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1. Define a contract and describe the essentials of a valid contract.

A contract is basically an agreement between two parties creating a legal obligation for both of them to
perform specific acts. Each party is legally bound to perform the specified duties such as rendering a
payment or delivering goods. In order for the contract to be enforceable, each party must exchange
something of value (called “consideration”).A contract may be used for various transactions, including
the sale of land or goods, or the provision of services. They may be either oral or written, though courts
prefer that agreements be put in writing.

A contract is like a promise between people. It is an understanding, a deal between two or more people
or organizations to do certain things. Each person or organization who agrees to do something in a
contract is called a party.

An agreement, or a contract, says what you and the other person or organization has agreed to do. It is
a written list of the promises you have made. The best form of contract is written on paper and signed
by each party.

Some examples of contracts include:

 Entry forms: when you enter your work into an exhibition, festival or competition
 Consent / Release forms: when someone wants your permission to show images of you or your
work in public
 Gallery agreements and publishing licences: when showing work in a gallery, or if your work is
published
 Funding agreements: when you receive funding
 Studio agreements: when working in a supported studio or a program run by an organization

Essentials of a Contract
A contract that is not a valid contract will have many problems for the parties involved. For this reason,
we must be fully aware of the various elements of a valid contract. In other words, here we shall ponder
on all the ramifications of the definition of the contract as provided by The Indian Contract Act, 1872.

The Indian Contract Act, 1872 itself defines and lists the Essentials of a Contract either directly or
through interpretation through various judgments of the Indian judiciary. Section 10 of the contract
enumerates 5 points that are essential for valid contracts. Other than these there are some we can
interpret from the context if the contract. Let us see.
1] Two Parties

So you decide to sell your car to yourself! Let us say to avoid tax or some other sinister purpose. Will
that be possible? Can you have a contract with yourself? The answer is no, unfortunately. You can’t get
into a contract with yourself.

A Valid Contract must involve at least two parties identified by the contact. One of these parties will
make the proposal and the other is the party that shall eventually accept it. Both the parties must have
either what is known as a legal existence e.g. companies, schools, organizations etc. or must be natural
persons.

For Example: In the case State of Gujarat vs Ramanlal S & Co. – A business partnership was dissolved and
assets were distributed among the partners as per the settlement. However, all transactions that fall
under a contract are liable for taxation by the office of the State Sales Tax Officer. However, the court
held that this transaction was not a sale because the parties involved were business partners and thus
joint owners. For a sale, we need a buyer (party one) and a seller (party two) which must be different
people.

2] Intent Of Legal Obligations

The parties that are subject to a contract must have clear intentions of creating a legal relationship
between them. What this means is those agreements that are not enforceable by the law e.g. social or
domestic agreements between relatives or neighbors are not enforceable in a court of law and thus any
such agreement can’t become a valid contract.

3] Case Specific Contracts

Some contracts have special conditions that if not observed would render them invalid or void. For
example, the Contract of Insurance is not a valid contract unless it is in the written form. Similarly, in the
case of contracts like contracts for immovable properties, registration of contract is necessary under the
law for these to be valid.

4] Certainty of Meaning
Consider this statement “I agree to pay Mr. X a desirable amount for his house at so and so location”. Is
this a valid contract even if all the parties agree to this term? Of course, it can’t be as “desirable
amount” is not well defined and has no certainty of meaning. Thus we say that a valid contract must
have a certainty of Meaning.

5] Possibility Of Performance Of An Agreement

Suppose two people decide to get into an agreement where a person A agrees to bring back the person
B’s dead relative back to life. Even when all the parties agree and all other conditions of a contract are
satisfied, this is not valid because bringing someone back from the dead is an impossible task. Thus the
agreement is not possible to be enforced and the contract is not valid.

6] Free Consent

Consent is crucial for an agreement and thus for a valid contract. If two people reach a similar
agreement in the same sense, they are said to consent to the promise. However, for a valid contract, we
must have free consent which means that the two parties must have reached consent without either of
them being influenced, coerced, misrepresented or tricked into it. In other words, we say that if the
consent of either of the parties is vitiated knowingly or by mistake, the contract between the parties is
no longer valid.

7] Competency Of The Parties

The section 11 of the Indian Contract Act, 1872 is:

“Who are competent to contract — Every person is competent to contract who is (1) of the age of
majority according to the law to which he is subject, and who is (2) of sound mind and is (3) not
disqualified from contracting by any law to which he is subject.”

Let us see these qualifications in detail:

i. refers to the fact that the person must be at least 18 years old or more.

ii. means that the party or the person should be able to fully understand the terms or promises of
the contract at the time of the formulation of the contract.

iii. states that the party should not be disqualified by any other legal ramification. For example, if
the person is a convict, a foreign sovereign, or an alien enemy etc., they may not enter into a
contract.

