OUTLINE

1. The Essential Elements of Contract :

 Objective and Scope
 Application
 Definition of contract
 The Essential Elements of Contract
2. Definitions
 Definitions
 Proposal
 Offer
 Acceptance
 Options
 Revocation
 Conclusion

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The Essential Elements of
Contract

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 Scope and Object

 The law of contract deals with agreements

which can be enforced through courts of law.
 As every transaction starts from an agreement
between two or more persons that’s why law
of contract is the most important part of
commercial law.

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 Scope and Object (contd.)
 According to-
1. Salmond- A contract is an agreement creating and
defining obligations between the parties.
2. Sir William Anson- A contract is an agreement
enforceable at law made between two or more
persons, by which rights are acquired by one or more
to acts or forbearances on the part of other or others.
 The object of the law of contract is to introduce
definiteness in commercial and other transactions.

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 Definitions
 Section 2(h) of the Contract Act says that “An
agreement enforceable by law is a contract”. In
a contract there must be
(1) An agreement and
(2) The agreement must be enforceable by law.
 An agreement becomes contract when one or
more persons promise to one or others to do or
not to do something.
 An agreement that can be enforced through the
courts of law, is called contract.

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 The Essential Elements of contract
 To be enforceable by law a contract must
fulfill some terms and conditions.
 These conditions may be called the essential
elements of a contract. The conditions are----
-------
1. Offer and Acceptance: There must be a
lawful offer by one party and lawful
acceptance by the other party under this act.

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 The Essential Elements of contract
(cont.)
2. Intention to create Legal Relationship: There must be
an intention among parties that the agreement shall
result in or create legal relationship.
3. Lawful Consideration: An agreement is legally
enforceable by only when each of the parties gives
something and gets something. An agreement void
of anything is usually not enforced by law. The
something given or obtained is called consideration.
It must be lawful
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 The Essential Elements of contract
(contd.)
4.Capacity of Parties: The parties of an agreement
must be legally capable. Any party suffering
from disability like minority, lunacy and so on,
of an agreement is not enforceable by law
except some special cases.
5. Free consent: The parties of an agreement must
have free consent to make an agreement
enforceable. No one can influence any of the
parties to do so.

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 The Essential Elements of contract
(contd.)
6. Legality of the Object: The object of an
agreement must not be illegal, immoral or
opposed to public policy.
7. Certainty: The agreement must not be vague. It
must ascertain the meaning of the agreement,
otherwise it cannot be enforced.
8. Possibility of Performance: The agreement must
be capable of being performed. A promise to
do impossible thing can not be enforced

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 The Essential Elements of contract
(contd.)
9. Void Agreement: An Agreement must not have been
declared to be void. There are five categories of
void agreement under this act. They are ---------

• Agreement in restraint to marriage.

• Agreement in restraint of trade.
• Agreement in restraint of proceedings.
• Agreement having uncertain meaning.
• Wagering agreement

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 The Essential Elements of Contract
(contd.)
10. Wring, Registration and Legal Formation: An
oral contract is perfectly good contract.
Writing is required in cases of lease, gift, sale,
mortgage of immovable property. Registration
is compulsory incases of documentation.
Sometimes oral contract are difficult to prove.
That’s why agreement should be written. But it
is not compulsory
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 Some Definitions

The law of contract classified into four board

division:----
 The method of formation of a contract
 The time of its performance
 Its parties and
 Its legality or validity

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 1.Method Of Formation
1.(1)Express contract
 Expressed in wards spoken or written in contract
 No difficulty arises in understanding the rights
and obligation of the parties
1.(2)Implied contract
 Understood to form the act
 Conduct of parties and course of dealing between
them

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 2.Time Performance

2.(i)Executed Contract
Parties perform their obligation immediately
at the time of its formation
2.(ii) Executory Contract
Obligation of the parties are to be performed
at a latter time

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 3.The parties of the contract

3.(i)Bilateral Contract
• There must be at least 2 parties of the contact
3(ii)Unilateral Contract
• One party has to fulfil its obligation
• Other party has already has already
performed the obligation

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 4.The legality or validity of the
contract
I. Contract can be classified in the following:
II. Valid
III. Void
IV. Voidable
V. Illegal
VI. unenforceable

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 Offer And Acceptance

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 Definitions

Formation of the contract

All contract are made by two parties
1. One party offers
2. Other party accept
An example has given for audience:
• X says to y, “will you buy my house for Rs
50,000?”This is an offer. If Y says, “Yes”, the
offer is accepted as a contract.

