formation of contract

1. Indian Contract Act -1872
Formation of contract

2. o Section -2 (a) – Offer /proposal – When one person signifies his willingness to do or abstain
from doing something , offer may be made with a view to obtaining the assent of the other
party.
o Section- 2 (b) Promise - when the person to whom the offer is made signifies his assent , the
offer is said to be accepted and becomes promise .
o Section -2 (c) – Promiser and Promisee - the person who makes proposal is promiser and the
person accepting it is promise.
o Section-2 (d) – Consideration – when at the desire at the promiser ,the promisee or any
other person has done or abstained from doing , or promise to do or abstain from doing ,
something such act or abstinence or promise is called consideration for the promise .
o Sec 2 (e) - Agreement - An agreement consists of reciprocal promises between the two
parties.
o section -2 (f) Reciprocal promises - Promises which term the consideration or part of
consideration is called reciprocal promises .

3. Sec-2(g) -Void agreements – An agreement which is not enforceable by law is void ,examples agreement
in restraint of marriage , trade and agreement without consideration is also void .
oSec 2(h) -Contract - A contract means an agreement which is enforceable by law .
oSec – 2 (i) -Voidable contracts – An agreement which is enforceable by law at the option of one or
more of the parties but not at the option of other .
oSection – 2 (j) – Avoidance of voidable contract – A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable .
oillegal agreements - These are agreements that are consist subject matter which the law forbids . For
example illegal consideration in the agreement or an agreement to commit crime .

4. o Sec -2 (a) – Offer /proposal – When one person signifies his willingness to do or abstain from
doing something , offer may be made with a view to obtaining the assent of the other party. For
example A is willing to sell his car to B for Rs. 1 lakh if B accepts the same to purchase it .
Once the offer is accepted it becomes promise .
o Invitation to treat –When a person may not sell his goods but makes some statement gives
information with a view to inviting others to make offers on that basis .
For example a book seller sends catalogue of books indicating the prices of various books at prices
indicating against books to many people .This catalogue is not an offer but an invitation to treat .
Harvey vs Facey
In this case held that owners of a plot of land known as Bumper hall pen .
The plaintiffs being interested in purchasing the same sent a telegram to
the defendants stating that “Will you sell the plot? Telegraph lowest cash price” .The defendants replied
the lowest price is 900 pounds .The plaintiffs replied that we accept and send us the tittle deeds .
The defendants refused to sell the plaintiffs sued them .
In this case held that the first telegram had asked to things willingness to sell and lowest price for plot .
In reply the lowest price was quoted and
quoting of the price was not an offer .The third telegram plaintiff states we agree to buy is an offer to buy not an acceptance .

5. General rule – An intending buyer was willing to purchase the goods at a price mentioned on the tag ,
He could make an offer to buy the goods .
The shopkeeper had the option to reject or accept the same the contract will form if the offer is accepted and no
Customer can force shopkeeper to sell the goods at the price mentioned in the tag ,
Case - Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd.
In this case held that the defendants were having a business to sell drugs for medicines.
Medicines were displayed on the self with their price mentioned and they have a “self –service system”.
The customer there entered the shop and selected the medicines needed and went to the cash counter .
The defendants had put a registered pharmacist near that cash counter ,
who had been authorized to stop any customer removing any drug from the premises .
Held - that there is offer to buy and not the offer to sell the customer brings the goods to the shopkeeper to see
whether he will sell or not .
The supervising pharmacist is at the place where the money has to be paid is an indication to the purchaser that the
shopkeeper may not willing to complete a contract with anybody who may bring the goods to him .

6. Intention to create a legal relationship
In order that offer , after acceptance , can result in valid contract , it is necessary that the offer
should be made with an intention to create legal relationship . For example to go for a walk or
movie cannot be enforced in law .
Balfour vs. Balfour
The defendant , who was employed on a government job in Ceylon , went to England with his wife on leave .
For health reasons the wife was unable to accompany the husband again to Ceylon .
The promised to pay 30 pounds per month to his wife as maintenance for the period she had to live apart .
The husband having failed to pay this amount , was sued by the wife for the same .
Held – In this it was held that there being no intention to create legal relationship , the husband was not liable .

7. Types of offer
o Express offer – An offer which is made by some positive act on the part of the offeror in section -9
o Implied offer – An offer in which is inferred from the conduct of the offeror in section 9.
o Cross offer –When the offers made by two persons to each other containing the similar terms of
bargaining cross each other in the post , they are known as cross offers .
For example , A wants to buy a bike from B for Rs. 10 thousands and without knowing the fact also wants to B
also wants to sell his bike to A for Rs. 10 thousands the offers made by both the parties crosses each others
offers without knowing .
o Standing offer / Continuing offer – An offer which is allowed to remain open for acceptance over a period
of time is known as standing .For example , an offer to supply 1,000 bags of wheat from Dec 1st to 31st Dec .
o Specific offer –When the offer is made to a specific or an ascertained person the offer is specific . For
exampleA makes an offer to B a specific person .
o General offer – when the offer is made to general public , without offering to a specified person . ‘
For example A makes offer to sell his car to general public by giving advertisement in the newspaper .

