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Law of Contract


Imageby Yukta Kumarkar

1. Introduction:

A contract is an agreement between two or more persons to achieve a particular purpose while specifying the rights and duties between each party. It has four main essentials to be fulfilled and they are – Offer, acceptance, consideration and enforceability. The word proposal is used in the Indian Contract Act in the same sense as the word offer is used in English law.

2. Definition:

Section 2(a) of the Indian Contract Act,1872 states that, ‘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.’

The person who makes the proposal is called the promisor and the person to whom the proposal is being made is called the promise. When the person to whom the proposal is being made accepts the proposal then it becomes a promise.

3. Legal rules of valid proposal:

a) An offer must be made with an intention to create legal obligation –

The offer should be made with willingness to do business on the proposed terms and conditions. The parties making an offer must have an intention that the offer so made shall give rise to legal consequences so as to consider the offer to be valid.

Case law - Balfour v. Balfour

In this case, the defendant was employed on a Govt. job in Ceylon and had went to England with his wife on leave. The wife couldn’t accompany him due to medical reasons and hence stayed back in Ceylon. The defendant promised to pay 30 pounds per month as maintenance to his wife until she rejoins him. On the failure of the defendant not making the payment, the wife sued him. It was held by the judge that the courts do not have any dominion over social agreements and that Mr. Balfour made the promise to his wife without any intention to create legal obligations.

b) An offer may be express or implied –

Section 3 of the Contract Act says that an express offer is one which is made in words, written or spoken while Section 9 of the act says that an offer which is made by an act or the conduct of the offeror is called an implied offer.

c) Offer must be communicated to the offeree –

For an offer to be effective, it should be communicated to the other party. According to Section 4 of the Contract Act, the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. An offer cannot be accepted unless it has been brought to the knowledge of the person to whom it is made.

Case law - Lalman Shukla v. Gauri Dutt

In this case, the defendant’s nephew was found missing. The plaintiff who was the servant of the defendant went to search for the missing boy. After the plaintiff had left, the defendant issued handbills announcing a reward Rs.501 to anyone who traced the boy. Ignorant of this reward, the plaintiff was successful in searching the boy. The plaintiff after getting to know about the reward brought an action against the defendant to claim the same. It was held that since the plaintiff was ignorant of the offer, his act of finding the lost boy did not amount to acceptance of the offer. Thus he was not entitled to claim the reward.

d) The terms of the offer must be certain –

All the terms of the contract must be agreed upon at the time of making the contract. They must be definite, unambiguous and certain. According to Section 29 of the Contract Act, ‘Agreements the meaning of which is not certain or capable of being made certain are void.’

e) A general offer need not be specifically accepted –

A general offer is an offer made to the world at large and can be accepted by anyone and this acceptance need not be communicated to the offeror. A specific offer is one which is made to a particular person only.

Case law - Carlill v. Carbolic Smoke Ball Co., 1893

In this case, the defendant i.e. the company had issued an advertisement in a newspaper which read that any person who contracted influenza after using the smoke ball three times daily for two weeks in accordance with the printed directions would be offered 100 pounds as reward. Mrs. Carlill used the smoke balls as per direction of the company and contracted influenza. Hence, the company was liable because it was a general offer.

f) An offer can’t prescribe silence as a mode of acceptance –

An offer is considered invalid if the offeror say that if the acceptance of the offer is not communicated by a certain date then the offer would be presumed to be accepted.

Case law - Felthouse v. Bindley

g) An offer differs from an invitation to offer –

Invitation to offer comes from a Latin phrase ‘Invitatio ad offerendum’ which is an expression of willingness to negotiate. 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 he only invites the other party to make offer on those terms.

Examples include: Advertisement calling for tenders, prospectus issued by a company, etc.

h) An offer must be made with a view to obtaining the assent –

If a party to the contract, makes an offer to do or not do something with a view to obtaining the assent of the other party then it should not be done merely for the enquiry. Else it indicates that the offer will be made in future.

i) An offer should not contain a term the non-compliance of which would amount to acceptance –

An offer might contain any term or condition which prescribes the mode of acceptance by the offeror. But for instance, the offeror cannot assert that if the communication of acceptance is not given by a certain time the offer would have been deemed to be accepted.

4. Rules of Communication:

The communication of an acceptance of a proposal as against the proposer is complete when it is put in a course of transmission to him whereas the communication of an acceptance of a proposal as against the acceptor is complete when it comes to the knowledge of the proposer.

5. Revocation of proposal:

According to Section 5 of the Indian Contract Act, ‘A proposal may be revoked at any time before the communication of acceptance is complete as against the proposer but not afterwards.’ It can be effective only when the revocation reaches the offeree before he posts his acceptance.

Proposal can be revoked in following situations –

i. by the communication of notice of revocation

ii. by the lapse of time

iii. by failure of the acceptor

iv. by death or insanity of the proposer