What is a Contract?

In a business, a contract or agreement plays a significant role in smooth

functioning between two parties. In simple terms, the contract is a written
agreement between two parties, which contains certain obligations and is
enforced by the law. Violation of the contract or law can attract legal action
by any of the parties, including cancellation of the entire contract. Any
individual entering into a written agreement should be knowledgeable
enough with the essentials of a contract.

Definition of Contract
The Indian Contract Act 1872 states the term contract is like an agreement
that creates an obligation between parties. According to the act, the
contract is "an agreement enforceable by law."
The act also lists the essentials of a valid contract directly or through various
judgments of the Indian judiciary.

Essentials Elements of a Valid Contract

According to the Indian Contract Act 1872, "Agreements are also contracts
made by the consent of parties, competent to contract to consider with a
lawful object and are not hereby expressly declared to be void”. Therefore,
the contract or the agreement must carry essential aspects to maintain the
normal phase of duties by both parties.
Example:

A and B underwent the contract, where A will purchase 10 bags of cement

for Rs 1, 00,000. B promises to supply the same in the given period and the
quality mentioned. A promise to pay the sum as per the mentioned method
in the contract. In this case, both parties have to perform the act as per the
agreement signed.

To explain the essentials of a valid contract, we bring you with the list
unfolded by the Indian Contract Act 1872-
Offer and Acceptance
Generally, the written contract only unfolds when the other party accepts
the offer by one party and is definite in all sense. The offer or agreement
must be clear and complete in all sense. Both parties should communicate
to ensure there is no lapse in the contract act. Both the offer and
acceptance must be "consensus ad idem", meaning, both parties must
comply with the same thing.
Intention to Create a Legal Relationship
To bind, both parties should have a specific intention that can create a legal
relationship, resulting in an agreement. Agreements in social or household
nature are not contracts because parties do not intend to build legal
relationships.
The Intent of Legal Obligations
One of the essential elements of a valid offer is that both parties subject to
a contract must be clear with the intentions of creating a legal relationship.
This also means that agreements that are not enforceable by the law like
agreements between relatives are enforceable in the court of law.
Possibility of Performance of Agreement
In this case, suppose two people decide to undergo an agreement where
person A agrees to bring person B’s dead relative back to life, this will not
fall under the legal contract act because bringing back the deceased person
alive is an impossible task. Thus, the agreement does not stand valid.
Legal Formalities
In this agreement, if there is any uncertainty and both parties are not
capable of finding the right path, then it is deemed void. As a part of the
essentials of a valid consideration, the terms and conditions of the contract
should be concrete. Any contract, which is uncertain in any sense, can be
termed as void. The terms mentioned in the agreement should be capable
of performing specific thoughts.
Consideration
Consideration means the moral value given for the performance of the
promise. It should not be only limited to money, but there should be some
value to what has been agreed upon. One of the essentials of valid
consideration is that it should not be adequate, but should carry some
value.
Some Pointers Under Consideration are:
 Consideration is wholly according to the desire of the promisor, which
means the review must come from the promisor. Consideration can
be either:

 Past Consideration

 Present Consideration
  Future Consideration

 Consideration can be tangible, like the performance of the service like

teaching and labor.

Valid agreement
A valid agreement may be defined as an agreement that, if enforceable by
law, shall become a contract and make the parties to the agreement binding
to the conditions thereof. An agreement is defined under Section 2(e) of
the Indian Contract Act, 1872 (the Act). It states that “Every promise and
every set of promises, forming the consideration for each other, is an
agreement”. Thus, more than often, a valid agreement becomes a contract.

The essential conditions of a valid agreement include:

 The agreement shall have a valid consideration.

 The parties shall be competent to contract as per Section 11 and
Section 12 of the Act.
 The consent of the parties is free and uninfluenced.
 The object of the agreement is lawful.

Section 11 of the Indian Contract Act, 1872

Section 11 of the Act provides the conditions for the competency of the
parties to contract. To constitute a valid agreement, the parties shall be
competent. Every person who is a major as per the provisions of the Majority
Act, 1875, of a sound mind, and has not been expressly barred to enter into
a contract by the law, shall be competent to contract. Thus, an agreement
with a minor is not a valid agreement.

