1.

Contract is an agreement enforceable by law. Between two or more parties for the doing or not
doing of something specified.Contracts can also be classified according to performance. A
contract can be either executed or executor. An executed contract—is where one party has
performed all that is required to be done according to the contract. For example, Alan delivers
one tonne of wood to Brian. Alan has performed his part of the contract, now it remains for
Brian to pay the price. An executor contract—This is a contract where both parties still have
obligations to perform under the contract.

Classification of contract

Contracts can be classified into five broad divisions namely

1. The method of formation of a contract

2. The time of performance of contract

3. The parties of the contract

4. The method of formalities of the contract

5.  The method of legality of the contract

1. The method of formation of a contract

Under the method of formation of a contract may be three kinds

 Ø Express contract

 Ø Implied contract

 Ø Quasi contract

 Express contract: Express contract is one which expressed in words spoken or written. When such a

contract is formal, there is no difficulty in understanding the rights and obligations of the parties.

Implied contract: The condition of an implied contract is to be understood form the acts, the contract of
the parties or the course of dealing between them.

 Quasi contract: There are certain dealings which are not contracts strictly, though the parties act as if
there is a contract. The contract Act specifies the various situations which come within what is called
Quasi contract.

2.The time of performance of contract

Under the method of the time of performance of contract may be two kinds

 Ø Executed Contract

 Ø Executory Contract

 Executed Contract: There are contracts where the parties perform their obligations immediately, as
soon as the contract is formed.

Executory Contract: In this contract the obligations of the parties are to be performed at a later time.
3. The parties of the contract

Under the method of the parties of the contract may be two kinds

 Ø Bilateral Contract

 Ø Unilateral Contract

 Bilateral Contract: There must be at last two parties to the contract. Therefore all contracts are bilateral
or multilateral.

  Unilateral Contract: In certain contracts one party has to fulfill his obligations where as the other party
has already performed his obligations. Such a contract is called unilateral contract.

4. The method of formalities of the contract

Under the method of the method of formalities of the contract   may be two kinds

 Ø Formal contract

 Ø Informal contract

 Formal contract: A formal contract is a contract which is formatted by satisfied all the essentials
formalities of a contract.

 Informal contract: An informal contract is a contract which is failed to satisfy all or any of the essentials
formalities of a contract.

5.The method of legality of the contract

Under the method of the method of legality of the contract may be five kinds

1. Valid Contract

2. Void Agreement

3. Void able Contract

4. Unenforceable Agreement

5. Illegal Agreement

 Valid Contract: An agreement which satisfied all the essential of a contract and which is enforceable
through the court is called valid contract.

 Void Agreement: An agreement which is failed to satisfied all or any of the essential element of a
contract and which is not enforceable by the court is called void agreement. An agreement not
enforceable by law is said to be void. A void agreement has no legal fact. It confers no right on any
person and created no obligation.
Example: An agreement made by a minor. Void able Contract: An agreement which is enforceable by
law at the open of one or more parties of the contract but not at the open of the other or others is a
void able contract.

A void able contract is one which can be avoided and satisfied by some of the parties to it. Until it is
avoided, it is a good contract.

Example: contracts brought about by coercion or undue influence or misrepresentation or fraud.

Unenforceable Agreement: An Unenforceable Agreement is one which cannot be enforcing in a court

for its technical and formal defect.

Example: (1) An agreement required by law to register but not resisted. (2) An agreement with not
satisfied stamped.

  Illegal Agreement: An illegal agreement is one which is against a law enforcing in Bangladesh.

Example: An agreement to compiled madder.

2. Offer and Invitation to Treat

Invitation to treat

A contract is formed where there is an offer, acceptance, consideration and an intention to create a
legal relation. An invitation to treat, on the other hand, is merely an invitation to submit an offer. Offer
indicates a willingness to enter into a contract whereas an invitation to treat lacks an intention to create
legal obligations. Invitations to treat is an invitation to bargain and it arises in pre-contractual
negotiations, advertisements and store displays and an invitation to bid in the public procurement
process.

Before making a definite offer, parties may make a statement of intention, in the course of negotiation
on the terms of the contract, which it is not intended to require acceptance. If one person invites the
other to express his willingness to do or not to do something, it would be an invitation to treat since for
an offer the final expression of willingness to undertake a definite obligation, upon certain stipulated
terms and obligation, by the other party’s notification of acceptance is required.

