UNIT – 1

INDIAN CONTRACT ACT, 1872 PART 1

Case studies

This case relates to the first requirement of any legally binding contract, agreement. In this case, the plaintiff had put up a property for sale at auction, subject to a reserve. The defendant made a bid of $75,000 which was the highest bid. When this bid was not accepted by the plaintiff (based on concerns over the defendants ability to pay), the defendant claimed a legally binding contract had been entered when they made the highest bid.

In this case, the court ruled that bidders at auctions are entitled to make offers, but that offer does not need to be accepted by the seller. Therefore, auctions act as an invitation to treat. This means that agreement was not reached, as the seller refused the bidder’s offer. Therefore a legally enforceable contract was not entered in this case on the basis of lack of agreement.

2.  Capacity – Blomley vs Ryan (1956) 99 CLR 362

This case involved the sale of a farm by Ryan to Blomley. At the time the contract was entered, Ryan was suffering from prolonged and excessive alcoholism. Blomley knew this but went ahead with the contract. Ryan tried to call off the sale but Blomley took him to court, seeking specific performance (an order from the court to carry out the contract).

In this case, it was found that Blomley was aware of Ryan’s persistence problem with alcoholism, and the court noted that Ryan was ‘seriously affected by drink’ when the contract was entered. It was subsequently found that Ryan therefore lacked the capacity to enter a legally binding contract in this case, especially seeing as Blomley was aware of Ryan’s impairment and sought to benefit from it.

3.  Intention to create legal relations – Air Great Lakes Pty Ltd vs KS Easter (Holdings) Pty Ltd, Supreme Court of NSW (1989) 2 NSWLR 309

This case involved the proposed sale of an airline to Easter by Air Great Lakes. Air Great Lakes claimed to have entered into a contract with Easter, which Easter subsequently refused to honour. Air Great Lakes sought damages from Easter, who claimed that they did not intend to create a legally binding agreement and that Air Great Lakes was aware of this. The court found that the contract was not to be imposed as Air Great Lakes was aware of the fact the Easter did not intend for the agreement to be legally binding.

The above cases illustrate the importance of contract law, in that misunderstandings in this area can have costly consequences. It is the obligation of parties to ensure that they are aware of what constitutes a legally binding agreement should they seek to enter an agreement that is enforceable. For this reason, it is advisable that anyone seeking to create an important or valuable contract should have that contract drafted or reviewed by a contract lawyer to ensure it is legally binding and able to be enforced.

1.1 LAW OF CONTRACT

INTRODUCTION

The Indian Contract Act, 1872 prescribes the law regarding contracts in India and is that the key act regulating Indian law. The Act relies on the principles of English Common Law. It’s applicable to all or any the states of India. It determines the circumstances during which promises made by the parties to a contract shall be legally binding. The purpose of the Contract Act is to make sure that the rights and obligations arising out of a contract are honored which legal remedies are made available to an aggrieved party against the party failing to honor his a part of agreement. The Indian Contract Act makes it obligatory that this is often done and compels the defaulters to honor their commitments.

EXTENT AND COMMENCEMENT

A. DEFINATION

CONTRACT

The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as “An agreement enforceable by law”. In other words, we will say that a contract is anything that's an agreement and enforceable by the law of the land. This definition has two major elements in it viz – “agreement” and “enforceable by law”. So as to know a contract in the light of The Indian Contract Act, 1872 we need to define and explain these two pivots within the definition of a contract. For example, marriage contract, business contact etc.

AGREEMENT

The Indian Contract Act, 1872 defines what we mean by “Agreement”. In its section 2 (e), the Act defines the term agreement as “every promise and each set of promises, forming the consideration for each other.” An agreement enforceable by law could also be a contract. The agreements not enforceable at law are not contract. For example, agreement for rent, agreement for trade etc.

Let us distinguish between contract and agreement for better understanding of the concepts-

B. ESSENTIAL REQUIREMENTS OF A VALID CONTRACT

There are some essential elements for valid contract without which the contract is void and not enforceable at law. The essential elements of valid contract provided under the Indian contract are-

Figure1: Essential elements of valid contract

According to section 2 (A) of the Indian Contract Act,1872 “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 to such act or abstinence, he is said to make a proposal’’.  The person who makes an offer is called ‘’Offeror’’ or ‘’Promisor’’ and the person to whom the offer has been made is called Offeree or Promisee. For example, Mr. A owns several cars. He enters into an agreement with Mr. B to sell one of his cars. He tell Mr. B, Will you buy my car at Rs. 2,00,000/- This is not a valid offer as Mr.A did not specify the car he is talking about. Here, the offer is ambiguous.

 According to section 2(b) of Indian Contract Act,1872, when a person to whom a proposal has been made, signifies his assent thereto.  In the case of Lalman Shukla v Gauri Dutt (1913), the defendant’s boy went missing, accordingly, his servant-Plaintiff was sent to search for the boy, in the meantime a missing poster was released by the defendant, promising to pay a certain sum, to the person who finds the boy. The servant, unaware of such an offer succeeded to find the boy. Once he discovered that such an offer existed he asked for the consideration, but the same was denied. The court ruled in favour of the Defendant, by holding that Plaintiff was ignorant of offer and thus the performance of the promise does not amount to acceptance.

