Indian Contract Act

Dr. Jay Desai

1. Types of Contract

Dr. Jay Desai

 Express contract
• A contract would be an express contract if the
terms are expressed by words or in writing.
Section 9 of the Act provides that if a proposal
or acceptance of any promise is made in
words the promise is said to be express.
• Example: A says to B ‘Will you purchase my
bike for Rs. 30,000?’ B says ‘Yes’ to A.
 Implied contract
• Implied contracts in contrast come into existence
by implication. Most often the implication is by
law and or by action. Section 9 of the Act
contemplates such implied contracts when it lays
down that in so far as such proposal or
acceptance is made otherwise than in words, the
promise is said to be implied.
• Example: A stops a taxi by waving his hand and
boards it. There is an implied contract that A will
pay the prescribed fare on reaching his
destination.
 Quasi contract
• A quasi contract is a contract that exists by
order of a court, not by agreement of the
parties. Courts create quasi contracts to avoid
the unjust enrichment of a party in a dispute
over payment for a good or service.
 E-contract
• An e-contract is a contract made through the
digital mode.
 Executed contract
• In an executed contract both the parties have
performed their promises under a contract. It
is a contract where, under the terms of
contract, nothing remains to be done by the
parties.
• Example: A sells his car to B for Rs 1 lakh. A
delivered the car and B paid the price. This is
an executed contract.
 Executory contract
• In an executory contract both the parties are
yet to perform their promises. In other words,
it is a contract where parties have to still
perform their obligation in the future.
• Example: A sells his car to B for Rs. 2 lakh. If A
is still to deliver the car and B is yet to pay the
price, it is an executory contract.
 Partly Executed and partly executory
contract
• In a partly executed and partly executory
contract, one party has already performed his
promised and the other party has yet to
execute his promise.
• Example: A sells his car to B. Though A has
delivered the car, B has yet to pay the price.
For A it is an executed contract, whereas it is
an executory contract on the part of B since
the price has yet to be paid.
 Unilateral contract
• A unilateral contract is also known as a one sided
contract. It is a contract where only one party has to
perform his promise. In such a contract, the promise
on one side is exchanged for an act on the other side.
After the formation of a unilateral contract, only one
party remains liable to perform his obligation because
the other party has already performed his obligation.
• Example: X promises to pay Rs. 1000 to anyone who
find his lost cellphone. B finds and returns it to A. From
the time B found the cellphone, the contract came into
existence. Now A has to perform his promise, i.e. the
payment of Rs. 1,000.
 Bilateral contract
• A Bilateral contract is one where the obligation or
promise is outstanding on the part of both the
parties. It is also known as a two-sided contract.
• A promises to sell his car to B for Rs. 1 lakh and
agrees to deliver the car on the receipt of the
payment by the end of the week. The contract is
bilateral as both the parties have exchanged a
promise to be performed within a stipulated
time.
 Valid contract
• If the contract entered into by the parties and
satisfies all the elements of a valid contract as
per the act, it is said to be a valid contract.
 Void contract
• Section 2 (j) states as follows: “A contract which ceases
to be enforceable by law becomes void when it ceases
to be enforceable”. Thus a void contract is one which
cannot be enforced by a court of law.
• Example: Mr. X agrees to write a book with a publisher.
After few days, X dies in an accident. Here the contract
becomes void due to the impossibility of performance
of the contract. It may be added by way of clarification
here that when a contract is void, it is not a contract at
all but for the purpose of identifying it, it has to be
called a void contract.
 Voidable contract
• Section 2(i) defines that an agreement which is
enforceable by law at the option of one or more
parties but not at the option of the other or others is a
voidable contract.
• This infect means where one of the parties to the
agreement is in a position or is legally entitled or
authorized to avoid performing his part, then the
agreement is treated and becomes voidable. Such a
right might arise from the fact that the contract may
have been brought about by one of the parties by
coercion, undue influence, fraud or misrepresentation
and hence the other party has a right to treat it as a
voidable contract.
 Illegal contract
• Illegal contract are those that are forbidden by
law. All illegal contracts are hence void also.
Because of the illegality of their nature they
cannot be enforced by any court of law. In fact
even associated contracts cannot be enforced.
Contracts which are opposed to public policy
or immoral are illegal. Similarly contracts to
commit crime like supari contracts are illegal
contracts.
 Unenforceable contract
• A contract which satisfies all the requirements
of the contract but has technical defects is
called an unenforceable contract. A contract is
said to have a technical defect when it does
not fulfill the legal formalities required by
some other act. When such legal formalities
are compiled are complied with later on, the
act becomes enforceable.
2. Offer and Acceptance

