ASJ

Chapter 2
Introduction to the Law of Contract
Chapters on Law of Contract ASJ

Chapter 2 Introduction to law of contract.

Chapter 3 Lawful Consideration etc.
Chapter 4 Free Consent etc.
Chapter 5 Performance of a contract etc..
Chapter 6 Discharge of a contract.
Chapter 7 Specific Types of contracts.
Chapter 8 Agency
Contents ASJ

CONTRACT OFFER ACCEPTANCE

 Definition of a contract  Definition and essentials of  Meaning and essentials of

 Essentials of a valid proposal / offer acceptance
contract  Types of offer  Timing of revocation
 Classifications of contract  Lapse of an offer  Communication of revocation
Introduction to the law of contract
Agreement
INTRODUCTION TO CONTRACT

Definition of a contract
The law governing contracts between persons is the Contract Act, 1872.

Definition: Contract
An agreement enforceable by law is a contract.
Contract
A contract is an agreement which legally binds the parties.
The analysis of the above definition reveals that a contract has
following two elements:
 Agreement Enforceability
 Enforceability
Definition: Agreement

Every promise and every set of promises forming the consideration for
each other is an agreement.

The analysis of the above definition reveals that an agreement comes

into existence only when one party makes a proposal or offer to the
other party and the other party signifies his acceptance thereto. Thus, an
agreement can be an accepted proposal.
Definition: Promise

When the person to whom the proposal is made signifies his assent to it, the proposal
is said to be accepted. A proposal, when accepted becomes a promise.
The person making the proposal is called the promisor and the person accepting the
proposal is called the promisee.

Definition: Proposal

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.
Enforceability

Every contract is an agreement, but every agreement is not always a

contract. An agreement creating a legal obligation is said to be enforceable
by law. The parties to an agreement must be bound to perform their promises
and in case of default by either of them, must intend to sue. For an agreement
to be enforceable by law there should be legal obligation instead of social,
moral or religious obligation.
Essentials of valid contract
Offer &
accepta
Legal nce Legal
1. Offer & Acceptance Formalit Relation
ies ship
2. Legal relationship
3. Competency of parties
Poss.
4. Consideration Perform Compet
ance ency
5. Free Consent
6. Lawful object Valid
Contract
7. Not declared as void
Certaint Conside
8. Certainty y ration
9. Possibility of performance
10. Legal formalities
Not Free
Void Consent
Lawful
Object
1.2 Essentials of a valid contract

The essentials of a valid contract are shown below:

These essentials are discussed below:

Offer and acceptance

There must be an agreement between parties to create a valid contract.

An agreement involves a valid offer and its acceptance.
Legal relationship

A contract to become valid must have a legal relationship. In

case of social or domestic agreements, the usual presumption is that
the parties do not intend to create legal relationship but in commercial
or business agreements, the usual presumption is that the parties intend
to create legal relationship unless otherwise agreed upon.
Competency of parties

The parties to an agreement must be competent to contract. In other words, the

person must:

be of the age of majority

be of sound mind; and

not be declared as disqualified from contracting by any law to which he is

subject.
Consideration

An agreement must be supported by lawful consideration.

Gratuitous (without consideration) promises are not enforceable at law.
Consideration requires not only presence of consideration but also
lawfulness of consideration.
Free Consent
An agreement must be made between parties by free consent. In other words, the
consent must not be obtained from following:

Coercion

Undue influence

Fraud

Misrepresentation

Mistake
Lawful Object

The object of an agreement must be lawful. An object is said to be unlawful when:

It is forbidden by law

Is of such a nature that if permitted would defeat the provisions of any law

It is fraudulent

It involves an injury to the person or property of another

The court regards it as immoral, or opposed to public policy

Not expressly declared as void
An agreement which is not enforceable by law is called void agreement. There are
certain agreements which have been expressly declared as void such as:

Agreement, the consideration or object of which is partly unlawful

Agreement made without consideration

Agreement in restraint of marriage

Agreement in restraint of legal proceedings

Agreement in restraint of trade

Uncertain agreements

Wagering agreement
Certainty

An agreement may be void on the grounds of uncertainty. The meaning

of the agreement must be certain or capable of being certain.

