Dr.

Syed Ali Nawaz Zaidi

Dept. of Law
AMU
Study Material
LAW OF CONTRACT I
B.A.LL.B. (HONS) II SEMESTER
Unit 1
UNIT-I: FORMATION OF CONTRACT
a. Agreement & Contract
Contracts have always been an indispensable part of our lives. Knowingly or unknowingly, we
enter into a contract, hundreds of time in a year. Even when we buy candy, we are entering into
an agreement with the shopkeeper. Every time we visit a restaurant or book a cab, we are
entering into a contract. Although the law of contract is developing with time, the jurisprudence
of contract remains the same. We know what a contract is all about but new situations arise
every day and a new question appears in the mind that whether this particular agreement be
regarded as a contract or not!
One of the common perplexities among people is recognizing the difference between a contract
and an agreement. They are frequently used interchangeably. For example, when the owner of
house hands over the rent agreement and says, “Please sign the contract”, this creates
uncertainty whether the document is an agreement or a contract.
We come across ‘contract killers’ in movies who charge money to kill people. Have you ever
thought, ‘Is a contract of killing someone for money, a valid contract?’ or ‘Can the man giving
the contract sue the contract killer in the court of law saying that the other party has committed
a breach of contract by not doing the job even after the payment of money?’.
How is an agreement formed?
To form an agreement, the following ingredients are required:
 Parties: There need to be two or more parties to form an agreement
 Offer/ Proposal: When a person signifies to another his willingness of doing or
omitting to do something with a view to obtain other’s assent. [Section 2(a)]
 Acceptance: When the person to whom the proposal is made signifies his assent for
the same thing in the same sense as proposed by the offeror. [Section 2(b)]
 Promise: When a proposal is accepted, it becomes a promise. [Section 2(b)]
 Consideration: It is the price for the promise. It is the return one gets for his act or
omission. [Section 2(d)]
An agreement is, therefore, a promise or set of promises forming consideration for all the
parties. [Section 2(e)]
Agreement = Promise or set of promises (offer + acceptance) + Consideration (for all the
parties)
If a 7-year-old boy is buying an ice-cream from an ice-cream vendor and giving Rs. 10 in
return, it becomes an agreement. This is because the boy offers to buy ice-cream and the vendor

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
accepts the offer which makes it a promise. The consideration for both was ice-cream and
money respectively.
How is a contract formed?
A contract is a lawful agreement. In other words, an agreement enforceable by law is a contract.
Contract = Agreement + Legal enforceability
Or
Contract = Legally enforceable Agreement
Now, the law says that any contract entered with a person below the age of 18 years is not
enforceable. In the above case, the deal between the boy and ice-cream vendor was an
agreement but it cannot be termed as a contract because it is not legally enforceable.
Agreement and Contract: The difference

‘All contracts are agreements but all agreements are not contracts.’ This statement can be
understood from the above Venn diagram. The agreements which are enforceable under the
law of the land become contracts, which are denoted by the inner circle. The outer circle
denotes the agreements which are not contracts. The shaded part includes agreements which
are not enforceable by law and are known as void agreements.
The concept of Voidable contracts: There exist some agreements which are enforceable on
the part of one party but not on the option of other parties. It is on the discretion of that party
if it is willing to enforce the contract or make it non-enforceable i.e. void. The voidable
agreements are therefore both valid and void agreements. The dotted circle of voidable
agreements denotes that they can be termed as void or valid on the discretion of one party thus
covers the area of both valid and void agreements.

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
For example, if a person is buying a car which is just 3-4 years old and the owner lied about
the year of manufacturing of the car thereby committing fraud. Now, according to the Indian
Contract Act, 1872 fraud makes a contract voidable. Therefore, the buyer is on the discretion
that he can either buy the car or not, whereas the seller is bound by the promise he made.
How does an agreement become a contract?

