1. 1 THE INDIAN CONTRACT ACT 1872

2. Proposal, Acceptance and Revocation 2

3. 3 Proposal of offer The term proposal has been defined in section 2(a) as follows: “ When one person signifies to another his willingness to do or 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.”

4. 4 The willingness to do or abstain from doing something, i.e. the proposal or offer must be made with a view to obtain the assent of the other party thereto. For example, if A says to B that he wants to sell his watch for Rs.150, it is a proposal from A. If B say to A that he should not sell his watch to anybody for a week, after which he would buy it for Rs.160, it is a proposal that abstains A from selling his watch.

5. Elements or Main Features of a Proposal Existence of two parties. Choice to do or not to do (abstain). Object of the proposal: The proposal has an object – the person making the proposal wants the consent or acceptance of the proposal by the person to whom the proposal is made. 5

6. Elements or Main Features of a Proposal There is a difference between an ‘intention to make an offer’ and an ‘invitation to make an offer’ Intention to make an offer: A times a person might declare his intention to make an offer, and not actually make the offer. Such a declaration gives no right of action to another – it only means that an offer will be made or invited in future and not that it is made now. Example: Harris Vs. Nickerson: In this case, the defendant had advertised that he would auction some goods at a place far from London. The plaintiff had to go to the place where the auction was supposed to be held, and found that there was no auction. He, thereupon, filed a suit against the advertiser for wasting time and money. But the court held that the advertiser had merely declared his intention to make an offer, and had not actually made an offer. 6

7. Elements or Main Features of a Proposal Invitation to make an offer: When a tender is called for purchase of goods or a shopkeeper displays goods in the show window with the price tags, or a company advertises its products and responds to queries from potential customers, it does not constitute an offer – it is merely an invitation to a seller or a buyer to make an offer. 7

8. Legal Rules for a Proposal or offer The offer must be made to create a legal obligation: While making the offer, the aim of the offeror should be to primarily create a legal obligation. For example: If A invites B for lunch but, for some reason, is not at home when B comes for lunch, it does not have any legal obligation for A and B cannot sue A for not keeping his commitment because an invitation to Lunch is a social affair and does not create a legal point. The terms of the offer must be unambiguous and definite: They must not be vague or indefinite. An indefinite or vague proposal is not a ‘proposal’ from a legal point of view, its acceptance cannot create any contractual relationship. For example: If A offers to B to take his building on a three year lease if B repairs it thoroughly and furnishes it according to the latest style, it cannot be said to constitute an offer because it is too vague to result in a contractual relationship. 8

9. Legal Rules for a Proposal or offer The offer may be general or specific: An offer is called specific when it is made to an individual or a group of individuals. In case of a specific offer, only the person or group of persons to whom the offer is made can accept or reject the offer. For example: if Abdulla offers to sell his watch to Naidu for Rs. 3000, it is a specific offer which only Naidu, and nobody else, can accept or reject. If it were a general offer, Abdulla would have said that he would sell his watch to anybody who pays him Rs. 3000. A general offer is enforceable by law by anybody who accepts the offer. 9

10. Specific and General Offer Specific Offer:  made to a specified person or a group of persons.  can be accepted only by the person to whom made. Thus, if offer is addressed to ‘A’, ‘B’ cannot accept it.

11. Specific and General Offer General Offer:  which is not a specific offer.  made to the world at large.  can be accepted by anyone by complying with the terms of the offer. Case Law: Carlill vs. Carbolic Smoke Ball Co. : The company has advertised that if a person took ‘smoke ball’ as per the instructions and fell a prey to influenza, he or she would be entitled to claim Euro 100 from the company. Mrs. Carlill used the medicine as per instructions in the advertisement, yet she fell a prey to influenza and claimed Euro 100. The company pleaded that since the offer was an advertisement, Mrs. Carlill should have been in touch with the company and informed it of her acceptance of the offer. The court decreed that in such a situation, the notice of acceptance was not mandatory, and that Mrs. Carlill had accepted the offer by using the medicine in the prescribed manner and was therefore entitles to Euro 100.

