Background :

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 Introduction to G.O.A.T

Motor Vehicles Act , 1988 TOPA Marriage Act , 1954

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GENERAL ACT
HONAAAAAAAA

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1872

BOLO
AZAADI

1947

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Unit 1 : Nature Of Contract

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INTRODUCTION
➢ The Law of Contract constitutes the most important branch of mercantile or commercial
law.

➢ It affects everybody, more so, trade, commerce and industry. It may be said that the
contract is the foundation of the civilized world.

➢ The law relating to contract is governed by the Indian Contract Act, 1872. It came into
force on September 01, 1872. The preamble to the Act says that it is an Act "to define
and amend certain parts of the law relating to contract". It extends to the whole of
India.

➢ The Act mostly deals with the general principles and rules governing contracts. The Act
is divisible into two parts. The first part (Section 1-75) deals with the general principles
of the law of contract, and therefore applies to all contracts irrespective of their
nature. The second part (Sections 124-238) deals with certain special kinds of
contracts, e.g., Indemnity and guarantee, bailment, pledge, and agency.

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➢ As a result of increasing complexities of business environment, innumerable contracts
are entered into by the parties in the usual course of carrying on their business.

➢ ‘Contract’ is the most usual method of defining the rights and duties in a business
transaction. This branch of law is different from other branches of law in a very
important aspect.

➢ It does not prescribe so many rights and duties, which the law will protect or
enforce; instead it contains a number of limiting principles subject to which the
parties may create rights and duties for themselves.

➢ The Indian Contract Act, 1872 codifies the legal principles that govern
‘contracts’. The Act basically identifies the ingredients of a legally enforceable
valid contract in addition to dealing with certain special type of contractual
relationships like indemnity, guarantee, bailment, pledge, quasi contracts, contingent
contracts etc.

➢ It basically defines the circumstances in which promises made by the parties to a

contract shall be legally binding on them.
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➢ This unit refers to the essentials of a legally enforceable agreement or
contract.

➢ It sets out rules for the offer and acceptance and revocation thereof.
It states the circumstances when an agreement is voidable or
enforceable by one party only, and when the agreements are void, i.e.
not enforceable at all.

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 WHAT IS A CONTRACT???
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”.

Definition : Section 2(h)

“an agreement enforceable by law”

“when the person to whom the proposal is made

The contract consists of two essential signifies his assent there to, the proposal is
elements: said to be accepted. Proposal when accepted,
(i) an agreement, and becomes a promise”.
(ii) its enforceability by law. ( PTO )

Thus we say that an agreement is the result of the proposal made by one party to the other party
and that other party gives his acceptance thereto of course for mutual consideration.
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 Agreement = Offer/Proposal + Acceptance
Enforceability by law – An agreement to become a contract must give rise to a legal
obligation.

Thus from above definitions it can be concluded that –

Contract = Accepted proposal/Agreement + Enforceability by law

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 Kahani Ab Tak Ki…..
On elaborating the above two concepts, it is obvious that contract comprises of an
agreement which is a promise or a set of reciprocal promises, that a promise is the
acceptance of a proposal giving rise to a binding contract.

Further, section 2(h) requires an agreement to be worthy of being enforceable by law before it is
called ‘contract’. Where parties have made a binding contract, they created rights and obligations
between themselves.

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CA INDRESH GANDHI | IGSIR
 ESSENTIALS OF A VALID CONTRACT

Not given by Section 10 but are Given in Section 10

also considered essential

Baadmein padhte hai

1. 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. A contract may be made by
natural persons and by other persons having legal existence e.g. companies, universities etc.
It is necessary to remember that identity of the parties be ascertainable.

Example : 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. A contract may be
made by natural persons and by other persons having legal existence e.g. companies,
universities etc. It is necessary to remember that identity of the parties be ascertainable .

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In State of Gujarat vs. Ramanlal S & Co. when on dissolution of a partnership, the assets
of the firm were divided among the partners, the sales tax officer wanted to tax this
transaction. It was held that it was not a sale. The partners being joint owner of those
assets cannot be both buyer and seller.

Ramanlal S Co

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2. 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 in court of law and hence they do not result into contracts.

Example : A husband agreed to pay to his wife certain amount as maintenance every month
while he was abroad. Husband failed to pay the promised amount. Wife sued him for the
recovery of the amount. Here in this case wife could not recover as it was a social
agreement and the parties did not intend to create any legal relations. (Balfour v. Balfour)

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3. Other Formalities to be complied with in certain cases:

In case of certain contracts, the contracts must be in writing,

e.g. Contract of Insurance is not valid except as a written contract. Further, in case of
certain contracts, registration of contract under the laws which is in force at the time, is
essential for it to be valid, e.g. in the case of immovable property.

4. Certainty of meaning:

The agreement must be certain and not vague or indefinite Example: A agrees to sell to B a
hundred tons of oil. There is nothing certain in order to show what kind of oil was intended
for.

5. Possibility of performance of an agreement:

The terms of agreement should be capable of performance. An agreement to do an act

impossible in itself cannot be enforced. Example: A agrees with B to discover treasure by
magic. The agreement cannot be enforced as it is not possible to be performed

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As given by Section 10 of Indian Contract Act, 1872

1. Offer and Acceptance or an agreement: An agreement is the first essential element of a valid
contract. According to Section 2(e) of the Indian Contract Act, 1872, “Every promise and every
set of promises, forming consideration for each other, is an agreement” and according to Section
2(b) “A proposal when accepted, becomes a promise”. An agreement is an outcome of offer and
acceptance.