Possibility of performance

The terms of the agreement must be capable of being performed. An

agreement to do an act impossible in itself is void.
Legal formalities

An oral contract is a perfectly valid contract, except in certain cases

where a contract must comply with the necessary formalities as to
writing, registration etc.

1.3 Classifications of contract

The different classifications of contract are shown below:

Valid contract An agreement which is enforceable by law.

Void agreement An agreement which is not enforceable by law [Section

2(g)].

Void contract A contract which ceases to be enforceable by law becomes void

when it ceases to be enforceable [Section 2(j)].

Voidable contract An agreement which is enforceable by law at the option of

the aggrieved party [Section 2(i)].

Illegal agreements An agreement the object of which is illegal.

Unenforceable agreement An agreement which is otherwise valid but due to

some technical lacking, such as writing etc. remains unenforceable.
Executed contract
A contract where both the parties have performed their respective
promises.

Executory contract
A contract in which something remains to be done. It may be unilateral or
bilateral.

Unilateral contract
A contract is which a promise on one side is exchanged for an act on the
other side. In such contract one party to a contract has performed his part
and performance is outstanding against the other party.

Bilateral contract
A contract in which a promise on one side is exchanged for a promise on
the other.
2 OFFER
2.1 Definition and essentials of proposal / offer

Definition: Proposal / offer

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.

Thus, an offer is a proposal by one person to another for entering into a

legally binding agreement with him.
Two persons
For a valid offer there needs to be two persons. A person cannot make
an offer to himself. The person making the proposal is called offer or
and the person to whom offer is made is called offeree.

Certain and definite

A valid offer is one which is certain and definite. Thus, no contract can
come into existence if offer is uncertain.
Contractual intention

An offer must be made with an intention to create a contract.

Communication

The offer must be communicated to the offeree. The communication is

complete when it comes to the knowledge of the person to whom it
is made. In case an offer is made by post, its communication will
complete when the letter reaches the offeree. An offer can be made by
words spoken or written or through conduct of the person.
Objective of consent
An offer must be made with a view to obtain the consent of the other person to
proposed act or abstinence.

Conditional
An offer may be subject to some condition. It is on the sole discretion of the person to
whom such offer is made to either accept or reject it. A conditional offer lapses when
condition is not accepted.

Negative confirmation
An offer cannot be in the form of negative confirmation i.e. if it is not accepted within
a specific time then it will be presumed to have been accepted.
Invitation of an offer

An offer is different from an invitation of an offer.

The intention in invitation of an offer is to circulate information of his
readiness to do the transaction.
Such intentions are not offers and do not tantamount to promise on
acceptance.
In other words, an invitation of an offer means an intention of a person to
invite others with a view to enter into an agreement.
Communication of special conditions

When there are special terms and conditions in an offer these must be
specifically communicated to the other party.
2.2 Types of offer

Following are the different types of offer:

Specific Offer

If an offer is made to definite or a particular person or specific group of

persons it is said to be specific offer. Such offer can be accepted only by
that definite person or that specific group of persons.
General offer

If an offer is made to the world or public then it is said to be general offer.

Such offer can be accepted by any person. The contract is made with
person who having the knowledge of the offer comes forward and acts
according to the conditions of the offer.

Cross offers

If two parties ignorant of each other’s offer made similar offers to each other
they are called cross offers. Cross offers are not equal to acceptance.
Standing / Open / Continuing offer / Tender

If an offer is of on-going nature it is said to be a standing offer. A

contract is entered only when the person signifies his acceptance on the
basis of the tender.
2.3 Lapse of an offer

An offer is lapsed in the following ways:

Revocation

An offer may be revoked before its acceptance by the offeree.

Non-acceptance / Rejection

An offer comes to an end if it is not accepted by the offeree. An offer is

said to be rejected if the offeree expressly rejects.
Counter offer

An offer comes to an end if the counter offer is made.