Section 12 of the Indian Contract Act, 1872

Section 12 of the Act provides that a sound mind for the purpose of a
contract shall mean to be the capacity of the mind to understand the
consequences of the agreement. A person who is of an unsound mind
usually, but is of sound mind at the time of entering in an agreement, such
agreement shall be a valid one. Similarly, a person who is usually of a sound
mind, but of an unsound mind, while entering an agreement, such
agreement shall be void.
Void agreement
A void agreement has been defined under Section 2(g) of the Act. It states
that “An agreement not enforceable by law is said to be void”. In addition to
the definition, the provisions of the Act declare certain agreements to be
void, as the objects of such agreements are unlawful. These agreements
include:

S.
Descrip on Illustra on
No.

Agreements of which considera on or

A offers to purchase a lawful plot of land and an unlawful parking
objects are unlawful in part as
1. space from B for a sum of Rs. 20 lakhs. The agreement shall be
men oned under Sec on 24 of the
void as one of the objects is illegal.
Act

Agreements without considera on A, without any reciprocal promise, agrees to pay a sum of Rs.
2.
under Sec on 25 of the Act 5000 to B. This shall be a void agreement.

Agreements restraining marriage A restrains his daughter B to marry C, who is a physically disabled
3.
under Sec on 26 of the Act person. This shall be a void agreement.

A enters into an agreement with B to restrain B from establishing

Agreements restraining trade
4. a compe ng business in his locality. This agreement shall be void
under Sec on 27 of the Act
as it puts a restraint on the trade of B.

An agreement between A and B provides that any dispute arising

Agreements restraining legal
out of the course of the agreement shall be se led mutually and
5. proceedings under Sec on 28 of the
neither of the two shall approach the Court. This clause makes
Act
the whole agreement void.

A agrees to sell to B “a hundred tons of oil”. There is nothing

Agreements with an uncertain
6. whatsoever to show what kind of oil was intended. The
meaning under Sec on 29 of the Act
agreement is void for uncertainty

An agreement to pay a sum of money to either of the par es on

Agreements of wagering
7. the basis of winning or losing of a cricket team shall be deemed
under Sec on 30 of the Act
void.

Agreements to perform an impossible A and B contract to marry each other. Before the me is fixed for
8.
duty under Sec on 56 of the Act the marriage, A goes mad. The contract becomes void.

Section 24 of the Indian Contract Act, 1872

As per the provision, if an agreement is entered into by the parties, and a
part of the consideration or object of the agreement is unlawful, then such
agreement shall be void. However, an exception to this notion is a derivative
form of the doctrine of severability. If a valid consideration or object of the
agreement can be severed from the invalid part, the performance of such
valid part shall be enforceable.

In the case of Bank of India Finance Ltd. v. Custodian (1997), BoI Finance
Ltd. had entered into agreements with its customers, which were found to be
violative of certain guidelines issued by the Reserve Bank of India. The
question before the Court was the validity of the contracts which have
already been executed. The Court upheld the validity of such agreements
and it was held that where the transactions arising out of an agreement, and
the agreement is found to be invalid, such transactions shall still remain
valid.

Section 25 of the Indian Contract Act, 1872

The provision provides that agreements without any consideration shall be
considered void agreements. However, the requirement of consideration is
an exception in certain cases. These exceptions have been provided under
Section 25 and can be understood as follows:

In a case where the promisor and the promisee have mutually agreed to
exclude consideration from their agreement, and such condition of the
agreement is provided in writing, duly stamped and registered under the law,
then such agreements shall not be void. It is pertinent to note that the
exception for the necessity of consideration in such cases shall be out of love
and affection between the parties. Additionally, an agreement without
consideration is a promise that is done to compensate for any prior deeds of
the promisee that have been done voluntarily, and shall not be void. Lastly,
an agreement that is a promise to pay, in full or in part, any payment to a
creditor any debt due, but such debt has been barred by limitation, such
agreement shall not be void.

In Rajlukhy Dabee v. Bhootnath Mookerjee (1900), the parties agreed to live

separately on the condition that the husband shall pay monthly maintenance
to his wife. It was a registered document in writing. The document also
contained certain disputes and disagreements between the parties. However,
the Calcutta High Court held that the agreement is a void agreement for the
reason that there was no love and affection between the parties.

