3.essentials of A Valid Contract New

THE INDIAN CONTRACT
ACT 1872
BBA 201 Business Laws , Ref. N.D Kapor 1

Lecture Outline
 Offer + Acceptance & Rules pertaining to it.
 Essential Elements of a Contract
BBA 201 Business Laws , Ref. N.D Kapor

Learning Objectives
 A student will gain a deeper understanding of essential

elements mandatory for the formation of Contract.

OFFER

OFFER
OFFER
Acc to sec 2(a), An offer is a proposal by one party to
another to enter into a legally binding agreement with
him. When he 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.
The person making the offer is known as the offer or,
proposer and to whom it is made is known as offeree or
proposee.
For example: A says to B, Will you purchase my car for
Rs. 5000?. A, in this case, is making an offer to B as he
signifies to B his willingness to sell his car to B for Rs.
5,000 with a view to obtaining B’s assent to purchase the
car.

LEGAL RULES FOR OFFER
 Offer Must be Legal
 It must be Definite , unambiguous and vogue.
 Offer must have Intention
 It must be communicated
 It must be to obtain consent/ assent
 It must not be assumed to amount of acceptance
 A statement of price is not offer

1. TYPES OF OFFER
 a. General Offer: Which is made to public in
general.
 b. Special Offer: Which is made to a definite
person.
 c. Cross Offer: Exchange of identical offer in
ignorance of each other.
 d. Counter Offer: Modification and Variation of
Original offer.
 5. Standing, Open or Continuing Offer: Which
is open for a specific period of time.
7/11/2014 BBA 201 Business Laws , Ref. N.D Kapor 29

In (Tinn Vs. Hoffmann 1873), A wrote to
B indicating his willingness to sell 800 tons of
iron at 69 s. per ton. On the same day B
also wrote to A offering to buy 800 tons of
iron at the same rate of 69 s. per ton. The
two letters crossed each other in post. B
brought an action against A for the supply of
iron contending that a valid contract had
been created between the two parties. It was
held that in this case there were only two
cross offers and the offer of neither of the
parties having been accepted by the other,
there was no contract which could be
enforced
Cont…….
2. OFFER MUST BE COMMUNICATED: An offer, to be
complete, must be communicate to the person to
whom it is made. Unless an offer communicated to
the offeree by the offeror or by his duly authorized
agent, there can be no acceptance of it. An
acceptance of an offer, in ignorance of the offer, is no
acceptance and does not confer any right on the
acceptor.
Example: S offered a reward to anyone who
returned his lost dog. F brought the dog to S
without having heard of the offer.

Cont…….
3 .An offer is different from an invitation to an
offer, and a statement of intention.
MERE INVITATION TO AN OFFER. Offer is also
to be distinguished from a mere invitation to an
offer or treat. Catalogue of goods and
advertisement for tenders or inviting applications
for job, a prospectus of a company, an auctioneer’s
request for bids or display of goods in the showcase
with prices marked upon them etc, are mere
invitations to offers and not actual offers. They
disclose an intention of making an offer and not
actual offers.BBA 201 Business Laws , Ref. N.D Kapor
4.Mere Statement of intention: A declaration by a
person that he has the intention to do something
does not amount to an offer. The person making
the declaration will not be liable to the person who
has suffered some loss because of reliance on the
declared intention.
Example: A father, on his daughter’s marriage,
wrote to the intended son-in-law. You are aware
that with my large family, she will have a share of
what I leave after the death of her mother. The
letter was held to contain a mere statement of
intention.

