2 Indian Contract Act-Part 1 PDF

INDIAN CONTRACT ACT, 1872
Compiled By: Dr. Divya

Law of Contract
(Indian Contract Act 1872)
• Business transactions are mostly based on promises to
perform on a later date.
• The Law of Contract is concerned with enforcement of

these promises.
• The enforceability of these promises is essential for

business world.
• The law of contract is regulated by Indian Contract Act,
1872
Law of Contract
(Indian Contract Act 1872)
Object of The Law of Contract
• The Law Of Contract is that branch of law which determines
the circumstances in which promises made by the parties to a
contract shall be legally binding on them.
• The purpose of law of contract is to ensure the realization of
reasonable expectation of the parties who enter in to contract.
• According to Sir William Anson The law of contract is
intended to ensure that, ‘‘what a man has been led to expect
shall come to pass, and that what has been promised to him
shall be performed.”
Meaning of Contract
“An agreement enforceable by law is a contract”
Elements of Contract
1. Agreement
2. Enforceability by Law
1. Agreement
An Agreement is “Every promise or every set of

promises forming consideration for each other”
 A promise is an accepted proposal
Agreement = Offer + Acceptance
• If there is an offer, acceptance and consensus ad idem

between the parties, there is an agreement.
1. Agreement
A person who makes the promise is called the

‘Promisor’ or ‘Offeror’. And the person to whom the
proposal is made is known as ‘Promisee’ or ‘Offeree.’
In case an agreement is a set of promises, then a person
becomes a promisor and promisee.
1. Agreement
Types of Agreement
• Commercial Agreement
– there is lawful consideration and intention to create legal
relation
• Social Agreement
– Eg invitation to dinner, agreement to go for walk or to
watch a movie
• Domestic Agreement
– between husband and wife , parents and children
ELEMENTS OF CONTRACT
1. Agreement
Offer (Proposal) (Sec.2 (a):
“When one person signifies to another his willingness to do
or to abstain from doing anything with a view to obtaining
the assent of the other to such act or abstinence, he is said to
make a proposal”.
• Offer must be signified i.e. Indicated – communicated
• Offer may be:
1. Express - through words (spoken or written) or
2. Implied - through conduct (ie. Actions and omissions)
1. Agreement
Acceptance (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”
• Acceptance may be express or implied

1. Agreement
Consensus ad idem
• An agreement is outcome of consensus between the parties
who enter into a contract, i.e., the promise made between
them, represents concurrence of their minds.
• The essence of an agreement is meeting of the minds of the
parties. i.e there should be consensus ad idem.
• There would not be an agreement if the parties do agree
but not on the same thing in the same sense, i.e., consensus
is not sufficient. There has to be consensus ad idem.
An agreement is a contract only if there it is
enforceable by law (section 2(h)
• An agreement that creates legal obligations is a contract.
• An obligation is a legal tie which imposes upon a definite
person or persons the necessity of doing or abstaining
from doing a definite act or acts.
Contract = Agreement + Enforceability by Law
Or
Contract = Agreement (Accepted Offer) + Legal
obligation
An agreement is a contract only when it is made:
1. For a lawful consideration
2. With free consent of the parties
3. Between parties that are competent to enter into

contract
4. With a lawful object
5. Not expressly declared to be void

Forming a Contract: Essential Steps
1. A contract, essentially , is an agreement.
2. An agreement is a set of two promises, one flowing
from the offeror and the other from the offeror’s
counterpart i.e. acceptor.
3. A promise is an accepted offer or proposal.
4. An offer is a promise of performance, which is,
however, contingent upon acceptance of it.
Offer→Acceptance→ Promise→ Agreement→Contract
Essentials of Valid Contract (Sec. 10)
Thus essentials of a contract as given by Section 10
1. Agreement (offer and acceptance)
2. Free consent
3. Competency of the parties (Capacity of the parties)
4. Lawful consideration
5. Legal object

Essentials of Valid Contract
Other essentials of a contract (not given by Sec. 10)
7. Intention to create Legal relationship
8. Certainty of meaning
9. Possibility of Performance
10. Two Parties
11. Fulfillment of legal formalities

