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Contract

An agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as consideration. Since the law of contracts is at the heart of most business dealings, it is one of the three or four most significant areas of legal concern and can involve variations on circumstances and complexities. The existence of a contract requires finding the following factual elements: a) an offer; b) an acceptance of that offer which results in a meeting of the minds; c) a promise to perform; d) a valuable consideration (which can be a promise or payment in some form); e) a time or event when performance must be made (meet commitments); f) terms and conditions for performance, including fulfilling promises; g) performance. A unilateral contract is one in which there is a promise to pay or give other consideration in return for actual performance. Contracts can be either written or oral, but oral contracts are more difficult to prove and in most jurisdictions the time to sue on the contract is shorter (such as two years for oral compared to four years for written). In some cases a contract can consist of several documents, such as a series of letters, orders, offers and counteroffers. There are a variety of types of contracts: "conditional" on an event occurring; "joint and several," in which several parties make a joint promise to perform, but each is responsible; "implied," in which the courts will determine there is a contract based on the circumstances. Parties can contract to supply all another's requirements, buy all the products made, or enter into an option to renew a contract. The variations are almost limitless. Contracts for illegal purposes are not enforceable at law. 2) v. to enter into an agreement.

In common law legal systems, a contract is an agreement having a lawful object entered into voluntarily by two or more parties, each of whom intends to create one or more legal obligations between them. The elements of a contract are "offer" and "acceptance" by "competent persons" having legal capacity who exchanges "consideration" to create "mutuality of obligation. Proof of some or all of these elements may be done in writing, though contracts may be made entirely orally or by conduct. The remedy for breach of contract can be "damages" in the form of compensation of money or specific performance enforced through an injunction. Both of these remedies award the party at loss the "benefit of the bargain" or expectation damages, which are greater than mere reliance, as in promissory estoppels. The parties may be natural persons or juristic persons. A contract is a legally enforceable promise or undertaking that something will or will not occur. The word promise can be used as a legal synonym for contract, although care is

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required as a promise may not have the full standing of a contract, as when it is an agreement without consideration. Contract law varies greatly from one jurisdiction to another, including differences in common law compared to civil law, the impact of received, particularly from England in common law countries, and of law codified in regional legislation. Regarding Australian Contract Law for example, there are 40 relevant acts which impact on the interpretation of contract at the Commonwealth (Federal / national) level, and an additional 26 acts at the level of the state of NSW. In addition there are 6 international instruments or conventions which are applicable for international dealings, such as the United Nations Convention on Contracts for the International Sale of Goods. Willmott (2009)

Essential elements of Contract


All agreements are not contracts. Only that agreement which is enforceable at law is a contract. An agreement which is enforceable at law cannot be contract. Thus, the term agreement is wider in scope than contract. All Contracts are agreements but all agreements are not contracts. An agreement, to be enforceable by law, must possess the essential elements of a valid contract as contained in section 10 of the Indian Contract Act. According to Section 10, "All agreements are contract if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void." As the details of these essentials form the subject-matter of our subsequent chapters, it is proposed to dismiss hem in brief here.

The following are the essential elements of a valid contract:

1. Offer and Acceptance. In order to create a valid contract, there must be a 'lawful offer' by one party and 'lawful acceptance' of the same by the other party.

2. Intention to Create Legal Relationship. In case, there is no such intention on the part of parties, there is no contract. Agreements of social or domestic nature do not contemplate legal relations. Balfour vs. Balfour (1919)

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3. Lawful Consideration. Consideration has been defined in various ways. According to Blackstone, Consideration is recompense given by the party contracting to another." In other words of Pollock, "Consideration is the price for which the promise of the another is brought." consideration is known as quid pro-quo or something in return.

4. Capacity of parties. The parties to an agreement must be competent t contract. If either of the parties does not have the capacity to contract, the contract is not valid. According the following persons are incompetent to contract. (a) Miners, (b) Persons of unsound mind, and (c) Persons disqualified by law to which they are subject.

5. Free Consent. 'Consent' means the parties must have agreed upon the same thing in the same sense. According to Section 14, Consent is said to be free when it is not caused by-

(1) Coercion, or (2) Undue influence, or (3) Fraud, or (4) Mis-representation, or (5) Mistake. An agreement should be made by the free consent of the parties.

