Chapter : 1

THE INDIAN CONTRACT ACT, 1872

Unit-1 : Nature of Contract

UNIT OVERVIEW

PROPOSAL / OFFER [SECTION 2(a) OF THE INDIAN CONTRACT ACT, 1872]

Definition :
According to Section 2(a) of the Indian Contract Act, 1872,
When one person signifies to another
his willingness,
‘to do or to abstain from doing’ (Not to do) anything
with a view to obtaining the assent of that other
to such act or abstinence,
he is said to make a proposal”.

Will you buy my Car for Rs 100000

Yes, I Agree

Example : (1) A told B that he is willing to sell his car – NOT an Offer, as it is just a willingness.
Example : (2) Where ‘A’ tells ‘B’ that he desires to marry by the end of 2019, it does not constitute an offer of
marriage by ‘A’ to ‘B’. Therefore, to constitute a valid offer expression of willingness must be made to obtain
the assent (acceptance) of the other. Thus, if in the above example, ‘A’ further adds, ‘Will you marry me’, it
will constitute an offer.
Example : (3) When A ask B after his car meets with an accident with B’s scooter not to go to Court and he will

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pay the repair charges to B for the damage to B’s scooter; it is an act of not doing or abstinence.

Example : (4) A ask B , if you will not sing in tomorrow’s concert, I will pay you Rs.20000. It is an offer for not
to do something.

[ Willingness to do/ Not to do + With a view to obtain approval = Offer ]

Analysis :- Essentials of a proposal/offer are-

1. The person making the proposal or offer is called the ‘promisor’ or ‘offeror’: The person to whom
the offer is made is called the ‘offeree’ and the person accepting the offer is called the ‘promisee’
or ‘acceptor’.
2. For a valid offer, the party making it must express his willingness ‘to do’ or ‘not to do’ something:
There must be an expression of willingness to do or not to do some act by the offeror.
3. The willingness must be expressed with a view to obtain the assent of the other party to whom the
offer is made.
4. An offer can be positive as well as negative: Thus “doing” is a positive act and “not doing”, or
abstinence” is a negative act; nonetheless both these acts have the same effect in the eyes of law.

Classification of Offer…
An offer can be classified as :

General Special Counter Cross Standing

Offer Offer Offer Offer Offer

(a) General offer: It is an offer made to public at large and hence anyone can accept and do
the desired act (Carlill v. Carbolic Smoke Ball Co.). In terms of Section 8 of the Act,
anyone performing the conditions of the offer can be considered to have accepted the
offer. Until the general offer is retracted or withdrawn, it can be accepted by anyone at
any time as it is a continuing offer.
Case Law: Carlill Vs. Carbolic Smoke Ball Co. (1893)
Facts: In this famous case, Carbolic smoke Ball Co. advertised in several newspapers that a
reward of £100 would be given to any person who contracted influenza after using the
smoke balls produced by the Carbolic Smoke Ball Co. according to printed directions. One
lady, Mrs. Carlill, used the smoke balls as per the directions of company and even then,
suffered from influenza. Held, she could recover the amount as by using the smoke balls
she had accepted the offer.

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 (b) Special/specific offer: When the offer is made to a specific or an ascertained person, it is
known as a specific offer. Specific offer can be accepted only by that specified person to
whom the offer has been made. [Boulton v. Jones]
Example 36: ‘A’ offers to sell his car to ‘B’ at a certain cost. This is a specific offer.

(c) Cross offer: When two parties exchange identical offers in ignorance at the time of each
other’s offer, the offers are called cross offers. There is no binding contract in such a
case because offer made by a person cannot be construed as acceptance of the another’s
offer.
Example 37: If A makes a proposal to B to sell his car for ` 2 lacs and B, without knowing
the proposal of A, makes an offer to purchase the same car at ` 2 lacs from A, it is not an
acceptance, as B was not aware of proposal made by A. It is only cross proposal (cross
offer). And when two persons make offer to each other, it cannot be treated as mutual
acceptance. There is no binding contract in such a case.
(d) Counter offer: When the offeree offers to qualified acceptance of the offer subject to
modifications and variations in the terms of original offer, he is said to have made a
counter offer. Counter-offer amounts to rejection of the original offer. It is also called as
Conditional Acceptance.
Example 38: ‘A’ offers to sell his plot to ‘B’ for `10 lakhs. ’B’ agrees to buy it for ` 8 lakhs.
It amounts to counter offer. It will result in the termination of the offer of ’A’. If later on
‘B’ agrees to buy the plot for` 10 lakhs, ’A’ may refuse.

(e) Standing or continuing or open offer: An offer which is allowed to remain open for
acceptance over a period of time is known as standing or continuing or open offer.
Tenders that are invited for supply of goods is a kind of standing offer.

Essential of a valid offer

1. It must be capable of creating legal relations: Offer must be such as in law is capable
of being accepted and giving rise to legal relationship. If the offer does not intend to give
rise to legal consequences and creating legal relations, it is not considered as a valid offer
in the eye of law. A social invitation, even if it is accepted, does not create legal relations
because it is not so intended.
2. It must be certain, definite and not vague: If the terms of an offer are vague or
indefinite, its acceptance cannot create any contractual relationship. Thus, where A offers
to sell B 100 quintals of oil, there is nothing whatever to show what kind of oil was
intended. The offer is not capable of being accepted for want of certainty.
3. It must be communicated to the offeree: An offer, to be complete, must be
communicated to the person to whom it is made, otherwise there can be no acceptance of
it. Unless an offer is communicated, there can be no acceptance by it. An acceptance of an
offer, in ignorance of the offer, is not acceptance and does not confer any right on the
acceptor.
This can be illustrated by the landmark case of Lalman Shukla v. GauriDutt
Facts: G (Gauridutt) sent his servant L (Lalman) to trace his missing nephew. He then
announced that anybody who traced his nephew would be entitled to a certain reward. L
traced the boy in ignorance of this announcement. Subsequently when he came to know
of the reward, he claimed it. Held, he was not entitled to the reward, as he did not know
the offer.