1. Agreement:
• Agreement is the outcome of offer and acceptance
• There should be an offer and its acceptance
• There should be consensus ad idem
2. Free Consent:
• For an agreement to become a contract the parties to an
agreement should give their consent to the agreement
• Absence of consent does not create a legal obligation.
• Two or more parties are said to consent when they agree on the
same thing in the same sense i.e. consensus should be consensus
ad idem
• Consensus must be given out of free will i.e. it should not be
induced by coercion, undue influence, fraud,
misrepresentation, etc.
• If consent is obtained through coercion or undue influence then
such contracts are voidable
2. Free Consent:
• Coercion means actually committing or threating to
commit an offence forbidden by IPC or actually detaining
or threatening to detain the property with the intention of
causing any person to enter into an agreement.
• Undue influence means when one party is in a position to
dominate the will of the other (such party is called the
dominant party) uses his dominant position to obtain an
unfair advantage by entering into the contract.
2. Free Consent:
• Fraud is committed when a party wilfully makes a
representation of fact that is false with a view to
deceive the other party and the other party is actually
deceived and suffers a loss.
• Misrepresentation is when a party innocently makes a
representation of that is false and misrepresentation was
not made with a view to deceive the other party and the
other party has actually acted.
3. Capacity of the Parties:
• Only those persons who are competent to enter into a contract
can create valid obligations.
• Every person is competent to contract who
(a) is of the age of majority according to the law to which he
is subject (is a major)
• i.e. atleast of 18 years
(b) is of sound mind
• i.e. person is able to understand the contract and form
a rational judgement.
(c) is not otherwise disqualified from contracting by any law
to which he is subject.
3. Capacity of the Parties:
• Following are not competent to contract :
• A minor
• Person of unsound mind eg. a lunatic, an idiot, a drunkard
or person under the influence of some intoxicant
• Person disqualified by his status from entering into a
contract
• such as an alien enemy, foreign sovereigns, convicts
etc. unless they fulfill certain formalities required by
law.
• These persons suffer from flaw in capacity to Contract
• Contracts made with above persons can’t be enforced against
them and are void ab initio.
4. Lawful Consideration:
• Consideration means something in return, i.e., ‘quid pro
quo.’
 E.g. A promises to give his bike to B for no money, here,
there is no consideration, hence no obligation.
• Without consideration a promise can’t be enforceable by
law.
• However, consideration need not be in money or in kind.
It may be of an act, abstinence, a promise to do, or not
to do something.
• But consideration should be lawful.
5. Lawful or Legal Object:
An agreement made for any act which is prohibited by law is
unenforceable e.g contract to supply smuggled goods
Section 23 states that object (or consideration) is not lawful
if:
• it is prohibited by law, or
• it is such as would defeat the provisions of law,
• it is fraudulent or involves injury to the person or property
of another or
• court regards it as immoral or opposed to public policy.
5. Lawful or Legal Object:
• Object (or consideration) is said to be against public policy in
following cases:
 Agreement for trading with enemy
 Agreement interfering with personal liberty
 Agreement interfering with course of justice
 Agreement for improper promotion of litigation
 Agreement to do an act against the duty of a person
 Agreement not to bid
 Agreement to create monopolies or to eliminate/reduce
competition
 Agreement for sale of public offices and titles.

e.g
agreement is restraint of marriage,
agreement in restraint of trade,
agreement in restraint of legal proceedings.
7. Intention to Create Legal Relation

• In Social agreements and Domestic agreements it is generally
assumed that there is no intention to create legal relations so
there is no legal enforceability.
• The case on point of absence of intention to create legal
relations for promise between husband and wife is Balfour v.
Balfour (1919)
• Same rules are applicable in case of parents and children. The
case of Jones v. Padavatton (1969)
8. Certainty of meaning
• Section 29 provides , “agreements , the meaning of which is not
certain or capable of being made certain, are void.”
• Terms of agreement must be clear otherwise no contract can be
formed.
• It will not be a valid contract if it is not clear as to what exactly
the parties intend to do.
• An agreement to enter into agreement in the future date is not
valid as terms of the offer are uncertain and are yet to be settled.
• Eg an agreement to sell 100 tons of oil without specifying the type of
oil
In Punit Bariwala v. Siva Sangal (AIR 1998), it has been held,
a mere agreement to agree is not enforceable in court of law.
9. Possibility of Performance
Section 56 “An agreement to do an act impossible in itself
is void”
10. Two Parties:
• A contract involves at least two parties- one party making the
offer and the other party accepting it.
• One cannot contract with himself.
• A contract may be made by natural persons and by other
persons having legal existence e.g. companies, universities etc.
• State of Gujarat v. Ramanlal S & Co