6. Lawful Object. The object of an agreement must be valid. Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house, the object of the contract is to run a gambling house.

The Object is said to be unlawful if-

(a) it is forbidden by law; (b) it is of such nature that if permitted it would defeat the provision of any law; (c) it is fraudulent; (d) it involves an injury to the person or property of any other; (e) the court regards it as immoral or opposed to public policy. Page | 3

7. Certainty of Meaning According to Section 29,"Agreement the meaning of which is not certain or capable of being made certain are void."

8. Possibility of Performance If the act is impossible in itself, physically or legally, if cannot be enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable.

9. Not declared to be void or illegal. The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. Agreements mentioned in Section 24 to 30 of the Act have been expressly declared to be void for example agreements in restraint of trade, marriage, legal proceedings etc.

10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those cases where writing, registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.

Minimum two parties At least two parties are needed to enter into a contact. One party has to make an offer and other must accept it. The person who makes the 'proposal' or 'offer' is called the 'promisor' or 'offeror'. While, the person to whom the offer is made is called the 'offeree' and the person who accepts the offer is called the 'acceptor'.

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Offer and acceptance There must be an 'offer' and an 'acceptance' to the offer, resulting into an agreement. Both offer and acceptance should be lawful. Legal obligations The parties must intend to create a legal obligation.The agreement sought to be enforced should contemplate legal relations between the parties to it. Lawful consideration A contract is basically a bargain between two parties, each receiving 'something' of value or benefit to them. This 'something' is described in law as 'consideration'. Consideration is an essential element of a valid contract. It is the price for which the promise of the other is bought. A contract without consideration is void. The consideration may be in the form of money, services rendered, goods exchanged or a sacrifice which is of value to the other party. This consideration may be past, present or future, but it must be lawful. Competent parties The parties making the contract must be legally competent in the sense that each must be of the age of majority, of a sound mind, and not expressly disqualified from contracting. An agreement by incompetent parties shall be a legal nullity. Free consent The contracting parties must give their consent freely. 'Consent' means that the parties must agree about the subject matter of the agreement in the same sense and at the same time. Consent is said to be free if it is not induced by coercion, undue influence, fraud,misrepresentation or mistake. The absence of free consent would affect the legal enforceability of a contract. Lawful object

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The object of the agreement must be lawful. An agreement is unlawful, if it is:- (i) illegal (ii) immoral (iii) fraudulent (iv) of a nature that, if permitted, it would defeat the provisions of any law (v) causes injury to the person or property of another (vi) opposed to public policy.

Not expressly declared void An agreement expressly declared to be void under the Contract Act or under any other law, is not enforceable and is, thus, not a contract. The Contract Act declares void certain types of agreements such as those in restraint of marriage, or trade, or legal proceedings as well as wagering agreements. Certainty and possibility of performance The terms of a contract must not be vague or uncertain. If an agreement is vague and its meaning cannot be ascertained, it cannot be enforced. Also, the terms of a contract must be such as are capable of performance. An agreement to do an impossible act is void and is not enforceable by law. Legal formalities Generally, a contract may be oral or in writing. However, certain contracts are required to be in writing and may even require registration. Therefore, where law requires an agreement to be put in writing or be registered, the same must be complied with. For instance, the Indian Trusts Act requires the creation of a trust to be reduced to writing.

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Some Definitions
I) Method of Formulation 1. Express Contract
A contract in which all elements are specifically stated (offer, acceptance, consideration), and the terms are stated, as compared to an "implied" contract in which the existence of the contract is assumed by the circumstances. n exchange of promises in which the terms by which the parties agree to be bound are declared either orally or in writing, or a combination of both, at the time it is made. Whether oral or written, the contract must manifest a mutual intent to be bound expressed in a manner capable of being understood, and include a definite offer , unconditional acceptance and consideration . An express contract is differs from a contract implied in fact only in the mode of manifesting assent and the mode of proof required; the distinction involves no difference in legal effect. Both forms of contract require mutual assent and a meeting of the minds, but an express contract is proved by an actual agreement where a contract implied in fact is proved by circumstances and the conduct of the parties. Under common law rules, an acceptance must be unequivocal. That is, it must conform exactly to the terms of the offer. A party who indicates his assent, but responds by seeking to add additional terms and conditions not stated in the original offer, has not accepted but has made a counter-offer. Since a counter-offer constitutes an indefinite, or ambiguous, acceptance of the terms of the original offer conveyed, no express contract is formed.