5. Offer should not contain a term the non-compliance
of which may be assumed to amount to acceptance:
Thus a man cannot say that if acceptance is not
communicated by a certain time, the offer would
considered as accepted.
For example: where A writes to B, I will sell you my horse
for Rs. 5000 and if you do not reply, I shall assume you have
accepted the offer, there is no contract if B does not reply. B
is under no obligation to speak. However, if B is in
possession of A’s horse at the time the offer is made and he
continues to use the horse thereafter, B’s silence and his
continued use of horse amount to acceptance on his part of
the terms of A’s offer.
COMMUNICATION OF OFFER
An offer when accepted results in a
contract. An offer can be accepted only
after the same has come to the knowledge
of the offeree.It means that the offer has to be
communicated to the offeree in order that the
offeree can accept it. According to section 4,
“the communication of a proposal is

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

If an offer has not yet been communicated, even if
somebody acts according to the terms of the offer, he
cannot be deemed to be the acceptor of the offer. Acting
in ignorance of an offer does not amount to
the acceptance of the same. This point may be
explained by referring to the case of Lalman Shukla Vs.
Gauri Dutt. (1913)
In this case the defendant’s nephew absconded from
home. The plaintiff, who was defendant’s servant, was
sent to search the missing boy. After the plaintiff had
left in search of the boy, the defendant issued handbills
announcing a reward of Rs. 501 /- to anyone who might
find the boy. The plaintiff who was ignorant of this
reward, was successful in searching the boy. When he
came to know of the reward, which had been announced in
his absence, he brought an action against the
defendant to claim this reward. It was held that since the
plaintiff was ignorant of the offer of reward, his act of
bringing the lost boy did not amount to the
acceptance of the offer, and therefore, he was not
entitled to claim the reward.
REVOCATION OF OFFER
It is only after the acceptance of an offer that there arises a
contract and then both the parties becomes bound by their
respective promises. Before the offer has been accepted it
can be revoked. After the offer has been accepted it ripens
into a contract and then it cannot be revoked. According to
Section 5 :
“ A proposal may be revoked at any time before the
communication of its acceptance is complete as against the
proposer, but not afterwards.”
In case of sale by auction the bids made at the auction are
offers, and the highest offer may be accepted by the
auctioneer. In such a case the sale is complete when the
auctioneer announces its completion by the fall of the
hammer or in any other customary manner ; and , until
such announcement is made, any bidder may retract his
bid.
In Rajendra Kumar Verma Vs. State of Madhya Pradesh
AIR 1972
 The respondents advertised for receiving tenders for sale of
Tendu Patta (leaves). The petitioner submitted his tender.
Before the date of the opening of the tenders the petitioner made
an application withdrawing his tender and also requesting that his
tender be not opened. One of the conditions in the tender notice
was that a tenderer may withdraw his tender before the tender
are open provided that there should be at least one other valid
tender when the tenders are opened. Petitioner’s tender was the
only tender submitted. In spite of his request to withdraw the
tender the Government accepted his tender. Since the petitioner
did not execute the purchaser’s agreement , Tendu leaves were
sold to somebody else at a lower rate, and then an action was
brought against the petitioner to claim compensation for the loss
suffered by the Government.

The contentioner of the petitioner was that since he had
withdrawn his tender before the same had been opened and
accepted, there was no offer in existence which could be
accepted. The respondents, however, contended that the
offer could not be withdrawn in accordance with the tender
notice and, therefore, the petitioner’s offer was still alive and
had ripened into contract by acceptance.
 It was held that in spite of the clause in the tender notice
against the withdrawal of the offer, the petitioner had a right
to withdraw his offer before the same was accepted. In this
case there was no offer which could be accepted, there had
arisen no contract between the petitioner and the
respondents and, as such, the respondents had no right to
claim any compensation.