11. Fulfillment of legal formalities

In case of certain contracts, the contracts must be in writing,
e.g. Contract of Insurance is not valid except as a written
contract. Further, in case of certain contracts, registration of
contract under the laws which is in force at the time, is
essential for it to be valid, e.g. in the case of immovable
property.
Essential Elements of a Valid Contract
• Agreement : It is necessary to establish that there was consent between the parties.
An offer must be definitive, meaningful and duly communicated .
• Free consent : means the parties in contract should mean the same thing
• Legitimate consideration : An agreement to be enforceable by law must be
supported by consideration unless the agreement is by means of written-deed.
• Capacity of parties : e.g has to be a major, mentally sound, not a convict
• Lawful object: An agreement made for any act which is prohibitable by law is
unenforceable e.g contract to supply smuggled goods
• Agreements not expressly declared void : e.g agreement is restraint of marriage,
agreement is restraint of trade, agreement is restraint of legal proceedings.
• Intention to create legal relations : is a necessary and independent element in the
making of a contract e.g domestic promise ( Balfour vs Balfour)
• Possibility of performance : Section 56 “An agreement to do an act impossible in
itself is void”
• Certainty : Section 29 provides , “agreements , the meaning of which is not
certain or capable of being made certain, are void.” terms of agreement must be
clear
• Two Parties: There must be atleast 2 parties to a contract
Differences between Agreement and Contract
Basis Agreement Contract
Every promise and set of
promises forming
consideration for each other An agreement enforceable by
1. Definition is an agreement Law is an contract.
Agreement and its
Offer and its acceptance enforceability constitute a
2. Formation constitute an agreement. contract.
3. Legal An agreement may or may A contract necessarily create a
obligation not create a legal obligation. legal obligation.
4. One in Every agreement need not All contracts are necessarily
other necessarily be a contract. agreements.
Scope of agreement is wider Scope of contract is narrow in
as it covers all types of comparison as it covers only
5. Scope of agreement as well as those agreement which are
agreement contract. enforceable.
Types of Contracts
A) On the basis of B) On the basis of Formation:

Validity 1. Express
1. Valid contracts 2. Implied
2. Void contracts 3. Quasi
3. Voidable contract C) On the basis of Performance
4. Void Agreements 1. Executed
5. Illegal agreements 2. Executory – Unilateral and
6. Unenforceable Bilateral
Types of Contracts
A) On the basis of Validity
1. Valid contracts : That fulfills all legal obligations e.g.