2. Implied Contract
An agreement which is found to exist based on the circumstances when to deny a contract would be unfair and/or results in unjust enrichment to one of the parties. An implied contract is distinguished from an "express contract."

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An agreement which is found to exist based on the circumstances when to deny a contract would be unfair and/or result in unjust enrichment to one of the parties. An implied contract is distinguished from an "express contract.

3. Quasi Contract
A quasi-contract (or implied-in-law contract or constructive contract) is a fictional contract created by courts for equitable, not contractual, purposes. A quasi-contract is not an actual contract, but is a legal substitute formed to impose equity between two parties. The concept of a quasi-contract is that of a contract that should have been formed, even though in actuality it was not. It is used when a court finds it appropriate to create an obligation upon a non-contracting party to avoid injustice and to ensure fairness. It is invoked in circumstances of and is connected with the concept of restitution. Generally the existence of an actual or implied-in-fact contract is required for the defendant to be liable for services rendered, and a person who provides a service uninvited is an officious who is not entitled to compensation. "Would-be plaintiffs cannot deliver unordered goods or services and demand payment for the benefit. A corollary is that one who does have an enforceable contract is bound by the contract's terms: subject to a few controversial exceptions, she cannot sue for restitution of the value of benefits conferred. However, in many jurisdictions under certain circumstances plaintiffs may be entitled to restitution under quasi-contract (as in the example of Louisiana or Oklahoma below). They are used as remedies for unjust enrichment, management of another's affairs, or payment of a thing not due

II) The Time of Performance 1. Executed Contract


A contract that has been completely carried out or signed by the parties. A contract which has been fulfilled with regard to all terms and conditions. The term, executed contract, draws attention to the status of the contract. In this case, the contract has been executed and no further obligations remain. Compare EXECUTED CONTRACT to EXECUTORY CONTRACT, a contract yet to be completed.

2. Executory Contract
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An executory contract is a contract which has not yet been fully performed, that is to say, fully executed. To put it another way, it's a contract under which both sides still have important performance remaining. However, an obligation to pay money, although such obligation is material, does not usually make a contract executory. An obligation is material if a breach of contract would result from the failure to satisfy the obligation. A contract that has been fully performed by one party but not by the other party is classified as an executory contract.

III) The Parties of the Contract 1) Bilateral Contracts


When most people think of contracts, bilateral agreements come to mind. In its most basic form, a bilateral contract is an agreement between at least two people or groups. Most business and personal contracts fall into this category. Examples of bilateral contracts are present in everyday life. You're entering this type of agreement every time you make a purchase at your favorite store, order a meal at a restaurant, and receive treatment from your doctor or even checkout a book at your library. In each circumstance, you've promised a certain action to another person or party in response to that person or party's action.

2) Unilateral Contact
The easiest way to understand unilateral business contract is by analyzing the word 'unilateral.' In its simplest terms, unilateral contracts involve an action undertaken by one person or group alone. In contract law, unilateral contracts allow only one person to make a promise or agreement. You might see examples of unilateral contracts every day, too; one of the most common instances is a reward contract. Pretend you've lost your dog. You place an advertisement in the newspaper or online offering a $100 reward to the person who returns your missing pooch. By offering the reward, you're offering a unilateral contract. You promise to pay should anyone fulfill the obligation of returning your dog. You're the only person who has taken any action in

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this contract, as no one is specifically responsible or obligated to finding your dog passed on this interaction. Another common example of a unilateral contract is with insurance contracts. The insurance company promises it will pay the insured person a specific amount of money in case a certain event happens. If the event doesn't happen, the company won't have to pay. IV) Legality or Validity of the Contract The remedy of specific performance presupposes the existence of a valid contract between the parties to the controversy. The terms of the contract must be definite and certain. This is significant because equity cannot be expected to enforce either an invalid contract or one that is so vague in its terms that equity cannot determine exactly what it must order each party to perform. It would be unjust for a court to compel the performance of a contract according to ambiguous terms interpreted by the court, since the court might erroneously order what the parties never intended or contemplated.