Dr. Jay Desai

 Offer
• The term offer is defined under Section 2 (a)
as under:
• ‘When one person signifies to another, his
willingness to do or abstain from doing
anything with a view to obtaining the assent
of the offer, to such an act or abstinence, he is
said to make a proposal’.
 Essential Elements of An Offer
• Two Parties
• Communication
• Willingness
• With intention of obtaining assent
• Offer may be positive or negative
 Two Parties
• For the valid offer, there must be two parties.
A person cannot make an offer to himself.
 Communication
• The offer must be communicated to the
offeree. If it is never communicated to the
offeree, it cannot be accepted and no valid
contract comes in to existence.
 Willingness
• The offer must show willingness of the offeror.
Simply telling or sharing a plan is not an offer.
Sharing the idea or the feelings is not
willingness. If the party proposes certain
terms on which he is willing to negotiate, in
such a case, he is not making an offer because
he is not expressing his willingness to enter
into a contract.
With intention of obtaining assent
• The offer must be made with a view to
obtaining the assent of the offeree. The offer
made out of a prank or as a joke is not a valid
offer, and therefore if accepted, it can never
make the valid contract.
 Offer may be positive or negative
• The offer may involve doing something or
doing nothing- section 2 (o). The offer to do
something is a positive offer or not to do
something is a negative offer.
 Legal Rules as to Offer
• The offer is the first step in a valid contract. If the
offer itself is not valid; the contract can never be
valid. Following are the rules for a legal and valid
offer.
• 1. The ‘offer’ must be with intent to create a legal
relationship. Hence if it is accepted, it must result
in a valid contract. An invitation to join a friend
for dinner is a social activity. This does not create
a legal relationship or right or obligation.
• 2. The offer must be certain and definite. It
must not be vague. If the terms are vague, it is
not capable of being accepted as the
vagueness would not create any contractual
relationship.
• 3. The offer must be express or implied.
• 4. The offer must be distinguished from an
invitation to offer.
• 5. The offer must be either specific or general.
• 6. The offer must be communicated to the
person to whom it is made. Otherwise the
offeree cannot accept the offer. He cannot
accept the offer because he is not aware of
the existence of the offer. Such a situation
does not create any legal obligation or right on
any one.
• 7. The offer must be made with a view to
obtaining the consent of the offeree.
• 8. An offer can be conditional but there should
be no term in the offer that noncompliance
would amount to acceptance. Thus the offeror
cannot say that if non-acceptance is not
communicated by a certain time the offer
would be treated as accepted.
 Classification of Offers
• Express offer
The offer made by using words spoken or written is
known as an express offer.
Example: A says to B – ‘Will you purchase my car for Rs.
4,00,000?
• Implied offer
The offer which could be understood by a conduct of
parties or circumstances of case is called the implied
offer.
Example: Withdrawal of the money from the card holder
from the ATM. It creates implied contract between the
card holder and the bank.
• General offer
It is an offer made to public at large with or
without any time limit. In terms of Section 8 of
the Act, anyone performing the conditions of
the offer can be considered to have accepted
the offer.
Example: An advertisement in a newspaper,
‘Anyone who will find my lost dog will be
rewarded with Rs. 5,000.
• Specific offer
Where an offer is made to a particular and
specified person, it is a specific offer. Only that
person can accept such specific offer, as it is
special and exclusive to him.
• Example: A says to B- ‘Will you purchase my
house for Rs. 20 lakhs?’ It is a specific offer as
it is made to B. Only B can accept it.
• Cross offer
As per Section2(b), when a person to whom proposal (offer) is
made signifies his assent, the proposal is said to be
accepted. Thus, assent can be only to a ‘proposal’. If there
was no proposal, question of its acceptance cannot arise.