Section 26 of the Indian Contract Act, 1872

Section 26 of the Act provides that every agreement, in any manner,
restraining a person to marry shall be void. Such restraint may be from
marrying any particular person, or a person from a certain class of persons,
or from marrying for a particular period or marrying at all. The only
exception to this provision is restraining a minor from marrying any person.
Such agreements shall be valid, as child marriage is itself a crime.

It is pertinent to note that only agreements restraining the parties from

marriage shall be void. In a case where certain rights of the parties shall
cease upon entering a marriage shall and has not been held to be void.

Section 27 of the Indian Contract Act, 1872

Section 27 provides that any agreement, restraining a person from carrying
on any profession, trade or business of his choice, shall be void. However, it
is not a straight-jacket rule applied to each case, rather it has an exception.
If an agreement is entered into by the parties, one of which is buying the
goodwill of another’s business, it may contain a condition where the buyer
shall not engage in a similar business as that of the seller.

In Madhub Chander v. Raj Coomer (1874), the facts included two rival
shopkeepers from a locality. The defendant, in this case, agreed to pay a
sum of money to the plaintiff if the latter did not operate his shop in the
same locality, to which he agreed. The defendant later refused to pay the
sum of money, and hence was sued by the plaintiff. The Court held that the
agreement was a void agreement, as it contained a provision for restraint of
trade or business. Thus, in India, any agreement restraining any trade or
business, either partially or completely, shall be void.

Section 28 of the Indian Contract Act, 1872

Section 28 of the Act provides that the agreements that restrict any of the
parties to seek legal remedies or restrain legal proceedings shall be
considered void agreements. However, there are exceptions provided by the
law, wherein the parties may be restrained from approaching the Court. The
first exception is an agreement with an arbitration clause. The second
exception includes questions that have already arisen. The third and final
exception to this provision is a guarantee agreement by a bank or a financial
institution.

Section 29 of the Indian Contract Act, 1872

Section 29 of the Act provides that the agreements, the meaning of which is
uncertain or cannot be ascertained, shall be considered as void agreements.
Agreements require specific and defined objectives in order to confer
definitive rights and obligations upon the parties. Any vagueness in an
agreement may act as a factor for rendering the agreement void.

Section 30 of the Indian Contract Act, 1872

Section 30 provides that all the agreements by the way of wager shall be
void. The term “wager” has not been defined under the provision. Hence, it
shall be according to the judicial precedents. In Carlill v. Carbolic Smoke Ball
Company (1892), Hawkins J. observed that “A wagering contract is one by
which two persons professing to hold opposite views touching the issue of a
future uncertain event, mutually agree that, dependent on the determination
of that event, one shall pay or hand over to him, a sum of money or other
stake; neither of the contracting parties having any other interest in that
contract than the sum or stake he will so win or lose, there being no other
real consideration for the making of such contract by either of the parties. It
is essential to a wagering contract that each party may under it either win or
lose, whether he will win or lose being dependent on the issue of the event,
and, therefore, remaining uncertain until that issue is known. If either of the
parties may win but cannot lose, it is not a wagering contract.”

Thus, the essential features of a wagering contract are the uncertainty of an

event, mutual chances of both parties to gain something, no control of either
party, and there shall be no other interest of the parties.

Wagering Agreements
Wagering Agreements is when the first party promises to pay the second
party on the occurrence of a certain event and the second party agrees to
pay to the first party on the event not happening. It is between two parties
of rational mind who understand they shall get profit or that shall face loss.
As stated above, all wagering agreements fall under Section 30 and they are
considered void. An example of a wagering agreement is the following. A and
B agree with each other that if a ball hits a pot, A will pay Rs. 100 to B and if
the ball does not hit the pot, B will pay A Rs. 100. Such an agreement is a
wagering agreement and hence is void.

In order for a wagering agreement to be considered so, the following

elements should be present.

1. Both parties should have an equal opportunity to win or lose.

2. The event the wager is done on should be out of the control of both
the parties.
3. The only interest of the parties to enter the agreement should be to
win or lose. No other motive should be present.
4. The wager agreement is fully dependent upon the happening of the
futuristic event.
5. There should be a promise made by both the parties to pay the
money or the consideration according to the conditions of the
agreement.
Voidable agreement
A voidable agreement may be defined as an agreement that may be revoked
by either of the parties to the agreement due to various legal reasons. Such
an agreement, when enforceable by law, shall be termed as a contract
voidable at the option of a party.