Offer and Acceptance


Formulation of contract Proposal
An offer; something proffered. An offer, by one person to another, of terms and conditions with reference to some work or undertaking, or for tlie transfer of property, the acceptance whereof will make a contract between them. Eppes v. Mississippi. G. & T. It. Co., 35 Ala. 33. In English practice. A statement in writing of some special matter submitted to tlie consideration of a chief clerk in the court, pursuant to an order made upon an application ex parte, or a decretal order of the court. It is either for maintenance of an infant, appointment of a guardian, placing a ward of the court at the university or in the army, or apprentice to a trade; for the appointment of a receiver, the establishment of a charity, etc. Wharton. Propositio indefinita aequipollet universali. An indefinite proposition is equivalent to a general one.;

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Offer
The words offer and proposal are synonymous and they mean one and the same thing. Offer is the first step in the formation of contract. When a valid offer is made and accepted, contract comes into existence, provided the other essential elements are present. Section 2 (a) of the Contract Act defines Offer as 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 an offer'. The analysis of the definition would show that the following elements are present in an offer: a) There is an expression of willingness to do or abstain from doing something; b) The expression is from one person to another; c) The expression is for seeking the assent of that other person. The person making the offer is called the offerer and the person to whom the offer is made is called the offeree. An offer to be valid must satisfy the following conditions Treitel defines an offer as "an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed", the "offeree". An offer is a statement of the terms on which the offer or is willing to be bound. It is the present contractual intent to be bound by a contract with definite and certain terms communicated to the offeree. The expression of an offer may take different forms, such as a letter, newspaper advertisement, fax, email and even conduct, as long as it communicates the basis on which the offeror is prepared to contract. Whether the two parties have reached agreement on the terms or whether a valid offer has been made is an issue which is determined by the courts using criteria known as 'the objective test' which was explained in the leading English case of Smith v. Hughes. In Smith v. Hughes, the court emphasized that the important thing in determining whether there has been a valid offer is not the party's own (subjective) intentions, but how a reasonable person would view the situation. Unless the offer included the key terms of the contract, it cannot be the basis of a binding contract. For example, as a minimum requirement for sale of goods contracts, a valid offer must Page | 11

include at least the following 4 terms: Delivery date, price, terms of payment that includes the date of payment and detail description of the item on offer including a fair description of the condition or type of service. Unless the minimum requirements are met, an offer of sale is not classified by the courts as a legal offer but is instead seen as an advertisement.

Promise and Acceptance


A written or oral declaration given in exchange for something of value that binds the maker to do, or forbear from, a certain specific act and gives to the person to whom the declaration is made the right to expect and enforce performance or forbearance. An undertaking that something will or will not occur. It is a manifestation of intent to act, or refrain from acting, in a certain manner.In the law of Commercial Paper, an undertaking to pay. It must be more than an acknowledgment of an obligation. The person who makes the declaration is the promisor. The person to whom the declaration is made is called the promisee. In contracts, a promise is essential to a binding legal agreement and is given in exchange for consideration, which is the inducement to enter into a promise. A promise is illusory when the promisor does not bind herself to do anything and, therefore, furnishes no consideration for a valid contract.A promise implied in fact is a tacit promise that can be inferred from expressions or acts of the promisor. A promise implied by law can arise when no express declaration is made, but the party, in Equity and justice, is under a legal duty as if he had in fact actually made a promise. An express act or implication by conduct that manifests assent to the terms of an offer in a manner invited or required by the offer so that a binding contract is formed. The exercise of power conferred by an offer by performance of some act. The act of a person to whom something is offered or tendered by another, whereby the offeree demonstrates through an act invited by the offer an intention of retaining the subject of the offer. In the law of contracts, acceptance is one person's compliance with the terms of an offer made by another. Acceptance occurs in the law of insurance when an insurer agrees to receive a person's application for insurance and to issue a policy protecting the person against certain risks, such as fire or theft. When a person who is offered a gift by someone keeps the gift, this indicates his or her acceptance of it. Acceptance also occurs when a bank pays a check written by a customer who has a checking account with that bank. In business dealings between merchants, which is Page | 12

governed by the law of sales, a buyer demonstrates his or her acceptance of goods that are not exactly what he or she had ordered from the seller by telling the seller that he or she will keep the goods even though they are not what was ordered; by failing to reject the goods; or by doing something to the goods inconsistent with the seller's ownership of them, such as selling the goods to consumers of the buyer's store.

