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Introduction

A valid contract requires several essential elements: an offer and acceptance,


where clear terms are proposed and agreed upon; consideration, meaning
something of value must be exchanged; and the intention to create legal relations,
indicating both parties aim for the agreement to be legally binding. Additionally,
parties must have the capacity to contract, ensuring they are of legal age and
sound mind, and must give genuine consent, free from duress or fraud. The
contract's purpose must be legal, its terms certain, and its performance possible.
These elements collectively ensure that a contract is enforceable and reliable for
all involved parties.

Research objective
"To examine and analyze the essential elements and legal principles underpinning
the formation, enforceability, and validity of contracts, focusing on offer,
acceptance, consideration, and the meeting of minds (consensus ad idem), as well
as comparing the distinctions between offers and invitations to offer under the
Indian Contract Act and English law."

Research methodology
To explore the concept of contracts, this research will employ a doctrinal
methodology, which involves a detailed examination of legal doctrines,
principles, and case law. The methodology begins with an extensive literature
review, focusing on primary sources such as statutes, notably the Indian Contract
Act, and pertinent case law that elucidates the legal definitions and frameworks
of contracts. Key definitions provided by legal scholars, including Pollock and
Salmond, will be critically analyzed to understand the foundational elements of
contracts, such as agreements, enforceability, offers, acceptances, and
considerations.
Literature review

Abstract
Contracts are fundamental to the operation of modern society, governing
transactions ranging from simple purchases to complex business arrangements.
For a contract to be legally binding and enforceable, it must meet several essential
elements. Among these, offer, acceptance, and consideration are paramount.
Understanding these elements is crucial for grasping how contracts are formed
and enforced.

An offer is a clear proposal made by one party (the offeror) to another (the
offeree), signifying a willingness to enter into a binding agreement on certain
specified terms. An offer must be definite, communicated to the offeree, and
intended to create legal relations upon acceptance. The specificity of the offer
ensures that both parties understand the terms of the agreement, preventing
misunderstandings and disputes.

Acceptance is the unequivocal agreement to the terms of the offer by the offeree.
For acceptance to be valid, it must be unconditional and correspond exactly with
the terms of the offer, a principle known as the "mirror image rule." Any
modification or addition to the terms constitutes a counteroffer rather than
acceptance, which the original offeror may accept or reject.

Consideration is the value exchanged between the contracting parties, making the
agreement a bargain. It is what each party brings to the table, ensuring that the
contract is not merely a one-sided promise but a mutual exchange. Consideration
can take various forms, including money, goods, services, or a promise to do or
refrain from doing something.

The elements of offer, acceptance, and consideration are the bedrock of contract
law, ensuring that agreements are clear, mutual, and involve an exchange of value.
These elements work together to form a legally binding contract, protecting the
interests of all parties involved and providing a framework for resolving disputes.

Body
In simple terms, a contract means when two parties put into writing an agreement
which contains certain obligations (promises) which are to be performed by such
parties, and when such written agreement becomes enforceable by law, it
becomes a Contract. Enforceable by law means when the agreement has acquired
the force of law only for those who are a party to it and a violation of those
obligations would attract legal action, including repudiation of the entire contract.

Contract Act defines a Contract as “An agreement which is enforceable by Law”.


An Agreement is a settlement between two parties, which contains obligations or
promises which both parties need to fulfil. When such an agreement is made
binding by Law it becomes a Contract.

Pollock- “Every agreement and promise enforceable by law is a contract”.

Salmond- “A contract is an agreement creating and defining obligation between


two or more persons by which rights are acquired by one or more to acts
or forbearance on the part of others”.

Now after examining the definitions of contract we can say that-

Contract = Agreement + Enforceability

Illustration: A contracted with B for purchase of 10 bags of cement of a certain


quality, for Rs 1, 00,000. In this case, B’s promise is to provide A with 10 bags
of cement of that quality only for which A has contracted and A’s promise is to
duly pay B Rs.1, 00,000. In this case, both have to perform something for the
other, thus it is a case of reciprocal promise.

Essentials of a valid contract

Section 10 states conditions which are required for a contract to be valid.

• Offer: Firstly, there must be an offer from either party, without an Offer
a contract cannot arise. However, in some cases, this principle could not
be applied. For instance, Mulla talks about a situation in which offer and
acceptance could not be traced, for instance, a commercial agreement
reached after multiple rounds of negotiations.

