Formation of Contract, Essential

Elements of Contract, Kinds of

Contracts

.
 Formation of contract (S. 2)
What are Contracts?
• Sec. 2(h) of the Indian Contract Act.
An agreement enforceable by law is a contract

When is an agreement enforceable by law?

• Sec. 10
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 hereby expressly declared to be void.

*Consideration means something in exchange

 What are Agreements?
• Sec 2(e): Every promise and every set of promises, forming the
consideration for each other, is an agreement.

What is a promise?
To know the concept of promise, important to note what is an offer and
what is an acceptance.

Offeror/Promisor
Acceptor/ Promisee
 Offer/Proposal and Acceptance
• Offer/Proposal
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.

• Acceptance
When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted.

• Promise
A proposal, when accepted, becomes a promise
 Offer and Acceptance may happen in one of the
following ways
Unilateral and Bilateral
• Example 1: A, who has lost her dog, offers by advertisement a reward
of £25 to anyone who will bring the dog safely home; a promise is
offered in return for an act; and when B, knowing of the reward,
brings the dog safely home, the act is done and A is bound to pay the
reward.
• Example 2: C offers to pay D a certain sum of money if D will promise
to dig C’s garden for him within a certain time. When D makes the
promise asked for, he accepts the promise offered, and both parties
are bound, the one to do the work, the other to allow the first to do it
and to pay for it
Difference between Example 1 and
Example 2
• In Example (1), it is performance on one side which makes obligatory
the promise of the other; the outstanding obligation is all on one side.
In consequence, such a contract is termed ‘unilateral’ as only one
person is bound.
• In Example (2), however, each party is obliged to some act or
forbearance which, at the time of entering into the contract, is future;
there is an outstanding obligation on each side. This is known as a
‘bilateral’ contract.
 Lawful Consideration and Lawful Object
• S.2(d) 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
(a) A agrees to sell his house to B for 10,00000 rupees. Here B’s promise to pay the
sum of 10,0000 rupees is the consideration for A’s promise to sell the house, and
A’s promise to sell the house is the consideration for B’s promise to pay the 10,000
rupees. These are lawful considerations.
(b) A promises to obtain for B an employment in the public service and B promises to
pay 1 crore rupees to A. The agreement is void, as the consideration for it is
unlawful.
(c) A promises B to drop a prosecution which he has instituted against B for robbery,
and B promises to restore the value of the things taken. The agreement is void, as
its object is unlawful.
**The person making the proposal/offer is called the “promisor”, and the person accepting the proposal is called the
“promisee”;
 Summary: Essential elements of contract
• A legally valid agreement is a contract
• For a legally valid agreement, the following ingredient are required:
i. Offer/Proposal (free consent and competency)
ii. Acceptance (free consent and competency)
iii. Lawful Consideration and Lawful Object
iv. Not void (illegal, immoral etc.)
 Balfour v. Balfour
(1918-19) ALL ER 860 (C.A.)