Effect on offer and acceptance

Offer Rules regarding offer


"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 person to such act or abstinence, he is said to make a proposal." The person making the proposal is called the 'offeror' or 'promisor'. The person to whom the offer is made is called the 'offeree' or 'promisee'. Offer and Acceptance A offers to sell his scooter to B for Rs. 5,000. This is a proposal. A is the offeror or promisor and B is the offeree. Legal Rules Regarding Offer : An offer to be valid must comply with the following rules: 1. Offer may be express or implied: An offer may be express or may be implied from the conduct of the parties or circumstances of the case. Page | 13

Express Offer: An express offer is made by words spoken or written. Examples: (1) A says to B, "Will you purchase may car for Rs. 15,000? It is an oral offer. (2) A, through a letter asks B to buy his car for Rs. 15,000. It is a written offer. Implied Offer - An implied offer is not made by words spoken or written. It is implied from the conduct of the parties or from the circumstances. Example: (1) Public Transport, like, Railways. DTC in Delhi or MEST in Mumbai offer to carry passengers for a certain fare on a particular route. (2) Public Telephones or Weighing Machines in public places like, Railway Stations or Cinema Houses offer their services for a certain amount, say one rupee. 2. Offer may be specific or general: A specific offer is one which is made to a particular person. It can be accepted by the person to whom it has been made, no one else can accept such an offer. Example: A offers to sell his watch to B for Rs. 200. This is a specific offer made to B. It is B alone who can accept this offer and no one else can accept this offer, i.e., C or D cannot accept this offer. A general offer is made to the world at large. Therefore, it can be accepted by any person. Example: 1. A advertised in a Newspaper that he would give Rs. 100 to anyone who finds and returns his lost dog. 2. A company advertised that a reward of Rs. 100 would be given to any person who contracted influenza after using the medicine (Smoke balls) made by the company according to the printed directions. One lady, called Mrs. Carlill, purchased and used the medicine according to the printed directions of the company but suffered from influenza. She filed a suit to recover the Page | 14

reward of Rs. 100. The Court held that there was a contract as she had accepted a general offer by using the medicine in the prescribed manner and as such, she was entitled to recover the reward from the company. 3. Offer must give rise to legal obligation: An offer to be valid must create legal relationship between the parties. The very purpose of entering into an agreement is to make it enforceable at a Court of law. If the offer has not been made with this intention it will not become a contract even if it is accepted by the party to whom it was made. Example: A promised to pay Rs. 30 to his wife every month. Later, A failed to pay the amount. The wife filed a suit against the husband to recover the amount. The Court held that she could not recover as the promise was not made with an intention to create any legal relationship. 4. Terms of an offer must be definite and certain: The terms of an offer should not be vague or indefinite. Example: A has two cars - Ambassador and Fiat. He agrees to sell one of his cars to B for Rs. 20,000. It is not clear as to which of the cars A has agreed to sell. A might be thinking to sell the Ambassador car while B might be thinking to purchase the Fiat car. The offer is not definite. 5. Offer must be distinguished from an invitation to offer: An offer must be distinguished from an invitation to offer. The shopkeepers generally display their goods in showcases with price tags. The shopkeeper in such cases is not making an offer so that you can accept it. He is, on the other hand, inviting you to make an offer which he may or may not accept. Thus you cannot compel a shopkeeper to sell the goods displayed in the showcase at the marked price. However, if there is specific law to sell goods at marked price then the seller will have to sell at marked price. For example, during National Emergency essential commodities like sugar etc. have to be sold at marked price. Page | 15

