem. As against Mr. Prem, the communication of acceptance is complete when Mr. Rajesh posts the letter in Mumbai, putting it out of his control. This means Mr. Prem is now bound by the contract.

Communication against acceptor

The communication of an acceptance is complete as against the acceptor, when it comes to the knowledge of the proposer.

Example: Using the same example, as against Mr. Rajesh, the communication of acceptance is complete only when Mr. Prem receives and reads (or has the opportunity to read) the letter in Kolkata. This means Mr. Rajesh is not bound until Mr. Prem knows about the acceptance.

This distinction is important because it determines when the offer and acceptance can be revoked. The offeror can revoke the offer any time before the acceptance is complete *as against him* (i.e., before the letter of acceptance is posted). The acceptor can revoke their acceptance any time before the acceptance is complete *as against them* (i.e., before the letter of acceptance reaches the offeror and comes to their knowledge).

The Postal Rule (Derived from Adams v. Lindsell and codified in Section 4)

The rule that communication of acceptance is complete as against the proposer when it is put into the course of transmission is often referred to as the 'Postal Rule', as it primarily applies in cases where acceptance is sent by post. This rule originated from the English case of Adams v. Lindsell (1818) 1 B & Ald 681, where it was held that acceptance is complete upon posting the letter of acceptance, even if the letter is delayed or lost in transit. Section 4 of the Indian Contract Act, 1872 adopts this principle regarding the completion of acceptance *as against the offeror*.

Note: The Postal Rule applies strictly when the post is used as the mode of communication and when the offer contemplates acceptance by post. It may not apply to instantaneous modes of communication like telephone or email, where acceptance is generally complete only when it comes to the knowledge of the offeror.

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Acceptance in Ignorance of Offer

For an acceptance to be valid, the offeree must have knowledge of the offer and accept it with the intention of creating a legal relationship. Performing an act that coincides with the terms of an offer, but doing so without being aware of the offer, does not constitute valid acceptance.

Principle: Knowledge of Offer is Essential

Section 2(b) states that the person to whom the proposal is made must "signify his assent thereto". This "assent" implies knowledge of the proposal. If someone performs an act that fulfills the condition of an offer but is unaware that such an offer exists, they cannot be said to have signified their assent to the offer. Therefore, no promise or agreement is formed.

A relevant Indian case illustrating this principle is Lalman Shukla v. Gauri Dutt (1913) 11 ALJ 489. Gauri Dutt's nephew absconded. Gauri Dutt sent his servant, Lalman Shukla, to search for the boy. After sending the servant, Gauri Dutt announced a reward for anyone who found the nephew. Lalman Shukla found the nephew and brought him back, but he was unaware of the reward offer when he did so. Later, when he learned of the reward, he sued to claim it. The Court held that Lalman Shukla was not entitled to the reward because he did not know about the offer when he found the nephew. His act of finding the nephew, though fulfilling the condition of the offer, was not an acceptance because it was done in ignorance of the offer. He was merely performing his duty as a servant.

This principle reinforces that there must be a "meeting of minds" (consensus ad idem) for an agreement, which requires both the offer and the acceptance to be known to the respective parties.

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Silence as Acceptance (Felthouse v. Bindley)

Generally, silence on the part of the offeree does not amount to acceptance. The offeror cannot impose a condition that the offeree's silence or inaction will be treated as acceptance.

Principle: No Obligation to Reply

Acceptance requires the offeree to signify their assent (Section 2(b)). Signifying assent implies some form of positive act or communication, whether express or implied by conduct. Remaining silent or doing nothing does not typically convey assent.

A leading English case on this point, which reflects the principle followed in India, is Felthouse v. Bindley (1862) 11 CB (NS) 869. Mr. Paul Felthouse offered by letter to buy his nephew John's horse for £30 15s, adding in the letter, "If I hear no more about him, I shall consider the horse is mine at £30 15s." The nephew did not reply to this letter but told Bindley, an auctioneer, not to sell the horse as it was already sold to his uncle. Bindley mistakenly sold the horse at auction. Paul Felthouse sued Bindley for conversion (dealing with property inconsistently with the owner's rights), claiming the horse was his because the nephew had accepted his offer. The Court held that there was no contract. The nephew's intention to accept, or his instruction to the auctioneer, was not communicated to Paul Felthouse. Paul Felthouse could not impose a condition that silence would amount to acceptance. Therefore, the offer was not accepted, and the horse did not belong to Paul Felthouse.

This case establishes the rule that the offeror cannot impose a burden on the offeree to reject the offer; the offeree is under no obligation to reply, and their silence cannot be construed as acceptance.

