UNIT – I

CONTRACT LAW – I FORMATION OF

CONTRACT

TANMAY J. PATIL
Assistant Professor of Law
KLE Society’s Law College, Bengaluru

© Tanmay J. Patil, Indian Contract Law. pptx

 • Formation of Contract • Consideration
• Agreement and Contract • NudumPactum
• Definitions • Essential elements
• Classification
SYLLABUS • Offer and Acceptance
• Privity of Contract and of
Consideration
• Communication • Exceptions
• Revocation • Unlawful Consideration and
its effect
• Essential elements
• e-contract.
• Invitation to Offer – Tenders.
 Offeror Offer Offeree

Acceptance Communication

Consent Free

Formation of Promisor Promise Promisee

Contract Consideration Lawful

Agreement

Rights Enforceability Obligations

Competent Party I Contract Competent Party II

 • An agreement is usually an informal arrangement,
often unwritten, between two or more parties.
• The parties simply consent to do or refrain from
doing something.
• Nothing requires the parties to adhere to the terms
of the agreement aside from the honor system.
Agreement • Agreement = Promise or set of promises (offer +
and Contract acceptance)
• For example, you offer to let your friends stay at your
house while they’re in town. That’s an agreement
because there’s no exchange of consideration for
use of your house, and there are no terms or
conditions written out for them to comply with. Your
friends cannot sue you for changing your mind and
making them pay for a hotel.
 • A contract is a lawful agreement which is enforceable by law.

• On the other hand, is a formal arrangement between two

parties that’s enforceable either in court or through arbitration.

• Contract = Agreement + Legal enforceability Or

Contract = Legally enforceable Agreement.

Agreement • An exchange of goods or services for “consideration,” which is

usually money but can be anything of value, is required for the
and Contract arrangement to be legally binding. The parties can be sued for
failure to meet the obligations of the contract.

• For example: In case of a Fire Insurance Contract where X

wants to insure his goods in the warehouse, he pays the
insurance premium and promises to avoid insurance fraud
whereas the insurance company agrees to compensate losses
in case of a fire.
 • For an agreement to become a contract it must give rise to a
legal obligation and if it is incapable of doing so, it is not a
contract.

• In the case of Balfour v Balfour [1919] 2 KB 571, Mr. Balfour

promised to pay his wife £30/month as she stayed in England

Agreement for medical reasons. When he failed to pay, Mrs. Balfour sued
him. Her action failed because there was no intention to create
and Contract a legally binding agreement between Mr. and Mrs. Balfour.

• A contract cannot be made without proper indication about the

legal rights and obligations of the parties to the contract.

• If this were to be a contract then the wife would have had a

right to receive payment and the husband would have had the
obligation to pay his wife.
 • The following are some of the agreements which are
not enforceable in the eyes of law:
• Agreements without consideration except it is written and
registered or is a promise to compensate for something
done or is a promise to pay a debt barred by limitation law.
Agreement • Agreements in restraint of marriage

and Contract • Agreements in restraint of trade

• Agreements in restraint of legal proceedings

• Agreements void for uncertainty

• Agreements by way of wager

• Agreements contingent on an impossible event

• Agreements to do impossible act

 • An agreement is a contract when:
• Free consent of the parties: When there is absence of
Coercion (Section 15), Undue Influence (Section 16),
Fraud (Section 17), Misrepresentation (Section 18) and
Mistake (Section 20, 21, 22), the consent is said to be

Agreement free.
• Capacity of the parties to contract: Section 11 and 12 lay
and Contract down that the competent parties are persons who have
attained majority.
• Lawful consideration and Lawful object: Section 23 lays
down that the consideration and object is lawful unless it is
forbidden by law or it defeats provisions of any law or is
fraudulent or involves injury to person or property or is
violative of public health, morality, peace and order.
 • Examples where agreements are not contracts:
• Gabbar asked Samba to kill Jay and Veeru and Samba
agreed. This is an agreement but the object of the
agreement makes it an illegal one. Therefore, it cannot be
enforced and so it is not a contract.
• Rajesh promises his wife Chitra that he will bring for her the
stars and the moon and Chitra agrees. Here, the object of
the agreement is impossible to perform and so it is not
Agreement enforceable and cannot be termed as a contract.
• A mother promises her crying child that she will buy a
and Contract Barbie doll for her but she does not buy it. Here, the
promise was not made with the intention to fulfil it and so it
is not enforceable and cannot be termed as a contract.
• I offer my pen to Neelam and she accepts it, here an
agreement is made but such agreement is made out of
friendship and has no consideration. An agreement without
consideration is not a contract (an exception to this is
Section 25 of the ICA which states that near relation and
natural love and affection can be said to be consideration).
 • Definition of “Agreement”:
• According to Section 2(e) of Indian Contract Act,
1872 -

• ‘Every promise and every set of promises,

forming the consideration for each other, is an
Definitions agreement’.

• Definition of “Contract”:
• According to Section 2(h) of Indian Contract Act,
1872 –

• ‘An agreement enforceable by law is a contract’.