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4. It must be made with a view to obtaining the assent of the other party: Offer must be
made with a view to obtaining the assent of the other party addressed and not merely
with a view to disclosing the intention of making an offer.
5. It may be conditional: An offer can be made subject to any terms and conditions by the
offeror.
Example 39: Offeror may ask for payment by RTGS, NEFT etc. The offeree will have to
accept all the terms of the offer otherwise the contract will be treated as invalid.
6. Offer should not contain a term the non-compliance of which would amount to
acceptance: Thus, one cannot say that if acceptance is not communicated by a certain time
the offer would be considered as accepted.
Example 40: A proposes B to purchase his android mobile for `5000 and if no reply by him
in a week, it would be assumed that B had accepted the proposal. This would not result
into contract.
7. The offer may be either specific or general: Any offer can be made to either public at large
or to the any specific person. (Already explained in the heading types of the offer)
8. The offer may be express or implied: An offer may be made either by words or by
conduct.
Example 41: A boy starts cleaning the car as it stops on the traffic signal without being
asked to do so, in such circumstances any reasonable man could guess that he expects
to be paid for this, here boy makes an implied offer.
9. Offer is Different from a mere statement of intention, an invitation to offer, a mere
communication of information, a prospectus and Advertisement.
(i) A statement of intention and announcement.
Example 42: A father wrote his son about his wish of making him the owner of
all his property is mere a statement of intention.
Example 43: An announcement to give scholarships to children scoring more
than 95% in 12th board is not an offer.
(ii) Offer must be distinguished from an answer to a question.

Case Law: Harvey vs. Facie [1893] AC 552

In this case, Court explained the distinction between an offer and an invitation to
offer. In the given case, the plaintiffs through a telegram asked the defendants
two questions namely,
(i) Will you sell us Parker Pen? and
(ii) Telegraph lowest cash price.
The defendants replied through telegram that the “lowest price for the parker
Pen is £ 900”. The plaintiffs sent another telegram stating “we agree to buy
Parker pen at £ 900”. However, the defendants refused to sell the property at
the price.
The plaintiffs sued the defendants contending that they had made an offer to
sell the property at £ 900 and therefore they are bound by the offer.
However, the Court did not agree with the plaintiffs on the ground that while
plaintiffs had asked two questions, the defendant replied only to the second

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 question by quoting the price but reserved their answer with regard to their
willingness to sell. Thus, they made no offer at all. Their Lordships held that
the mere statement of the lowest price at which the vendor would sell contained
no implied contract to sell to the person who had enquired about the price.
The above decision was followed in Mac Pherson vs Appanna [1951] A.S.C. 184
where the owner of the property had said that he would not accept less than £
6000/- for it. This statement did not indicate any offer but indicated only an
invitation to offer.
(iii) A statement of price is not an offer: Quoting the price of a product does not
constitute it as offer. (refer case of Harvey Vs. Facie as discussed above)
Example 44: The price list of goods does not constitute an offer for sale of certain
goods on the listed prices. It is an invitation to offer.
(iv) An invitation to make an offer or do business. In case of “an invitation to make
an offer”, the person making the invitation does not make an offer rather
invites the other party to make an offer. His objective is to send out the
invitation that he is willing to deal with any person who, on the basis of such
invitation, is ready to enter into contract with him subject to final terms and
conditions.
Example 45: An advertisement for sale of goods by auction is an invitation to the
offer. It merely invites offers/bids made at the auction.
When goods are sold through auction, the auctioneer does not contract with
anyone who attends the sale. The auction is only an advertisement to sell but
the items are not put for sale though persons who have come to the auction
may have the intention to purchase. Similar decision was given in the case of
Harris vs. Nickerson (1873).
Similarly, Red Herring Prospectus issued by a company, is only an invitation to
the public to make an offer to subscribe to the securities of the company.
10. A statement of price is not an offer

What is invitation to offer?

An offer is definite and capable of converting an intention into a contract. Whereas

an Invitation to an offer is only a circulation of an offer, it is an attempt to induce
offers and precedes a definite offer. An invitation to offer is an act prior to making an
offer. Acceptance of an invitation to an offer does not result in the contract and only
an offer come out in the process of negotiation.
When a person advertises that he has stock of books to sell or houses to let, there
is no offer to be bound by any contract. Such advertisements are offers to negotiate-
offers to receive offers. In order to ascertain whether a particular statement amounts
to an ‘offer’ or an ‘invitation to offer’, the test would be intention with which such
statement is made. Does the person who made the statement intend to be bound by
it as soon as it is accepted by the other or he intends to do some further act, before he
becomes bound by it. In the former case, it amounts to an offer and in the latter case,
it is an invitation to offer.