2.  Free consent of both parties:

According to section 10 of the contract act, a contract is valid if it was entered into by free consent of the parties. Section 14 of the contract act defined free consent as consent not given under coercion, undue influence, fraud, misrepresentation and mistake. Chickam Amiraju v. Chickam Sheshamma In case, the Husband gives a threat that he will commit suicide if they did not execute a release deed in favour of his brother to his wife and son. The wife and son executed the release deed under the threat given by the husband. It was held that threat to commit suicide amounts to coercion under section 16 of the Act. Section 17 of the Act lays down the list of Act which amounts to fraud. There is the slightest difference between fraud and misrepresentation, in the first case the person making the statement does not believe that such statement is true and in later one, the person making such statement believes that such statement is true.

3.  Mutual and lawful consideration for agreement

Section 2(d) of Indian Contract Act,1872 defines consideration as ‘’When, at the desire of the promisor, the promisee or any other 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;’’ In Currie v Misa court defines consideration as ‘a valuable in sense of the law it may consist either some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other part. If the proposal is not supported with any money such proposal will be nudum pactum (a bare promise) and is not enforceable by law.

4.  Intention to create legal relationship

Intention to create a legal relationship is one of the most fundamental aspects of the law. It is defined as the intention to enter a legally binding agreement or contract, it implies that the parties acknowledge and accept legal consequence in case of a breach of a contract. Intention to create legal relations consists of readiness of a party to accept the legal consequences of having entered into an agreement. For example, A agrees to meet his friend B at 9:00 p.m. It is the moral and social duty of A to meet this agreement and it does not create any legal obligation on B neither there is any legal relationship between A and B.

5.  Parties should be competent to contract

According Sec .11, every person is competent to contract who

Thus Sec. 11 declares following persons to be incompetent to contract:

1. Minors.

2. Persons of unsound mind.

3. Persons disqualified by any law to which they're subject.

In Mohori Bibee v. Damodar Ghose, In this case, Damodar Ghose the defendant was a minor and the sole owner of his property. His legally appointed guardian was his mother. a moneylender Mr Brahmo Dutt, through his agent Kedar Nath, lent the defendant at 12% interest per year a sum of Rs 20,000. By way of mortgaging the property, the loan was taken by the defendant. On the day on which the deal was made, Damodar Ghose's mother notified the appellant that Damodar was a minor, and anyone who enters an agreement with him would do so at his own risk. Kedar Nath claimed that Damodar Ghose had lied about minority on the date of the execution of the deed.

6.  Object should be lawful

According to section 10, consideration and object of the contract should be lawful and is an essential element of a contract. Accordingly, Section 23 defines unlawful consideration. Unlawful consideration and object is one which is either,

For example, if A forces B to sign a contract for buying a car from C by kidnapping C's daughter. This is not a lawful object. Hence, the contract will be void.

7.  Contract shouldn't are declared as void under Contract Act or the other law

Apart from conditions u/s 10, contract act specifically declared a few classes of contract as void. Section 26 to 30 deals with such contracts. There are those contacts which have been expressly declared void by the Contract Act.

In the day-to-day life of every person, Contracts play a very important role. Contracts or agreements between various parties are governed by the Indian Contract Act. above-given conditions must be fulfilled by the parties for the formation of a contract. Therefore, it is important to have the all-essential elements which are mentioned above in a contract. Only if there are all the main elements in an agreement then it would legally constitute a valid contract.

8.  Possibility of performance:

Agreement must be capable of performance. If agreement is not capable of performance, it is void. In order to make an agreement valid, the terms of the agreement must be clear, certain and capable of performance. An agreement to do an impossible act is void. For example, A enters into an agreement with B to bring back C to life who is already dead. This agreement is void.

9.  Legal Formalities:

According to Indian Contract Act1872, a contract can be both in oral and in writing. Contract involving movable property can be made orally but contract involving immovable property must always be in writing. However, it is advisable that the contract must always be in writing because it will be easier to prove in the court if any dispute arises between the parties in future. Contract must be signed and attested by witness and registered if required by the law. For example, X entered into an oral agreement with Y to sell his bike. This is a valid agreement.

