Contracts notes

Unit-1 Introduction to law of contracts

History of contractual obligations
Law of Contracts
Contract: A contract is an agreement between two parties that
creates an obligation to perform (or not perform) a particular duty.
According to section 2(h) of Indian contract act An agreement
enforceable by law is said to be contract. All contracts are agreements
but all agreements are not contracts as some of the agreements cannot
be enforced by law
Contractual obligation refers to the responsibilities and duties that the
parties involved in a contract have legally agreed to fulfil.
Definitions of Important terms
1. Acceptance: According to Section 2(b), acceptance is expressed
as “When the person to whom the proposal has been made
signifies his assent thereto, the offer is said to be accepted.
2. Proposal: According to section 2(a) when one person signifies
to another his willingness to or to abstain from doing something
with a view to obtaining the assent of the other to such act or
abstinence he is said to a proposal.
3. Agreement: An agreement is a promise or commitment given
by one party to another party. It includes an offer that is made by
one person and accepted by the other person
4. Contract: According to section 2(h) of Indian contract act An
agreement enforceable by law is said to be contract
5. Void: According section 2(g) a agreement not enforceable by
law is said to be void.
6. Voidable: According to section 2(i) an agreement, which is
enforceable by law at the option of one or more of the parties,
but not the other.
Proposal and acceptances
Section 3 deals with Communication, Acceptance and Revocation of
Proposals and it reads as follows:
The communication of proposals the acceptance of proposals, and the
revocation of proposals and acceptances, respectively, are deemed to
be made by any act or omission of the party proposing, accepting or
revoking by which he intends to communicate such proposal,
acceptance or revocation, or which has the effect of communicating it.
a) You do some act or refrain from doing something (omission).
b) Through such act or omission, you intend to communicate your
offer.
c) Even if you do not intend so, your act or omission, has the effect
of communicating such offer.
When is the communication of offer complete?
Section 4 provides specific requirements of a communication to be
complete. It reads as
follows:
The communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made
Ex: A proposes, by letter, to sell a house to B at a certain price.
The communication of a proposal is complete when B receives the
letter.
What is Acceptance?
Section 2(b) defines 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.
Essentials of Acceptance
The acceptance of an offer is made in accordance with Section 3
(supra).
Section 7 lays down the most essential requirements of any sort of
acceptance. It is as follows:
Section 7 - Acceptance must be absolute —In order to convert a
proposal into a promise, the
acceptance must—
(1) be absolute and unqualified;
(2) be expressed in some usual and reasonable manner, unless the
proposal prescribes the manner in which it is to be accepted. If the
proposal prescribes a manner in which it is to be accepted, and the
acceptance is not made in such manner, the proposer may, within a
reasonable time after the acceptance is communicated to him, insist
that his proposal shall be accepted in the prescribed manner, and not
otherwise; but if he fails to do so, he accepts the acceptance.
Thus, the essentials of a valid acceptance are:
a) It must be absolute
b) It must be unqualified
c) It must be made in some usual or reasonable manner or in a way
specified, unless waived.
d) It must be made while the offer Is still subsisting.
Section 8 - Acceptance by performing conditions, or receiving
consideration — Performance of the conditions of a proposal, or the
acceptance of any consideration for a reciprocal promise which may
be offered with a proposal, is an acceptance of the proposal.
Precedents related to Acceptance
Silence cannot be a mode of Acceptance - In Felthouse v. Bindley,
Felthouse wrote a letter to his nephew to buy his horse stating that if
he did not hear about his acceptance, he will consider the offer to be
approved. The nephew did not reply but told his auctioneer about the
same. The auctioneer sold the horse by mistake and the uncle sued
him for conversion. The court decided that no contract is formed as
acceptance was not communicated at all.
Exception - Agreement Sub Silentio - When silence, coupled with
conduct, amounts to a positive act, it may be construed as valid
acceptance. In Hindustan Coop Insurance Society v. Shyam
Sunder [AIR 1952 Cal 691], an insurance company encashed the
cheque of the premium given by the proposer. However, the proposer
died after a few days. The dependents of the deceased then sued the
company for their compensation. It was contended by the company
that they never communicated their acceptance to the proposer and
hence, no contract had come into being. The court held that the
encashment of the cheque by the company was an acceptance on their
part and therefore, no communication was required for it. This was an
implied acceptance. Thus, the company was liable to pay the
compensation.
Communication of acceptance must be made by the offeree or his
duly authorized person - In Powell v. Lee, Powell was selected by
Board of Managers for post of headmaster. One of the members of
board unauthorizedly communicated this to him and later he wasn’t
selected. The court adjudicated that there was no formal
communication by any authorized person on behalf of Board which
doesn’t give rise to any contract. When any acceptance is made to the
wrong person or posted at wrong address, the offeror is held not
liable.
Mere Mental Resolve to accept will not amount to acceptance -
When A received an offer through a letter, and kept the letter in a
drawer by mentally resolving to accept it, but did not communicate
such acceptance, it was held that such mental resolve will not amount
to an agreement.
How is an acceptance communicated?
Now, this is where things get a little technical, and it is not without
cause. The famous quotation of Anson comes to the mind:
“An acceptance is to an offer, what a lighted match is to a train of
gunpowder.”
What Anson is really trying to say, is that just as putting a lighted
match to a train of gunpowder would result in an explosion, similarly,
an acceptance made to an offer would result in an agreement. During
the times that he lived in, there were no instantaneous modes of
communication. So, he contended that just as an explosion is
irreversible, similarly, an acceptance to an offer, once given, gives rise
to an agreement and is irreversible. However, in today’s day and age,
an acceptance can be revoked by using even faster modes of
communication before the acceptance itself reaches the proposer.
We return to Section 4, where it is provided: The communication of
an acceptance is complete,— 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; as against the acceptor, when it comes to the knowledge of
the proposer.
Illustration (b) to the Section provides as follows:
B accepts A’s proposal by a letter sent by post.
The communication of the acceptance is complete,