Section 19 of the Act provides that where the consent of a party has been
procured by either coercion, misrepresentation or fraud, such party shall
have an option to retaliate from the agreement as and when it deems fit.
Similarly, under Section 19A, when the consent of a party to an agreement is
obtained through undue influence, such a party has an option to revoke the
agreement and has an option to set aside the contract completely.

Section 53 of the Act provides that “When a contract contains reciprocal

promises, and one party to the contract prevents the other from performing
his promise, the contract becomes voidable at the option of the party so
prevented; and he is entitled to compensation from the other party for any
loss which he may sustain in consequence of the non-performance of the
contract.”

In addition to the above-stated situations, where the promisor fails to

perform his duty, as per the agreement of which time is an essential
condition, within the stipulated time, then the agreement is voidable at the
option of the promisee.

Difference between void and voidable agreements

Void Agreements Voidable Agreements

Considered invalid from the start. Declared invalid by the par es later on due to certain reasons.

Invalid at face value. Valid at face value.

No performance is possible. Performance is possible un l declared invalid.

It is non-existent and cannot be upheld by It is an exis ng agreement and is binding to one party involved in
any law. the contract.
Exceptions to Consideration
Section 25 also lists the exceptions under which the rule of no consideration no
contract does not hold, as follows: “no consideration no contract”

The exceptions are:

Natural Love and Affection

Suppose two parties with close relationships, such as blood relatives or spouses, make
a written and registered agreement out of natural love and affection. In that case, that
agreement can be enforced even without consideration. Hence, agreements out of
natural love and affection are an exception to consideration under Contract Law.

For example, let’s consider Peter and John, who are brothers. In their father’s will, their
father names Peter as the sole owner of his entire property after his death. John
challenges this and takes Peter to Court, seeking his rightful share of the property.

However, John loses the case. Later, Peter and John reach a mutual understanding
where Peter agrees to give half of the property to his brother, and they register a
document to formalise this agreement.

However, Peter fails to fulfil his promise, so John takes legal action to recover his share
in the property. The Court determined that since the agreement was based on natural
love and affection, the rule of “no consideration, no contract” does not apply in this
case. Therefore, John has the right to seek recovery of his share in the property.

Past Voluntary Services

Suppose someone has voluntarily provided a service in the past, and the recipient of
the service promises to pay at a later date. In that case, the contract is considered
legally binding under the following conditions:

 The service was rendered voluntarily in the past.

 The service was rendered to the promisor.
 The promisor was in existence when the voluntary service was performed (this is
particularly relevant when the promisor is an organisation).
 The promisor has expressed a willingness to compensate for the voluntary service.
For instance, let’s take the example of Peter finding John’s wallet on the road and
returning it to him. John is grateful to have his lost wallet back and promises to pay
Peter Rs 2,000 as a gesture of appreciation.

In this case, the rule of “no consideration, no contract” does not apply. The contract
between Peter and John is considered valid, as Peter had voluntarily provided a service
in the past (returning the wallet), and John promised to compensate him for it.

Promise to pay a Time-Barred Debt

The promise to pay any debt barred by time is an exception to consideration. Suppose
an individual makes a written promise, signed by them or their authorised
representative, to pay a debt that has become time-barred. In that case, the promise
remains valid even without consideration. The promise can involve full or partial
payment of the debt.

For instance, consider Peter, who owes Rs 100,000 to John. Peter had borrowed this
money from John five years ago but has not made any payments since then. Now,
Peter signs a written promise stating that he will pay Rs 50,000 to John as a final
settlement of the loan. In this scenario, the rule of “no consideration, no contract” does
not apply. The contract between Peter and John is still considered valid, as Peter’s
written promise to pay holds legal weight despite the time-barred nature of the debt.

Creation of an Agency

According to Section 185 of the Indian Contract Act 1872, it is not necessary to have
consideration to establish an agency. In other words, a contract of agency can be
formed without consideration.

