Law of contract introduction

Law of Contract: A General
Introduction
BY
DR VIJAY SRIVASTAVA
ASSOCIATE PROFESSOR
AMITY LAW SCHOOL
AMITY UNIVERSITY GWALIOR- M.P.
1

SYNOPSIS
 Contract- Meaning and Nature
 All contracts are agreement but all agreements are not
contracts
 Essential features of contract
 Agreement (Section 2(e))
 Essentials of an Agreement
 The agreement should not expressly be declared to be
void
 Difference between Agreement and contract
 Proposal U/S 2(a) and its features
 Kinds of offer
 Difference between an offer and Invitation to offer
 Lapses and revocation of an offer 2

Contract: Meaning and Nature
 The Indian Contract Act was enacted in 1872 and came
into force on 1st September 1872. The word ‘contract’
has been derived from the Latin word ‘contructus’ which
means ‘to work on contract’. The law of contract is
based on the principle of ‘pacta sunt servanda’ which
means ‘agreements must be kept’.
 Section 2(h) of the Indian Contract Act 1872 defines the
term ‘contract’ as an ‘agreement enforceable by law’. As
per section 2(e) every promise and every set of
promises forming consideration for each other is called
an agreement. A promise is an accepted proposal.
3

Conti….
Section 2(h) of the Indian Contract Act 1872 defines the
term ‘contract’ as an ‘agreement enforceable by law’.
 In other words , A contract is a lawful agreement
 Contract = Agreement + Legal enforceability
Or
 Contract = Legally enforceable Agreement
 here , Enforceable by law means that, if somebody is
aggrieved then he may approach the court for remedies
 So Mathematically,
 Agreement + Enforceable by Law = Contract
4

Conti…
 For an agreement to become a contract it must give rise to a
legal obligation and if it is incapable of doing so, it is not a
contract. In the case of Balfour v Balfour [1919] 2 KB 571, Mr.
Balfour promised to pay his wife £30/month as she stayed in
England for medical reasons. When he failed to pay, Mrs. Balfour
sued him. Her action failed because there was no intention to
create a legally binding agreement between Mr. and Mrs. Balfour.
A contract cannot be made without proper indication about
the legal rights and obligations of the parties to the contract.
So, if this were to be a contract then the wife would have had a
right to receive payment and the husband would have had the
obligation to pay his wife.
5

All contracts are agreement but all
agreements are not contracts
 An agreement is a contract when:
 Free consent of the parties: the consent of the parties which
are free from , Coercion (Section 15), Undue Influence (Section
16), Fraud (Section 17), Misrepresentation (Section 18) and
Mistake (Section 20, 21, 22), are known as free consent .
 Capacity of the parties to contract: Section 11 and 12 lay
down that the competent parties are persons who have attained
majority {Exception for this was laid down in Mohori Bibee v.
Dharmodas Ghose ILR (1903) 30 Cal 539 (Pc)}, persons who
are of sound mind and persons who are not disqualified by law.
 Lawful consideration and Lawful object: Section 23 lays
down that the consideration and object is lawful unless it is
forbidden by law or it defeats provisions of any law or is
fraudulent or involves injury to person or property or is violative
of public health, morality, peace and order.
6

Essential features of contract
An agreement becomes a valid contract when the following
essential conditions are satisfied:
 Offer and acceptance
 Intention to create legal obligations
 Lawful consideration
 Contractual capacity
 Free consent
 Lawful object
 Must not be expressly declared as void
 Certain terms of the contract
 Legal formalities
7

Agreement (Section 2(e))
An Agreement is a promise between two entities creating mutual
obligations by law. Section 2(e) of the Indian Contract Act, 1872
defines an agreement as ‘Every promise and every set of
promises, forming the consideration for each other, is an
agreement’.
 Section 10 of the Act deals with the conditions of the enforceability
of an agreement. It provides: “All agreements are contracts if they
are they made by the free consent of parties competent to contract,
for a lawful consideration and with a lawful object, and are not
hereby expressly declared to be void”.
 “Nothing herein contained shall affect any law in force in India, and
not hereby expressly repealed, by which any contract is required to
be made in writing or in the presence of witnesses, or any law
relating to the registration of documents”.
8

