Adhivakta Law Cafe

 BREACH OF CONTRACT

Breach means breaking of the rules. In respect of contract, breach means failure to perform what is required under the contract. Breach of contract is of two types – Anticipatory and Actual.

Anticipatory Breach of Contract

Where the promisor refuses to perform his obligation even before the specified time for performance and signifies his unwillingness, then there is an anticipatory breach.

For example, A engages services of B as his attendant for a 3 months tour at Rs. 5000/- per month starting from 1^st June. However, A changes his mind before the date and informs B that his services are not required. This is anticipatory breach of contract.

In such cases, B may put an end to the contract even before the due date, 1st June, and he need not wait for the date meant for performance of the promise. B could also wait till the due date of performance before he puts an end to the contract.

The measure of damage depends upon the choice and circumstances. For example, A agrees to supply 10 bags of wheat to B at the rate of Rs. 2000/- on May 31^st. However, A gives notice to B of his unwillingness to sell on May 15^th. Price of wheat on 15^this Rs. 2200/-. If B repudiates that contract on 15^th, he may recover damages of Rs. 2000/- (at the rate of Rs. 200/- per bag).

But if B waits till May 31^st, and prices are Rs. 2250/-, he may recover damages of Rs. 2500/- (at the rate of Rs. 250/- per bag).

Alternatively, if B waits till May 31^st, and prices are reduced to Rs. 2100/-, he may recover damages of Rs. 1000/- only (at the rate of Rs. 1000/- per bag). Thus, postponement of right to repudiate is not meant to give unfair advantage to the promisee.

Actual Breach of Contract

Where one of the parties breaches the contract by refusing to perform the promise on due date, it is known as actual breach of contract. In such a case the other party to contract obtains a right of action against the one who breached the contract.

Measurement of Damages

Where a party makes a breach of contract, he is liable to compensate the other party for the loss suffered on account of such breach. But a party is liable to compensate only for such loss, that is –

(i) Naturally arose in usual course of things from such breach or

(ii) Which the parties knew, when they made the contract, to be likely to result from the breach

Second category of damages are special damages and can be claimed only on previous notice. However no compensation is payable for any remote or any indirect loss.

For example, A is owner of a mill. The mill had to be stopped because of a broken crank shaft. A sends the crank shaft as a pattern for manufacturing a new one. Till the arrival of the new crank shaft, the mill could not be resumed. Hence, A incurred losses. However this position was not properly conveyed to the carrier. There were some delay on the part of the carrier in delivering the crank shaft to the manufacturer which in turn delayed the reopening of the mill. As a result, there were losses to the mill. A claimed compensation for loss in profit. But since A did not explain the peculiar position to the carrier that delay in delivering the crank shaft would delay resumption of the mill, and this would result in losses, his claim for special damages was rejected.

A similar example can be, in a case a tailor had given his sewing machine to railways to be delivered at a station as a consignment. He did not mention that any delay in delivering the sewing machine would result in damages for the business of the tailor as he had planned to do good business at the place proposed where a festival was to be held. The sewing machine was delivered after the festival was over. Held Railways were not responsible for the damages as the Railway authorities were not informed of the specific purpose of delivery of the sewing machine namely business during a festival.

Calculation of the Damage

In case of a contract for sale of good the damages are calculated on the basis of the difference between contract price and market price as on the date of breach.

For a breach by buyer,

Damages = Contract Price – Market Price

For a breach by seller,

Damages = Market Price – Contract Price

Where the seller retains the goods after the contract has been broken by the buyer, the seller cannot recover from the buyer any further loss even if the market falls. Again he is not liable to have the damages reduced if the market rises.

Duty to mitigate loss

Law casts a duty on the person who suffers losses on account of breach of contract by the other party must take all reasonable steps to mitigate the loss. For example, if a buyer refuses to accept delivery and make payment of consignment of 100 bags of rice. The seller must try to find a new buyer and not let the stock perish from carelessness.

Compensation for Breach of Contract where the Penalty is stipulated for

At times, a contract may provide for a pre-estimate of compensation payable in case of its breach. The aim of such estimation is to avoid prolongation of dispute that may arise in future.

If the estimate is genuine compensation, it is called liquidated damages. If it is extravagant amount, it is termed as penalty.

