Section 2(a) of Indian Contract Act 1972 says that
when a person signifies his willingness to do or to abstain from doing something to another, with a view to obtaining the assent of that another, he is said to make a proposal.
Further, section 2(b) says that when the person to whom the proposal is made signifies his assent, the proposal is said to be accepted. The important point to note here is that the party making the proposal or the party accepting the proposal must “signify” their willingness or assent to the other party. Thus, a promise cannot come into existence unless the willingness or assent is communicated to the other party. Further, even the revocation, if any, must be communicated to the other party for it to take effect. Therefore, communication is the most critical aspect in the making of a contract.
Section 3 defines how a communication, acceptance, or revocation can be signified:
The communication, acceptance, and revocation are deemed to be made by an act or omission of the party proposing, accepting, or revoking, by which he intends to communicate such proposal, acceptance, or revocation, or which has the effect of communicating it. Thus, a proposal may be made by any way , which has the effect of laying before another person his willingness to do nor not do something. The acceptance can be signified similarly. Section 9 specifies that a promise (i.e. a proposal and its acceptance) can be formed either by words, written or oral, is which case it is called express or by action, in which case it is called implied. In the case of Haji Mohd Ishaq vs Mohd Iqbal SCC 1978, the defendants accepted the goods supplied by the plaintiff through a go between man and also paid part of the price. It was held that the defendants were liable to pay the remaining balance because the proposal and its acceptance were signified by their actions.
Section 4 specifies when a communication is complete:
Communication of a proposal is complete when it comes to the knowledge of the party to whom the proposal is made. For example, if A sends a proposal in the mail to B and if the mail is lost, it can be held that the communication of the proposal is not complete. In the case of Lalman vs Gauridatta 1913, it was held that the reward for the missing child cannot be claimed by a person who traced the child without any knowledge of the announcement. There was no contract between the two in the first place because the proposal never came to the knowledge of the person who found the child and thus he could never accept it.
Communication of the acceptance is complete, as against the promisor, when it is put in course of transmission to the promisor so as to be out of the power of the acceptor, as against the acceptor, when it comes to the knowledge of the promisor. For example, as soon as B drops a letter of acceptance in mail back to A, A is bound by the promise. However, B is not bound by it unless A receives the acceptance letter. In the case of Adams vs Lindsell 1818, it was held that a contract arose as soon as the acceptance was posted by the acceptor. In this case, the plaintiff received the offer to sell wool on 5th and they posted an acceptance, which was received on 9th by the defendants. The defendants, however, had already sold the wool on 8th. The court observed that the contract must arise as soon as the acceptance is posted and is gone out of the reach of acceptor otherwise this will result in an infinite loop.
Communication of a revocation is complete as against the party who makes it when it is put in course of transmission to the party to whom it is made, so as to be out of the power of the party who makes it; as against the party to whom it is made, when it comes to the knowledge of the party to whom it is made. For example, if A sends a letter revoking his proposal, it will be complete against A as soon as the letter is dropped in the mailbox and is out of his control. However, the revocation will be held complete against B only when B receives the letter. Further , if B revokes his acceptance by telegram, it will he deemed complete against B as soon as he dispatches the telegram. It will be held complete against A, when A receives the telegram.
Section 5 specifies when a proposal and acceptance can be revoked:
A proposal can be revoked anytime before the communication of its acceptance is complete as against the proposer but not afterwards. For example, if A propose to B through a letter, A can revoke the proposal as long as B has not posted a letter of acceptance to A. In the case of Henthorn vs Fraser 1862, an offer to sell a property was made to a person. This person was to reply to it within 14 days. He lived in another town and he posted an acceptance at 3.50PM, which reached the offerer at 8.30 PM. Meanwhile, the offerer posted the revocation letter at 1 PM, which reached the person at 5.30PM. Thus, the revocation did not reach the offeree before the communication of the acceptance was complete as against the offerer. Thus, the revocation was held ineffective.
An acceptance may be revoked anytime before its communication is complete as against the acceptor. For example, B can revoke his acceptance that was sent by letter, by a telegram that reaches A before the acceptance letter. In the case of Union of India vs Bhimsen Walaiti Ram 1969, the defendant won an auction for a liquor shop and paid 1/6 of the cost upfront. However, the bid was supposed to be finalized by the financial commissioner, which he had not done. Meanwhile, the defendant failed to pay the remaining amount and the commissioner ordered a re-auction. In the re-auction, less money was realized and the plaintiff sued to recover the shortfall. However, SC held that since the commissioner had not given is final approval for the bid, the communication of acceptance was not complete against the defendant, thus the defendant was free to withdraw or revoke his proposal (i.e the bid).
