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Unit Objectives
Introduction
Learning Outcomes

2.1 Important Definitions of the Indian Contract Act

2.2 Essentials of a Contract
2.3 Types of Contract
2.4 Contract and Agreement
2.5 Offer or Proposal and Acceptance
2.6 Communication of a Proposal, Acceptance, and Revocation

2.7 Quasi Contract

2.8 Keywords
2.9 Summary

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After Studying this unit, you will be able to:

• Define and understand the term contract.

• Understand the different related terms of law and their definitions.
• Identify the factors of a valid contract.
• Learn the different types of contract with illustrations.
• Differentiate between contract and agreement
• Learn about Quasi contract and its features.

INTRODUCTION

Into our day to day routine, we come across multiple contracts with multiple
parties. It is totally a misconception to say that the term contract relates to only
trade, commerce, and business. However, as a common man, a person enters into
contracts at times knowingly and unknowingly in multiple situations. For
example, when we give our car for servicing, when we buy simply a packet of
biscuit or rather simply travel by bus or train. Another example can be of booking
an Ola or Uber through an App and in case, if a person changes his mood to not
travel – then too the person is liable to pay the service provider. It is because at the
time of booking a cab, the person comes into a contract and he is dutiful to pay the
person despite of not travelling. Thus, a person rarely consciously realizes that he
or she has come into a relationship tussle of rights and duties of a contract.

The law of contract is the primary foundation of Business Law, upon which the
entire system of trade, commerce and business is erected. It is the common law
which defines how promises are made at one time and how they are fulfilled. The
law of contract is that branch of law, which determines the situations in which
promises made by the parties to a contract shall be legally binding on them. It lays
down the legal rules relating to promises, their formation, their performance and
remedies in case of non-performance of the contract. It also specifies that the
parties are at freedom to decide their own terms and conditions to the particular
contracts, but these terms and conditions shall be under scope of the law and do
not exceed the boundaries of legal prohibition.

The content and assessments of this unit have been developed to achieve the
following learning outcomes:

Identify the terminology of communication in offer, acceptance, and

revocation.
Be Aware about quasi contract, agreement, and contract.

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2.1 IMPORTANT DEFINITIONS OF THE INDIAN CONTRACT ACT

• Proposal or Offer [Section 2(a)]: When one person signifies to another his
willingness to do or to abstain from doing anything, with a view to obtaining the
assent of that other to such act or abstinence, he is said to make a proposal.
The example can be where the job seeker applies to the employer, expressing his
willingness to work for the company through a Curriculum Vitae (CV) or
resume, then the job seeker is said to make a proposal. On the same lines, to
abstain means to withdraw, withheld, not allow and the example can be – Where
the employer disallows the employee to not work or engage in any other
employment, when he or she is employed with their company. The purpose of
making an offer or a proposal is expressing willingness in order the consent or
approval of the opposite party.

• Promise [Section 2(b)]: 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.
Mr. A proposes Mr. Y that he is ready to purchase his car for Rs 5 Lacs and in
return Mr. Y agrees to the offer of Mr A, then the proposal is said to be accepted
and the accepted proposal is called as a promise.
In case, where the Job seeker has applied for the job and the particular employer
agrees to hire the job seeker, thus it is the promise where both the parties come to
the common point of understanding.

• Promisee [Sec 2(c)]: The person making the proposal is called the promisor and
the person accepting the proposal is called promisee. The job seeker who applies
for the job is promisor and the Employer accepting the offer is the promisee.

• Consideration [Sec 2(d)]: When, at the desire of the promisor, the promisee or
any 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 consideration for the promise.
There is always a purpose or a reason for both the parties to come into the
contract. Peter requests for the Ola or Uber because he requires a means of
transport to reach his destination and on the same lines the service provider
avails him their service, as they require customers. So, every contract is
formulated on the platform of Consideration. Consideration in simple terms can
be said as 'Something for Something'. It is basically an advantage or benefit
moving from one party to the other. The contract can be meaningful only when
both the parties give something and get something in return.

• Agreement [Sec 2(e)]: Every promise and every set of promises, forming the
consideration for each other, is an agreement.
Mr. Winson agrees to sell his car to Mr. Varun on 1st August for Rs 2.5 Lacs, but in
addition to that Mr. Winson puts the term that he wants one time cash at the
exchange and Mr. Varun puts the term that he wants the interiors of the car to be

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renovated. So, agreement is said as one promise or bunch of promises together,

forming purpose or consideration for the parties is called as Agreement.

• Reciprocal Promises [Sec 2(f)]: Promises which form the consideration or part
of the consideration for each other are called reciprocal promises.

• Void agreement [Sec 2(g)]: An agreement not enforceable by law is said to be

void. A contract, which ceases to be enforceable by law, becomes void when it
ceases to be enforceable. The term void basically means invalid, so the
agreement which is not enforceable (supported) by law is void agreement. An
agreement among friends to loot a bank on one fine day and share the funds
among themselves – is a void agreement, since it does not have a support from
the law.

• Contract [Sec 2(h)]: An agreement enforceable by law is a contract.