Whether a statement is an offer or an invitation to treat depends on the intention of the offeror. If the
offeror expresses his willingness to be bound by it without further negotiations, on acceptance, then it
will amount to offer. A Shopkeeper’s catalogue or list price is only an invitation to intending customer to
make an offer to buy at the indicated price and is not an offer. Advertisements in newspapers or in any
other media are invitations to treat, which allows vendors to refuse to sell products at list price.  They
can also be considered offers in certain cases of unilateral contracts. If a shop mistakenly displays a good
for sale at a very low price it is not obliged to sell it for that amount.[1]

An invitation to treat may be an invitation to tender, a request for bids, or a request for proposals.The
invitation to treat is simply a solicitation and does not qualify to be an offer as the party making it does
not wish to enter into a legally binding contract without further negotiations. The party making the
invitation seeks bids or tenders for the specific commodities from prospective suppliers. Any subsequent
bids are deemed to be an offer which the party who issued the invitation to bid may accept or
reject.          
Another example of an invitation to treat is a tender process. The general rule is that an auction is a sale
by public competition to a bidder who makes an offer to an auctioneer, an agent of the vendor who may
accept or reject it. The contract is concluded when the auctioneer signifies his assent by knocking down
the hammer or in any other customary manner. If the owner states that no reserve price or a reserve
price beyond which offers shall be accepted then the auction is a contractual offer which is accepted by
the highest bidder.[2]

Thus, an invitation to treat invites one party to make an offer of their own. It is a request for expressions
of interest. A display of goods at a fixed price in a store is an invitation to treat, not an offer. An offer
may be made by a prospective buyer and the retailer may accept or reject that offer.[3]

General or Specific Offer

When a proposal is addressed to a body of unascertained persons, it is a general offer which can be
accepted even by an ascertained individual. Similarly, an offer may be made expressly or by conduct.

In Carlil v Carbolic Smoke Ball[4], the defendants published in various newspapers an advertisement to
pay £100 to anyone who contracts influenza colds, after having used the ball three times daily for two
weeks. Moreover, it was added that £ 1000 was deposited with the bank, showing the sincerity in the
matter. The plaintiff bought the smoke ball and used it according to the prescription which was given in
the advertisement. Nevertheless, she caused influenza and then sued the company for the advertised
award.

The court held that the advertisement was not any puff as the statement in the advertisement that
£1000 has been deposited by the plaintiff to for this purpose and this shows their sincerity. The offer
was made to the whole world which matured into a contract when accepted by the plaintiff by
performing the conditions stipulated in the advertisement. Therefore, the plaintiff was entitled to
recover the compensation.   
The same ratio is reflected in Section 8 of the Indian Contract Act which states when the performance of
the conditions of a proposal is fulfilled is an acceptance of the proposal.

If a proposal is made to a specific person or a body of persons, it will be said to be a specific offer. If the
terms of the offer are uncertain, its acceptance cannot give rise to a contract.[5] When two parties
choose to enter into a contract, the first thing is an offer. The offer can come in the form of a Letter,
Newspaper, Website, Fax, Email, Behavior. Thus, the offer is not really an offer until it is received by the
offeree.Goods sold on self-service basis are invitations to treat, the customer makes the offer to buy at
the cash register.[6]

In the case of a time limit, the offeree must respond with acceptance of the offer prior to its expiration
or the offer is no longer valid. An offer can be revoked by the offeror at any time prior to its acceptance.
The offer can be terminated in the case of death of either party, insanity of either party, death or
destruction of the person or the thing required to perform the contract terms. The offer can also be
terminated if a counter-offer is made by changing the terms of the original offer.

Illustrations
 1. A has listed the price of the car ‘gama’ at ₹ 80,000. B visited his shop to buy the car at ₹ 80,000
but A refused to sell the car at any price below ₹ 1 lakh. B wants to sue A for not selling the car
the printed price. A is not liable to sell the car at the listed price as it is only the invitation to
treat and not the offer.Price-marked goods on display on the shelves or on windows or shops
are normally considered invitations to treat and are not offers.[7]

2. A few friends got together to sell off their old books. They the advertisement for the same in the
newspaper. This is an invitation to treat. It is an offer to negotiate- offers to receive offers- offer
to chaffer.Agreements to negotiate are invitations to treat and do not amount to a binding
contract, instead they are regarded as pre-contractual negotiations.[8]

3. A writes to B, “I want to sell my videogame at ₹ 30,000. Will you buy it?” This is an offer and not
an invitation to treat.