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 Difference between offer and invitation to make an offer:
In terms of Section 2(a) of the Act, an offer is the final expression of willingness by the
offeror to be bound by the offer should the other party chooses to accept it. On the
other hand, offers made with the intention to negotiate or offers to receive offers are
known as invitation to offer. Thus, where a party without expressing his final
willingness proposes certain terms on which he is willing to negotiate he does not
make an offer, but only invites the other party to make an offer on those terms.
In order to ascertain whether a particular statement amounts to an offer or an invitation
to offer, the test would be intention with which such statement is made. The mere
statement of the lowest price which the vendor would sell contains no implied contract
to sell at that price to the person making the inquiry.
If a person who makes the statement has the intention to be bound by it as soon as the
other accepts, he is making an offer. Thus, the intention to be bound is important factor
to be considered in deciding whether a statement is an ‘offer’ or ‘invitation to offer.’
Following are instances of invitation to offer to buy or sell:
(i) An invitation by a company to the public to subscribe for its shares.
(ii) Display of goods for sale in shop windows.
(iii) Advertising auction sales and
(iv) Quotation of prices sent in reply to a query regarding price.

Basis Offer Invitation to Offer

Meaning Section 2(a) of the Act, an offer is the Where a party without
final expression of willingness by the expressing his final willingness
offeror to be bound by the offer proposes certain terms on
should the other party chooses to which he is willing to negotiate
accept it. he does not make an offer, but
only invites the other party to
make an offer on those terms.

Intention of the parties If a person who makes the statement If a person has the intention of
has the intention to be bound by it as negotiating on terms it is called
soon as the other accepts, he is invitation to offer
making an offer.

Sequence An offer cannot be an act precedent An invitation to offer is always

to invitation to offer an act precedent to offer

Acceptance
Definition of Acceptance: In terms of Section 2(b) of the Act, ‘the term acceptance’ is
defined as follows:
“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”.
Analysis of the above definition

1. When the person to whom proposal is made - for example if A offers to sell his car to
B for ` 200000. Here, proposal is made to B.
2. The person to whom proposal is made i.e. B in the above example and if B signifies his

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 consent on that proposal, then we can say that B has signified his consent on the
proposal made by A.
3. When B has signified his consent on that proposal, we can say that the proposal has been
accepted.
4. Accepted proposal becomes Promise.
Once an offer is accepted it becomes a promise and cannot be withdrawn or revoked. An offer
remains an offer so long as it is not accepted but becomes a contract as soon as it is accepted.

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.
Case Law: Boulton vs. Jones (1857)
Facts: Boulton bought a business from Brocklehurst. Jones, who was Broklehurst’s creditor, placed
an order with Brocklehurst for the supply of certain goods. Boulton supplied the goods even
though the order was not in his name. Jones refused to pay Boultan for the goods because by
entering into the contract with Blocklehurst, he intended to set off his debt against Brocklehurst.
Held, as the offer was not made to Boulton, therefore, there was no contract between Boulton
and Jones.

Boulton
Broklehurst

Jones ‘Creditors of Broklehurst’

(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.
M offered to sell his land to N for £280. N replied purporting to accept the offer but
enclosed a cheque for £ 80 only. He promised to pay the balance of £ 200 by monthly
instalments of £ 50 each. It was held that N could not enforce his acceptance because it
was not an unqualified one. [Neale vs. Merret (1930)].
Example 46: ‘A’ enquires from ‘B’, “Will you purchase my car for ` 2 lakhs?” If ‘B’ replies “I
shall purchase your car for ` 2 lakhs, if you buy my motorcycle for ` 50000/-, here ‘B’
cannot be considered to have accepted the proposal. If on the other hand ‘B’ agrees to
purchase the car from ‘A’ as per his proposal subject to availability of valid Registration
Certificate / book for the car, then the acceptance is in place though the offer contained
no mention of R.C. book. This is because expecting a valid title for the car is not a
condition. Therefore, the acceptance in this case is unconditional.

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(3) The acceptance must be communicated: To conclude a contract between the parties, the
acceptance must be communicated in some perceptible form. Any conditional
acceptance or acceptance with varying or too deviant conditions is no acceptance. Such
conditional acceptance is a counter proposal and has to be accepted by the proposer,
if the original proposal has to be materialize into a contract. 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. The above
points will be clearer from the following examples:
Brogden vs. Metropolitan Railway Co. (1877)

Facts: Brogden a supplier, sent a draft agreement relating to the supply of coal to the
manager of railway Co. viz, Metropolitian railway for his acceptance. The manager
wrote the word “Approved” on the same and put the draft agreement in the drawer of
the table intending to send it to the company’s solicitors for a formal contract to be drawn
up. By an oversight the draft agreement remained in drawer. Held, that there was no
contract as the manager had not communicated his acceptance to the supplier, B.

Metro Politan
Railway Co.

A mere variation in the language not involving any difference in substance would not
make the acceptance ineffective.
Where an offer made by the intended offeree without the knowledge that an offer has
been made to him cannot be deemed as an acceptance thereto. (Bhagwandas v.
Girdharilal)
Example 47: A proposed B to marry him. B informed A’s sister that she is ready to marry
him. But his sister didn’t inform A about the acceptance of proposal. There is no
contract as acceptance was not communicated to A.
(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.
Example 48: If the offeror prescribes acceptance through messenger and offeree sends
acceptance by email, there is no acceptance of the offer if the offeror informs the
offeree that the acceptance is not according to the mode prescribed. But if the offeror
fails to do so, it will be presumed that he has accepted the acceptance and a valid contract
will arise.