2. Free Consent: Two or more persons are said to consent when they agree upon the same thing in
the same sense. This can also be understood as identity of minds in understanding the terms viz
consensus ad idem. Further such a consent must be free. Consent would be considered as free
consent if it is not caused by coercion, undue influence, fraud or, misrepresentation or mistake.
When consent to an agreement is caused by coercion, undue influence, fraud or misrepresentation,
the agreement is a contract voidable at the option of the party whose consent was so caused.

When consent is vitiated by mistake, the contract becomes void.

Example: A threatened to shoot B if he (B) does not lend him `2000 and B agreed to it. Here the
agreement is entered into under coercion and hence voidable at the option of B.

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Example on Consent

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3. Capacity of the parties:

Capacity to contract means the legal ability of a person to enter into a valid contract.
Section 11 of the Indian Contract Act specifies that every person is competent to contract
who

a) Age of majority according to the law to which he is subject :

Age of the contracting person i.e. the person entering into contract must be of 18 years of
age.

Persons below 18 years of age are considered minor, therefore, incompetent to contract.

b) Is of sound mind : requires a person to be of sound mind i.e. he should be in his senses so
that he understands the implications of the contract at the time of entering into a contract.

A lunatic, an idiot, a drunken person or under the influence of some intoxicant is not supposed
to be a person of sound mind.

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C) Is not otherwise disqualified from contracting by any law to which he is subject.

❖ requires that a person entering into a contract should not be disqualified by his status, in
entering into such contracts.

❖ Such persons are: an alien enemy, foreign sovereigns, convicts etc. They are disqualified
unless they fulfil certain formalities required by law.

❖ Contracts entered by persons not competent to contract are not valid

4. Consideration: It is referred to as ‘quid pro quo’ i.e. ‘something in return’.

❖ A valuable consideration in the sense of law may consist either in some right, interest,
profit, or benefit accruing to one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other.

❖ Example:- A agrees to sell his books to B for ` 100, B’s promise to pay ` 100 is the
consideration for A’s promise to sell his books and A’s promise to sell the books is the
consideration for B’s promise to pay ` 100.

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5. Lawful Consideration and Object:

➢ The consideration and object of the agreement must be lawful.

➢ Section 23 states that consideration or object is not lawful if it is prohibited by law, or it is

such as would defeat the provisions of law, if it is fraudulent or involves injury to the person
or property of another or court regards it as immoral or opposed to public policy.

➢ Example : ‘A’ promises to drop prosecution instituted against ‘B’ for robbery and ‘B’ promises
to restore the value of the things taken. The agreement is void, as its object is unlawful.

6. Not expressly declared to be void:

➢ The agreement entered into must not be which the law declares to be either illegal or void.
An illegal agreement is an agreement expressly or impliedly prohibited by law.

➢ A void agreement is one without any legal effects.

➢ Example: Threat to commit murder or making/publishing defamatory statements or entering

into agreements which are opposed to public policy are illegal in nature. Similarly any
agreement in restraint of trade, marriage, legal proceedings, etc. are classic examples of
void agreements.
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I. On the basis of the validity
1. Valid Contract: An agreement which is binding and enforceable is a valid
contract. It contains all the essential elements of a valid contract.

2. Void Contract:

❖ Section 2 (j) states as follows: “A contract which ceases to be enforceable by law

becomes void when it ceases to be enforceable”.

❖ Thus a void contract is one which cannot be enforced by a court of law.

❖ Example: Mr. X agrees to write a book with a publisher. After few days, X dies
in an accident. Here the contract becomes void due to the impossibility of
performance of the contract.

❖ It may be added by way of clarification here that when a contract is void, it is

not a contract at all but for the purpose of identifying it, it has to be called a
[void] contract.
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Pic credits - Google
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3. Voidable Contract:
❖ Section 2(i) defines that “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”.

❖ This in fact means where one of the parties to the agreement is in a position or is legally
entitled or authorized to avoid performing his part, then the agreement is treated and
becomes voidable.

❖ Such a right might arise from the fact that the contract may have been brought about by
one of the parties by coercion, undue influence, fraud or misrepresentation and hence the
other party has a right to treat it as a voidable contract.

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 It is enforceable only at the option of
5 Enforceability A void contract cannot be aggrieved party and not at the option
enforced at all. of other party.
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4. Illegal Contract : It is a contract which the law forbids to be made. 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.

Example: Contract that is immoral or opposed to public policy are illegal in nature. Similarly, if R
agrees with S, to purchase brown sugar, it is an illegal agreement.

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5. Unenforceable Contract:
Where a contract is good in substance but because of some technical defect i.e. absence in
writing, barred by limitation etc. one or both the parties cannot sue upon it, it is described as an
unenforceable contract.
(Thauda)

II . On the basis of the formation of contract

1. Express Contracts: A contract would be an express contract if the terms

are expressed by words or in writing. Section 9 of the Act provides that if
a proposal or acceptance of any promise is made in words the promise is
said to be express.

Example: A tells B on telephone that he offers to sell his house for ` 2 lacs
and B in reply informs A that he accepts the offer, this is an express
contract.

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2. Implied Contracts:
Implied contracts in contrast come into existence by implication. Most often the implication is by
law and or by action. Section 9 of the Act contemplates such implied contracts when it lays down
that in so far as such proposal or acceptance is made otherwise than in words, the promise is said
to be implied.