 1. Adhesion Contracts –
• These types of contracts are those which are
formed by the stronger party.
• It is a sort of, “Opt for it or do not” contract.
• The stronger party or the one that has the
bargaining power leaves the other party with a
choice whether to accept or reject the contract.
Classification 2. Aleatory Contracts –
• This type of contract involves a mutual
agreement that comes into being after an
unexpected occurrence, accident, or a natural
calamity.
• In this type of contract both the parties have an
element of risk. Fire or Car insurances are this
type of contract.
 3. Bilateral Contracts –
• Both parties are obliged to one another for
performing or abstaining to perform any act.
• It is also called a two-sided contract as it involves
two way promises.
4. Unilateral Contracts -
• The promise is made by only one party.
Classification • They consist of an offeror and offeree.
• The offeror makes a promise to perform an action
and is bound by the law to do so but the offeree
is not bound to the court even if he fails to
execute the requested action because he does
not promise anything at all.
• For Example: when someone posts a reward for
their lost pet, wallet, cellphone, etc.
 5. Express Contracts –
• These contracts are those wherein the terms of
the contracts are expressed clearly whether in
written documents or orally.
6. Implied Contracts –
• There are no oral or written terms in this type of
Classification contract.
• The contracts are assumed owing to the facts of
the parties.
• For Example: If an individual visits a medical
professional, he expects to be diagnosed for a
disease or illness and be advised a cure. This is
an implied contract and a patient is capable of
suing a medical practitioner for malpractice.
 7. Void Contracts –
• Void contracts are illegal from the very beginning
and hold no validity under law.
• They are thereby un-enforceable.
8. Voidable Contracts -
• Voidable contracts are unlike void contracts in the
Classification sense that one party is bound by the contract
and the unbound party is capable of terminating
the contract as they are unbound to it.
• For Example:
• A contract signed by misleading the other party.
• A contract signed by due to acts of fraud.
• Contract signed with someone when they were
temporarily incapacitated.
 9. Quasi Contracts –
• A quasi contract is a retroactive arrangement
between two parties who have no previous
obligations to one another.
• It is created by a judge to correct a circumstance
in which one party acquires something at the
expense of the other.
• Under a contract, both parties give their consents
Classification freely, while under quasi-contract, there is no
consent of either of the parties, as it is not
voluntarily made.
• For Example: Peter and Oliver enter a contract
under which Peter agrees to deliver a basket of
fruits at Oliver's residence and Oliver promises to
pay Rs 1,500 after consuming all the fruits.
However, Peter erroneously delivers a basket of
fruits at John's residence instead of Oliver's.
 • The entire process of entering into a contract
begins with the proposal or an offer made by
one party to another.
• The proposal must be accepted to enter into an
agreement.
• According to the Indian Contract Act 1872,
proposal is defined in Section 2(a) as
Offer/ • “when one person will signify to another person his
willingness to do or not do something (abstain) with
Proposal a view to obtain the assent of such person to such an
act or abstinence, he is said to make a proposal or an
offer.”
• The person making the offer/proposal is referred
to as the “promiser” or the “offeror”.
• And the person who accepts an offer is referred
to as “promisee” or the “acceptor” or the
“offeree”.
 • There must be two parties.
• The offer must be Communicated
• Communication or expression of the willingness by the
offerer to enter into a contract or abstain from doing so is
essential for a valid offer. Mere desire or willingness to do
or not to do something is not enough and will not
constitute for an offer.
• Section 4 of the Indian Contract Act says that the
communication of a proposal is complete when it comes to
Essentials of the awareness of the person to whom it is made.
• In Lalman Shukla vs Gauri Dutt(1913) it was held that
a Valid Offer mere knowledge of an offer does not imply acceptance by
the offeree.
• Terms of the offer must be clear and definite
• Knowledge of the Intention of the parties is very essential
as without this the courts will not be able to decide what
the parties want to do. Therefore the terms of the offer
must be clear and definite and not vague and loose.
• Example-Ram offers Shyam to sell fruits worth Rs 600/-.
This is not a valid offer since what kinds of fruits or their
specific quantities are not mentioned.
 • Must create a legal relationship
• It is essential for a valid proposal that it must be
made with the intention of creating a legal
relationship otherwise it will only be an invitation.
A social invitation may not create a social
relationship. An offer must lead to a contract
which creates legal obligations and legal
Essentials of consequences in the case of non-performance of
the contract.
a Valid Offer • Example- A lunch invitation extended by A to B is
not a valid offer.
• It may be specific or general
• The specific offer is an offer that is accepted by
any specific or particular person or by any group
to whom it is made. Whereas, The general offers
are accepted by any person.
 • Express offer and implied offer:
• Section 9 of The ICA defines both of them as: In so
far as the proposal or acceptance of any promise is
made in words, the promise is said to be expressed.
In so far as such a proposal or acceptance is made
otherwise than in words, the promise is said to be
implied.
• In Upton-on-Severn RDC v. Powell, wherein the
Classification defendant called a fire brigade assuming that those
services would be free to him, however it was found
of Offer that his Farm did not come under that of Upton. The
court held that the truth of the matter is that the
Defendant wanted the services of Upton, he asked for
the services of Upton and in response to that they
offered their services and they were rendered on an
implied promise to pay for them.
• Similarly entering into an omnibus also amounts to
implied acceptance, same as consuming edibles at a
self-service restaurant.
 • General Offer:
• A General Offer is an offer that is made to the
world at large. The genesis of a General Offer
came about from the Landmark case of Carlill v.
Carbolic Smoke Ball Co.
• Lalman Shukla v. Gauri Dutt, wherein a servant
was sent by his master to trace his missing
Classification nephew. In the meanwhile, he also announced a
reward for anyone finding his nephew, this in
of Offer itself is an example of an offer that is made to
the world at large and hence a General Offer.
• General offer of continuing nature: When a
general offer is of continuing nature, like it was in
a carbolic smoke ball case, it can be accepted by
a number of people till it is retracted. However,
when a similar offer requires information
regarding a missing thing, it is closed as soon as
the first information comes in.
 • Specific Offer:
• A Specific offer is an offer that is made to a
specific or ascertained person, this type of offer
can only be accepted by the person to whom it is
made.
• Boulton v. Jones, wherein the Plaintiff had taken
the business of one Brocklehurst, the defendant
Classification used to have business with Brocklehurst and not
knowing about the change in ownership of
of Offer business, sent him an order for certain goods.
The Defendant came to know about the change
only after receiving an invoice, at which point he
had already consumed the goods. The Defendant
refused to pay the price, as he had a set off
against the original owner, for which the plaintiff
sued him. The Judges gave a unanimous
judgement holding the defendant not liable.
 • Cross Offer:
• When two parties make an identical offer to each
other, in ignorance to each other’s offer, they are said
to make cross offers. Cross offers are not valid offers.
• For example- if A makes an offer to sell his car for 7
lakhs to B and B in ignorance of that makes an offer
to buy the same car for 7 Lakhs, they are said to
make a cross offer, and there is no acceptance in this
Classification case, hence it cannot be a mutual acceptance.

