ACCEPTANCE

When the person to whom the proposal is made signifies his assent, it is an acceptance of the proposal. An acceptance proposal is called a promise or an agreement. [Section 2 (B)] An application for the shares in a company is in the nature of offer while the allotment of the shares by the company is an acceptance resulting into a contract.

Example: A offers to sell his horse to B for Rs. 500. B accepts the offer to purchase the horse for Rs. 500. This is acceptance.

Acceptance may be express or implied. When acceptance is made by words, spoken or written, it is an express acceptance. If it is accepted by conduct, it is an implied acceptance. Thus where a person boards a train or bus, he impliedly accepts to pay the usual fare.

Who may accept? An offer can be accepted only by the person to whom the offer is made. It means that the person to whom the offer is made can alone accept it. It cannot be accepted by another person without the consent of the person making it. 

ESSENTIALS OF A VALID OFFER

1.           Offer must be capable of creating legal relations. The offeror must intend the creation of legal relations. He must intend that if his offer is accepted a legally binding agreement shall result. A accepts an invitations to dine at B’s place on a certain date but fails to turn up on the appointed date, A cannot be sued for breach of a contract, because in contracts regulating social or domestic arrangements the presumptions is that parties do not intend legal consequences to follow from breach of contract.

The leading case is Balfour v. Balfour

2.           Offer must be certain, define and not vague. No contract can come into existence if the terms of the offer are vague or loose and indefinite. Both the parties should clear about the contract.

Case: - Taylor v. Portington (1885)

3.           Offer must be communicated to the offeree. There can be no offer by a person to himself. It must always be communicated to the offeree. If the re is no communication of an offer, there is no acceptance resulting in the contract.

4.           Offer must be made with a view to obtaining the assent of the other party.  An offer must be distinguished from mere expression of intention.

Case: - Harris V. Nickerson (1873)

5.           An offer may be conditional. An offer can be made subject to a condition. In that case can be accepted only subject to that condition. A conditional offer lapses when the condition is not accepted.

6.           Offer should not certain a term the non-compliance of which would amount to acceptance. One cannot say while making the offer if the offer is not accepted before a certain date, it will be presumed to have been accepted.

Example: A writes to B, “I offer to sell my house for Rs. 40000. If I do not receive a reply by Monday next, I shall assume that you have accepted the offer.” There will be no contract if B does not reply.

7.           Lapse of an offer. An offer lapse-

(a)     If either offeror or offeree dies before acceptance.

(b)     If it is not accepted within

(i)                     The specific time, or

(ii)                 A reasonable time, if not time is specified

(c)      If the offeree does not make a valid acceptance, for example makes a counter or conditional acceptance or if a particular manner of acceptance has been requested, he accepts in some other manner.

(d)     An offer can also lapse by revocation.

8.           An invitation to offer is not an offer. An offer must be distinguished from an invitation to offer. In the case of an “invitation to offer” the aim is merely to circulate information of readiness to negotiate business with anybody who on such information comes to the person sending it. Such invitations are not offer in the eyes of law and do not become promises on acceptance.

KINDS OF OFFER

Kinds of offers: Offers or proposals may be classified on the basis of:

  

   1. How an offer is made: An offer may be either express or implied from the contract of the parties. An express offer is one may be made by words spoken or written such as letter, telegram, telex, fax messages, e-mail or through internet. Thus, where A offers to sell his pen to B for Rs. 20; it is an express offer. An implied offer is one which may be gathered from the conduct of the party or the circumstances of the case.

   2. To whom an offer is made An offer may be made to

(a)       A particular person,

(b)      A particular group or body of persons,

(c)       The public at large i.e. the whole world.

An offer made to a define person or body of persons is called specific offer. A specific offer can usually be accepted by the person or persons to whom it is made. On the other hand, when an offer is addressed to the whole world, it is called a general offer.

Proposal or Offer

Offer or proposal is the starting point in the formation of a contract. 

Section 2 (a) defines proposal as

“ When one person signifies to other his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence.”

The word proposal is synonymous with the English word ‘offer’. The person making the proposal is called the proposer or offeror and the person to whom the proposal is made is called the offeree.

Example: A offer to sell his motor cycle to B for Rs. 3000. B agrees to pay A Rs. 3000 for the motor cycle. Here A is called the offeror or promisor and B the offeree or promisor.

Section 2 (a) reveals 3 essentials elements in an ‘offer’:

(a)        Expressions of willingness to do or not to do something,

(b)        Made to another person i.e. a person cannot make a offer to himself,

(c)         With the object of gaining the consent of the other to such act or abstinence.

OFFER AND ACCEPTANCE

A Contract is an agreement enforceable by law. An agreement is every promise and every set of promises forming the consideration for each other [Section 2 (e)]

Section 2 (b) defines a promise a follow: “A proposal, when accepted, become a proposal.” It means an agreement is an accepted proposal.