intention for creating legal relations etc
2. Void contracts : Has no binding effect on any party .
Section 2 (j) “A Contract which ceases to be enforceable
by law becomes void, when it ceases to be Enforceable”
e.g. because of change of law, impossibility of
performance
Types of Contracts
2. Void contracts :
(A) Contingent contract: A contingent contract to do or not to do
something on the happening of an uncertain future event, becomes
void, when the event becomes impossible (Sec 32).
(B) Repudiation of a voidable contract: When a voidable contract is
rescinded by the party at whose option it is voidable, the contract
becomes void.
(C) Subsequent impossibility (Sec. 56): A contract which becomes
impossible to perform, after it is made, becomes void.
(D) Subsequent illegality (Sec. 56): A contract becomes void if it
becomes illegal after it is made.
Consequences of a Void Contract: Sec. 65 lays down that when a
contract becomes void, the party who has received any advantage under
such agreement, should restore it or make compensation for it to the
party from whom he received it.
Types of Contracts
3. Void Agreements: Void ab initio. Do not meet essentials
of contract
Types of Contracts
…Contd. A) On the basis of Validity
4. Voidable contract : One which is legally enforceable unless avoided
i.e. a party to the contract refuses to abide by it.
Circumstances in which a contract is voidable are:
(A) At the conception
1. Contracts in which consent is caused by coercion, fraud,
misrepresentation, undue influence. Contract with minors
2. When one party induces another to enter into an agreement the object
of which is unlawful though it is not known to the other party.
(B) By Subsequent Default
1. Where offer of performance is not accepted (Sec. 38)
2. When contract contains reciprocal promises, and one party to the
contracts prevents the other from performing his promise, the
contract becomes voidable at the option of the latter
2. When a party to a contract promises to perform an obligation within
a specified time but fails to so within the fixed time, the contract
becomes voidable at the option of the promisee
Types of Contracts
4. Voidable contract :
Consequences of recession of a voidable contract
(A) For the party at whose option the contract is voidable, if
he has received any benefit from another party to such contract,
he must restore such benefit so far as may be, to the person from
whom it has been received. The benefit must have been received
under the contract and not otherwise. Security for performance is
not the benefit received under the contract.
(B) As regards the other party, he need not perform his promise.
Difference Between Void and Voidable Contracts
S. POINT OF VOID CONTRACT VOIDABLE CONTRACT
NO DIFFERENCE
.
1 Definition A contract, which A voidable contract is an
ceases to be agreement which is
enforceable by law, enforceable by law at the
becomes void when it option of one or more of
ceases to be the parties thereto, but not
enforceable [Section 2 at the option of the other(s)
(j)]. [Section 2 (i)].
2 Nature & A void contract is valid A voidable contract is
validity and binding upon the repudiable at the option of
parties when entered the aggrieved party. It
into, but subsequent to remains a valid contract
its formation, it until it is set aside or
becomes unenforceable rescinded by the party
due to certain reasons. entitled to do so.
NO DIFFERENCE
.
3. Cause A valid contract may Coercion, undue influence,
become void due to error, fraud,
supervening misrepresentation are the
impossibility of main factors responsible for
performance; change rendering a contract
of law; changing voidable.
circumstances. etc.
4 Enforceability It cannot be enforced It may be enforced or set
by either party. aside at the option of the
aggrieved party.
5 Rights A void contract does The party whose consent
not grant any right to was not free has the right to
any party. rescind the contract.

NO. DIFFERENCE
6. Relationship A void contract When a voidable contract
under no is rejected by the
circumstances results aggrieved party it results
in a voidable in a void contract.
contract.
7. Rights of third A void contract Rights acquired under
party confers no rights or voidable contract by an
legal remedies to the innocent third party are
third party. not wiped out by such
subsequent avoidance of
the contract.
N DIFFERENCE
O.
8. Compensation In case of void In case of voidable
contract question of contract, the party
compensation or rescinding the contract can
damages does not also claim damages.
arise on the non-
performance of such
contract.
9. Effect of Lapse of reasonable If a voidable contract is not
lapse of time time does not render a rescinded by the aggrieved
void contract party within reasonable
enforceable. It always time it may become
remains void i.e., enforceable at the option of
unenforceable. the other party (i.e, who
induced the contract).
RESTITUTION OF BENEFITS RECEIVED UNDER
VOID AGREEMENTS
• The term ‘restitution’ legally implies giving back or
restoration of the money or benefit received from the
plaintiff under the agreement.
• When an agreement is discovered to be void, or when a
contract becomes void, any person who has received
any advantage under such an agreement or contract is
bound to restore it, or to make compensation for it, to
the person from whom he received it.
[Section 65]
• Thus, when a contract is no more enforceable, the party
who has received any benefit under such a contract from
the other party must return it or make compensation for
the same to the other party.
Types of Contracts
5. Illegal agreements: Are agreements with illegal object. Are
punishable by law and void ab initio. All collateral contracts
get tainted and are also void. e.g contract killing. Loan for the
transaction.
6. Unenforceable contracts : When a contract is valid otherwise
but can’t be enforced by court of law by one or both parties
due to a technical flaw e.g unwritten contract, unstamped,
undated cheque. When technical defect is removed the contract
can be enforced.
Types of Contracts
B) On the basis of Formation
1. Express contracts : which lucidly convey the purpose of
agreement. S.9-The terms of the contract stated in words
spoken or written.
2. Implied contracts (Tacit contract):
• The terms of the contract are inferred from the conduct of
the parties.
• Are contract with non verbal conduct
• eg: A enters in to a restaurant and took a cup of coffee. Here
an implied contract that he will pay for the coffee even
though there is no express promise to do so. doctor’s fee
Contracts where written document is
necessary
1. An agreement to pay a time-barred debt
2. Transfer of share certificate
3. Hire-purchase agreement
4. An assignment of copyright
5. Cheques and promissory note under the NI Act 1881
6. An agreement to sell land, building etc
Types of Contracts
3. Quasi contracts:
Arises under certain circumstances when, law itself creates legal
rights and obligations.
Quasi contract is a contract which lacks one or more of the
essentials of a contract.
Are declared by law as valid contracts on the basis of principles of
equity ie. no person shall be allowed to enrich himself unjustly at
the expense of another.
Types of Contracts
3. Quasi contracts:
• Although quasi contract is not a contract at all it is
based on the law and resembles a contract.
• It is a contract in which there is neither offer and
acceptance nor consent, there is no intention on part of
either party to make a contract but law imposes a
contract upon the parties.
Types of Contracts
3. Quasi contracts:
Example:
• Finder of lost property to return it to the true owner.
• Liability of person to whom Money is given by mistake or
coercion to repay it back.
• X supplied Y, a lunatic (or any other person incompetent to
contract) necessaries of life. X has the right to be reimbursed
from Y’s property.
• Obligation of person enjoying benefit of non-gratuitous Act
• Payment (voluntarily) made by a person who is interested in
a transaction but who is not legally bound to make payment
Types of Contracts
C) On the basis of Performance
1. Executed contract : contract-both the parties to the
contract have completely performed their respective
obligations e.g concluded car sale
2. Executory contract-In this contract the obligations of
parties are to be performed at a later time.
Executory contracts may be:
a) Unilateral contracts
b) Bilateral contracts
Types of Contracts
a) Unilateral contracts :
One party has to fulfill his obligations, whereas the other party
has already performed his obligations(one sided contract/contract
with executed consideration).
Is one in which a one party has already performed it’s promise at
the time of making the contract and the other party promises to
perform in future. E.g. offer to sell an item to another person.
b) Bilateral contracts :
 Both parties are to perform their respective promises or
obligations at some future time but not necessarily at the same
time. E.g agreement to buy with a timeline is one in which
obligations of both the parties are outstanding.
DEFINING AN OFFER
An offer is a medium through which a person expresses