6. Offer must be distinguished from a mere declaration of intention: A declaration of intention to make an offer is not an offer. It is regarded as an invitation to offer. An advertisement for sale in a Newspaper or Magazine etc. is not an offer for sale. Example: A advertised to sell certain furniture by auction, B reached A's house to purchase the furniture. However, A changed his mind not to sell the furniture. B cannot compel A to sell the furniture or even to recover his damages, i.e., conveyance charges and damages for inconvenience caused to him due to cancellation of the sale. It should be noted that a general offer can be made through advertisement if the terms are certain and capable of being accepted. Example: A lost his camera in a DTC bus. He announced a reward of Rs. 100 to the finder who may return it to him. B found the camera after reading the advertisement and returned it to him. B is entitled to the reward. 7. Offer must be communicated: An offer must be communicated to the person to whom it is made. A person can accept the offer only when he knows about it. If he does not know it, he cannot accept it. Example: G sent his servant L to trace his lost nephew. Later on G, announced a reward for tracing the boy. L without knowing about the advertisement of the reward traced the boy and restored him to G. When L came to know of the reward, he claimed it. G refused to give the reward. The Court held that L was not entitled to recover the reward as the offer was not communicated to L. He could not accept an offer which he did not know. 8. Communication of Special Terms:

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Special terms of a contract must be communicated. Generally, such cases arise in respect of general offers, like tickets or receipts for depositing luggage at the Railway Station or receipts for clothes given for dry cleaning etc. The rule in these cases is that parties are not bound unless conditions printed are properly communicated. Example: A passenger was traveling from Dublin to White haven with his luggage. On the back of the ticket, a special condition was printed according to which the Shipping Co. would not be liable for the loss of luggage. However, this condition was not communicated to the passenger in as much as no such words as RT.O. or See Back were printed on the face of the ticket to draw the attention of the passenger. The court held that the passenger was not bound by those conditions as those were not communicated to him. Hence the company was liable to pay for the loss of the luggage. It should be noted that an acceptor is bound by the condition even if the conditions are printed in a foreign language. He should ask for its translation. Again, an acceptor cannot even plead that he was illiterate or blind, provided the notice is reasonably sufficient for the class of persons to which he belongs. Again, it should be noted that the special terms of the contract should be brought to the notice of the offeree at the time of offer was made. If the special terms are brought to the notice of the offeree after the contract was made, the offeree will not be bound by them. Example: A and his wife took a room on hire in a hotel. After booking the room, they entered the room and saw a notice on the wall of the room. The proprietors not responsible for articles lost or stolen unless handed over to the manager for safe custody." Due to the negligence of the hotel staff, their property was stolen. Held, the proprietor of the hotel was liable as the notice was not binding, because it came to the knowledge of the client only after the contract to take the hotel on hire had already been made.

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9. Offer must be made with a view to obtaining the consent of the other party to do or to abstain from doing the act: The offer must be made with an intention to get the consent of the other party to do or to abstain from doing the act and not simply with a view to making known the intention of making an offer. Example: A tells B, "I may sell my Television if I can get Rs. 2,000 for it. It is not an offer as it has not been made with a view to get the consent of B. It is a mere declaration of intention. Therefore, B cannot accept it by saying. "I can pay you Rs. 2,000 for it." B is not accepting A's offer but is making his offer which A may or may not accept. 10. Offer should not impose an unnecessary obligation to communicate non-acceptance: Thus an offeror cannot say that if acceptance is not communicated by Sunday next, the offer would be considered as accepted. Example: A offers his car to B for Rs. 20,000 saying, "If you do not reply by Sunday next, I shall presume, you have accepted the offer." In this case, no contract will be created even if the acceptor does not reply as the law does not permit a party to impose an unnecessary obligation of the acceptor if he does not want to accept the offer. Thus in the above example, if the acceptor does not accept the offer he will be put to an unnecessary burden of informing the offeror that he does not want to accept the offer. Tender: A continuous offer is called a standing offer. For example, in our daily life we do not ask the newspaper vendor daily to supply the newspaper or the grocer to supply bread and butter. In such cases, we do not repeat the offer to the supplier of the above articles every day. We make such offer once for all. If we do not want the supply of such article in future, we ask the supplier to stop the supply of such goods. A tender is a standing offer. It may be specific or continuous.

