The Nature of the Agreement: Offer

and Acceptance
 Contract: Introduction
• A contract is an agreement between two or more
persons which is legally binding.
• Not all agreements between persons are contracts.
• “An agreement enforceable by law” is contract -
Section 2(h)
• Agreements of social and domestic nature are not
contracts
• Invitation to a birthday or invitation to a dinner
• Contract = Agreement + Enforceability
 OFFER

AGREEMENT

ACCEPTANCE

AGREEMENT

CONTRACT

ENFO RCEABILITY
 Essentials
1. Offer and Acceptance
2. Intention to create Legal Relationship
3. Lawful Considerations
4. Capacity to Contract
5. Free Consent
6. Lawful Object
7. Possibility of Performance
8. Legal Formalities
9. Certainty
 Offer and Acceptance
 At least two parties are needed to enter into a contract.
 Oneparty hasto makean offer and other must acceptit.
 The person who makes the 'proposal' or 'offer' is called the
'promisor' or 'offeror'. While, the person to whom the offer is
made is calledthe 'offeree’ or ‘promisee’.
 There must be an 'offer' and an 'acceptance' to the offer, resulting
into anagreement
 Example: A says to B, "I'll sell you my house for $100,000,
if you give me a check right now for $10,000 and promise to
pay the rest within 30 days." This is an offer. If B says,
"Here is my $10,000 check, and I'll have the balance to you
next week," this is an acceptance. After the acceptance
occurs, the parties have an enforceable contract.
 Intention to create Legal Relationship

When two parties enter intoan agreement, their

intention must be to create a legal relationship
between them.
Agreements of social or domestic nature do not
contemplate legalrelationship.
 Lawful Considerations
 The basic reason for a contract; a person gives up something of
value in exchange for receiving something of value through the
contract.
 An agreement to be enforceable by lawmust be supported by
consideration.
 It Is a generalrule:
“ No Consideration, No Contract.”
• Some agreements are enforceable by law and others not.
• A promises to obtain for B an employment in the public service,
and B promises to pay $1,000 to A. The agreement is void, as the
consideration for it is unlawful.

• For example, an agreement to rent a house

 Capacity to Contract

 In a contract, both the parties (i.e. offeror and acceptor)

must be capable of entering into contract.
 When a person has legal “capacity”, it simply means
that he or she has the legal authority to enter into
binding, legal agreements
 Law prohibits:
 Minors
 Persons of unsound mind
 Person who are otherwise disqualified like an enemy,
insolvents, convicts, etc. from entering into any contract.
 Free Consent
 'Consent' means the parties must have agreed upon the
samething in the samesense(Section 13).
 Mutual assent is the final product of a valid offer and
acceptance.
 Also often referred to as “meeting of the minds”
 Consent is said to be free when it is not caused by:
Coercion (Sec. 15)
Undue Influence (Sec.16)
Misrepresentation (Sec.17)
Fraud (Sec. 18)
Mistake (Sec.20,21,22)
Example: Mr. X entering into a contract with Mr. Y for
sale of his house at his free will is an example of a free
consent. The consent is not said to be free if it has been
obtained by coercion (physical or mental pressure or
threat), undue influence (moral pressure, emotional
blackmail), fraud (knowingly stating false facts),
misrepresentation (unknowingly stating false facts) or
mistake of facts. For example, if Mr. A threatens Mr. B
regarding his life or hurting his dear ones, if he does not
sell his property to Mr. A, then his consent to the contract
would be under coercion and not free.
•
 Lawful Object

The object of the contract must belawful.

Itmust not be illegal, fraudulent, immoral, or
opposed to public policy.
If an agreement suffers from any legal flaw,it
would not be enforceable bylaw.
 Possibility of Performance

The agreement must be to do the act whose

performance is possible.
The agreement to do an act whose performance is
impossible is not enforceable by law.
A agrees with B to discover a treasure by magic the
agreement is not enforceable
 Legal Formalities
 Generally, acontract may be oral or in writing.
 However, certain contracts are required to be in writing
and may even requireregistration.
 Therefore, where law requires an agreement to be put in
writing or be registered, the same must be complied
with.
 Certainty
 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.
 A contract to be enforceable by law must be clear
and certain.
 (a) A agrees to sell to B "a hundred tons of oil".
There is nothing whatever to show what kind of
oil was intended. The agreement is void for
uncertainty.
 1. VALID CONTRACT
Valid contract is that which is enforceable at law. It creates legal obligations
between the parties. It enables one party to compel another party to do something
or not to do something.

Parties Obligations:-
In case of valid contract all the parties to the contract are legally responsible for
the performance of a contract. If one party breaks the contract other has right to be
enforced through the court.
Example: - Aslam proposes sell his one acre land to Nasir for one lac and the
parties are capable to do the contract by law. So this contract is valid. If Aslam
fails to deliver the land Nasir can sue him in the court for the delivery of land. On
other hand Nasir fails to make the payment, Aslam can sue him for the recovery of
payment. Or
A homeowner (who is over the age of 18 and of sound mind) signed a contract
with the appliance store to buy a refrigerator. The homeowner pays for the
refrigerator and the appliance store presents the refrigerator for the home owner to
take home.
 2. VOID CONTRACT
Definition: - "An agreement not enforceable at law is a void contract".

Originally it is a valid contract but due to certain reasons it becomes void after its
formation. A void contract cannot be enforced by either party.