4. Scarlett offers to sell her house for Rs 1,50,000, to be paid in 60 days; Nate Stark receives the
offer and gives Seller a counter offer of Rs 1,40,000, payable in 45 days. The offer made by
Scarlett is an offer and not invitation to treat.

Frequently Asked Questions (FAQs)

 How offer can be differentiated from an invitation of treat?

An invitation to treat and an offer can be differentiated on the basis of the intention of the parties while
making an invitation to offer or an offer. When the promisor makes an offer, he intends to enter into the
legal relationship with the acceptance of the offer by the promisee. Whereas, in invitation to treat the
persons intends other party to make an offer and he/she shall accept the offer made. For example, A
writes to B to quote the price at which he would like to purchase his watch. This is an invitation to offer
made by A. B replies that he would like to purchase the watch at ₹ 2,000. This is an offer which stands
subject to the acceptance by A for a valid contract. An offer is an expression of a willingness to contract
on certain terms upon acceptance.[9]

 Distinguish between counter offer and invitation to treat.

A counter offer is an offer made in response to a previous offer by the other party during negotiations
for concluding a final contract. For a counter offer, an offer needs to be present prior to it and that offer
stands rejected after the acceptance of the counter offer.The invitation to treat invites promisor to
make an offer and further negotiate the terms of offer.

3. WHAT IS STRANGER TO CONTRACT OR PRIVITY OF CONTRACT?

The expression “Privity of Contract” is a doctrine, which means stranger to a contract. It means that a
person, who is not a party to the contract, cannot sue for carrying out the promise made by the parties
to the contract. That is, a person who is not a party to the contract cannot enforce a contract.

The underlying principle of the doctrine is that a contract is always a privity relationship between the
parties who make it. No other person can acquire rights or incur liabilities under it.
Example: Manufacturer A supplied tyres to a wholesaler, B, on condition that any retailer to
whom B resupplied the tyres should promise B not to sell them to the public below Manufacturer A’s list
price. B supplied tyres to C upon this condition, but nevertheless C sold them below the list price. Held,
there was a contract between C and B, and a contract between Manufacturer A and B, but no contract
between Manufacturer A and C. Therefore, Manufacturer A could not obtain damages from C.

EXCEPTIONS TO DOCTRINE OF PRIVITY OF CONTRACT

There are, certain exceptions to the rule of privity of contract recognized both by the English Law and
the Indian Law, under which a person, who is not a party to a contract can sue on it. The exceptions to
the rule are:

1. Trust or Charge

Sometimes under contract, a benefit is given to a person who is not a party to the contract. This benefit
can be given by creating a Trust or Charge in favour of such person. In such cases, the beneficiary under
the trust or charge may enforce the contract even though he is not a party to it.

2. Marriage Settlement, Partition or Other Family Arrangements

Sometimes, an agreement is made in connection with marriage, partition or other family arrangements
and a provision is made for the benefit of some person. In such cases, a person, for whose benefit the
provision is made, can enforce the agreement though he is not a party to it.

3. Acknowledgement of Payment

Sometimes, one of the parties to a contract acknowledges the payment to a third party or otherwise
constitutes himself as an agent of the third party. In such cases, the party incurs a binding obligation
towards the third party who can enforce it. And if that party acknowledges the payment to the third
person or constitutes himself as an agent of that third person, then the third person can recover the
amount from such a party.

4. Agreements Affecting the Land

Sometimes, the owner of land is entitled to certain rights and obligations created by an agreement
relating to the land. If such land is purchased by somebody with the notice of rights and obligations of
the owner, then those rights and obligations shall bind the purchaser although he was not a party to the
agreement.

5. Agency

A principal, even if concealed, may sue on a contract made by an agent. The third party cannot plead
that there was no contract between him and the principal.

6. Assignment

The assignee of a debt or an actionable claim may sue the original debtor if the assignment is a legal
one.

7. Holder in Due Course

A holder in due course of a negotiable instrument is one who has obtained the negotiable instrument in
good faith and for valuable consideration. He can sue prior parties to the negotiable instrument.

8. Fund in Hands of a party

Where a fund is created in the hands of one of the contracting parties in favor of a third party, it may be
possible to give the latter, a remedy in quasi-contract on the grounds that to allow the contracting party
to keep the fund would be to allow unjust enrichment.

