8/2/2019 Law Proj 2

1/7

Essentials of a Contract:-

1. Intention to create legal relationship.

2. Lawful object

3. Agreement not expressly declared void

4. Proper offer and it s acceptance

5. Free Consent

6. Capacity of parties to contract

7. Certainty of meaning.

8. Possibility of performance.

9. Lawful consideration

10. Legal formalities

Intention to create legal relationship: The parties entering into a contract must have an intention tocreate a legal relationship. If there is no intention to create a legal relationship, that agreementcannot be treated as a valid contract. Generally there is no intention to create a legal relationship insocial and domestic agreements. Invitation for lunch does not create a legal relationship. Certainagreements and obligation between father and daughter, mother and son and husband and wifedoes not create a legal relationship. An agreement wherein it is clearly mentioned that "Thisagreement is not intended to create formal or legal agreement and shall not be subject to legal

jurisdiction in the law of courts." cannot be treated as a contract and not valid.

Lawful Object: The objective of the agreement must be lawful. Any act prohibited by law will not bevalid and such agreements cannot be treated as a valid contract. A rents out his house for thebusiness of prostitution or for making bomb, the acts performing there are unlawful. Hence suchagreement cannot be treated as a valid contract. Therefore the consideration as well as the objectof the agreement should be lawful.

Agreement not expressly declared void: Section 24 to 30 specify certain types of agreement whichhave been expressly declared void. For example Restraint of marriage which has been expresslydeclared void under Section 26. If John promises to pay $50 to Mary if she does not marrythroughout her life and Mary promise not to marry at all. But this agreement cannot be treated as avalid contract owing to the fact that, under section 26 restraint of marriage expressly declared void.Some of the agreement which have been expressly declared void are agreement in restraint of

legal proceedings, agreement in restraint of trade, agreement in restraint of marriage andagreement by way of wager.

Proper offer and it s acceptance: To create a valid contract, there must be two or more parties. Onewho makes the offer and the other who accepts the offer. One person cannot make an offer andaccept it. There must be at least two persons. Also the offer must be clear and properlycommunicated to the other party. Similarly acceptance must be communicated to the other partyand the proper and unconditional acceptance must be communicated to the offerer. Proper offerand proper acceptance should be there to treat the agreement as a contract which is enforceableby law.

8/2/2019 Law Proj 2

2/7

Free Consent: According to section 14, consent is said to be free when it is not caused by (i)coercion, (ii) undue influence (iii) fraud, (iv) misrepresentation, or (v) mistake. If the contract madeby any of the above four reason, at the option of the aggrieved party it could be treated as a voidcontract. If the agreement induced by mutual mistake the agreement would stand void or canceled.

An agreement can be treated as a valid contract when the consent of the parties are free and notunder any undue influence, fear or pressure etc. The consent of the parties must be genuine andfree consent.

Capacity of parties to contract: Parties entering into an agreement must be competent and capableof entering into a contract. If "A" agrees to sell a Government property to B and B agrees to buy thatproperty, it could not treated as a valid agreement as A is not authorized or owner of the property. Ifany of the party is not competent or capable of entering into the agreement, that agreement cannotbe treated as a valid contract. According to Section 11 of the Act which says that every person iscompetent to contract who is of the age of majority according to the law to which he is subject andwho is of sound mind, and is not disqualified from contracting by any law to which he is subject. Soit is clear that the party must be of sound mind and of age to enter into a valid agreement which canbe treated as a valid contract.

Certainty of meaning: Wording of the agreement must be clear and not uncertain or vague.

Suppose John agrees to sell 500 tones of oil to Mathew. But, what kind of oil is not mentionedclearly. So on the ground of uncertainty, this agreement stands void. If the meaning of theagreement can be made certain by the circumstances, it could be treated as a valid contract. Forexample, if John and Mathew are sole trader of coconut oil, the meaning of the agreement can bemade certain by the circumstance and in that case, the agreement can be treated as a validcontract. According to Section 29 of the Contract Act says that Agreements, the meaning of whichis not certain or capable of being made certain, are void.