Contract = Agreement + Enforceability of Law.
An agreement may be a social agreement or a legal agreement. Mr. Amar
invites Mr. Manoj for the dinner and Mr Manoj agrees to the same and accepts
the invitation, such promise may be termed as Social agreement. But Mr. Manoj
rents out his shop for rent to Mr. Anwar, so the rent agreement between the
parties is termed as Legal agreement. Thus, the Social agreement cannot be
termed as a Contract since it lacks supports of law. But the legal agreement is
termed as a Contract, as it is supported by the law.

• Voidable contract [Sec 2(I)]: An agreement, which is enforceable by law at the

option of one or more of the parties thereto, but not at the option of the other or
others, is a voidable contract.
Mr. Aron promises to sell his car to Mr. Vimal for Rs 7 Lacs, but the consent of
Mr. Aron was not willingly, he was rather forced pressurized to do that. In such
a case, where the consent of Mr. Aron was not free, so he can avoid it or elect to
be bound by it. Thus, the term voidable denotes one sided contract.

2.2 ESSENTIALS OF A CONTRACT

After defining/understanding the term 'Agreement', we can now understand that
agreement and its enforceability by law leads to the formation of a contract. Do
agreements conclude into a contract? Certainly not, in day to day life we make so many
promises/agreements, do they all lead to the formation of a contract? An agreement to
become a contract must give rise to a legal obligation or duty. Thus,
Agreement = Proposal or Offer + Acceptance.
Contract = Agreement + Enforceability by Law.
Contract can be called as a contract only when it is enforceable by law. According to Sec
10 of the Contract Act,1872: 'All agreements are contracts if they are made by free consent of
parties competent to contract, for a lawful consideration and with lawful object and are not here
by expressly declared to be void.'

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A contract to constitute a valid contract must have all the essential elements discussed
below. If one or more of these elements is/are missing, the contract is voidable, void,
illegal, or unenforceable.
Thus, the essentials elements of a contract can be analyzed as follows:
1. Proposal and Acceptance: In order to make a contract, there must be an
agreement at first. An agreement in turn is made up of two parts: offer and
acceptance. Thus, there must be at least two parties-one making the offer and
another accepting it. The terms of offer must be definite and clear. The acceptance
must be absolute and unconditional. Unless and until, there is an offer, there
cannot be an acceptance because acceptance cannot go before offer or proposal.
Proposal → Acceptance → Promise

2. Consideration (Why): Into every contract, there has to be a reason or purpose to

the contract. There is always an exchange of give and take of something in return.
In absence of consideration, the contract becomes meaningless (exceptionally in
few cases – discussed in the later part).
Mr. Amar is ready to sell his car to Mr. Simon. The consideration behind it is that
Mr. Amar needs money in exchange of a car and Mr. Simon needs a car, so he is
ready to purchase the same in exchange of money. Thus, consideration is the
reason to the contract and simply termed as something for something.

3. Capacity of Parties to Contract: The parties to the contract shall be capable to

enter the contract. Every person is competent to contract if he or she:
(a) is of the majority age;
(b) is of sound mind; and
(c) is not disqualified from contracting by any law to which he/she is subject.
Majority basically means the person is above eighteen years of age and above
twenty-one years of age, if the person is not with his parents. Sound mind is a person,
who can take rational logical decision and is aware about his right and wrong.

4. Free Consent: Free Consent means that both the parties to the contract agree
upon the same thing in the same sense. There is no factor of pressure or force on
either of the parties to the contract, both the parties willingly agree to the terms of
contract. At times, it might happen that the approval of the opposite party is got
by coercion (physical torture) or undue influence (mental torture) or by cheating
the opposite party or also by mistake. So, in all such cases, where the contract is
affected by these obstacles and is not freely obtained, it will be termed as invalid
contract.

5. An Agreement Must Not Be Declared Void: There are certain agreements which
have been expressly declared illegal or void by the law. In such cases, even if the
agreement possesses all the elements of a valid agreement, the agreement will not
be enforceable at law. There cannot be an agreement between the parties
specifying that the person shall not marry or file a case against a person or engage
a particular trade or business. Such agreements despite all the formalities of a
valid contract – shall be considered invalid.

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6. Writing and Registration: A contract may be oral or in writing. If, however, a

particular type of contract is required by law to be in writing, it must comply with
the necessary formalities as to writing, registration and attestation, if necessary.
If these legal formalities are not carried out, then the contract is not enforceable at
law. In addition to it, the written subject matter serves as a repository and
memorial of truth.

7. Legal relation: As already mentioned there should be an intention on the part of

the parties to the agreement to create a legal relationship. An agreement of a
purely social or domestic nature is not a contract. Unless and until expressly
specified in the Business agreement, the intention of the parties is to create legal
relationship among the parties. Social and domestic agreements among friends
may not result to legal relationship, but agreements in relation to marriage or in
relation to purchase or sale – there do arise legal relationship.

8. Certainty: The terms and conditions specified in the contract shall be very much
clear, specific, and not vague nor ambiguous. The term of vagueness is totally
irrelevant and illogical, while ambiguous terms create duality and confusion in
the understanding of the contract. For example: In the Letter of Employment, if
the Employer specifies that the Compensation package shall be fit, right,
appropriate in nature, but does not specify the clear amount, so such agreements
are uncertain in nature.