The law states that in such cases, the party affected by the breach of contract is entitled to only to a reasonable compensation not exceeding the amount mentioned in the contract.

Other remedies for Breach

Apart from damages, the following remedies are also available to a Party affected by breach of contract –

(i) Rescission of contract

Where one party breaches the contract, the other party can treat it as rescinded. That is, the other party is absolved of his obligation to perform his part of the contract.

(ii) Suit upon quantum meruit

The phrase “quantum meruit” means “as much as earned”. For example, A person begins a civil contract work. He has to stop the work later for some reason beyond his control. He is entitled to receive compensation on the principle of ‘Quantum Meruit’, that is, in proportion to the work done.

(iii) Suit for specific performance

At times, the nature of contract is such that the damages for its breach are not sufficient remedy. In such cases a party may seek specific performance of the contract. That is direct the party in breach, to carry out his promise according to the terms of the contract. This remedy is at the discretion of the court.

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 CAPACITY TO CONTRACT

We already know that the parties to a contract must be competent, that is, they must have the capacity to contract. The question, now, is who is competent to contract?

Law states that every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. That is, person is competent to contract if he –

1. has attained the age of majority

2. is of sound mind and

3. is not otherwise disqualified from contracting

(a) AGE OF MAJORITY

Law states that every domiciled Indian attains majority on the completion of 18 years of age. But what is a person below the age of majority makes an agreement. The effect of such an agreement are as follows –

(i) An agreement entered into by a minor is altogether void.

An agreement entered into by a minor is void ab initio, that is, void from its inception. The question of its enforceability does not arise. Unless all the parties to an agreement are competent to contract, the agreement would be void. The main reason is that a minor is incapable of performing his part of the contract imposing a legal obligation.

(ii) Minor can be a beneficiary:

A minor, though incompetent to contract, make the other party bound towards himself. For example, a promissory note duly executed in favour of a minor is not void. Minor can enforce the same as he may accept a benefit.

Similarly, a minor cannot become partner in a partnership firm. However with the consent of all the partners, he may be admitted to the benefits of partnership.

(iii) Minor can always plead minority.

Minor can always plead minority. Even if a minor had stated himself an adult and entered into an agreement, and also received certain benefit out of the same; he may at a later stage plead minority and that the agreement is void. Thus, the law of estoppel is not available against a minor.

Say, for example, any money advanced to a minor cannot be recovered as he can plead minority and that the contract is void. Even if there had been false representation at the time of borrowing that he was a major, the amount lent to him cannot be recovered.

If a minor had obtained payment fraudulently by concealing his age, he may be compelled to restore the payment. But he cannot be compelled for an identical sum as it would amount to enforcing a void contract.

(iv) Minor cannot ratify his agreement even after attaining the age of majority.

A minor on his attaining majority cannot validate any agreement which was entered into when he was minor. Such a ratification amounts to agreement without consideration and is void. For example, Where A aged 19 executes a fresh promissory note in lieu of promissory note executed for a loan executed when A was 17 years of age (minor as per law). The fresh promissory note is without consideration and hence void.

(v) Liability for necessaries.

A person who supplied necessaries of life to a minor or his family, is entitled to be reimbursed from the properties of a minor. But this is not a contractual obligation in strict sense, but an obligation resembling a contract (also called Quasi contract). Necessaries of life include food, clothing, education etc. It is necessary to note that the minor is not personally liable but the cost of necessaries may be recovered from the estate of the minor.

(vi) Contract by guardian are valid.

A valid contract can be entered into with the guardian on behalf of the minor. The guardian must be competent to make the contract and the contract should be for the benefit of the minor. It is important to note in certain cases permission of Court is required to enter into such contracts. Such as for sale of immovable property of a minor, the guardian must seek permission of the court for a valid transaction.

(b) SOUND MIND

A person must be of “sound mind” to be able to enter into a valid contract. The term “sound mind” is used in legal sense and in ordinary sense. Legally, a person is considered to be of sound mind if he at the time of entering into a contract is capable of understanding it and forming a rational judgment as to its effect upon his interest.