8] Consideration

Quid Pro Quo means ‘something in return’ which means that the parties must accrue in the form of
some profit, rights, interest etc. or seem to have some form of valuable “consideration”.
For example, if you decide to sell your watch for Rs. 500 to your friend, then your promise to give the
rights to the watch to your friend is a consideration for your friend. Also, your friend’s promise to pay
Rs. 500 is a consideration for you.

9] Lawful Consideration

In Section 23 of the Act, the unlawful considerations are defined as all those which:

i. it is forbidden by law.

ii. is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent.

iii. involves or implies, injury to the person or property of another

iv. the Court regards it as immoral or opposed to public policy

2. What is an ‘offer’? When is it complete? State the rules a valid offer.


An offer is an explicit proposal to contract which, if accepted, completes the contract and binds both the
person that made the offer and the person accepting the offer to the terms of the contract.

In order to create a valid contract, one party must make an offer, another party must accept the offer,
and consideration must be exchanged. The one who makes the offer is known as the “offerer,” while the
person who receives the offer is called the “offeree.” Although you can make an offer with just a single-
sentence verbal statement, you and the other party will generally benefit from a detailed written
description of the offer and its terms.

An offer refers to a promise that is dependent on a certain act, promise, or forbearance given in
exchange for the initial promise. It is a demonstration of your willingness to enter into an agreement
and an invitation to the other party to conclude the agreement by expressing assent.

Determining whether a party has actually made an offer is a common challenge in a contract case. As a
rule of thumb, the offer must be definite and reasonable enough for the receiving party to believe that it
is indeed an offer. If your offer includes terms such as quantity, price, quality, and place and time of
delivery, the court may find that you have indeed made an offer.

A simple price quote is generally not regarded as an offer. While an advertisement may be considered
an invitation to an offer, it is not an actual offer. However, if an advertisement promises to give out an
award, it may constitute an offer. A verbal offer is not enforceable against the offerer for contracts
involving real estate, the sale of goods worth $500 or more, or transactions that require more than a
year to complete. Such contracts must be written in order to be enforceable.

Acceptance, Rejection, and Termination of an Offer

If the one receiving the offer decides to accept it and make a partial payment, the offerer may be bound
to the terms and conditions of the offer. Once the offerer takes the payment, an agreement is struck. He
or she will then be legally obligated to perform his or her part of the contract. If the offerer fails to fulfill
his or her contractual duties, the offeree is entitled to take legal action.

If the offer is rejected, it is regarded as terminated. If changes are made to the terms of the offer, the
initial offer will be terminated and replaced with a new offer. The new offer is referred to as a
counteroffer. If it is indicated that an offer will end within a certain timeframe, the receiving party
cannot accept it after the expiration date. An offer may be automatically terminated after a reasonable
amount of time.

In addition, an offer may be express or implied. An express offer is made in the presence of
conversation, while an implied offer is communicated in the absence of conversation. In a situation
where the offerer says that silence means consent, the offer is considered invalid. Acceptance of an
offer must be communicated.

An offer should be accepted before it lapses (i.e. comes to an end). An offer may come to an end or be
completed in any of the following ways stated in Sec. 6 of the Indian Contract Act.

1. By communication of notice of revocation:


An offer may come to an end by communication of notice of revocation by the offeror. It may be noted
that an offer can be revoked only before its acceptance is complete for the offeror.
In other words, an offeror can revoke his offer at any time before he becomes bound by it. Thus, the
communication of revocation of offer should reach the offeree before the acceptance is communicated.

A notice of revocation will take effect only when it is brought to the knowledge of the offeree. It may be
noted that notice of revocation must come from offeror or his duly authorised agent.

2. By lapse of time:
Sometimes, the time is fixed for the acceptance of the offer, and it is not accepted within the fixed time.
In such cases, the offer comes to an end automatically on the expiry of fixed time.

3. By failure to accept condition precedent:


Sometimes, the offer requires that some condition must be fulfilled before the acceptance of the offer.
In such cases, the offer lapses, if it is accepted without fulfilling the condition.

4. By the death or insanity of the offeror:


Sometimes, the offeror dies or becomes insane. In such cases, the offer comes to an end if the fact of his
death or insanity comes to the knowledge of the acceptor before he makes his acceptance.
But if the offer is accepted in ignorance of the fact of death or insanity of the offeror, the acceptance is
valid. This will result in a valid contract, and legal representatives of the deceased offeror shall be bound
by the contract.

It will be interesting to know that there is no provision in the Indian Contract Act about the effect of the
death of an offeree, if he dies before acceptance. But it is an established rule that the offer comes to an
end by operation of law, because death automatically brings about the termination of the offer.

As an offer can be accepted only by an offeree and not by any other person, therefore it cannot be
accepted by his executors also.

In addition to the modes stated in Sec. 6, an offer is also revoked in the following cases.