of Offer • Tinn v. Hoffman, the defendant wrote to the

complainant an offer to sell him 800 tons of iron at
69s per ton, at the same time the complainant also
wrote to the defendant an offer to buy the iron at
similar terms. The issue in this case was that, was
there any contract between the parties, and would
simultaneous offers be a valid acceptance. The court
held that these were cross offers that were made
simultaneously without knowledge of one another and
would not bind the parties.
 • Counter offer:
• When the offeree offers a qualified acceptance of
the offer subject to modifications and variations in
terms of the original offer, he is said to have
made a counter offer.
• A counter offer is a rejection of the original offer.
• An example of this would be if A offers B a car
Classification for 10 Lakhs, B agrees to buy for 8 Lakhs, this
amounts to a counter offer and it would mean a
of Offer rejection of the original offer. Later on, if B
agrees to buy for 10 Lakhs, A may refuse.
• Haji Mohd Haji Jiva v. Spinner, court held that any
departure from original offer vitiates acceptance.
In other words, an acceptance with a variation is
not acceptance, it is simply a counter proposal
which must be accepted by the original offeror,
for it to formulate into a contract.
 • Standing offer
• An Offer which remains open for acceptance over
a period of time is called a standing offer.
• Tenders that are invited for supply of goods is a
kind of Standing Offer.
• In Percival Ltd. V. London County Council
Asylums and Mental deficiency Committee, the
Classification Plaintiff advertised for tenders for supply of
goods. The defendant took the tender in which
of Offer he had to supply to the company various special
articles for a period of 12 months. In-between
this the Defendant didn’t supply for a particular
consignment. The Court held that the Tender was
a standing offer that was to be converted into a
series of contracts by the subsequent acts of the
company and that an order prevented the
possibility of revocation, hence the company
succeeded in an action for breach of contract.
 • An invitation to offer is an offer to negotiate, an
offer to receive offers.
• Whereas, an offer is a final expression of
willingness to get into a contract upon those
following terms.
• The concept of Invitation to offer was explained
Offer and in the Privy Council case of Harvey v. Facey-
Invitation to • The Plaintiffs in this asked two questions from the
defendant i.e.- Would you sell me your Bumper Hall
Offer pen, telegram me the lowest price?
• The Defendant only gave the answer to the latter
question , post which he refused to sell.
• The Court held that the defendant was not to sell as
he had only answered the second question and
reserved the same for his first question. Thus, this
clearly shows the distinction between an offer and
invitation to offer.
 • In Adikanda Biswal v. Bhubaneswar Development
Authority, when a development authority made
an announcement for allotment of plots on first
come first serve basis on payment of full
consideration. An application against this with full
consideration was only considered to be an offer,
as the Development authority only gave an
invitation to offer, and the offer can only be
Offer and formalized into a contract when it is accepted by
the development authority.
Invitation to • In Pharmaceutical Society of Great Britain v.
Offer Boots Cash Chemists Southern Ltd., lord
GODDARD CJ, said that it would be wrong to say
that a shopkeeper intends to sell everything that
is displayed in his shop. Meaning that the
customer makes an offer, to which the
shopkeeper has the discretion to accept or deny.
The shopkeeper may say that he doesn’t have
enough stock of that good and therefore may
not sell.
 • An offer is valid if it is conveyed to the
offeree.
• The communication can either be expressed
or implied.
Section - 4
• It can be communicated by terms such as
word of mouth, messenger, telegram, etc.
Communication
• When communication is complete (Section 4)
of Offer • The communication of the offer is complete
when it comes to the knowledge of the person to
whom it is made.
• For Example:
• ‘A’ proposes to sell a car to ‘B’ at a certain price.
Once ‘B’ receives the letter, the proposal
communication is complete.
 • A proposal can be revoked at any time before
the communication of its acceptance is
complete as against the proposer but not
afterward.
Section - 5
• When revocation happens:
• An offer lapses after a defined or reasonable
Revocation of time.