• The wife in this case sues her husband for money which she claims to
be due to her from her husband as an agreed allowance of £ 30 a
month.
• The lower judge decided:
It seems to me on these letters that there was a definite bargain
between the husband and the wife under which, while the husband was
in India and in a sufficient position and the wife was in England living
separate from him, she should be paid a definite sum of £ 30 a month,
and that agreement was made when the husband returned to Ceylon,
and was reaffirmed on at least two occasions after unhappy differences
had shown themselves, at any rate on the part of the husband, and
when it was probable that their separation might last for some time.
..
• In August, 1916, my husband‘s leave was up. I was suffering from rheumatoid
arthritis. My doctor advised my staying in England for some months, and not to
go out till November 4. I booked a passage for next sailing day in September. On
August 8 my husband sailed. He gave me a cheque from August 8 to August 31
for £ 24, and promised to give me £ 30 per month till I joined him in Ceylon.
• My husband and I wrote the figure together on 12 August and £34 was shown.
Afterwards he said £30. That means that the husband jotted down on a bit of
paper certain figures which showed that the ordinary monthly expenses of the
wife, at least, that is what I infer the sheet of paper showed, would amount to £
22 a month, and then they added a round sum of £ 12, which brought it up to £
34, but, after some discussion, the amount was taken to be the round sum of £
30.
• In cross-examination the wife said that they had not agreed to live apart until
subsequent differences arose between them
Legal contract or domestic arrangement?
• We have to say whether on these facts there is a legal contract
between these parties. In other words, we have to decide whether
what took place between the parties was in the nature of a legal
contract, or whether it was merely an arrangement made between
the husband and the wife of the same nature as a domestic
arrangement
Are all agreements contract?
 Are all agreements contracts?
• There are agreements between parties which do not result in
contracts within the meaning of that term in our law.
• The ordinary example is where two parties agree to take a walk
together, or where there is an offer and an acceptance of hospitality
Explicit or Implicit contract
• Judge noted That can only be established either by proving that it was
made in express terms, or that there is a necessary implication from
the circumstances of the parties and the transaction generally that
such a contract was made.
• But there is no evidence at all of any express bargain by the wife that
she would in all the circumstances treat that as compensation for or
in satisfaction of the obligations of the husband towards her to
maintain her. Can we find a contract from the position of the parties?
Court’s observation
• It is quite common, and it is the natural and inevitable result of the
relationship of husband and wife, that the two spouses should make
agreements between themselves, agreements such as are in dispute
in this action, agreements for allowances etc.
• Nevertheless they are not contracts, and they are not contracts
because the parties did not intend that they should be attended by
legal consequences.
 Decision
• If we were to hold that there was a contract in this case, we should
have to hold that with regard to all the more or less trivial concerns of
life, when a wife at the request of her husband makes a promise to
him, that is a promise which can be enforced in law. All I can say is
that there is no such contract here.
Parker v. Clarke (1960) 1 WLR 286
• One elderly couple called the Clarks were married and another couple called the
Parkers were related because Mrs Clark was the aunty of Mrs Parker.
• Mr Clark suggested that the younger couple, the Parkers could move in to their
home and live with them.
• This idea was supported by Mr Parker but he had some initial concerns. The move
would mean that the Parkers would have to sell their current home.
• His concerns were alleviated slightly when the older Mr Clark wrote a letter to Mr
Parker stating that the house would be bequeathed to Mrs Parker along with her
sister and daughter if the couple were to pass away.
• The Parkers went ahead and moved in with the Clarks, selling their current house
in the process.
• Over time the Clarks decided that the current arrangement was not working and
asked them to move out.
• This then resulted in the Parkers bringing a case for breach of contract against
their elderly relatives.
 Contd..

• Issues
• The younger couple, the Clarks argued that fact that the agreement to move in to the
home and was intended to be a legally binding one. The agreement meant that the
home of the Parkers was sold and as a result they contributed to the day to day
running costs of the elder couple’s home. The Clarks argued that due to the fact that
the agreement was not in writing, there was no agreement and even so it would not
be enough to satisfy the Law of Property Act 1925 because it was not written down.
• Decision
• The claim made by the younger couple (the Parkers) was successful. This was due to
the fact that the circumstances and the wording in the correspondence indicated that
fact that both made the agreement with legal force. The letter enough for a
contractual offer and as a result the Parkers were entitled to damages. The damages
were for the loss of their home which was sold in the move and also the loss of the
expected inheritance of the Clarks home.
 Kinds of contracts
• Written Contract
• Verbal Contract

The Indian Contract Act recognises both the forms of contract.