• Acceptance of the offer: Secondly, the Offer must be accepted and


accepted by the person to whom it was intended. So an offer by A to B
has to be accepted by B only.

Acceptance in ad-idem: Thirdly, though acceptance is important, there must


be “Consensus ad-idem”.

Consensus ad-idem means meeting of minds. It means that parties to the


contract should accept the terms of the contract in the “same sense”. Thus
parties to the contract must have the same understanding of the terms of the
contract.

E.g. A contracted with B to purchase rice. Now A wanted a special type of rice,
however, B thought of it to be normal rice. In this case, although there is a valid
acceptance but there lacks meeting of minds between the parties; meeting of
minds concerning the type or quality of rice.
Similarly, if A contracted with B to buy stocks. What A meant was stocks in a
company, whereas B understood it to be his livestock (farm animals). In this case,
the understanding was not in a similar sense.

• Parties must be competent to contract, under the laws they are subjected
to i.e. they must be legally capable to contract

• Consideration, for the performance of promises there must be a


consideratione. something given for performance of promise from both
parties to the contract.
Further, the objective and consideration of the contract must be lawful.

Offer and acceptance

Offer and Acceptance form the basis of a contract. There can be no contract unless
there is an offer and such an offer must be accepted. An Offer once accepted
becomes a Promise.

Offer and Proposal are used simultaneously. Offer is used in British law,
whereas Proposal is used in Indian law.

Offer

An offer is the first thing for the formation of a contract. A person making an
offer is called an “offeror”/“proposer” and a person to whom the offer is made
called an “Offeree” / “proposee”.

Chitty on Contracts, defines an offer as an expression of willingness to


contract made with an intention that is to become binding on the person making
it as soon as it is accepted by the person to whom it is addressed.
According to section2 (a) of the Contract act, an offer/proposal is:

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.”

An offer simply means willingness, to do something (a positive act) or to not do


something (a negative act). It must be noted that if an offer is not made, to get the
acceptance of the other party, then it cannot be construed as an offer under the
Contract Act. An offer must be made with the object of getting a favourable
response from the intended acceptor. Thus, there may be ‘positive’ or ‘negative’
acts which the proposer may be willing to do.

Pointers on Offer

1. Offer must be communicated to the offeree. Mode of communication


could be any but should be reasonable. An offer must be clear, specific
and capable of being understood.

2. An offer should be lawful and not to do something illegal.

3. Offer can be express or implied[v]. An express offer is one which is made


in words, whereas an implied offer is inferred from the conduct of the
offeror. In implied offer what matters is whether the offeror had any
intention to make an offer or not.

4. An offer can be revoked at any time before it’s acceptance by the


intended acceptor.

5. An offer must be made with an intention to get acceptance thereto.


A promise consists of an offer and an acceptance of that offer. Once these two
conditions are satisfied there is a promise and when both parties have to perform
their respective promises, it becomes a situation of reciprocal promise.

Contract act defines an offeror as “Promisor” and the person who is accepting the
offer as “Promisee”.

Offer and Invitation to offer

There is a difference between an offer and an invitation for others to make an


offer. An invitation for others to make an offer is not an offer within the meaning
of “Offer” under the Contract Act.

Sometimes a person may not make an offer to sell his goods, but makes a
statement or conducts in such a way, to make other persons make an offer to him.
This is an invitation to offer.

Such situations generally include advertisements, tenders, goods on display,


Expression of Interest (EoIs) and auction. In case of an auction, when the
auctioneer starts the bid by quoting a price, it is basically for others to make him
an offer with the amount in addition to the minimum price, which the auctioneer
had announced.

Similarly, when a company floats tender for construction of a building, it


basically is asking others (builders) to make them an offer by quoting the price of
construction.

This is because an offer is an offer to buy and there is no offer to sell.

Acceptance
As stated earlier, the second step in the formation of a contract is the acceptance
of the offer.

Acceptance means when the person to whom the offer was made, has given his
assent to such offer– Section 2(b) of Contract Act.

Once the offer is accepted and such acceptance has been communicated, to the
offeror, the parties are bound by their respective promises. Just like an offer, even
an acceptance can be revoked before the communication of acceptance reaches
the offeror.