To make an agreement, a contract, we need to ensure that the following conditions are fulfilled:
The parties must be competent to contract
The parties entering into the contract are competent to contract when they:
 Have attained the age of majority i.e. 18 years of age,
 Are of Sound mind, and
 Are not expressly disqualified from contracting by the law
At the time of entering into an agreement, if a person is of unsound mind or is disqualified by
law; the agreement is considered to be void. On the other hand, an agreement entered with a
minor is void-ab-initio i.e. void from the very beginning and thus cannot be enforced. For
example, if a seven-year-old boy is buying an ice-cream; although he is entering into an
agreement with the ice-cream vendor, it is not considered as a contract because being a minor;
the party is not competent to contract. (Minor)
Similarly, if Vidya Balan in the movie Bhool Bhulaiya is entering into an agreement at the time
when she is considering herself as Manjulika, the agreement becomes void because of her
unsoundness of mind at the time of entering into the agreement. (Unsound mind)

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
For example; Mr A is declared as insolvent by the court and the court ordered that he is
disqualified from contracting. Now Mr A buys a flat on instalments and failed to pay any. The
owner of the flat cannot sue him because the contract was void. (disqualified from
contracting)
The consent must be free
The consent can be given expressly by words- oral or written or impliedly by gestures or
surrounding circumstances. (Section 13)
For example, A offered B to sell his car for Rs. 50,000. A asked him to come to the house in
the evening with cash if he is willing to buy the car. When B came to the house with cash in
the evening, it shows his implied consent to buy the car.
But the consent so given by the person must be free and not influenced by any outside force.
The consent of a person is said to be free unless it is not caused by any of the acts mentioned
below: (Section 14)
 Coercion (Section 15)
 Undue Influence (Section 16)
 Misrepresentation (Section 18)
 Fraud (Section 17)
 Mistake (Section 20, 21, 22)
In the above-mentioned cases, the agreement becomes voidable on the part of the aggrieved
party because the consent was not free.
Some examples are given for a better understanding of the concept:
Coercion: If Mr Batman gets some property sale agreement signed by Mr Superman under a
threat that he will kill his mother, Mr Superman is on the discretion that he can enforce the
agreement or not because his consent was obtained under coercion.
Undue Influence: The teacher asked the students that whosoever pays her Rs. 200, that student
will get full marks in the viva. Now the teacher was in a fiduciary relationship with the students
and was taking undue advantage of such a position. Thus, any such contract made by the teacher
to student is voidable on the part of the students.
Misrepresentation: Mr Lal was willing to buy a car owned by Mr Peela. At the time he was
buying the car, he asked Mr Peela about the colour of the car and said that he wants a pearl
grey car. Mr Peela was an old and illiterate man who was not having much knowledge about
colour differentiation. Mr Peela believed that the car is pearl grey and answered in affirmative.
Later on, Mr Lal came to know that the car was Metallic grey and not pearl grey. Here, Mr
Peela is liable for misrepresentation and Mr Lal is free to continue the contract or not.
Fraud: If in the above case, Mr Peela was aware of the actual colour of the car but lied to Mr
Lal; than he would have been guilty of fraud and such agreement would have been voidable.

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
Mistake: If both the parties are under a mistake of fact, the agreement becomes void. But if
any or both of the parties are under a mistake of law, the agreement becomes void. For example,
A and B entered into an agreement of sale of a particular drug. They were not aware that such
a drug is illegal in India. Their agreement is void.
The consideration and the object needs to be lawful
The consideration and object of an agreement are unlawful if it is:
 Forbidden by law
 Of such a nature that if permitted, would defeat the provisions of any law
 Fraudulent
 Involves or implies injury to person or property
 Regarded as immoral or opposed to public policy by the law
If any of the agreement contains abovementioned consideration or object, the agreement
becomes void. For example, entering into an agreement of killing somebody for money is
considered to be void. A person cannot approach the court saying that I have given the money
but the contract killer is not doing the job because the object was something which is forbidden
by law and thus the contract is void.
Similarly, if you are bribing a public officer to get some official papers to you; the papers might
be legal but the consideration you are paying is not lawful as it would defeat the provisions
of Prevention of Corruption Act.
The agreement should not expressly be declared to be void
There are certain kinds of contracts which are expressly declared by The Indian Contract Act,
1872 to be null and void. 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.
 Agreements in restraint of marriage
 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
Those agreements are void which are based on any of the subjects mentioned above. There is
no liability for not enforcing the contract and thus, the conditions of the contract are not binding
upon any of the party.

