Contract Law - I

Semester II
2024
Professor (Dr.) Rahela Khorakiwala
Class Plan

• First Class
o Introduction
o Offer / Proposal
o Communication, Intention to Contract
o Certain and Definite
o General and Specific Offers
• Second Class
o Invitation to offer
o Tender
o Revocation
o Swaminathan's article
Introduction

• Duties owed by individuals to individuals

o Enforceable by the persons to whom they are owed
• Obligations that are self-imposed
o Can also be externally imposed
• Freedom of contracts are limited
o Standard form contracts
• Tort cases
o Donoghue v Stevenson
o Hedley Byrne v Heller
• Contracts can only be understood in their context
Introduction

• Anson:
o That branch of the law which determines the circumstances in which a promise
shall be legally binding on the person making it.
• Pollock:
o The Law of Contract represents the constant endeavour of the public authority, viz,
the State to establish a positive sanction for the expectation of good faith which
has grown up in the mutual dealings of [people].
• Indian Contract Act, 1872:
o Exhaustive for particular aspects
o Not exhaustive on the whole law
Introduction

Difference between contractual obligations and tortious liabilities:

Tortious Liabilities Contractual Obligations
Duty is towards persons generally Duty towards a specific person
Remedy is an action for unliquidated Remedy is liquidated damages
damages
Civil wrong that is not exclusively Arises out of an agreement between
the breach of contract parties
Motive is immaterial but sometimes Motive is immaterial
maybe considered, eg – malice in
defamation
Exemplary damages No exemplary damages
Same wrong can be a tort Same wrong can be a breach of
contract
Think about:

• What you learnt about how contract law developed over the years.
• What happened with the introduction of standard form contracts?
• How did Donoghue v Stevenson change what was earlier only a
contractual relationship between a buyer and a manufacturer?
• How do extra-legal factors influence the interpretation of contracts?
Offer (or Proposal)

• Section 2 (a) - Proposal/Offer

• Chapter I – Communication, Acceptance and Revocation of Proposals
• Section 3 – Communication, acceptance, revocation of proposals
• Section 4 – Communication when complete
• Section 5 – Revocation of proposals and acceptances
• Section 6 – Revocation how made
• Section 8 – Acceptance by performing conditions, receiving consideration
• Section 9 – Promises, express and implied
Offer (or Proposal)

• The first step in the formation of a contract is the making of a

proposal
• 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.
Offer (or Proposal)

• What are the essential elements of offer under the Contract Act?
i. must be communicated
i. must be made with a view to create legal relations
ii. must be certain and definite
Offer: must be communicated

• Section 2 (a) begins with: … when one person signifies to another...

o This indicates communication

• Communication need not always be express; need not always be expressed in words

• Section 9: Promises, express and implied—In so far as the proposal or acceptance of

any promise is made in words, the promise is said to be express. In so far as such
proposal or acceptance is made otherwise than in words, the promise is said to be
implied.

• Section 3: Communication [...] of proposals—The communication of proposals [...] are

deemed to be made by any act or omission of the party proposing [...] by which he
intends to communicate such proposal [...], or which has the effect of communicating it.
Offer: must be communicated

• Sultan Sadik v Sanjay Raj Subba (SC, 2004) -

o In the absence of a statute, a contract of service is also governed by the
Contract Act
o Therefore, an order of appointment must be communicated to the appointee
for making a valid contract of service
o Acceptance thereof, whether expressly or implied, is also required
o Unless this is done, there cannot be a contractual relationship
Offer: must be communicated

• Proposal can only be accepted when it comes to the knowledge of a person to

whom it was intended to be made
• Section 4: Communication when complete—The communication of a proposal is
complete when it comes to the knowledge of the person to whom it is made...
• Lalman Shukla v Gauri Dutt (All HC, 1918) -
o Award of Rs. 501 for anyone who found the defendant's lost nephew
o The servant found the boy
o The knowledge of the offer came to the servant only after he found the boy
o Court held: there was no communication of the proposal to the servant, therefore no
contract
Offer: must be communicated

• Is a tender notice a contract?

