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Introduction

The Indian Contract Act, 1872 is the cornerstone of contractual relations in India. It governs the formation, execution, and enforcement of contracts and defines the legal framework within which agreements become enforceable. This article explores the intricate steps in the formation of an agreement, particularly focusing on:

• Intention to Create Legal Relationship
• Proposal and Acceptance: Their Various Forms and Essential Elements
• Communication of Offer and Acceptance
• Revocation and Its Modes
• What Agreements Are Contracts (Section 10)

Each concept is explained in detail with relevant sections, landmark judgments, and citations.

 

Formation of an Agreement

A contract originates from an agreement. According to Section 2(e) of the Indian Contract Act, an agreement is “every promise and every set of promises forming the consideration for each other.”

• Promise [S. 2(b)]: When the person to whom the proposal is made signifies his assent, the proposal becomes a promise.
• Agreement [S. 2(e)]: A promise or a set of promises supported by consideration.

The process of forming a valid contract starts with a lawful proposal, its lawful acceptance, lawful consideration, capacity to contract, free consent, and lawful object (Section 10).

 

Intention to Create Legal Relationship

For any agreement to be legally enforceable, the parties must intend to create legal obligations. This principle distinguishes social/domestic agreements from legally binding ones.

Key Case Law:

• Balfour v. Balfour [1919] 2 KB 571: An agreement between a husband and wife was held to be non-enforceable due to the absence of intent to create legal obligations.
• Rose & Frank Co. v. JR Crompton & Bros Ltd [1923] 2 KB 261: A clause stating that the arrangement was not a legal agreement was upheld.

Indian Case Law:

• Abdul Aziz v. Masum Ali (1914) ILR 36 All 268: A promise to donate without legal intention was not enforceable.

Conclusion: Mere promises without an intent to bind legally are not contracts.

 

Proposal and Acceptance: Their Various Forms and Essential Elements

Section 2(a) defines a proposal as: “when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other… he is said to make a proposal.”

Section 2(b): When the proposal is accepted, it becomes a promise.

Forms of Proposal and Acceptance

• Express: Clearly stated orally or in writing.
• Implied: Inferred from conduct.

Essential Elements of a Valid Proposal:

1. Clear and definite terms
2. Intention to create legal obligations
3. Communication to the offeree

Essential Elements of Acceptance:

1. Absolute and unqualified (S. 7)
2. In the prescribed manner
3. Communicated to the proposer

Case Law:

• Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256: Established that unilateral offers can be accepted by performance.
• Felthouse v. Bindley (1862) EWHC CP J35: Silence does not amount to acceptance.
• Harbhajan Lal v. Harcharan Lal AIR 1925 All 539: Offer to pay on returning a lost item held to be a general offer.

 

 Communication

Communication is essential to create a binding contract. According to the Indian Contract Act:

• S. 4: The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
• S. 4 (contd.): Acceptance is complete:
  • As against the proposer, when it is put into the course of transmission (i.e., posted).
  • As against the acceptor, when it comes to the knowledge of the proposer.

Example: If A posts a letter of acceptance to B on 1st January and B receives it on 5th January:

• The contract is binding on B from 1st January
• On A from 5th January

Case Law:

• Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543: Held that contract is concluded at the place where acceptance is communicated.

 

Revocation of Offer and Its Modes

Section 5: A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer.

Modes of Revocation:

1. Notice of revocation (S. 6(1))
2. Lapse of time (S. 6(2))
3. Failure to fulfill condition precedent (S. 6(3))
4. Death or insanity (S. 6(4))

Example:

• A offers to sell a car to B, who posts a letter of acceptance on 1st Jan.
• A revokes on 2nd Jan but B receives on 5th Jan.
• The revocation is invalid as acceptance was already posted.

Case Law:

• Henthorn v. Fraser [1892] 2 Ch 27: Revocation must reach before acceptance is posted.

 

What Agreements are Contracts (Section 10)

Section 10 of the Act lays down the essential elements that make an agreement a contract:

“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.”

Essential Elements under Section 10:

1. Free Consent: No coercion, fraud, undue influence, etc. (Section 14)
2. Capacity to Contract: Majority age and sound mind (Section 11)
3. Lawful Consideration: Section 2(d), Section 25
4. Lawful Object: Not against public policy (Section 23)
5. Not declared void: e.g., wagering agreements (Section 30)

Case Law:

• Gherulal Parakh v. Mahadeodas Maiya AIR 1959 SC 781: Wagering agreements are void but not illegal unless declared so by statute.

 

Conclusion

The Indian Contract Act clearly defines how contracts are formed through a step-by-step legal process involving offer, acceptance, communication, and intent. Each of these elements is legally structured to ensure that the agreement between parties is enforceable in a court of law. Understanding these elements is essential for any legal professional, law student, or business entity operating in India.

Through legislative clarity and judicial interpretation, the Indian Contract Act serves as a robust framework to evaluate the enforceability of agreements in day-to-day transactions and commercial undertakings.

 

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References:

• The Indian Contract Act, 1872
• Balfour v. Balfour [1919] 2 KB 571
• Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256
• Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543
• Mohori Bibee v. Dharmodas Ghose (1903) 30 Cal 539 (PC)
• Gherulal Parakh v. Mahadeodas Maiya AIR 1959 SC 781
• Henthorn v. Fraser [1892] 2 Ch 27
• Abdul Aziz v. Masum Ali (1914) ILR 36 All 268
• Rose & Frank Co. v. JR Crompton & Bros Ltd [1923] 2 KB 261