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(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 reason
able time and before the offer lapses. What is reasonable time is now
here defined in the law and thus would depend on facts and circumstances of the
particular case.
Example 49: A offered to sell B 50 kgs of bananas at Rs. 500. B communicated the
acceptance after four days. Such is not a valid contract as bananas being perishable
items could not stay for a period of week. Four days is not a reasonable time in this case
Example 50: A offers B to sell his house at Rs. 10,00,000. B accepted the offer and
communicated to A after 4 days. Held the contract is valid as four days can be considered
as reasonable time in case of sell of house.
(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.
Case Law: Felthouse vs. Bindley (1862)
Facts: F (Uncle) offered to buy his nephew’s horse for £30 saying “If I hear no more
about it I shall consider the horse mine at £30.” The nephew did not reply to F at all.
He told his auctioneer, B to keep the particular horse out of sale of his farm stock as
he intended to reserve it for his uncle. By mistake the auctioneer sold the horse. F sued
him for conversion of his property. Held, F could not succeed as his nephew had not
communicated the acceptance to him.

Nephew
Felthouse

Bindley

Example 51: ’A’ subscribed for the weekly magazine for one year. Even after expiry of
his subscription, the magazine company continued to send him magazine for five years.
And also ‘A’ continued to use the magazine but denied to pay the bills sent to him. ’A’
would be liable to pay as his continued use of the magazine was his acceptance of the
offer.
(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

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 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.
Example 52: when a tradesman receives an order from a customer and executes the
order by sending the goods, the customer’s order for goods constitutes the offer, which
has been accepted by the trades man subsequently by sending the goods. It is a case of
acceptance by conduct.
Example 53: When a cobbler sits with a brush and polish, a person giving his shoes
for polishing constitutes as acceptance by conduct.

Communication of Offer & Acceptance

One important common requirement for both ‘offer’ and ‘acceptance’ is their effective
communication. Effective and proper communication prevents avoidable revocation and
misunderstanding between parties.
The difficulty arises when the contracting parties are at a distance from one another and
they utilise the services of the post office or telephone or email (internet). In such cases,
it is very much relevant for us to know the exact time when the offer or acceptance is
made or complete.

Communication of Offer
“The communication of offer is complete when it comes to the knowledge of the person to
whom it is made”
Example 54: Where ‘A’ makes a proposal to ‘B’ by post to sell his house for ` 5 lakhs and if the
letter containing the offer is posted on 10th March and if that letter reaches ‘B’ on 12th
March the offer is said to have been communicated on 12th March when B received the letter.
Thus, it can be summed up that 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.
Mere receiving of the letter is not sufficient, he must receive or read the message contained in
the letter.
He receives the letter on 12th March, but he reads it on 15th of March. In this case offer is
communicated on 15th of March, and not 12th of March.

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Communication of Acceptance
There are two issues for discussion in this topic. ‘The modes of acceptance’ and ‘when is acceptance
complete’?
Let’s, First consider the Modes of acceptance. There are Two modes of communication namely,

By an Act By an Omission

Communication by act would include any Communication of acceptance by

expression of words whether written or oral. ‘omission’.
Written words will include letters, telegrams,
Such omission is conveyed by a
faxes, emails and even advertisements.
conduct or by forbearance on the
Oral words will include telephone messages. part of one person to convey his
willingness or assent. However,
Again communication would include any
silence would not be treated as
conduct, intended to communicate like
communication by ‘omission’.
positive acts or signs so that the other
person understands what the person means Example 55: A offers Rs. 50000 to B
to say or convey. if he does not arrive before the court
of law as an evidence to the case. B
does not arrive on the date of
A mere mental unilateral assent in one’s own mind would hearing to the court. Here omission
not amount to communication. of doing an act amounts to
acceptance.
Where a resolution passed by a bank to sell land to ‘A’
remained uncommunicated to A, it was held that there was
no communication and hence no contract. [Central Bank Yeotmal vs Vyankatesh (1949) ].

Let’s now come to another issue of when communication of acceptance is complete. In this
there are two Point of views

As Against the Proposer As Against the Acceptor

As against the proposer, when it is put in the course of transmission to him so as to be out of the
power of the acceptor to withdraw the same;

As against the acceptor, when it comes to the knowledge of the proposer.

Proposer/Offeror Acceptor/Offeree
Letter of Acceptance
Posted (15/04/2023)
Letter of Acceptance
Received (18/04/2023)

For instance in the above example, if ‘B’ accepts, A’s proposal and sends his acceptance by post

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on 15th, the communication of acceptance as against ‘A’ is complete on 15th, i.e. when the
letter is posted. As against ‘B’ acceptance will be complete, when the letter reaches ‘A’.

Here ‘A’ the proposer will be bound by B’s acceptance, even if the letter of acceptance is delayed
in post or lost in transit. The golden rule is proposer becomes bound by the contract, the moment
acceptor has posted the letter of acceptance. But it is necessary that the letter is correctly addressed,
adequately stamped and duly posted. In such an event the loss of letter in transit, wrong delivery,
non delivery etc., will not affect the validity of the contract.
However, from the view point of acceptor, he will be bound by his acceptance only when the
letter of acceptance has reached the proposer. So it is crucial in this case that the letter reaches
the proposer. If there is no delivery of the letter, the acceptance could be treated as having been
completed from the viewpoint of proposer but not from the viewpoint of acceptor. Of course
this will give rise to an awkward situation of only one party to the contract, being treated as
bound by the contract though no one would be sure as to where the letter of acceptance had gone.
Acceptance over telephone or telex or fax: When an offer is made of instantaneous
communication like telex, telephone, fax or through e-mail, the contract is only complete when
the acceptance is received by the offeree, and the contract is made at the place where the
acceptance is received. However, in case of a call drops and disturbances in the line, there may
not be a valid contract.
Communication of special conditions: Sometimes there are situations where there are contracts
with special conditions. These special conditions are conveyed tacitly and the acceptance of
these conditions are also conveyed by the offeree again tacitly or without him even realizing
it.
Example 56: Where a passenger undertakes a travel, the conditions of travel are printed at the
back of the tickets, sometimes these special conditions are brought to the notice of the
passenger, sometimes not. In any event, the passenger is treated as having accepted the special
condition the moment he bought his ticket.