8. Offer must be communicated
Section-2 (a) – that a person is said to make a proposal “when he signifies to another person
his willingness to do or abstain from doing something” .
Offeror - the person who makes an offer to another .
Offeree - the person to whom the offer is made .
Without that the acceptance of the offer can’t be done
offer – how communicated
Sec-3 communication of proposal - deemed to 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 .
(a)- intends to communicate such offer .
(b)- which has the effect of communicating the offer .
Essentials elements of a valid contract
1. An agreement between the two parties .
2. Parties competent to contract .
3. Lawful consideration and lawful object .
4. Free consent of the parties .
5. Intention to create legal relationship .

9. Lalman Shukla vs. Gauri datt
In this case it was held that the defendant’s nephew absconded from home .The plaintiff , who was
defendant’s servant , was sent to search for missing boy . After the plaintiff had left in search of the
boy , the defendant issued handbills announcing a reward for Rs. 501 to anyone who might find the
boy , the servant was ignorant of the reward found the boy but when he came to know that a reward
was offered for the performance of that he claimed the reward from his master he refused .
Held - That the plaintiff was ignorant of the offer and his act done in searching the boy didn’t
amount to the acceptance of that offer . He was not entitled to the reward .
Section – 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 .
The communication of acceptance is complete –
As against the person proposer , when it is put in a course of transmission to him so as to be out of the
power of acceptor ,
As against the acceptor , when it comes to the knowledge of the proposer .
The communication of revocation 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 ,
As against the person to whom it is made , when it comes to his knowledge .

10. Offer is given
Completes when it comes to the knowledge of other
party
Acceptance of offer is completed for
Offeree
When he receives the acceptance by the
course of transmission
Offeror
When the offeree puts his willingness/
acceptance of the offer in the course of
transmission

11. Case – 1st Completion
of an offer
• Offer is complete when it comes into the knowledge to the person to whom it is
made .
• The offer made by A on 10th march when the letter reaches B the communication
of offer is complete .
A makes an offer on
10th march by
sending a letter
To sell his car for
Rs.10 lakhs
B receives this letter
on 12th march
( the
communication of
offer is complete )

12. Case – 2nd Completion of communication of
acceptance
A makes an offer to B on
1oth march by sending a
letter
Offer to sell his car
B receives that letter on 12th
of march ( the
communication of offer is
complete)
Now
B accepted that offer and he sends his
acceptance to A by letter
A receives that acceptance on 15th march
B’s acceptance is complete against A when the communication is reached/conveyed to A .
As against A –When a made the offer , B accepted is by his willingness as the offer was communicated to
B
And when the acceptance of B is in the course of transmission . For example B post the letter of acceptance
to A .
Therefore A cannot revoke the offer afterwards .
If B wants to revoke is he may revoke the offer between 13th march to 15th march before it reaches to A .

13. Effect of acceptance
• Acceptance is an offer what a lighted match is to train of gunpowder .
• It produces something which can’t be recalled or undone.
• But the powder may have lain until it has become damp, or the man who laid the train may remove it
before the match is applied .
• So an offer may lapse for want of acceptance or be revoked before acceptance . Also the offeree may
decide to reject the offer . Until an offer is accepted , it creates no legal rights , and it may be
terminated at any time .
Essentials of acceptance
o Should be communicated by the offeree to the offeror .
o Absolute and qualified .
o Should be reasonable and usual manner unless the manner is prescribed by the parties .

14. Acceptance by other means
• By telephone - Acceptance on telephone the contract is deemed to be complete when the offeror
hears the acceptance at this end rather than when the acceptor speaks the words from the other side
.
• By fax – In this means the contract is complete only when the acceptance was received by the offeror
.
Important cases on the topics
 Offer and invitation to treat distinguished – Pharmaceutical society of Great Britain
v. Boots cash chemicals ltd. , Harvey v. Facey
Intention to create legal relationship – Balfour v. Balfour , Jones vs Padvatton
 Communication of offer – Lalman Shukla v Gauri Datt
 General offer – Carlill v Carbollic smoke ball
 Acceptance by telephone – Bhagwandas v Girdharilal
 Acceptance by fax – Entores Ltd .V Miles Far East Cor.
 Acceptance must be communicate – Felthouse v bindley

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