Offer • An offer lapse by not being accepted in the

specified mode.
• An offer lapses by rejection.
• An offer lapses by the offeror or the offeror’s
death or insanity until acceptance.
• An offer lapses by revocation before acceptance.
• An offer lapses by subsequent illegality or
destruction of the subject matter.
 • Revocation of the offer by the offeror
• The offeror can withdraw his offer before it is
accepted “the bidder can withdraw (revoke) his
offer at an auction sale before being accepted by
Section - 5 any auctioneer using any of the customary
methods.
Revocation of • For Example-
Offer • ‘A’ agreed to sell the property to ‘B’ by a written
document which stated “this offer to be left over
until Friday 9 AM”. on Thursday ‘A’ made a
contract to sell the property to ‘C’. ‘B’ heard of
this from ‘X’ and on Friday 7 AM he delivered to
‘A’ acceptance of his offer. Held ‘B’ could not
accept A’s offer after he knew it had been
revoked by the sale of the property to C.
 • The Indian Contract Act 1872 defines
acceptance in Section 2 (b) as
• “When the person to whom the proposal is made
signifies his assent thereto, the offer is said to be
accepted. Thus the proposal when accepted becomes
a promise.”
Section – 2(b) • An offer can be revoked before it is accepted.
• As specified in the definition, if the offer is
Acceptance accepted unconditionally by the offeree to whom
the request is made, it will amount to
acceptance.
• For Example-
• ‘A’ offer to buy B’s house for rupees 40 lacs and ‘B’
accepts such an offer. Now, it has become a promise.
• When an offer is accepted and it becomes a
promise and it also becomes irrevocable. No
legal obligation created by an offer.
 • Implied acceptance:
• Acceptance which is not explicitly made by
means of speech or writing but, by the conduct
of the person to whom an offer is made.
• The striking of hammer thrice by the auctioneer
in order to show his acceptance to the offer
made by a bidder is an example of implied
Modes of acceptance to the offer made by the bidder at an
auction to the auctioneer.
Acceptance
• Express acceptance:
• Acceptance which is made by means of words,
oral or written is known as an express
acceptance.
• For example, A offers B his watch for sale
through a mail and A replies in positive to the
offer by email.
 • Acceptance must be absolute and unqualified.
• The offeree’s approval cannot be conditional.
• For example, ‘A’ wants to sell her car to ‘B’ for Rs 2 lakh, ‘B’
can’t come back and says that she accepts the offer but
will buy the same for Rs. 1 lakh.
• Acceptance must be communicated to the offeror.
• If the acceptor just accepts the offer in his head and he
does not mention the same to the offeror, it can not be
Essentials of called an Acceptance, whether in an express manner or an
implied manner.
Acceptance • Acceptance must be recommended in the stated
mode.
• Acceptance is sometimes required in a prescribed/specified
communication mode.
• Acceptance must be given in reasonable amount of
time.
• It’s very rare that an offer is always to get acceptance at
any time and at all times. Therefore, the offer defines a time
limit. If it does not, it should not be acknowledged forever.
 • Mere silence is not acceptance
• If the offeree fails to respond to an offer made to
him, his silence can not be confused with
acceptance.
• When communication is complete – Sec 4
Communication • Communication of acceptance is complete when
and Revocation it is put in the course of transmission to him as
to be out of the power of the acceptor to
of Acceptance withdraw the same and when it comes to the
knowledge of the proposer.
• Time of revocation of acceptance
• An acceptance may be revoked at any time, but
not afterward, before the communication of the
acceptance is complete as against the acceptor.
 • Conditions are of three types, which are as follows:
• Express condition: In an express condition, certain facts can
operate as condition as it has been expressly agreed upon
by the parties to the contract.
• Implied condition: When certain facts which operate as a
condition are not expressly mentioned by the parties but

Acceptance with can be inferred by the conduct of the parties.

• Constructive condition: When the court believes that the
Subsequent parties to a contract must have intended to operate certain
conditions because the court believes that the Justice
Condition requires the presence of the condition.
• ‘A’ accepted the terms of the contract for the sale of
a good by accompanying the acceptance with the
warning that if money was not delivered to him by a
particular date, then the contract will remain
repudiated. The acceptance of the offer would not be
deemed to be a counter-proposal.
 • The person whose proposal or offer has not been accepted
absolutely or unqualifiedly by the offeree as the offeree attaches
a counter-proposal to the original proposal, the offeror becomes
bound by the counter-proposal. If, by the conduct of the offeror,
he indicates that he has accepted the terms of the counter-
proposal laid down by the offeree.
• In the case of Hargopal v. People’s Bank of Northern India Ltd.,
an application for shares was made with a conditional
Acceptance of undertaking by the bank that the applicant would be appointed
as a permanent director of the local branch. The shares were
Counter Proposal allotted to the applicant by the Bank without fulfilment of the
condition and the applicant was given his shares and the
applicant accepted the same without any protest regarding the
non-fulfilment of the terms of the contract. When there arose a
dispute between the parties in a court of law. The applicant
contended that the allotment was void on the ground of non-
fulfilment of the conditions which were stipulated in the original
contract. The court rejected the contention from the applicant’s
side by holding that the same can not be pleaded by him as he
has waived the condition by his conduct.
 • In Bismi Abdullah and sons v. FCI,
• The court held that where tenders were invited
subject to the deposit of money. It was open to
the tenderers to waive the requirement and
acceptance given to a tender without making the
deposit is binding upon the tenderer.

