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 Law of contract – Foundation upon which the

superstructure of modern business is built

 Business – promise made between parties –

performance follows later
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 Breaking of a promise – without incurring

liability – endless complications

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 Law of contract lays down legal rules
relating to promises, their formation,
performance and enforcement
 Applicable not only to business
community but others

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 Anson – Legally binding agreement
between two or more person by which
rights are acquired by one or more to
Act or forbearance on the part of the
other.
 Salmond – an agreement creating and
defining obligation between parties
 Pollock – Every agreement and promise
enforceable at law is a contract

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 Sec 2(h) – “ An agreement enforceable by
law is a contract”.

 Two elements -
◦ An Agreement
◦ Legal obligation ie, a duty enforceable by
law.

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 Section 2(e) – “Every promise and every set
of promises forming the consideration for
each other, is an agreement.”
 Promise – What is a promise?

◦ Sec 2(b) - When the person to whom the proposal

is made signifies his assent thereto, the proposal
is said to be accepted. A proposal, when
accepted, becomes a promise

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 Ram offers to sell his car for Rs 1,00,000 to
Shyam. Shyam accepts this offer. This offer
after acceptance becomes promise and this
promise is treated as an agreement between
Ram and Shyam
 Therefore, an agreement consists of an offer
by one party and its acceptance by the other.
 Agreement = Offer + Acceptance of offer

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 An agreement is said to be enforceable by
law if it creates a legal obligation.
 If an agreement is incapable of creating a
duty enforceable by law, it is not a contract.
 Thus, an agreement is a wider term than
contract.

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 Agreement + Legal obligation
(Enforceability at law) = Contract

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 “All contracts are agreement but all
agreements are not contracts”.
 Agreements of moral, religious or social
nature are not contracts
◦ they are not likely to create a duty enforceable by
law
◦ parties never intend to create a legal obligation.

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 Ex;
◦ X invites his friend Y to a dinner and Y accepts the
invitation. If Y fails to turn up for the dinner. Can he take
his friend to Court????
 X cannot go to the court to claim his loss.

◦ A father promises to pay his son Rs 1000 as pocket

allowance. Later he refuses to pay. Can the son recover
the Amount???
 The son cannot recover as its is a domestic
agreement and there is no intention on the
part of the parties to create legal relations

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 Balfour vs Balfour [(1919) 2 K.B. 571]

 A promise by the husband to pay his wife 30

pounds every month . Later Husband refuses
to pay. Wife goes to court.
◦ Held: unenforceable as parties never
intended it to be bound by legal
obligations.

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 In commercial or business agreements an
intention to create legal relations is
presumed. Thus, an agreement to buy and
sell goods intends to create legal
relationship, hence is a contract, provided
other requisites of a valid contract are
present. But if the parties have expressly
declared their resolve is not to create a
legal obligation, even a business
agreement does not amount to a contract.

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 Rose&Frank Co. vs Corruption Bros [1925
AC 445]
◦ There was an agreement between R company and
C company by means of which the former was
appointed as the agent of the latter. One clause
in the agreement was: ”This agreement is not
entered into….as a formal or legal agreement and
shall not be subject to legal jurisdiction in the law
courts.”
 HELD - There was no binding contract as there was
no intention to create legal relationship

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 Agreement  Contract
◦ Offer and its ◦ Agreement and its
acceptance constitute enforceability
an agreement constitute a contract
◦ An agreement may or ◦ A contract necessarily
may not create a legal create a legal
obligation obligation
◦ Every agreement ◦ All contracts are
need not necessarily necessarily
be a contract agreements.
◦ Agreement is not
concluded or binding ◦ Contract is concluded
contract and binding on the
concerned parties

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 Classification of Contract

Enforceabilty Method of Extent of Obligation to

Formation performance perform
Valid
Formal Executed Unilateral
Voidable Executory
Simple Bilateral
Void

unenforceab
le
Express Implied Quasi Standard Contingent
Illegal Form

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Valid Contracts- if a contract has all of the required
elements, it is valid and enforceable in a court of law.
Example
A homeowner (who is over the age of 18 and of sound mind)
signed a contract with the appliance store to buy a
refrigerator. The homeowner pays for the refrigerator and the
appliance store presents the refrigerator for the home owner
to take home.