12. Legal Rules for a Proposal or offer The offer may be express or implied: An offer does not necessarily need to be express – it can also be implied. According to Section 9, a specific offer can be made in words – written or oral. If A offers to sell his scooter to B for Rs.5000, t is a specific oral proposal. A’s implied offer need not necessarily be expressed in words. The offer should be a request and not an order: The person making the offer has the right to set conditions to the acceptance of the offer, but he does not have any right to set conditions to the non-acceptance of the offer. For example, the offeror cannot set the condition that if the acceptance of the offer is not received within a specified period, the offer will be deemed to be accepted. 12

13. Legal Rules for a Proposal or offer The offer must be possible act. The offer must be communicated: If A has announced a reward for anybody who finds an item that A has lost, he is not bound by law to give such reward to a person who has found the item but does not know that there is a reward for finding it. Case Lalman Shukla Vs. Gauri Dutt: Lalman was an employee of Gauri Dutt whose nephew would be entitled to a reward. Lalman traced the boy and brought him home, but he was ignorant of the reward. Subsequently when he came to know of it, he claimed the reward and filed a suit to get it. But the court ruled that he was not entitled to the reward because he was not aware of it when he went to search for the boy 13

14. Acceptance According to Section 2(b) states that a proposal when the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. OR Is the act of assenting by the offeree to an offer. It is the manifestation by the offeree of his willingness to be bound by the terms of the offer.

15. Legal rules regarding acceptance Acceptance must be given only by the person to whom the offer is made. Acceptance must be absolute and unqualified. It should be communicated by the acceptor. It should be given within reasonable time or time stipulated. Acceptance must succeed the offer. 15

16. WHAT IS REQUIRED OF AN ACCEPTANCE? Acceptance must be communicated to the offerer. Silence cannot be an acceptance of an offer.  bilateral acceptance – Most offers are these (bilateral contracts) Contains two promises. Can be accepted by giving a promise. 16

17. Cont.  unilateral acceptance – Indicate acceptance by offeree by performing a certain act. Unilateral Contracts. Example promise to pay reward to anyone who returns a lost camera. When camera returned is acceptance of offer. 17

18. Who can Accept? When an offer is made to a particular person, it can be accepted by that person alone. If it is accepted by any other person, there is no valid acceptance. If the offer is made to the world at large, any person to whom it is made can accept it. 18

19. Rules of Acceptance  Communication of acceptance.  Acceptance must be absolute and unqualified.  Mental acceptance is not sufficient(Silence).  Acceptance of a proposal with the terms and conditions mentioned and implied. 19

20. Cont.  Need not be expressed in words always.  Ignorance of a proposal, is no acceptance.  Acceptance must be given within a reasonable time.  Acceptance must be given before lapse or revocation or withdrawal. 20

21. 21 Intention to create legal relationship In order that an offer, after acceptance, can result in a valid contract it is necessary that the offer should be made with an intention to create legal relationship. Promise in the case of a social engagements is generally without an intention to create legal relationship, such an agreement cannot be considered to be a contract. Thus an agreement to go for a walk, to go to movie, to play some game, or entertain another person with a dinner, cannot be enforced in a court of law. Sometimes the party may expressly mention that it is not a formal or legal agreement, whereas in some other cases such an intention could be presumed from their agreement.

22. 22 Communication of offer An offer when accepted results in a contract. An offer can be accepted only after the same has come to the knowledge of the offeree. It means that the offer has to be communicated to the offeree in order that the offeree can accept it. According to section 4, “ the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.”

23. 23 If an offer has not yet been communicated, even if somebody acts according to the terms of the offer, he cannot be deemed to be the acceptor of the offer. Acting in ignorance of an offer does not amount to the acceptance of the same. Lalman Shukla Vs. Gauri Dutt. (1913) In this case the defendant’s nephew absconded from home. The plaintiff, who was defendant’s servant, was sent to search the missing boy. After the plaintiff had left in search of the boy, the defendant issued handbills announcing a reward of Rs. 501 /- to anyone who might find the boy. The plaintiff who was ignorant of this reward, was successful in searching the boy. When he came to know of the reward, which had been announced in his absence, he brought an action against the defendant to claim this reward. It was held that since the plaintiff was ignorant of the offer of reward, his act of bringing the lost boy did not amount to the acceptance of the offer, and therefore, he was not entitled to claim the reward.

24. 24 If the plaintiff has the knowledge of the offer, his acting in accordance with the terms thereof amounts to the acceptance of the same. In such a case it is immaterial that at the time of accepting the offer the acceptor does not intend to claim the reward mentioned in the offer.

25. 25 Cross Offers When the offers made by two persons to each other containing similar terms of bargain cross each other in post they are known as cross offers. For example, on 1st January A offers to sell his radio set to B for Rs. 500/- through a letter sent by post. On the same date B also writes to A making an offer to purchase A’s radio set for Rs. 500 /- When A or B send their letters they do not know about the offer which is being made by the other side. In these cross offers, even though both the parties intend the same bargain, there arises no contract. A contract could arise only if either A or B, after having the knowledge of the offer, had accepted the same.

