BBA-V Material

BBA SEM- V 

Unit-1 

Q.1 What is contract? Write essential elements of contract.

                1. Contract is an agreement creating and defining obligations between the parties.

                                                                                                                                                                                                - Salmond

                2. Every agreement and promise enforceable at law is a contract.

                                                                                                                                                                                                - Pollock

Essential element of contract

1.       Offer and Acceptance:  

There must be a lawful offer and acceptance for the formation of an agreement. The adjective ‘lawful’ implies that the offer and acceptance must satisfy the requirements of the contract act in relation thereto. The offer or proposal is defined under section 2(a) of the Contract Act. section 2(b) of the Act provides that when an offer is accepted then it becomes a promise.

Case laws

Felthouse v. Bindley – In this case, it was held that  “An offer cannot prescribe silence

              mode of acceptance”.

Carlil v. Carbolic Smoke Ball Co. – In this case, a medical firm carbolic smoke ball company advertised that any person caught influenza after using the medicine of the company (viz. Carbolic smoke ball), for a specified period, would be 100 pounds. Mr. C, a

fter using the medicine (as prescribed by the company) nevertheless caught influenza. It was held that she was entitled to recover 100 pounds because the Company’s advertisement was something more than an invitation to transact business.  

2.       Intention to create a legal relationship: 

There must be a clear intention among the parties that the agreement should be attached by legal consequences and create a legal obligation.

Agreements of a social or domestic nature do not contemplate a legal relationship, and as such, they do not give rise to a contract.

The intention of the parties to a contract must be to create a legal relationship between them. Agreements of social nature, as they do not consider legal relationship, are not contracts.

For Example if a father fails to give his daughter the promised pocket money, the daughter cannot sue the father, because it was purely a domestic arrangement. Thus, it is clear that all agreements, which do not result in legal relations, are not contracts.

3.       Lawful Consideration

 The term consideration has been defined under section 2(d) of the act.

In Currie v. Misa, Justice Lush defined consideration “A valuable Consideration in the sense of law may consist either in some Rights, Interest, Profit or Benefit accruing to one party or some forbearance detriment, loss or responsibility given, suffered or undertaken by the other’.

Section 25 of the Act declares that an agreement without the consideration is void.

4.       Competent parties: 

Section 11 of the act declares that who are competent to contract. According to this section the contracting parties

Section 11  of the Act states the criteria of parties competent to contract, which is as follows:

·         Must attain the age of majority ( an agreement with a minor is void ab initio – Mohri bibi v. Dharmodas Ghose,1903 )

·         Person of sound mind-  

·         The person should not be disqualified by law  

5.       Capacity to Contract

If an agreement is entered between parties who are competent enough to contract, then the agreement becomes a contract.

6.        Lawful Object

Objectives of an agreement should be lawful. It must not be illegal or immoral or opposed to public policy. It is lawful unless it is forbidden ( restricted)  by law. When the object of a contract is not lawful, the contract is void.

7. Certainty and Possibility of Performance

The agreements, in which the meaning is uncertain or if the agreement is not capable of being made certain, it is deemed void. T&C of the contract should always be certain and cannot be vague. Any contract that are uncertain are considered void. The terms of the agreement must also be capable of performance and should not enforce impossible act.

8. Legal Formalities

Legal formalities if any required for particular agreement such as registration, writing, they must be followed. Writing is essential in order to effect a sale, lease, mortgage, gift of immovable property etc. Registration is required in such cases and legal formalities in the relevant legislation should be strictly followed.

9. Free consent- 

Free consent of the parties is another essential of the contract. Section 14 of the Act defined the term free consent as follows-

consent is said to be free when it is not caused by –

1.       Coercion (S.15)– Committing any act forbidden by The Indian Penal Code 1860 or unlawful detaining of property, or threatening to commit these acts.  Threat to suicide amounts to coercion

2.       Undue influence (S.16)– The use by one party to the contract of his dominant position for obtaining an unfair advantage over the other party. Servant and Owner

3.       Fraud (S.17)– In Derry v. Peek, It was held that representation made with reckless indifference amount to fraud.   

4.       Misrepresentation (S.18)– It means a false representation.

5.       Mistake (S. 20, 21 and 22): there are two types of mistakes i.e. mistake fact and mistake of law.

6.       Lawful object – For the formation of a contract, it is also necessary that the parties to an agreement must agree to a lawful object. The object must not be fraudulent or illegal or immoral or against the public policy or must not imply injury to the person or the other of the reason mentioned above the agreement is void. 

if A forces B to sign a contract for murdering C. This is not a lawful object. Hence, the contract will be void.

7.       Not expressly declared void- An agreement must not be one of those, Which have been expressly declared to be void.

For example, agreement without consideration(S.25), agreement in restraint of marriage(S.26), agreement in restraint of trade(S.27), agreements in restraint judicial proceedings(S.28).