Essentials of an Agreement-
(To form an agreement, the following ingredients are required)
 Parties: There need to be two or more parties to form an agreement.
 Offer/ Proposal: When a person signifies to another his willingness of
doing or omitting to do something with a view to obtain other’s
assent. [Section 2(a)]
 Acceptance: When the person to whom the proposal is made signifies his
assent for the same thing in the same sense as proposed by the
offeror. [Section 2(b)]
 Promise: When a proposal is accepted, it becomes a promise. [Section
2(b)]
 Consideration: It is the price for the promise. It is the return one gets for
his act or omission. [Section 2(d)]
 An agreement is, therefore, a promise or set of promises forming
consideration for all the parties. [Section 2(e)]
 Agreement = Promise or set of promises (offer + acceptance) +
Consideration (for all the parties)
9

The agreement should not expressly be
declared to be void
There are certain kinds of contracts which are expressly declared by
The Indian Contract Act, 1872 to be null and void. The following are
some of the agreements which are not enforceable in the eyes of
law:
 Agreements without consideration except it is written
and registered or is a promise to compensate for
something done or is a promise to pay a debt barred by
limitation law.
 Agreements in restraint of marriage
 Agreements in restraint of trade
 Agreements in restraint of legal proceedings
 Agreements void for uncertainty
 Agreements by way of wager
 Agreements contingent on an impossible event
 Agreements to do impossible act
10

Difference between Agreement and
contract
BASIS AGREEMENT CONTRACT
Meaning An agreement is made when
a proposal by one party is
accepted by another for
lawful consideration
A contract is made when an
agreement becomes enforceable
by law.
Elements Offer and Acceptance Agreement and Enforceability
under law
Defined in Section 2(e) Section 2(h)
In writing Not necessarily Usually written and registered
Legal
obligation
There is no legal obligation as
long as it is a mere
agreement.
Once the agreement becomes a
contract, there is a legal obligation
by parties involved.
Scope Wide Narrow
11

Proposal U/S 2(a)
 Section 2(a) of the Indian Contract Act 1872 defines
proposal as ‘When one person signifies to another his
willingness to do or to abstain from doing anything, with
a view to obtaining the assent of that other to such act
or abstinence, he is said to make a proposal’.
 As per section 2(a) an offer or proposal has the
following essential ingredients:
 One person signifies to another
 His willingness to do or to abstain from anything
 With a view to obtain an assent thereto
 The person who makes the proposal or offer is called
the promisor or offeror and the person on whom the
proposal is made is called the promisee or offeree
12

Essential conditions for a valid offer:
 Intention to create legal obligation
 Express or implied
 Certainty of terms
 Silence as acceptance
 Expression of willingness to do or to abstain from anything
 The offeror must express his willingness to do or abstain from
doing an act. Only willingness is not adequate. Or just an urge
to do something or not to do anything will not be an offer.
 An offer can either be positive or negative. It can be a
promise to do some act, and can also be a promise to abstain
from doing any act/service. Both are valid offers.
13

Features of an offer
 There must be two parties
There have to be at least two parties: a person making the
proposal and the other person agreeing to it. All the persons are
included i.e, Legal persons as well as artificial persons.
 Every proposal must be communicated
Communication of the proposal is mandatory. An offer is valid if
it is conveyed to the offeree only . The communication can either
be expressed or implied. It can be communicated by terms such
as word of mouth, messenger, telegram, etc. Section 4 of the
Indian Contract Act says that the communication of a proposal is
complete when it comes to the awareness of the person to
whom it is made.
Eg. A’ proposes to sell a car to ‘B’ at a certain price. Once ‘B’
receives the letter, the proposal communication is complete. 14

Conti..
 It must create legal relations
An offer must be such that when accepted it will result in a valid
contract. A mere social invitation cannot be regarded as an offer,
because if such an invitation is accepted it will not give rise to
any legal relationship. Eg. ‘A’ invited ‘B’ to dinner and ‘B’
accepted the invitation. It is a mere social invitation. And ‘A’ will
not be liable if he fails to provide dinner to B.
 It must be certain and definite
The terms of the offer must be certain and clear in order to
create a valid contract, it must not be ambiguous.
 It may be specific or general
 The specific offer is an offer that is accepted by any specific
or particular person or by any group to whom it is made.
Whereas, The general offers are accepted by any person.
15

Classification of an offer
 Express offer and implied offer (Section 9)
Section 9 of The ICA defines both of them as: In so far as
the proposal or acceptance of any promise is made in
words, the promise is said to be expressed. In so far as
such a proposal or acceptance is made otherwise than in
words, the promise is said to be implied.
 Therefore, any offer that is made with words, it may be
regarded as express. Any promise that is made
otherwise than in words is implied. A bid at an auction is
an example of an Implied offer.
16