**Although as per law, an oral agreement is valid, but their enforceability comes to
question in the event of a dispute.
 When written contracts are mandatory in
India?
• Examples of legislations when written contracts are made mandatory
i. The Arbitration and Conciliation Act
ii. Various IPR Legislations
iii. TPA
iv. Companies Act
v. Even some provisions of Indian Contract Act, 1872 requires written
contract;
 New Regime: E-contracts
IT Act, 2000
Section 10A - Validity of contracts formed through electronic means –
• Where in a contract formation, the communication of proposals, the
acceptance of proposals, the revocation of proposals and acceptances
as the case may be, are expressed in electronic form or by means of
an electronic records, such contract shall not be deemed to be
unenforceable solely on the ground that such electronic form or
means was used for that purpose.
Types of E Contracts
• Click Wrap
Clickwrap
• A clickwrap contract is a popular type of a digital contract. It is an agreement which is
between a user and a company.A user must click a box or button before they download
content, make a purchase, or use a website.
• The Salient features of Clickwrap Contracts are:
• Clickwrap Contracts are unilateral Contracts. They contain standard terms and
conditions which multiple users online agree on before using the websites or products.
• Unique identification of Clickwrap Contract are buttons like:
• I accept
• I agree
• Ok
• I consent
Shrinkwrap
• Talking only about shrink-wrap agreements, it is an End User License
Agreement (EULA) which is a software license acting as a contract between
the producer and the user of the computer software to specify the limits to
which a purchaser is entitled to, as granted by the owner.
• The EULA comes to effect immediately at the time of purchase, irrespective
of how or when it was installed.
• The agreement is placed strategically inside but visible through the
wrapping of the product.
• It may be located on a CD-ROM sleeve or described within the user’s
manual. Many people hardly ever read these terms in detail, generally
view them as non-negotiable and accept them as they come.
Browsewrap contracts
• Browse-wrap agreements cover the access to or use of materials
available on a website or downloadable product. Only if the person
agrees to the terms and conditions on the web page, then he can
access the contents of the web page.
Difference between browsewrap, clickwrap
and shrink wrap
• Clickwrap requires users to provide affirmative assent to an agreement by clicking a button
or checking a box.
• Browsewrap doesn't require signers to do anything. In short, browsewrap doesn't require
affirmative assent and instead relies on assumed or implied consent.
• The only difference between the two is the manner in which they mandate it. Browse Wrap
does not require consent but Click Wrap does make consumers click on the “I agree” button.
Browse Wrap contracts have the terms and conditions and privacy policy written on the
website highlighted with the link. The consumer has agreed to this contract by default. And
usually, the line says “Your use of our site constitutes your acceptance of these Terms of Use
and your agreement to be bound by them”.
• Click Wrap and Browse Wrap are both used in the digital form only.
• Shrink Wrap can be used in both digital and physical. The Shrink Wrap contract has the
agreement inside the packaging and opening of the package indicates the consumer’s
acceptance towards the same.
Legal validity of e-contracts (India & Other Regimes)
Browsewrap
• In Van Tassell v. United Marketing Group, LLC,6 the U.S. District Court for the
Northern District of Illinois decided whether the plaintiffs assented to an arbitration
clause that was contained within a browse-wrap on the defendant. To decide
whether the arbitration clause was enforceable, the court had to determine whether
actual or constructive knowledge of the terms and conditions was present. The court
concluded that "the absence of any reference to the Conditions of Use coupled
with the multi-step process to locate the Conditions of Use" means that . . . users
of the ChefsCatalog.com website could complete their purchases without ever
having notice that their purchases are subject to the website's Conditions of use.
• In March 2012, a New York district court reached a similar conclusion where the
defendants' browsewrap was inconspicuously placed on the defendants' website.15
In Jerez v. JD Closeouts, LLC
 Brett Long v. Provide Commerce (USA)
• Plaintiff purchased a flower arrangement from the defendant's website. Due to some
dispute, the plaintiff filed a case against the defendant.
• The defendant responded by saying that according to the browse-wrap agreement on
the website, any dispute would be referred to arbitration.
• The defendant claimed that the agreement could be accessed by the customers by
clicking on a hyperlink that read "Terms of Use" at the bottom of each page of the
website.
• The plaintiff contended that he was not bound by the terms of the agreement because
he never read and agreed to the them before placing the order.
• The court held that merely adding a hyperlink for 'terms of use' at the bottom was not
sufficiently conspicuous to provide the consumer with an opportunity to read them.
• It further said that browse-wrap agreement shall be enforceable only if a reasonably
prudent user receives an intimation about the terms of use when he is browsing on
the website.
Hubbert v. Dell Corp
• In 2005, the Illinois Appellate Court ruled in favor of a browse-wrap
agreement in Hubbert v. Dell Corp. In this case consumers
of Dell products were repeatedly shown the words "All sales are
subject to Dell's Term[s] and Conditions of Sale", including a
conspicuous hyperlink, over a series of pages.
• The court found that this repeated exposure and visual effect would
put a reasonable person on notice of the "terms and conditions".
E-contracts India
• Trimex International FZE vs. Vedanta Aluminium Limited, India 2010
• In this supreme court held that the terms of contract has been
discussed over the email, such emails constituted to be a valid
contract and hence enforceable. Here the supreme court recognized
the validity of electronic contracts even if they were not electronically
signed and registered.
 Conclusion
• Be it a clickwrap, a browsewrap, or a Shrinkwrap agreement it is
prudent for the client to be aware and informed to prevent indulging
in fraudulent contracts.
• Gradually, legal regimes in different countries are moving towards
giving validity to all kinds of e-contracts.
Reference
• Rajesh Kapoor (ed.)., Avtar Singh’s Law of Contract and Specific
Relief (Eastern Book Company, 13th edn., 2022).
• Anirudh Wadhwa, Mulla The Indian Contract Act (Lexis Nexis, 16 th
edn, 2021)
The examples are collected and compiled from different books, bare Act
and internet sources for purely classroom teaching purpose.