Gifts

According to Explanation (1) to Section 25 of the Indian Contract Act, 1872, “no
consideration, no contract” does not apply to gifts. In the context of gifts, if a donor
gives a gift and the recipient accepts it, the agreement is considered valid and
enforceable, even without consideration.

Bailment

Section 148 of the Indian Contract Act, 1872 defines bailment as the delivery of goods
from one person (the bailor) to another (the bailee) for a specific purpose.

This delivery is made under a contract, where it is agreed that after the purpose is
fulfilled, the goods will either be returned to the bailor or disposed of as per the bailor’s
instructions. Importantly, a contract of bailment does not require any consideration to
be valid and enforceable.

Charity

If an individual assumes a responsibility or liability based on the promise of another

person to contribute to a charitable cause, the resulting contract is considered valid.
In such cases, the rule of “no consideration, no contract” does not apply, and this is an
exception to consideration.

For example, let’s consider the case of Peter, who serves as the trustee of a charity
organisation in his town. Peter aims to construct a small pond in the town to enhance
greenery and provide residents with a pleasant place to walk in the evenings. To raise
funds for this project, Peter appeals to the public to contribute to the cause. Many
respond by becoming subscribers to the fund and agreeing to pay their share once
Peter enters into a contract to construct the pond.

After successfully collecting half of the required funds, Peter proceeds to hire
contractors for the pond’s construction. However, at the last moment, ten individuals
withdrew their promised contributions. Peter filed a legal suit against them to recover
the promised amounts.

The Court rules in Peter, ordering the ten individuals to fulfil their commitment and
make the payments. Despite the absence of consideration, the contract is deemed
valid and enforceable by law because Peter had assumed a liability based on the
promise made by the individuals to contribute

What is Consideration under Indian Contract Act?

According to Section 2(d) of the Indian Contract Act 1872, consideration is defined as
“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 to abstain
from doing, something, such act or abstinence or promise is called a consideration for
the promise.”

In simpler terms, consideration is the benefit or detriment that each party in a contract
gives or receives due to the agreement. It is the basis for the mutual exchange of
promises between the parties and indicates the intention to be bound by the contract.

Without consideration, a contract is generally considered invalid and unenforceable,

except in certain exceptional cases as specified in the Indian Contract Act.

Features of Consideration
For consideration to be legally valid within a contract, it should possess the following
characteristics:

Consideration Should be Real

The consideration provided by both parties must be genuine and believable.

An agreement lacking consideration is considered void. Furthermore, the
consideration should not involve any illegal activities or actions that are fraudulent,
immoral or potentially damaging to individuals or property.

Consideration Should be on the Desire of the Promisor

Consideration should be given at the request or desire of the promisor. Any services
or actions offered voluntarily cannot be considered valid consideration, and the person
providing such services cannot demand anything in return. For example, if A voluntarily
takes care of B when B is sick, A cannot claim consideration for their actions. Without
consideration, a contract cannot be formed.
It Can Involve a Third-Party

According to the Indian Contract Act of 1872, the promisee can provide consideration
to either the promisor or a third party if the promisee has no objections. In such cases,
the third party has the right to sue the contracting parties.

Consideration Can be in the Past, Present or Future

Consideration can be classified into three types based on timing – past, present and
future considerations. Present and future considerations are referred to as executed
and executory considerations, respectively.

An executed consideration denotes a service already performed by the party making

the promise. On the other hand, an executory consideration represents a service that
has been promised but not yet fulfilled by one of the contracting parties.

Essentials of Valid Acceptance

According to Section 2(b) of the Indian Contract Act 1872, acceptance is the act of
signifying assent to a proposal made by another person. When the person to whom
the proposal is made expresses their agreement without any conditions, the proposal
is accepted. Once accepted, the proposal becomes a promise, and this promise is
binding and cannot be revoked.

It is important to note that an offer alone does not create any legal obligation.
However, when the offer is accepted, it establishes a legal obligation for both parties
involved. Once the acceptance is communicated, the offeror can no longer withdraw
or revoke the offer.

For example, let’s consider a situation where X offers to buy Y’s horse for 1 lakh rupees.
If Y agrees to the offer and gives their consent to sell the horse to X for the specified
amount, their acceptance transforms the offer into a promise. At this point, both
parties are bound by their respective obligations.