Therefore, these must be proposal or offer by one party and its acceptance by the other party for making an agreement.

A offer to sell his Matiz car to Mr. B for Rs. 3 lakhs. B accepts the offer. It will result into a contract.

So, offer and its acceptance subsequently is the universally accepted process for creating a contract whether it is express or implied.

Distinction between voidable contract and void agreement

(1)        A void agreement has from the very beginning no legal effects. It is unenforceable at law. A voidable contract is one which one of the parties may affirm or reject at his option. It is valid and enforceable till it is repudiated or restricted.

(2)        The defect in the case of voidable contract is curable and may be condoned. But a void agreement is void ab initio and its defects are incurable.

(3)        In the case of void agreement even claiming under such contract while in the case of a voidable contract, a third party can acquire a valid title from a person claiming under such a contract.

(4)        Since a void agreement is unenforceable at law three does not arise may question of compensation on account of non-performance of the agreement. But in case of voidable contract, a person is entitled to compensation for loss or damages suffered by him on account of the non-performance of the contract.

(5)        A voidable contract does not affect the collateral transactions. But where the agreement is void on account of illegality of the object, the collateral transaction will also become void.  

Classification of contract under English Law

Classification of contract under English Law. English Law classified into:

(1) Formal Contract.

(2) Simple Contract.

1.    Formal Contract. These contracts are in vogue in England. The Indian Contract Act does recognize these Contracts. Consideration is not essential in such Contracts.

These Include

(a)  Contract of record, and

(b) Contracts under seal.

(a) Contracts of record. These are judgments and recognizances. Such contract exists by reason of the entry in the records of the court in which the proceedings are brought.

A judgment gives right and obligations of litigants as between themselves. A recognizance is a written acknowledgement of a debt due to the crown. The phrase, “contract of records” is misleading as it suggests that the obligation spring from agreement, whereas really it is imposed upon the parties by an outside authority.

(b)  Contract under seal. These are contract created by a sealed document which is called a ‘deed’. Such contract may be executed with certain formalities.  These must be a document, in print or in writing, and must be signed, sealed and delivered.

The following contract must be under seal:

(1)  Contracts made without consideration.

(2)  Contracts made by corporation or companies.

(3)  Contracts of lease relating to land for more than three years.

(4)  Contracts relating to transfer of British ship or any share therein.

2.    Simple Contracts. Contracts which are not formal are known as simple contract. These are also called ‘parol’ contracts. They may be in writing, or made orally, or they may be implied from the conduct of the parties. All simple contract must be supported by consideration.  

Contracts classified according to Performance

1. Executed Contract. An executed contract is one where both the parties have performed their obligations or carried out the terms of the contract. In other words, it is a complete contract.
For Ex : A sells a TV set to B for rs 20000. B pays the price and A hands over TV set to B.


2.Executory Contract. Where the contracts yet to be performed either wholly or partially or one or both parties have yet to perform their obligation, the contract is executory contract.




Thus, executory contract may be 


(1) Unilaterial          (2) Bilateral
(1) Unilaterial Contract. A Unilaterial contract is one in which a promise on one side is exchanged for an act on the other side.
     A Contract is said to be Unilaterial where one party has discharged his obligation either before or at time of entering into contract.


(2) Bilateral Contract. These are the contract where a promise on one side is exchanged for a promise on the part of the other party.

Contracts classified according to formation

1. Express contract. An expresscontract is one entered into by words which may be either spoken or written. Where the proposal and acceptance is made in words, it is an express contract.




2. Implied contract. Where the proposal or acceptance is made otherwise than in words, it is an implied contract. Implied contract can be smelled out of the surrounding circumstances and the conduct of the parties who made them. So where a person employs another to do some work the law implies that the former agrees to pay the work.




3. Constructive or quasi-contract. It is contract in which there is no intention on either side to make a contract, but the law imposes a contract. In such a contract rights and obligations arise not by any agreement between the parties but by operation of law. Thus, a finder of lost goods is under an obligations to find out the true owner and return the goods. Similarly, where certain books are delivered  to a wrong addressee, the addressee is under an obligation either topay for them or return them.




4. E-Com Contracts/Contracts over Internet. These contracts are entered  into between the parties using internet. In electronic commerce, different parties/persons create network which are linked to other network through EDI (Electronic Data Inter-change) This helps in doing business transactions using electronic mode.

Contract classified according to validity or enforceability.

1. Valid Contract. An agreement enforceable at law is avalid contract. an agreement becomes a contract when all the essentials of a valid contract as laid down in section 10 are fullfilled. A offer to sell his house for 5 lakh to B. B agrees to buy it for the price. it is a valid contract. A contract to enter into a contract is however, not a valid contract.