9. Possibility of Performance: The terms of the agreement should be capable of

performance. An agreement to do an act impossible cannot be enforced. For
instance, A agrees with B to discover treasure by magic. Or Mr. Peter promises to
reward Mr. Simon, if he runs at an extraordinary speed as of an Aircraft. Thus,
such agreements cannot be enforced.

10. Enforceable by Law – Lawful Object (Basically to Obtain Relief Through Law):
For the formation of a valid contract, it is also necessary that the parties to an
agreement must agree for a lawful object. The object for which the agreement has
been entered into must not be fraudulent or illegal or immoral or opposed to
public policy or must not imply injury to the person or property of another.
For example: There was an agreement between the landlord and tenant, and the
landlord is very much aware that the rented place will be utilized to store illegal
drugs, so he cannot recover rent through court of law. Thus, an agreement can be
only converted into the contract if it is supported by law.
Agreement + law enforceable = Contract.

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2.3 TYPES OF CONTRACT

I) On the Basis of Formation:

• Express
• Implied
• Quasi

II) On the Basis of Execution:

• Executed
• Executory
• Unilaterial
• Bilaterial
• Contingent
• Statutory

III) On the Basis of Enforceability:

• Valid
• Illegal
• Void
• Unenforceable
• Voidable

IV) On the Basis of Form:

• Formal
• Simple

Contracts may be classified in terms of their: (1) validity or enforceability; (2) mode of
formation; or (3) performance.

A) CLASSIFICATION ACCORDING TO VALIDITY OR ENFORCEABILITY

Contracts may be classified according to their validity as (i) valid; (ii) voidable; (iii) void
contracts or agreements; (iv) illegal; or (v) unenforceable.

• Void Agreement [Section 2(g)]: “An agreement not enforceable by law is said to be void.”
Such agreement does not confer any right to any of the parties to it. An agreement
becomes void due to absence of one or more essentials under section 10. The
agreement, in such a case, is void-ab-initio (void from the very beginning) and can
never be converted into a contract. Such an agreement does not result in a contract at
all.
Example: X offers Y, a minor, to deliver 100 bags of rice. Y agrees but does not supply
the rice. Here, X cannot sue Y, as Y is a minor.

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• Voidable Contract [Section 2(1)]: “An agreement which is enforceable by law at the option of
one or more of the parties thereto, but not at the option of other or others, is a voidable
contract”. It is a contract where in, the law confers right on the aggrieved (suffered)
party either to reject the contract or to accept it. However, the contract continues to be
valid and enforceable unless it is repudiated (cancelled) by the aggrieved party.
Example: A threatens to murder B if he does not sell his land for Rs. 100000/-. B agrees
for it due to the threat. It is a voidable contract, which can be rejected by B.

• Void Contract [Section 2(j)]: “A void contract is a contract which ceases to be enforceable by
law”. A contract which was valid at the time of formation and binding on the parties,
subsequently become void, due to the impossibility to perform is said to be a void
contract.
Example: X a famous singer who agrees to sing an album for a musical company.
Unfortunately, the singer suffered from a throat cancer and is not allowed to sing as
advised by the doctor. Here the contract becomes a void contract.

• Unenforceable Contract: Where a contract is good in substance but becomes

unenforceable due to some technical defect and cannot be enforced by law is called
unenforceable contract. These contracts become enforceable when these technical
defects (legal formalities) are completed.
Example: A draws a promissory note without stamp, which was not enforceable. But
after one-week A came to know about the mistake and stamped the promissory note
to become enforceable.

• Illegal Agreement: When the object and consideration of an agreement is unlawful it

is said to be illegal agreement. Such an agreement is void. The object and
consideration is said to be unlawful if: (a) it is forbidden by law; or (b) is of such
nature that, if permitted, would defeat the provisions of any law; or (c) is fraudulent;
or (d) involves or implies injury to a person or property of another; or (e) court
regards it as immoral; or (f) opposed to public policy. These agreements are
punishable by law and are void-ab-initio.
Example: X agrees to pay Rs. 1,00,000/- to Y to murder Z. It is an illegal agreement as it
is injurious to Z and forbidden under I.P.C.
“All illegal agreements are void because an illegal agreement is not enforceable by law, but all
void agreements are not illegal,” as it is not necessary that object and consideration of
every agreement is unlawful.

B) ON THE BASIS OF FORMATION

• Expressed Contracts: Where the terms of the contract are expressly agreed upon in
words (written or spoken) at the time of formation, the contract is said to be an
expressed contract. There are different modes of formation of a contract. The terms of
a contract may be stated in words (written or spoken). This is an expressed contract.
Example: A customer goes to the grocery shop to buy sugar with bigger granules, but
the shopkeeper states to provide the same at an extraordinary price than the normal.
Now in this case, both the parties have expressed their needs and it is completely
optional for the parties to enter into contracts.

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• Implied Contracts: An implied contract is one which is inferred from the acts or
conduct of the parties or from the circumstances of the cases. Where a proposal and
acceptance are made otherwise than in words, it is said to be an implied contract. The
contract, where the terms of the contract may be inferred from the act or the conduct
of the party or from the situations of the case, it is said to be an implied contract.
Example: A person orders food in the restaurant and later if he eats the food or not, he
must pay for it.
If you order a cab, you travel by it or not – charges shall be levied on you. Such
contracts are called as implied contracts, where you do something, and you
automatically come into a contract.