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Tacit Contracts: The word Tacit means silent.
Tacit contracts are those that are inferred through the conduct of parties without any
words spoken or written.

A classic example of tacit contract would be when cash is withdrawn by a customer of a

bank from the automatic teller machine [ATM]. Another example of tacit contract is
where a contract is assumed to have been entered when a sale is given effect to at the
fall of hammer in an auction sale. It is not a separate form of contract but falls within
the scope of implied contracts.

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3. Quasi-Contract:
➢ A quasi-contract is not an actual contract but it resembles a contract.

➢ It is created by law under certain circumstances. The law creates and enforces legal rights and
obligations when no real contract exists.

➢ Such obligations are known as quasi-contracts.

➢ In other words, it is a contract in which there is no intentionon part of either party to make a
contract but law imposes a contract upon the parties.

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4. E-Contracts: When a contract is entered into by two or more parties using
electronics means, such as e-mails is known as e-commerce contracts. In electronic
commerce, different parties/persons create networks which are linked to other networks
through ED1 - Electronic Data Inter change. This helps in doing business transactions using
electronic mode. These are known as EDI contracts or Cyber contracts or mouse click
contracts.

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Lecture 5

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III . On the basis of the performance of the contract

1. Executed Contract: The consideration in a given contract could be an act or forbearance.

When the act is done or executed or the forbearance is brought on record, then the contract is an
executed contract.
Example : Cash Sale

2. Executory Contract: In an executory contract the consideration is reciprocal promise or

obligation. Such consideration is to be performed in future only and therefore these contracts are
described as executory contracts.

Unilateral Contract: Unilateral contract is a Bilateral Contract: A Bilateral contract is

one sided contract in which one party has one where the obligation or promise is
performed his duty or obligation and the other outstanding on the part of both the
party’s obligation is outstanding. parties.

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PROPOSAL / OFFER [SECTION 2(a) OF THE INDIAN CONTRACT ACT, 1872]

Definition of Offer/Proposal: According to Section 2(a) of the Indian Contract Act, 1872,

“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”.

Analysis : Essentials of a proposal/offer are :

1. The person making the proposal or offer is called the ‘promisor’ or ‘offeror’: The person to whom
the offer is made is called the ‘offeree’ and the person accepting the offer is called the ‘promisee’
or ‘acceptor’.

2. 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.

Example: Where ‘A’ tells ‘B’ that he desires to marry by the end of 2017, it does not constitute an
offer of marriage by ‘A’ to ‘B’. Therefore, to constitute a valid offer expression of willingness must
be made to obtain the assent (acceptance) of the other. Thus, if in the above example, ‘A’ further
adds, ‘Will you marry me’, it will constitute an offer.

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3. An offer can be positive as well as negative: Thus “doing” is a positive act and “not doing”, or
“abstinence” is a negative act; nonetheless both these acts have the same effect in the eyes of law.

Example: A offers to sell his car to B for ` 3 lacs is an act of doing. So in this case, A is making an offer
to B. On the other hand, when A ask B after his car meets with an accident with B’s scooter not to go to
Court and he will pay the repair charges to B for the damage to B’s scooter; it is an act of not doing or
abstinence.

4. The willingness must be expressed with a view to obtain the assent of the other party to whom the
offer is made.

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 Classification Of Offer
General offer:
➢ It is an offer made to public at large and hence anyone can accept and do the desired act
(Carlill v. Carbolic Smoke Ball Co.).

➢ In terms of Section 8 of the Act, anyone 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 anyone at any time as it is a continuing offer.

Instructions :
1. Consume Only 1 smoking balls/day
2. Consume only in day time
3. Dil toota nhi hona caheye

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CA INDRESH GANDHI | IGSIR
Case Law: Carlill Vs. Carbolic Smoke Ball Co. (1893)

Facts:

In this famous case Carbolic smoke Ball Co. advertised in several newspapers that a reward of
£100 would be given to any person who contracted influenza after using the smoke balls
produced by the Carbolic Smoke Company according to printed directions. One lady, Mrs. Carlill,
used the smoke balls as per the directions of company and even then suffered from influenza.
Held, she could recover the amount as by using the smoke balls she had accepted the offer.

B. 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 to whom the offer has been made.
[Boulton v. Jones]

Example: ‘A’ offers to sell his car to ‘B’ at a certain cost. This is a specific offer

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C. Cross offer:

When two parties exchange identical offers in ignorance at the time of each other’s offer,
the offers are called cross offers.

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.

Example: If A makes a proposal to B to sell his car for ` 2 lacs and B, without knowing the
proposal of A, makes an offer to purchase the same car at ` 2 lacs from A, it is not an
acceptance, as B was not aware of proposal made by A. It is only cross proposal (cross offer).
And when two persons make offer to each other, it can not be treated as mutual acceptance.
There is no binding contract in such a case.

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(D) Counter offer:
❖ When the offeree offers to qualified acceptance of the offer subject to modifications and
variations in the terms of original offer, he is said to have made a counter offer.

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

Acceptance.

❖ Example: ‘A’ offers to sell his plot to ‘B’ for `10 lakhs. ’B’ agrees to buy it for ` 8 lakhs. It
amounts to counter offer. It may result in the termination of the offer of ’A’. Any if later
on ‘B’ agrees to buy the plot for ` 10 lakhs, ’A’ may refuse.