2.Void Contract. An agreement which was legally enforceable when entered into but which has become void due to supervening impossibility of performance for example a contract between a citizen of pakistan and Indai is a valid contract during pesce but if war brakes out between two countries, the agreement will become void contract.

3. Void Agreements. According to section 2 (g), "An agreement which is not enforceable by law bu either of the parties is void."
  No lagel rights or obligations can arise out of a void agreemant. It is void ab initio i.e. from its very inception, for example an agreement without consideration or with a minor.

4. Voidable Contract. According to Section 2 (i), "An Agreement which is enforceable by law at the option of one or more parties but not at the option of the other or others is a voidable contracts." Note that the word used here is 'contract' and not just 'agreement'. Thus is the result of absense of free consent in the contract. This is so because the rights and duties are created and the was not free but was obtained by corecion, undue influence, fraud, misrepresentation. The other party who include the consent take advantage of his own fraud because "He who comes into Equity(i.e. before law) must come with clean hands."
    Thus a voidable contractis valid and enforceable until it is repudaited by the party entitled to avoid it.

5. Unenforceable Contracts. It is contract which is otherwise valid, but cannot be enforced because of some technical defects likeabsence of a written form or absence of a proper stamp. Such contracts cannot be proved in court.

6. Illegal Agreements. A contract which is either prohibited by law or otherwise aganst the policyof law is an illegal agreement. It is void ab initio. Thus, a contract to commit dacoity is an illegalcontractand cannot be enforcad at law. An illegal contract should be distinguished from a void contract. All illegal agreements are void but all void agreements or contract are not necessarily illegal. Every void agreements is not illegal unless its object or consideration is (a) immoral (b) opposed to public policy etc. A void contract does not affect a collateral contract.

CLASSIFICATION OF CONTRACTS

Contracts may be classified on the basis of their :
(a) validity,
(b) formation,
(c) performance.


A. VAlidity or Enfoceability
-Valid contracts
-Void contracts
-Void agreements 
-Voidable contracts
-Unenforceable contracts
-Illegal Agreements


B. Formation
-Express Contracts
-Implied Contracts
-Quasi Contracts
-E.com. Contracts


C. Performance
-Executed contracts


-Executery Contracts or
(1) Unilaterial Contracts
(2) Bilateral Contracts

ESSENTIAL ELEMENTS OF A VALID CONTRACT

All agreements are not contracts. Only that agreements which is enforceable at law is a contract. An agreement which is enforceable at law cannot be contract. Thus, the term agreement is more wider in scope than contract. All Contracts are agreements  but all agreements are not contracts.

An agreement, to be enforceable by law, must posses the essential elements of a valid contract as contained in section 10 of the Indian Contract Act. According to Section 10, "All agreements are contract if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void." As the details of these essentials form the subject-matter of our subsequent chapters, it is proposed to dismiss them in brief here.

The following are the essential elements of a valid contract :

1. Offer and Acceptance.  In order to create a valid contract, there must be a 'lawful offer' by one party and 'lawful acceptance' of the same by the other party.

2. Intention to Create Legal Relationship.  In case, there is no such intention on the part of parties, there is no contract. Agreements of social or domestic nature do not contemplate legal relations.
   Case :- Balfour vs. Balfour(1919)

3.Lawful Consideration. Consideration has been defined in various ways. According to Blackstone,"Consideration is recompense given by the party contracting to another." In other words of Pollock, "Consideration is the price for which the promise of the another is brought."
consideration is known as quid pro-quo or something in return.

4. Capacity of parties. The parties to an agreement must be competent t contract. If either of the parties does not have the capacity to contract, the contract is not valid.
According the following persons are incompetent to contract.
(a) Miners,                 (b) Persons of unsound mind, and
(c) persons disqualified by law to which they are subject.

5. Free Consent. 'Consent' means the parties must have agreed upon the same thing in the same sense.
According to Section 14, Consent is said to be free when it is not caused by-

(1) Coercion, or                   (2) Undue influence, or          (3) Fraud, or
(4) Mis-representation, or         (5) Mistake.
An agreement should be made by the free consent of the parties.

6. Lawful Object. The object of an agreement must be valid. Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house, the object of the contract is to run a gambling house.

The Object is said to be unlawful if-

(a) it is forbidden by law;
(b) it is of such nature that if permitted it would defeat the provision of any law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it as immoral or opposed to public policy.

7. Certainity of Meaning. According to Section 29,"Agreement the meaning of which is not Certain or capable of being made certain are void."

8. Possibility of Performance. If the act is impossible in itself, physically or legally, if cannot be enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable.

9. Not Declared to be void or Illegal. The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. Agreements mentioned in Section 24 to 30 of the Act have been expressly declared to be void for example agreements in restraint of trade, marriage, legal proceedings etc.