• Quasi Contracts: A quasi contract is created by law on the basis of principal of equity.
There is no intention of parties to enter into a contract. It is a legal obligation, which is
imposed on a party and is required to perform it. A quasi contract is based on the
principle on equity, which states that a person shall not be allowed to enrich himself
at the cost of another. A quasi contract is a contract imposed by the law.
It is not a contract in real sense; it is contract where it is implied moral responsibility of
the party to pay for benefit – which he has received.
Example: In a small family of mother, father, and a small child, the father is the bread
earner of the family, who died in an accident. Resultant, there was no body to take
care of the family, so the neighbor comes into the picture to supply the necessities of
living. He helped for grocery and the school education of the child. Later after some
months, the family received a lump sum amount from the insurance company. Now
it is the duty of the family to repay the neighbor, who helped the family, despite there
existing no contract. In such Quasi Contract, it is the moral obligation (duty) of the
party to repay for the benefit for which one is not rightful to receive.

C) CLASSIFICATION ACCORDING TO PERFORMANCE

• Executed Contract: when both of the parties to contract have performed their
contractual obligation and nothing remains to be performed it is said to be executed.
It is a contract in which both the parties have performed their respective obligation.
Mr. A goes to a cake shop to buy a cake, he pays for a cake and takes the delivery; the
contract is said to be completed.
• Executory Contract: An executory contract is one where one or both the parties to the
contract have to perform their obligations in future. Thus, a contract which is
partially performed or wholly unperformed is termed as executory contract. In the
above case, where Mr A has ordered for a cake, but the delivery is after 2 days – then
the contract is said to be executory. It is of two types:

(a) Unilateral Contract: A unilateral contract is one in which only one party has to
perform his obligation after formation of the contract and the other party have
fulfilled his obligation at the time of the contract or before the contract comes into
existence. Again, in the above case if Mr. A has completed paid for it and the
delivery is pending after 2 days – then the contract is said to be Unilateral
contract.

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(b) Bilateral Contract: A bilateral contract is one in which the obligation of both the
parties to the contract is outstanding. In other words when both of parties have
still to perform their obligation it is known as bilateral contract. Bilateral
contracts are also known as contracts with executory consideration. On the same
lines, if Mr A has partly paid for the cake and delivery is pending after 2 days –
then the obligation of both sides is incomplete, so the contract is called as Bilateral
contract.

• Contingent Contract: The term contingent actually means uncertainty. So, it is the
contract which involves the factor of risk and uncertainty. The farmer contracts with
the trader for the output of the farm, but the farmer will be in a position to deliver the
output of the farm – if the nature and weather are in the favour of the farm. If the
rainfall is uncertain, uneven; accordingly, the output will also be affected. Another
example can be of Goods delivery through Sea transport, if the ship safely reaches to
the port – then only the trader will be able to receive the delivery of goods.

• Statutory Contract: The term statutory basically means compulsory i.e., no option. So
statutory contract are the contracts, where the parties are not at option to comply. A
citizen of a country, if he owns a property or earns an income, then it is mandatory for
the person to pay income tax to the Government authorities of the country, such
contracts are called as Statutory contracts.

• Formal and Simple Contracts: Simple contracts are contracts which are not bonded
with number of formalities. The simple contracts can be simply orally also, but on the
other side – the Formal contracts are very much regulated and attached with number of
documents. So, depending on the nature and importance of the contract, the
contract can be simple or registered formal contract.

2.4 CONTRACT AND AGREEMENT

The term contract has been defined by various authors in the following manner:
• “A contract is an agreement creating and defining obligations between the parties.”-
Salmond
• “A contract is an agreement enforceable at law, made between two or more persons, by
which rights are acquired by one or more to acts or forbearances on the part of the other or
others.” – Pollack

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• “Every agreement and promise enforceable at law are a contract.”– Sir William Anson
• The Indian Contract Act has defined contract in Section 2(h) as “an agreement
enforceable by law.”
These definitions indicate that a contract essentially consists of two distinct parts. First,
there must be an agreement. Secondly, such an agreement must be enforceable by law.
To be enforceable, an agreement must be combined with an obligation.
A contract, therefore, is a combination of the two elements: (1) an agreement, and (2) an
obligation.