(e) Standing or continuing or open offer: An offer which is allowed to remain open for
acceptance over a period of time is known as standing or continuing or open offer. Tenders
that are invited for supply of goods is a kind of standing offer.

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 Essential of a valid offer :
1. 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. If the offer does not intend to give rise to legal consequences and
creating legal relations, it is not considered as a valid offer in the eye of law.

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

2. It must be certain, definite and not vague:

➢ If the terms of an offer are vague or indefinite, its acceptance cannot create any
contractual relationship.

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3. It must be communicated to the offeree:

❖ An offer, to be complete, must be communicated to the person to whom it is made,

otherwise there can be no acceptance of it.

❖ Unless an offer is communicated, there can be no acceptance by it. An acceptance

of an offer, in ignorance of the offer, is not acceptance and does not confer any
right on the acceptor.

❖ Case Law : Lalman Shukla v. GauriDutt G (Gauridutt) sent his servant L (Lalman) to
trace his missing nephew. He then announced that anybody who traced his nephew
would be entitled to a certain reward. L traced the boy in ignorance of this
announcement. Subsequently when he came to know of the reward, he claimed it.
Held, he was not entitled to the reward, as he did not know the offer.

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4. It must be made with a view to obtaining the assent of the other party: Offer must be
made with a view to obtaining the assent of the other party addressed and not merely with a
view to disclosing the intention of making an offer.

5. It may be conditional: An offer can be made subject to any terms and conditions by the
offeror.
Example: Offeror may ask for payment by RTGS, NEFT etc. The offeree will have to accept
all the terms of the offer otherwise the contract will be treated as invalid.

6. Offer should not contain a term the non compliance of which would amount to acceptance:
Thus, one cannot say that if acceptance is not communicated by a certain time the offer
would be considered as accepted. Example: A proposes B to purchase his android mobile for
`5000 and if no reply by him in a week, it would be assumed that B had accepted the
proposal. This would not result into contract.

7. The offer may be either specific or general: Any offer can be made to either public at
large or to the any specific person. (Already explained in the heading types of the offer)

8. The offer may be express or implied: An offer may be made either by words or by
conduct.

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9. Offer is Different from a mere statement of intention, an invitation to offer, a mere
communication of information, A prospectus and Advertisement.

i. A statement of intention and announcement.

Example 42: A father wrote his son about his wish of making him the owner of all his
property is mere a statement of intention.
Example 43: An announcement to give scholarships to children scoring more than 95% in
12th board is not an offer.

ii. Offer must be distinguished from an answer to a question.

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Case Law: Harvey vs. Facie [1893]

In this case, Privy Council succinctly explained the distinction between an offer
and an invitation to offer.

In the given case, the plaintiffs through a telegram asked the defendants two
questions namely,
(i) Will you sell us Bumper Hall Pen? And
(ii) Telegraph lowest cash price.

The defendants replied through telegram that the “lowest price for Bumper Hall
Pen is £ 900”. The plaintiffs sent another telegram stating “we agree to buy
Bumper Hall Pen at £ 900”.

However the defendants refused to sell the property at the price. The plaintiffs
sued the defendants contending that they had made an offer to sell the property
at £ 900 and therefore they are bound by the offer.
However, the Privy Council did not agree with the plaintiffs on the ground that while plaintiffs
had asked two questions, the defendant replied only to the second question by quoting the
price but reserved their answer with regard to their willingness to sell. Thus, they made no
offer at all.

Their Lordships held that the mere statement of the lowest price at which the vendor would
sell contained no implied contract to sell to the person who had enquired about the price.

The above decision was followed in Mac Pherson vs Appanna [1951] A.S.C. 184 where the
owner of the property had said that he would not accept less than £ 6000/- for it. This
statement did not indicate any offer but indicated only an invitation to offer.

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iii. A statement of price is not an offer:

Quoting the price of a product does not constitute it as offer.

iv. An invitation to make an offer or do business.

In case of “an invitation to make an offer”, the person making the invitation does not make
an offer rather invites the other party to make an offer.

His objective is to send out the invitation that he is willing to deal with any person who, on
the basis of such invitation, is ready to enter into contract with him subject to final terms
and conditions.

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When goods are sold through auction, the auctioneer does not contract with anyone who
attends the sale. The auction is only an advertisement to sell but the items are not put for
sale though persons who have come to the auction may have the intention to purchase.

Similar decision was given in the case of Harris vs. Nickerson (1873).

Similarly, Red Herring Prospectus issued by a company, is only an invitation to the public to
make an offer to subscribe to the securities of the company.

10. A statement of price is not an offer

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What is invitation to offer?

➢ An offer should be distinguished from an invitation to offer. An offer is definite and

capable of converting an intention into a contract.

➢ Whereas an invitation to an offer is only a circulation of an offer, it is an attempt to

induce offers and precedes a definite offer.

➢ An invitation to offer is an act precedent to making an offer. Acceptance of an

invitation to an offer does not result in the contract and only an offer emerges in the
process of negotiation.

➢ When a person advertises that he has stock of books to sell or houses to let, there is
no offer to be bound by any contract. Such advertisements are offers to negotiate-
offers to receive offers.

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➢ In order to ascertain whether a particular statement amounts to an ‘offer’ or an ‘invitation
to offer’, the test would be intention with which such statement is made.