C. TYPES/KINDS / CLASSIFICATION OF CONTRACTS

Contact is classified on the basis of validity, performance, execution and formation. Such classifications are discussed below-

Figure: Classification of contract

1. On the idea of validity

a)  Valid contract: An agreement which has all the essential elements of a contract is named a legitimate contract. A legitimate contract is often enforced by law. For example, marriage contract between adult person.

b) Void contract [Section 2(g)]: A void contract may be a contract which ceases to be enforceable by law. A contract when originally entered into could also be valid and binding on the parties. It's going to subsequently become void. -- There are many judgments which have stated that where any crime has been converted into a "Source of Profit" or if any act to be done under any contract is against "Public Policy" under any contract— than that contract itself can't be enforced under the law. Example: Mr A agrees to write a book with a publisher. After few days, A dies in an accident. Here the contract becomes void due to the impossibility of performance of the contract.

c)  Voidable contract [Section 2(i)]: An agreement which is enforceable by law at the option of 1 or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it's repudiated by the aggrieved party. For example, Contract with minor, unsound minded person etc.

d)  Illegal contract: A contract is against the law if it's forbidden by law; or is of such nature that, if permitted, would defeat the provisions of any law or is fraudulent; or involves or implies injury to an individual or property of another, or court regards it as immoral or against public policy. These agreements are punishable by law. These are void-ab-initio. “All illegal agreements are void agreements but all void agreements aren't illegal. For example, A agrees to sell narcotics to B. Although this contract has all the essential elements of a valid contract, it is still illegal.

e)  Unenforceable contract: Where a contract is good in substance but due to some technical defect can't be enforced by law is termed unenforceable contract. These contracts are neither void nor voidable. For example, A agrees to sell to B 100kgs of rice for 10,000/-. But there was a huge flood in the states and all the rice crops were destroyed. Now, this contract is unenforceable and can not be enforced against either party.

2. On the idea of formation

a)  Express contract: Where the terms of the contract are expressly prescribed in words (written or spoken) at the time of formation, the contract is claimed to be express contract. For example, A says to B ‘will you purchase my bike for Rs.20,000?” B says to A “Yes”.

b) Implied contract: An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is formed otherwise than in words, promise is claimed to be implied. For example, A stops a taxi by waving his hand and takes his seat. There is an implied contract that A will pay the prescribed fare.

c)  Quasi contract: A contract is made by law. Thus, quasi contracts are strictly not contracts as there's no intention of parties to enter into a contract. It's legal obligation which is imposed on a celebration who is required to perform it. A contract is predicated on the principle that an individual shall not be allowed to complement himself at the expense of another. For example, If Mr A leaves his goods at Mr B’s shop by mistake, then it is for Mr. B to return the goods or to compensate for the price.

 3. On the idea of Performance

a)  Unilateral contract: A agreement is one during which just one party has got to perform his obligation at the time of the formation of the contract, the opposite party having fulfilled his obligation at the time of the contract or before the contract comes into existence. Example: Anuj promises to pay Rs. 1000 to anyone who finds his lost cellphone. B finds and returns it to Anuj. From the time B found the cellphone, the contract came into existence. Now Anuj has to perform his promise, i.e. the payment of Rs. 1,000.

b) Bilateral contract: A contract is one during which the requirement on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts also are referred to as contracts with executory consideration. Example: A promises to sell his car to Bj for Rs. 1 lakh and agrees to deliver the car on the receipt of the payment by the end of the week. The contract is bilateral as both the parties have exchanged a promise to be performed within a stipulated time.

4. On the bases of execution

a)  Executed contract: An executed contract is one during which both the parties have performed their respective obligation. Example: A contracts to buy a car from B by paying cash, B instantly delivers his car.

b) Executory contract: An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract. Example: A sells his car to B for Rs. 2 lakh. If A is still to deliver the car and B is yet to pay the price, it is an executory contract.

5. Other Contracts

Besides the above said classification, there are other kinds of contract also. Contingent Contract is one such type. For example, Insurance contract.

1.2 OFFER AND ACCEPTANCE:

DEFINITION

OFFER [SECTION 2(A)]:

According to the Indian Contract Act 1872, proposal is defined in Section 2(a) as “when one person will signify to another person his willingness to do or not do something (abstain) with 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.” It may be express or implied. 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”. For example, Mr. A owns several cars. He enters into an agreement with Mr. B to sell one of his cars. He tell Mr. B, Will you buy my car at Rs. 2,00,000/- This is not a valid offer as Mr.A did not specify the car he is talking about. Here, the offer is ambiguous.

Some types of offers can be based on the design, timing, purpose, etc. Let us look at the offer’s classification.

An offer may be made by express words, spoken or written. This is known as Express offer. Example, when ‘A’ says to ‘B’, “will you purchase my car for Rs 2,00,000”?

2.  Implied Offer 

An offer may be derived from the actions or circumstances of the parties. This is known as Implied offer. Example, there is an implied offer by the transport company to carry passengers for a certain fare when a transport company operates a bus on a particular route.

3.  General Offer

A general offer is not made by any specified party. It is one that is made by the public at large. Any member of the public can, therefore, accept the offer and have the right to the rewards/consideration. Example, ‘A’ advertises in the newspaper that whosoever finds his missing son would be rewarded with 2 lakh. ‘B’ reads it and after finding the boy, he calls ‘A’ to inform about his missing son. Now ‘A’ is entitled to pay 2 lakh to ‘B’ for his reward.

4. Specific Offer

It is the offer made to a specific person or group of persons and can be accepted by the same, not anyone else. Example, ‘A’ offers to sell his house to ‘B’. Thus, a specific offer is made to a specific person, and only ‘B’ can accept the offer.