When someone travels from one place to another by air, it could be seen that special conditions
are printed at the back of the air ticket in small letters [in a non-computerized train ticket even
these are not printed] Sometimes these conditions are found to have been displayed at the
notice board of the Airlines office, which passengers may not have cared to read. The question
here is whether these conditions can be considered to have been communicated to the
passengers of the Airlines and can the passengers be treated as having accepted the conditions.
The answer to the question is in the affirmative and was so held in Mukul Datta vs. Indian Airlines
where the plaintiff had travelled from Delhi to Kolkata by air and the ticket bore conditions in fine
print. But such terms and condition should be reasonable.
Example 57: Where a launderer gives his customer a receipt for clothes received for washing. The
receipt carries special conditions and are to be treated as having been duly communicated to
the customer and therein a tacit acceptance of these conditions is implied by the customer’s
acceptance of the receipt [Lily White vs. R. Mannuswamy ].
CASE LAW: Lilly White vs. Mannuswamy (1970)
Facts: P delivered some clothes to drycleaner for which she received a laundry receipt containing
a condition that in case of loss, customer would be entitled to claim 15% of the market price of
value of the article, P lost her new saree. Held, the terms were unreasonable and P was entitled
to recover full value of the saree from the drycleaner.

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Standard forms of contracts:

Customer Form for opening of bank Account SBI

It is well established that a standard form of contract may be enforced on another who is
subjectively unaware of the contents of the document, provided the party wanting to enforce the
contract has given notice, which is sufficiently reasonable.
But the acceptor will not incur any contractual obligation, if the document is so printed and
delivered to him in such a state that it does not give reasonable notice on its face that it contains
certain special conditions.
In this connection, let us consider a converse situation. A transport carrier accepted the goods for
transport without any conditions. Subsequently, he issued a circular to the owners of goods
limiting his liability for the goods. In such a case, since the special conditions were not
communicated prior to the date of contract for transport, these were not binding on the owners
of goods [Raipur transport Co. vs. Ghanshyam].

Revocation of Offer & Acceptance

If there are specific requirements governing the making of an offer and the acceptance of that
offer, we also have specific law governing their revocation.
Proposal can be revoked at any time before the communication of its acceptance is complete as
against the proposer.
Acceptance may be revoked at any time before the communication of acceptance is complete
as against the acceptor.

Proposer/Offeror Acceptor/Offeree
Letter of Acceptance
Posted (15/04/2023)
Letter of Acceptance
Received (18/04/2023)

When communication of revocation (of the proposal or its acceptance) is complete.

(i) as against the person who makes it when it is put into a course of transmission to the
person to whom it is made so as to be out of the power of the person who makes it, and
(ii) as against the person to whom it is made, when it comes to his knowledge.

Contract through post- As acceptance, in English law, cannot be revoked, so that once the letter of
acceptance is properly posted the contract is concluded. In Indian law, the acceptor or can revoke

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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.
Contract over Telephone- A contract can be made over telephone. The rules regarding offer and
acceptance as well as their communication by telephone or telex are the same as for the contract
made by the mutual meeting of the parties. The contract is formed as soon as the offer is accepted
but the offeree must make it sure that his acceptance is received by the offeror, otherwise there
will be no contract, as communication of acceptance is not complete. If telephone unexpectedly
goes dead during conversation, the acceptor must confirm again that the words of acceptance
were duly heard by the offeror.
Revocation of proposal otherwise than by communication: When a proposal is made, the
proposer may not wait indefinitely for its acceptance. The offer can be revoked otherwise than
by communication or sometimes by lapse.

Modes of revocation of offer

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WHAT IS A CONTRACT?
The term contract is defined under section 2(h) of the Indian Contract Act, 1872 as-
“An agreement enforceable by law”.
The contract consists of two essential elements:
(i) an agreement, and
its enforceability by law.

(i) Agreement - The term ‘agreement’ given in Section 2(e) of the Act is defined
as-

“Every promise and every set of promises, forming the consideration for each
other”.
To have an insight into the definition of agreement, we need to understand
promise.
Section 2 (b) defines Promise as-“when the person to whom the proposal is
made signifies his assent there to, the proposal is said to be accepted and
Proposal when accepted, becomes a promise”.
The following points emerge from the above definition:
1. when the person to whom the proposal is made
2. signifies his assent on that proposal which is made to him
3. the proposal becomes accepted
4. accepted proposal becomes promise
Thus, we say that an agreement is the result of the proposal made by one party
to the other party and that other party gives his acceptance thereto for mutual
consideration.
Agreement = Offer/Proposal + Acceptance

(ii) Enforceability by law – An agreement to become a contract must give rise to a

legal obligation which means a duly enforceable by law.
Thus, from above definitions it can be concluded that –
[ Contract = Accepted proposal/Agreement + Enforceability by law ]

Example 1: A agrees with B to sell car for ` 2 lacs to B. Here A is under an obligation to give car to
B and B has the right to receive the car on payment of ` 2 lacs and also B is under an obligation
to pay ` 2 lacs to A and A has a right to receive ` 2 lacs.
Example 2: Father promises his son to pay him pocket allowance of Rs. 500 every month. But he
refuses to pay later. The son cannot recover the same in court of law as this is a social agreement.
This is not created with an intention to create legal relationship and hence it is not a contract.