Acceptance of • In D.S. Constructions Ltd v. Rites Ltd

Counter Proposal • The court held the where the tenderer made
variations to the terms of his tender within the
permissible period, but the variations were only
partly accepted by the other side without the
tenderer’s consent lead to repudiation of the
contract and so there was no contract at all.
Therefore, the earnest money deposited by the
party can not be forfeited.
 • Acceptance by the offeree which is made subject
to the final approval.
• It does not ordinarily bind either party to the
contract until the final approval is given to the
provisional acceptance made by the offeree.
• Until the approval is given, the offeror is at liberty
Provisional to cancel the offer made to the offeree.

Acceptance • In Union of India v. S. Narain Singh

• The High Court of Punjab held that where the
condition attached to the auction sale of the liquor
was that the acceptance of the bid shall be subject to
confirmation by the Chief Commissioner. The contract
will not be complete till the highest bid is confirmed
by the Chief Commissioner and till the confirmation is
made the person whose bid is provisionally accepted
is at liberty to withdraw the bid.
 • In Mackenzie Lyall And Co. vs. Chamroo Singh
And Co
• The bid at an auction was of provisional acceptance in
nature ad the terms of the contract stated that the bid
shall be referred to the owner of the goods for his
approval and sanction. The court in this case also,
allowed the person to revoke his bid whose bid was
Provisional provisionally accepted.

Acceptance • In Somasundaram Pillai vs. The Provincial

Government Of Madras
• The court held that the bidder would be at liberty to
withdraw his will prior to the final approval of the
provisional acceptance where the terms of the
contract expressly mention that a bid which has been
provisionally accepted can not be canceled
subsequently.
 • A Tender is a legal offer or proposal to do or
abstain from doing an act and it binds the party
to performance to the party to whom the offer is
made.
• When the tender is accepted it becomes a
standing offer.
• A contract can arise only when an offer is made
Tenders on the basis of the tender.
• In Rajasthan State Electricity Board vs. Dayal
Wood Work,
• The purchase orders were issued in terms of an
arrangement of supply. But the purchase offer itself
contained the provision that the tenderer can refuse to
supply the goods. The court, in this case, held that
there was no concluded contract that came into force
and therefore, the contractor was at liberty to refund
his security deposit.
 • In Madho Ram vs. The Secretary Of State For
India,
• The military authorities accepted a tender for the
supply of certain goods but during the period of
tender, no requisition was ever issued.
• In an action against the military authorities, the
court held that the military authority was not
Tenders bound whatsoever by the acceptance of their
offer to purchase any or all the goods specified
under the contract without any covenant to that
issue.
• And so the party giving his assent to the offer
may at any time declare to the tenderer that they
no longer want to place an order for the
purchase of goods.
 • If a valid tender is opened then it must be duly
considered by the inviting authority because if the
valid tender is not duly considered it would be unfair
on the part of the tenderer.
• In Vijai Kumar Ajay Kumar v. Steel Authority Of India
Limited
• The court of appeal observed that in certain circumstances,
Liability for the invitation to tender can give rise to the binding
contractual obligation on the part of the person who invited
Failure to the tenders who confirmed the conditions of the tender.
• In A. K. Construction v. State of Jharkhand
Consider Tender • The contract was awarded to a person who was not a
qualified tenderer and he was chosen at the cost of a
qualified tenderer who brought an action against the
decision of granting the tender to the unqualified tenderer.
The court, in this case, allowed the awardee of the tenderer
to complete his work and also allowed the aggrieved party
compensation of one lakh rupees to be recovered from the
salary of the guilty officers who were guilty of awarding the
tender unreasonably.
 • In Vijay Fire Protection Systems v. Visakhapatnam
Port Trust And Anr.:
• The authorities inviting the tender made it clear to the
tenderers that only one brand of pump sets would be
accepted. The authorities even gave the last minute
opportunity to the tenderers to change the quotations. The
Non-Compliance tenderer to whom the tender for the supply of goods was
given refuted to comply with the terms of the contract.
with Subsequently, the authorities who invited the tender
cancelled the contract between them and the tenderer
thereof. The court held that the decision made by the
Requirements of authorities was not arbitrary and they were having the right
to do so.
Tenders • In Kesulal Mehta vs. Rajasthan Tribal Areas:
• One of the conditions in the tender was that the tenderer
should have at least one year of work experience in the
work in question. The court, in this case, held that such
conditions could be relaxed and any otherwise competent
contractor could be given the tender and he could at a later
point of time be required to produce the certificate of work.
 • The party allocating the contracts has the
indispensable power of blacklisting the
contractor.
• But when in cases where the party is the state,
the decision to blacklist is open to judicial review
to ensure proportionality and principle of natural
Preventing from justice.
Tendering and • In Merittrac Services Private v. Post Graduate
Blacklisting Institute:
• It was held that the provision of blacklisting a
contractor arises only when the contract is awarded
and the tenderer fails to perform any conditions
stipulated in the contract. For the purpose of seeking
permission for making his proposal, some material
facts may be required from the bidder about his
experience.
 • The party allocating the contracts has the
indispensable power of blacklisting the
contractor.
• But when in cases where the party is the state,
the decision to blacklist is open to judicial review
to ensure proportionality and principle of natural
Preventing from justice.
Tendering and • In Merittrac Services Private v. Post Graduate
Blacklisting Institute:
• It was held that the provision of blacklisting a
contractor arises only when the contract is awarded
and the tenderer fails to perform any conditions
stipulated in the contract. For the purpose of seeking
permission for making his proposal, some material
facts may be required from the bidder about his
experience.
 • Only the promises that are backed by
consideration are enforceable because any
promise made without any obligation is
usually very rash and without any sort of
deliberation.
• The reason for making consideration an
essential part of a contract is because it
Consideration levies a sort of burden on the parties to fulfil
the terms of the contract.
• For Example, if, A promises to give B a car
without B doing or abstaining to do anything
for it, makes the promise by an
unenforceable. This will be a gift and not a
contract per se.
 • Pollock:
• “Consideration is the price for which the promise of the other is
bought, and the promise thus given for value is enforceable.”
• Justice Patterson:
• “Consideration means something which is of some value in the eyes
of the law….. It may be some benefit to the plaintiff or some
detriment to the defendant.”
Section – 2(d)
• Indian Contract Act, 1872 [Section 2(d)]:
• When, at the desire of the promisor, the promisee or any other