• Executive Engineer v Mohan Prasad Sahu (Orissa HC, 1990) -
o A tender notice does not amount to an offer
o It is an invitation to contractors to make an offer
o An advertisement calling for tenders
o The submission of a tender is in the nature of an offer
Offer: create legal relations/intention to contract

• It is not sufficient that a proposal is communicated

• It is essential that it is made with a view to create legal relations
• Balfour v Balfour (KB, 1919) -
o Before returning to his employment in Ceylon the defendant husband promised
to pay GBP 30 every month as maintenance to his wife
o He sent the amount for some time but then stopped due to certain differences
between them that led to separation
o Wife brought action to recover the arrears
o The case was dismissed
Offer: create legal relations/intention to contract

• Lord Atkins said:

o “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 acceptance of hospitability.
They are not contracts because parties did not intend that they shall be attended
to by legal consequences.”
• What is the test to determine whether parties intended to create legal
relations?
o It is objective - what a reasonable person would consider
o In a written contract this can be gathered from the terms and conditions
o Court has to also look at the substance and essence rather than the form
Offer: must be certain and definite

• A proposal must be certain and definite

• Terms should not be so vague so as to prevent a contract from
being formed
General and Specific Offers

• An offer does not always have to be made to an ascertained person

• But it is necessary that an ascertained person should accept it
• Eg: Lalman Shukla case
• When an offer is made to the whole world –
o Acceptance of the offer and performance of the contention will be sufficient
for making it enforceable
General and Carlill v Carbolic Smoke Ball Co (QB, 1893)

Specific Offers
General and Specific Offers

• Carlill v Carbolic Smoke Ball Co (QB, 1893)

o Court said: in advertisement cases, an offer may be made to the whole world but it becomes
a promise only when it is accepted by an ascertained person
o Justice Bowen said -
▪ “As notification of acceptance is required for the benefit of the person who makes the offer, he may
dispense with notice to himself if he thinks it desirable to do so...in the advertisement cases it seems
to follow as an inference to be drawn from the transaction itself that a person is not to notify his
acceptance of the offer before he performs the conditions.”
o Arguments used (but rejected by the Court) -
▪ There was no contract because notification of acceptance had not been communicated to the
company
▪ The offer of the reward was a casual offer, no reasonable person would take it seriously
General and Specific Offers

• Section 8: Acceptance by performing conditions, or receiving

consideration—Performance of the conditions of a proposal, or the
acceptance of any consideration for a reciprocal promise which may
be offered with a proposal, is an acceptance of the proposal.
• Principle of Carlill was applied in India in Hindusthan Co-operative
Insurance Society v Shyam Sunder (Cal HC, 1952) -
o Representatives of the deceased brought a suit to recover the insured money
o The company said they had not formally accepted the proposal
o Court said they had waived that right the same way as had been done in Carlill
Offer and Invitation to Offer

• There is a clear distinction between offer and invitation to offer

o Eg – a tender notice, quotation
• Cheshire and Fitfoot:
o An offer, capable of being converted into an agreement by acceptance, must consist of a
definite promise to be bound, provided that certain specified terms are accepted. The offeror
must have completed his share in the formation of a contract by finally declaring his
readiness to undertake an obligation upon certain conditions, leaving to the offeree the
option of acceptance or refusal. He must not merely have been feeling his way towards an
agreement, not merely initiating negotiations from which an agreement might or might not in
time result. He must be prepared to implement his promise, if such is the wish of the other
party. The distinction is sometimes expressed in judicial language by the contrast of an ‘offer’
with that of an ‘invitation to treat'.
Offer and Invitation to Offer

• Lord Bowen in Carlill said:

• It is not like cases in which you offer to negotiate, or you issue advertisements that you have
got a stock of books to sell, or houses to let, in which case there is no offer to be bound by
any contract. Such advertisements are offers to negotiate - offers to receive offers - offers
to chaffer.
• The distinction between offer and invitation to offer can be understood through
the case of Harvey v Facie (AC, 1893) -
• Judicial Committee of the Privy Council dismissed it and said - “...the mere statement of the
lowest price at which the vendors would sell contains no implied contract to sell at that price
to the persons making the enquiry.”
• Judicial Committee pointed out that in the first telegram the plaintiff wanted the reply to two
questions: willingness to sell and lowest price
• The defendant did not answer the first question – simply quoted the lowest price which could
amount only to an invitation to offer and not an offer itself because they did not express their
willingness to sell
Offer and Invitation to Offer

• This principle has been applied by the Supreme Court of India in Mac Pherson v
Appauna (SC, 1951) -
o The reply of the defendant that he would accept no less than Rs. 10,000 was merely an
invitation to offer
o It could not be construed as an offer because it was not accompanied with the defendant’s
willingness to sell the bungalow to the plaintiff
• In Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd (QB, 1952) -
o Court held – the display of articles on the shelves, though coupled with an invitation to select
and buy, did not amount to an offer, but merely an invitation to make an offer to buy: that offer
was made and accepted at the cashier's desk.
o Eg – a bookshop
Offer and Invitation to Offer