Exceptions:

While silence generally isn't acceptance, there might be rare exceptions based on prior dealings or course of conduct between the parties, where a duty to speak might arise. For instance, if in previous transactions, silence under similar circumstances was understood as acceptance, the Court might infer acceptance from silence in a particular case. However, these are exceptions and do not negate the general rule.

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Definition of Consideration (Section 2(d))

Consideration is one of the most fundamental elements required for the formation of a valid contract. It is often described as the 'price of the promise'. It is what each party gets in return for their promise. The concept of consideration is enshrined in Section 2(d) of the Indian Contract Act, 1872.

Definition under Section 2(d) of the Indian Contract Act, 1872

Section 2(d) defines "Consideration" as:

"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."

This definition reveals the three key components or facets of consideration:

At the desire of the promisor

The act or abstinence (or promise thereof) that constitutes consideration must be done or promised to be done at the instance or request of the promisor. If an act is done voluntarily, without the request of the promisor, or at the desire of a third party, it does not constitute valid consideration for a promise. The motive for the act is immaterial; what matters is that the act was induced by the desire of the promisor.

Example: If Mr. Vijay sees Mr. Suresh's house on fire and voluntarily helps to extinguish it, Mr. Suresh's subsequent promise to pay Mr. Vijay for his help is not supported by consideration in this context because Mr. Vijay acted voluntarily, not at Mr. Suresh's desire (unless Suresh called for help generally or specifically from Vijay). However, if Mr. Suresh called out for help, and Mr. Vijay responded, that might imply the act was at Suresh's desire.

The landmark case of Durga Prasad v. Baldeo (1880) 3 All 221 illustrates this point. The plaintiff constructed some shops on the direction of the Collector. The defendants occupied the shops and promised to pay the plaintiff commission on articles sold through their agency in those shops. The plaintiff sued for the commission. The Court held that the agreement was void for lack of consideration because the shops were built at the desire of the Collector, not at the desire of the defendants. The act of constructing shops was not consideration for the defendants' promise.

Promisee or any other person

This part of the definition signifies that the consideration need not necessarily move from the promisee. It can move from the promisee or any other person (a stranger to the consideration). This is a notable distinction between Indian law and English law, where consideration must move from the promisee.

Example: Mr. Anand owes Mr. Bharat Rs. 5,000/-. Mr. Anand sells his property to Mr. Chetan and directs Mr. Chetan to pay Rs. 5,000/- to Mr. Bharat. Here, the consideration for Mr. Chetan's promise to pay Mr. Bharat (i.e., the transfer of property) moves from Mr. Anand (the promisor in the second promise, and promisee in the first promise), not from Mr. Bharat (the promisee in the second promise). Yet, this constitutes valid consideration for Mr. Chetan's promise. Mr. Bharat might be able to sue Mr. Chetan directly in some circumstances as an exception to the rule of privity of contract, but the point here is that consideration from a third party (Anand) is valid.

The case of Chinnaya v. Ramayya (1882) 4 Mad 137 is a classic example. An old lady gifted property to her daughter (defendant) with the condition that the daughter would pay an annuity to the old lady's sister (plaintiff). The daughter executed a deed promising to pay the annuity. Later, the daughter refused to pay, arguing that the plaintiff sister had not given any consideration. The Court held that the plaintiff could recover because the consideration (the gift of property) had moved from the old lady (a third party to the promise between the daughter and the sister) at the desire of the defendant daughter. This was valid consideration under Section 2(d).

Has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing something

This clause specifies the different forms that consideration can take: an act, an abstinence (refraining from doing something), or a promise to do or to abstain from doing something. It also covers consideration from a temporal perspective:

• Past Consideration: "has done or abstained from doing" refers to an act or abstinence that was completed *before* the promise was made. Section 2(d) explicitly recognizes past consideration as valid.
• Present Consideration: "does or abstains from doing" refers to an act or abstinence that is done *simultaneously* with the promise. Also called executed consideration.
• Future Consideration: "promises to do or to abstain from doing" refers to a promise to perform an act or abstinence in the *future*. Also called executory consideration.

Example (Past): If Mr. Sameer helps Mr. Tarun find his lost wallet (a voluntary act). Later, in gratitude, Mr. Tarun promises to pay Mr. Sameer Rs. 1,000/-. Mr. Sameer's past act of helping can be valid consideration for Mr. Tarun's subsequent promise in India under Section 2(d) (though this might also fall under Section 25(2) if it was done voluntarily and the promisor later agrees to compensate).

Example (Present): Mr. Umesh sells a book to Mr. Varun. Mr. Umesh hands over the book (act) simultaneously with Mr. Varun paying the price (act). This is present consideration.