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 Proper offer and its proper acceptance
 Intention to create legal relationship
 Free Consent
 Capacity to contract
 Lawful consideration
 Lawful object
 Agreement not expressly declared void
 Certainty of meaning
 Possibility of performance
 Legal formalities

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 A voidable contract occurs when one of the involved
parties would not have agreed to the contract originally if
he had known the true nature of the all of the elements of
the contract prior to original acceptance. With the
presentation of new knowledge, the aforementioned party
has the opportunity to reject the contract after the fact.
Reasons that can make a contract voidable include failure
by one or both parties to disclose a material fact; a
mistake, misrepresentation or fraud; undue influence or
duress; no free consent, one party's legal incapacity to
enter a contract; one or more terms that are
unconscionable; or a breach of contract.


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 VOIDABLE CONTRACT :-
"An agreement which is enforceable by law at the option of one or more of the parties,
there to but not at the option of the other or others is a voidable contract".

Features of Voidable Contract :-

a. It is enforceable at law at the option of one or more of the parties.
b. A voidable contract can only be objected by the party who has been subject to fraud,
coercion, misrepresentation and undue influence.
c. If the contract is revoked by a person rightfully then he can also receive the
compensation.
d. The contract is voidable at the option of the party whose consent is caused.
e. Contracts caused by fraud, undue influence, misrepresentation or by coercion are
voidable contracts.

Example :- Mr. Qadir threatens to shoot Mr. Shah to purchase a car for one lac. Mr. Shah
agrees the contract was made by coercion and is voidable at the option of Mr. Shah.

Rights and Duties :-

The aggrieved party can cancel such contract within a reasonable time. It is also entitled
to be compensated by the other party.

Burden of Proof :-
It is the responsibility of the aggrieved party to prove that her consent was obtained by
fraud or coercion. If it fails to prove in the court then contract will remain valid.
If the contract is not written or not registered it can not be enforced. But as you will
remove this defect the contract can be enforced. santhi narayanan 4/25/2019 20
 Void Agreements: A void agreementis an agreement which is not
enforceable by law from the beginning, i.e. void –ab-initio.

 Void Contracts -A contract will be considered void, for example, when it
requires one party to perform an act that is impossible. Initially it is a
valid contract but becomes void if or illegal. A void contract is not a
contract and has no effect in a court of law and cannot be enforced in a
court of law. Most commonly, a void contract will be missing one or all
of the essential elements needed for a valid contract. Neither party
needs to take action to terminate it, since it was never a contract to
begin with.
 Example
 A contract that was between an illegal drug dealer and an illegal drug
supplier to purchase a specified amount of drugs for a specified amount.
Either one of the parties could void the contract since there is no lawful
objective and hence missing one of the elements of a valid contract.


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 VOID CONTRACT :-
Definition :- "An agreement not enforceable at law is a void contract".
Originally it is a valid contract but due to certain reasons it becomes void after its
formation. A void contract cannot be enforced by either party.
Features of Void Contract :-
a. It is not enforceable by law.
b. It creates no legal rights.
c. It creates no obligations on any party.
d. An agreement which is against the public policy or against any law is also void.
e. Under this contract no compensation can be paid to any party.
An agreement in restraint of marriage and trade are common examples of void
contract.
Example :- Sachin and Isha contract to marry on next Sunday. Isha dies before the
Sunday. The contract becomes void.
Rights and Duties :-
In this case the parties are not legally responsible to fulfill the contract. If any
party has received any benefit is bound to return.
This contract takes place when consent of one of the parties is not free.

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 Example :- Suppose "A" borrows the money
from "B" and writes a pronote but proper
amount stamps are not posted on the
pronote. Now in this case contract is valid
but not enforceable by law.
 Illegal Agreements : Not enforceable by law
because of illegal objective consideration
etc.