Valid acceptance: Sections 7 and 8 of the Indian Contract Act, 1872

For an acceptance to be considered valid under the Indian Contract Act of 1872,
certain essential elements are specified in Sections 7 and 8 of the Act.

Section 7: Absolute Acceptance

Section 7 emphasises that an acceptance must be absolute and unqualified. It should

be expressed either explicitly or implicitly unless the proposal specifies a particular
acceptance manner. If the proposal states how the acceptance should be
communicated, the offeree must comply with that specified method to indicate their
consent.

Section 8: Acceptance by Performance

Section 8 deals with situations where an offer can be accepted without explicit
communication of acceptance. According to this section, if the offeree performs the
conditions mentioned in the offer or accepts the consideration for a reciprocal
promise, it is considered an acceptance of the offer. In such cases, the offer is deemed
accepted even if there is no explicit communication of acceptance.

These provisions in the Indian Contract Act outline the requirements for a valid
acceptance. It is important to ensure that the acceptance is absolute and unqualified
and to be aware of circumstances where acceptance can be implied through
performance rather than explicit communication.

Essentials of a Valid Acceptance

The following are the essential elements of a valid acceptance:

Acceptance without Conditions

Section 7 emphasises that acceptance should be absolute and without any conditions.
When someone accepts an offer, they must not add any conditions or change the offer.
Doing so would create a new offer called a counteroffer.

For example, if Mr. X offers to sell his house to Mr. Y for 10 lakh rupees, and Mr. Y
accepts but suggests paying in instalments instead, the original offer by Mr. X no
longer exists. This is because Mr. Y changed the offer, creating a counter-offer.

Case: Trollope & Colls Ltd. v. Atomic Power Constructions Ltd., 1963

In this case, during Atomic Power Construction, the parties agreed to form a contract
based on the points they had agreed upon. However, they continued to negotiate on
the points they disagreed. The question arose whether such a contract is valid. The
Court ruled that since the parties had not mutually agreed on all the contract clauses,
it could create future problems. Therefore, it was not considered a valid contract.

Intention to Fulfill the Promise

To have a valid acceptance, the person receiving the offer must have the intention and
willingness to fulfil the promise. Acceptance is invalid if there is no genuine intention
to fulfil the promise.

For instance, if Mr. X agrees to sell his horse to Mr. Y for 2 lakh rupees, but it later turns
out that Mr. X does not actually own a horse, the acceptance becomes invalid. This is
because Mr X had no intention to fulfil the promise.

Communication of Acceptance

For an acceptance to be valid, the person accepting the offer must communicate their
acceptance to the person making the offer. Simply thinking or agreeing mentally is not
sufficient. The communication can be either expressed or implied. However, if the offer
requires the offeree to take some action, performing that action is considered
acceptance.

Case: Brogden v. Metropolitan Rly. Co., 1877

In this case, Brogden and Metropolitan Rly Co. had been doing business informally
without a formal contract. Later, the defendant (Metropolitan Rly Co.) created a formal
contract. They drafted a contract and sent it to Brogden (complainant). Brogden
changed the contract and returned it but did not explicitly communicate acceptance.
Nevertheless, both parties continued their business as usual. When a dispute arose,
the validity of the contract was questioned.

The Court ruled that there was a valid contract between the parties. Even though the
acceptance was not communicated, the defendant’s conduct indicated acceptance.
The coal was delivered, and payment was made according to the draft. Thus, the
contract was considered valid.

Acceptance in the Prescribed Mode

When accepting an offer, the mode of communication should follow the method
specified in the offer. This is one of the essentials of a valid acceptance.

If the offer does not mention a specific mode, acceptance can be communicated
normally and reasonably. However, if the mode of acceptance is stated in the offer and
the offeree uses a different mode, the proposer can reject or inform the offeree. If
there is no communication from the offeree, it is considered accepted.

For example, if Mr Y offers to sell his car to Mr X and specifies that acceptance must
be through WhatsApp, but Mr X sends it via email, it is not considered acceptable. Mr.
Y is not obligated to inform Mr. X that the acceptance was not communicated through
the specified mode.

Silence is Not Acceptance

Mere silence cannot be considered as valid acceptance. The offeror cannot state that
silence will be deemed as acceptance.

