Contract Law I Definition Notes PDF

CONTRACT LAW I AtArani Law Academy SECTION 2 – DEFINITION NOTES Q. Define – i) Offer / Proposal ii) Promise iii) Acceptance iv) Consideration v) Contract i. Offer / Proposal Introduction – The term “Proposal” used in the Indian Contract act is synonyms with the term “Offer” used in English law....

CONTRACT LAW I AtArani Law Academy SECTION 2 – DEFINITION NOTES Q. Define – i) Offer / Proposal ii) Promise iii) Acceptance iv) Consideration v) Contract i. Offer / Proposal Introduction – The term “Proposal” used in the Indian Contract act is synonyms with the term “Offer” used in English law. The whole process of entering into a contract starts with an offer by one party, an acceptance by another party, and an exchange of consideration. Definition – According to Section 2(a) of the Indian Contract Act, 1872 “When a person signifies to another his willingness to do or abstain from doing something with a view to obtain the assent of the other to such act or abstinence, he is said to make a proposal” Thus, when a person expresses his willingness to another person to do or to abstain from doing something and also obtain the consent of such expression, it is called an offer. Illustration – Mr. A says to Mr. B, “Will you purchase my car for Rs.1,00,000?” In this case, Mr. A is making an offer to Mr. B. Here A is the offeror or promisor and B is the offeree or promisee. Case Laws - In the case of Deep Chandra Vs Sajjad Ali Khan AIR 1951 AII 93, it was held that a proposal is an offer to be bound by a promise. Page | 1 In the case of P. S. Mills Ltd. Vs P. S.. Mills Mazdoor Union AIR 1957 SC 95, it was held that a conditional offer lapses as soon as the condition is not accepted by the offered. In the case of N. P. Singh Vs Forest Officer AIR 1962 Mani 47, it was held that a notice inviting tenders is merely an invitation to make offer. Types of offers – An offer can be of four types: 1. Expressed offer – When an offer made in written form has been expressed orally, then such an offer is an expressed offer. 2. Implied offer – When an offer is neither given in written nor oral form, but the conduct of the offeror/promisor depicts that he is willing to perform the obligation, then such an offer is called an implied offer. 3. Specific offer – An offer made to a specific person or to a specific public at large is called a specific offer. 4. General offer – An offer is referred to as a general offer when it is made to the general public. A general offer is made to the public, but only the person/party who accepts the offer forms a contract, not the whole public. Essentials of a valid offer/proposal – (1) The offer must be Communicated – Communication or expression of the willingness by the offerer to enter into a contract or abstain from doing so is essential for a valid offer. In Lalman Shukla vs Gauri Dutt(1913) it was held that mere knowledge of an offer does not imply acceptance by the offeree. (2) Terms of the offer must be clear and definite – Knowledge of the Intention of the parties is very essential as without this the courts will not be able to decide what the parties want to do. (3) Must create a legal relationship – It is essential for a valid proposal that it must be made with the intention of creating a legal relationship otherwise it will only be an invitation. Conclusion – The communication of an offer is complete when it comes to the knowledge of the person to whom the offer is made and the communication of an acceptance is complete when the acceptance is put in a course of transmission to the offerer. Page | 2 ii. Promise Introduction – When someone expresses his willingness to do (or not to do) something, he is said to make a proposal. When the other person (to who the proposal is made ) accepts the proposal, the proposal becomes a promise. Definition - The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person to whom the proposal has been made signifies his assent thereto, the offer is said to be accepted. Thus the proposal when accepted becomes a promise.” Illustration – A’ offer to buy B’s house for rupees 40 lacs and ‘B’ accepts such an offer. Now, it has become a promise. When an offer is accepted and it becomes promise it also becomes irrevocable. No legal obligation created by an offer. Case laws – In the case of Andhra Sugars Ltd. Vs State of A.P. AIR 1968 SC 599, it was held that where a proposal is accepted it becomes a promise. In the case of Shyam Sundar vs Parlakimedi Municipality AIR 1964 Ori 111, it was held that the definition of promise as given in Sec. 2(b) shows that there must not only be the proposal but there must be acceptance of the proposal by the other side. iii. Acceptance Introduction – It is often said that acceptance is to an offer what a lighted match is to a barrel of gunpowder. For a successful contract, there must be a valid offer followed by the offer being accepted. Definition – The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person to whom the proposal has been made signifies his assent thereto, the offer is said to be accepted. Thus the proposal when accepted becomes a promise.” Explanation – As the definition states, when the