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Continuous or Standing offer: Very often, tenders are invited for the supply of goods as and when required. In such a case, the tender is a standing offer. When such a tender is accepted it does not become a contract. It simply indicates that as and when goods are required and order will be placed, both the parties are free to revoke the tender. Example: A agreed to supply coal to B up to 1,000 tons at Rs. 500 per ton as and when required for the year 1978. B placed an order for 10 tons in the month of January, 1978. However, if before any order is placed by B, A revokes his offer as to future supply, A is not bound to supply any coal. Similarly, B is not under an obligation to place the order for the supply of coal with A. B can place an order with any other coal supplier also. B is not prevented from placing an order with any other supplier. Thus a standing offer does not create a binding contract between the parties. A binding contract is created only when an order according to the terms of the tender is placed with the party accepting the tender. Specific Tender : Sometimes tenders are invited for the supply of specific quantity of goods or service. In such a case, when a tender is accepted it becomes a contract. Cross Offers: Sometimes two parties make similar offers to each other without knowing the offer made by the other. These are called cross offers. In such a case, no binding contract will be created as no one has accepted the offer made by the other. Example: D of Delhi by a letter makes an offer to M of Mumbai to sell his car for Rs. 10,000. At the same time M of Mumbai makes a similar offer to D of Delhi to buy his (D's) car for Rs. 10,000. Offers of both D and M cross each other in the post. These offers are called cross offers. Such offers do Page | 19

not constitute acceptance of one's offer by another. For example, it will not mean acceptance of D's offer by M or M's offer by D. Both are making the offer and none of them is accepting the offer. Hence, there is no contract. Acceptance Acceptance is an essential element of a valid contract like offer. Offer and acceptance are foundation and the first step of agreement. Every agreement beings with offer and acceptance when offer is accepted by the other for whom it was made it is called acceptance. All terms and conditions of the offer must be accepted by the other (offeree) without acceptance agreement is not possible. If the offer is refused and rejected by the other there is no question of agreement so like offer acceptance is also equally important for making an agreement while accepting offer all the terms and conditions must be accepted and understand is the same way and sense taken by offeree. Rules of Acceptance i) Acceptance must be given only by the person to whom the offer is made: An offer can be accepted only by the person or persons to whom it is made and with whom it imports an intention to contract. It cannot be accepted by another person without the consent of the offer. The rule of law is if you propose to make a contract with them B cant substitute himself for A without your consent. An offer made to a particular person can be validly accepted by him alone. ii) Acceptance must be absolute and unqualified: In order to be effective, it must be absolute and unqualified acceptance of all the terms of the offer. Even the slightest deviation from the terms of the offer makes the acceptance. In effect a derivate acceptance is regarded as a counter offer in law. E.g. L offered to M his scooter for Rs. 4000 M accepted the offer and tendered Rs. 3900 cash down, promising to pay the balance of Rs. 100 by the evening. There is no contract, so the acceptance was not absolute and unqualified. iii) It should be in a reasonable mode: Unless the proposal prescribes the manner in which it is to be accepted. If the offeror prescribes no mode of acceptance the acceptances must be communicated according to some usual and reasonable mode. The usual modes of communication are by spoken or written or by conduct, it is called an implied acceptance. E.g. If the offeror prescribes acceptance by telegram and the offered sends acceptance through a messenger, there is no acceptance of the offer. Page | 20

iv) Acceptance must be communicated by the acceptor: for an acceptance to the made it should to be made by the offer but also be communicated by, or will the authority of offered to the offeror. v) Acceptance must be given within a reasonable time and before the offer lapses: Acceptance must be given within the specified time limit , if any and if no time is stipulated, acceptance must be given within a reasonable time because an coffer cannot be kept open indefinitely. vi) Acceptance must succeed the offer: Acceptance must be given after receiving the offer. It should not precede the offer. In a company share were allotted to a person who had not applied for them subsequently he applied for shares living unaware of the previous allotment. It was held that the allotment of shares previous to the application was invalid. vii) Rejected offer can be accepted only, if renewal: offer once rejected cant be accepted again unless a fresh offer is made.