A person who is of unsound mind but occasionally of sound mind can enter into a contact when he is in sound mind. Similarly, a person who is generally of sound mind, but occasionally of unsound mind cannot enter into a contract when he is of unsound mind. Thus, the period of lucidity is crucial in deciding competency of party in such cases. Similarly, a person while drunk may not be competent at times. The test of competency is –

• capable of understanding the contract

• form a rational judgment as to its effect upon his interest

In short, whether the person is able to understand the implications of the contract in question.

Thus, if you are a bar tender and a person has already drunk enough to lose his sense but presses for another drink. Its better not to serve him as he cannot be compelled by law to pay. There can be no valid contract after he lost his sense. Neither the case is covered under supply for necessaries.

The effect of an agreement with an unsound is same as that of a minor.

(c) NOT DISQUALIFIED BY LAW

At times, a person may be disqualified by law to enter into contract either wholly or partially.

For example, an alien enemy, during war cannot enter into a contract with an Indian subject. This disability to an alien enemy arises on account of public policy. Also, Statutory corporations or Municipal bodies cannot enter into contracts on matters which are beyond their statutory powers or ultra vires the memorandum or articles through which they are created.

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 CONSIDERATION

Consideration is price of the promise. It is in nature of quid pro quo, that is, something for something. It is the price for which the promise of other is brought and promise thus given for value is enforceable. Consideration is “some right, interest, profit or benefit accruing to one party or forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other”. This refers to the position of both the promisor, and the promisee in an agreement.

https://youtu.be/9ZbdmkODW_0

In law, When at the desire of the promisor (person making the proposal), the promisee (person accepting the proposal) or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a Consideration for the promise.

Consideration

From the above definition it can be inferred that

1. Consideration is doing or not doing something

2. Consideration must be at the desire of the promisor

3. Consideration may move from one person to any other person

4. Consideration may be past, present or future

5. Consideration should be real though not adequate

For example, A promises to sell his house to B for Rs. 5 lakhs. Here, A is the promisor and B is the promisee. B agrees to buy the house for the said price. Here, B will be the promisor and A will be the promisee. That is, A must part with the house and B must part with Rs. 5 lakhs. Thus, Consideration is mutual and has two sides.

It is also possible that there may not be any identifiable benefit towards consideration. For example, A promises to carry B’s goods free of charge and B allows A to carry the same. Here B has suffered a detriment or disadvantage while allowing A to carry his goods. This is sufficient consideration.

Above example shows that Consideration has dual aspect. It is not necessarily a gain or advantage to the promisor but it can even be a loss or detriment to the promisee.

Similarly in a contract of guarantee of Loan, where A applies for a loan from Bank B, and if B insists on a guarantee by G. B gives loan to A on G’s guarantee. Here, G will be promisor and B promisee. The benefit conferred on A by B at the guarantee of G, is sufficient consideration for G. In other words B has suffered a detriment which is the consideration for the guarantee of G to repay the loan which B has given to A. Detriment to one is benefit to another.

But Consideration is sine qua non for a contract. In the absence of consideration, a gratuitous promise will not result in an agreement. For example, a promise to subscribe to a charitable cause cannot be enforced.

Essentials of a Consideration

1. Consideration must move at the desire of the promisor.

2. Consideration can flow either from the promisee or any other person. That is, consideration can legitimately move from a third party. For example, A by a deed of gift made over certain property to her daughter D with condition that A’s brother B should be paid annuity by D. In furtherance, D executes a document on the same day agreeing to pay the annuity accordingly, but declined to pay after sometime. B sued D. D contends that there was no consideration from B and hence there was no valid contract. Held, that the consideration did flow from B’s Sister A to D. Such consideration from third party is sufficient to enforce the D’s promise.

3. Consideration may be past, present or future. For example where A pays Rs. 5000/- to B requesting him to deliver certain quantity of rice, to which B agrees. The consideration for B is present (or executed) as A has already paid, while for A, consideration is future (or executory) as B is yet to deliver the rice.

   Similarly, when A pays a premium of Rs. 5000/- seeking insurance cover for the year, from the insurance company which the company promises in the event of fire, the consideration paid by A to the insurance company is executed but the promise of insurance company is executory or yet to be executed.

   Consideration may also be constituted in the past acts of promisee, but the act must have been non-gratuitous and also at the desire of the promisor.