➢ Does the person who made the statement intend to be bound by it as soon as it is accepted
by the other or he intends to do some further act, before he becomes bound by it.

➢ In the former case, it amounts to an offer and in the latter case, it is an invitation to
offer.

➢ Example: The price list of goods does not constitute an offer for sale of certain goods on
the listed prices. It is an invitation to offer.

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Difference between offer and invitation to make an offer:

➢ In terms of Section 2(a) of the Act, an offer is the final expression of willingness by the
offeror to be bound by the offer should the other party chooses to accept it.

➢ On the other hand, offers made with the intention to negotiate or offers to receive offers
are known as invitation to offer.

➢ Thus where a party without expressing his final willingness proposes certain terms on which he
is willing to negotiate he does not make an offer, but only invites the other party to make an
offer on those terms.

➢ Hence the only thing that is required is the willingness of the offeree to abide by the terms
of offer.

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➢ In order to ascertain whether a particular statement amounts to an offer or an invitation
to offer, the test would be intention with which such statement is made.

➢ The mere statement of the lowest price which the vendor would sell contains no implied
contract to sell at that price to the person making the inquiry.

➢ If a person who makes the statement has the intention to be bound by it as soon as the
other accepts, he is making an offer.

➢ Thus the intention to be bound is important factor to be considered in deciding whether a

statement is an ‘offer’ or ‘invitation to offer.’

➢ Following are instances of invitation to offer to buy or sell: i) An invitation by a company

to the public to subscribe for its shares ii) Display of goods for sale in shop windows. iii)
Advertising auction sales and iv) Quotation of prices sent in reply to a query regarding
price.

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 1.5 ACCEPTANCE

Definition : Section 2(b) of the Act,

“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”.

Analysis of the above definition

1. When the person to whom proposal is made - for example if A offers to sell his car to B
for ` 200000. Here, proposal is made to B.
2. The person to whom proposal is made i.e. B in the above example and if B signifies his
assent on that proposal. In other words if B grants his consent on A’s proposal, then we
can say that B has signified his consent on the proposal made by A.
3. When B has signified his consent on that proposal, we can say that the proposal has been
accepted.
4. Accepted proposal becomes promise.

Relationship between offer and acceptance : “Acceptance is to offer what a lighted match is
to a train of gun powder”.

CA INDRESH GANDHI | IGSIR

Legal Rules regarding a valid acceptance:

1. Acceptance can be given only by the person to whom offer is made: In case of a
specific offer, it can be accepted only by the person to whom it is made

Case Law : Boulton vs. Jones

Facts : Boulton bought a business from Brocklehurst. Jones, who was Broklehurst’s
creditor, placed an order with Brocklehurst for the supply of certain goods. Boulton
supplied the goods even though the order was not in his name. Jones refused to pay
Boultan for the goods because by entering into the contract with Blocklehurst, he intended
to set off his debt against Brocklehurst. Held, as the offer was not made to Boulton,
therefore, there was no contract between Boulton and Jones

In case of a general offer, it can be accepted by any person who has the knowledge of
the offer. [Carlill vs. Carbolic Smoke Ball Co.

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2. Acceptance must be absolute and unqualified:

➢ As per section 7 of the Act, acceptance is valid only when it is absolute and unqualified
and is also expressed in some usual and reasonable manner unless the proposal prescribes
the manner in which it must be accepted.

➢ If the proposal prescribes the manner in which it must be accepted, then it must be
accepted accordingly.

• Example: ‘A’ enquires from ‘B’, “Will you purchase my car for ` 2 lakhs?” If ‘B’ replies “I
shall purchase your car for ` 2 lakhs, if you buy my motorcycle for ` 50000/-, here ‘B’
cannot be considered to have accepted the proposal. If on the other hand ‘B’ agrees to
purchase the car from ‘A’ as per his proposal subject to availability of valid Registration
Certificate / book for the car, then the acceptance is in place though the offer contained
no mention of R.C. book. This is because expecting a valid title for the car is not a
condition. Therefore the acceptance in this case is unconditional.

CA INDRESH GANDHI | IGSIR

M offered to sell his land to N for £280. N replied purporting to accept the offer but
enclosed a cheque for £ 80 only. He promised to pay the balance of £ 200 by monthly
instalments of £ 50 each. It was held that N could not enforce his acceptance because it
was not an unqualified one. [Neale vs. Merret [1930] W. N. 189].

A offers to sell his house to B for ` 1,00,000/-. B replied that, “I can pay ` 80,000 for it.
The offer of ‘A’ is rejected by ‘B’ as the acceptance is not unqualified. B however changes
his mind and is prepared to pay ` 1,00,000/-. This is also treated as counter offer and it is
upto A whether to accept it or not. [Union of India v. Bahulal AIR 1968 Bombay 294].

CA INDRESH GANDHI | IGSIR

3. The acceptance must be communicated:

➢ To conclude a contract between the parties, 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.

➢ Further when a proposal is accepted, the offeree must have the knowledge of the offer
made to him. If he does not have the knowledge, there can be no acceptance. The
acceptance must relate specifically to the offer made. Then only it can materialize into a
contract.

➢ Where an offer made by the intended offeree without the knowledge that an offer has
been made to him cannot be deemed as an acceptance thereto. (Bhagwandas v. Girdharilal)

➢ A mere variation in the language not involving any difference in substance would not make
the acceptance ineffective. [Heyworth vs. Knight

CA INDRESH GANDHI | IGSIR

Case Law : Brogden vs. Metropolitan Railway Co.

