Legal Environment

of Business

Contract, Offer & Invitation to Treat

Types of Contracts
The various types of contract are- 
(i) Bilateral, unilateral and multi-lateral;
(ii) Valid, voidable and void contract;
(iii) Contingent Contract;
(iv) Express Contract;
(v) Implied contract;
(vi) Quasi contract;
(vii) Executed contract;
(viii) Executory contract;
(ix) Oral contract;
(x) Written contract;
Bilateral and unilateral:
 Bilateral contract is an agreement in which each of the parties to the
contract makes a promise or promises to the other party. For example,
in a contract for the sale of a home, the buyer promises to pay the seller
$200,000 in exchange for the seller's promise to deliver title to the
property.
In a unilateral contract, only one party to the contract makes a promise. A
typical example is the reward contract: A promises to pay a reward to B
if B finds A's dog. B is not obliged to find A's dog, but A is obliged to pay
the reward to B if B finds the dog. In this example, the finding of the dog
is a condition precedent to A's obligation to pay.
The most common type of unilateral contract is the insurance contract. The
insurance company promises to pay the insured a stated amount of
money if a covered event occurs for which the insured pays premiums.
Note that the insured does not make any promise to pay the premiums.
Valid, voidable and void contract 
Section-2 of the Contract Act, 1872 classifies agreements as (1) void
contracts or contract not enforceable by law, (2) voidable contracts or
contract enforceable by one party only, and (3) contracts enforceable by
both parties known as valid contract. The reason that makes a contract
voidable is fraud, misrepresentation, undue influence, mistake and
coercion.
Contingent Contract
Contracts which are conditional on some future event happening or not
happening. Contracts of insurance or of indemnity are contracts of this
class. Such contracts are enforceable when the future event or loss
occurs, e.g. insurance money on a policy of fire insurance is payable
when the fire takes place. The contract may be contingent (1) on the
happening, or (2) on the not happening of a future event.
Express Contract: When a contract is expressed in words spoken or
written, it is called express contract. 
Implied contract:  When the contract to be understood from the acts,
conduct of the parties and/ or the course of dealing between them, it is
called implied contract. 
Quasi Contract : Quasi contracts are those dealings which are not contract
strictly but the parties act as if there is a contract.
Executed Contract: When the parties perform their obligation as per the
contract, it is called executed contract. An executed contract means the
parties have completed their duties.
Executory Contract: When the obligations to the parties are to be
performed at a later time, it is called Executory contract.
Oral contract and written contract: A contract may be made either orally
or in written form.
Rules of acceptance of Offer under the Contract Law:
There are several rules dealing with the communication of acceptance: 
• The acceptance must be communicated: Depending on the construction
of the contract, the acceptance may not have to come until the
notification of the performance of the conditions in the offer must be
communicated. Prior to acceptance, an offer may be withdrawn.
• An offer can only be accepted by the offeree, that is, the person to
whom the offer is made.
• An offeree is not bound if another person accepts the offer on his behalf
without his authorisation.
• If the offer specifies a method of acceptance (such as by post or fax),
you must accept it using a method that is no less effective than the
method specified.  
• Silence cannot be construed as acceptance.
Proposal 
• The term proposal is defined in the Contract Act as follows: “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”.
Promise and Acceptance 
• “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.”
• “The person making the proposal is called the ‘promisor’ and the person
accepting the proposal is called the ‘promisee.”
Nature of a valid proposal/ Offer:

1. Legal relation is required

2. Mere expression
3. Offer must be definite
4. Proposal has to be made to a specific person specific class of person or
the world at large generally
5. Offer may be expressed or implied
6. Willingness may be positive or negative
7. Offer may be conditional or unconditional
8. Offer has to be definite and intention has to be clear
9. Communication for offer
Invitation to treat:

The following acts are known as invitation to treat not an offer.

(i) Display of goods for sale in shop windows
(ii) Advertising auction sales
(iii) An invitation by a company to the public to subscribe for its shares
(iv) A quotation (to attached the value) of prices
(v) An advertisement states as “condition apply”

All the above mentioned are not an offer but an invitation to a customer to offer.  
Distinction between Invitation to treat and offer:
Invitation to treat and offer should be distinguished on the basis of two
factors:
• Nature of the statement
• Intention of the party who is making the statement.  

Distinction between invitation to treat and offer:

• Auction sale: is an offer BUT request for bid- or bid for sale is invitation
to treat 
• Tenders: Invitation to treat
• Display of goods: Invitation to treat.
• Advertisements: Some advertisement may constitute an offer-