General Offer
 A General Offer is an offer that is made to the world at
large.
 The genesis of a General Offer came about from the Landmark case
of Carlill v. Carbolic Smoke Ball Co.
 A company by the name Carbolic Smoke Ball offered through an
Advertisement to pay 100 Pounds to anyone who would contract
increasing epidemic Influenza, colds or any disease caused by cold
after taking its Medicine according to the prescribed instructions. It
was also added that 1000 Pounds have been deposited in Alliance
bank showing our sincerity in the matter. One customer Mrs Carlill
used the medicine and still contracted Influenza and hence sued the
company for the reward. The Defendants gave the argument that
the offer was not made with an intention to enter into a legally
binding agreement, rather was only to Puff the sales of the
company. 17

Conti…
 Moreover, they also contended that an offer needs to be
made to a specific person, and here the offer was not to any
specific person and hence they are not obliged to the
Plaintiff.
 Setting aside the arguments of the Defendant, the bench
stated that in cases of such offers i.e- general offers, there is
no need for communication of acceptance, anyone who
performs the conditions of the contract is said to have
communicated his/her acceptance, and moreover, the money
deposited by the Defendant in Alliance Bank clearly shows
that they intended to create a legally binding relationship.
Hence the Plaintiff was awarded with the amount.
18

Conti…
 An Indian authority in this regard is Lalman Shukla v.
Gauri Dutt, wherein a servant was sent by his master
to trace his missing nephew. In the meanwhile, he also
announced a reward for anyone finding his nephew, this
in itself is an example of an offer that is made to the
world at large and hence a General Offer.
19

Conti..
 Valid acceptance based on fulfilment of condition
This concept has been given statutory authority under section 8 of the
ICA:
Performance of the conditions of a proposal, or the acceptance of any
consideration for a reciprocal promise which may be offered with a
proposal, is an acceptance of the proposal.
 This section was applied by Allahabad high court in the case of Har
Bhajan Lal v. Har Charan Lal, wherein the father of a young boy
who ran from home issued a pamphlet for a reward for anyone who
would find him. The Plaintiff found him at the railway station and
sent a Telegram to his father. The Court held that the handbill was
an offer that was made to the world at large and anyone who
fulfilled the conditions is deemed to have accepted it.
20

 General offer of continuing nature
When a general offer is of continuing nature, like it was in
a carbolic smoke ball case, it can be accepted by a number
of people till it is retracted (withdrawn) . However, when a
similar offer requires information regarding a missing thing,
it is closed as soon as the first information comes in.
 Specific offer - A Specific offer is an offer that is made
to a specific or ascertained person, this type of offer can
only be accepted by the person to whom it is made
21

 Cross offer
When two parties make an identical offer to each other, in
ignorance to each other’s offer, they are said to make
cross offers. Cross offers are not valid offers. For
example- if A makes an offer to sell his car for 7 lakhs to B
and B in ignorance of that makes an offer to buy the same
car for 7 Lakhs, they are said to make a cross offer, and
there is no acceptance in this case, hence it cannot be a
mutual acceptance.
22

 Counter offer
When the offeree offers a qualified acceptance of the offer
subject to modifications and variations in terms of the original
offer, he is said to have made a counter offer. A counter offer is
a rejection of the original offer. An example of this would be if A
offers B a car for 10 Lakhs, B agrees to buy for 8 Lakhs, this
amounts to a counter offer and it would mean a rejection of the
original offer. Later on, if B agrees to buy for 10 Lakhs, A may
refuse the offer.
 Standing offer
 An Offer which remains open for acceptance over a period of
time is called a standing offer. Tenders that are invited for
supply of goods is a kind of Standing Offer
23

Difference between an offer and Invitation
to offer
 Although Invitation to Offer is not a type of offer per se, it is
imperative to distinguish both to even construe what an actual offer
is.
 An invitation to offer is an offer to negotiate, an offer to receive
offers, offers to chauffeur.
 An offer is a final expression of willingness to get into a contract
upon those following terms.
 The concept of Invitation to offer was explained in the Privy Council
case of Harvey v. Facey, the Plaintiffs in this asked two questions
from the defendant i.e.- Would you sell me your Bumper Hall pen ,
telegram me the lowest price? , the Defendant only gave the answer
to the latter question , post which he refused to sell.
 The Court held that the defendant was not to sell as he had only
answered the second question and reserved the same for his first
question. Thus, this clearly shows the distinction between an offer
and invitation to offer.
24