4. Consideration must be real and not illusionary. It must be something of value.

5. Consideration need not be adequate. That is to say, consideration need not necessarily be of the same value as of the promise for which it is exchanged. For example, A may very well sell his motorbike valued at Rs. 50,000/- for a sum of Rs. 10,000/-

   Law leaves the party to make their own bargain. Inadequate consideration would not invalidate an agreement but inadequate consideration raise suspicion over free will and could be taken into account by the court in deciding whether the consent of the promisor was freely given. (Topic of free consent dealt with separately)

6. The performance of an act by a person what he is legally bound to perform, cannot be consideration for a contract. For example, a promise to pay money to a witness for giving evidence is void. The witness is legally bound to furnish evidence and hence there is no consideration.

   But where a person promises to do more than he is legally bound to do is a good consideration. For example, Police is bound to maintain law and order and protect person and property. But where police provides stationary guard at request of owner of property on agreed price for such service. It was held that the promise to pay the amount was not without consideration. The police, no doubt, were bound to afford protection, but they had discretion as to the form it should take. The undertaking to provide more protection than what they deemed to be necessary was a consideration for the promise of reward.

7. Consideration must not be unlawful, immoral, or opposed to public policy.

8. Consideration may be positive or negative. Consideration is positive when some act needs to be done. It is negative when some act is to be purposely omitted.

Agreement without Consideration

The general rule is that an agreement without consideration is void. However, there are certain exceptions to the general rule. They are –

1. Agreement on account of Natural love and affection:

Such an agreement must be –

• In writing and registered

• Made on account of natural love and affection

• Between parties standing in a near relation to each other

In aforementioned conditions, an agreement is enforceable by law even without consideration.

2. Compensation paid for past voluntary services:

Such an agreement must be –

• A promise to compensate

• Wholly or in part

• Person rendered services to the promisor

• Such service was rendered voluntarily.

That is, a promise to compensate wholly or in part for past voluntary services rendered by someone to promisor does not require consideration for being enforced. However the past services must have been rendered voluntarily to the promisor. Further the promisor must have been in existence at that time and he must have intended to compensate.

3. Promise to pay debts barred by limitation:

Such an agreement must be –

• A promise, made in writing

• Signed by the person to be charged therewith, or by his agent

• To pay

• Wholly or in part

• A time barred debt

That is, Where there is a promise in writing to pay a debt, which was barred by limitation, is valid without consideration. The law of limitations prescribes time within which an action must be initiated, after the lapse of which the same is called barred by time or limitation.

4. Creation of Agency:

By law, no consideration is necessary to create an agency. An “agent” is a person employed to do any act for another or to represent another in dealings with third persons.

5. Gifts actually made

In case of completed gifts, no consideration is necessary.

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 COMMUNICATION OF OFFER, ACCEPTANCE & REVOCATION

Communication is an indispensable element in concluding a contract. There must be effective communicationof both ‘offer’ and ‘acceptance’ to give rise to a valid contract.

Importance of communication lies in the fact that parties are separated by distance and they employ modes such as post, telegram, fax, email, telephone etc. Effective and proper communication prevents avoidable misunderstanding between parties.

Lawgives a lot of importance to “time” element in deciding when the offer and acceptance is complete, and upto what time offer or acceptance may be revoked.

Communication of offer

Communication of offer is complete when it comes to the knowledge of the person to whom it is made. Knowledge of the offer would materialize when the offer is given in writing or made by word of mouth or by some other conduct. For Example,

1. ‘A’ writes a letter making a proposal to ‘B’ to sell his house for Rs. 5 lakhs. The letter is posted on 15^th Jan and reaches B on 18^th Jan, the offer is said to have been communicated on 18^th Jan when B received the letter.

2. In telephonic communications, communication of offer is complete as soon as the voice is heard by the person receiving the offer.

Communication of acceptance

Communication of acceptance may be oral or written, that is by way of letters, telegrams, faxes, emails, telephonic conversion. Communication of acceptance canalso bedone by conduct. For instance, delivery of goods at a price by a seller to a buyer on receipt of tender. The delivery of goods is communication of acceptance byconduct. Similarly, boarding abus or dropping currency in a vending machineis acceptance by conduct.

