CA-FOUNDATION LAW Ch-1 THE INDIAN CONTRACT ACT, 1872

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U. 1:
NATURE OF CONTRACTS

Section 2(h): an agreement enforceable by law

➢ 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”.

• “when the person to whom the proposal is made signifies his assent there to, the proposal is said
to be accepted. Proposal when accepted, becomes a promise”.

➢ Enforceability by law– An agreement to become a contract must give rise to a legal obligation

ESSENTIALS OF A VALID CONTRACT

i) Two Parties: It 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.
Case Law - State of Gujarat vs. Ramanlal S & Co

ii) Parties must intend to create legal obligations: 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.
Case Law - Balfour v. Balfour.

iii) Other Formalities to be complied with in certain cases – writing or registration.

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iv) Certainty of meaning - must be certain and not vague or indefinite.

v) Possibility of performance of an agreement: should be capable of performance, an act

vi) Offer and Acceptance or an agreement.

vii) Free Consent - Two or more persons are said to consent when they agree upon the same thing in
the same sense. ( consensus ad idem ). It must be free.
If it is caused by coercion, undue influence, fraud or, misrepresentation the voidable, if by
mistake – Void.

viii) Capacity of the parties: Section 11 - a person to enter into a valid contract if person who attain
➢ Age of majority
➢ Is of sound mind
➢ Not disqualified from contracting by any law to which he is subject

ix) Consideration

x) Lawful Consideration and Object

xi) Not expressly declared to be void:

Types of Contract

a) On the basis of the validity

i) Valid Contract - An agreement which is binding and enforceable is a valid contract. It contains
all the essential elements of a valid contract.

ii) Void Contract - A contract which ceases to be enforceable by law becomes void when it ceases
to be enforceable {Section 2(j)}.

iii) Voidable Contract - 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 {Section 2(i)}.

iv) Illegal Contract - 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.

v) Unenforceable Contract - Where a contract is good in substance but because of some technical
defect it cannot sue upon it.

b) On the basis of the formation of contract

i) Express Contracts - A contract would be an express contract if the terms are expressed by
words or in writing.

ii) Implied Contracts: Implied contracts in contrast come into existence by implication. proposal or
acceptance is made otherwise than in words, the promise is said to be implied.

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iii) Tacit Contracts: The word Tacit means silent.

iv) Quasi-Contract - not an actual contract but it resembles a contract. Created by law under
certain circumstances.

v) E-Contracts: When a contract is entered into by two or more parties using electronics means -
ED1 - Electronic Data Inter change/ Cyber contracts or mouse click contracts.

c) On the basis of the performance of the contract

i) Executed Contract - When the act is done or executed or the forbearance is brought on record,
then the contract is an executed contract.

ii) Executory Contract – PENDING CONTRACT

➢ 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.

➢ Bilateral Contract: A Bilateral contract is one where the obligation or promise is outstanding on
the part of both the parties.

PROPOSAL / OFFER

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 to such act or abstinence, he is said to
make a proposal.

Classification of Offer –

i) General offer - offer made to public at large and hence anyone can accept and do the desired act.
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

ii) 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.
Boulton v. Jones

iii) Cross offer: When two parties exchange identical offers in ignorance at the time of each other’s
offer. 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.

iv) Counter offer: When the offeree offers to qualified acceptance of the offer subject to
modifications and variations in the terms of original offer.

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Counter-offer amounts to rejection of the original offer. It is also called as Conditional

v) Standing or continuing or open offer: An offer which is allowed to remain open for acceptance
over a period of time.

Essential of a valid offer:

i) 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.
A social invitation, even if it is accepted, does not create legal relations because it is not so
intended.

ii) It must be certain, definite and not vague: Terms of an offer SHOULD NOT BE vague or
indefinite.
iii) It must be communicated to the offeree: An offer must be communicated to the person to
whom it is made, otherwise there can be no acceptance of it.
An acceptance of an offer, in ignorance of the offer, is not acceptance and does not confer any
right on the acceptor. (Lalman Shukla v. GauriDutt).

iv) It must be made with a view to obtaining the assent of the other party

v) It may be conditional

vi) Offer should not contain a term the non-compliance of which would amount to acceptance.

vii) The offer may be either specific or general

viii) The offer may be express or implied

ix) Offer is Different from a mere statement of intention, an invitation to offer, a mere
communication of information, A prospectus and Advertisement, form an answer to a question
(Harvey vs. Facie).

x) A statement of price is not an offer

What is invitation to offer?

By CA Indresh Gandhi
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ACCEPTANCE:

Section 2(b)- 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

Legal Rules regarding a valid acceptance:

i) Acceptance can be given only by the person to whom offer is made (Boulton vs. Jones).

ii) Acceptance must be absolute and unqualified - If the proposal prescribes the manner in which
it must be accepted, then it must be accepted accordingly. Acceptance is valid only when it is
absolute and unqualified and is also expressed in some usual.

iii) The acceptance must be communicated: 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 materialize into a contract. the offeree must have the knowledge of the
offer made to him. If he does not have the knowledge, there can be no acceptance
Case law - Brogden vs. Metropolitan Railway Co

iv) Acceptance must be in the prescribed mode: Where the mode of acceptance is prescribed in
the proposal, it must be accepted in that manner otherwise - not in the prescribed manner.

v) Time: Acceptance must be given within the specified time limit, if any, and if no time is
stipulated, acceptance must be given within the reasonable time and before the offer lapses.

vi) 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. Felthouse vs. Bindley.

vii) Acceptance by conduct/Implied Acceptance

COMMUNICATION OF OFFER AND ACCEPTANCE

Communication of offer - the communication of offer is complete when it comes to the knowledge of
the person to whom it is made.

Communication of acceptance:
Modes –

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Communication by act - include any expression of words whether written or oral. Communication of
acceptance by ‘omission’ to do something

Communication of acceptance by conduct.

Communication of acceptance –

In terms of Section 4 of the Act, it is complete,

➢ 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

Acceptance over telephone or telex or fax - complete when the acceptance is received by the
offeree. 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.
Lilly White vs. Mannuswamy.

Standard forms of contracts:

➢ 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, in the circumstances of a case, 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.

REVOCATION OF OFFER AND ACCEPTANCE

In terms of Section 5 of the Act 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.

Revocation of proposal otherwise than by communication:

Modes :

i) By notice of revocation

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ii) By lapse of time

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