PRIYA KUMARI

CONTRACT – I

The Indian Contract Act, 1872

The Indian Contract Act, 1872 is the law relating to Contracts in India. It came into force on
September 1, 1872 and is extended to the whole of India except to the state of Jammu and
Kashmir.

Definition:

Contract [Section 2(h)]: An agreement enforceable by Law is a contract.

Contract = An agreement + Enforceability by Law

Agreement [Section 2(e)]: Every promise and set of promises forming the consideration for
each
other is an Agreement.

Agreement = Offer + Acceptance.

Promise [Section 2(b)]: A Proposal when accepted becomes a promise. In simple words,
when an offer is accepted it becomes promise.

Types of agreement on basis of legality-

(a) Contract – Sec 2h of the 1872 Act defines contract as an agreement enforceable by
law.
(b) Void Agreements – Sec 2g of 1872 Act defines Void Agreements as agreements
not enforceable by law.
(c) Voidable Agreements – Sec 2i defines voidable agreements as agreements which
is enforceable by law at the option of one or more of the parties thereto but not at
the option of the other.
(d) Illegal Agreements – Law forbids the very act which is contemplated by such
agreement. for ex. An agreement to commit a murder.

Difference between void and illegal agreements

1. The law forbids making of illegal agreements whereas law does not forbid making of
void agreement but just do not enforce it.
2. Collateral transactions to void agreements may not be void but collateral transactions
to illegal agreement is void. For ex. Loan to pay money of wager agreement is not
void but loan to pay a murderer money to murder anyone is void.
Essentials of Contract [Section 10]:

As per Sec 10 of Indian Contract Act 1872, the following are the essential elements of a valid
contract:

1. Offer and Acceptance: In order to create a valid contract, there must be a 'lawful offer' by
one party and 'lawful acceptance' of the same by the other party.

2. Intention to Create Legal Relationship: In case, there is no such intention on the part of
parties, there is no contract. Agreements of social or domestic nature do not contemplate legal
relations.

3. Lawful Consideration: Consideration has been defined in various ways. According to

Blackstone," Consideration is recompense given by the party contracting to another." In other
words of Pollock, "Consideration is the price for which the promise of the another is brought."
Consideration is known as quid pro-quo or something in return.

4. Capacity of parties: The parties to an agreement must be competent to contract. If either of

the parties does not have the capacity to contract, the contract is not valid.
According to Sec 11, the following persons are incompetent to contract.
(a) Minors, (b) Persons of unsound mind, and (c) Persons disqualified by law to which they
are subject.

5. Free Consent: 'Consent' means the parties must have agreed upon the same thing in the
same sense. An agreement should be made by the free consent of the parties.
According to Section 14, Consent is said to be free when it is not caused by-
(1) Coercion, or (2) Undue influence, or (3) Fraud, or (4) Mis-representation, or (5) Mistake.

6. Lawful Object: The object of an agreement must be valid. Object has nothing to do with
consideration. It means the purpose or design of the contract. Thus, when one hires a house for
use as a gambling house, the object of the contract is to run a gambling house.
The Object is said to be unlawful if -
(a) it is forbidden by law;
(b) it is of such nature that if permitted it would defeat the provision of any law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it as immoral or opposed to public policy.

7. Certainty of Meaning: According to Section 29,"Agreement the meaning of which is not

certain or capable of being made certain are void."

8. Possibility of Performance: If the act is impossible in itself, physically or legally, if cannot

be enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such
Agreements is not enforceable.
9. Not declared to be void or Illegal: The agreement though satisfying all the conditions for
a valid contract must not have been expressly declared void by any law in force in the country.
Agreements mentioned in Section 24 to 30 of the Act have been expressly declared to be void
for example agreements in restraint of trade, marriage, legal proceedings etc.

10. Legal Formalities: An oral Contract is a perfectly valid contract, expect in those cases
where writing, registration etc. is required by some statute.
Difference between Contract and Agreement

Basis Contract Agreement

1. Section : Sec. 2(h) Sec. 2(e)

2. Definition : A contract is an agreement Every promise or every set of
enforceable by law. promises forming
consideration for each other
is an agreement.

3. Enforceability : Every contract is enforceable. Every promise is not

enforceable.

4. Interrelationship All contracts are agreements. All agreements are not

contracts.
5. Scope : The scope of a contract is Its scope is relatively wider,
limited, as it includes only as it includes both social
commercial agreements. agreement and commercial
agreements.
6. Validity : Only legal agreements are An agreement may be both
called contracts. legal and illegal.
7. Legal Obligation: Every contract contains a legal It is not necessary for every
obligation. agreement to have legal
obligation.
OFFER

Definition:

Offer (Proposal) [section 2(a)]: When one person signifies to another his willingness to do or
to abstain from doing anything, with a view to obtaining the assent of that other person either
to such act or abstinence, he is said to make a proposal.
Indian Law – Proposal
English Law - Offer

Legal Rules as to valid offer:

1. Offer may be express or implied – Express Offers are the offers which are made through
words in oral or in writing.
Illustration – ‘A’ says to ‘B’ ‘I want to buy your car.’
Implied Offers are the offers which are made through. For ex. Boarding a bus.