But a mere mental unilateral assent in one’s own mind would not amount to acceptance. For example, A receives an offer to buy B’s house for certain price. A decides to buy the same but does not say anything to B. There is no acceptance as there is no communication of the same.

As to when the communication is complete, the law is that the communication of acceptance is complete –

1. As against the proposer, when it is put in course of transmission to him so as to be out of the power of the acceptor to withdraw the same;

2. As against the acceptor, when it comes to the knowledge of the proposer.

The above rule may appear complicated, but can be understood by simple illustration. If in above example where offer is sent by letter, B writes letter of acceptance andposts iton 20^thJan which is received by A on 24^thJan.The communication of acceptance is complete as against A (proposer)on 20^{th Jan}and against B (acceptor)on 24^thJan.

Here, A the proposer will be bound by B’s acceptance, even if the letter of acceptance is delayed in post or lost in transit. The golden rule is proposer becomes bound by the contract, the moment acceptor has posted the letter of acceptance. But it is necessary that the letter is correctly addressed, sufficiently stamped and duly posted. In such an event the loss of letter in transit, wrong delivery, non delivery etc., will not affect the validity of the contract.

However from the view point of acceptor, he will be bound by his acceptance only when the letter of acceptance has reached the proposer. If there is no delivery of the letter, the acceptance could be treated as having been completed from the viewpoint of proposer but not from the viewpoint of acceptor. This will, however,give rise to an awkward situation whereonly one party to the contract being treated as bound by the contract though no one would be sure as to where the letter of acceptance had gone.

REVOCATION OFOFFERANDACCEPTANCE

Similar to rules for communication of offer and acceptance, there are rules for communication of revocation of such offer and acceptance.

As far as revocation of proposal is concerned, a proposal may be revoked by

1. Communication of notice of revocation

2. Lapse of the time prescribed in such proposal or if no time is so prescribed, by the lapse of a reasonable time.

3. Failure of the acceptor to fulfil a condition precedent to acceptance. For example, A proposes to sell his car to B for Rs. 2 lakhs provided B sels his motorbike A. If B refuses to sell his bike, the offer of A is revoked automatically.

4. Death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.

A proposal can be revoked at any time before the communication of its acceptance is complete as against the proposer. An acceptance may be revoked at any time before the communication of acceptance is complete as against the acceptor.

This may appear technical. But can be understood from aforesaid example of communications by letter. A may revoke his proposal to B, before B post his letter of acceptance, that is, by 20^th Jan and not thereafter. Further, B may revoke his acceptance before the letter of acceptance is received by A, that is, by 24^thJan and not thereafter.

As to time, the communication of revocation (of the proposal or its acceptance) is complete –

1. 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, and

2. as against the person to whom it is made, when it comes to his knowledge.

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ACCEPTANCE

A proposal or offer is said to have been accepted when the person to whom the proposal is made signifies his assent to the said proposal. Act of acceptance lies in signifying one’s assent to the proposal.

According to Sir William Anson “Acceptance is to offer what a lighted match is to a train of gun powder”. That is what acceptance triggers cannot be recalled or undone. But there is a choice to the person who had the train to remove it before the match is applied. It in effect means that the offer can be withdrawn just before it is accepted. Acceptance converts the offer into a promise and then it is too late to revoke it. The significance of this is an offer by itself cannot create any legal relationship but it is the acceptance by the offeree which creates a legal relationship.

Essentials of a Valid Acceptance

1. For a valid acceptance, there must be knowledge of offer. Without knowledge of offer, there can be no acceptance. For example, where a person finds a missing dog without knowledge of award, he cannot claim the award afterwards.

2. The acceptance must be communicated. To conclude a contract between the parties, the acceptance must be communicated in some perceptible form.

3. Acceptance must be made by the promisee himself or any person having authority to accept on his behalf.

4. The acceptance must relate specifically to the offer made.

5. Acceptance must be absolute and unqualified.

6. It should be expressed in some usual and reasonable manner unless the proposal prescribes the manner in which it must be accepted. If the proposal prescribes the manner in which it must be accepted, then it must be accepted accordingly.

7. The acceptance must be given within a reasonable time and before the offer lapses.

8. Acceptance may be express or implied. It may also be expressed by conduct.

9. But mere silence is not acceptance. As already stated, the burden to refute the offer cannot be placed on the promisee.