Features of Void Contract:-

a. It is not enforceable by law.
b. It creates no legal rights.
c. It creates no obligations on any party.
d. An agreement which is against the public policy or against any law is also void.
e. Under this contract no compensation can be paid to any party.
Example :- A contract that was between an illegal drug dealer and an illegal drug
supplier to purchase a specified amount of drugs for a specified amount. Either
one of the parties could void the contract since there is no lawful objective and
hence missing one of the elements of a valid contract.
• Agreements which have unlawful consideration
are void. (Sec- 10) (Sec-24)
• Rights and Duties :-
In this case the parties are not legally
responsible to fulfill the contract. If any party
has received any benefit is bound to return.
This contract takes place when consent of one of
the parties is not free.
 3. VOIDABLE CONTRACT
"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".

Features of Voidable Contract :-

a. It is enforceable at law at the option of one or more of the parties.
b. A voidable contract can only be objected by the party who has been subject to
fraud, coercion, misrepresentation and undue influence.
c. If the contract is revoked (cancelled) by a person rightfully then he can also
receive the compensation.
d. The contract is voidable at the option of the party whose consent is caused.
e. Contracts caused by fraud, undue influence, misrepresentation or by coercion
are voidable contracts.

Example :- Mr. Qadir threatens to shoot Mr. Shah to purchase a car for one lac.
Mr. Shah agrees the contract was made by coercion and is voidable at the option
of Mr. Shah.
• Rights and Duties.
The aggrieved party can cancel such contract within a
reasonable time. It is also entitled to be compensated by the
other party.
• Burden of Proof.
It is the responsibility of the aggrieved party to prove that
his/her consent was obtained by fraud or coercion. If he/she
fails to prove in the court then contract will remain valid.
If the contract is not written or not registered it can not be
enforced.

Example :- Suppose "A" borrows the money from "B" and

writes a pronote but proper amount stamps are not posted on
the pronote. Now in this case contract is valid but not
enforceable by law.
• For example, a minor has the right to repudiate
certain contracts. Any contract with a minor is
thus a voidable contract. If a minor were to
enter into a contract with an adult, the adult
would be bound by the contract, whereas the
minor could choose to avoid performing the
contract.
• Therefore, when entering into contracts with a
minor, people often require the co-signature of
an adult, preferably a parent or legal guardian.
4. Unenforceable Contract.
Contract is called unenforceable when due to some
technical difficulty or lack of any formality required by
the special provisions of law a valid contract is not
enforced by the court.
• An unenforceable contract: is neither void nor
voidable, but it cannot be enforced in the court
because it lacks some items of evidence such as
writing, registration or stamping.
• For instance, an agreement which is required to be
stamped will be unenforceable if the same is not
stamped at all or is under-stamped.
Types of Contract on Basis of Formation:

• Express contract
• Implied contract
• Express Contract: The Contracts where there
is expression or conversation are called
Express Contracts. It may be in written or oral
form.
 Express Contract
• An express contract is one in which all elements are
specifically stated in words. This may be written or
oral. An agreement which has been signed by both
parties is an example of an express contract. Other
examples of express contracts might include:
• Purchase and Sale contract
• Buyers agency contract
• Written contract for the purchaser of a property to
purchase personal items from a seller
• Oral contact to pay for gardening services
 Implied Contract
 An implied contract is an agreement created by actions of
the parties involved, but it is not written or spoken.
 This is a contract assumed to have been drawn.
 In this case, there is neither written record nor any actual
verbal agreement.
 A form of an implied contract is an implied warranty
provided automatically by law.
 An example would be a situation where a written lease
agreement has expired, yet the tenant continued to make the
rent payments and the landlord continued to accept the
payments. The parties have an implied contract to continue
the rental.
Types of Contract on Basis of Performance
• Unilateral contract
• Bilateral contract
• Executory contract
• Executed contract
 Unilateral Contract
• A unilateral contract is a legally enforceable promise - between legally
competent parties - to do or refrain from doing a specified, legal act or acts.
• Where one party promises to do something, usually in return for completion of
a specified act, but occasionally for refraining to act. The other party does not
have to promise to carry out the act.
• In a unilateral contract, one party pays the other party to perform a certain
duty. If the duty is fulfilled, the party on the other side of the contract is
obligated to transfer the specified funds. Only this party is under obligation of
the contract, whereas the acting party is not legally obliged to perform the duty.
• For example, if an individual places an advertisement in the local newspaper to
provide an award in the event a missing item is returned, that individual is
obligated to pay the award if the item is indeed returned.
• Another 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.
 Bilateral contract
• A bilateral contract is an arrangement between two parties where each promises
to perform an act in exchange for the other party's act.

• A bilateral contract requires both parties to a contract to perform an action. ...

These parties are a promisor who makes a promise to perform an action, in
exchange for the promisee to accept the offer in exchange for consideration for
something of value, like money.

• A bilateral contract specifies a duty to act in exchange for another party's duty to
act.

• Example of a bilateral contract would be the contract for the sale of a home. A
home buyer agrees to pay the seller a certain amount of money in exchange for
the title to the home; the home seller agrees to deliver the title in exchange for
the specified sale price. It is bilateral contract between parties
• We are entering this type of agreement every
time we make a purchase at our favorite store,
order a meal at a restaurant, receive treatment
from our doctor or even checkout a book at our
library.
• In each circumstance, we've promised a
certain action to another person or party in
response to that person or party's action.
 Executed And Executory Contract
• A contract in which the promises are made and completed immediately,
like in the purchase of a product or service.
• An executed contract is one where all parties have fully performed all
of the terms, promises and obligations within the contract.
• On the other hand, an executory contract means that the promises of
the contract are not fully performed immediately
• is a one where the terms, obligations and promises have not yet been
performed.
• An example of an executory contract would be an apartment lease.
• Since a lease is usually written for a period of one year, it is an
executory contract, because it is fulfilled over time. When entering into
a lease agreement, lessee promises to pay the rent for a period of time.
Until the term expires, the contract promises have not been fulfilled.