Q.2  What is Offer? Write Important legal rules regarding to a valid offer in business agreements

Meaning of offer : 

Section 2(a) of the Indian Contract Act, 1872 defines proposal or offer as follows : When one person signifies to another his willingness to do or abstain from doing anything, with a view to obtain the assent of that other to such an act or abstinence, he is said to make a proposal.The person making the offer is known as the offeror and the person to whom the offer is made is known as the offeree.

1. An offer may be ‘express’ or ‘implied:

An offer may be made either by words or by conduct. An offer which is expressed by words, spoken or written, is called an ‘express offer’ and the one which is inferred from the conduct of a person or the circumstances of the case is called an ‘implied offer’.

Illustrations:

(a) M says to N that he is willing to sell his motorcycle to him for Rs 20,000. This is an express offer.

(b) A shoe shiner starts shining some one’s shoes, without being asked to do so, in such circumstances that any reasonable man could guess that he expects to be paid for this, he makes an implied offer.

2. An offer must contemplate to give rise to legal consequences and be capable of creating legal relations:

If the offer does not intend to give rise to legal consequences, it is not a valid offer in the eye of law. An offer to a friend to dine at the offeror’s place, or an offer to one’s wife to show her a movie is not a valid offer and as such cannot give rise to a binding agreement, even though it is accepted and there is consideration, because in social agreements or domestic arrangements the presumption is that the parties do not intend legal consequences to follow the breach of agreement.

But in the case of agreements regulating business transactions the presumption is just the other way. In business agreements it is taken for granted that parties intend legal consequences to follow.

3. The terms of the offer must be certain and not loose or vague:

If the terms of the offer are not definite and certain, it does not amount to a lawful offer. Maugham L.J. has rightly observed: “Unless all the material terms of the contract are agreed, there is no binding obligation.” Thus an agreement to agree in future is not a contract, because the terms of agreement are uncertain as they are yet to be settled.

Illustrations:

(a) X purchased a horse from Y and promised to buy another, if the first one proves lucky, X refused to buy the second horse. Y could not enforce the agreement, it being loose and vague (Taylor vs Portington]).

(b)A says to B, I will sell you car. “ “A” Owns three different cars the offer is not definite.

4. An invitation to offer is not an offer:

An offer must be distinguished from an ‘invitation to receive offer’ or as it is sometimes expressed in judicial language an ‘invitation to treat.’

In the ease of an ‘invitation to receive offer’ the person sending out the invitation does not make an offer but only invites the other party to make an offer.

His object is merely to circulate information that he is willing to deal with anybody who, on such information, is willing to open negotiations with him. Such invitations for offers are therefore not offers in the eye of law and do not become agreements by their acceptance.

For example, quotations, catalogues of prices or display of goods with prices marked thereon do not constitute an offer. They are instead an invitation for offer and hence if a customer asks for goods or makes an offer, the shopkeeper is free to accept the offer or not.

5. An offer may be ‘specific’ or ‘general’:

An offer is said to be ‘specific’ when it is made to a definite person or persons. Such an offer can be accepted only by the person or persons to whom it is made. Thus, where M makes an offer to N to sell his bicycle for Rs 200, there is a specific offer and N alone can accept it.

A ‘general offer’, on the other hand, is one which is made to the world at large or public in general and may be accepted by any person who fulfils the requisite conditions. The leading case on the subject of ‘general offer’ is that of Carlill vs Carbolic Smoke Ball Co.2

Illustration:

In the above case the Carbolic Smoke Ball Co., issued an advertisement in which the Company offered to pay £ 100 to any person who contracts influenza, after having used their Smoke Balls three times daily for two weeks, according to the printed directions.

Mrs. Carlill, on the faith of the advertisement, bought and used the Balls according to the directions, but she nevertheless subsequently suffered from influenza. She sued the company for the promised reward. The company was held liable.

Offers of reward made by way of advertisement, addressed to the public at large, for the rendering of certain services, or the restoration of lost article are also examples of general offers.

Such offers may be accepted by performance of the conditions by an individual person in order to give rise to a contractual obligation to pay the reward.

6. An offer must be communicated to the offeree:

An offer is effective only when it is communicated to the offeree. Until the offer is made known to the offeree, there can be no acceptance and no contract. Doing anything in ignorance of the offer can never be treated as its acceptance, for; there was never a consensus of wills. This applies to both ‘specific’ and ‘general’ offers.

Illustrations:

(a) A, without knowing that a reward has been offered for the arrest of a particular criminal, catches the criminal and gives the information to the superintendent of police. A, cannot recover the reward as he cannot be said to have accepted the offer when he was not at all aware of it.