For instance, if Mr. Y offers to rent his apartment to Mr. X and mentions that if Mr. X
does not respond within one week, it will be assumed as acceptance. If Mr. X does not
reply within the specified timeframe, it is not considered as acceptance because silence
is not a valid mode of communication for acceptance.

Case: Felthouse v. Bindley, 1862

In Felthouse v Bindley, Felthouse, the complainant, discussed the sale of a horse with
his nephew, Mr. Bindley. Later, Felthouse sent a letter to Mr Bindley stating that if he
did not respond, it would be presumed that he had accepted the offer, and the horse
would belong to Felthouse. Mr Bindley did not reply to the letter because he was
occupied. Subsequently, Mr. Bindley sold the horse to someone else, which upset
Felthouse. As a result, Felthouse filed a lawsuit for the tort of conversion against Mr.
Bindley.

The Court ruled that there was no contract between Felthouse and Mr Bindley because
silence cannot be considered acceptable. The Court emphasised that the acceptance
of an offer must be clearly communicated. In this case, Mr. Bindley’s failure to respond
to the letter did not imply acceptance through silence. Thus, there was no valid
contract between Felthouse and Mr. Bindley.

Communication within the Prescribed Time

The offeree is required to respond to an offer within the time period specified in the
offer. If no specific time limit is mentioned, the offeree must respond within a
reasonable time or before the offer expires or is withdrawn by the offeror.

For example, if Mr. X offers to buy Mr. Y’s house in July, and Mr. X accepts the offer in
December, Mr. X’s acceptance is considered beyond a reasonable time. Therefore, Mr.
X’s refusal to buy the house based on the delayed acceptance would be justified.

No Acceptance Prior to the Offer

Acceptance cannot occur before the offer is presented. An offer must be made before
acceptance can take place. A person unaware of the offer cannot accept it solely based
on their actions aligning with the offer.

Case Example: Laksham Shukla v. Gauri Dutt, 1913

In this case, the respondent’s nephew was missing, and he asked his servant
(complainant) to search for the boy. While the complainant was searching for the boy,
the respondent announced that a reward of Rs. 500 would be given to anyone who
safely brings the boy back home. The complainant found the boy and brought him
home. Upon learning about the announcement, the complainant requested the reward
from the respondent. However, the respondent refused to provide the money, leading
the complainant to file a case against him.

The Court ruled that since the complainant was unaware of the offer when he
performed the act, there was no contract between them. For a contract to exist, the
offeree must know about the offer.
Acceptance by the Offeree or Authorised Agent

The offeree or their authorised agent must communicate the acceptance of an offer.
No contract is formed if anyone other than the offeree or their authorised agent
communicates acceptance.

Case Example: Powell v. Lee, 1908

In this case, Powell applied for the position of headmaster at a school, and the School
Board accepted his application. The acceptance was conveyed to Powell by one of the
members of the School Board. However, the School Board later rescinded their
acceptance. Powell filed a lawsuit for breach of contract.

The Court determined that since someone authorised by the School Board did not
communicate acceptance, there was no valid acceptance and, consequently, no valid
contract. The person communicating acceptance must have the proper authority to do
so on behalf of the offeree.

No Acceptance “Subject to Contract”

Acceptance of an offer implies acceptance of all the terms stated. If the offeree accepts
the offer with phrases such as “subject to contract,” “subject to formal contract,” or
“subject to contract to be approved by solicitors,” it indicates that the agreement is
still in the negotiation phase. The offer does not bind the parties until both parties
have created and signed a formal agreement.

In other words, if the acceptance includes these conditions, the parties are not legally
obligated to fulfil the obligations outlined in the offer unless a formal agreement has
been established and agreed upon.

Acceptance via an Agent

If a proposal is made through an agent, it is considered sufficient if the acceptance is

communicated to the agent. For example, a valid contract is formed if X sends an offer
to buy Y’s house through their agent, Z, and Y accepts the offer by communicating the
acceptance to Z. Z doesn’t need to communicate the acceptance to X for the contract
to be valid. The acceptance made to the agent is binding and establishes a contractual
relationship between X and Y.

Proposal or Offer
According to the Indian Contract Act 1872, proposal is defined in
Section 2 (a) as “when one person will signify to another person his
willingness to do or not do something (abstain) with a view to obtain
the assent of such person to such an act or abstinence, he is said to
make a proposal or an offer.”