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 Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
For example, if Devdas asks Paro not to get married for her entire life then he will give her new
dress and shoes in return; it cannot be considered as a valid contract because the agreement is
made in restraint of marriage.
Similarly, if the agreement is made to not to work for the entire life in exchange for a new flat,
it will not be considered as a valid contract as it is in restraint of trade.
Also, if a father enters into an agreement with his son that the father will get him a new bicycle
if the son scores 105% in his board exams. It will be considered a void agreement because it is
an agreement to do an impossible act.
The above-mentioned conditions are required to be fulfilled in order to make an agreement
legally enforceable. The agreement becomes void if any of the mentioned conditions are left
unfulfilled except in the case of free consent where the agreement becomes voidable instead of
void and giving the party, whose consent was not free at the time of entering into the contract,
the discretion to continue the contract or not.
The Indian Contract Act, 1872 can be interpreted to cover all kinds of possible agreements and
contracts. But, in several cases, it depends upon the facts and circumstances whether an
agreement is a contract or not. In a nutshell, all the agreements which are legally enforceable
become contracts. This concludes that there can be agreements which are not contract but there
can be no contracts which are not agreements.
Key differences between agreements and contracts

Basis for
Agreement Contract
Comparison

An agreement is made when a proposal by

A contract is made when an agreement
Meaning one party is accepted by another lawful
becomes enforceable by law.
consideration.

Elements Offer and Acceptance Agreement and Enforceability under law

Defined in Section 2(e) Section 2(h)

In writing Not necessarily Usually written and registered

Once the agreement becomes a contract,

Legal There is no legal obligation as long as it is a
there is a legal obligation by parties
obligation mere agreement.
involved.

Scope Wide Narrow

How are contracts a civil obligation?

Civil obligation is that which is binding under civil law. Agreements become enforceable under
law only when it becomes a contract after meeting the requisite fundamentals of a contract such

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
a free consent, offer and acceptance, consideration, etc. Thus, contracts are a civil obligation
as they are enforceable under civil law after gaining legal validity.
What are different types of contracts?
There are various types of contracts that are formed voluntarily via civil obligations. They are
as follows:
(I) Adhesion Contracts – This type of contract is 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.
(II) 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.
(III) Bilateral and Unilateral Contracts – Bilateral contracts involve two parties. 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. Meanwhile, unilateral contracts are those
in which the promise is made by only one party. 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. 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.
(IV) Express Contracts – These contracts are those wherein the terms of the contracts are
expressed clearly whether in written documents or orally.
(V) Implied Contracts – There is no oral or written terms in this type of contract. The contracts
are assumed owing to the facts of the parties. 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.
(VI) Void and Voidable Contracts – Void contracts are illegal from the very beginning and
hold no validity under law. They are thereby un-enforceable. Voidable contracts are unlike
void contracts in the sense that one party is bound by the contract and the unbound party is
capable to terminate the contract as they are unbound to it.
A quasi-contract is unlike a real contract. Salmond defines quasi contracts as “there are certain
obligations which are not in truth contractual in the sense of resting on agreement, but which
the law treats as if they were”. It is important to remember that even though it is imposed by
law, it is not created by the operation of the contract.