Illustrations

1. A offers to B to sell A’s car for Rs. 2 lacs. If B replies – “I shall purchase your car for the said price, if A buys B’s motorcycle for Rs. 50000/-.” This is no acceptance as it is conditional. By its very nature, it is a counter offer to A, who may accept or deny it.

2. If, in the above example, B agrees to purchase the car from A as per his offer if A has a valid Registration Certificate. The acceptance is a valid one. This is because expecting a valid title for the car is not a condition.

3. A offers to sell his house to B for Rs 5,00,00/-. B replied purporting to accept the offer but enclosed a cheque for Rs 2,00,000/- only and promises to pay the balance in monthly installments. Acceptance is invalid not being an unqualified one.

4. A offers to sell his car to B for Rs. 1,00,000/-. B replied that, “I can pay Rs. 80,000 for it.” A’s offer stands rejected. Later on, if B decides to pay Rs. 1,00000/-, the same will be a counter offer only as A’s offer was already rejected.

5. A, a trader, receives an order from B. The order is executed accordingly by the trader. A has made acceptance to the offer by his conduct.

6. A boards a bus to Delhi. A’s conduct amounts to acceptance.

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PROPOSAL

The word ‘proposal’ or‘offer’ meansto give option to someone to agree or deny. In terms of Contracts, a person is said to make a proposal when he 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. From this definition, one can make out following ingredients of a Proposal –

1. It is an expressions of willingness

2. To do or to abstain from doing an act, that is, it may be for doing an act or making an omission

3. Expressed with a view to obtain the assent of the other party to whom the offer is made.

For example –

1. “A” offers to sell his car to “B”. This is proposal as it conveys A’s willingness to do an act and also solicits B’s assent.

2. “A” offers to “B” to omit bidding at an auction event, where B intends to bid, for payment of a sum. This is proposal.

3. Where “A” says to “B” that he intends to marry B by the end of the year. This is no offer, unless, he also asks “Will you marry me?”

Classification of Proposal/Offer

Offer can be classified as general offer, specific offer, cross offer, counter offer, standing/open/continuing offer.

(a) General offer

It is an offer made to public at large. Until the general offer is retracted or withdrawn, it can be accepted by anyone. Thus, it is continuing is nature. For example, SMS Code to win contestsare general offers. Any person who sends the code inside the packet is actually accepting the general offer. Similarly, where A advertises that he will Rs 500/- to anyone who brings back his lost dog. He makes a general offer. A vending machine at the airport, A bus at the bus stop ready to ply are in their nature general offers.

(b) Special/Specific offer

Where an offer is made to a particular person, it is a specific offer. Only that person can accept such specific offer, as it is exclusive to him.

(c) Cross offer

Cross offers are offers made to each other in ignorance of offer of the other. For example, if A makes a proposal to B to sell his carat a specified price and B, without knowing proposal of A, makes a proposal to purchase the same carat the same price. The offers are cross offers. And one is not acceptance of other.Nor isthere anybinding contract between them by mere exchange of proposals.

(d) Counter offer

Counter offer is an offer made in response to another offer. If,upon receipt of an offer, 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.

For example, A says to B – “Will you buy my car for Rs. 50,000/-?” And B replies – “I will do it for Rs. 45,000/-.” B is making a counter offer. Counter offers amounts to rejection of the original offer. Thus, B cannot, at a later stage, say that he accepts A’s offer for Rs. 50,000/- and bind him with his proposal.

(e) Standing or continuing or open offer

An offer which is kept open for acceptance for a certain period of time is known as standing or continuing or open offer. For example, A offers to supply coal to B for running thermal power plant for a period of one year at a particular price. This is a continuing offer. And each time an order is placed, the same is acceptance.

Essentials of a Valid Proposal/Offer

An offer must adhere to certain rules to be a valid offer. They are as follows –

1. The ‘offer’ must be with intent to create a legal relationship and not mere social relationship. Thus, an invitation for dinner is not an offer.