So, Law of Contract deals with only such legal obligations which has resulted from agreements.
Such obligation must be contractual in nature. However, some obligations are outside the

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 purview of the law of contract.
Example 3: An obligation to maintain wife and children, an order of the court of law etc. These
are status obligations and so out of the scope of the Contract Act.

Difference between Agreement and Contract

Basis of Agreement Contract
differences
Meaning Every promise and every set of promises, Agreement enforceable by law.
forming the consideration for each other. (Agreement + Legal enforceability)
(Offer + Acceptance)
Scope It’s a wider term including both legal and It is used in a narrow sense with the
social agreement. specification that contract is only legally
enforceable agreement.
Legal obligation It may not create legal obligation. An Necessarily creates a legal obligation. A
agreement does not always grant rights contract always grants certain rights to
to the parties every party.
Nature All agreement are not contracts. All contracts are agreements.

ESSENTIALS OF A VALID CONTRACT

Essentials of a valid contract

As given by Section 10 of Indian Contract Act, Not given by Section 10 but are also
1872 considered essential

1 Agreement 1 Two parties

2 Free consent 2 Intention to create legal relationship

3 Competency of the parties 3 Fulfilments of legal formalities

4 Lawful consideration 4 Certainty of meaning

5 Legal object 5 Possibility of performance

-
6 Not expressly declared to be void [as per Section 6
24 to 30 and 56]

In terms of Section 10 of the Act, “all agreements are contracts if they are made by the free
consent of the parties competent to contract, for a lawful consideration and with a lawful object
and are not expressly declared to be void”.
Since section 10 is not complete and exhaustive, so there are certain others sections which
also contains requirements for an agreement to be enforceable. Thus, in order to create a valid
contract, the following elements should be present:

1. Two Parties: One cannot contract with himself. A contract involves at least two parties-
one party making the offer and the other party accepting it. A contract may be made
by natural persons and by other persons having legal existence E.g., companies,
universities etc. It is necessary to remember that identity of the parties be ascertainable.
Example 4: To constitute a contract of sale, there must be two parties- seller and buyer.
The seller and buyer must be two different persons, because a person cannot buy his

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 own goods.
In State of Gujarat vs. Ramanlal S & Co. when on dissolution of a partnership, the assets
of the firm were divided among the partners, the sales tax officer wanted to tax this
transaction. It was held that it was not a sale. The partners being joint owner of those
assets cannot be both buyer and seller.
2. Parties must intend to create legal obligations: There must be an intention on the part
of the parties to create legal relationship between them. Social or domestic type of
agreements are not enforceable in court of law and hence they do not result into
contracts.
Example 5: A husband agreed to pay to his wife certain amount as maintenance every
month while he was abroad. Husband failed to pay the promised amount. Wife sued him
for the recovery of the amount. Here, in this case, wife could not recover as it was a
social agreement and the parties did not intend to create any legal relations. (Balfour v.
Balfour)
Example 6: Lekhpal promises to pay ` 5 lakhs to his son if the son passes the CA exams.
On passing the exams, the son claims the money. Here, the son could not recover as it
was a social agreement.
Example 7: A sold goods to B on a condition that he must pay for the amount of goods
within 30 days. Here A intended to create legal relationship with B. Hence the same
is contract. On failure by B for making a payment on due date, A can sue him in the
court of law.
3. Other Formalities to be complied with in certain cases: A contract may be written or
spoken. As to legal effects, there is no difference between a written contract and
contract made by word of mouth. But in the interest of the parties the contract must
be written. In case of certain contracts some other formalities have to be complied
with to make an agreement legally enforceable.
For e.g. Contract of Insurance is not valid except as a written contract. Further, in
case of certain contracts, registration of contract under the laws which is in force at
the time, is essential for it to be valid, e.g. in the case of immovable property.
Thus, where there is any statutory requirement that any contract is to be made in
writing or in the presence of witness, or any law relating to the registration of
documents must be complied with.
4. Certainty of meaning: The agreement must be certain and not vague or indefinite.
Example 8: A agrees to sell to B a hundred tons of oil. There is nothing certain in order
to show what kind of oil was intended for.
Example 9: XYZ Ltd. agreed to lease the land to Mr. A for indefinite years. The contract
is not valid as the period of lease is not mentioned.
5. Possibility of performance of an agreement: The terms of agreement should be capable
of performance. An agreement to do an act impossible in itself cannot be enforced.

Example 10: A agrees with B to discover treasure by magic. The agreement cannot be
enforced as it is not possible to be performed.