Possibility of performance: As per section 56, if the act is impossible of performance, physically orlegally, the agreement cannot be enforced by law. There must be possibility of performance of theagreement. Impossible agreements like one claims to run at a speed of 1000km/hour or Jump to aheight of 100feet etc. would not create a valid agreement. All such acts which are impossible ofperformance would not create a valid contract and cannot treated as a valid contract. In essence,

there must be possibility of performance must be there to create a valid contract.

Lawful consideration: An agreement must be supported by a consideration of something in return.That is, the agreement must be supported by some type of service or goods in return of money orgoods. However, it is not necessary the price should be always in terms of money. It could be aservice or another goods. Suppose X agrees to buy books from Y for $50. Here the considerationof X is books and the consideration of Y is $50. It can be a promise to act (doing something) orforbearance (not doing something). The consideration may be present, future or can be past. Butthe consideration must be real. For example If John agrees to sell his car of $ 50000 to Peter for$20000. This is a valid contract if John agrees to sell his car not under any influence or force. It canbe valid only if the consideration of John is free. An agreement is valid only when the acts are legal.Illegal works like killing another for money, or immoral works or illegal acts are cannot be treated asa valid agreement. So, illegal works will not come under the contract act.

Legal formalities: The contract act does not insist that the agreement must be in writing, it could beoral. But, in some cases the law strictly insist that the agreement must be in writing like agreementto sell immovable property must be in writing and should be registered under the Transfer ofProperty Act, 1882. These agreement are valid only when they fulfill the formalities like writing,registration, signing by the both the parties are completed. If these legal formalities are notcompleted, it cannot be treated as a valid contract.

Most important essentials of a valid contract are mentioned above. These elements should bepresent in a contract to make it a valid contract. If any one of them is missing we cannot treat that

8/2/2019 Law Proj 2

3/7

agreement as a valid contract.

PROPOSAL or OFFER :-Proposal and offer both are used in the same sense and there is no difference in their meanings. Itis defined in the following words :"When one person signifies to another his willingness to do or to abstain from doing anything with aview to abstaining the ascent of that other such or such act or abstinence he is said to make aproposal."

( i ). The person who makes the proposal is called proposer offerer or promisor.

( ii ). The person to whom offer is made is called offer or promisee.

Note :- There will be no agreement, if the proposal is made without the intention of creating legalrights and obligations.

Legal Rules Regarding Offer :

An offer to be valid must comply with the following rules:

1. Offer may be express or implied:

An offer may be express or may be implied from the conduct of the parties or circumstances of thecase.

Express Offer: An express offer is made by words spoken or written.

Examples:

(1) A says to B, "Will you purchase may car for Rs. 15,000? It is an oral offer.

(2) A, through a letter asks B to buy his car for Rs. 15,000. It is a written offer.

Implied Offer - An implied offer is not made by words spoken or written. It is implied from theconduct of the parties or from the circumstances.

Example:

(1) Public Transport, like, Railways. DTC in Delhi or MEST in Mumbai offer to carry passengers fora certain fare on a particular route.

(2) Public Telephones or Weighing Machines in public places like, Railway Stations or CinemaHouses offer their services for a certain amount, say one rupee.

2. Offer may be specific or general:

A specific offer is one which is made to a particular person. It can be accepted by the person towhom it has been made, no one else can accept such an offer.

Example:

8/2/2019 Law Proj 2

4/7

A offers to sell his watch to B for Rs. 200. This is a specific offer made to B. It is B alone who canaccept this offer and no one else can accept this offer, i.e., C or D cannot accept this offer.

A general offer is made to the world at large. Therefore, it can be accepted by any person.