Example: If A makes a proposal to B to sell some goods at a

specified price and B, without knowing proposal of A,
makes a proposal to purchase the same goods at the price
specified in the proposal of A, it is not an acceptance, as B
was not aware of proposal made by A. It is only cross
proposal (cross offer). And when two persons make offer to
each other, it cannot be treated as mutual acceptance.
• Continuous offer
An offer which is made to public at large and if it
is kept open for public acceptance for a
certain period of time, it is known as
continuing or open offer.
Example: Tenders that are invited for supply of
materials and goods.
• Counter offer
Upon receipt of an offer from an offeror, if the offeree instead
of accepting it straightway, imposes conditions which have
the effect of modifying or varying the offer, he is said to
have made a counter offer. Counter offers amounts to
rejection of original offer.
Example: A offered to sell his book to B for Rs 2,000. B replied,
‘I am ready to pay Rs 1,900’. On A’s refusal to sell at this
price, B agreed to pay Rs. 2,000. Held, there was not
contract, as the acceptance to buy it for Rs. 1900 was a
counter offer, i.e. rejection of the offer of A. The
subsequent acceptance to pay Rs 2,000 is a fresh offer from
B to which A was not bound to give his acceptance.
 Lapse and Revocation of Offer
• An offer lapses after stipulated or reasonable time
An offer lapses if acceptance is not communicated within
the time prescribed in the offer, or if no time is
prescribed, within a reasonable time [Sec. 6(2)]. What
is a reasonable time is a question of fact depending
upon the circumstances of each case. For example, an
offer made by telegram suggests that a reply is
required urgently and if the offeree delays the
communication of his acceptance even by a day or two,
the offer will be considered to have lapsed.
• An offer lapses by not being accepted in the
mode prescribed, or if no mode is prescribed, in
some usual and reasonable manner
But, according to section 7, if the offeree does not
accept the offer according to the mode
prescribed, the offer does not accept the offer
according to the mode prescribed; the offer does
not lapse automatically. It is for the offeror to
insist that his proposal shall be accepted only in
the prescribed manner, and if he fails to do so he
is deemed to have accepted the acceptance.
• An offer lapses by rejection
An offer lapses if it has been rejected by the offeree. The rejection may
be express i.e., by words spoken or written, or implied. Implied
rejection is one (a) where either the offeree makes a counter offer,
or (b) where the offeree gives a conditional acceptance. For
example, A offered to sell his house to B for Rs 20 Lakhs. B offered
Rs. 18 Lakhs for which price A refused to sell. Subsequently, B
offered to purchase the house for Rs. 20 Lakhs. A, declined to
adhere to his original offer. B filed a suit to obtain specific
performance of the alleged contract. Dismissing the suit, the court
held that A was justified because no contract had come into
existence, as B, by offering Rs. 18 Lakhs, had rejected the original
offer. Subsequent willingness to pay Rs 20 Lakhs could be no
acceptance of A’s offer as there was no offer to accept. The original
offer had already come to an end on account of ‘counter offer’
• An offer lapses by the death or insanity of the offeror or
the offeree before acceptance
If the offeror dies or becomes insane before acceptance, the
offer lapses provided that the fact of his death or insanity
comes to the knowledge of the acceptor before acceptance
[Sec. 6 (4)]. From the language of the section, it may be
inferred that an acceptance in ignorance of the death or
insanity of the offeror, is a valid acceptance, and gives rise
to a contract. Thus the fact of death or insanity of the
offeror would not put an end to the offer until it comes to
the notice of the acceptor before acceptance. An offeree’s
death or insanity before accepting the offer puts an end to
offer and his heirs cannot accept for him
• An offer lapses by revocation
An offer is revoked when it is retracted back by the
offeror. An offer may be revoked, at any time