his intention to enter into a contractual obligation
against a promise or an act of forbearance.
“When one person signifies to another person his
willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to
such an act of abstinence, he is said to have made a
proposal.” Section 2(a)
Three Properties of an Offer
Expression of readiness ‘to do’ or ‘not to do’ something.

Thus, an offer may involve a positive act or forbearance.
Presence of second party. An offer by

a person to himself will be a nullity.
Intention of obtaining a response. It is made with the

intention that the other person accepts it. Mere expression
of willingness will constitute no offer.
OFFER
TYPES OF OFFER
1. Express i.e oral or written

2. Implied i.e inferred from the conduct of a person or the
circumstances of the case
3. Specific offer:
Is Offer is made to a specific or ascertained person
4. General offer
– offer made not to any particular person but to the public at large
such as an advertisement to public at large e.g any competent person
(Carlill v. Carbolic Smoke Ball Company)
OFFER
TYPES OF OFFER
5. Standing offer:
• Offer kept open for acceptance over a period of time is termed as
“standing” e.g tender to supply goods at a given price as and when
required
5. Counter offer: causes original offer to lapse
6. Cross offer
• When identical offers made by two persons to each other containing
similar terms of bargain cross each other in post, neither side knowing
of the other’s offer when they make their own, they are known as
cross offers. In case of cross offers even though both the parties intend
the same bargain, there arises no contract. A contract could arise only
if either A or B after having the knowledge of the offer, had accepted
it. (Tinn v. Hoffmann (1873))
Characteristics of a Valid Offer
(Legal Rules as to Valid Offer)
1. Must be communicated
• (Carlill v. Carbolic Smoke Ball Co. , Lalman Shukla v.
Gauri Dutt)
2. Its terms must be certain, definite and not vague
• eg offer for sale of 100 tons of oil
3. May be conditional
4. Communication of Complete offer:
• All terms & conditions of offer must be communicated
• Henderson v. Stevenson,
• Olley v. Marlborough Court Ltd
• Parker v. South Eastern Rail Co
5. Must be made to obtain the assent of the other party