AGREEMENT
An agreement gives birth to a contract. As per Section 2(e) of the Indian Contract Act
“every promise and every set of promises, forming the consideration for each other, is an
agreement.” It is evident from the definition given above that an agreement is based on a
promise. What is a promise? According to Section 2(b) of the Indian Contract Act
“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. An agreement, therefore, comes into
existence when one party makes a proposal or offer to the other party and that other party
signifies his assent thereto. In nutshell, an agreement is the sum total of offer and acceptance.”
An analysis of the definition given above reveals the following characteristics of an
agreement:
a) Plurality of persons: There must be two or more persons to make an agreement
because one person cannot enter into an agreement with himself.
b) Consensus ad idem: The meeting of the minds is called consensus-ad-idem. It
means both the parties to an agreement must agree about the subject matter of the
agreement in the same sense and at the same time.
An obligation is the legal duty to do or abstain from doing what one has promised to do
or abstain from doing. A contractual obligation arises from a bargain between the
parties to the agreement who are called the promisor and the promisee and they require
to perform these promises legally. In broad sense, a contract is an exchange of promises
by two or more persons, resulting in an obligation to do or abstain from doing a
particular act, where such obligation is recognized and enforced by law.
Where parties have made a binding contract, they have created rights and obligations
between themselves. The contractual rights and obligations are correlative, e.g., A
agrees with B to sell his computer for 30,000 to him. So, A is under the duty to give the
Computer, as decided as per the contract. While B is under duty to pay the money and
receive the product.

“All Contracts Are Agreements, But All Agreements Are Not Contracts”
An agreement to become a contract must give rise to legal obligation. If an agreement is
incapable to be enforced by law, it remains only agreement and not contract, such as:
(a) Social Agreements
(b) Agreements without legal intention
(c) Agreements without consideration, etc., are agreement but not contract.

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However, all contract are agreements. Further all legal obligations are not
contract. Only those obligations which have their source in the contract are
enforceable under the provisions of Indian Contract Act.

Three consequences follow from the above discussion:

(i) To constitute a contract, the parties must intend to create legal relationship.
(ii) The law of contract is the law of those agreements, which create obligations and
those obligations which have their source in agreement.
(iii) Agreement is the class of which contract is the specie and, therefore, all contracts
are agreements, but all agreements are not contracts.
Thus, Contract is a combination of valid agreement and enforce ability of Law
The test to distinguish between an agreement and a contract is whether it is enforceable
by law or not (when it possess certain essentials of a contract).
Agreement is a wider concept than a contract. While only an agreement which is
enforceable by law is a contract. Every promise and every set of promises framing
consideration for each other is an agreement. Agreement therefore includes a contract
and is a wider term than a contract.
An agreement in order to become a contract must give rise to a legal obligation.
Therefore, it is rightly said, “Every Contract is an Agreement, But All Agreements are Not
Contracts”

2.5 OFFER OR PROPOSAL AND ACCEPTANCE

One of the early steps in the formation of a contract lies in arriving at an agreement
between the contracting parties by means of an offer and acceptance. Thus, when one
party (the offeror) makes a definite proposal to another party (the offeree) and the offeree
accepts it in its entirety and without any qualification, there is a meeting of the minds of
the parties and a contract comes into being, assuming that all other elements are also
present.

WHAT IS AN OFFER OR PROPOSAL?

A proposal is also termed as an offer. The word 'proposal' is synonymous with the
English word “offer”. An offer is a proposal by one person, whereby he expresses his
willingness to enter into a contractual obligation in return for a promise, act, or
forbearance. Section 2(a) of the Indian Contract Act defines proposal or offer as “when
one person signifies to another his willingness to do or abstain from doing anything with a view to
obtaining the assent of that other to such act or abstinence, he is said to make a proposal”. The
person making the proposal or offer is called the proposer or offeror and the person to
whom the proposal is made is called the offeree.

A writes to B that he is ready to sell his car to B for Rs. One lakh. B receives the letter from
A. He is willing to purchase A's car for the stated price. B communicates his assent to A.
Then A is said to have made the proposal. B's communicated willingness is called
acceptance. The contract is generated. Before acceptance of proposal, A is called Proposer
and after acceptance of proposal, A is called Promisor. B is called promisee.

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An offer or proposal consists of two parts

• A promise by promisor to do or to abstain from doing anything.
• A request to the promisee for giving his acceptance. Until and unless the
promisee accepts the promise unconditionally, the promisor is not bound by his
promise.

Three conditions of lawful offer:

1. There must be at least two persons or parties who are competent to contract.
2. One of them must express or signify his willingness to another to do or to abstain
from doing a particular thing.
3. Another person or party expressing willingness must have an intention to get the
consent of the person to the consent of the person to such act or abstinence.

TYPES OF PROPOSALS OR OFFERS

1. Expressed
2. Implied
3. Specific (to a specific person)
4. General (to the world at large)

ESSENTIALS OR RULES OF A VALID OFFER

A valid offer must comply with the following rules:
a) An offer must be clear, definite, complete. It must not be vague. For example, A
proposal to sell a bike for 30000 or 45000 or 55000, is very uncertain and worthless
proposal.
b) An offer must be communicated to the offeree. An offer becomes effective only
when it has been communicated to the offeree so as to give him an opportunity to
accept or reject the same.
c) The communication of an offer may be made by express words-oral or written-or
it may be implied by conduct. A offers his car to B for ` 10,000. It is an express offer.
A bus plying on a definite route goes along the street. This is an implied offer on
the part of the owners of the bus to carry passengers at the scheduled fares for the
various stages.
d) The communication of the offer may be general or specific. Where an offer is
made to a particular person or a particular group of persons it is called specific
offer and it can be accepted only by that particular person. But if the offer of
reward is for seeking some information or seeking the return of missing thing,
then the offer can be accepted by one individual who does it first of all. The
condition is that the claimant must have prior knowledge of the reward before
doing that act or providing that information.
Example: A advertises in the newspapers that he will pay rupees one thousand to
anyone who restores to him his lost son. B without knowing of this reward finds

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A's lost son and restore him to A. In this case since B did not know of the reward,
he cannot claim it from A even though he finds A's lost son and restores him to A.