• In the US case of Lefkowitz v Great Minneapolis Surplus Store (1957)-

o Did the advertisement constitute an offer of sale?
o Or was it an invitation to treat?
o The obligation on the defendant arose from the specific language of the
advertisement
o The test applied to distinguish an offer from an invitation to treat was that of
mutuality of obligation: whether, on the facts of the case, a performance had
been promised in return for a performance which was requested.
o The defendant did not have the right to impose new conditions which were not
contained in the published offer after acceptance.
Offer and
Invitation to Offer

• Leonard v Pepsico (SDNY,

1999)
o The case reaffirmed the
clear-cut rule that
advertisements are not
ordinarily considered to be
offers, and further
emphasised that, in
general, an advertisement
cannot be considered an
offer if it is taken in jest by
a reasonable person.
Tender

• Invitation to make a tender is not an offer

• A tender in response to such an invitation is an offer
• Standing offer or continuing offer
o Homee Wadia & Co. v Bengal Coal Co. (Bom, 1898/1899) - coal supply
o R v Demers (AC, 1990) - printer
o Aggarwal Associates (Promoters) Ltd v Delhi Development Authority (SC, 2013)
- auction notice
Revocation of Proposal

• Section 3: Communication, acceptance and revocation of proposals—The

revocation of proposals and acceptances are deemed to be made by any
act or omission of the party revoking by which he intends to communicate
such revocation, or which has the effect of communicating it.
• Section 4: The communication of a revocation is complete,—
as against the person who makes it, when it is put into a course of transmission to
the person to whom it is made, so as to be out of the power of the person who
makes it;
as against the person to whom it is made, when it comes to his knowledge.
o Illustration (c)
Revocation of Proposal

• Section 5: Revocation of proposals and acceptances—A proposal

may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards
o Illustration
o Rajendra Kumar Verma v State of Madhya Pradesh (MP, 1972) - government
clauses cannot take away the legal rights of a person
Revocation of Proposal

• Section 6: Revocation how made—A proposal is revoked—

(1) by the communication of notice of revocation by the proposer to the other party;
(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so
prescribed, by the lapse of a reasonable time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the
knowledge of the acceptor before acceptance
• Dickson v Dodds (UK, 1876) -
• The issue in this case was whether the defendant’s promise to keep the offer open until Friday morning was a
binding contract between the parties and if he was allowed to revoke this offer and sell to a third party
• The court held that the statement made by Dodds was nothing more than a promise - there was no binding
contract, no “meeting of the minds" between the parties
• Communication by a friend or other party that an offer had been withdrawn was valid and would be treated as if
it came from the person themselves
Summary

• For the formation of an agreement, one party puts up an offer or proposal to

another, and the other person accepts it. An offer is the penultimate act leading to
the agreement. Once accepted, both parties are bound by the agreement.
• One cannot be casual in making an offer, but it must also be confirmed that a
communication made by a person is indeed an offer. Agreement is about the
meeting of minds. For this to be secured, the offer must be clear, definite and
unambiguous, indicating the person’s intention to be bound by it.
• An offer or proposal can be accepted or rejected. An agreement is formed on the
acceptance of the offer. No agreement is formed if the offer is rejected.
• Contracts formed through spoken or implied offers and/or acceptance, are as
valid as contracts formed through a written offer and acceptance.
Summary

• Eg – hailing a taxi
• Eg – pricelists, catalogues, menu cards
• Eg – display in a window shop
• Grainer v Gough (AC, 1896)
o “The transmission of such a price list does not amount to an offer to supply an
unlimited quantity...described at the price named, so that as soon as an order is
given, there is a binding contract to supply that quantity. If it was so, the merchant
might find himself involved in any number of contractual obligations to supply...
which he would be quite unable to carry out, his stock...of that description being
necessarily limited.”
Summary

• Standard form contract

o Exclusion clause – eg – electricity, telephone, gas, flight, train, insurance
o L’Estrange v F Graucob Limited (KB, 1934) - coffee machine
o Bharati Knitting Company v DHL Worldwide Express Courier (SC, 1996) - DHL
parcel lost in transit
▪ “A person who has signed a document containing contract and terms is normally
bound by them even though he has not read them, and even though he is ignorant
of their precise legal effect.”
Summary

• List down your three learnings from class today