Example (Future): Mr. Wasim promises to deliver goods to Mr. Yusuf next week, and Mr. Yusuf promises to pay him upon delivery. These are reciprocal promises, and each promise is future consideration for the other.

Essentials of Valid Consideration

Building on the definition in Section 2(d), the following are the key characteristics or rules that define valid consideration:

It must move at the desire of the promisor

As explained above, the act or abstinence must be performed at the specific request or desire of the promisor. If done voluntarily or at the instance of a third party, it is not valid consideration for the promisor's promise (e.g., Durga Prasad v. Baldeo).

It need not be adequate

Section 25, Explanation 2 states, "An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given." This means the law does not require consideration to be equal in value to the promise it supports. Parties are free to make their own bargains. However, extreme inadequacy might raise suspicion and lead the Court to investigate if the promisor's consent was truly free (e.g., was there undue influence, fraud, etc.?).

Example: Selling a property worth Rs. 1 Crore for Rs. 1 Lakh might be a valid contract if the consent was free, but the Court might look closely to ensure there was no coercion or fraud involved.

It must be lawful

The consideration must be something that is not forbidden by law. Section 23 of the Act specifies when consideration (and object) is unlawful. Consideration is unlawful if it is forbidden by law, or is of such a nature that, if permitted, it would defeat the provisions of any law, or is fraudulent, or involves or implies injury to the person or property of another, or the Court regards it as immoral, or opposed to public policy. An agreement with unlawful consideration is void.

Example: A promises to pay B Rs. 10,000/- if B assaults C. The consideration for A's promise is B's act of assault, which is illegal. The agreement is void due to unlawful consideration.

It may be past, present or future

As seen in the definition under Section 2(d), Indian law recognises all three types of consideration: past, present, and future. Past consideration is valid in India, whereas it is generally not in English law (except in specific situations like a promise to pay a time-barred debt or a bill of exchange).

Example (Past): Mr. Alok finds and returns Mr. Brijesh's lost phone (past act). Later, Mr. Brijesh promises to give Mr. Alok a reward of Rs. 2,000/-. Mr. Alok's past act of returning the phone is valid consideration for Mr. Brijesh's promise in India.

Example (Present): Cash sale - payment and delivery happen simultaneously.

Example (Future): Agreement to sell goods on credit - promise to deliver goods in future is consideration for promise to pay in future.

It can be an act, abstinence or a promise

Consideration involves either doing something (an act), refraining from doing something (an abstinence), or a promise to do or abstain from doing something in the future. The 'something' must have some value in the eyes of the law.

Example (Abstinence): Mr. Dinesh's neighbour, Mr. Eshan, is building a wall that slightly encroaches on Mr. Dinesh's land. Mr. Dinesh threatens legal action. Mr. Eshan promises to pay Mr. Dinesh Rs. 5,000/- if Mr. Dinesh forbears from filing a lawsuit. Mr. Dinesh's abstinence from suing (forbearance to sue) can be valid consideration for Mr. Eshan's promise, provided Mr. Dinesh genuinely believed he had a valid claim.

It must be real and not illusory

The consideration must have some value in the eyes of the law. It must not be physically or legally impossible, vague, or uncertain. A promise to do the impossible or a promise based on something that has no legal value is not valid consideration.

Example: A promise to pay Rs. 1 Lakh if the other party brings a star from the sky is based on an impossible act and is not valid consideration.

Consideration and Privity of Contract

The doctrine of Privity of Contract is a fundamental principle of contract law which states that a contract cannot confer rights or impose obligations arising under it on any person or agent other than the parties to the contract. This means that only the parties to a contract can sue or be sued on it.

The Rule in Tweddle v. Atkinson

This doctrine originated in English law and is famously illustrated by the case of Tweddle v. Atkinson (1861) 1 B & S 393. The fathers of a husband and wife entered into an agreement whereby both fathers promised to pay a sum of money to the husband upon their marriage. After the death of both fathers, the husband (the plaintiff) sued the executor of the wife's father (the defendant) to recover the promised amount. The Court held that the husband could not enforce the contract because he was a stranger to the contract (not a party to the agreement between the two fathers), even though the contract was made for his benefit. He had not provided any consideration for the promise made by his wife's father.

While the rule of privity of contract is generally followed in India, the aspect regarding consideration is different due to the wording of Section 2(d).

Indian Position on Privity:

In India, the rule of Privity of Contract applies: only a party to the contract can sue on it. However, the rule of Privity of Consideration is different from English law. As Section 2(d) states that consideration may move from "the promisee or any other person", a stranger to the consideration can sue on the contract, provided they are a party to the contract. But a stranger to the contract cannot sue, even if the contract was made for their benefit and consideration was provided by a party to the contract.