26. 26 The case of Carlil Vs. Carbonic Smoke Ball Co. ( 1893) is an illustration of a contract arising out of a general offer. The facts of the case are : The defendants advertised their product “Carbonic Smoke Ball”, a preventive remedy against influenza. In the advertisement they offered to pay a sum of 100 pounds as reward to any one who contracted influenza, colds or any disease caused by taking cold, after having used the Smoke Ball three times a day for two weeks, in accordance with the printed directions. They also announced that a sum of 1000 pounds had been deposited with the Alliance Bank to show sincerity in the matter. The plaintiff ( Mrs. Carlil ) relying on the advertisement purchased a Smoke Ball from a chemist, used the same in accordance with the directions of the defendants, but still caught influenza. She sued the defendants to claim the reward of 100 pounds advertised by them. It was held that this being a general offer addressed to all the world had ripened into a contract with the plaintiff by her act of performance of the required conditions and thus accepting the offer. She was therefore, entitled to claim the reward.

27. 27 Revocation Of Offer It is only after the acceptance of an offer that there arises a contract and then both the parties becomes bound by their respective promises. Before the offer has been accepted it can be revoked. After the offer has been accepted it ripens into a contract and then it cannot be revoked. According to Section 5 : “ A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.”

28. 28 Revocation how made? Section 6, mentions the various modes of revocation, which are as under : A proposal is revoked – (1) by the communication of notice of revocation by the proposer to the other party ; (2) by the lapse of 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 : (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:

29. CONSIDERATION It is ‘quid pro quo’ i.e. something in return. It is the price of promise. X agrees to sell his TV set to Y for Rs.8000. TV set is the consideration of Y and Rs. 8000 is the consideration of X.

30. CONSIDERATION ….Definition Section 2 (d) Indian contract act… “ When at the desire of the promisor, the promisee or any other person has done or abstain from doing, or does or abstain from doing, or promises to do or abstain from doing, something, such act or abstinence or promise is called consideration”

31. Consideration May be : An act - means doing of something. An abstinence – promising not to do something. A promise – the promise of each party is the consideration for each other

32. ESSENTIALS OF VALID CONSIDERATION Must move at the desire of the promisor – X’s house catches fire, and Y helps in extinguishing it without being requested to do so by X. Y cannot demand any payment for his voluntary service. It must move from promisee or any other person – For making a valid contract consideration must be there, it is immaterial who furnishes it.

33. A stranger to consideration can sue, provided he is a party to contract… X pays Rs. 50000 to Y directing him to build a house for Z. Y agrees to do so. Hence, Z is a party to a contract but stranger to consideration & he can enforce the contract.

34. May be past, present or future : 1. Past – Award in cash for saving the house from fire. 2. Present – Cash sales 3. Future – X promises to deliver 100 quintals of rice to Y after a month and Y promises to make the payment a month after delivery of rice. It need not be adequate – Law only requires presence of consideration & not the adequacy of it. ( Selling a car for just Rs. 5000)

35. Must be real – It must have some value in the eyes of law. It should not be: (1). Physically impossible – making a dead person alive. (2). Legally impossible – X file a suit against Y for non payment of debt. Y approaches X’s brother Z & he promises to withdraw the suit for a consideration of Rs. 500. It is legally impossible.

36. (3) Uncertain consideration – X agrees to pay an adequate amount for a certain work… ‘adequate’ & ‘certain’ is uncertain elements. (4) Illusory consideration: Must be lawful – smuggling, murder. Must be something which the promisor is not already bound to do – Where a person who by his official status or by operation of law is under a public duty to act, the discharging of that duty cannot be regarded as consideration.

37. STRANGER TO CONTRACT cannot sue …Exceptions to the rule 1. Where trust is created - Beneficiary can sue. X transfers all his property to Y to be held in trust for the education of X’s son Z. Here Z, though not a party to the contract can enforce the trust against Y because he is the beneficiary under the trust. 2. Where a charge is created on a specific immovable property – B borrowed some money from L against a property. Before paying it back he sold that to X. So now L can sue X (coz he was having the knowledge of the previous contract).

38. 3. Family arrangements ( invest equally for mother) 4. Agency – third party can sue principal (if contract is according to authority) or agent (if not). 5. Acknowledgement – A receives money from T to be paid over to P. A admits of this receipt to P. P can recover from A who shall be regarded as agent of T.

39. “ N0 consideration, No contract” – Exceptions to the rule Natural love & affection. [Sec 25(2)] – is valid if it satisfies the following conditions : 1. It is in writing 2. It is registered under law 3. It is made out of love & affection 4. It is between parties standing in a near relation to each other. X promises his son to give Rs. 1000 in writing & get it registered.

40. Compensation for voluntary services. [Sec 25(2)]. Time barred debt [ Sec. 25(3)]. Completed gifts (donor and donee). Contribution to charity Agency