Facts: B a supplier, sent a draft agreement relating to the supply of coal to the manager
of railway Co. viz, Metropolitian railway for his acceptance. The manager wrote the word
“Approved” on the same and put the draft agreement in the drawer of the table intending
to send it to the company’s solicitors for a formal contract to be drawn up. By an over
sight the draft agreement remained in drawer. Held, that there was no contract as the
manager had not communicated his acceptance to the supplier, B.

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4. Acceptance must be in the prescribed mode: Where the mode of acceptance is
prescribed in the proposal, it must be accepted in that manner. But if the proposer does
not insist on the proposal being accepted in the manner prescribed after it has been
accepted otherwise, i.e., not in the prescribed manner, the proposer is presumed to have
consented to the acceptance.

CA INDRESH GANDHI | IGSIR

5. 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.

➢ What is reasonable time is nowhere defined in the law and thus would depend on facts and
circumstances of the particular case.

6. 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.

Case Law: Felthouse vs. Bindley

CA INDRESH GANDHI | IGSIR

Facts: F (Uncle) offered to buy his nephew’s horse for £30 saying “If I hear no more about it
I shall consider the horse mine at £30.” The nephew did not reply to F at all. He told his
auctioneer, B to keep the particular horse out of sale of his farm stock as he intended to
reserve it for his uncle. By mistake the auctioneer sold the horse. F sued him for conversion of
his property. Held, F could not succeed as his nephew had not communicated the acceptance to
him.

Example: ’A’ subscribed for the weekly magazine for one year. Even after expiry of his
subscription, the magazine company continued to send him magazine for five years. And also ‘A’
continued to use the magazine but denied to pay the bills sent to him. ’A’ would be liable to pay
as his continued use of the magazine was his acceptance of the offer.

CA INDRESH GANDHI | IGSIR

7. Acceptance by conduct/Implied Acceptance:

➢ Section 8 of the Act lays down that “the performance of the conditions of a proposal, or
the acceptance of any consideration for a reciprocal promise which may be offered with a
proposal, constitutes an acceptance of the proposal.

➢ This section provides the acceptance of the proposal by conduct as against other modes of
acceptance i.e. verbal or written communication.

➢ Therefore, 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.

CA INDRESH GANDHI | IGSIR

 1.6 COMMUNICATION OF OFFER AND ACCEPTANCE

➢ The importance of ‘offer’ and ‘acceptance’ in giving effect to a valid contract was explained
in the previous paragraphs. One important common requirement for both ‘offer’ and
‘acceptance’ is their effective communication.

➢ Effective and proper communication prevents avoidable revocation and misunderstanding

between parties.

➢ When the contracting parties are face-to-face, there is no problem of communication

because there is instantaneous communication of offer and acceptance. In such a case the
question of revocation does not arise since the offer and its acceptance are made instantly.

➢ The difficulty arises when the contracting parties are at a distance from one another and
they utilise the services of the post office or telephone or email (internet).

➢ In such cases, it is very much relevant for us to know the exact time when the offer or
acceptance is made or complete. The Indian Contract Act,1872 gives a lot of importance to
“time” element in deciding when the offer and acceptance is complete.

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➢ The Indian Contract Act,1872 gives a lot of importance to “time” element in deciding when
the offer and acceptance is complete.

➢ Communication of offer: In terms of Section 4 of the Act, “the communication of offer is

complete when it comes to the knowledge of the person to whom it is made”.

➢ Example Where ‘A’ makes a proposal to ‘B’ by post to sell his house for ` 5 lakhs and if
the letter containing the offer is posted on 10th March and if that letter reaches ‘B’ on
12th March the offer is said to have been communicated on 12th March when B received
the letter.

➢ Thus it can be summed up that when a proposal is made by post, its communication will be
complete when the letter containing the proposal reaches the person to whom it is made.

➢ Mere receiving of the letter is not sufficient, he must receive or read the message
contained in the letter.

➢ He receives the letter on 12th March, but he reads it on 15th of March. In this case
offer is communicated on 15th of March, and not 12th of March.

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Communication of acceptance: There are two issues for discussion and understanding. They are:
The modes of acceptance and when is acceptance complete?

Let us, first consider the modes of acceptance. Section 3 of the Act prescribes in general terms
two modes of communication namely, (a) by any act and (b) by omission, intending thereby, to
communicate to the other or which has the effect of communicating it to the other.

Communication by act would include any expression of words whether written or oral. Written
words will include letters, telegrams, faxes, emails and even advertisements. Oral words will
include telephone messages. Again communication would include any conduct intended to
communicate like positive acts or signs so that the other person understands what the person
‘acting ‘ or ‘making signs’ means to say or convey.

CA INDRESH GANDHI | IGSIR

Communication of acceptance by ‘omission’ to do something.

➢ Such omission is conveyed by a conduct or by forbearance on the part of one person to convey
his willingness or assent. However silence would not be treated as communication by ‘omission’

Communication of acceptance by conduct.

➢ For instance, delivery of goods at a price by a seller to a willing buyer will be understood as a
communication by conduct to convey acceptance.

➢ Similarly one need not explain why one boards a public bus or drop a coin in a weighing
machine. The first act is a conduct of acceptance and its communication to the offer by the
public transport authority to carry any passenger.