Example:

1. A advertised in a Newspaper that he would give Rs. 100 to anyone who finds and returns his lostdog.

2. A company advertised that a reward of Rs. 100 would be given to any person who contractedinfluenza after using the medicine (Smoke balls) made by the company according to the printeddirections. One lady, called Mrs. Carlill, purchased and used the medicine according to the printeddirections of the company but suffered from influenza. She filed a suit to recover the reward of Rs.100. The Court held that there was a contract as she had accepted a general offer by using themedicine in the prescribed manner and as such, she was entitled to recover the reward from thecompany.

3. Offer must give rise to legal obligation:

An offer to be valid must create legal relationship between the parties. The very purpose of enteringinto an agreement is to make it enforceable at a Court of law. If the offer has not been made withthis intention it will not become a contract even if it is accepted by the party to whom it was made.

Example:

A promised to pay Rs. 30 to his wife every month. Later, A failed to pay the amount. The wife filed asuit against the husband to recover the amount. The Court held that she could not recover as thepromise was not made with an intention to create any legal relationship.

4. Terms of an offer must be definite and certain:

The terms of an offer should not be vague or indefinite.

Example:

A has two cars - Ambassador and Fiat. He agrees to sell one of his cars to B for Rs. 20,000.

It is not clear as to which of the cars A has agreed to sell. A might be thinking to sell theAmbassador car while B might be thinking to purchase the Fiat car. The offer is not definite.

5. Offer must be distinguished from an invitation to offer:

An offer must be distinguished from an invitation to offer. The shopkeepers generally display theirgoods in showcases with price tags. The shopkeeper in such cases is not making an offer so that

you can accept it. He is, on the other hand, inviting you to make an offer which he may or may notaccept. Thus you cannot compel a shopkeeper to sell the goods displayed in the showcase at themarked price. However, if there is specific law to sell goods at marked price then the seller will haveto sell at marked price. For example, during National Emergency essential commodities like sugaretc. have to be sold at marked price.

6. Offer must be distinguished from a mere declaration of intention:

A declaration of intention to make an offer is not an offer. It is regarded as an invitation to offer. Anadvertisement for sale in a Newspaper or Magazine etc. is not an offer for sale.

8/2/2019 Law Proj 2

5/7

Example:

A advertised to sell certain furniture by auction, B reached A's house to purchase the furniture.However, A changed his mind not to sell the furniture. B cannot compel A to sell the furniture oreven to recover his damages, i.e., conveyance charges and damages for inconvenience caused tohim due to cancellation of the sale.

It should be noted that a general offer can be made through advertisement if the terms are certainand capable of being accepted.

Example:

A lost his camera in a DTC bus. He announced a reward of Rs. 100 to the finder who may return itto him. B found the camera after reading the advertisement and returned it to him. B is entitled tothe reward.

7. Offer must be communicated:

An offer must be communicated to the person to whom it is made. A person can accept the offer

only when he knows about it. If he does not know it, he cannot accept it.

Example:

G sent his servant L to trace his lost nephew. Later on G, announced a reward for tracing the boy. Lwithout knowing about the advertisement of the reward traced the boy and restored him to G. WhenL came to know of the reward, he claimed it. G refused to give the reward. The Court held that Lwas not entitled to recover the reward as the offer was not communicated to L. He could not acceptan offer which he did not know.

8. Communication of Special Terms:

Special terms of a contract must be communicated. Generally, such cases arise in respect of

general offers, like tickets or receipts for depositing luggage at the Railway Station or receipts forclothes given for dry cleaning etc. The rule in these cases is that parties are not bound unlessconditions printed are properly communicated.

Example:

A passenger was traveling from Dublin to White haven with his luggage. On the back of the ticket, aspecial condition was printed according to which the Shipping Co. would not be liable for the loss ofluggage. However, this condition was not communicated to the passenger in as much as no suchwords as RT.O. or See Back were printed on the face of the ticket to draw the attention of thepassenger. The court held that the passenger was not bound by those conditions as those were notcommunicated to him. Hence the company was liable to pay for the loss of the luggage.

It should be noted that an acceptor is bound by the condition even if the conditions are printed in aforeign language. He should ask for its translation.

Again, an acceptor cannot even plead that he was illiterate or blind, provided the notice isreasonably sufficient for the class of persons to which he belongs.

