Essential Elements of a Contract, Offer and Acceptance: formula sheet

Key formulas

Agreement (Section 2(e))

Agreement = Offer (promise) + Acceptance, with promises forming consideration for each other

An agreement is not always enforceable. It may be social, void or illegal.

Contract (Section 2(h))

Contract = Agreement + Enforceable by law

Every contract is an agreement, but not every agreement is a contract.

Valid contract (Section 10)

Free consent + Competent parties + Lawful consideration + Lawful object + Not expressly declared void

Also needs writing, registration or witnesses where the law requires them.

Other essentials to remember

Two parties + Offer and acceptance + Intention to create legal relations + Certainty + Possibility of performance

These are part of the standard checklist of a valid contract.

Void agreement (Section 2(g))

Void agreement = agreement not enforceable by law

It has no legal effect from the start.

Void contract

Valid when made + later becomes unenforceable = Void contract

Example: performance becomes impossible after the contract is made.

Void agreement

Void ab initio = never a contract

No rights or duties arise from it. Example: agreement without consideration, subject to exceptions.

Voidable contract

Consent not free → enforceable at the option of the aggrieved party

Valid until that party rescinds it within a reasonable time. Other party cannot avoid it.

Illegal agreement

Forbidden by law → void from the start and may attract penalty

Illegal agreements are a subset of void agreements. A void agreement that is not illegal is simply void.

Unenforceable contract

Good in substance + technical defect = cannot be enforced in court

A doctrinal category, not defined in the Indian Contract Act, 1872. The defect can sometimes be cured, and the contract then becomes enforceable.

Executed vs executory

Executed = fully performed; Executory = something still pending

Check whether any act remains for either party.

Meaning of proposal

Proposal = willingness to do or not do something + to obtain the assent of another

This is the Section 2(a) idea. The person making it is the offeror (promisor).

Rule of communication

Offer is complete only when it comes to the knowledge of the offeree

Acceptance without knowledge of the offer is not valid.

Offer vs invitation to treat

Offer = final willingness, acceptance forms a contract; Invitation to treat = invitation to others to make offers

Shop displays, catalogues, price lists, auction calls and tender notices are invitations to treat. The bid or tender submitted is the offer. A tender to supply goods as needed is a standing (open) offer: it stays open for the stated period, and each order placed is an acceptance that creates a separate contract.

General offer

General offer: made to the world at large; accepted by performing the conditions

Carlill v Carbolic Smoke Ball Co. is the standard case.

Counter offer

Counter offer = rejection of original offer + new offer

The original offer lapses and cannot be accepted later unless renewed.

Legal relations and certainty

Valid offer = communicated + certain + intended to create legal relations + not a mere invitation

Use this as a checklist.

Absolute and unconditional

Acceptance = exact match with the terms of the offer

Any change or new condition is a counter-offer, not acceptance.

Communication

Acceptance must be communicated to the offeror

Mental assent or an uncommunicated decision is not acceptance.

Silence

Silence ≠ acceptance

The offeror cannot impose a duty to reply. Silence may amount to acceptance only where the surrounding conduct shows assent.

Mode of acceptance

Prescribed mode, or else a usual and reasonable mode

If a different mode is used, the offeror must object within a reasonable time or is taken to have accepted it.

Who can accept

Only the offeree (or an authorised agent)

A stranger cannot accept an offer made to someone else.

Timing

Acceptance must be made before the offer lapses or is revoked

Acceptance after lapse or revocation is not valid. It is at most a new offer.

Acceptance by conduct (Section 8)

Performing the conditions of the proposal, or accepting consideration for a reciprocal promise = acceptance

Typical case: a general offer such as a reward notice, where doing the act, with knowledge of the offer, is the acceptance.

Communication of a proposal

Complete when it comes to the knowledge of the person to whom it is made

Section 4. Knowledge, not posting, is the test for an offer.

Communication of acceptance

Against proposer: when put in course of transmission. Against acceptor: when it comes to the proposer's knowledge

Section 4. This is the postal rule.

Communication of revocation

Against the person making it: when put in course of transmission. Against the person it is made to: when it comes to their knowledge

Section 4. A revocation by post does not bind the other party until it reaches them.

Time limit for revoking an offer

Revocable at any time before acceptance is complete as against the proposer

Section 5. After the acceptance is posted, the proposer cannot revoke.

Time limit for revoking acceptance

Revocable at any time before acceptance is complete as against the acceptor, but not afterwards

Section 5. Acceptor can overtake the posted acceptance by a faster message that reaches first or at the same time.

Modes by which an offer lapses

Notice of revocation | Lapse of the time fixed, or of a reasonable time if none is fixed | Failure of the acceptor to fulfil a condition precedent to acceptance | Death or insanity of the proposer (if it comes to the acceptor's knowledge before acceptance)

Section 6 lists these four modes. Know all four for list-type MCQs. Rejection or a counter-offer by the offeree also ends the offer, but that rule comes from general law, not from s.6.

Invitation for tenders

Invitation for tenders = invitation to offer; Tender submitted = offer; Acceptance by the inviter = contract

The inviter is not bound to accept the lowest or any tender unless it has said so.