➢ The second act is again a conduct conveying acceptance to use the weighing machine kept by
the vending company as an offer to render that service for a consideration.

CA INDRESH GANDHI | IGSIR

The other issue in communication of acceptance is about the effect of act or omission or
conduct. These indirect efforts must result in effectively communicating its acceptance or
non acceptance. If it has no such effect, there is no communication regardless of which the
acceptor thinks about the offer within himself. Thus a mere mental unilateral assent in one’s
own mind would not amount to communication. Where a resolution passed by a bank to sell
land to ‘A’ remained uncommunicated to ‘A’, it was held that there was no communication and
hence no contract. [Central Bank Yeotmal vs Vyankatesh (1949) A. Nag. 286].

Let us now come to the issue of when communication of acceptance is complete. 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

Where a proposal is accepted by a letter sent by the post, the communication of acceptance
will be complete as against the proposer when the letter of acceptance is posted and as
against the acceptor when the letter reaches the proposer.

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➢ For instance in the above example, if ‘B’ accepts, A’s proposal and sends his acceptance by post
on 14th, the communication of acceptance as against ‘A’ is complete on 14th, when the letter is
posted. As against ‘B’ acceptance will be complete, when the letter reaches ‘A’.

➢ Here ‘A’ the proposer will be bound by B’s acceptance, even if the letter of acceptance is
delayed in post or lost in transit.

➢ The golden rule is proposer becomes bound by the contract, the moment acceptor has posted
the letter of acceptance. But it is necessary that the letter is correctly addressed, adequately
stamped and duly posted.

➢ In such an event the loss of letter in transit, wrong delivery, non delivery etc., will not affect
the validity of the contract. However, from the view point of acceptor, he will be bound by his
acceptance only when the letter of acceptance has reached the proposer.

➢ So it is crucial in this case that the letter reaches the proposer. If there is no delivery of the
letter, the acceptance could be treated as having been completed from the viewpoint of
proposer but not from the viewpoint of acceptor. Of course this will give rise to an awkward
situation of only one party to the contract, being treated as bound by the contract though no
one would be sure as to where the letter of acceptance had gone.

CA INDRESH GANDHI | IGSIR

➢ Acceptance over telephone or telex or fax: When an offer is made of instantaneous communication
like telex, telephone, fax or through e-mail, the contract is only complete when the acceptance is
received by the offeree, and the contract is made at the place where the acceptance is received
(Entores Ltd. v. Miles Far East Corporation). 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

CA INDRESH GANDHI | IGSIR

For instance where a passenger undertakes a travel, the conditions of travel are printed at
the back of the tickets, sometimes these special conditions are brought to the notice of the
passenger, sometimes not. In any event, the passenger is treated as having accepted the
special condition the moment he bought his ticket.

When someone travels from one place to another by air, it could be seen that special
conditions are printed at the back of the air ticket in small letters [in a non computerized
train ticket even these are not printed] Sometimes these conditions are found to have been
displayed at the notice board of the Air lines office, which passengers may not have cared to
read.

The question here is whether these conditions can be considered to have been communicated
to the passengers of the Airlines and can the passengers be treated as having accepted the
conditions.

The answer to the question is in the affirmative and was so held in Mukul Datta vs. Indian
Airlines [1962] AIR cal. 314 where the plaintiff had travelled from Delhi to Kolkata by air
and the ticket bore conditions in fine print. But such terms and condition should be
reasonable

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Yet another example is where a launderer gives his customer a receipt for clothes received
for washing. The receipt carries special conditions and are to be treated as having been duly
communicated to the customer and therein a tacit acceptance of these conditions is implied
by the customer’s acceptance of the receipt [Lily White vs. R. Mannuswamy [1966]

CASE LAW: Lilly White vs. Mannuswamy (1970)

Facts: P delivered some clothes to drycleaner for which she received a laundry receipt
containing a condition that in case of loss, customer would be entitled to claim 15% of the
market price of value of the article, P lost her new saree. Held, the terms were
unreasonable and P was entitled to recover full value of the saree from the drycleaner. In
the cases referred above, the respective documents have been accepted without a protest
and hence amounted to tacit acceptance

CA INDRESH GANDHI | IGSIR

Standard forms of contracts:

• It is 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.

• In this connection, let us consider a converse situation. A transport carrier accepted the
goods for transport without any conditions.

• Subsequently, he issued a circular to the owners of goods limiting his liability for the
goods. In such a case, since the special conditions were not communicated prior to the
date of contract for transport, these were not binding on the owners of goods [Raipur
transport Co. vs. Ghanshyam

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 COMMUNICATION OF PERFORMANCE

➢ The offeree may be required to communicate the performance (or act) by way of acceptance.
In this case it is not enough if the offeree merely performs the act but he should also
communicate his performance unless the offer includes a term that a mere performance will
constitute acceptance

➢ The position was clearly explained in the famous case of Carlill Vs Carbolic &Smokeball Co. In
this case the defendant a sole proprietary concern manufacturing a medicine which was a
carbolic ball whose smoke could be inhaled through the nose to cure influenza, cold and other
connected ailments issued an advertisement for sale of this medicine.

➢ The advertisement also included a reward of $100 to any person who contracted influenza,
after using the medicine (which was described as ‘carbolic smoke ball’). Mrs. Carlill bought
these smoke balls and used them as directed but contracted influenza. It was held that Mrs.
Carlill was entitled to a reward of $100 as she had performed the condition for acceptance.