5. By counter-offer by the offeree:


Sometimes, a counter-offer is made by the offeree. In such cases, the original offer automatically comes
to an end, as the counter-offer amounts to rejections of the original offer.

6. By not accepting the offer, according to the prescribed or usual mode:


Sometimes, some manner of acceptance is prescribed in the offer. In such cases, the offeror can revoke
the offer if it is not accepted according to the prescribed manner. It may be noted that within a
reasonable time offeror should give notice to the offeree that the offer should be accepted in the
prescribed manner, and not otherwise.

7. By rejection of offer by the offeree:


Sometimes, the offeree rejects the offer. In such cases, the offer comes to an end. Once the offeree
rejects the offer, he cannot revive the offer by subsequently attempting to accept it.

The rejection of offer may be express or implied. Express rejection is that where the offeree rejects the
offer by words, written or spoken. Implied rejection is that where offeree’s conduct shows that he is not
accepting the offer e.g. where the offeree makes a counter-offer, or where he gives conditional
acceptance.

8. By change in law:
Sometimes, there is a change in law which makes the offer illegal or incapable of performance. In such
cases also, the offer comes to an end.

Essentials of a Valid Offer


1. The offer must disclose an intention to create legal relations: If the offer does not contemplate to
give rise to legal relationship, it is no offer in the eyes of law, e.g. invitation to a dinner which has no
intention to create relationship. An offer must impose some legal duty on the party making it.

2. The terms of offer must be clear and certain and not indefinite, lose or ambiguous: The terms of the
offer must be definite, unambiguous, clear and certain and not lose and vague. The offer must not be
based on a condition which is uncertain or incapable of performance. Though the proposer is free to lay
down any terms and conditions in his offer, but they should be certain and legal, otherwise its
acceptance will amount to a vague agreement which the courts will not enforce. But, where an
agreement contains its own machinery for clarifying vague term, the agreement will not be vague in
Law. (Foley V. Classque Coaches Ltd.) (1934). In some circumstances, the courts might imply a term
based upon the presumed, intention to the parties.

Examples:-(a) A says to B “I will sell you my clar:. A owns four different cars. The offers is not valid
because it is not definite.

(b) A made a contact with B and promised that if he was satisfied with him as a customer he would
favourably consider his application for the renewal of the contract. The promise is too vague to create
any legal relationship.

3. Offer may be general or specific: An offer may be made to definite person or persons or to the world
at large. When it is made to some specific person or persons it is called a specific offer. When it is made
to the world at large it is called a General offer. A specific offer can be accepted only by the person to
whom the offer has been made and in the manner, if any specified in the terms of the offer.

But a general offer can be accepted by any persons having notice of the offer by doing what is required
under the offer. The most obvious example of such an offer is where a reward is publicity offered to any
about that object, who will recover a lost object or wll give some information, there the party claiming
the reward has not to prove anything more than that he has performed the conditions on which the
reward was offered. The time table of railways is a general proposal to run trains according to the table,
which is accepted by an intending passenger tendering the price of the ticket.

Carlill V. Carbolic Smoke Ball Co. (1983). In this case, the Company advertised that a reward of £ 100
would be given to any person who contracted influenza after having used the smoke-balls of the
Company as directed. Mrs. Carlill used the smoke-balls according to the directions of the company. but
contracted influenza. It was held, that the offer was a general one, and Mrs. Carlill had accepted it by
acting in accordance with the advertisement, and therefore, the company could not get away from its
responsibility by saying that they had not meant it seriously. She was entitled to the reward.

In India, the principle was applied in the case of Har Bhajan. Lal V, Han Charan Lal. In this case offer of
reward was made to any one tracing a lost boy and bringing him home. Harbhajan Lal who knew of the
reward. found out the boy and took him to the Police Station. It was held that he was entitled to the
reward.

4. Offer may be express or implied: An offer made by words, spoken or written is termed as an
‘express offer’.

Example: If A says to B that he is willing to sell him his car for a sum of Rs. 10,000 it is an express offer.

‘Imlied offer’ means an offer made by conduct, an offer may also be implied from the conduct of the
parties or the circumstances of the case. This is known as an implied offer. When one person allows the
other to perform certain acts under such circumstances that nobody would accept them without
consideration it will amount to an offer by conduct and the permission of the party, who is benefitted by
such performances, will amount to his acceptance.

Example : A bus company runs a bus on a particular route. This is an implied offer by the bus company to
take any person on the route who is prepared to pay the prescribed fare. The acceptance of the offer is
complete as soon as a passenger gets into the bus.

5. Offer must be communicated: The offer, to be valid must be communicated to the offeree. An offer
becomes effective only when it has been communicated to the offeree so as to give him an opportunity
to accept or reject. An acceptance of the offer, in ignorance of the offer, is no acceptance and,
therefore, no valid contract can arise.