ACCEPTANCE

ACCEPTANCE
According to Section 2(b), "When the
person to whom the proposal is made
signifies his assent thereto, the proposal
is said to be accepted."
7/11/2014 BBA 201 Business Laws , Ref. N.D Kapor

LEGAL RULES FOR
ACCEPTANCE
1.Acceptance must be absolute and
unqualified.
2. Communicated to offeror.
3. Acceptance must be in the mode
prescribed.
4.Acceptance must be given within a
reasonable time before the offer lapses.
5. Acceptance by the way of conduct.
6. Mere silence is no acceptance.
7. offree and offerer must be consent
7/11/2014 BBA 201 Business Laws , Ref. N.D Kapor
ESSENTIAL ELEMENTS VALID ACCEPTANCE
1.) Acceptance may be express or implied: Acceptance
given by words spoken or written is express acceptance, while
that given by conduct is termed as implied acceptance.
Implied acceptance may be given:
(a) by doing some particular act, the doing of which by the
terms of the offer is made in evidence of assent.
(b) by accepting a service or benefit offered by the person
making the offer.
Example: A lady invited here niece to stay with her in the
same house and promised to settle on her an immovable
property. The niece stayed with her in her residence till the
time of her death. Niece was held to be entitled to property
because she had accepted the offer of the aunt by going to her
house and staying with her as desired.

Cont….
2.) Acceptance must be absolute and unqualified:
Offer must be accepted in total. Conditional
acceptance is no acceptance. It will not give rise to any
contract. It will be a counter offer, which the proposer
may or may not accept.
Example: An offer of land by M for $ 280 was accepted
by N, who enclosed $ 80 with his letter of acceptance
and promised to pay the balance by monthly
installments of $ 50. N cannot bind M by his
acceptance for it. It does not mean any contract into
existence.

3.) Acceptance must be in the mode prescribed: The
proposer may lay down the manner of acceptance in
his offer. In case the acceptance is not given in the
prescribed mode, the proposer may reject the
acceptance and inform the offeree within a reasonable
time. But if he fails to do so, he shall be taken to have
accepted the acceptance.
If the proposer has not prescribed any mode of
acceptance, the acceptance must be given in some
usual and reasonable manner.

Example: A, a merchant, sent his son B to Agra with a
letter for C, an Agra merchant. In the letter A offered
to sell to C a quantity of cloth and required C to give
his reply to B. C sent away B without a reply but
decided later to accept A’s offer by a telegram. The
telegram reached A before B’s return.
A can refuse C’s acceptance on the ground that the
acceptance was not given by him in the prescribed
mode. But A should inform C of his objection within a
reasonable time. In case he fails to do so it will be
presumed that he has accepted the acceptance and a
valid contract will arise between A and C.
Silence can’t be prescribed as mode of
acceptance/ Proposer has the right to prescribe the
manner in which the proposal may be accepted, but
not the manner in which it may be refused. The
offerer cant impose this burden on the person to
whom the offer is made that he will have to reply to
the offer under all circumstances.

 Example: F offered by a letter to purchase his nephew’s
horse for $ 30, adding, if I hear no more about it I shall
consider the horse as mine for $ 3o. Nephew did not give
any reply to his letter but he instructed the auctioneer,
with whom his horse was for sale, not to sell it as it was
sold to F. By mistake B sold that horse. F filed a suit
against the auctioneer for conversion of his property.

4.) Acceptance must be communicated: Acceptance
must be communicated to the offerer to create a
binding contract. Mere mental acceptance not
evidenced by words or conduct is in the eyes of law no
acceptance. But where the offer is to be accepted by
being acted upon, no communication to the offerer
will be necessary unless the communication is
stipulated for in the offer itself.
Example: The manager of a railway company received a
draft agreement relating to the supply of coal, wrote
the word approved on it and kept it in his drawer. It
was held that there was no contract as the acceptance
had not been communicated.

5.) Acceptance can be given only for that offer which
has been communicated: There can be no
acceptance of an uncommunicated offer. Acts done in
ignorance of proposal will not amount to acceptance of
the offer.
Example: X, the captain of a ship, after resigning from
his post during the course of a voyage changed his
mind and continued to be incharge of the ship. His
resignation, however, was accepted. It was held that
the captain could not recover remuneration for the
period subsequent to his resignation.

 6.) It must be given by the party to whom the offer is
made.
 7.) It must be given before the offer lapses .

