The Indian Contract Act, 1872 (referred to as the ‘Act’ or ‘Act’ hereinafter) was established to prescribe laws that regulate the contractual interactions between parties. It relies on the English Common Law and the principles laid down by the same. According Sec 2 (a) of the Act, when an individual signifies to another their willingness to do or to abstain from doing something, with a view to obtain the assent of the other to such act or abstinence, they is said to make a ‘proposal’. Such a proposal, when accepted by the party to which the proposal is made, becomes a ‘promise’, as highlighted in Sec 2 (b) of the Act. Whereas, an agreement is defined in Sec 2 (e) of the Indian Contract Act, as a promise or a set of promises, forming the consideration for each other. Consideration can be referred to as the action of a person, at the desire of the promisor, to do or abstain from doing something.
Consideration is an essential component which forms a valid contract. A contract, as defined in Sec 2 (i), is an agreement enforceable by law. All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void by the law.
The Act lays down some principles or essentials for a valid proposal. They are as follows:
1) Expression of Willingness: the offeror must make their willingness to enter into a contract with the offeree, eminent in their proposal.
2) Intention: The proposal must reflect the bonafide intention of the offeror to enter into a contract with the offeree.
3) Express / Implied: The proposal or offer must be communicated either expressly, i.e in oral or written forms. Else, the offer must be implied by the offeror’s way of conduct.
4) Certainty of offer: The offer must contain no ambiguous element which could give rise to a dispute between the parties in the future.
5) Communication must be completed: as ruled in Lalman Shukla v. Gauri Dutt
As discussed previously, the most essential element for a proposal to become a promise is ‘acceptance’. Acceptance, in order to be valid, must fulfil the following:
1. It has to be communicated.
2. It must be absolute and unqualified.
3. It must only be communicated to the offeror, and it must be direct.
4. It is expressed in the prescribed or a reasonable manner.
5. It is issued before the specified lapse of time (if any) or within a reasonable time.
6. It must be communicated after the proposal/offer is made.
7. Mental acceptance/ Mere silence doesn’t constitute acceptance (Felthouse v. Bindley)
Types of proposals/offers:
1. General offer: In the case of Carlil v. Carbolic Smoke Ball the Hon’ble court held that it was a general offer and not invitation to offer because the company mentioned, on their boxes and in their pamphlets, that consuming their medicines could prevent people from being infected with influenza- thus the company was iable to pay. The Court acknowledges that in the case of vague advertisements, language regarding payment of a reward is generally a puff, which carries no enforceability.
2. Cross offer: This is when two parties make the same offer to one another without the knowledge of the other, and the terms of both offers are identical. A notable case is that of Tinn v. Hoffman, wherein the defendant, Mr Hoffman wrote to the complainant, Mr Tinn with an offer to sell him 800 tons of iron He requested a reply to this offer by post. On the same day, without knowing of this offer, Mr Tin also wrote to Mr Hoffman. He offered to buy the iron on similar terms. This case is concerned with the validity of these two cross offers. It was held in this case that there was no contract between Mr Tinn and Mr Hoffman for the iron. The cross offers were made simultaneously and without knowledge of one another; this was not a contract that would bind the parties for the iron.
3. Counter offer: This is when the offeree responds to an offer made by the offerer but proposes different terms for the same. Essentially, the offeree rejects the original offer made by the offeror. A landmark case which highlights this type of an offer is Hyde v Wrench
4. Invitation to offer: This type of offer is based on the latin maxim ‘Invitatio ad offerendum’ which literally translates to ‘inviting an offer’. In this type of offer, one party induces the other to make an offer to the former. A renowned case law is 1) Harvey v. Facey which differentiates between an offer and an invitation to offer. It was held that a valid contract requires a proposal and an acceptance to it and to make contract binding acceptance of the proposal must be notified to the proposer because a legally enforceable agreement required sureness to hold.
5. Express and implied offer (Sec 9): As per Sec 9 of the Indian Contract Act, 1872, a proposal or acceptance of any promise if made in words, such promise is said to be express. Proposal or acceptance is made otherwise than in words, then such promise is said to be implied.
Chapter II of the Act, highlights the different types of contracts:
1. Valid contract: This is a type of contract whereby the object, consideration and the performance of such contract is lawful and meets or qualifies all the essentials of a contract. A valid contract is enforceable and lawfully binding.
2. Void contract or agreement: Sec 2 (j) of the Indian Contract Act, 1872 highlights the concept of a void contract. A void contract, as defined by the aforementioned section is any agreement to do or abstain from doing an action or any object or consideration which cannot be enforceable by law. The Act clearly lays down that a contract which cannot be enforceable by law, is considered as a void contract or agreement.
3. Voidable contract: This type of contract is defined under Sec 2 (i) of the Indian Contract Act, 1872. A voidable contract is such that can either be avoided or enacted, at the discretion of the suffering party in the contract. For instance, if a contract signed by misleading the other party, the aggrieved party can choose to either enter into the contract or completely avoid or disregard it on the grounds of misrepresentation.
4. Illegal contract: An illegal contracts are deemed as void and not enforceable by law as per section 2(g) of the Act. The section defines an illegal contract as a contract based on the performance of an illegal action or if the object or consideration in the contract is barred by the law. Such contracts are void ab initio and unenforceable in the eyes of law.
5. Unenforceable contract: Any contract which cannot be enforced by either of the two parties entering into an agreement, is said to be an unenforceable contract. For instance if A orders B to deliver 15 kg rice and pays an advance amount of Rs. 100/kg for the rice.
However, due to an unexpected flood in the country, all crops are damaged, including the 15 kg rice to be delivered at a later date. Since the performance of this act is now unenforceable, the contract cannot enforceable and legally binding.
6. Quassi Contracts: These extend from Sec 68 to 73 of the Act, wherein the features of Quassi contracts include:
- No formal agreement but it is imposed by law
- It is a right in personem (an individual right, and not a right to the society to sue)
- It is based on the Doctrine of Unjust Enrichment
- Unjust enrichment meaning: No one shall be allowed to benefit at the expense of others. It also means that no man shall grow rich at the cost of others' loss.
Agreements, Contracts and Proposals are often confused to either be the same thing or their definitions are interchanged. However, each of these are very different from each other. As highlighted above, each of these are a result of each other, in chronological order. For instance, a proposal or an offer turns into an agreement once ‘acceptance’ is obtained. If such an agreement is enforceable by law, and does not defeat the purpose of law or any statute, it is said to be a contract. The article illustrates several case laws and types of agreements/contracts as well as the essentials of a proposal to become valid, followed by the essentials of an acceptance to be valid and binding. Overall, these are the three most important elements of contract law, and the entire statute is created for regulating such interactions between two contractual parties.
This article is written by Hiya Gandhi, of Kirit P. Mehta, NMIMS, School of Law.