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 Proposal

Offer involves the making of a proposal

Proposal is defined in the contract act as
follows:--
 One person signifies to another his willingness
to do or abstain from doing anything
 Obtaining the assent or abstinence

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 Offer

 The promisor or the person making the offer is

called offerer.
 The person to whom the offer is made is called
the offree

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 Promises and acceptance

 The person to whom the proposal is made

signifies his accent is said to be accept
 The proposal maker is called promisor
 The recevier of the proposal is called
promesee

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 Example of offer and acceptance

(i) Specific offer: X offer to sell his motor car to Y

at the price of Rs 5,000.this is a proposal.
X is the promisor or offeror
Y is the offeree
If Y agrees to buy the car at stated price, it will
converted into contract.
(individual P and student Q
lost book contract)

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 Example of offer and acceptance

(ii) General offer : the transport company runs

tramways car along the street with a view to
carrying passenger at the schedule fare
 The offer is accepted by passenger
 Then it is a general offer.

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 Effect of offer and acceptance

• Offer along and acceptance along are “inactive” or

“powerless”
• Offer together with acceptance are essential element
of contract exist.
• These two component is compared with Gunpowder
and lighted match
• Acceptance is compared to offer
• Lighted match is compared to gunpowder
• Acceptance converts the offer into promise

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 Offer
1.Rules regarding offer:
An offer may be implied from the circumstances
There are two types of offer:
 Express offer: an offer is stating so in words or in
writing(the proposal or acceptance of any promises is
express)
 Implied offer: an offer is implied from the conduct of a
person (the proposal or acceptance of a promise
otherwise than in words is implied)

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 RULES REGARDING OFFER
1. An offer may be express or may be implied
from the circumstances
 Offer may be made in two ways
- by words, spoke or written
- by conduct

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 RULES REGARDING OFFER

2. An offer may be made to a definite person;

to some definite class of persons
 Specific offer
 General offer
Exam.
i. A definite person
ii. A definite class of persons
iii. The world at large
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 RULES REGARDING OFFER

3. Legal relationship is required

 Offer must create a legal relationship
 Invitation to play card is not legal relationship
4. The terms of the offer must be certain,
definite, unambiguous and not vague

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 RULES REGARDING OFFER

5. A mere statement of intention is not an offer

A distinction is usually made, between an offer and a
statement of intention. Price-lists and catalogues,
and enquiries for customers and merely
statements of intention. They are not regarded as
offers but as invitation to others to made offers .
An advertisement in a newspaper or elsewhere
may be so worded that it amounts to an offer. But
ordinarily and advertisement is considered to be
an invitation to make offers

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 RULES REGARDING OFFER

i. Quotation of prices : A quotation of prices is not an

offer , but an invitation for offes . This is true of
many common forms of advertise
ii. Advertisement : A newspaper advertisement inviting
applications for a job or inviting tenders for some is
not an offer. It is only an invitation to make offers.
The applicants who reply to the advertisement are
the proposers or offerors. The advertiser is free to
accept any one of the applications.
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 RULES REGARDING OFFER
6.An offer must be communicated to the offeree
A person cannot accept an offer unless he knows of the existence
of the offer. P offers a reward to anyone who returns his lost
dog. Q finding the dog brings it to P without having heard of
the offer. Held, he was not entitled to the reward. In this case
it was argued that a man cannot accept an offer without
intending to do so, and he cannot intend to accept an offer of
which he was ignorant. Suppose, G sent servant L in search
of his missing nephew. Subsequently G announced a reward
for information concerning the boy. L brought back the
missing boy, without having known of the reward. Held, there
was no contract between L and G and the reward cannot be
claimed.

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 RULES REGARDING OFFER
7. An offer may be conditional
 An offer may be made subject to conditions.
 In such cases, the conditions must be clearly
communicated to the officer.
 If a person accepts an offer without knowledge of the
conditions, the offeror cannot claim fulfillment of the
conditions.
 But if the conditions are clearly written or expressed
and should have been known to the offeree, he
cannot plead ignorance of the conditions.
- Strict enforcement

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 RULES REGARDING OFFER

8. Printed Contracts
 Often contain a large number of terms and
conditions
 Excluded liability under the contract.
Exam.
The Life Insurance Corporation of India, the
Railway Administration, Statutory
Corporation and big companies

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 ACCEPTANCE

Agreement to take something offered

Who can accept?
 An offer is accepted to a particular person
 A class of persons- Any member
 In case of the world_ Any person whatsoever
An example……………..

