Contract Unit 1
Contract Unit 1
UNIT 1
Scope It’s a wider term including both legal It is used in a narrow sense with the
and social agreement. specification that contract is only legally
enforceable agreement.
Legal It may not create legal obligation. An Necessarily creates a legal obligation. A
obligation agreement does not always grant contract always grants certain rights to
rights to the parties every party.
Nature All agreement are not contracts. All contracts are agreements.
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INDIAN CONTRACT ACT
ESSENTIALS OF A VALID CONTRACT
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 ( State of Gujarat Vs. Ramanlal & co.)
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. ( Balfour v Balfour )
Other Formalities to be complied with in certain cases: In case of certain contracts, the
contracts must be in writing like insurance contracts , registration of immovable property.
Certainty of meaning :The agreement must be certain and not vague or indefinite
Possibility of performance of an agreement : The terms of agreement should be capable
of performance.Anagreementtodoanactimpossibleinitselfcannotbeenforced.
Offer and Acceptance or an agreement : A proposal when accepted, becomes a promise”.
An agreement is an outcome of offer and acceptance.
Free Consent : Two or more persons are said to consent when they agree upon the same thing in
the same sense. Consent would be considered as free consent if it is not caused by coercion,
undue influence, fraud or, misrepresentation or mistake.
Capacity of the parties : 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.
Consideration : A valuable consideration in the sense of law may consist either in some right,
interest, profit, accruing to one party, or some forbearance, loss suffered or responsibility given,
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by the other
Lawful Consideration and Object : The consideration and object of the agreement must be
lawful [Section 23]
Not expressly declared to be void : The agreement entered into must not be which the law
declares to be either illegal or void.
Void Contract Section 2 (j) A contract which ceases to be enforceable by law becomes void
when it ceases to be enforceable.
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INDIAN CONTRACT ACT
without being asked and is allowed to do so
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Punishment Parties are not liable for any Parties to illegal agreements are
punishment under the law. liable for punishment.
Collateral Agreement It’s not necessary that agreements Agreements collateral to illegal
collateral to void agreements may agreements are always void.
also be void. It may be valid also.
Rights A void contract does not grant The party whose consent was not
any right to any party. free has the right to rescind the
contract.
Q.7 Define the term OFFER/ PROPOSAL. What are the essentials of an offer or
proposal as per Sec 2(a)?
Ans. According to Section 2(a)
“when one person signifies to another his willingness
To do or to abstain from doing anything
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INDIAN CONTRACT ACT
With a view to obtaining the assent of that other
To such act or abstinence, he is said to make a proposal”.
ESSENTIALS OF A PROPOSAL
The person making the proposal or offer is called the ‘promisor’ or ‘offeror’. The person
accepting the offer is called the ‘promise ’or‘ acceptor’.
For a valid offer, the party making it must express his willingness ‘to do ’or‘ not to do
’something’.
Mere expression of willingness does not constitute an offer.
An offer can be positive or negative.
The willingness must be expressed with a view to obtain the assent of the other party to
whom the offer is made.
General offer It is an offer made to public at large and hence any one can accept
and do the desired act (Carlill vs Carbolic Smoke Ball Co.).
In terms of Section 8 of the Act, any one 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 any one at any time as it is a continuing offer .
Counter offer / When the offeree offers to qualified acceptance of the offer subject
Conditional to modifications and variations in the terms of original offer, he is
acceptance said to have made a counter offer.
Counter-offer amounts to rejection of the original offer
Express offer
Implied Offer
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Ans.
The following are the essentials of a valid offer :
It must be capable of creating legal relations
It must be certain, definite and not vague – its acceptance cannot create any contractual
relationship.
It must be communicated to the offeree. An acceptance of an offer , in ignorance of the
offer , is not acceptance ( Lalman Shukla v. Gauri Dutt)
It must be made with a view to obtaining the assent of the other party not merely with a
view to disclosing the intention of making an offer.