4. Agreements without Consideration

Consideration is an integral part of a contract. The rules of consideration state that it is essential to have
consideration for a contract. But there are some specific exceptions to the “No consideration no
contract” rule. Let us take a look.

Consideration

Can you make a legal agreement without consideration? No. As per Section 10 and Section 25 of the
Indian Contract Act, 1872, consideration is essential in a valid contract. In simple words, no
consideration no contract. Hence, you can enforce a contract only if there is a consideration.

While considerations are integral to a contract, the Indian Contract Act, 1872 has listed
some exceptions whereby an agreement made without consideration will not be void.

Exceptions to the ‘No Consideration No Contract’ Rule

Section 25 also lists the exceptions under which the rule of no consideration no contract does not hold,
as follows:

Natural Love and Affection

If an agreement is in writing and registered between two parties in close relation (like blood relatives or
spouse), based on natural love and affection, then such an agreement is enforceable even without
consideration.

Example, Peter and John are brothers. In his will, their father nominates Peter as the sole owner of his
entire property after his death. John files a case against Peter to claim his right to the property but loses
the case. Peter and John come to a mutual decision where Peter agrees to give half of the property to his
brother and register a document regarding the same.
Eventually, Peter didn’t fulfil his promise and John filed a suit for recovery of his share in the property.
The Court held that since the agreement was made based on natural love and affection, the no
consideration no contract rule didn’t apply and John had the right to recover his  share.

Past Voluntary Services

If a person has done a voluntary service in the past and the beneficiary promises to pay at a later date,
then the contract is binding provided:

 The service was rendered voluntarily in the past

 It was rendered to the promisor

 The promisor was in existence when the voluntary service was done (especially important when
the promisor is an organization)

 The promisor showed his willingness to compensate the voluntary service

Example, Peter finds Johns wallet on the road and returns it to him. John is happy to find his lost wallet
and promises to pay Peter Rs 2,000. In this case, too, the no consideration no contract rule does not
apply. This contract is a valid contract.

Promise to pay a Time-Barred Debt

If a person makes a promise in writing signed by him or his authorized agent about paying a time-barred
debt, then it is valid despite there being no consideration. The promise can be made to pay the debt
wholly or in part.

Example, Peter owes Rs 100,000 to John. He had borrowed the money 5 years ago. However, he never
paid a single rupee back. He signs a written promise to pay Rs 50,000 to John as a final settlement of the
loan. In this case, ‘the no consideration no contract’ rule does not apply either. This is a valid contract.

Creation of an Agency

According to section 185 of the Indian Contract Act, 1872, no consideration is necessary to create an
agency.

Gifts

The rule of no consideration no contract does not apply to gifts. Explanation (1) to Section 25 of the
Indian Contract Act, 1872 states that the rule of an agreement without consideration being void does
not apply to gifts made by a donor and accepted by a donee.

Bailment

Section 148 of the Indian Contract Act, 1872, defines bailment as the delivery of goods from one person
to another for some purpose. This delivery is made upon a contract that post accomplishment of the
purpose, the goods will either be returned or disposed of, according to the directions of the person
delivering them. No consideration is required to effect a contract of bailment.

Charity
If a person undertakes a liability on the promise of another to contribute to charity, then the contract is
valid. In this case, the no consideration no contract rule does not apply.

Example,  Peter is the trustee of his town’s charity organization. He wants to build a small pond in the
town to enhance greenery and offer the residents a good place to walk around in the evenings. He raises
a charity fund where he appeals to people to come ahead and contribute to the cause. Many people
come forward as subscribers the fund and agree to pay Peter their share of the amount once he enters
into a contract for constructing the pond.

After raising half the amount, Peter hires contractors for building the pond. However, 10 people back out
at the last moment. Peter files a suit against them for recovery. The Court ordered the 10 people to pay
the amount to Peter since he had undertaken a liability based on their promise to pay. Even though there
was no consideration, the contract was valid and enforceable by law.

Solved Example on ‘No Consideration No Contract’ rule

Q: On the eve of his marriage Rahul’s father gifted him a house. They went to register the documents,
but such agreement was rejected as there was no consideration. Is this correct? Or can Rahul take legal
action?

Ans: The rule of no consideration no contract does not apply to gifts. Also. Rahul’s father was gifting him
the house of his natural love and affection. So this is an exception and the agreement can be registered
even without consideration.