Consideration
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.
• Quid Pro Quo:
• It means price for which the promise of the other is bought, i.e., a
valuable considerations, a price of the promise, some of value
received by the promisee as an inducement of the promise which
shall be of some benefit to the plaintiff or some detriment to the
defendant.
• Indian Contract Act, 1872 (Section 25):
• It starts with a declaration that “an agreement made without
consideration is void”. Consideration is a price of the promise.
 • This Latin maxim denotes an agreement made without
any consideration.
• One of the three basic requirements for a contract to be
enforceable is a consideration, which means a promise to
pay money, or valuable items or any other perquisite as
discussed by the parties involved in the contract or an
agreement.
• Where there is a nudum pactum, there is no consideration,
and thus, the contract is neither enforceable nor valid.
Nundum Pactum • For Example:
• A owns a property ‘G’. A hires B, a broker to sell the property ‘G’
without any agreement to pay any consideration. However, A sold the
property through his own efforts. In such a case, B cannot claim for
any compensation, since the agreement made to him is without any
consideration.
• In Union of India vs F. Gian Chand Kasturi Lal:
• The Punjab-Haryana High Court held that “A consideration of some
sort or other is so necessary to the forming of a contract, that a
“nudum pactum’, or agreement to do or pay something on one side,
without any compensation on the other, will not at law support an
action; and a man cannot be compelled to perform it.
 • Must move at the desire of the promisor:
• The consideration should be at the desire of the
promisor if the consideration is made at the will of the
third person or is not according to the promisor then
it is not a good consideration.
• Can move from the promisee or another person:
Essentials • As long as there is consideration it is immaterial as to
of who has furnished it.

Consideration • In, Chinnaya vs. Rammyya, the consideration can also

move at the desire of the third party but only in the
condition where he is the beneficiary of the contract.
• Can be an act, abstinence or even a promise:
• If the promisee does something or abstains from
doing something for the promisor, at his desire, then it
will be a good consideration.
 • Can be past, present or future:
• PAST- When the consideration is given before the
promise was made. For example- A saves B at
the latter’s desire. B after a month promises to
pay A. the act of A will amount to past
consideration for the payment made by B.
Essentials • PRESENT- When the consideration is given
of simultaneously to the promise made, then this is
Consideration present consideration or executed consideration.
For example- cash sales.
• FUTURE- When the consideration of the promise
made is to be passed at a future date then that is
called future or executory consideration. For
example- A promises to pay B, when the latter
will fetch newspaper for him.
 • Consideration need not be adequate:
• It is not necessary that the consideration is equal or
adequate for the promise made. However, it is
mandatory that the consideration should be
something in which the law attaches some value.
• It is for the parties to decide the value of the
Essentials consideration and not a court of law.
• For example- A sells a table to B and B gives him Rs
of 500. It will be difficult for the court to ascertain the
value of the table, so if A is satisfied with the amount
Consideration given then the consideration is valid.
• Should be real:
• Although the consideration need not be adequate it
should be real and not illusory. The consideration
should not be physically impossible, legally not
permissible or based on an uncertain event or
condition.
 • Should not be something which the promisor
is already bound to do:
• A consideration to do something which the
promisor is already required to do is not a good
consideration. For example- the public duty done
Essentials by a public servant.
of • Should not immoral, or against the public
Consideration policy of the state:
• Under Section 23, it is given that consideration
should not be illegal, immoral or against public
policy. The court should decide the legality of the
consideration and if found to be illegal then no
action on the agreement should be allowed.
 • It is a general principle that the contract can
be enforced only at the behest of the parties
to the contract.
• No third party could enforce it.
• This rule has two consequences-
Privity of • No third party could enforce the contract.
Contract and of • The contract between the parties cannot levy an
obligation on any person other than those parties
Consideration to a contract.
• In Tweddle v. Atkinson-
• The Court acknowledged the existence of contrary
authorities but held that the Doctrine of Privity of contract
meant that third party beneficiary could not enforce against
the promisor the promise that the promisor had made to
the promisee.
 • A stranger or a person who is not a party to a contract can sue on a
contract in the following cases:
1. Trust - Arjun’s father had an illegitimate son, Ravi. Before he died, he put Arjun in
possession of his estate with a condition that Arjun would pay Ravi an amount of
Rs 500,000 and transfer half of the estate in Ravi’s name, once he becomes 21
years old.
2. Family Settlement - Peter promised Nancy’s father that he would marry Nancy else

Exceptions to
would pay Rs 50,000 as damages. Eventually, he married someone else, thereby
breaching the contract. Nancy filed a case against Peter which was held by the
Court since the contract was a family arrangement with Nancy as the beneficiary.