In India also, in the case of Harbhajan Lal v. Harcharan Lal (AIR 1925 All. 539)
(Lalman Shukla v. Gauri Dufl case), the same rule was applied. In this case, a
young boy ran away from his father's house. The father issued a pamphlet
offering a reward of Rs. 500 to anybody who would bring the boy home. The
plaintiff saw the boy at a railway station and sent a telegram to the boy's father. It
was held that the handbill was an offer open to the world at large and was capable
to acceptance by any person who fulfilled the conditions contained in the offer.
The plaintiff substantially performed the conditions and was entitled to the
reward offered.
e) An offer must create a legal relationship (a friend invites for a social gathering
cum dinner cannot be considered as a valid proposal).
f) An offer must be communicated to the person to whom it is made (written, verbal
or by conduct).
g) Intention of offer must be to obtain the consent or assent.
h) Offer may be expressed or implied; general or specific. It may also be positive or
negative.
i) An offer should not include any term or terms of noncompliance, which may be
assumed to lead to acceptances.
j) Statement of price is not an offer. In case of Harvey vs. Facey case, Harvey sent a
telegram to Facey, enquiring, “Will you sell us Bumper Hall Pen? Telegraph
lowest cash price.” Facey replied,” Lowest price for Bumper Hall pen is $900.”
Harvey, on receipt of the telegram from Facey, sent a telegram again, “We agree
to buy Bumper Hall Pen for $900 asked by you”. Facey neither replied the
telegram nor supplied the Bumper Hall Pen.
Held: The buyer had only enquired for the cost and the seller replied, and the
seller has not committed that he is ready to supply him the pen.
k) An offer is different from an invitation to an offer. (Quotations, catalogues of
goods to be sold, advertisement for tenders, a prospectus of a company/college,
advertisements inviting applications for various jobs, display of goods with
printed prices) thereon are mere invitations to offer and not actual offers.
l) Newspaper advertisements are also not offers. (But exception the advertisement
given by the person who lost his belonging and request for the return of the same
and the same person will be rewarded.m) An offer can be made subject to any
terms and conditions. (Supplied defective machine but informed him before hand
in the offer)
n) Two identical cross offers do not constitute a contract.

LAPSE OF AN OFFER
The act states that an offer lapses if:
(a) It is not accepted within the specified time (if any) or after a reasonable time, if
none is specified.

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(b) It is not accepted in the mode prescribed or if no mode is prescribed in some usual
and reasonable manner, e.g., by sending a letter by mail when early reply was
requested.
(c) The offeree rejects it by distinct refusal to accept it.
(d) Either the offeror or the offeree dies before acceptance.
(e) The acceptor fails to fulfill a condition precedent to an acceptance.
(f) the offeree makes a counter offer, it amounts to rejection of the offer and an offer
by the offeree may be accepted or rejected by the offeror.

REVOCATION OF THE OFFER

a) If the proposer communicates or gives the notice of revocation of an offer to the
party concerned, the offer is lapsed. But if it is agreed to keep the offer open for a
particular period, it can be lapsed only after the expiry of such period.
b) If the offeree or acceptor fails to fulfil conditions, if any, precedent to acceptance,
the offer stands lapsed.
c) In the case of the death or insanity of the proposer, if such fact comes to the
knowledge of the acceptor before acceptance, the offer is lapsed.
d) An offer lapses because of subsequence illegality or destruction of subject matter.
e) If the offeree himself neglects the offer, it is lapsed. Even if the offeree makes any
counter offer or conditional one, the offer made by the offeror is lapsed.

ACCEPTANCE
When the person to whom the proposal is made, signifies his assent there to, the proposal
is said to be accepted. A proposal accepted becomes a promise.
An acceptance of an offer is necessary for creating legal relationship. Thus, the
acceptance is the demonstration communicated by the offeree of his willingness to be
bound by the terms and conditions of the offer.
Agreement = Offer + Acceptance

RULES REGARDING VALID ACCEPTANCE

(a) Acceptance may be express i.e. by words spoken or written or implied from the
conduct of the parties.
(b) If a particular method of acceptance is prescribed, the offer must be accepted in
the prescribed manner.
(c) Acceptance must be unqualified (unconditional) and absolute (total) and must
correspond with all the terms of the offer.
(d) A counter offer or conditional acceptance operates as a rejection of the offer and
causes it to lapse, e.g., where a horse is offered for ` 1,000 and the offeree counter-
offers ` 990, the offer lapses by rejection.