4.  Cross offer

Two parties make a cross-offer under certain circumstances. It means that both make the same offer at the exact time to each other. However, in either case, the cross-offer will not amount to accepting the offer. Example, ‘A’ and ‘B’ both send letters to each other offering to sell and buy B’s house at the same time. This is the cross offer made where one party needs to accept the offer of another.

6.  Counter-offer

A counter-offer is an answer given to an initial offer. A counter-offer means that the original offer has been refused and replaced by another. The counteroffer offers three choices to the original offer, accept, refuse, or make another offer.

ACCEPTANCE [SECTION 2(B)]:

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.” An offer can be revoked before it is accepted. Example, ‘A’ offer to buy B’s house for rupees 40 lacs and ‘B’ accepts such an offer. Now, it has become a promise.

Acceptance is of following types-

If the acceptance is written or oral, it becomes an Expressed Acceptance. Example, ‘A’ offers to sell his phone to ‘B’ over an email. ‘B’ responds to that email saying he accepts the offer to buy.

2.  Implied Acceptance

If the acceptance is shown by conduct, It thus becomes an Implied acceptance. Example, The Arts Museum holds an auction to sell a historical book to collect charity funds. In the media, they advertise the same. This says that a Mere Invitation to an Offer as per Indian Contract Act, 1872. The invitees offer for the same. Offer is expressed orally, so the offer to buy is an Express Offer, but by striking the hammer thrice the final call is made by the auctioneer. This is called Implied Acceptance.

3.  Conditional Acceptance

A conditional acceptance also referred to as an eligible acceptance, occurs when a person to whom an offer has been made tells the offeror that he or she is willing to accept the offer provided that certain changes are made to the condition of the offer. This form of acceptance operates as a counter-offer. The original offeror must consider a counter-offer before a contract can be established between the parties.

A. ESSENTIALS OF A VALID OFFER AND ACCEPTANCE

RULES OF VALID OFFER

Here are some essentials which make the offer valid-

Figure: Rules for valid offer

There have to be at least two parties a person making the proposal and the other person agreeing to it. All the persons are included i.e, Legal persons as well as artificial persons.

2.  Every proposal must be communicated

Communication of the proposal is mandatory. An offer is valid if it is conveyed to the offeree. The communication can either be express or implied. It can be communicated by terms such as word of mouth, messenger, telegram, etc. Section 4 of the Indian Contract Act says that the communication of a proposal is complete when it comes to the awareness of the person to whom it is made. Example, ‘A’ proposes, to sell a car to ‘B’ at a certain price. Once ‘B’ receives the letter, the proposal communication is complete.

3.  It must create Legal Relations

An offer must be such that when accepted it will result in a valid contract. A mere social invitation cannot be regarded as an offer, because if such an invitation is accepted it will not give rise to any legal relationship. Example, ‘A’ invited ‘B’ to dinner and ‘B’ accepted the invitation. It is a mere social invitation. And ‘A’ will not be liable if he fails to provide dinner to B.

4.  It must be Certain and definite

The terms of the offer must be certain and clear in order to create a valid contract, it must not be ambiguous.

5.  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.

RULES FOR VALID ACCEPTANCE

The rules for valid acceptance provided under the Indian contract act are-

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 told to the offeror

If the acceptor just accepts the offer in his head and he does not mention the same to the offeror, it cannot be called an Acceptance, whether in an express manner or an implied manner.

2.  Acceptance must be recommended in the following mode

Acceptance is sometimes required in a prescribed/specified communication mode.

3.  In a reasonable amount of time, the acceptance is given

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.

4.  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. But, there is an exception to this rule. It is stated that, within 3 weeks of the date on which the offer is made, the non-acceptance shall be communicated to the offeror. Otherwise, the silence shall be communicated as acceptance.

5.  Communication of acceptance

Communication of acceptance is complete when it is put in the course of transmission to him as to be out of the power of the acceptor to withdraw the same and when it comes to the knowledge of the proposer.

6.  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.

B. COUNTER OFFER

MEANING

A counteroffer may be a response given to an initial offer. A counteroffer means the initial offer was rejected and replaced with another one. The counteroffer gives the first offerer three options: accept the counteroffer, reject it, or make another offer. There is typically no binding contract between the parties involved until one accepts the other's offer. Counteroffers are prevalent in many types of business negotiations, transactions, and private deals between two individuals. You'll find them in land deals, employment negotiations, and car sales.

DEFINITION

An offer made in response to a previous offer by the other party during negotiations for a final contract. Making a counter offer automatically rejects the prior offer, and requires an acceptance under the terms of the counter offer or there's no contract.

 Example: Susan Seller offers to sell her house for Rs. 150,000, to be paid in 60 days; Bruce Buyer receives the offer and provides Seller a counter offer of Rs.140,000, payable in 45 days. The first offer is dead, despite the shorter time for payment since the value is lower. Seller then can prefer to accept at Rs. 140,000, counter again at some compromise price, reject the counter offer, or let it expire.