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 OFFER
 An offer is the starting point in the making
of an agreement.
 An offer is also called ‘proposal’
 Sec 2(a) – “ A person is said to have made
the proposal when he signifies to another
his willingness to do or to abstain from
doing anything with a view to obtaining the
assent of that offer to such act or
abstinence.”

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 An offer involves the following essential
elements;
◦ It must be made by one person to another
person
◦ It must be an expression of readiness or
willingness to do (i.e., a positive act) or to
abstain from doing something (i.e., a negative
act)
◦ It must be made with a view to obtain the
consent of that other person to proposed Act or
abstinence

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 Offeror – The person making the proposal is
called the ‘offeror’ or ‘proposer’.
 Offeree – The person to whom the proposal is
made is called the ‘offeree’ or the ‘proposee’.

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 General offer – When the offer is made to the world at
large
 Specific offer – When the offer is made to a definite person
 Implied offer – An offer may be implied from the conduct
of the parties or the circumstances of the case.
 Express offer clearly mentioned or written
 Cross Offer: Two offers which are similar in all respects
made by two parties to each other , in ignorance of each
other ‘s offer are known as cross offer.
 Continuous Offers /Standing offer/open offer: Tender case
 Counter offer : an offer made in response to a
previous offer by the other party during negotiations for a
final contract. Making a counter offer automatically rejects
the prior offer, and requires an acceptance under the
terms of the counter offer or there is no contract.

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 A counteroffer is a proposal that is made as a result of an undesirable
offer. A counteroffer revises the initial offer and makes it more desirable
for the person making the new offer. This type of offer permits a person
to decline a previous offer and allows offer negotiations to continue.
 BREAKING DOWN 'Counteroffer'
 An offer that provides new terms or conditions becomes a counteroffer.
However, the offer may limit, change, or add some or all the terms of
the original offer. There is no obligation of either party until they agree
on a contract, which occurs once the counteroffer is accepted. Once the
buyer or offeree accepts a counteroffer, a binding contract is formed,
which is enforceable against the seller or offeror. A counteroffer is a
reply to an original offer, which is greater or less than the original price.
This type of offer voids a previous offer and the entity, which presented
that offer, is no longer legally responsible for it.
 A counteroffer is conditional. When the seller receives a low offer, the
offeree can counter with a price, which he feels is reasonable. The buyer
can either accept that offer or counter again. The seller can counter the
offer; however, the offeree does not have to accept it.

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 General offer
◦ Carlil vs Carbolic Smoke ball Co (1893) 1 QB 258
◦ Harbhajan lal vs Harcharan lal (AIR All 539)

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 Intention to create legal relationship
◦ An offer must be such that when it is accepted it
will create a legal relationship

 Certain and unambiguous terms

◦ If the terms of the offer are vague or indefinite, its
acceptance cannot create any contractual
relationship.

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 Certain and Intention to create Different from an
unambiguous terms legal relationship invitation to offer

No term of non-
Proper compliance of Communication of
communication which amount to special terms
acceptance

Different from a
mere declaration of
an intention

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 Different from a mere declaration of
intention
◦ Mere declaration of intention indicates
that an offer will be made or invited in the
future

◦ A declaration of intention by a person

does not give right of action to another.
Case -Devidatt V Shriram - Terms on
which one party is willing to do business
with the other.

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◦ Harrison vs Nickerson
◦ An auctioneer advertised in a newspaper that a sale
of office furniture would be held. A broker came
from a distant place to attend that auction, but all
the furniture was withdrawn. The broker thereupon
sued the auctioneer for his loss of time and
expenses.
◦ Held - A declaration of intention to do a thing did
not create a binding contract with those who acted
upon it, so that the broker could not recover.