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 ACCEPTANCE RULES

1. It must be an absolute and unqualified

acceptance of all the terms of the offer.
2. Conditional Acceptance

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 ACCEPTANCE RULES

3. Contracts subject to condition:

 An immediate binding contract.
 Even though some of the parties’ rights and
obligations may be dependent upon the
happening of a particular event.

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 ACCEPTANCE RULES

4. Clarification:
 Seeking acceptance of offer or making of a
counter offer does not amount in a same way.
5.Methods of communicating acceptance:
 word of mouth
 telephone
 telegram or by post

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 ACCEPTANCE RULES

6. No place of mental acceptance:

If the offeree keeps silence, there is no room
for accepting the offer to be contracted.
Example-
Rahim offered to buy karim’s horse for
$700….

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 ACCEPTANCE RULES

7. Mode of acceptance: The offeree must follow

the particular mode of acceptance.
 If the offeror says, “acceptance to be sent by
telegram”, the offeree must send a telegram.

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 ACCEPTANCE RULES

8. Time of Acceptance:
 Acceptance must be done within the offeror’s
prescribed time
 The acceptance can be done within reasonable
time.
9.Before Offer: Acceptance must be given before
the offer.

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 COMMUNICATION OF OFFER

How is an offer to be communicated?

An offer may be communicated to the offeree or
offerees
 by word of mouth,
 by writing or
 by conduct.

Examples of offers– a tramway car and a bus;

picking up passengers.
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 COMMUNICATION OF
ACCEPTANCE

Offer and Acceptance by post:

 An offer by post either may be made or
accepted.
 The post office will be the agent if the
proposal is made through the post.
 The letter must be correctly addressed.

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 Offer and Acceptance through
Telephone
Can be communicated through telephone
Exist certain rules regarding oral
communication
Must be audible, heard and understood
Satisfied conditions and essential elements of
contract should exist
The parties are bound through a telephone
conversation
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 Offer and Acceptance through
Telephone(Cont.)
“Now, when the parties negotiate a contact orally
in the presence of each other or over telephone
and one of them makes an oral offer to the other,
it is plain that an oral acceptance is expected, and
the acceptor must ensure that his acceptance is
audible, heard and understood by the offer. The
acceptance in such a case must be by such words
which have the effect of communicating it.”

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 Offer and Acceptance through
Telephone(Cont.)
 Communication through a telex or a teleprinter
machine in the office, is valid
 Contract made by “telex” was no exception to
the general rule
 Acceptance is not complete until communicated

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 Microphone
Microphones have not yet acquired notoriety as
carries of binding representations. Promises
held out over loudspeakers are often claptraps
of politics

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 OPTIONS

An option is a
conditional
contract to
do something

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 Standing contract and open
proposals

 Contracts for the supply of goods over a

period of time
 Sometimes the buyer has an option
- The quantity to be purchased
- The time of purchase

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 REVOCATION
An offer comes to an end, and is no longer open
to acceptance under the following
circumstances

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 REVOCATION
1.By notice
 The offeror gives notice of revocation to the
other party
 The offer comes to an end
 May be revoked any time before acceptance
 But can not be revoked afterwards
 Accepted offer means binding contact
 Notice of revocation does not take effect until
it comes within the knowledge of the offeree.
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 REVOCATION

2. By laps of time
 The prosper prescribes a time
 The proposal must be accepted
 The proposal lapses as soon as the time expires

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 REVOCATION

3. After expiry of reasonable time

 Aithout prescribed time, the proposal lapses
after the expiry of a reasonable time
 Reasonable time depend on the circumstances
of the case

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 REVOCATION

4. By failure of a condition precedent

 Offer lapses by the failure of the acceptor to
fulfill a condition
 Condition precedent to acceptance
 Such a condition has been prescribed

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 REVOCATION

5. By death or insanity
 Offer lapses by the death or insanity of the
proposer
 Death or insanity comes to the knowledge of
the acceptor before acceptance

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 REVOCATION

6. Counter offer
 Counter offer may be given
 The original offer lapses

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 REVOCATION

7. By refusal
 Proposal once refused is dead
 Cannot be revived by its subsequent
acceptance.

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