2. The offer must be capable of creating legal relation – Sometimes intention is mentioned
expressly in the written agreement and sometimes intention could be presumed from
the agreement. A social invitation does not create legal relation.
Case: Rose and Frank Co. v. Crompton and Bros Ltd – In this case the agreement
provided that ‘the arrangement is not formal or legal and shall not be subjected to legal
jurisdiction and any problem arose then it will be resolved through mutual
understanding.’ One of the parties breached the agreement and so the other party went
to court for remedy. Court held that the wording of the agreement signifies that the
parties did not had the intention to create leagal relation as they promised to resolve the
issue through mutual understanding.
Case: Meritt v. Meritt – In this case the husband and wife were joint owners of a
property and the property was under a mortgage. Husband left the wife to live separately
and while leaving he asked his wife to pay his portion of mortgage money and in return
gave her a signed note stating, ‘if you pay my portion of mortgage money I will transfer
my share of property to you. The wife paid the money. Husband refused to transfer the
ownership to wife. Wife went to the court to seek remedy. Court held that since there
was an offer and consideration and a signed note, that is why the there is an intention
to create legal relation.

3. The offer must be certain definite and not vague, unambiguous and uncertain – The
terms of agreement should be certain so as to signify specifically the subject matter and
the consideration of the agreeement to avoid confusion between the parties. For ex. ‘A’
has four cars and he wants to sell one of his car. So he should signify which car he
wants to sell.
4. An invitation to offer is not an offer – when a person is not intending to make an offer
but is giving any statement or displaying any good with the intention that some person
will make an offer to buy that good is making ‘an invitation to offer’. For ex. – book
seller sends a catalogue of books to people. If any person is interested in buying the
books given in the catalogue he can make an offer to the seller.
• Auction is not an offer – Case - Harris v. Nickerson – A person reached the
auction venue to which he was invited to find that the event has been cancelled.
 He sued the auctioneer to recover the damages occuring to him due to travelling
to the venue and he argued that there was a valid contract between them as the
invitation to the auction was an offer. But the court held that auction is an
invitation to offer not an offer.
• Displaying items in shops – Case: Pharmaceutical Society of Great Britain
v. Boot Cash chemists Ltd. – In this case there was a shop where items were
displayed on shelves so that customers can take the product to the cash counter
where a certified chemist was checking the items and then selling it. The
chemist denied to sell a particular product to a customer. The customer went to
court arguing that there is a valid contract as displaying of item at shelves was
an offer and he made the acceptance by picking it up and putting it in his basket.
It was held that display of articles even on a self service basis was not an offer
but was merely an invitation to offer.
• Quotation of price is not an invitation – Case : Harvey v. Facey – In this case
one party asked another if he wanted to sell a property and also asked to give
him the quotation price of the property. The another party sent him the
quotation. The first party then said that I am willing to buy at the quotation price
and asked the second party to sell the property at the quotation price but the
second party refused. The court held that quotation of price is not an offer but
an invitation to offer.

5. An offer may be ‘specific’ or ‘general’ – When an offer is made to specific or an

ascertained person it is known as a specific offer.
When an offer is made to the public at large then it is a general offer. This general offer
can be accepted by anyone who fulfills the terms and condition of the offer.
Case: Carlill v. Carbolic Smoke Ball Co. – In this case a company launched a product
to treat influenza and declared that anybody after following the instructions to use the
product gets any allergy will be rewarded a sum of money. One person even after
following the specific instructions got the allergy and asked the company to pay the
amount. The company refused to pay saying that there was not an acceptance of the
offer and so not contract. The court held that general offer should not need specific
acceptance. It also said that any person complying with the conditions of the offer will
be deemed to have accepted the offer and hence form a valid contract.
6. Offer must be communicated to the offeree: The offer is completed only when it has
been communicated to the offeree.
Sec 3 - Communication, acceptance and revocation of proposals.—The
communication of proposal is deemed to be made by any act or omission of the party
proposing which he intends to communicate such proposal, or which has the effect of
communicating it.
Sec – 4 - Communication when complete.—The communication of a proposal is
complete when it comes to the knowledge of the person to whom it is made.
Until the offer is communicated, it cannot be accepted. Thus, an offer accepted
without its knowledge, does not confer any legal rights on the acceptor.
7. An offer should not contain the term non-compliance to which would amount to
acceptance – For ex. ‘A’ offered ‘B’ to buy his horse and in the proposal he added that
the rejection of my offer is not made within 10 days then I will consider the proposal to
be accepted and hence a valid contract. This offer is not valid.
8. An offer can be made subject to any terms and conditions – Terms and conditions as to
time and manner of acceptance.
9. Counter offer – Any offer imposed by the offeree in response of an offer made by the
offeror is a counter offer. A counter offer amounts to rejection of the original offer.
For ex. ‘A’ offered ‘B’ to sell his car at Rs10000. ‘B’ said he is willing to buy at Rs 5000.
‘B’ statement is a counter offer and it has nullified the original offer of ‘A’ and ‘B’
cannot now accept original offer of ‘A’ and cannot bind him in a contract.
10. Two identical cross-offer do not make a contract – When the offers made by two
persons to each other containing similar terms of bargain cross each other in post, they
are known as cross offers. Although in case of cross offers both the parties had same
intention but no contract is formed as nobody has accepted the offer.