10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those cases where writing, registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.

All the elements mentioned above must be in order to make a valid contract. If any one of them is absent the agreement does not become a contract.

Contract

They are two type of essential elements of a contract:

1. An Agreement.
2. Its enforceability by law.

These two components together constitute the basis for a contract and are explained as follow:


    1. Agreement. An agreement is defined in section 2 (e) as "every promise or every set of promises forming the consideration for each other."
    A promise is defined  in section 2 (b) as, "a proposal when accepted become a promise."

An Agreement involves proposal or offer by one party and acceptance of the same by the other party.it requires existence of two or more persons.

It also implies that the parties have a common intention about the subject-matter of their agreement. Two parties be thinking of the same thing in the same sense at the same time. Thus agreement is the outcome of two consenting minds i.e. 'consensus ad idem.'


Agreements are two types :

1. Un-enforceable Agreement.
2. Enforceable Agreement.

1. Un-enforceable Agreements :

    All those agreements are said to be un-enforceable in which an aggreived party can not go to a law court and that is left at the mercy of the parties only. It is a gentleman's promise which may or may not fullfiled by the promiser.

All these agreement remain only an agreement between the parties and they never become a Contract in the eyes of laws, because they are merely social or domestic arrangments.

  2. Enforceable Agreements :
    All these agreements are said to be enfoceable in which the aggreived party has a right to approch a law court to get the agreement enforced and the other party is held liable either to perform the agreement or to face the consequence for breach of that agreemen. all these agreement which are enforceable at law are "Contracts".

It implies that un-enforceable agreements remain agreemants only and cannot be converted into a valid contract and only enforceable agreements are converted into a valid contract. Therefore we can conclude that :
"All contracts are agreements but all agreements are not "contract".

  2. Enforceable at law.   All agreements to become a contract must give rise to legal obligations. The common acceptance formed and communicated between the two parties must creating leagel relationsand not merely the relations which are purely social or domestic in nature.


Thus, Contract= Agreement + Enforceability at law

Therefore, all contracts are agreement but all agreements are not contracts.

History Of Indian Contract Act 1872

The law relating to contracts in india is contained in Indian Contract Act, 1872. The Act came into force with effect from september 1, 1872. It as applicable to the whole world of india expect the State of Jammu & Kashmir.

      The Act as enacted originally had 266 Sections divided into following groups :

Sections       

 General Principles of Law of Contract                                         1 to 75

     Contract relating to state of Sale of Goods                                76 to 124*

                      Special kinds of Contracts

     (for example indemnity, guarantee, bailment & pledge                 125 to 238

        Contracts relating to Partnership                                              239 to 266*

      *These sections were repealed from the Contract Act 1872 and two new Acts were enacted for the same :

1. Sale of Good Act, 1930
2. Partnership Act, 1932

   The Indian Contract Act in it presents form may be divided into two parts. The First part (Section  1 to 75) deals with the general principals of the law of contract which  apply to all types of contracts irrespective of their nature. The second part (section 124 to 238) deals with special types of contracts namely Indemnity and Guarantee, Bailment and pledge, Agency etc.

Contract Defined

   "A Contract is an agreement creating and defining obligations between the parties."

-Salmond

"A legally binding agreement made between two or more persons by which rights are acquired by one or more to acts or forbearances on the other or others."

-Sir William Anson

Section 2 (h) of the Contract Act defines a Contract as "an agreement enforceable by Law"

DEFINITION AND NATURE OF CONTRACT

Introduction

       A vital element impacting business transaction and decision is business regulatory framework. Different laws and regulations govern specific aspects of many vital decision taken by business enterprises. The legal framework within which different firms have to operate are largely governed by General Laws applicable o all forms of organisations - irrespective of their size and ownership. These laws fall into the category of mercantile laws.

Definitions

      "a rule of conduct imposed and enforced by the sovereign."                     -Austin

     "Law is the body of principal recognised and applied by the state in the administrative of justice."                                                                                                 - Salmond

Law of contract

      Law of contract is the most important and basic part of Mercantile law. It is the foundation for many other laws falling in the category of Mercantile laws.   It is not only the mercantile or trader but every person who lives in the organised society, consciously or unconsciously enters into contract from sunrise to sunset. When a person buy a computer or hires a taxi, or goes to video library to buy a video cassette or takes a credit card from a bank or gives loan to another, or he does booking for an orchestra/DJ for marriage party, he enters into and performs contract through he may be unaware of this fact. Such contracts create legal relations giving rise to certain rights and obligations.

     The law of contract is mainly concerned with three questions :

1. Is there an agreement ?
2. Can the parties to such agreement enforce it in a court of law ?
3. How they can enforce it ?