CAPACITY TO
CONTARCT
Capacity to Contract
Following are the conditions for a person to

enter into contract :-
 He must be major
 He must be sound m
i
 He must not be disqualified by any other
law. n
d

Disqualified persons to
enter into a contract
1. Minor (under 18 years of age)
2. Unsound person
3. Others
a) alien enemy,
b) insolvent,
c) convict,
d) company/corporation against
MOA / AOA
e) Married women (w.r.t. to their
husband’s properties)
INCAPACITY
DISQULIFIED
MINORITY UNSOUND MIND BY LAW
Idiot lunatic DRUNKE

D
ALIEN CONVICTS CORPORATI

ENEMY ON
:
 Idiot:
A person who is devoid of any faculties of thinking or
rational judgment is called an idiot . .all agreements other
than those for necessaries of life, with idiots are absolutely
void.
 Lunatics:
A person whose mental powers are deranged is called a
lunatic. agreement made with lunatic ,except those made
during lucid intervals (period in which he is in his senses
)
 Drunkards: A person under the influence of drink or

drugs stands on the same footing as lunatic. an agreement
with drunker is void.

Illustrations
 (a) A patient in a lunatic asylum, who
is at intervals of sound mind, may
contract during those intervals.
 (b) A sane man, who is delirious from

fever or who is so drunk that he cannot
understand the terms of a contract or
form a rational judgment as to its
effect on his interests, cannot contract
whilst such delirium or drunkenness
lasts.

Following are the people
disqualified by law
 Alien enemy: A person who is a citizen of a foreign
country which is at war with India. Contracts made before
the war may either be suspended or void.
 Convicts: Convict is incapable of entering into contract

and the incapability ends when sentence expires or
punishment finish.
 Corporation: A company is artificial person created by

law. It can only contract through its board of directors. Any
act done in excess of the power given by statute or
memorandum is void.

Section 11 of The Indian Contract Act specifies that
every person is competent to contract provided:
 He should not be a minor i.e. an individual who has not attained the age of
majority i.e. 18 years.
 He should be of sound mind while making a contract. A person with unsound

mind cannot make a contract.
 He is not a person who has been personally disqualified by law.

Minor’s Agreements
1. An agreement with or by minor is void and
inoperative against him
2. Minor can be promisee or beneficiary.(Money
advanced by the minor can be recovered by
him by a suit because he can take benefit
under a contract)
3. Minor cannot ratify (officially validate) his
agreement on attaining the age of
majority.(Contract with minor is void ab-initio
and it can not be made valid by subsequent
ratification)
 4.The rule of estoppel does not apply to a minor i.e. a minor is
not estopped from pleading his infancy in order to avoid a
contract, even if he has entered into an agreement by falsely
representing that he is of full age.
 5. Specific performance i.e. the court will never direct a minor
to actually carry out the contract as agreed.
 Minor partner i.e. being incompetent to contract , a minor can
not be a partner in a partnership firm but under section 30 of
Indian Partnership Act he can be admitted to the benefits of
partnership with the consent of all the partners.
 6. Minor can be an agent
 7. A minor can not be adjudicated an insolvent
 8. Where in a contract of guarantee an adult stands surety for a
minor , the adult is liable under the court but minor is not.
 9. The parents of a minor are not liable for the agreements
made by a minor.
 BBA 201 Business Laws , Ref. N.D Kapor
FREE
CONSENT
FREE CONSENT
According to Sec 10 of the Indian Contract Act
one of the essentials of a valid contract is “Free
Consent”
Sec 13 defines “consent” as “Two or more
persons are said to consent when they agree upon
the same thing in the same sense (Consensus-ad-
idem). ”.