CA INDRESH GANDHI | IGSIR

Further as the advertisement did not require any communication of compliance of the condition, it
was not necessary to communicate the same.

The court thus in the process laid down the following three important principles:

an offer, to be capable of acceptance, must contain a definite promise by the offeror that he
would be bound provided the terms specified by him are accepted;

an offer may be made either to a particular person or to the public at large, and

if an offer is made in the form of a promise in return for an act, the performance of that act,
even without any communication thereof, is to be treated as an acceptance of the offer

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REVOCATION OF OFFER AND ACCEPTANCE

If there are specific requirements governing the making of an offer and the acceptance of that offer,
we also have specific law governing their revocation.

In term of Section 4, communication of revocation (of the proposal or its acceptance) is complete. a) 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 b) as against the person to whom it
is made, when it comes to his knowledge.

The above law can be illustrated as follows: If you revoke your proposal made to me by a telegram, the
revocation will be complete, as far as you are concerned when you have dispatched the telegram. But as
far as I am concerned, it will be complete only when I receive the telegram.

As regards revocation of acceptance, if you go by the above example, I can revoke my acceptance (of
your offer) by a telegram. This revocation of acceptance by me will be complete when I dispatch the
telegram and against you, it will be complete when it reaches you.

CA INDRESH GANDHI | IGSIR

But the important question for consideration is when a proposal can be revoked? And when can an
acceptance be revoked? These questions are more important than the question when the
revocation (of proposal and acceptance) is complete.

Ordinarily, the offeror can revoke his offer before it is accepted. If he does so, the offeree
cannot create a contract by accepting the revoked offer.

For example the bidder at an auction sale may withdraw (revoke) his bid (offer) before it is
accepted by the auctioneer by fall of hammer.

An offer may be revoked by the offeror before its acceptance, even though he had originally
agreed to hold it open for a definite period of time. So long as it is a mere offer, it can be
withdrawn whenever the offeror desires.

Example: X offered to sell 50 bales of cotton at a certain price and promised to keep it open for
acceptance by Y till 6 pm of that day. Before that time X sold them to Z. Y accepted before 6
p.m., but after the revocation by X. In this case it was held that the offer was already revoked.

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
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Example:

➢ A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a
letter sent by post. A may revoke his proposal at any time before or at the moment when B
posts his letter of acceptance, but not afterwards.

➢ Whereas B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards. An acceptance to an offer must be made
before that offer lapses or is revoked.

➢ The law relating to the revocation of offer is the same in India as in England, but the law
relating to the revocation of acceptance is different. In English law, the moment a person
expresses his acceptance of an offer, that moment the contract is concluded, and such an
acceptance becomes irrevocable, whether it is made orally or through the post. In Indian
law, the position is different as regards contract through post.

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Contract through post-

As acceptance, in English law, cannot be revoked, so that once the letter of acceptance
is properly posted the contract is concluded.

In Indian law, the acceptor or can revoke his acceptance any time before the letter of
acceptance reaches the offeror, if the revocation telegram arrives before or at the
same time with the letter of acceptance, the revocation is absolute.

Contract over Telephone- A contract can be made over telephone. The rules regarding
offer and acceptance as well as their communication by telephone or telex are the same
as for the contract made by the mutual meeting of the parties.

The contract is formed as soon as the offer is accepted but the offeree must make it
sure that his acceptance is received by the offeror, otherwise there will be no contract,
as communication of acceptance is not complete. If telephone unexpectedly goes dead
during conversation, the acceptor must confirm again that the words of acceptance were
duly heard by the offeror.

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Revocation of proposal otherwise than by communication:

When a proposal is made, the proposer may not wait indefinitely for its acceptance. The
offer can be revoked otherwise than by communication or sometimes by lapse.

Modes of revocation of offer:

i) By notice of revocation

i) By lapse of time: The time for acceptance can lapse if the acceptance is not given
within the specified time and where no time is specified, then within a reasonable time.
This is for the reason that proposer should not be made to wait indefinitely.

It was held in Ramsgate Victoria Hotel Co. Vs Montefiore (1866 L.R.Z. Ex 109), that a
person who applied for shares in June was not bound by an allotment made in November.
This decision was also followed in India Cooperative Navigation and Trading Co. Ltd. Vs
Padamsey PremJi. However these decisions now will have no relevance in the context of
allotment of shares since the Companies Act, 2013 has several provisions specifically
covering these issues.

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iii) By non fulfillment of condition precedent:

Where the acceptor fails to fulfill a condition precedent to acceptance the proposal gets
revoked. This principle is laid down in Section 6 of the Act.

The offeror for instance may impose certain conditions such as executing a certain document or
depositing certain amount as earnest money. Failure to satisfy any condition will result in lapse
of the proposal.

As stated earlier ‘condition precedent’ to acceptance prevents an obligation from coming into
existence until the condition is satisfied. Suppose where ‘A’ proposes to sell his house to be ‘B’
for ` 5 lakhs provided ‘B’ leases his land to ‘A’. If ‘B’ refuses to lease the land, the offer of
‘A’ is revoked automatically.

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iv) By death or insanity: Death or insanity of the proposer would result in automatic
revocation of the proposal but only if the fact of death or insanity comes to the knowledge
of the acceptor.

v) By counter offer

vi) By the non acceptance of the offer according to the prescribed or usual mode

vii) By subsequent illegality

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