offeree to whom the proposal is made, unconditionally accepts the offer it will amount to acceptance. After such an offer is accepted the offer becomes a promise. Illustration – If Y accepts the offer of X to purchase the car for Rs. 5,00,000/-, then such consent is termed acceptance. Thus, by accepting X’s proposal, both X and Y are executing a valid contract. Page | 3 Elements of a valid acceptance- The following are the most important elements where an acceptance made by the offeree/promisee is deemed to be valid: The proposal must be unconditionally accepted in order for it to be turned into a promise, according to Section 7(1) of the Indian Contract Act. The acceptance shall not be taken under any coercion, undue influence, or threat. It should be given with the free consent of the offeree/promisee. The offeree/promisee must reflect his intention to enter into a contract. The acceptance must be communicated in a proper manner to the offeror/promisor. Acceptance can be either implied or expressed. If any specific time period is mentioned in accepting the offer, the offeree/promisee should be accepted within that specified time period. The offer should be accepted without making any modifications or prescribing any conditions. It must be accepted unconditionally. There should be proper communication about the same. Case laws – In the case of Immunity Apparao vs Ramalinganurthi AIR 1962 SC 370 it was held that the acceptance of offer must be absolute and unconditional. Conclusion – According to contract law, acceptance is the act of approving or consenting to the conditions of an offer. It can be expressed either orally or in writing. A proposal can be revoked before its acceptance, and acceptance can be revoked before its communication is complete. iv. Consideration Introduction – Consideration is essential for a valid contract. It is the price for a promise – a quid pro quo. It is the value received as incentive for the promise. A contract without consideration is not binding on the parties. Section – Section 2 (d) of the Indian Contract Act,1872 defines Consideration in the following words: “When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing , or promises to do or abstain from doing something, such act or abstinence or promise is called a consideration for the promise.” Illustration – X promises to deliver 10 kgs of basmati rice to Y and Y promises to pay Rs. 500 upon delivery. In this contract, Y’s promise to Rs. 500 upon Page | 4 delivery is the consideration for X’s promise. Similarly, X’s promise to deliver 10 kgs of basmati rice is the consideration for the promise Y made. Case Law – The expression “valuable” is implied and the consideration shall be something which not only the parties regard but the law can regard as having some value. It may be negative or positive – Chidambara v P.S. Ranga AIR 1966 SC 193. Consideration means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee – Kusania Bhatia v State AIR 1981 SC 1274 Types of Consideration – Mainly there are three types of Consideration – 1. Past consideration 2. Present or Executed Consideration 3. Future or Executory Consideration Conclusion – Consideration is an essential element of a valid contract. Without it, the Contract is void and thus cannot be enforced. It is important to note that when you enter into a contract, you must have a valid consideration, adequacy of which is immaterial. It may be an act done in the past, present, or future. v. Contract Introduction – At the heart of most professional or business relationships is a contract. To put it another way, it’s the official document that cements all the obligations, rights, and duties of the parties involved. Definition - According to section 2(h) of the Contract Act 1872: “An agreement enforceable by law is a contract.” Thus, a contract can be defined as an agreement between parties that creates a set of specific obligations that must be fulfilled by the parties involved in accordance with the law. Now after examining the definitions of contract we can say that- Contract = Agreement + Enforceability by law Definitions by different jurists – Salmond- “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others”. Page | 5 Anson- “The law of contract is that branch of law which determine the circumstances in which a promise shall be legally binding on the person making it’. Pollock- “Every agreement and promise enforceable by law is a Contract”. Illustration – A invites B to dinner. B accepts this invitation but does not attend the dinner. A can not sue B for damages. It is social agreement because it does not create legal obligation. So it is not a contract. A promises to sell his car to B for one million. It is legal agreement because it creates legal obligations between the Parties. So it is a contract. Case law – In the case of Karan Singh vs Collector, Chhatarpur AIR 1980 MP 89, it was held that offer, acceptance and intimation of acceptance conclude the contract. In the case of K. Sriramulu vs Aswatha Narayana AIR 1968 SC 1028, it was held that if a formal agreement is a term of bargain there shall not be a concluded contract without the formal Agreement. Page | 6 Page | 7