Following are the heads
when Consent is not free
 Coercion
 Undue Influence
 Fraud
 Misrepresentation
 Mistake

Elements Vitiating Free
consent
 1. Coercion (Section 15):
 "Coercion" is the committing, or threatening to commit,
any act forbidden by the Indian Penal Code under(45 of
1860), or the unlawful detaining, or threatening to detain,
any property, to the prejudice (bias) of any person
whatever, with the intention of causing any person to
enter into an agreement.
 For example A and B , both Indians are on a voyage trip

to America when the ship is on the Atlantic ocean B
threatens A that if doesn’t transfer his property to B’s
name then he will push him into the water. Now though
the IPC is not in force on the Atlantic ocean it is still
considered a coercion.
2. Undue influence (Section 16):
"Where a person who is in a position to dominate the will of

another enters into a contract with him and the transaction
appears on the face of it, or on the evidence, to be
unconscionable, the burden of proving that such contract
was not induced by undue influence shall lie upon the
person in the position to dominate the will of the other.“
Essentials of undue influence :-
1. There are two persons
2. The relations are satisfying between them
3. One must dominate the other
4. There must be unfair advantage
5. It involves the moral pressure

There is an undue influence between the
following persons:
-Principal and agent
-Superior and subordinate
- Doctor and patient
- Father and son
- Teacher and student
- Promoter and company
- Master servant
- Spiritual advisor and devotee

Among the following relations there is
no undue influence
1.wife and husband

2.landlord and tenant
3.debtor and creditor
CASE: Raniannapurna vs. Swaminathan

A poor Hindu widow was persuaded by a money
lender to agree to pay 100% rate of interest on
money lent by him. She needed the money to
establish her right to maintenance.it was a clear
case of undue influence and the court reduced the
rate of interest to 24%
3.FRAUD
According to Sec 17 fraud means and includes any of
those acts committed by a party to contract or with his
connivance or by his agent with an intent to deceive or
induce a person to enter a contract:
1.The suggestion that a fact is true when it is not true and
the person making it does not believe in it to be true.
2.The active concealment of a fact by a person having
knowledge or belief of the fact.
3. A promise made without any intention of performing it.
4. Any other act fitted to deceive.
5.Any such act or omission as the law specially declares
to be fraudulent.

4.MISREPRESENTATION
According to Sec 18 there is misrepresentation:

When a person positively asserts a fact is true when his
information does not warrant it to be so, though he
believes it to be true
When there is any Breach of duty by a person which brings
an advantage to the person committing it by misleading
another to his prejudice
When a party causes however innocently the other party to
the agreement to make a mistake as to the substance of
the thing which s the subject of the agreement

5.Mistake
Mistake is defined as erroneous belief about something.

It may be mistake of Law or a mistake of Fact.
It is Divided in two parts.
1. Bilateral Mistake:- Where both the parties are under a
mistake as to a matter of the fact essential to the
agreement, there is bilateral mistake.and in such a case
agreement is void
2. Unilateral Mistake :- When in contract only one party
is mistaken regarding the subject matter or in the
expressing and understanding the terms or legal effect
of the agreement then the mistake in unilateral .
UNLAWFUL OBJECTIVES &
VOID AGREEMENTS

UNLAWFUL OBJECT
 If the object of an agreement is the
performance of an unlawful act, the
agreement is unenforceable.
 For a contract to be valid, the
object and the consideration should
be legal.
 The word object means purpose or
design.

Unlawful agreements
An agreement forbidden by law [Sec 23]

An agreement defecting any provisions of
law [Sec 24]

Unlawful agreements
• An agreement between a husband

and wife to separate in future is
immoral and void
• An agreement opposed to public
policy

Wager Contract (Sec 30)
A wager contract is a contract in
which one person promises to
another to pay money or money’s
worth by the happening of an
uncertain future event in
consideration for other person’s
promise to pay if the event does
not happen.(Betting agreements)

CONTINGENT
CONTRACTS

Contingent Contract(sec
31)
 A contingent contract is a contract to do or not
to do something, if some event, collateral to
such contract, does or does not happen. It is
also called a conditional contract. Contracts of
insurance and guarantee are popular instances of
contingent contracts.