6. Cross-offers do not conclude a contract (Tinn v.
Hoffmann (1873))
7. There must be intention to create legal relation and must
be capable of creating legal obligations
• (Balfour v. Balfour (1919), Jones v. Padavatton
(1969))
• Rose and Frank v. Crompton
8. Must not thrust on the offeree the burden to communicate

his decision i.e. must not contain any term the non-
compliance of which amounts to acceptance.
• Felthouse v. Bindley
OFFER
9. Offer must be distinguished from an invitation to offer

(invitation to treat)
Invitation to treat is just an invitation to make offer, while
an offer is a final expression of willingness by the offeror to
be bound by his promise, should the other party choose to
accept it.
• (Pharmaceutical Society of Great Britain v. Boots Cash
Chemists Ltd.)
• Fisher V. Bell
Examples of Invitations to offer or Invitation to Treat
• Auctions or requests for bids

• Newspaper advertisements
• Display of goods for sale in shelf
• An invitation for tenders
• Sending a catalogue or price list
• General advertisement of goods e.g on-line ebay,
jabong etc
• Company prospectus for share
Offer distinguished from Invitation to offer
• When a catalogue is sent, a person who is interested may make
an offer and the person circulating the catalogue has the
discretion to accept or reject the offer.
• Similarly when goods are sold by auction, it is an invitation to
offer, and the persons making bids are making the offer. The
auctioneer is free to accept or reject the bid and even has the
discretion not to accept the highest bid. An auctioneer is also
free to cancel an auction sale announced by him. (Harris v.
Nickerson (1873).
10. A statement of price is not an offer

A mere statement of price does not constitute an offer
Harvey Vs. Facey,[1893]
MODES OF LAPSE (TERMINATION) OF OFFER
Revocation/withdrawal/cancellation of offer before the

offeree accepts it
Failure to fulfil a condition precedent to acceptance
Death or insanity of either party
Lapse of time
Counter-offer
Acceptance differs from the prescribed one
Rejection of the offeree
Subsequent illegality or destruction of subject matter

1. Revocation of offer:
 Means withdrawal or cancellation of offer
 Offer may be revoked by offeror at anytime before the offer is
accepted.
2. Failure to fulfill condition precedent to acceptance.
 Non-fulfilment of condition precedent to acceptance of offer
3. Death or insanity of offerer or offeree:
 Where the offeror dies or becomes insane and such fact comes
to the knowledge of offeree before acceptance of the offer.
 ( but if offer is accepted before knowledge of death or insanity
by offeree, then contract is valid)
 Where the offeree dies or becomes insolvent before acceptance of
the offer
4. Lapse of time
 Offer lapses if not accepted
 Within the time specified in the offer
 Within reasonable time, if no time is specified in the offer
5. Counter-offer
 Counter offer results in rejection of the original offer
6. Acceptance differs from prescribed mode
 If the offeree accepts the offer in manner different from
that prescribed by the offeror, the offerer may refuse to
treat acceptance as valid and offer then lapses
7. Rejection of the offeree
 If the offeree rejects the offer and communicates his
refusal to offerer
8. Subsequent illegality or destruction of subject matter
 Subsequent to making of offer:
 The subject matter of offer is destroyed
 The performance becomes impossible or unlawful

ACCEPTANCE
• An acceptance is a manifestation of assent to the terms of

the offer.
• Definition of Acceptance: 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.[Section
2(b)]
• An offer becomes irrevocable upon its acceptance.
ACCEPTANCE
WHO CAN ACCEPT OFFER?

1. Specific offer: That particular person or group of persons
to whom the specific offer has been made and no one else.
2. General offer: Any person if :
He has the knowledge of the offer, AND
He comes forward and fulfills the terms and conditions
of the offer.
Legal Rules Governing a Valid Acceptance (Sec 38)
1. Must be absolute and unqualified (unconditional)
2. Must be communicated
3. Must be communicated to the offeror
4. Must be made by the offeree or person who has the authority to
accept the offer
5. May be in any form, oral or written
6. Manner of acceptance: Must be in the manner prescribed by the
offeror
7. Time limit for acceptance : Must be given within a reasonable time,
if no time limit is set
8. Must be given while the offer is in force i.e. before offer lapses or is
revoked
9. Acceptance must not precede offer
1. Must be absolute and unqualified (unconditional)
• Assent should be to all the terms of offer
• No variation or reservation–acceptance must be
unconditional
• If acceptance is given subject to some variation, reservation
or condition, it is not valid and called qualified acceptance
• Qualified acceptance results in
Lapse of original offer
A counter offer (Hyde v. Wrench)
2. Acceptance must be communicated
• Silence is not acceptance: The acceptance of an offer
cannot be implied from the silence of the offeree or his
failure to answer, unless the offeree has by his previous
conduct indicated that his silence means that he accepts.
Felthouse v. Bindley.
– Exception: However if offeree voluntarily agrees with
offeror that non-refusal by offeree within a specified
time shall amount to acceptance, such a clause is valid.
In such a case, silence of offeree may amount to
acceptance.
2. Acceptance must be communicated
• Mere mental acceptance (assent in one’s own mind) is
NO acceptance (Brogden v. Metropolitan Railway Co.)
• Communication of acceptance of General offer NOT
required. (Carlill v. Carbolic Smoke Ball Co.)