Standing offer

Standing offer = continuing offer; each order placed = acceptance = separate contract

The buyer need not place any order. The supplier must supply against orders placed before valid revocation.

Revocation of standing offer

Revocation is valid only if communicated before an order is placed, and only if the offer is not backed by separate consideration or a promise to keep it open; it applies to future orders only

Withdrawal does not cancel contracts already formed by earlier orders.

Valid offer of performance (tender)

Unconditional + made to the promisee or his authorised agent + at proper time and place + reasonable opportunity to ascertain that the promisor is able and willing to do the whole + for goods, a reasonable chance to check that the thing offered is what was promised

If the offer of performance (goods or an act) is valid and is refused, the promisor is not responsible for non-performance and keeps his contractual rights (Section 38). An offer of part performance is not valid unless the promisee accepts it.

Tender of money

Exact amount in legal tender currency, offered unconditionally

If less than the full amount is offered or a condition is set, the tender is not valid. Even a valid money tender, if refused, does not discharge the debt. The debtor still owes the money, although the tender may protect him from a claim for damages for non-payment. The Act does not say that interest stops running.

Time is of the essence

Failure to perform at the fixed time → contract voidable at the promisee's option

Section 55(1). The promisee may cancel, or may accept late performance. Applies where the parties intended time to be vital.

Time is not of the essence

Failure to perform at the fixed time → contract stays valid; promisee gets compensation for loss from delay

Section 55(2). The promisee cannot cancel the contract only because of the delay.

Acceptance of late performance (voidable contract)

Voidable contract + late performance accepted + no notice at that time → no compensation for the delay

Section 55(3). This applies only where the contract is voidable because time was of the essence. The promisee must give notice of his intention to claim compensation when he accepts late performance.

How intention is decided

Intention of parties from express words or circumstances

Express words such as 'time is the essence' or the nature of the contract can show it. Mere mention of a date does not by itself decide it.

Quick revision

• A contract is an agreement enforceable by law.
• Valid contract needs offer, acceptance, consideration, capacity, free consent, lawful object and intention to create legal relations.
• A void contract is not enforceable by law and gives no right to sue; a voidable one can be set aside at the option of one party.
• An illegal agreement is forbidden by law; an unenforceable contract is valid but cannot be enforced due to a technical defect.
• An offer must be capable of creating legal relations and must be communicated to the offeree.
• An invitation to treat, such as a price list or shop display, is not an offer.
• A general offer can be accepted by anyone who performs the condition.
• Acceptance must be absolute, unqualified and match the terms of the offer.
• A conditional or varied acceptance is a counter-offer, which ends the original offer.
• Silence alone cannot be treated as acceptance.
• An offer can be revoked at any time before the acceptance is put in course of transmission to the proposer. A revocation is complete against the offeror when it is put in course of transmission, and against the offeree when it comes to the offeree's knowledge. After acceptance is posted, the offer cannot be revoked. This is separate from revoking an acceptance: an acceptance can be revoked at any time before it reaches the proposer.
• In a tender, the invitation is an invitation to offer; the bid is the offer, and acceptance forms the contract.

Common mistakes

• Treating every agreement as a contract. Fix: Remember Section 2(h): only an agreement enforceable by law is a contract.
• Treating every contract as a written document. Fix: Writing is needed only where the law requires it. Many contracts are valid when oral.
• Using void agreement and void contract as the same thing. Fix: A void agreement is void from the start. A void contract was valid first and became unenforceable later.
• Saying a voidable contract is void. Fix: It stays valid until the aggrieved party rescinds it. Only that party has the option.
• Treating goods displayed in a shop window with a price tag as an offer by the shopkeeper. Fix: Remember it is an invitation to treat. The customer makes the offer at the counter and the shopkeeper may accept or refuse.
• Thinking a general offer needs the acceptor to send a notice before it becomes a contract. Fix: In a general offer, performing the stated conditions is acceptance, as in the Carbolic Smoke Ball case.
• Treating a reply with a changed term as acceptance. Fix: Any variation is a counter-offer. It rejects the original offer, and the original offeror becomes the offeree of the new proposal, free to accept or reject it.
• Believing silence is acceptance when the offeror says so. Fix: The offeror cannot impose a duty on the offeree to speak. Silence alone is not acceptance.
• Saying a revocation of an offer is effective when it is posted. Fix: Revocation binds the person it is sent to only when it reaches their knowledge. The postal rule helps acceptance, not revocation.
• Treating acceptance as complete for both parties when posted. Fix: Posting completes it against the proposer only. Against the acceptor it is complete when the proposer receives it.

Exam tips

• Learn the two definitions, Section 2(e) and Section 2(h), and the formula Contract = Agreement + Enforceability. Questions often test them directly.
• In fact-based MCQs, find the missing element first. It is usually minor, family promise, no consideration or illegal object.
• Know the difference between void, voidable and illegal agreements, since options often use these words.
• Watch for absolute words such as every, always and never in the options. They often make a statement wrong.
• Since there is no negative marking, attempt every question and eliminate options you know are wrong.
• Questions often test the difference between void agreement, void contract and voidable contract, so learn the three definitions word for word in your own language.
• Match the trigger word in the case first, then read the options.
• Watch for options that look alike, such as illegal and void. Choose the one the facts fit.