Differences Between a Wagering
Agreement and a Contingent Agreement
Wager agreement Contingent agreement

 There is a reciprocal  There is no reciprocal
promise. promise.
 It is a void contract.  It is a valid contract.
 Others are not  Others are interested
interested in the in the contract.
contract.  It may not be wagering in
nature.
 It is contingent in
nature.

Consideration
CONSIDERATION AND VALID CONSIDERATION It is a
essential element for formation of a valid contract .
According to Sir Pollock-” Consideration is the price
for which the promise of the party is brought”.
 “Quid-pro-quo” It means something in return.
For Ex- :
 For Ex- A agrees to sell his factory to B for Rs. 50,000. Here
for A’s promise, the consideration is the price of his factory
i.e. Rs. 50,000 and for B’s promise, consideration is A’s
factory

Essential Elements of Valid consideration
Move at the desire

of Promisor
Past/
Move from any Present/
Of some value
person Future
Something other
then promisors
Real and not
Lawful existing
illusory
obligation

Stranger to a contract
 “Privity of Contract” It a general rule that only parties to
contract may sue and be sued on that contract.
 Ex A owes B 1000/- Rs. A Sold his car to C and C promises to
pay B 1000/- Rs. Which later he fails to do so, but B cannot
Sue C as he is a stranger to contract.
 Ex MRF Tyres.
 Exceptions:
 Incase of family settlement. ( Marriage expenses)
 Acknowledgement& Assignment of contract ( Agent by TPA
on acknowledgement) , (Insurance Policy)

Contract without consideration
Exceptions
Agreement made on account of love & Affection.
It is expressed in writing.
It is registered under the law.
It is between parties standing in a near relation to each other.

 Promise to compensate.
 It is a promise to compensate ( wholly or in parts) and
the person who is to be compensated has already done
something voluntarily or has done something which
the promisor was legally bound to do.
 X a neighbour helped putting down the fire in Y,s
House. Afterwards Y promise to give him 1000 Rs.
 X supports son of Y . Y promised to pay Expenses to X .
This is a valid contract.

Completed Gifts:
 The gifts made by a donor and accepted by a donee are
valid without consideration.
Agency: no consideration is necessary to create an
agency.

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THE INDIAN CONTRACT

BBA 201 Business Laws , Ref. N.D Kapor 1

BBA 201 Business Laws , Ref. N.D Kapor

 A student will gain a deeper understanding of essential

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

7/11/2014 BBA 201 Business Laws , Ref. N.D Kapor 29

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

“the communication of a proposal is

BBA 201 Business Laws , Ref. N.D Kapor 26

suffered by the Government.

BBA 201 Business Laws , Ref. N.D Kapor 35

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

7/11/2014 BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

 7.) It must be given before the offer lapses .

BBA 201 Business Laws , Ref. N.D Kapor

Following are the conditions for a person to

BBA 201 Business Laws , Ref. N.D Kapor

Idiot lunatic DRUNKE

ALIEN CONVICTS CORPORATI

 Drunkards: A person under the influence of drink or

BBA 201 Business Laws , Ref. N.D Kapor

 (b) A sane man, who is delirious from

BBA 201 Business Laws , Ref. N.D Kapor

 Convicts: Convict is incapable of entering into contract

 Corporation: A company is artificial person created by

BBA 201 Business Laws , Ref. N.D Kapor

 He should be of sound mind while making a contract. A person with unsound

 He is not a person who has been personally disqualified by law.

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

 For example A and B , both Indians are on a voyage trip

"Where a person who is in a position to dominate the will of

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

1.wife and husband

CASE: Raniannapurna vs. Swaminathan

BBA 201 Business Laws , Ref. N.D Kapor

According to Sec 18 there is misrepresentation:

BBA 201 Business Laws , Ref. N.D Kapor

Mistake is defined as erroneous belief about something.

BBA 201 Business Laws , Ref. N.D Kapor

BBA 201 Business Laws , Ref. N.D Kapor

An agreement forbidden by law [Sec 23]

BBA 201 Business Laws , Ref. N.D Kapor

• An agreement between a husband