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(e) Acceptance must be communicated to the offeror, for acceptance is complete the
moment it is communicated. Where the offeree merely intended to accept but
does not communicate his intention to the offeror, there is no contract. Mere
mental acceptance is not enough.
(f) Mere silence on the part of the offeree does not amount to acceptance. Ordinarily,
the offeror cannot frame his offer in such a way as to make the silence or inaction of
the offeree as an acceptance. In other words, the offeror can prescribe the mode of
acceptance but not the mode of rejection.
Mr. Peter offers to sell his car to Mr. Amar for Rs 5 Lacs and states in the proposal
that in case if Peter does not receive any reply from Amar within 48 hours, then
Peter shall conclude that Amar is ready the purchase the same.
(g) If the offer is one which is to be accepted by being acted upon, no communication
of acceptance to the offeror is necessary, unless communication is stipulated for
the offer itself. Thus, if a reward is offered for finding a lost dog, the offer is
accepted by finding the dog after reading about the offer, and it is unnecessary
before beginning to search for the dog to give notice of acceptance to the offeror.
(h) Acceptance must be given within a reasonable time and before the offer lapses or
is revoked. An offer becomes irrevocable by acceptance.
(i) Acceptance must be by the person to whom the offer is made
(j) Acceptance may be expressed or implied.
(k) Acceptance must be in the mode prescribed or usual and reasonable mode.
(l) If a principal makes a proposal through his agent, it is enough if the acceptance is
communicated to the agent.
(m) Acceptance after the withdrawal of the offer cannot be treated as acceptance in
the eyes of law.

COMMUNICATION OF A PROPOSAL, ACCEPTANCE,

2.6 AND REVOCATION

An offer to be completed, it must be communicated. Lack of knowledge of an offer does

not constitute acceptance of an offer.
Similarly, revocation or withdrawal of proposal and acceptance also requires to be
communicated to the other.
• Communication – How effected?
The communication of proposals, the acceptance of proposals, and the revocation of
proposals and acceptance are deemed to be made by –
1. By any act, by conduct, by words, written or oral.
2. By omission which includes conduct or forbearance (restraint), abstinence.

A mere mental act is not a communication. Conditions, if any, should be communicated

as to give reasonable notice thereof to the person dealing. Example: Conditions printed
behind the receipt for goods received, or conditions printed on an airlines or railway
tickets.

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• Completion of communication of a proposal, acceptance, and revocation

• The communication of a proposal is complete when it comes to the knowledge of
the person to whom it is made, thus when a proposal is received by the proposee
and mere posting of the letter does not make the communication completer.
• The communication of an acceptance is complete as against the proposer, when it
is put in a course of transmission to him, as to be out of the control of the acceptor,
and as against the acceptor, when it comes to the knowledge of the proposer.
• Communication of Revocation i.e., of proposals and acceptances
Suppose A offers to sell his car to B by sending a letter by post and B also sending a letter by
post accepts the proposal made by A. A can revoke his proposal at any time before B
posts his letter of acceptance but in case afterwards. B is also entitled to revoke his
acceptance at any time before his letter of acceptance reaches A but not afterwards.

REVOCATION OF A PROPOSAL
• By the communication of the notice of revocation by the proposer to the other
party.
• By the lapse of time prescribed in such proposal for its acceptance.
• By failure of the acceptor to fulfil a condition precedent to accept.
• By the death of insanity of the proposer.

2.7 QUASI CONTRACT

It is not a contract in real sense of the term because the essential elements for formation of
a contract are not present. It is an obligation, an obligation imposed by law upon a person
for the benefit of another, even though a contract is absent in it.
There are circumstances when a person may receive a benefit, for the benefit for which
the law considers that he should pay to the other person in spite of actual contract about
it. Such relationships are called Quasi Contracts.
These contracts are based on the principle equity, which implies that no person shall be
allowed to enrich himself unjustly at the expenses of another.

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FEATURES OF QUASI CONTRACTS

• Law requires the person who receives the benefit, to pay or compensate the
person giving the benefit, even though he receives the benefit without any
contract.
• A Quasi contract does not arise from any agreement between the parties, but law
imposes it.
• The basis of such contract is the duty of the party and not the promise of any
party.
• Under quasi contract, the right is available against specific person, and not
against the world.
• The right is always a right of money, which is generally to a liquidated sum of
money.
• In case of breach of quasi contract, a suit may be filed on the same lines as those for
valid contract
A valid contract must contain certain essential elements, such as offer and acceptance,
capacity to contract, consideration and free consent. But sometimes the law implies a
promise imposing obligations on one party and conferring right in favor of the other
even when there is no offer, no acceptance, no consensus ad idem, and in fact, there is
neither agreement nor promise. Such cases are not contracting in the strict sense, but the
Court recognizes them as relations similar to those of contracts and enforces them as if
they were contracts, hence the term quasi-contracts (i.e., resembling a contract).
A quasi-contract rests on the equitable principle that a person shall not be allowed to
enrich himself unjustly at the expense of another. In truth, it is not a contract at all. It is
an obligation which the law creates, in the absence of any agreement, when any person
is in the possession of one person's money, or its equivalent, under such circumstances
that in equity and good conscience he should not to retain it, and which in justice and
fairness belongs to another. It is the duty and not an agreement or intention which
defines it. A very simple illustration is money paid under mistake. Equity demands that
such money must be paid back.