Example: A contracts with B that A will pay Rs. 1,000/- to C. C cannot sue A for the Rs. 1,000/- because C is not a party to the contract between A and B, even though the contract is for C's benefit and B provided consideration to A.

Exceptions to the Privity Rule (e.g., Trusts, Agency, Marriage Settlement)

Over time, both in English and Indian law, certain exceptions to the doctrine of privity of contract have been recognized to avoid injustice. A person who is not a party to the contract may still be able to enforce it in the following circumstances:

• Trusts: Where a trust is created, the beneficiary can sue the trustee to enforce the provisions of the trust, even though the beneficiary was not a party to the agreement creating the trust.
• Charge on Immovable Property: Where a charge or encumbrance is created on specific immovable property in favour of a person who is not a party to the agreement, that person may be able to enforce the charge (e.g., an agreement to pay maintenance to a relative out of the income of a property, creating a charge on the property).
• Marriage Settlements / Family Arrangements: Agreements made in connection with marriage or family arrangements, where provisions are made for the benefit of a person who is not a direct party to the agreement, can often be enforced by that person.
• Acknowledgement or Estoppel: Where the promisor, by their conduct, acknowledgment, or otherwise, constitutes themselves as an agent of a third party, they may be liable to that third party. For example, if A receives money from B to be paid to C, and A acknowledges to C that he holds the money for C, A becomes C's agent, and C can sue A.
• Covenants Running with the Land: In property law, certain covenants (promises) attached to the land can be enforced by or against persons who are not original parties to the covenant but subsequently acquire the land.
• Contract through an Agent: A principal can enforce a contract made by their agent, even though the principal was not directly involved in the negotiation, as the agent acts on behalf of the principal.

These exceptions allow a person who is a stranger to the contract but has a beneficial interest under it in specific circumstances to enforce their rights, mitigating the strictness of the privity rule.

Consideration of "Existing Duty"

A promise to do something which the promisor is already legally or contractually bound to do does not generally constitute fresh consideration for a new promise. This is because the promisee is not giving up anything new of value; they are merely undertaking to perform an obligation they were already under.

Existing public duty

If a person is already under a public duty imposed by law, a promise to perform that same duty is not valid consideration for a promise of reward or payment. For example, a police officer is under a public duty to prevent crime and apprehend criminals. A promise by a citizen to pay a police officer for performing this duty is not supported by valid consideration.

Example: A police officer who is investigating a theft promises to find the stolen goods. The owner of the goods promises to pay him Rs. 5,000/- if he recovers them. The police officer's promise is merely to do his existing public duty. There is no fresh consideration for the owner's promise to pay Rs. 5,000/-.

However, if the person promises to do something *more* than their existing public duty, that 'something more' can constitute valid consideration.

Example: If a police officer agrees to provide *extra* security beyond his routine duty for a private event, this 'extra' service could be valid consideration for a promise of payment.

Existing contractual duty owed to promisor

If a person is already bound by a contract to perform a certain duty for the other party (the promisor), a fresh promise by the promisor to pay extra for the performance of that same duty is generally not supported by valid consideration. The promisee is merely performing their existing contractual obligation.

Example: Mr. Ravi contracts with Mr. Sumit to build a wall for Rs. 20,000/-. After starting work, Mr. Ravi demands an additional Rs. 5,000/-, threatening to stop work otherwise. Mr. Sumit agrees to pay the extra amount. Mr. Ravi completes the wall as originally agreed. Mr. Ravi cannot legally claim the additional Rs. 5,000/- because his act of building the wall was merely the performance of his existing contractual duty to Mr. Sumit. There was no fresh consideration for Mr. Sumit's promise of the extra amount.

The performance of an existing contractual duty owed to the promisor is not good consideration for a new promise from the promisor.

Existing contractual duty owed to a third party

If a person is already bound by a contract to perform a duty for a third party, a promise to perform that same duty given to the other contracting party (the promisor) can constitute valid consideration for a promise from that promisor. This is because promising the same act to a new party creates a new legal obligation enforceable by the new party, which is something the promisee was not previously obligated to do towards that new party.

Example: Mr. Arun contracts with Mr. Binod to paint Mr. Binod's house. Later, Mr. Chetan, who has a vested interest in Mr. Binod's house being painted quickly, promises Mr. Arun Rs. 5,000/- if Mr. Arun completes the painting as per his contract with Mr. Binod. Mr. Arun's promise to Mr. Chetan to perform his duty towards Mr. Binod is valid consideration for Mr. Chetan's promise. Mr. Arun is now obligated to Mr. Chetan as well, which is a new obligation.

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