2. The offer must be certain and definite. It must not be vague. For example, where ‘A’ offers to sell 100 litres of oil, without indicating what kind of oil would be sold, it is a vague offer and hence cannot create any contractual relationship. If however there is a mechanism to end the vagueness, the offer can be treated as valid. Thus, if in the above example if ‘A’ does not deal in any oil but only in Mustard oil and this is matter of common knowledge, the offer is not vague but a valid offer.

3. It may be express or implied.

4. It must be distinguished from an invitation to offer.

5. The offer must be communicated to the person to whom it is made. This communication may be made by act or omission by which the person intends to communicate, or which has the effect of communicating it. An un-communicated offer cannot be accepted. So, if A writes a letter offering to sell his house for a price to B and keeps the letter in his desk drawer. A does not make an offer since he has not posted the letter.

6. The offer must be made with a view to obtain the assent of the promisee.

7. An offer may be conditional. But burden to refute cannot be placed on the promisee. That is, the promisor cannot say that if non-acceptance is not communicated by a certain time the offer would be treated as accepted.

Invitation to Offer

An offer must be distinguished from a mere invitation to offer. An offer is definite andexpresses willingness with a view to obtain assent and if assent is given thereto, the contract is concluded.

An invitation to offer is an act precedent to making an offer. An invitation to offeris – “…an expression of willingness to negotiate. A person making an invitation to treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed.”

An invitation to offer gives rise to an offer after due negotiation and it cannot be per se accepted. In an invitation to offer there is no expression of willingness by the offeror to be bound by his offer. It is only a proposal of certain terms on which he is willing to negotiate. It is not capable of being accepted as it is.

The essence of an invitation to offer is that the offer is actually made by the seller. For example, An advertisement in newspaper. The reason is that it does not make business sense for advertisements to be offers, as the person making the advertisement may find himself in a situation where he would be contractually obliged to sell more goods than he actually owned.

Similarly, a display of clothes in a shop, of goods in an auction, and even advertisements screaming “Offer! 50% Off on All Shirts!” is actually an invitation to treat, and not an offer.

Therefore, an invitation to offer ‘evolves’ into a contract in a different manner than an offer. Initially, it is an invitation to offer, say by a display of goods and their prices. When a person makes an offer that is good enough and the seller ‘accepts’ it, it becomes a contract.

The test to decide whether a statement is an ‘offer’ or ‘invitation to offer’ is to see the ‘intention’. If a person who makes the statement has the intention to be bound by it as soon as the other accepts, he is making an offer. If he however intends to do some other act, he is making only an invitation to offer.

Where the owner of the property had said that he would not accept less than Rs.6000/- for it. The statement doesnot indicate any offer but only an invitation to offer. Similarly, in an auction, goods put up for auction are invitation while the bids are offer. Somekey examples of Invitation to offer are –

• Menu card of a restaurant showing the prices of food items.

• Railway Chart setting out train timings and fares.

• Government Tender

• An invitation by a company to the public to subscribe for its shares.

• Recruitment advertisement inviting application.

• Quotation of prices sent in reply to a query regarding price.

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LAW OF CONTRACT

The term ‘Contract’ is of common parlance meaning ‘to make bargain’. In law, it has a specific definition – An agreement enforceable by law is a Contract.

Agreement again means, in common parlance, as something agreed upon. In law, Every promise and every set of promises forming consideration of each other is an agreement. This definition employs two terms – Promise and Consideration.

Promise is an accepted proposal. Proposal means to make an offer. Legally speaking, when one person signifies to another his willingness to do or to abstain from doing something with a view to obtain the assent of that other, he is said to make a proposal. Acceptance means signifying assent or agreeing to the proposal brought forth.

Consideration is price of the promise. It is in nature of quid pro quo, that is, something for something. It is the price for which the promise of other is brought and what make the promise enforceable. In law, When at the desire of the promisor (person making the proposal), the promisee (person accepting the proposal)or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a Consideration for the promise.

Thus, we mathematically represent these relations as –

Promise = Proposal + Acceptance

Agreement = Promise + Consideration

Contract = Agreement + Legal Enforceability

As far as enforceability of an agreement is concerned, all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Thus, Legal Enforceability of Agreement requires following prerequisites –

• Intention to Contract

• Competent Parties

• Free Consent

• Lawful Object

• Lawful Consideration

• Not expressly declared void

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