11. An offer is allowed to remain open for acceptance over a period of time is known as
standing, open or continuous offer.
 KINDS OF OFFER

Express offer Implied offer Specific offer General offer Cross offer Counter offer
Standing
Open
and

Continuou
s
offer

• Express offer: When the offeror expressly communicate the offer, the offer is said to
be an express offer. The express communication of the offer may be made by Spoken
or Written words.
• Implied offer: When the offer is not communicated expressly. An offer may be implied
from:
(a) The conduct of the parties or
(b) The circumstances of the case.
• Specific: It means an offer made to
(a) a particular person or
(b) a group of person: It can be accepted only by that person to whom it is made.
Communication of acceptance is necessary is case of specific offer.

• General offer: It means on offer which is made to the public in general. General offer
can be accepted by anyone. If offeree fulfills the term and condition which is given in
offer then the offer is accepted. Communication of acceptance is not necessary is case
of general offer.
• Cross offer: When two parties exchange identical offers in ignorance at the time of
each other’s offer, the offers are called cross offer. Two cross offer does not conclude
a contract. Two offer are said to be cross offer if
1. They are made by the same parties to one another.
2. Each offer made in ignorance of the offer made by the other party.
3. The terms and conditions contained in both the offers are same.
Example: A offers by a letter to sell 100 tons of steel at Rs.1,000 per ton. On the same day, B
also writes to A offering to buy 100 tons of steel at Rs.1, 000 per ton.
When does a contract come into existence: A contract comes into existence when any of the
parties, accept the cross offer made by the other party.

• Counter offer: When the offeree give qualified acceptance of the offer subject to
modified and variations in the terms of original offer. Counter offer amounts to
rejection of the original offer.
Legal effect of counter offer:-
(1) Rejection of original offer
(2) The original offer is lapsed
(3) A counter offer result is a new offer.
In other words an offer made by the offeree in return of the original offer is called as a
counter offer.
Example: A offered to sell his pen to B for Rs.1,000. B replied, “ I am ready to pay
Rs.950.” On A’s refusal to sell at this price, B agreed to pay Rs.1,000. Held, there was no
contract as the acceptance to buy it for Rs.950 was a counter offer, i.e. rejection of the offer
of A. Subsequent acceptance to pay Rs.1,000 is a fresh offer from B to which A was not
bound to give his acceptance.

• Standing, open and continuous offer: An offer is allowed to remain open for
acceptance over a period of time is known as standing, open or continually offer. Tender
for supply of goods is a kind of standing offer.
Example: When we ask the newspaper vendor to supply the newspaper daily. In such case,
we do not repeat our offer daily and the newspaper vendor supplies the newspaper to us
daily. The offers of such types are called Standing Offer.
LAPSE OF AN OFFER

An offer should be accepted before it lapses (i.e. comes to an end). An offer may come to an
end in any of the following ways stated in Section 6 of the Indian Contract Act:

1. By lapse of stipulated or reasonable time: Where time is fixed for the acceptance of the
offer, and it is not acceptance within the fixed time, the offer comes to an end automatically on
the expiry of fixed time. Where no time for acceptance is prescribed, the offer has to be
accepted within reasonable time. The offer lapses if it is not accepted within that time. The
term ‘reasonable time’ will depend upon the facts and circumstances of each case.

2. An offer lapses by not being accepted in the mode prescribed or usual mode: Where
some manner of acceptance is prescribed in the offer, the offeror can revoke the offer if it is
not accepted according to the prescribed manner and if no mode is prescribed then in usual
manner.

3. An offer lapses on rejection: An offer lapses if it has been rejected by the offeree. The
refection may be express or implied.

4. By the death or insanity of the offeror or offeree before acceptance: Where, the offeror
dies or becomes insane, the offer comes to an end if the fact of his death or insanity comes to
the knowledge of the acceptor before he makes his acceptance. But if the offer is accepted in
ignorance of the fact of death or insanity of the offeror, the acceptance is valid. This will result
in a valid contract, and legal representatives of the deceased offeror shall be bound by the
contract. On the death or insanity of offeree before acceptance, the offer also comes to an end
and his heirs cannot accept for him.

5. An offer lapses by revocation: An offer may come to an end by communication of

notice of revocation by the offeror. An offer can be revoked only before its acceptance is
complete for the offeror.

6. Revocation by non-fulfillment of a condition precedent to acceptance: An offer lapses

if it has been revoked by non-fulfillment of a condition precedent to acceptance.

7. By counter-offer by the offeree: Where, a counter-offer is made by the offeree, and

then the original offer automatically comes to an end, as the counter–offer amounts to rejections
of the original offer.

8. By subsequent illegality or destruction of subject matter: An offer lapses if it

becomes illegal or subject matter destroyed after it is made and before it is accepted.