There is no limit to the amount of times each party can counter during negotiations. When countering back and forth, each offer should present a price but the previous offer. This conveys to the seller that the customer is nearing his final offer. Neither party is obligated to settle until they agree on a contract, which occurs once the counteroffer is accepted. This is often when a binding contract is made. The contract is enforceable against either party. The counteroffer voids a previous offer, and therefore the entity that presented that provide is not any longer legally liable for it.

TERMS OF THE COUNTEROFFER

A counteroffer may include explanations of the terms of the offer or requests for supplementary information. Finalizing counteroffer negotiations requires the customer and offeror to simply accept the terms with none additional conditions or modifications.

A counteroffer is usually conditional. When the seller receives a low offer, he can counter with a price he feels is cheap. The customer can either accept that provide or counter again. The vendor can counter the offer. The person receiving the counteroffer doesn't need to accept it.

KEY TAKEAWAYS-

1)  A counteroffer is that the response given to an offer, meaning the original offer was rejected and replaced with another one.

2)  Counteroffers give the first offerer three options: accept it, reject it, or make another offer and continue negotiations.

3)  Parties aren't obligated by a contract until one accepts the other's offer.

4)  Counteroffers are common in business negotiations and transactions, like assets deals, car sales, and employment contracts.

C. STANDING OR OPEN OFFER

Sometimes an offer could also be of endless nature and is understood as Standing Offer. A standing offer is within the nature of a tender. An advertisement inviting tenders isn't an offer but a mere invitation to supply. It’s the person submitting the tender to provide goods or services that is deemed to possess made the offer. When a specific tender is accepted or approved, it becomes a standing offer. The acceptance or approval of a tender doesn’t, however, amount to acceptance of the offer. It means the offer will remain open during a selected period which it'll be accepted from time to time by replacing specific orders for the supply of goods. Thus each order placed creates a separate contract. A standing offer isn't a contract. A standing offer is an offer from a possible supplier to supply goods and/or services at pre-arranged prices, under set terms and conditions, when and if required. It’s not a contract until the govt issues a "call-up" against the standing offer. The govt. is under no actual obligation to get until that point.

WHEN ARE STANDING OFFERS USED?

Standing offers are wont to meet recurring needs when departments or agencies are repeatedly ordering the same goods or services. They’ll even be used when a department or agency anticipates a requirement for a spread of goods or services for a selected purpose; however, the particular demand isn't known and delivery is to be made when a requirement arises. Common products purchased this manner include food, fuel, pharmaceutical and plumbing supplies, tires and tubes, stationery, office equipment and electronic processing equipment. Common services include repair and overhaul, and temporary help services. Standing offers are most suited to goods or services which will be clearly defined to permit suppliers to offer firm pricing. Public works and Government Services Canada (PWGSC) issue standing offers when it's determined that this is often the simplest method of supply. Departments and agencies can also establish their own standing offers.

WHY ARE STANDING OFFERS USED?

The standing offer may be a convenient method of supply that saves time and money. Once a standing offer is issued, the department or agency deals with you on to obtain the goods or services they have. Call-ups against a standing offer are processed faster, involve less paperwork and have pre-set prices and terms already determined. For taxpayers, the advantages are lower government administrative costs and reduced inventory.

HOW ARE STANDING OFFERS ISSUED?

The process of issuing a standing offer is subject to the normal contracting policies and procedures (including procedures required under the trade agreements). You bid on standing offers within the same way you bid on other bid solicitations (see: The Bidding Process). In PWGSC, for instance, most Requests for Standing Offers with an estimated value of Rs.25,000 or more are advertised on the Tenders minisite. For standing offers valued at Rs. 25,000 or less, PWGSC will solicit bids from selected suppliers registered in its source lists.

When a standing offer is issued to your company, you're offering to supply certain goods or services at specified prices over a specified period of your time. If and when the govt. issues a call-up against your standing offer, only then does one have a contract for the amount indicated within the call-up.

WHEN ARE STANDING OFFERS ISSUED?

There is no set rule on when standing offers are issued. Generally, they're issued at the beginning of the federal government's financial year (April 1 to March 31) but there are many exceptions. Normally standing offers are in effect for one year, but some cover different periods of your time. The procurement process for a standing offer starts long before the difficulty date, counting on the character and complexity of the need, so it's important to observe for Requests for Standing Offers which will be published several months before the anticipated effective date of a standing offer. Access the weekly updated Standing Offers and provide Arrangements data to seek out current standing offers in your business.

TYPES OF STANDING OFFERS

There are five sorts of standing offers issued by PWGSC. The sort used depends on the geographic area involved (for example, regional or Canada-wide) and therefore the number of federal departments or agencies involved.

HOW ARE GOODS AND SERVICES ORDERED?

Goods or services covered under a standing offer are ordered employing a call-up document. This document indicates acceptance of the standing offer to the extent of the products or services being ordered and is a notice to the supplier to deliver the goods or to provide the service. A separate contract is entered into whenever a call-up is formed against a standing offer. There is no contractual obligation on either party until a call-up is formed. Standing offers aren't contracts within the legal sense and either party may withdraw from a standing offer by notification to the opposite party. However, all call-ups received by a supplier before withdrawing are legally binding and must be honoured. Departments and agencies order only the goods or services actually required.