According to Section 10 of the Indian Contract Act, 1872, the Following are the essential

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 elements of a Valid Contract:
I. Offer and Acceptance or an agreement: An agreement is the first essential element of a
valid contract. According to Section 2(e) of the Indian Contract Act, 1872, “Every promise
and every set of promises, forming consideration for each other, is an agreement” and
according to Section 2(b) “A proposal when accepted, becomes a promise”. An agreement
is an outcome of offer and acceptance.
II. Free Consent: Two or more persons are said to consent when they agree upon the same
thing in the same sense. This can also be understood as identity of minds in understanding
the terms viz consensus ad idem. Further such a consent must be free. Consent would be
considered as free consent if it is not caused by coercion, undue influence, fraud,
misrepresentation or mistake.
Example 11: A, who owns two cars is selling red car to B. B thinks he is purchasing the black
car. There is no consensus ad idem and hence no contract.
To determine consensus ad idem the language of the contract should be clearly drafted.
Thus, if A says B “ Will you buy my red car for Rs. 30000? “ and B says “yes” to it. There
is said to be consensus ad idem i.e. the meaning is taken in same sense by both the
parties.
Example 12: A threatened to shoot B if he (B) does not lend him `2000 and B agreed to
it. Here the agreement is entered into under coercion and hence not a valid contract.
III. Capacity of the parties: Capacity to contract means the legal ability of a person to enter
into a valid contract. Section 11 of the Indian Contract Act specifies that every person is
competent to contract who
(a) is of the age of majority according to the law to which he is subject and
(b) is of sound mind and
(c) is not otherwise disqualified from contracting by any law to which he is subject.
A person competent to contract must fulfil all the above three qualifications.
Qualification (a) refers to the age of the contracting person i.e. the person entering into
contract must be of 18 years of age. Persons below 18 years of age are considered
minor, therefore, incompetent to contract.
Qualification (b) requires a person to be of sound mind i.e. he should be in his senses
so that he understands the implications of the contract at the time of entering into a
contract. A lunatic, an idiot, a drunken person or under the influence of some intoxicant
is not supposed to be a person of sound mind.
Qualification (c) requires that a person entering into a contract should not be disqualified
by his status, in entering into such contracts. Such persons are an alien enemy, foreign
sovereigns, convicts etc. They are disqualified unless they fulfil certain formalities
required by law.
Contracts entered by persons not competent to contract are not valid.
IV. Consideration: It is referred to as ‘quid pro quo’ i.e. ‘something in return’. A valuable
consideration in the sense of law may consist either in some right, interest, profit or
benefit accruing to one party, or some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other.
Example 13:- A agrees to sell his books to B for ` 100. B’s promise to pay ` 100 is the

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 consideration for A’s promise to sell his books. A’s promise to sell the books is the
consideration for B’s promise to pay ` 100.

V. Lawful Consideration and Object: The consideration and object of the agreement must
be lawful.
Section 23 states that consideration or object is not lawful if it is prohibited by law, or it
is such as would defeat the provisions of law, if it is fraudulent or involves injury to the
person or property of another or court regards it as immoral or opposed to public policy.
Example 14: ‘A’ promises to drop prosecution instituted against ‘B’ for robbery and
‘B’ promises to restore the value of the things taken. The agreement is void, as its object
is unlawful.
Example 15: A agrees to sell his house to B against 100 kgs of cocaine (drugs). Such
agreement is illegal as the consideration is unlawful.
VI. Not expressly declared to be void: The agreement entered into must not be which the
law declares to be either illegal or void. An illegal agreement is an agreement expressly
or impliedly prohibited by law. A void agreement is one without any legal effects.
Example 16: Threat to commit murder or making/publishing defamatory statements
or entering into agreements which are opposed to public policy are illegal in nature.
Similarly, any agreement in restraint of trade, marriage, legal proceedings, etc. are classic
examples of void agreements.

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TYPES OF CONTRACTS

I. On the basis of the validity

1. Valid Contract: An agreement which is binding and enforceable is a valid contract.

It contains all the essential elements of a valid contract.

Example 17: A ask B if he wants to buy his bike for Rs.10,000. B agrees to buy
bike. It is agreement which is enforceable by law. Hence, it is a valid contract.

2. Void Contract: Section 2 (j) states as follows: “A contract which ceases to be

enforceable by law becomes void when it ceases to be enforceable”. Thus a void
contract is one which cannot be enforced by a court of law.

Example 18: Mr. X agrees to write a book with a publisher. Such contract is valid.
But after few days, X dies in an accident. Here the contract becomes void due
to the impossibility of performance of the contract. Thus, a valid contract when
cannot be performed because of some uncalled happening becomes void.

Example 19: A contracts with B (owner of the factory) for the supply of 10 tons of
sugar, but before the supply is effected, the fire caught in the factory and

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 everything was destroyed. Here the contract becomes void.

3. Voidable Contract: Section 2(i) defines that “an agreement which is enforceable by
law at the option of one or more parties thereto, but not at the option of the
other or others is a voidable contract”.

This in fact means where one of the parties to the agreement is legally entitled to
avoid performing his part, then the agreement is treated and becomes voidable.

Such a right might arise from the fact that the consent may have been brought by
one of the parties by coercion, undue influence, fraud or misrepresentation and
hence the other party has a right to treat it as a voidable contract.

Example 20: X promise to sell his scooter to Y for ` 1 Lac. However, the consent of X
has been procured by Y at a gun point. X is an aggrieved party and the contract is
voidable at his option but not on the option of Y. It means if X accepts the
contract, the contract becomes a valid contract then Y has no option of rescinding
the contract.
Distinction between a Void Contract and a Voidable Contract. These are elaborated hereunder:

S. Basis Void Contract Voidable Contract

No.
1 Meaning A Contract ceases to be An agreement which is enforceable
enforceable by law becomes void by law at the option of one or
when it ceases to be enforceable. more of the parties, but not at the
option of the other or others, is
a voidable contract.

2 Enforceability A void contract cannot be It is enforceable only at the

enforced at all. option of aggrieved party and not
at the option of other party.