The most important aspect of acceptance is that performance of an offer, in


ignorance of the said offer is not an acceptance. Therefore an act done, amounting
to acceptance, but acceptor being unaware of the offer, it is not a valid acceptance.

In the case of Lalman Shukla v Gauri Dutt (1913), the defendant’s boy went
missing, accordingly, his servant-Plaintiff was sent to search for the boy, in the
meantime a missing poster was released by the defendant, promising to pay a
certain sum, to the person who finds the boy. The servant, unaware of such an
offer succeeded to find the boy. Once he discovered that such an offer existed he
asked for the consideration, but the same was denied. The court ruled in favour
of the Defendant, by holding that Plaintiff was ignorant of offer and thus the
performance of the promise does not amount to acceptance.

Pointers on acceptance

1. Acceptance should be absolute and unqualified (unconditional), and


must be made whilst the offer is subsisting.

2. Acceptance to offer can be expressed or implied i.e. conducting in a


manner which implies acceptance. Eg. If a watch is taken by someone
to test it, before making the final purchase and the person pledges it, this
amounts to an implied acceptance.

3. Acceptance must be communicated in a reasonable manner, or, if any,


must be communicated through a reasonable medium, like telephone,
mail, WhatsApp message, automatic reply to emails, if there are no
exceptions

4. Traditionally acceptance was made through posts or letters. If an


acceptance is intended to be made through a post, it will be deemed
accepted when the letter of acceptance is posted and it is out of the reach
of the acceptor.
However with the advent of instant communication like telephone, offer is
accepted, when the offeror hears the acceptance on his part.

5. Acceptance or communication of acceptance by a third person or a


stranger is not a valid acceptance. If a contract mentions a specific
person to whom acceptance is to be communicated, then acceptance
shall be deemed to be valid if it is made to that person only.

6. Acceptance can be either in express words or can be implied i.e. by


conducting in a reasonable manner which signifies acceptance. Eg. A
offered B to sell his watch for Rs.1000 and lends it for his satisfaction.
B, in turn, pledges it or further sells it. The act of B is conduct amounting
to a valid acceptance.
Eg. In a contract of sale, acceptance is when an act by the purchaser does an act
which is inconsistent with the ownership of the seller.

Consideration
A Contract is formed when a person, A, makes an offer to another person, B.
When such Offer is accepted by the other person, it becomes an agreement.

Consideration means value given for the performance of a promise. It need not
necessarily be money, however, it should be something which has been agreed
by the parties and has some value.

Usually, a contract without consideration is void, however, exceptions to this rule


are specified in Section 25 of the Contract Act.

Consideration need not be adequate, however, it must have some value.


Consideration for a promise includes either performance of an act or non-
performance (abstinence) of a certain act. Performance of an act also includes the
act of paying money.

Pointers on valid Consideration

1. It has to be At the desire of the promisor, which means that it should


originate from the promisor out of his own accord and not at the instance
of a third party. Accordingly, the performance of a legal duty is thus not
a consideration.

2. Consideration could be:


1. Past Consideration, when the promisor has received
consideration before the date of the performance of the
contract by any party. Eg. Advance money paid.

2. Present Consideration, when consideration is provided


immediately when the contract is made or executed. Thus it is
also called “executed consideration.

3. Future Consideration, when consideration is paid after


making of the contract. In consideration given for
‘construction contracts’-Constructed building is given after the
execution of the contract.
3. It must not be illegal or void or impossible to perform.

4. Consideration is not void just because it is inadequate, provided it was


at the desire of the promisor.

5. It must be real, not illusionary. Consideration can be tangible or


intangible-e.g. Performance of service like teaching, labour.

Privity of consideration

In India, consideration for a promise might flow from the promise or any third
person, who is not a party to the contract, as long as it is at the desire of the
promisor.

According to Section 2(d),” when at the desire of the promisor, the promisee or
any other person does something or abstains from doing something…” Thus
Indian law does not recognise privity of consideration, unlike under English Law,
in Twiddle v Atkinson it was held that consideration must flow from the
promisee, even if it was for the benefit of the Plaintiff. English Law recognises
privity of consideration.
Conclusion

These are the most basic and elementary principles of a contract, which are to be
fulfilled, however there may be other conditions which may be laid down by a
special law, or for specific types of contract. Eg. a contract dealing with IPR has
to abide by rules laid down by the laws dealing with IPR.

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