FINANCIAL LIMITATIONS

Individual call-ups are limited to a maximum total dollar value as laid out in the standing offer.

CAN STANDING OFFERS BE ARRANGED WITH MORE THAN ONE SUPPLIER?

Standing offers are often arranged with more than one supplier for an equivalent goods or services. This manner we will make certain that goods or services will always be available.

SUPPLIER DEBRIEFING

If you bid on a standing offer and aren't successful, invite a debriefing. We'll tell you who won and why and the way you'll improve future submissions.

D. DISTINGUISH BETWEEN OFFER AND INVITATION TO OFFER

An offer and invitation to offer are two different terms, which must not be confused with each other. An offer may be a proposal while a call for participation to supply (treat) is inviting someone to form a proposal. In an offer, there's an intention to enter into a contract, of the party, making it and thus it's certain. On the other hand, an invitation to offer is an act which results in the offer, which is formed with an aim of inducing or negotiating the terms. So, in a call for participation to supply, the offeror, doesn't make an offer, rather invites other parties to form an offer. Hence, before simply responding to an offer, one must know the difference between offer and invitation to offer, because that creates a difference within the rights of parties.

E. CONCEPT OF COMMUNICATION AND REVOCATION OF OFFER AND ACCEPTANCE (AS PER SECTION 3, 5)

COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS ( SECTION 3)

The communication of proposals, the acceptance of proposals, and therefore the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to speak such proposal, acceptance or revocation, or which has the effect of communicating it.

COMMUNICATION WHEN COMPLETE AS PER SECTION 4

Example

(a) A proposes, by letter, to sell a house to B at a certain price.

The communication of the proposal is complete when B receives the letter.

(b) B accepts A‟s proposal by a letter sent by post.

The communication of the acceptance is complete,

as against A when the letter is posted;

as against B, when the letter is received by A.

(c) A revoke his proposal by telegram.

The revocation is complete as against A when the telegram is dispatched. It is complete as against B when B receives it.

B revokes his acceptance by telegram. B‟s revocation is complete as against B when the telegram is dispatched, and as against A when it reaches him.

REVOCATION OF PROPOSALS AND ACCEPTANCE AS PER SECTION 5

A proposal could also be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

Example

A proposes, by a letter sent by post, to sell his house to B.

B accepts the proposal by a letter sent by post.

A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.

B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.

REVOCATION HOW MADE AS PER SECTION 6

A proposal is revoked

 (1) By the communication of notice of revocation by the proposer to the other party;

(2) By the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of an inexpensive time, without communication of the acceptance;

(3) By the failure of the acceptor to fulfil a condition precedent to acceptance; or

(4) By the death or insanity of the proposer, if the very fact of his death or insanity involves the knowledge of the acceptor before acceptance.

ACCEPTANCE MUST BE ABSOLUTE (SECTION 7)

In order to convert a proposal into a promise, the acceptance must—

(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable 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 such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.

ACCEPTANCE BY PERFORMING CONDITIONS, OR RECEIVING CONSIDERATION (SECTION 8)

Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.

PROMISES, EXPRESS AND IMPLIED (SECTION 9)

In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.

1.3 CAPACITIES OF PARTIES/ CONTRACT (UNDER SECTION 10 -12)

DEFINITION

The parties who enter into a contract must have the capacity to do the contract. “Capacity “here means competence of the parties to enter into a legitimate contract. According Sec 10, an agreement becomes a contract if it's entered into between the parties who are competent to contract.

According Sec .11, every person is competent to contract who

Thus Sec. 11 declares following persons to be incompetent to contract:

1. Minors

2. Persons of unsound mind

3. Persons disqualified by any law to which they're subject.

1. MINORS

According to Sec 3 of the Indian Majority Act, 1875, a minor is a person who has not completed eighteen years of age.

 In following cases he attains majority after 21 years aged

The position of minor as regards his agreements could also be summed up as under:

Mohori Bibee vs. Dharmodas Ghose

The respondent, Dharmodas Ghose, a minor, had mortgaged his property in favor of the moneylender, Brahmo Dutt for securing a loan amounting to INR 20,000/-. Mr. Brahmo Dutt had authorized Kedar Nath to enter into the transaction through a power of attorney. Mr. Kedar Nath was informed of the fact that Dharmodas Ghose was a minor through a letter sent by his mother. However, the deed of mortgage contained a declaration that Dharmodas Ghose was of the age of majority. The respondent’s mother brought a suit on the ground that the mortgage executed by his son is void on the ground that her son is a minor.

2. PERSONS OF UNSOUND MIND

One of the essential conditions of competency of parties to a contract is that they ought to be of sound mind. Sec 12 lays down the soundness of mind “A person is said to be of sound mind for the purpose of making the contract if, at the time when he makes it, he's capable of understanding it and of forming a rational judgment as to its effect upon his interests. A person, who is usually of unsound mind but occasionally of sound mind, may make a contract when he's of sound mind.  A person, who is typically of sound mind but occasionally of unsound mind, might not make a contract when he's of unsound mind  Eg: an individual may be a lunatic, who is at intervals of sound mind, may contract during those intervals.