Privity of 3.
4.
Assignment of a Contract.
Acknowledgement or Estoppel - Peter gives Rs 1,000 to John to pay Arjun. John

Contract and of acknowledges the receipt of funds to be paid to Arjun. However, he fails to pay
him. Arjun can sue John for recovery of the amount.

Consideration
5. A covenant running with the land - Peter owned a piece of land which he sold to
John under a covenant that a certain part of the land will be maintained as a
public park. John abided by the covenant and eventually sold the land to Arjun.
Though Arjun was aware of the covenant, he built a house in the specific plot.
When Peter came to know of it, he filed a suit against Arjun. Although Arjun
denied liability since he was not a party to the contract, the Court held him
responsible for violating the covenant.
6. Contract through an agent.
• Only an “intended beneficiary” will be an exception tot the doctrine of
privity of contract, but not the “Incidental beneficiary”
 • In India, in M.C. Chacko v State of Travancore-
• In the application of the Doctrine of Privity held that a
person not a party to a contract cannot subject to certain
well recognized exceptions, enforce the terms of the
contract.
Case Laws- • In Bhujendra Nath vs. Sushamoyee Basu-
• The division bench of the Calcutta High Court has held that
Exceptions to a stranger to a contract which is to his benefit is entitled to
enforce the agreement to his benefit.
Privity of • In Pandurang vs. Vishwanath-

Contract and of • It has been held the person beneficially entitled under the
contract can sue even though not a party to the contract
itself.
Consideration • In KhirodBehariDutt v. Man Gobinda-
• To quote Lord-Williams J, "..though ordinarily only a person
who is a party to the contract can sue on it, where a
contract is made for the benefit of a third person, there
may be an equity in the third person to sue upon the
contract."
 Unlawful Consideration and its Effect

• The Consideration Is Forbidden By Law:

• It is understood that if the consideration in a contract is prohibited by law then it is considered to be an
unlawful consideration and the contract is said to become invalid. It is important to note that for an act
forbidden by law to account as an unlawful consideration it would generally include acts that are explicitly
punishable by the law and it can also include those acts that are prohibited through the medium of either rules
or regulations.
• The Consideration Is Immoral In Nature:
• A consideration in a contract is considered to be an unlawful one if it has been regarded as an immoral act by
the honorable court. In case of an immoral consideration the contract would end up being invalid and void.
• The Consideration Is Fraudulent In Nature:
• A contract becomes invalid or void by nature if the consideration of the contract is fraudulent in nature. Here, it
is important to understand what may fall under a fraudulent act. Fraud is any act committed by a party to a
contract with the intent to deceive another party or to induce that party into entering into the contract.
 Unlawful Consideration and its Effect

• The Consideration Defeating the Provisions Set Under The Law Of The Country:
• A consideration is termed as an unlawful consideration of a contract and end up making the contract an invalid
and void contract, when the said consideration aims at defeating the provision of law or the intentions of law.
• The Consideration Involving Harm Or Injury To Any Other Person Or Property:
• A Consideration is denied to be considered a lawful consideration of a contract if the consideration includes an
act which involves causing harm to any other person or property. It can be understood with the simple
example of a person taking money as an object and in return as a consideration killing a third person or
vandalizing a third party’s property.
• The Consideration Defeating Any Rules Already In Effect:
• A Contract is said to become invalid or void in nature if the consideration of that contract is against the
essence of any rules already implemented in the country or if it intends to defeat the intention of any rules in
effect in the country at that time.
• The Consideration Opposing The Public Policies:
• In case the consideration of a contract is oppressive of the public policy then such a consideration is said to
be an unlawful consideration and the contract becomes an invalid contract or void by nature.
e-Contracts
• E contracts, or electronic contracts, are a type of contract formed online.

• The interaction between the parties in forming the contract can be by many different electronic
means: e-mail, through a computer program, or by two electronic agents programmed to recognize
the formation of the contract.

• E-Contract is based on the principle of non-existence of the parties in the same place, it is based on
the principle named "virtual existence of the parties" where it can be defined as: "a Party using
communication method declares his offering while the other party accepts whether or not with the
same method of communication and in the same place".

• The Indian Contract Act, 1857 has not been amended yet to specifically include the scope of an
Electronic Agreements or Click wrap agreements but through IT Act, 2000 it is recognized.
Characteristics of e-Contracts
1. The parties do not, in most cases, meet physically.
2. There are no physical boundaries.
3. No handwritten signature and in most times, no handwriting is required.
4. Since there is no utmost security, risk factor is very high.
5. Jurisdictional issues are a major setback on econtracts in case of breach.
6. There is no single authority to monitor the whole process especially in shrink wrap contracts.
7. Digital Signatures are used and electronic records are used as evidences in court n when need arises.
8. The three main methods of contracting electronically are e-mail, World Wide Web (www), and Cyber
contracts (Click to agree/online contract).
9. The subject matter includes:
a) Physical goods, where goods are ordered online and paid over internet and physical delivery is made.
b) Digitalized products such as software which can also be ordered for.
 Legal Recognition of e-Contracts
• Section 4 of the Information Technology Act, 2000:
• legal recognition of electronic records, where any Information is in writing, typewritten or printed form is made available to a user in the
electronic form for subsequent reference shall be deemed to have satisfied the requirement of law.