Conti…
 In Adikanda Biswal v. Bhubaneswar Development
Authority, when a development authority made an
announcement for allotment of plots on first come first
serve basis on payment of full consideration. An
application against this with full consideration was only
considered to be an offer, as the Development authority
only gave an invitation to offer, and the offer can only
be formalized into a contract when it is accepted by the
development authority.
25

Rules regarding display of goods in shops
 In Pharmaceutical Society of Great Britain v.
Boots Cash Chemists Southern Ltd., lord GODDARD
CJ, said that it would be wrong to say that a shopkeeper
intends to sell everything that is displayed in his shop.
Meaning that the customer makes an offer, to which the
shopkeeper has the discretion to accept or deny. The
shopkeeper may say that he doesn’t have enough stock
of that good and therefore may not sell. Similarly, a
bankers catalogue of charges is also not an offer, the
auction held by a person is also only an invitation to
offer and he may not be liable for the transportation
costs that people may have to pay to come to the place
of auction, in case he cancels at the end moment.
26

Lapses and revocation of an offer
 An offer lapses after a defined or reasonable time.
 An offer lapse by not being accepted in the specified
mode
 An offer lapses by rejection.
 An offer lapses by the offeror or the offeror’s death or
insanity until acceptance.
 An offer lapses by revocation before acceptance.
 An offer lapses by subsequent illegality or destruction of
the subject matter.
27

Types of contract
 Express Contracts – These contracts are those
wherein the terms of the contracts are expressed
clearly whether in written documents or orally.
 Implied Contracts – There are no oral or written
terms in this type of contract. The contracts are
assumed owing to the facts of the parties. If an
individual visits a medical professional, he expects
to be diagnosed for a disease or illness and be
advised a cure. This is an implied contract and a
patient is capable of suing a medical practitioner for
malpractice.
28

Conti..
 Void and Voidable Contracts – Void contracts are illegal
from the very beginning ( Void ab intio ) and hold no validity
under law. They are thereby un-enforceable. Voidable
contracts are unlike void contracts in the sense that one party
is bound by the contract and the unbound party is capable of
terminating the contract as they are unbound to it.
 A quasi-contract is unlike a real contract. Salmond
defines quasi contracts as “there are certain
obligations which are not in truth contractual in the
sense of resting on agreement, but which the law
treats as if they were”. It is important to remember
that even though it is imposed by law, it is not
created by the operation of the contract. 29

Conti..
 Contingent Contract – U/S Section 31 of the Indian
Contract Act, 1872 defines the term ‘Contingent
Contract’ as follows:
 ‘A contingent contract is a contract to do or not to do
something, if some event collateral to such contract
does or does not happen’.
 In simple words, contingent contracts, are the ones
where the promisor perform his obligation only when
certain conditions are met. The contracts of insurance,
indemnity, and guarantee are some examples
of contingent contracts.
30

How Contingent contract differ from wagering
agreement?
 A wagering agreement is absolutely void (S.30) while on the
other hand contingent contract is a valid contract.
 In a contingent contract, the future uncertain event is merely
collateral whereas in a wagering agreement the uncertain
event is a sole determining factor of the agreement.
 In a wager, the parties are not interested in the occurrence of
the event except for winning or losing the best amount while
in a contingent contract the parties have a real interest in
occurrence or non-occurrence of the event.
 All wager contracts are contingent contracts, but all
contingent contracts are not by way of the wager.
31

Conti..
 Adhesion Contracts (Bond/ One sided)– These
types of contracts are those which are formed by the
stronger party. It is a sort of, “Opt for it or do not”
contract. The stronger party or the one that has the
bargaining power leaves the other party with a choice
whether to accept or reject the contract.
 Aleatory Contracts – This type of contract involves a
mutual agreement that comes into being after an
unexpected occurrence, accident, or a natural calamity.
In this type of contract both the parties have an element
of risk. Fire or Car insurances are this type of contract.
32

Conti..
 Bilateral and Unilateral Contracts – Bilateral
contracts involve two parties. Both parties are obliged to
one another for performing or abstaining to perform any
act. It is also called a two-sided contract as it involves
two way promises.
 Meanwhile, unilateral contracts are those in which the
promise is made by only one party. They consist of an
offeror and offeree. The offeror makes a promise to
perform an action and is bound by the law to do so. The
offeree is not bound to the court even if he fails to
execute the requested action because he does not
promise anything at all.
33

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