3. Acceptance must be communicated to offeror

In Felthouse v. Bindley acceptance was communicated by
nephew to his auctioneer and not to F (offeror)
4. Acceptance must be made by offeree or person who has

the authority to accept the offer
• It must be given by the party or parties to whom the offer
is made.
• Acceptance must be communicated by the offeree himself
or by a person who has the authority to accept.
• If acceptance is communicated by an unauthorized person,
it will not give rise to legal relations.
Powell v. Lee
5. Acceptance may be oral or in writing
6. Acceptance must be in the manner prescribed by the offeror
• The communication must be according to the mode prescribed
– Eg. If the Offeror has sought the communication of acceptance from
offeree by telephone it cannot be given by post.
• If the acceptance is in manner/mode different from that
prescribed by the offerer, then offeror can refuse to accept it.
• In case, the acceptance is made in a manner other than the
mode prescribed but the offeror does not raise any objection
within a reasonable time, the acceptance will be binding.
• If no mode of acceptance is prescribed then, it must be
according to usual and reasonable mode.
7. Time limit for acceptance :

If time limit is prescribed for acceptance and it is not
accepted within the prescribed time, then it ends in
revocation of offer.
If no time limit is prescribed it must be given within a
reasonable time.
(Ramsgate Victoria Hotel Co. v. Montefiore)
8. Must be given before offer lapses or is revoked

• It must be given before the offer lapses or before the offer
is withdrawn otherwise it will not give rise to legal
relations.
9. Acceptance must not precede offer
In Lalman Shukla v. Gauri Dutt L could not accept the

offer before it was made. ‘L’ was not entitled to reward
because he did not know about the offer of the reward when
he found the missing boy.
Revocation
Revocation means taking back or withdrawal.
• Revocation must always be expressed
• Revocation must move from the offeror himself or a duly
authorised agent
• Notice of Revocation of general offer must be given through
the same channel by which the original offer was made
• Offer cannot be revoked even if the letter of acceptance is lost
or delayed in transit.
• No revocation in case of contract over telephone or telex or
fax
Communication When complete
1. Communication of an Offer: Sec 4 states “The communication
of an offer is complete when it comes to the knowledge of the
person to whom it was made” (offeree).
– Communication of an offer is complete when the letter of
offer is received by the offeree
2. Communication of Acceptance:
• Communication is complete Against the offerer ie. Offeror is
bound by acceptance and cannot withdraw offer: when
acceptance is put in a course of transmission so as to be out of
the power of the offeree (ie. When letter of acceptance is posted
by offeree)
• Communication is complete Against the offeree i.e. ie.
Offeree is bound by acceptance and cannot withdraw it:
When acceptance comes to the knowledge of the offeror
Communication When complete
3. Communication of Revocation of offer or acceptance
• Communication is complete Against the person who makes it
ie. Person revoking cannot further revoke it: When
revocation is put in a course of transmission so as to be out of
the power of the person who makes it.
• Communication is complete Against the person to whom it is
made: when revocation comes to the knowledge of the person to
whom it was made.
• Note: Posting of letter of revocation binds the person making
such revocation, as soon as letter of revocation is posted. Thus
revocation by offeror or offeree can be made only once
Time Limit for Revocation
• Revocation of Offer: Before communication of acceptance is
complete against the offeror.
– when acceptance is put in a course of transmission out of power or
offeree
• Revocation of Acceptance:
• Before communication of acceptance is complete against the
offeree.
– i.e. When acceptance comes to knowledge of offeror.
• Acceptor may cancel his acceptance by a speedier mode of
communication which will reach earlier than the acceptance
itself.
• In case of simultaneous delivery of letter of acceptance and
letter/telegram containing revocation of acceptance, formation of
contract depends on which one is read first.
Offeror Offeree
18.07.19 22.07.19
Offeror Offeree
Acceptance
28.07.19 24.07.19
Offeree
Offeror Case (a) 21.07.19
19.07.19 Case (b) 23.07.19
Case (c) 25.07.19
Offeror
Revocation of Offeree
Case (a)27.07.19 Acceptance 25.07.19
Case (b) 29.07.19
When and where contract is concluded?
1. Communication complete when posted:
• A contract arises on the date when the letter of acceptance is
posted in due course. (Adams v. Lindsell)
• The offeror becomes bound when a properly addressed and
adequately stamped letter of acceptance is posted. However in
India, the acceptor does not become bound by merely posting his
acceptance but becomes bound only when his acceptance comes
to the knowledge of the proposer
• Place: The contract is made at the place where the letter (or
courier) of acceptance is posted.
When and where contract is concluded?
2. When parties are in direct communication
• Contracts over methods of instantaneous communication (such as
telephone, telex, fax) are treated on the same principles as oral
agreements made face to face.
• No contract will arise until offeror receives the notification of
acceptance (Entores Ltd v. Miles Far East Corpn). Acceptance will
be valid when received by offeror in case of instantaneous
communication.
• Place: The contract is made at the place where the acceptance is
received by offeror in case of telephone. (Bhagwandas
Goverdhandas Kedia v. Girdharilal Parshottamdas & Co. )
• No question of revocation of acceptance as there is instantaneous
communication of offer and its acceptance