Section 6 specifies how a revocation can be made:
A proposal is revoked by the communication of the notice of revocation by the proposer to the other party. by the lapse of prescribed time in the proposal for acceptance or if no time is prescribed, by the lapse of a reasonable time in communication of the acceptance. by the failure of the acceptor to perform a condition precedent to acceptance. by death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance. Acceptance
Section 7 specifies that an acceptance must be absolute and unqualified. A partial acceptance or a clarification regarding a proposal, or specifying a condition on acceptance is no acceptance. In the case of Hyde vs Wrench 1840, an offer was made to sell a farm for #1000, which was rejected by an plaintiff, who counter offered #950 for it. This was rejected by the defendant, upon which the plaintiff agreed to pay #1000. However, it was held than the defendant was not bound by any such second acceptance.
Section 7 further says that the acceptance must be in some usual and reasonable manner, unless the proposal prescribes the manner in which the acceptance should be made. If the proposal prescribes the manner, and if the acceptance is not done in that manner, the proposer may insist that the acceptance be made in the manner prescribed, and if he fails to do so, he accepts the acceptance. Thus, if the acceptance is sent by any way other than what is prescribed by the proposal, the proposer must reject it in a reasonable time otherwise the proposer accepts it. This is markedly different from English law where a proposal must be accepted in the manner required in the proposal otherwise, the acceptance is invalid. In the case of Elliason vs Henshaw 1819, it was held that an acceptance sent by mail instead of through the wagon that brought the offer, was not valid.
Section 8 specifies that a proposal is accepted when the acceptor performs conditions prescribed for the acceptance or when he accepts the consideration given along with the offer for a reciprocal promise. When acceptance consists of an act as in the case of State of Bihar vs Bengal C & P Works 1954, it was held that, when an order is sent for goods, the posting of goods itself is equivalent to acceptance. No further communication of acceptance is necessary.
In the case of Carlill vs Carbolic smoke ball co 1893, it was held that, purchasing and consuming the medicine performs the condition of the proposal.
Requirements for an acceptance
1. Acceptance must be from a person to whom the proposal was made. In the case of Powel vs Lee 1908, it was held that communication of an acceptance from an unauthorized person is invalid. 2. Acceptance must be signified to the proposer. In the case of Felthouse vs Bindley 1863, it was held that unless an acceptance is given to the offerer, it is no acceptance. 3. It is required that there be an act that signifies the acceptance. As held in the case of Bhagvandas Goverdhandas Kedia vs Girdharilal Pursottamdas & Co SC AIR 1966, for an acceptance to be completed, a mere mental decision is not sufficient. An external manifestation of the decision is a must. Communication and acceptance of General Offers A general offer, such as an advertisement for the sale of an article at a fixed price, or to give prize to the one that does something first, is not made to a particular person. Whoever the contract is done with the person who responds or who does the task first. Communication of such as offer is done through public media such as a newspaper. S general offer can be perpetual or end as soon as the condition is fulfilled.
No explicit acceptance of such offers is usually required. Performing the conditions specified in the offer acts as the acceptance of the offer. For example, in the case of Carlill vs Carbolic Smoke Ball Company 1893, it was held that it was a general offer and anybody who fulfilled the condition was eligible for the $100 compensation as advertised.
Revocation of General Offers A general of fer can be revoked in the same manner as it was made. For example, by printing a revocation in a newspaper. It will be considered complete, even if a person who is ignorant of the revocation, performs the conditions after the revocation is published
Section 11 of the Indian contract Act provides that a person is competent to contract if:
He or she is of the age of majority according to the law he or she is subject to He or she is of sound mind He or she is not disqualified by the law he or she is subject to
F igure: Competent to Contract Thus in order to enter into a valid contract one has to have all the three requirements and if any of these requirements is not fulfilled then he or she is incapable of entering into a valid contract, a contract recognized and enforceable by law.
‘Who is not competent to contract?’
The people who are not competent to contract are:
with unsound mind
Persons disqualified by law
Section 2(h) of Indian Contract Act 1972 – An agreement enforceable by law is a contract.
Def. by Anson – A contract consists in an actionable promise or promises.
Def. by Sevigni – Contract is a combination of agreement and responsibility. Def. by Pollock – An agreement or promise enforceable by law is contract.
Section 10 – All agreements that are made by people competent to contract, with free consent, for a lawful object and lawful consideration and not expressly declared to be void are contracts.
Thus, we get the following elements
1. There must be two or more people involved.
2. There must be an intention to contract. Balfour vs Balfour 1919 – Husband promised to send money to wife. Not a contract because there was no intention to contract.
3. There must be an agreement to do or to abstain from doing something.
4. The agreement must involve a lawful purpose, which means – agreement must not be against marriage, trade, legal proceedings, or it must not be a wagering agreement or must not be expressly prohibited by law.
5. Agreement must not be uncertain
6. Must not be impossible. Sec 56.
7. Free consent – not vitiated by coercion, undue influence, fraud, or misrepresentation.
8. Parties must be competent to contract.
9. Lawful consideration.
10. Lawful object.
11. Legal formalities
12. Must be enforceable by law, which means must not be immoral or against public policy