• The Indian Contract Act, 1872 defines contract as

• an agreement between two or more parties for the buying/selling of goods or services for a valid consideration.
• It governs the manner in which contracts are made and performed in India, so every contract made should necessarily comply with the
provisions of the Act, to make it legally enforceable.
• Essentials for legal recognition:
• An offers needs to be made.
• The offer needs to be accepted.
• There must be free and genuine contract.
• Both parties must be legally bided in a lawful contracts
• Section 2(a) must comply.
• o Clear offer must be communicated to offeree
• o Terms of service must be specifically communicated and visible to user. (link to the terms of website would not suffice)

• The terms of contract should not be changed after taking approval and acceptance of the user. Else, it will be voidable.
• Any changes if made should specifically and exclusively be communicated to the user.
 Kinds of e-Contracts

Shrink-Wrap Click-Wrap Browse-Wrap

Agreements Agreements Agreements
 Shrink-Wrap Agreements
• The name was derived from the “shrink-wrap” packaging that generally contains
the CD Rom of software’s.
• The terms and conditions of accessing the particular software are printed on the
shrink-wrap cover of the CD and purchaser after going through the same tears
the cover to access the CD Rom.
• Sometimes additional terms are also imposed in such licenses which appear on
the screen only when the CD is loaded to the computer.
• The user always have option of returning the software if the new terms are not to
his liking for a full refund.
• There is nothing wrong in these contracts but free bargaining is not applicable in
these contracts.
• Shrink wrap agreements can be include the following terms:
• License
• Fees and payments
• Warranties
• Limitations of liability
Shrink-wrap Agreements Case Law
• ProCD v. Zeidenberg 86 F 3d 1447,1449 (US 7th Circuit Court 1996):
• ProCD sold a CD that contained every phone number and addresses in every telephone directory in the US. - It
sold it to businesses for $5000-$10000
• It also wished to sell it consumers for personal use.
• Zeidenberg bought the consumer package and ignored the license. He made the information available on the
Internet to anyone who would pay his price for access to it.
• Zeidenberg claimed he never agreed to the license. He claimed that the terms on the outside of the box are the
terms of the agreement.
• Acceptance of the Offer Versus Acceptance of the Goods, The answer is to distinguish between the acceptance of
the offer and the acceptance of the goods.
• Zeidenberg accepts the offer when he buys the package. He then has an opportunity to inspect the goods and
the terms offered and can decide whether to accept or reject them.
• Verdict: The Court upheld the shrink wrap agreement as a valid contract.
 Click-Wrap Agreements
• Click wrap agreements are those whereby a party after going
through the terms and conditions provided on the website or
program has to typically indicates his assent to the same, by
way of clicking “I agree” or decline the same by clicking “I
disagree”
• Example: permission to access a site or downloading of a software.

• Sometimes a message is sent to the user on his or her screen

that requires the assent of the user to the terms of the
agreement by clicking the icon. The terms of the agreement are
immediately visible on the screen of the computer labeled “I
Agree” or something similar.
Click-wrap Agreements Case Law
• Hotmail Corporation vs. Van $ Money Pie Inc.
• In this case Hotmail brought suit in federal court against customers who were sending spam messages and
forging emails to make it appear that the spam messages originated from Hotmail accounts.
• Hotmail alleged that each and every customer is causing the violation of the term of service agreement that
each person must assent to when opening an email account. T
• he court held that the Hotmail was likely to succeed on breach of contract claims. It is a landmark case
because it held that terms of service contract in click wrap format could be enforceable in court.

• Trimex International FZE vs. Vedanta Aluminium Limited, India 2010

• In this supreme court held that the terms of contract has been discussed over the email, such emails
constituted to be a valid contract and hence enforceable. Here the supreme court recognized the validity of
electronic contracts even if they were not electronically signed and registered.
 Browse-Wrap Agreements
• Terms and conditions posted on the screen.

• Purports to bind anyone who uses the website

or services.

• Does not require the user to click on anything to

indicate his assent to these terms before paying
for the product.

• Binds the user of a website to a contract created

by the user’s mere browsing of the website.
Browse-wrap Agreements Case Law
• In Specht v. Netscape communications Corp. 150F. Supp 2d 585(S.D.N.Y 2001)
• The plantiffs brought suit against Netscape communications corp, alleging the defendant’s SmartDownload plug-in
invaded the plaintiffs' privacy in violation of the Electronic communication privacy act and the computer fraud and
abuse act.

• Netscape moved to compel arbitration and to stay court proceedings, arguing that the plaintiffs agreed to
arbitration in the EULA.

• The court found that "a reasonably prudent Internet user in circumstances such as these would not have known or
learned of the existence of the license terms before responding to defendants’ invitation to download the free
software, and that defendants therefore did not provide reasonable notice of the license terms".

• Verdict: The court held that merely clicking on a download button does not show assent to license terms if those
terms were not conspicuous and if it was not explicit to the consumer that clicking meant agreeing to the license.
Limitations of e-contracts
• Limitations of Shrink-wrap agreements :
• The terms are not available to the user until after the payment is made.

• Limitations of Click-wrap agreements :

• Doubt whether the user clearly or expressly assented to the agreement.

• Limitations of Browse-wrap agreements :

• No mandatory agreements.
• No clear notice of the terms.