(b) In Lalman Shukla vs Gauri Datt, the defendant’s nephew absconded from home. He sent his servant, the plaintiff, in search of the boy. After the servant had left, the defendant announced a reward of Rs 501 to anybody giving information relating to the boy.

The servant, before seeing the announcement, had traced the boy and informed the defendant. Later, on reading the notice of reward, the servant claimed it. His suit was dismissed on the ground that he could not accept the offer, unless he had knowledge of it.

7. An offer should not contain a term the non-compliance of which would amount to acceptance:

Thus an offeror cannot say that if acceptance is not communicated up to a certain date, the offer would be presumed to have been accepted. If the offeree does not reply, there is no contract, because no obligation to reply can be imposed on him, on the grounds of justice.

8. An offer can be made subject to any terms and conditions:

An offeror may attach any terms and conditions to the offer he makes. He may even prescribe the mode of acceptance. The offeree will have to accept all the terms of the offer.

There is no contract, unless all the terms of the offer are complied with and accepted in the mode prescribed.

As regards mode of acceptance, it must be noted that in case of deviated acceptance, for example, if the offeror asks for sending the acceptance ‘by telegram’ and the offeree sends the acceptance ‘by post’, the offeror may decline to treat that acceptance as valid acceptance provided he gives a notice Jo that effect to the offeree within a reasonable time after the acceptance is communicated to him.

If he does not inform the offeree as to this effect, he is deemed to have accepted the deviated acceptance (Sec.7).

9. Two identical cross-offers do not make a contract:

When two parties make identical offers to each other, in ignorance of each other’s offer, the offers are ‘cross-offers’. ‘Cross-offers’ do not constitute acceptance of one’s offer by the other and as such there is no completed agreement.

Illustration:

On 15 October, 2008 A wrote to B offering to sell him 100 tons of iron at Rs 25,000 per ton. On the same day, B wrote to A offering to buy 100 tons of iron at Rs 25,000 per ton. The letters crossed in the post.

There is no concluded contract between and B, because the offers were simultaneous, each being made in ignorance of the other, and there is no acceptance of each other’s offer.

Q.3 What is Acceptance? Write important legal rules regarding to a acceptance in business

Meaning :- Acceptance.

Section 2 (b) of the Indian Contract Act, 1872 defines acceptance in these words: When one person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise. In the words of, Sir William Anson, Acceptance is to an offer what a lighted match is to a train of gunpowder. It produces something which cannot be recalled or undone. But the powder may have laid till it has become damp or the man who laid the train may withdraw it before a lighted match stick is set to it.

Similarly, once the offer is accepted it is converted into a binding contract and cannot be revoked. Who can accept? An offer can be accepted only by the offer. If anyone else attempts to accept it, no contract will arise with that person.

Modes of Acceptance: Acceptance may be express or implied. An express acceptance is one which is given by words spoken or written. By implied acceptance we mean an .acceptance which is by performance of some required act.

1 Legal Rules Regarding a Valid Acceptance

Acceptance must be absolute and unqualified (Section 7): An acceptance to be valid must be absolute and unconditional and according to the exact terms of the offer. The word absolute implies acceptance of the offer into. It should be of the whole of the offer. The offer can not accept a part of its terms which are favorable to him and reject the rest. The acceptance should be unconditional also. This means that accept or should not attach any conditions to the acceptance.

2 Acceptance must be expressed in the prescribed manner:

 Acceptance must be made in the prescribed manner. Section 7 (2) states that the acceptance must be expressed in some usual manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in that manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal should be accepted in the prescribed manner and not otherwise but if he fails to do so, he accepts the acceptance.

3 Acceptance must be given within the time prescribed or a reasonable time: 

To make it legally binding the acceptance must be given either within the period prescribed, and, if no period is specified, within a reasonable time. What is reasonable is in each case depends upon circumstances.

4 Acceptance must be given before the offer lapses or is revoked:

 Acceptance must be given before the offer lapses by the expiry of fixed or reasonable period or before it is revoked by the offeror.

An acceptance can never precede on offer: There can be no acceptance of an offer which is not communicated. Similarly performance of conditions of an offer in a general offer without the knowledge of the offer is no acceptance. Acceptance can be given only for an offer which has been communicated.

Acceptance must be communicated by the acceptor: The communication of acceptance may be express or implied. Acceptance should be made known to the offeror. A mere mental acceptance is no acceptance in the eyes of law.

5 Silence can not be a mode of acceptance:

Offeror can not impose a condition that offeree’s silence would be considered as acceptance. Silence does not normally amount to acceptance.

6 Acceptance must show an intention that acceptor is willing to fulfill the terms of the offer:

A valid contract can arise only when the acceptance is given with the intention of fulfilling the terms of the contract.

7 Rejected offers can be accepted only, if renewed:

Offer once rejected cannot be accepted unless a fresh offer is made.

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