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INDIAN CONTRACT ACT, 1872

Compiled By: Dr. Divya

• The Law of Contract is concerned with enforcement of

• The enforceability of these promises is essential for

“An agreement enforceable by law is a contract”

An Agreement is “Every promise or every set of

 A promise is an accepted proposal

Agreement = Offer + Acceptance

• If there is an offer, acceptance and consensus ad idem

A person who makes the promise is called the

Acceptance (Sec.2 (b))

• Acceptance may be express or implied

An agreement is a contract only when it is made:

1. For a lawful consideration

2. With free consent of the parties

3. Between parties that are competent to enter into

4. With a lawful object

5. Not expressly declared to be void

Thus essentials of a contract as given by Section 10

1. Agreement (offer and acceptance)

3. Competency of the parties (Capacity of the parties)

6. Not expressly declared to be void

Other essentials of a contract (not given by Sec. 10)

7. Intention to create Legal relationship

10. Two Parties

11. Fulfillment of legal formalities

6. Not expressly declared to be void

7. Intention to Create Legal Relation

10. Two Parties:

• A contract involves at least two parties- one party making the

offer and the other party accepting it.

• One cannot contract with himself.

• A contract may be made by natural persons and by other

persons having legal existence e.g. companies, universities etc.

• State of Gujarat v. Ramanlal S & Co

11. Fulfillment of legal formalities

A) On the basis of B) On the basis of Formation:

1. Valid contracts : That fulfills all legal obligations e.g.

S. POINT OF VOID CONTRACT VOIDABLE CONTRACT

An offer is a medium through which a person expresses

Expression of readiness ‘to do’ or ‘not to do’ something.

Presence of second party. An offer by

Intention of obtaining a response. It is made with the

1. Express i.e oral or written

5. Must be made to obtain the assent of the other party

8. Must not thrust on the offeree the burden to communicate

9. Offer must be distinguished from an invitation to offer

• Auctions or requests for bids

10. A statement of price is not an offer

Revocation/withdrawal/cancellation of offer before the

Failure to fulfil a condition precedent to acceptance

Death or insanity of either party

Rejection of the offeree

Subsequent illegality or destruction of subject matter

7. Rejection of the offeree

 If the offeree rejects the offer and communicates his

8. Subsequent illegality or destruction of subject matter

 Subsequent to making of offer:

 The subject matter of offer is destroyed

 The performance becomes impossible or unlawful

• An acceptance is a manifestation of assent to the terms of

WHO CAN ACCEPT OFFER?

2. Acceptance must be communicated