as against A when the letter is posted;

as against B, when the letter is received by A.
Now, suppose B, instead of accepting A’s proposal, made certain
minor changes to it, and said “I am willing to accept your proposal on
these modified terms”. This would amount to a counter-offer, which is
also known as conditional acceptance.
Suppose again, that A had mentioned in his letter, that “You must
communicate the acceptance of this offer within 24 hours, otherwise it
would lapse”. B would have to communicate the acceptance of the
offer within 24 hours. This is subject to the condition that A does not
revoke his offer before those 24 hours have lapsed.
Revocation
the act (by someone having the authority) of annulling something
previously done. It can be revoked till the offer is accepted by the
offeror mean accepted till the against the offeror . It cannot be after
that.
The revocation of an offer and acceptance is made in accordance with
Section 3 (supra).
Now, Section 4 provides for communication of revocation as follows:
The communication of a revocation is complete, —
as against the person who makes it, when it is put into a course of
transmission to the person to whom it is made, so as to be out of the
power of the person who makes it; as against the person to whom it is
made, when it comes to his knowledge.
Illustration (c) provides:
A revokes his proposal by telegram.
The revocation is complete as against A when the telegram is
despatched. It is complete as against B when B receives it.
B revokes his acceptance by telegram. B’s revocation is complete as
against B when the
telegram is despatched, and as against A when it reaches him.
Section 5 lays down as to when revocation of offer and acceptances
can be made. It reads as follows:
Section 5 - Revocation of proposals and acceptances — A proposal
may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards.
An acceptance may be revoked at any time before the communication
of the acceptance is complete as against the acceptor, but not
afterwards.
Illustrations
A proposes, by a letter sent by post, to sell his house to B.
B accepts the proposal by a letter sent by post. A may revoke his
proposal at any time before or at the moment when B posts his letter
of acceptance, but not afterwards. B may revoke his acceptance at any
time before or at the moment when the letter communicating it
reaches A, but not afterwards.
Section 6 provides as to how revocation is made. It lays down:
Section 6 - Revocation how made — A proposal is revoked—
(1) by the communication of notice of revocation by the proposer to
the other party;
(2) by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a reasonable
time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfil a condition precedent to
acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death or
insanity comes to the knowledge of the acceptor before acceptance.
An important distinction needs to be noted between Section 3 and
Section 6. Section 3 refers to those scenarios where the revocation
is deemed to be made either because the party intended to revoke, or
its act or omission communicated such revocation. Section 6, on the
other hand, deals with scenarios where such revocation is actually
made. It does not only deal with scenarios where revocation is
intended or communicated, but also lists other scenarios which bring
about revocation.
Conclusion
Offer and Acceptance forms the bedrock of common law
understanding of agreements and contracts. The fact that the Indian
Contract Act, 1872 has required little or no changes at all even after
150 years of its enactment is a testament to the soundness of the
principles laid therein and their wide legal as well as commercial
acceptability. A general awareness of the principles and concepts of
the Indian Contract Act, 1872 would ensure the reduction of one sided
contracts which give rise to disputes and ultimately end up in
litigation.
Essential Elements of a contract
1. Offer
2. Acceptance
3. Consensus ad item
4. Legal Enforceability
5. Lawful consideration
6. Capacity of Parties
7. Free consent
8. Lawful object
9. Agreement declared not void
10. Certainty and possibility of performance
11. Legal Formalities.