Let us look at some features or essentials of such an offer

 The person making the offer/proposal is known as the

“promisor” or the “offeror”. And the person who may accept
such an offer will be the “promisee” or the “acceptor”.
 The offeror will have to express his willingness to do or
abstain from doing an act. Only willingness is not enough. Or
simply a desire to do/not do something will not constitute
an offer.
 An offer can be positive or negative. It can be a promise to
do some act, and can also be a promise to abstain (not do)
some act/service. Both are valid offers.

Classification of Offer

There can be many types of offers based on their nature, timing,

intention, etc. Let us take a look at the classifications of offers.

General Offer

A general offer is one that is made to the public at large. It is not

made any specified parties. So any member of the public can accept
the offer and be entitled to the rewards/consideration. Say for
example you put out a reward for solving a puzzle. So if any member
of the public can accept the offer and be entitled to the reward if he
finishes the act (solves the puzzle.)

Specific Offer

A specific offer, on the other hand, is only made to specific parties,

and so only they can accept the said offer or proposal. They are also
sometimes known as special offers. Like for example, A offers to sell
his horse to B for Rs 5000/-. Then only B can accept such an offer
because it is specific to him.
Cross Offer

In certain circumstances, two parties can make a cross offer. This

means both make an identical offer to each other at the exact same
time. However, such a cross offer will not amount to acceptance of
the offer in either case.

For example, both A and B send letters to each other offering to sell
and buy A’s horse for Rs 5000/-. This is a cross offer, but it will be
considered as acceptable for either of them.

Counter Offer

There may be times when a promise will only accept parts of an

offer, and change certain terms of the offer. This will be a qualified
acceptance. He will want changes or modifications in the terms of the
original offer. This is known as a counteroffer. A counteroffer
amounts to a rejection of the original offer.

Essentials of a Valid Offer

Here are some of the few essentials that make the offer valid.

1] Offer must create Legal Relations

The offer must lead to a contract that creates legal relations and legal
consequences in case of non-performance. So a social contract which
does not create legal relations will not be a valid offer. Say for
example a dinner invitation extended by A to B is not a valid offer.

2] Offer must be Clear, not Vague

The terms of the offer or proposal should be very clear and definite.
If the terms are vague or unclear, it will not amount to a valid offer.
Take for example the following offer – A offers to sell B fruits worth
Rs 5000/-. This is not a valid offer since what kinds of fruits or their
specific quantities are not mentioned.
3] Offer must be Communicated to the Offeree

For a proposal to be completed it must be clearly communicated to

the offeree. No offeree can accept the proposal without knowledge of
the offer. The famous case study regarding this is Lalman Shukla v.
Gauri Dutt. It makes clear that acceptance in ignorance of the
proposal does not amount to acceptance.

4] Offer may be Conditional

While acceptance cannot be conditional, an offer might be

conditional. The offeror can make the offer subject to any terms or
conditions he deems necessary. So A can offer to sell goods to B if he
makes half the payment in advance. Now B can accept these
conditions or make a counteroffer.

5] Offer cannot contain a Negative Condition

The non-compliance of any terms of the offer cannot lead to

automatic acceptance of the offer. Hence it cannot say that if
acceptance is not communicated by a certain time it will be
considered as accepted. Example: A offers to sell his cow to B for
5000/-. If the offer is not rejected by Monday it will be considered as
accepted. This is not a valid offer.

6] Offer can be Specific or General

As we saw earlier the offer can be to one or more specific parties. Or

the offer could be to the public in general.

7] Offer may be Expressed or Implied

The offeror can make an offer through words or even by his conduct.
An offer which is made via words, whether such words are written or
spoken (oral contract) we call it an express contract. And when an
offer is made through the conduct and the actions of the offeror it is
an implied contract.
Q: A agrees to sell to B 300 liters of oil in exchange for 500 kg of
grains. Is this a valid offer?

Ans: No, this is not a valid offer. The terms of the offer are very
vague. There is no mention of what oil A will be selling to B. Is it
crude oil, cooking oil? There is no mention. Also in exchange, he will
get 500 kg of grains but the specific grain has not been mentioned.
Since the specific terms are not mentioned, this is not a valid offer.