It may be conditional.
Offer should not contain a term the non-compliance of which would amount to acceptance
The offer may be either specific or general.
Offer is Different from a mere statement of intention, an invitation to offer, a mere
communication of information, Casual Equity, A prospectus and Advertisement ( Harvey
vs. Facie)
The offer may be express or implied.
An offer is the final expression of Where a party without expressing his final
willingness willingness proposes certain terms on
which he is willing to negotiate ,he does
by the offer or to be bound by the offer
not make an offer
if the other party chooses to accept it.
But invites the other party to make offer on
those terms.
If a person who makes the statement has If a person has the intention of negotiating
the intention to be bound by it as soon as on terms it is called invitation to offer .
the other accepts, he is making an offer.
Examples: Examples:
An invitation by a company to the public to
subscribe for its shares.
Display of goods for sale in shop windows.
Advertising auction sales ( Harris v
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Nickerson ) and
Quotation of prices sent in reply to a query
regarding price.
Q.12 According to Sir William Anson “Acceptance is to offer what a lighted match is to
a train of gunpowder”. Comment.
Ans.
The effect of this observation is that what acceptance triggers cannot be recalled or
undone.
But there is a choice to the person who had the train to remove it before the match is
applied.
It means that the offer can be withdrawn just before it is accepted. Acceptance converts
the offer into a promise and then it is too late to revoke it. This means as soon as the train
of gun powder is lighted it would explode.
Train of Gunpowder [offer] in itself is inert, but it is the lighted match [the acceptance]
which causes the gunpowder to explode.
The significance of this is an offer in itself cannot create any legal relationship but it is the
acceptance by the offeree which creates a legal relationship. 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.
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Acceptance by conduct/Implied Acceptance ( Section 8 ) - 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.
Q.14 What are the rules regarding communication of offer and acceptance ?
Ans.
COMMUNICATION OF OFFER AND ACCEPTANCE
Q15. What are the rules regarding revocation of offer and acceptance ?
Ans.
REVOCATION OF OFFER AND ACCEPTANCE
Communication of revocation (of the proposal or its acceptance) is complete.
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
as against the person to whom it is made, when it comes to his knowledge.
Ans.
TIME FOR REVOCATION OF OFFER AND ACCEPTANCE Section 5
a proposal can be revoked at any time before the communication of its acceptance is
complete as against the proposer.
An acceptance may be revoked at any time before the communication of acceptance is
complete as against the acceptor.
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INDIAN CONTRACT ACT
By Non fulfillment of condition precedent: Where the acceptor fails to fulfill a
condition precedent to acceptance the proposal gets revoked. (Section 6)
By Death or insanity: Death or insanity of the proposer would result in automatic
revocation of the proposal only if the fact of death or insanity comes to the knowledge of
the acceptor.
By Counter offer
By the Non acceptance of the offer according to the prescribed or usual mode
By Subsequent illegality.
Q.18 All contracts are agreements, but all agreements are not contracts .Comment
Ans.
An agreement comes into existence when one party makes a proposal or offer to
the other party and that other party gives his acceptance to it.
A contract is an agreement enforceable by law. It means that to become a contract an
agreement must give rise to a legal obligation i.e. duty enforceable by law. If an
agreement is incapable of creating a duty enforceable by law, it is not a contract.
There can be agreements which are not enforceable by law, such as social, moral or
religious agreements. The agreement is a wider term than the contract. All agreements
need not necessarily become contracts but all contracts shall always be agreements.
All agreements are not contracts: When there is an agreement between the parties
and they do not intend to create a legal relationship, it is not a contract.
All contracts are agreements: For a contract there must be two things (a) an
agreement and (b) enforceability by law. Thus, existence of an agreement is a pre-
requisite existence of a contract. Therefore, it is true to say that all contracts are
agreements.
Thus, we can say that there can be an agreement without it becoming a contract, but
we can’t have a contract without an agreement.
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