Again, it should be noted that the special terms of the contract should be brought to the notice ofthe offeree at the time of offer was made. If the special terms are brought to the notice of theofferee after the contract was made, the offeree will not be bound by them.

8/2/2019 Law Proj 2

6/7

Example:

A and his wife took a room on hire in a hotel. After booking the room, they entered the room andsaw a notice on the wall of the room. The proprietors not responsible for articles lost or stolenunless handed over to the manager for safe custody."

Due to the negligence of the hotel staff, their property was stolen. Held, the proprietor of the hotelwas liable as the notice was not binding, because it came to the knowledge of the client only afterthe contract to take the hotel on hire had already been made.

9. Offer must be made with a view to obtaining the consent of the other party to do or to abstainfrom doing the act:

The offer must be made with an intention to get the consent of the other party to do or to abstainfrom doing the act and not simply with a view to making known the intention of making an offer.

Example:

A tells B, "I may sell my Television if I can get Rs. 2,000 for it. It is not an offer as it has not beenmade with a view to get the consent of B. It is a mere declaration of intention. Therefore, B cannot

accept it by saying. "I can pay you Rs. 2,000 for it." B is not accepting A's offer but is making hisoffer which A may or may not accept.

10. Offer should not impose an unnecessary obligation to communicate non-acceptance:

Thus an offeror cannot say that if acceptance is not communicated by Sunday next, the offer wouldbe considered as accepted.

Example:

A offers his car to B for Rs. 20,000 saying, "If you do not reply by Sunday next, I shall presume, youhave accepted the offer."

In this case, no contract will be created even if the acceptor does not reply as the law does notpermit a party to impose an unnecessary obligation of the acceptor if he does not want to acceptthe offer. Thus in the above example, if the acceptor does not accept the offer he will be put to anunnecessary burden of informing the offeror that he does not want to accept the offer.

Tender:

A continuous offer is called a standing offer. For example, in our daily life we do not ask thenewspaper vendor daily to supply the newspaper or the grocer to supply bread and butter. In suchcases, we do not repeat the offer to the supplier of the above articles every day. We make suchoffer once for all. If we do not want the supply of such article in future, we ask the supplier to stopthe supply of such goods. A tender is a standing offer. It may be specific or continuous.

Continuous or Standing offer :

Very often, tenders are invited for the supply of goods as and when required. In such a case, thetender is a standing offer. When such a tender is accepted it does not become a contract. It simplyindicates that as and when goods are required and order will be placed, both the parties are free torevoke the tender.

Example:

A agreed to supply coal to B up to 1,000 tons at Rs. 500 per ton as and when required for the year

8/2/2019 Law Proj 2

7/7

1978. B placed an order for 10 tons in the month of January, 1978. However, if before any order isplaced by B, A revokes his offer as to future supply, A is not bound to supply any coal. Similarly, Bis not under an obligation to place the order for the supply of coal with A. B can place an order withany other coal supplier also. B is not prevented from placing an order with any other supplier.

Thus a standing offer does not create a binding contract between the parties. A binding contract iscreated only when an order according to the terms of the tender is placed with the party acceptingthe tender.

Specific Tender :

Sometimes tenders are invited for the supply of specific quantity of goods or service. In such acase, when a tender is accepted it becomes a contract.

Cross Offers :

Sometimes two parties make similar offers to each other without knowing the offer made by theother. These are called cross offers. In such a case, no binding contract will be created as no onehas accepted the offer made by the other.

Example:

D of Delhi by a letter makes an offer to M of Mumbai to sell his car for Rs. 10,000. At the same timeM of Mumbai makes a similar offer to D of Delhi to buy his (D's) car for Rs. 10,000. Offers of both Dand M cross each other in the post. These offers are called cross offers. Such offers do notconstitute acceptance of one's offer by another. For example, it will not mean acceptance of D'soffer by M or M's offer by D. Both are making the offer and none of them is accepting the offer.Hence, there is no contract.