 Soundness of minds depends on two facts:

CONTRACTS OF PERSONS OF UNSOUND MIND

For example, A patient in a lunatic asylum, who is, at intervals, of sound mind, may contract during those intervals.

3. PERSONS DISQUALIFIED BY ANY LAW TO WHICH THEY'RE SUBJECT

1.4 CONSIDERATION (AS PER SECTION 2 AND 25)

A. CONCEPT

When at the desire of the promisor, the promise or any other 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.

Consistent with Pollock, “Consideration is the price for which the promise of other is brought & the promise thus given for value is enforceable.”

According to section 2(d) when at the desire of the promisor, the promisee or any other person:

EXAMPLE: ‘P’ aggress to sell his car to ‘Q’ for Rs.50, 000 Here ‘Q’s Promise to pay           Rs. 50, 000 is that the consideration for P’s promise and ‘P’s promise to sell the car is that the consideration for ‘Q’s promise.

B. IMPORTANCE OF CONSIDERATION

Consideration explains why a party is entering a contract and what they get from being a part of the contract. A contract must include consideration for each party involved so as to be valid. Essentially, consideration is that the benefit a party gets for entering a contract. During a basic contract, if you pay money for an item at the store and receive the item, that's your consideration. So as to qualify as consideration, each party must change their position.

Consideration usually results from:

• A promise to do something you are not legally obligated to try and do

• A promise to not do something you're allowed to do

C. LEGAL RULES REGARDING CONSIDERATION U/S 2

The rules regarding consideration are discussed below-

1.  It must move at the will of the promisor: It must be offered by the promisee at the will or request of the promisor. An act done at the will or request of the third party doesn't form a legitimate consideration.

 2. It’s going to move from the promisee or the other person: Consideration may move from the promisee or the other person i.e. even a stranger. It may be an act, abstinence or forbearance or a return promise.

The following are good consideration for the contract:

3.It can be in the past, present or future

4. It must have value in the eyes of the law

While the law allows the parties to decide an ‘adequate’ consideration for them, it must be real and have value in the eyes of law. While the Court will not consider inadequacy, it will look at it to determine if the consent was given by the party with free-will or not. For example, Peter’s wife agrees to withdraw the suit she has filed against him in return for his promise to pay her a monthly maintenance amount. This is a good consideration and holds value in the eyes of law.

v) There’s no consideration within the following cases:

It must be something which the promisor isn't already sure to do A promise to try to to what one is sure to do , either by general law or under an existing contract, isn't an honest consideration. It must not be illegal, immoral or against public policy

5.Unlawful consideration includes any activities:

D. EXCEPTIONS OF THE RULE “NO CONSIDERATION NO CONTRACT” (AS PER U/S 25)

Consideration is an integral part of a contract. The rules of consideration state that it is essential to have consideration for a contract. But there are some specific exceptions to the “No consideration no contract” rule. Section 25 also lists the exceptions under which the rule of no consideration no contract does not hold, as follows:

Figure: Exceptions to the rule no consideration no contract

1. On account of natural love & affection u/s 25(1): If an agreement is in writing and registered between two parties in close relation (like blood relatives or spouse), based on natural love and affection, then such an agreement is enforceable even without consideration. For example, Father transfers the ownership of property to his son

2. For voluntary services u/s 25(2): If a person has done a voluntary service in the past and the beneficiary promises to pay at a later date, then the contract is binding provided:

For example, X finds Y’s wallet on the road and returns it to him. Y is happy to find his lost wallet and promises to pay X Rs 2,000.

3. For promise to pay time-barred debts 25(3): If a person makes a promise in writing signed by him or his authorized agent about paying a time-barred debt, then it is valid despite there being no consideration. The promise can be made to pay the debt wholly or in part. Example, X owes Rs 100,000 to y. X had borrowed the money 5 years ago. However, X never paid a single rupee back. X signs a written promise to pay Rs 50,000 to Y as a final settlement of the loan.

4. Within the case of completed gifts: The rule of no consideration no contract does not apply to gifts. Explanation (1) to Section 25 of the Indian Contract Act, 1872 states that the rule of an agreement without consideration being void does not apply to gifts made by a donor and accepted by a donee.

5. Creation of an Agency

According to section 185 of the Indian Contract Act, 1872, no consideration is necessary to create an agency.

E. UNLAWFL CONSIDERATION (AS PER SECTION 23)

According to Section 23, within the following cases consideration or object of an agreement is unlawful:

1. If it's forbidden by law:

Where the object of a contract is forbidden by law, the agreement shall be void. An act is claimed to be forbidden if it's punishable by criminal law or any special statute, or if it's prohibited by any law or order made in exercise of powers or authority conferred by the legislature.

Example:

(1) A and B agreed to deal in smuggled goods. It forbidden by law and thus void.