3 Cause A contract becomes void due to A contract becomes a voidable

change in law or change in contract if the consent of a party
circumstances beyond the was not free.
contemplation of parties.

4 Performance A void contract cannot be If the aggrieved party does not,

of contract performed. within reasonable time, exercise his
right to avoid the contract, any
party can sue the other for
claiming the performance of the
contract.
The party whose consent was not
A void contract does not grant any free has the right to rescind the
Rights
5 legal remedy to any party. contract within a reasonable time. If
so rescinded it becomes a void
contract. If it is not rescinded it
becomes a valid contract.

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 4. Illegal Contract: It is a contract which the law forbids to be made. The court will
not enforce such a contract but also the connected contracts. All illegal
agreements are void but all void agreements are not necessarily illegal. Despite
this, there is similarity between them is that in both cases they are void ab initio
and cannot be enforced by law.

Example 21: Contract that is immoral or opposed to public policy are illegal in
nature. Similarly, if R agrees with S, to purchase brown sugar, it is an illegal
agreement.

The illegal and void agreement differ from each other in the following respects:

Basis of difference Void agreement Illegal agreement

Scope A void agreement is not An illegal agreement is

necessarily illegal. always void.

Nature Not forbidden under law. Are forbidden under law.

Punishment Parties are not liable for any Parties to illegal agreements
punishment. are liable for punishment

Collateral It’s not necessary that Agreements collateral to

Agreement agreements collateral to void illegal agreements are always
agreements may also be void. It void.
may be valid also.

5. Unenforceable Contract: Where a contract is good in substance but because of

some technical defect i.e. absence in writing, barred by limitation etc. one or both
the parties cannot sue upon it, it is described as an unenforceable contract.

Example 22: A bought goods from B in 2015. But no payment was made till 2019. B
cannot sue A for the payment in 2019 as it has crossed three years and barred by
Limitation Act. A good debt becomes unenforceable after the period of three years
as barred by Limitation Act.

II. On the basis of the formation of contract

1. Express Contracts: A contract would be an express contract if the terms are

expressed by words or in writing. If a proposal or acceptance of any promise is
made in words, the promise is said to be express.

Example 23: A tells B on telephone that he offers to sell his house for ` 2 lacs and
B in reply informs A that he accepts the offer, this is an express contract.

2. Implied Contracts: Implied contracts in contrast come into existence by implication.

Most often the implication is by action or conduct of parties or course of dealings
between them.

Example 24: Where a coolie in uniform picks up the luggage of A to be carried out of
the railway station without being asked by A and A allows him to do so, it is an
implied contract and A must pay for the services of the coolie detailed by him.

Example 25: A drinks a coffee in restaurant. There is an implied contract that he

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 should pay for the price of coffee.

Tacit Contracts: The word Tacit means silent. Tacit contracts are those that are
inferred through the conduct of parties without any words spoken or written.
Example of tacit contract is where a contract is assumed to have been entered when
a sale is given effect to at the fall of hammer in an auction sale. It is not a separate
form of contract but falls within the scope of implied contracts.

3. Quasi-Contract: A quasi-contract is not an actual contract but it resembles a

contract. The law creates and enforces legal rights and obligations when no real
contract exists. Such obligations are known as quasi-contracts. In other words, it is
a contract in which there is no intention on part of either party to make a contract
but law imposes a contract upon the parties.

Example 26: Obligation of finder of lost goods to return them to the true owner
or liability of person to whom money is paid under mistake to repay it back cannot
be said to arise out of a contract even in its remotest sense, as there is neither offer
and acceptance nor consent. These are said to be quasi-contracts.

4. E-Contracts: When a contract is entered into by two or more parties using

electronics means, such as e-mails is known as e-commerce contracts. This helps
in doing business transactions using electronic mode. These are known as EDI
contracts or Cyber contracts or mouse click contracts.

III. On the basis of the performance of the contract

1. Executed Contract: When the act is done or executed or the forbearance is

brought on record, then the contract is an executed contract.

Example 27: When a grocer sells a sugar on cash payment it is an executed contract
because both the parties have done what they were to do under the contract.

2. Executory Contract: In an executory contract the consideration is reciprocal promise

or obligation. Such consideration is to be performed in future only and therefore
these contracts are described as executory contracts.

Example 28: Where G agrees to take the tuition of H, a pre-engineering student,

from the next month and H in consideration promises to pay G ` 1,000 per month,
the contract is executory because it is yet to be carried out.

Unilateral or Bilateral are kinds of Executory Contracts and are not separate kinds.
(a) Unilateral Contract: Unilateral contract is a one sided contract in which one
party has performed his duty or obligation and the other party’s obligation is
outstanding.
Example 29: M advertises payment of award of ` 5000 to any one who finds
his missing boy and brings him. As soon as B traces the boy, there comes into
existence an executed contract because B has performed his share of obligation
and it remains for M to pay the amount of reward to B. This type of Executory
contract is also called unilateral contract.
(b) Bilateral Contract: A Bilateral contract is one where the obligation or promise
is outstanding on the part of both the parties.
Example 30: A promises to sell his plot to B for `1 lacs cash down, but B pays only

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` 25,000 as earnest money and promises to pay the balance on next Sunday. On the
other hand, A gives the possession of plot to B and promises to execute a sale deed
on the receipt of the whole amount. The contract between the A and B is executory
because there remains something to be done on both sides. Such Executory
contracts are also known as Bilateral contracts.

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