before acceptance, by the communication of
notice of revocation by the offeror to the other
party [Sec. 6(J). For example, at an auction sale, A
makes the highest bid. But he withdraws the bid
before the fall of the hammer. There cannot be a
concluded contract because the offer has been
revoked before acceptance.
• Revocation by non- fulfillment of a condition
precedent to acceptance
An offer stand revoked if the offeree fails to fulfill a
condition precedent to acceptance [Sec. 6 (3)].
Thus, where A, offers to sell his bike to B for Rs.
30,000, if B joins the lions club within a week the
offer stands revoked and cannot be accepted by B
if B fails to join the lions club (in default of
payment of earnest money).
• An offer lapses by subsequent illegality or
destruction of subject matter
An offer lapses if it becomes illegal after it is made,
and before it is accepted. Thus, where an offer is
made to sell 10 bags of wheat for Rs. 20,000 and
before it is accepted, a law prohibiting the sale of
wheat by private individuals is enacted, the offer
comes to an end. In the same manner, an offer
may lapse if the thing, which is the subject matter
of the offer, is destroyed or substantially impaired
before acceptance.
 Acceptance and Legal Rules For The
Acceptance
• In terms of Section 2(b) of the Act, “When the
person to whom the proposal is made signifies
his assent thereto, the proposal is said to be
accepted”.
• Acceptance must be given only by the person
to whom the offer is made
• Acceptance must be absolute and unqualified
[Sec. 7(1)]
• Acceptance must be expressed in some usual
and reasonable manner, unless the proposal
prescribes the manner in which it is to be
accepted [Sec. 7(2)]
• Mental acceptance ineffectual
• Acceptance must be communicated by the
acceptor
• Acceptance must be given within reasonable
time and before the offer lapses and/or is
revoked
• Acceptance must succeed the offer
• Rejected offers can be accepted only, if
renewed
Communication of Offer, Acceptance and
Revocation
• Communication of an offer
In terms of Section 4 of the Act, “the
communication of offer is complete when it
comes to the knowledge of the person to
whom it is made”. Therefore, knowledge of
communication is of relevance. Knowledge of
the offer would materialize when the offer is
given in writing or made by word of mouth or
by some other conduct.
• Communication of acceptance
Section 3 of the Act prescribes in general terms two modes of
communication namely, (a) by any act and (b) by omission,
intending thereby to, to communicate to the other or which
has the effect of communicating it to the other.
Communication by act would include any expression of words
whether written or oral. Written words will include letters,
telegrams, faxes, emails and even advertisements. Oral
words will include telephone messages. Again
communication would include any conduct intended to
communicate like positive acts or signs so that the other
person understands what the person ‘acting ‘ or ‘making
signs’ means to say or convey.
• Communication can also be by ‘omission’ to do any or something.
Such omission is conveyed by a conduct or by forbearance on the
part of one person to convey his willingness or assent. However
silence would not be treated as communication by ‘omission’.
Communication of acceptance is also done by conduct. For
instance, delivery of goods at a price by a seller to a willing buyer
will be understood as a communication by conduct to convey
acceptance. Similarly one need not explain why one boards a public
bus or drop a coin in a weighing machine. The first act is a conduct
of acceptance and its communication to the offer by the public
transport authority to carry any passenger. The second act is again a
conduct conveying acceptance to use the weighing machine kept by
the vending company as an offer to render that service for a
consideration.
 Communication of a Revocation
• The communication of a revocation is complete,
• (a) 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 revoking, i.e., when the letter of
revocation is posted; and
• (b) As against the person to whom it is made,
when it comes to his knowledge, i.e., when the
letter