Rules of Acceptance
Acceptance must be firm and final: The offeree must give a firm and final assent statement that will show his/her acceptance, willingness and commitment to the terms of the offer as they were presented to him/her. 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 as in Carlill's case, but nonetheless the acceptance must be communicated. Prior to acceptance, an offer may be withdrawn. An offer can only be accepted by the offeree: An offer can only be accepted by the person to whom the offer was made. An offeree is not bound if another person accepts the offer on his behalf without his authorisation as per agency law. An Offer must be in response to the proposal: This means that the person accepting the offer must have knowledge of the proposal before accepting it. A person with no knowledge of offer cannot accept it. On top of that, acceptance must have been induced by the offer. For example, Bob advertises in the local radio that he has lost his passport and adequately gives the details (such as passport number, date of issue, place of issue, expiry date, etc.) and specifies that a person who finds and returns it shall get a reward of TShs. 200,000. Charlie, who did not know of the reward because he did not hear the advert, found the passport and returned it to the rightful owner. In this case there is no acceptance and Charlie cannot rightfully claim the reward. Page | 21

Acceptance must be in the specified form: It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance. If the offer specifies a method of acceptance (such as by post or fax), you must accept it using the method specified. Silence cannot be construed as acceptance. Correspondence with offer: The "mirror image rule" states that if you are to accept an offer, you must accept an offer exactly how it is, without modifications; if you change the offer in any way, this is a counter-offer that kills the original offer. However, a mere request for information is not a counter-offer. It may be possible to draft an enquiry such that it adds to the terms of the contract while keeping the original offer alive. Revocation of an offer shoud be done before acceptance: An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror. If the offer was made to the entire world, such as in Carlill's case, the revocation must take a form that is similar to the offer. However, an offer may not be revoked if it has been encapsulated in an option in option contracts.

Communication of Offer :
Communication of an offer is complete as soon as it comes to the knowledge of the person to whom it is made. Examples: A and B are sitting together. A offers his scooter for Rs. 5,000 to B. reach the ears of B, the offer of A is complete. A of Agra by a letter to M of Mumbai offers his scooter for Rs. containing the offer on 9th January. This letter reaches M at Mumbai is complete on 11th January.

Communication of Acceptance:
It has two parts: (a) As against the proposer: Communication of acceptance is complete as against the proposer when it is put in a course of transmission so as to be out of the power of the acceptor. For example, when it is posted in the letter box, duly stamped and addressed. B posts his acceptance on 12th January which reaches A on 14th January. Communication of acceptance as against A is complete on 12th January. (b) As against the acceptor:

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Communication of acceptance is complete as against the acceptor when it comes to the knowledge of the poposer, i.e., when he receives the latter. In the above example, it is complete against B on 14thJanuary.

How is an offer to be communicated? How is an acceptance to be Communicated

Offer and Acceptance by Post


As a rule of convenience, if the offer is accepted by post, the contract comes into existence at the moment that the acceptance was posted (Adams v. Lindsell (1818) 106 ER 250). This rule only applies when, impliedly or explicitly, the parties have post in contemplation as a means of acceptance. It excludes contracts involving land, letters incorrectly addressed and instantaneous modes of communication. The relevance of this early 19th century rule to modern conditions, when many quicker means of communication are available has been questioned, but the rule remains good law for the time being.

Offer and Acceptance by Telephone


In any contract, there has to be effective communication. Acceptance is, therefore, not communicated until such time as the acceptance actually comes to the attention of the party to whom it is directed. There are no real problems when acceptance is given verbally, face-to-face or by telephone. But what about acceptance by less direct means? If communication is instantaneous' (e.g., telephone), then acceptance does not occur when the communication is made, but when it is received. Of course, these events are legally contemporaneous, but it is possible for communication to fail during acceptance, and no-one should have to be bound by an acceptance that he has not heard. Therefore, if a case occurs that acceptance is attempted by telephone but the line is very poor and the acceptance is not heard, it will be concluded that acceptance was not effectively communicated. Therefore, no enforceable agreement came into being

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Offer and Acceptance by Microphone

References http://shivamlawworld.blogspot.com/2012/02/essential-elements-of-valid-contract.html http://business.gov.in/manage_business/contracts_elements.php Promise legal definition of promise. promise synonyms by the Free Online Law Dictionary Willmott, L, Christensen, S, Butler, D, & Dixon, B 2009 Contract Law, Third Edition, Oxford University Press, North Melbourne http://dictionary.law.com/Default.aspx?selected=905 http://www.law.cornell.edu/wex/express_contract http://www.rocketlawyer.com/article/whats-the-difference-between-bilateral-andunilateral-contracts.rl
G.H. Treitel, The Law of Contract, 10th edn, p.8. http://www.preservearticles.com/2012012621483/what-are-the-legal-rules-regarding-a-valid-offer.html

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