(2) A committed B's murder within the presence of C. A promise to pay Rs. 500 to C, if C doesn't inform the police about the murder.

The agreement in example No. 2 given above is against the law as its object is unlawful. Besides, A and C are going to be responsible for the act of murder and its concealment under the Indian penal code.

2. If it's of such a nature that if permitted, it might defeat the provisions of the other law:

The object of an agreement might not be directly forbidden but indirectly, it's going to defeat the thing of any other law, and the agreement would be void in such a case.

Example: A failed to pay his land revenue. Therefore, his estate was sold for arrears of revenue by the govt. By the law, the defaulter is prohibited from purchasing the land again. A asks B to get the estate and afterward, transfer an equivalent to him at an equivalent price. The agreement is void because it will defeat the thing of the law which prohibits a defaulter to get back the land, for indirectly A will again become the owner of the estate.

3. If it's fraudulent:

If the object of an agreement is fraudulent, i.e., to cheat people, it's void. Example: A, B & C enter into an agreement to sell bogus plots of land in Delhi. The agreement is void because it is fraudulent and thereby unlawful.

4.  If it involves or implies injury to the person or property of another:

Law protects property and person of its citizens. It cannot permit any contract which ends up in an injury to the person or property of any one. Examples: A promises to pay Rs. 500 to B if B beats C. It involves injury to C, hence it's unlawful and void.

5. If the Court regards it as immoral or against public policy: If the thing of an agreement is immoral or against public policy, it'll be void. Morality here means something which the law regards as immoral. Examples:a) A agrees to offer his house on rent to a prostitute for her immoral purpose. A cannot recover the rent of his house if he prostitute refuse to pay. However, he could also be allowed to urge his house vacated from the prostitute because it will put an end to the immoral purpose.

b) A agrees to offer his daughter on hire to B for concubinage. The agreement is void because it's immoral, though the letting might not be punishable under the Indian penal code.

Effect of Illegality

The effect of illegality are discussed below-

1. An illegal agreement is void:

It is not enforceable at law.

2. Collateral transactions to illegal transactions also are void:

Not only the illegal agreement is void but also the collateral transactions are void.

Example: A borrows Rs. 2,000 from B to shop for a revolver to shoot C. Since the thing of the transaction is against the law, B cannot recover his Rs. 2,000 if he has given the loan, knowing that A is taking the loan to get a revolver to shoot C.

Thus people are going to be discouraged to finance or assist illegal transaction once they know that they're going to not be able to recover their loans.

3. Law doesn't help any party:

Where the agreement is against the law, the law won't help any of the parties. The rationale is that both the parties are equally guilty and therefore the law doesn't help a guilty person. The law wants to discourage both the parties. Example: A promise to pay a bribe of Rs. 200 to B, if B does his work. The agreement is against the law. B cannot recover the amount of Rs. 200 after doing A's work. Similarly, if A has paid the bribe in advance, he cannot get it back if B doesn't do his work.

4. Indirectly defendant is helped:

Defendant may be a person against whom the suit is filed. When the law doesn't help any of the parties, it means the party who has paid the amount won't be ready to get it back as we've seen within the above example. The party who has received the quantity is thus helped to stay the money with it and isn't asked by the Court to return it. The Court is neutral and therefore the defendant gets the advantage of the Court's neutrality. Within the example given above, B can keep Rs. 200, even if B doesn't do the work of A. The Court won't ask B to return the quantity. Thus B is indirectly benefited or helped by the refusal of the Court to intervene.

5. In cases of fraud, coercion, etc., money or property transferred is often recovered:

Where the illegality is that the results of coercion and fraud of the other party, the Court can compel the guilty to return the cash paid or property transferred.

6. Agreement partly legal and partly illegal (Sec. 24):

An agreement may contain promises which are legal and illegal. If the legal promise are often separated from the illegal one, the legal promise are often enforced. In Such a case the illegal part are going to be void. Where the legal promise can't be separated from the illegal one, the entire of it might be void. Where there's one consideration for one or more unlawful objects, the agreement is void. Example: A promises to manage B's factory, where genuine and bogus motor parts are manufactured. B agrees to pay A (Manager) a salary of Rs. 1,000 per month. The agreement is void as partly it's legal and illegal and therefore the legal part can't be separated because the salary is for both the parts.

7. Reciprocal promises, legal and illegal (Sec. 57):

Where persons reciprocally promise, firstly to do certain things which are legal, and secondly under specified circumstances to do certain other things which are illegal, the first set of promise may be a contract, but the second may be a void agreement. Example: A and B agree that A shall sell a house to B for Rs. 10,000 but that if B uses it as a gambling house, he shall pay A Rs. 50,000 for it. The first set of promise, i.e., to sell the house and to pay Rs. 10,000 may be a contract. The second set of promise, i.e., B may use the house as a gambling house and pay Rs. 50,000 may be a void agreement.

8. Alternative promise, legal and illegal (Sec. 58):

In the case of an alternate promise, one branch of which is legal and therefore the other illegal, the legal branch alone is often enforced.

 References-