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 Different from an invitation to offer
◦ In an invitation to offer the person making an
invitation invites others to make an offer to him
◦ It is prelude to an offer inviting negotiations or
preliminary discussions
◦ Case –
 Pharmaceutical Society of Great Britian vs Boots
cash chemists Ltd (1953) 1 QB 401
 Harvey vs facey

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 Offer must be communicated
◦ An offer must be communicated to the person to
whom it is made.
◦ An offer is complete only when it is communicated
to the offeree
◦ Acceptance is not possible unless offer is brought
to the knowledge of the offeree. ie, One can accept
the offer only when he knows about it.
◦ Acceptance in ignorance of offer confers no right.
ie, An offer accepted without its knowledge
does not confer any legal rights on the
acceptor.
◦ Case: Lalman Shukla vs Gauri Dutt

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 No term of non-compliance of which
amounts to acceptance
◦ The offer must not contain a term, the non-
compliance of which amount to acceptance
◦ Ex: A offers by post to sell his horse to B for Rs
2000. He writes, “ If you do not reply, I shall
assume you have accepted the offer.” There
would be no contract even if B does not reply

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 ◦ While making the offer, the offeror cannot say that if
the offer is not accepted before a certain date, it will
be presumed to have been accepted
 Communication of special terms or standard
terms of contract
◦ Special terms of the offer must also be communicated
along with the offer.
◦ If the special terms of the offer are not
communicated, the offeree will not be bound by those
terms.
◦ Standard form of contract – there was nothing to draw
attention to the conditions printed at the back of the
ticket in the case of journey by ship. lost the luggage
got claim –Handerson v Stevenson

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 special conditions are printed in different
language it is understood that the offeree’s
duty to ask the translation
 terms and conditions must be reasonable

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 Acceptance means giving consent to the
offer.
 It is an expression by the offeree of his
willingness to be bound by the terms of the
offer.
 Sec 2(b) – “ A proposal is said to be
accepted when the person to whom the
proposal is made signifies his assent
thereto. A proposal when accepted becomes
a promise.”
 Acceptance is the consent given to offer.

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 Who can accept
◦ In case of a specific offer –
 To be accepted by that definite person or
that particular group of persons to whom
it has been made and non else.
◦ In case of general offer –
 An offer made to the world at large or
public in general can be accepted by any
person having the knowledge of the offer
by fulfilling the terms of the offer.

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 How to make acceptance –
◦ Express acceptance –
 An express acceptance is one in which is made
by words spoken or written
◦ Implied acceptance –
 An implied acceptance is one which is made
otherwise than in words.
 It is inferred from the conduct of the parties or
the circumstances of a particular case

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 Absolute and unqualified- two plot offered ready
to take one
 Manner – the way it is defined in the offer,
nothing metioned than it should be reasnable
manner
 Communication- acceptance completed when it
is communicated- accepted the offer and put in
the table /drawer
 By whom the authorised person whom the offer
is made
 To whom to the offerer not to any one (Felthouse
v. Bindley)
 Before the lapse of the offer

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 Must be complete so as to bind the
concerned parties because as soon as the
communication is complete the parties loose
the right of withdrawal or revocation.
◦ (a) Communication of offer – It is complete when it
comes of the knowledge of the person to whom it is
made. If by post, communication will complete
when the letter reaches to the offereee

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 Communication of acceptance –

 As against the proposer –

 When it is put in a course of transmission to
him, so as to be out of the power of the
acceptor.( eg. letter stamped and posted.
communication is completed whether letter
reaches late delayed lost)
 As against the acceptor
 When it comes to the knowledge of the
proposer. In case of acceptance made by
post , the acceptor becomes bound by the
acceptance only when the letter of
acceptance actually received by the
proposer. 4/25/2019 44
 Taking back, withdrawal (sec 5)
 Time for revocation of proposal – A proposal may
be revoked at any time before the
communication of its acceptance is complete as
against the proposer, but not afterwards.
 it means an offer can be revoked at any time
before the letter of acceptance is duly posted by
the acceptor. thus the proposer may revoke his
offer by a speedier mode of communication
which will reach before the letter of acceptance is
posted.


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 Time for revocation of acceptance – An
acceptance may be revoked at any time
before the communication of the acceptance
is complete as against the acceptor, but not
afterwards.
 An acceptance can be revoked at any time
before the letter of acceptance is actually
received by the proposer. thus an acceptor
may revoke his acceptance by a speedier
mode of communication which will reach
before the letter of acceptance is received by
the proposer.
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