6. Statement of Price: If a party makes a statement of price, it cannot be taken as an offer to sell at
that price. The decision made in case of Harvey and Facey, is important to note in this connection.

Example : A asks B, “Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid”. B
replies telegraphically “lowest price for Bumper Hall Pen £ 900”.

A responds by telegram “We agree to buy Bumper Ball Pen for the sum of £ 900 asked by you”. It was
held that no contract was concluded between A&B.

Leading case: Lalman Shukla V. Gauri Dut (1913):

In this case, G’s nephew has absconded. He sent his munim L in search of the missing boy. In his
absence, G issued hand bills oferring a reward of Rs, 501/- to anyone who might find out the boy L found
out the boy before seeing the hand bills. Later on, he came to know of the reward and sued G for the
reward. Here he could not claim the reward as he did not know about the offer.

6. Offer nust be made with a view to obtain the consent: The offer must be made with a view to obtain
the consent of the other party and not merely with a view to disclosing the intention of making an offer.
A proposer cannot also dictate terms under which the offer can be refused. At best, he can lay down the
mode of acceptance.
7. Offer should not contain a term the non-compliance of which would amount to acceptance:
The offer should not contain a term the non-compliance of which would amount to acceptance for
example a person cannot make such an offer that if the acceptance of the offer is not received upto
Monday, the offer would be presumed to have been accepted.

8. Special conditions attached to an offer must also be communicated: Though an offeror is free to lay
down any terms and conditions in his offer, but it is the responsibility of the offeror to bring all the
terms of the offer to the notice of the other party, the acceptor is bound only for those conditions which
(i) have expressly communicated to him or (ii) have so clearly been written that he ought to have known
them or (iii) have reaonsable notice of the existence of those terms. He will also be bound by the
conditions if he knew of their existence, though they are in a language unknown to him. It is his duty to
get them explained.

Examples : (a) A passenger had purchased a ticket for a journey. On the back of the ticket, there were
certain terms and conditions. One of the terms was that the carrying company was not liable for losses
of any kind. But there was nothing on the face of the ticket to draw the attention of the passenger to
the terms and conditions on the back of ticket. Held, the passenger was not bound by the terms and
conditions on the back side of the ticket. (Henderson V. Stevenson) (1875).

(b) T, an illiterate, purchased a railway ticket on the front of which was printed “for conditionsseek
back”. One of the conditions was that the railway company would not be liable for personal injuries to
the passenger. An accident caused some injuries to T. Suit for damages brought by T was dismised as he
was bound by the conditions printed on the reverse of the ticket. (Thompson V. L. M. & S. Rly.) (1930).

Now it is the established law that wherever on the face of a ticket words to the effect “for conditions
see back” are printed, the passenger concerned is bound by the conditions, it is immaterial whether he
actually reads them or not. If conditioins are printed on the back of the ticket, but there is nothing on
the face of it to draw attention of the person to these conditions, he is not bound by the conditions.

Thus, it is to be noted that a person, who accepted without objection a document containing terms of
the offer, which he knows or ought to have known, will be bound by those terms even if he had not read
them. However, this rule will not be applicable if the conditions are so irrelevant for unreasonable that
an assent to them cannot reasonably be presumed. Similarly, where a condition to an offer is against
public policy, it will not be enforced merely because it has been accepted by the acceptor.

Example: A garment of B was lost due to the negligence of laundry owner. On the back of the laundry
receipt, it was mentioned that in the event of loss only 15% of the market price or value of the article
would be recovered by the customer. In a suit by R, it was held that the term being prima facie opposed
to public policy it could not be enforced even though there was tacit acceptance by the customer of the
terms (Lily White V. Munnuswami) 1966.
The acceptor would be bound by the terms and conditions only when all the following conditions are
satisfied:

1. The acceptor knows about the writing or printing on the ticket.

2. He also knew the writing or printing on the ticket contained conditions regarding terms of the
contract.

3. The conditions must not be against public policy or the fundamental principles of contracts.

4. The offeror had done all that was reasonably sufficient to give the acceptor notice of the conditions.
For example, if printing of the ticket is not clearly visible due to the smallness of the type it could not be
taken that the carrying company had made sufficient arrangement for the communication of the
conditions. (Richardson V. Rowntree) (1894).

5. The notice of the conditions should be given before or at the time of the contract but not
afterwards. A sbusequent notice about the conditions will not bind the other party.

Example: A hotel put up a notcie in a bed room. “The proprietors will not hold themselves responsible
for articles lost or stolen unless handed to the manager for safe custody”. Held, the notice was not
effective as it came to the knowledge of the customer only after the contract had been made and the
customer had already paid the rent.

6. Conditions must not be contained in a voucher or receipt for payment of money because they will
not bind the person receiving the voucher or receipt (chapleton V. Barry U.D.C.) 1940.

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