QUASI CONTRACTS OR IMPLIED CONTRACTS UNDER THE ACT

The following types of quasi-contracts have been dealt within the Indian Contract Act:
(a) Necessaries supplied to person incapable of contracting or to anyone whom he is
illegally bound to support: Contracts by minors and persons of unsound mind are
void. However, Section 68 of the Indian Contract Act provides that their estates
are liable to reimburse the trader, who supplies them with necessaries of life.

(b) Suit for money had and received: The right to file a suit for the recovery of money
may arise:
• Where the plaintiff paid money to the defendant: (i) under a mistake; (ii) in
pursuance of a contract the consideration for which has failed; or (iii) under
coercion, oppression, extortion or other such means.
• A debtor may recover, from a creditor the amount of an over-payment made
to him by mistake. The mistake may be mistake of fact or a mistake of law.

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• Payment to third-party of money which another is bound to pay. For example,

where A's goods are wrongfully attached in order to realize arrears of
Government revenue due by B, and A pays the amount to save his goods from
being sold, he is entitled to recover the amount from B.
• Money obtained by defendant from third parties. For example, where an agent
has obtained a secret commission or a fraudulent payment from a third-party,
the principle can recover the amount from the agent.

(c) Obligations of a finder of goods: The liability of a finder of goods belonging to

someone else is that of a bailee. This means that he must take as much care of the
goods as a man of ordinary prudence would take of his own goods of the same kind.
So far as the real owner of the goods is concerned, the finder is only a bailee and
must not appropriate the goods to his own use. If the owner is traced, he must return
the goods to him. The finder is entitled to get the reward that may have been offered
by the owner and also any expenses he may have incurred in protecting and
preserving the property.

(d) Obligation of person enjoying benefit of a non-gratuitous act: Section 70 of the

Indian Contract Act provides that where a person lawfully does something for
another person or delivers anything to him without any intention of doing so
gratuitously and the other person accepts and enjoys the benefit thereof, the latter
must compensate the former or restore to him the thing so delivered. For example,
when one of the two joint tenants pays the whole rent to the landlord, he is entitled
to compensation from his co-tenant, or if A, a tradesmen, leaves goods at B's house
by mistake and B treats the goods as his own, he is bound to pay A for them.

(e) Liability for money paid or thing delivered by mistake or by coercion: Under
Section 72 of the Act prescribed that a person who has received money or things by
mistake or under coercion must repay or return it. However, the word coercion is
not necessarily governed by section 15 of this Act. It means and include oppression,
extortion, or such other means. For example, a payment of advance tax in excess is
refundable by the Income tax Department.

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2.8 KEYWORDS

• Promise: A promise is an object that may produce a single value sometime in the future.
• Void agreement: A void agreement is one which cannot be enforced by law.
• Essentials Of a Contract: Section 2(h) of Indian Contract Act defines contract as an
agreement enforceable by law. Two essential elements of contract are agreement and
enforceability at law. Agreement= Offer + acceptance. An offer when accepted becomes an
agreement.
• Free Consent: When both the parties agree to a thing in the same sense of mind or unison
of mind, then the agreement is done with consent.
• Quasi Contracts: A quasi contract is a retroactive arrangement between two parties who
have no previous obligation to one another.
• Revocation Of a Proposal: Proposal may be revoked at any time before the communication
of its acceptance is complete as against the proposer, but not afterwards.

2.9 SUMMARY

• All agreements are contracts if they are made by free consent of parties competent
to contract, for a lawful consideration and with lawful object and are not here by
expressly declared to be void.
• Consideration is the reason to the contract and simply termed as something for
something.
• Every person is competent to contract if he or she is of the majority age; is of sound
mind; and is not disqualified from contracting by any law to which he/she is
subject.
• Free Consent means that both the parties to the contract agree upon the same
thing in the same sense. There is no factor of pressure or force on either of the
parties to the contract, both the parties willingly agree to the terms of contract.
• The terms and conditions specified in the contract shall be very much clear,
specific, and not vague nor ambiguous.
• Contracts may be classified according to their validity as (i) valid; (ii) voidable;
(iii) void contracts or agreements; (iv) illegal; or (v) unenforceable.
• A proposal, when accepted, becomes a promise. An agreement, therefore, comes
into existence when one party makes a proposal or offer to the other party and

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 THE INDIAN CONTRACT ACT,1872. (PART I)
that other party signifies his assent thereto. In nutshell, an agreement is the sum
total of offer and acceptance.
• Three conditions of lawful offer: 1) There must be at least two persons or parties
who are competent to contract; 2) One of them must express or signify his
willingness to another to do or to abstain from doing a particular thing; 3)
Another person or party expressing willingness must have an intention to get the
consent of the person to the consent of the person to such act or abstinence.
• An offer lapses if it is not accepted within the specified time (if any) or after a
reasonable time, if none is specified.
• When the person to whom the proposal is made, signifies his assent there to, the
proposal is said to be accepted. A proposal accepted becomes a promise.
• Mere silence on the part of the offeree does not amount to acceptance.
• An offer to be completed, it must be communicated. Lack of knowledge of an offer
does not constitute acceptance of an offer. Similarly, revocation or withdrawal of
proposal and acceptance also requires to be communicated to the other.
• Quasi Contract is an obligation, an obligation imposed by law upon a person for
the benefit of another, even though a contract is absent in it.

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