Lapse of time

An offer will come to an end if it is not accepted within the time

specified or within a reasonable time where no time is specified. “What
is the reasonable time?” is a question of fact depending upon the subject
matter and circumstances.
Death or insanity

An offer comes to an end by the death or insanity of the offeror if the

fact of his death or insanity comes to the knowledge of the acceptor
before acceptance.

Non-fulfilment of condition precedent

An offer comes to an end when the acceptor fails to fulfil the conditions
precedent to the offer.
Non-acceptance according to requirement

An offer comes to an end if it is not accepted according to the requirement (if any)
of the offeror.

Subsequent illegality or destruction

An offer comes to an end if it becomes illegal or the subject matter is

destroyed before its acceptance.
3 ACCEPTANCE AND RULES OF
REVOCATION
3.1 Meaning and essentials of acceptance

When the person to whom the proposal is made signifies his assent to it,
the proposal is said to be accepted.

Thus, an acceptance means assenting to an offer made. An offer

when accepted becomes a promise.

The essentials of acceptance are shown below:

These essentials are discussed below:

Absolute and unconditional

An offer should be accepted without any condition. If any condition is imposed
on an offer then it turns out to be counter offer instead of acceptance.

Communication
The acceptance may be complete when it is communicated to the offeror. An
offer can be accepted by words spoken or written or through conduct of
the person. Further, a valid acceptance is communicated either by the
offeree himself or any person authorized by him to communicate to the
offeror.
Postal rule

The communication of acceptance by post is complete as against the

proposer when it is put in a course of transmission. In case of acceptance
made by post, the proposer becomes bound as soon as the letter of
acceptance is posted even if such letter is lost or delay.

The communication is complete as against the acceptor when it comes to

the knowledge of the proposer. In case of acceptance by post, the
acceptor becomes bound when the letter of acceptance is actually
received, before that acceptor may revoke his acceptance.
Contracts over telephone / telex / fax
A contract by telephone / telex / fax is treated on the same principle as an oral agreement made
between two parties when they are face to face with each other. In such cases, the contract will
complete only when the acceptance is received by the proposer and not when it is transmitted by
the acceptor.
The offeree must make sure that his acceptance is received, heard and understood by the offeror;
otherwise there is no contract.

Reasonable time
A valid acceptance is when it is accepted within the time specified or within a reasonable time
where no time is specified.
Reasonable mode

Acceptance should be made in the manner specified or in a usual

manner where no mode is specified.

If the proposal prescribes a manner in which offer is to be accepted and

the acceptance is not made in that manner. The offeror shall, in this case,
when the acceptance is communicated to him, insist that his proposal shall
be accepted in the prescribed manner and not otherwise. If the offeror
fails to insist within a reasonable time it is deemed that he has accepted
the performance.
Awareness of proposal
The acceptor must be aware of the proposal at the time of acceptance of the proposal.

Before lapse of an offer

The acceptance must be given before the offer lapses or is withdrawn.

Negative confirmation
A proposal is not considered accepted if the offeree remains silent. It cannot be in the form
of
negative confirmation i.e. if it is not accepted within a specific time then it will be presumed
to have
been accepted.
3.2 Timing of revocation

Timing of revocation of an offer

A proposal may be revoked at any time before acceptance or the
communication of its acceptance is complete as against the
proposer, but not afterwards.

Timing of revocation of an acceptance

An acceptance can be revoked at any time before the
communication of the acceptance is complete as against the
acceptor i.e. when acceptance comes to the knowledge of the
offer or, but not afterwards.
3.3 Communication of revocation
The rules regarding the communication of revocation are as under:

As against the person who makes it

When it is put in a course of transmission so as to be out of the power of
the sender of the revocation.

As against the person to whom it is made

When it comes to the knowledge of the receiver of revocation.
Topics Covered ASJ

CONTRACT OFFER ACCEPTANCE

 Definition of a contract  Definition and essentials of  Meaning and essentials of

 Essentials of a valid proposal / offer acceptance
contract  Types of offer  Timing of revocation
 Classifications of contract  Lapse of an offer  Communication of revocation