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
b. Offer/Proposal
Proposal or offer
 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
“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.”
Features of a valid 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”.
 The offeror must express his willingness to do or abstain from doing an act. Only
willingness is not adequate. Or just an urge to do something or not to do anything will
not be an offer.
 An offer can either be positive or negative. It can be a promise to do some act, and can
also be a promise to abstain from doing any act/service. Both are valid offers.
The element of a valid offer
Here are some essentials which make the offer valid
There must be two parties
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.
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.
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:

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
‘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.
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.
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.
Classification of offer
Some types of offers can be based on the design, timing, purpose, etc. Let us look at the offer’s
classification.
Express Offer
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”?
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.
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 lakhs. ‘B’ reads it and after finding the boy, he calls ‘A’ to inform about his missing son.
Now ‘A’ is entitled to pay 2 lakhs to ‘B’ for his reward.
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

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 Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
‘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.
Difference between General Offer and Specific Offer

General Offer Specific Offer

General Offer is made to the whole world at

A specific Offer is made to some specific person.
large.

A specific offer can be accepted by only a specific

A general offer can be considered by any person.
person.

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.
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 offeror; accept, refuse, or make another offer.
Lapses and revocation of an offer
 An offer lapses after a defined or reasonable time.
 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.
When communication is complete
 Communication of offer (section 4)
The communication of the offer is complete when it comes to the knowledge of the person to
whom it is made.
Time of revocation of an offer
 Revocation of the offer (Section 4)

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
A proposal can be revoked at any time before the communication of its acceptance is complete
as against the proposer but not afterward.
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 any auctioneer using any of the customary
methods.
Example
‘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.
c. Acceptance
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.
As specified in the definition, if the offer is accepted unconditionally by the offeree to whom
the request is made, it will amount to acceptance. When the offer is accepted it becomes a
promise.
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 promise it also becomes irrevocable. No legal
obligation created by an offer.
Types of Acceptance
 Expressed Acceptance
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.
 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.

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
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.
 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.
Legal Rules and Conditions for Acceptance
 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 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.
 Acceptance must be recommended in the following mode
Acceptance is sometimes required in a prescribed/specified communication mode.
 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.
Mere silence is not acceptance
If the offeree fails to respond to an offer made to him, his silence cannot 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.
When communication is complete?
 Communication of acceptance (Section 4)
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.
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.
Acceptance: absolute and unqualified

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
Acceptance to be legally enforceable must be absolute and unqualified. Section 7(1) of the
Indian Contract Act provides that in order to turn an offer into an agreement the acceptance to
the offer must be absolute and unqualified. The logic behind the principle that the acceptance
to the offer must be absolute and unqualified is that when acceptance is not absolute and is
qualified it results into a counter offer which leads to the rejection of the original offer made
by the offeror to the offeree. If the offeree makes any variations in the original terms of the
contract proposed to him and then accepts the contract, such an acceptance would result in the
invalidity of the contract.
For example, if A offers to sell his bike to B for Rupees 10,000. But B persuades A to sell him
the bike for 7,000 rupees to which A denies and if B at any later point of time agrees to buy the
bike for 10,000 rupees. Then A is under no obligations to sell him the bike as the counteroffer
made by B puts an end to the original offer.
It is also important that the acceptance made by the offeree should be in toto, i.e. acceptance
should be given to all the terms and conditions of the offer as acceptance of only a part of the
offer is not a good acceptance under the law. For example, A makes an offer to B of sale of 30
kg of wheat at Rupees 700 but B agrees to buy only 10 kg of wheat. Here the acceptance made
by B is not in toto with respect to the terms of the contract and therefore, the acceptance made
by B is no acceptance in the eyes of law and therefore, A is under no obligation to sell him
wheat since there is no contract between them.
Counter proposals
Section 2(a) of the Indian Contract Act defines the meaning of a proposal. According to the
Section, a proposal is signifying of the willingness by a person to another person to do or
abstain from doing an act with the view of obtaining the assent of another person to such an
act or omission. The person who signifies his willingness to obtain the assent of the other
person is said to be an “offeror” and the person to whom the offer is made is called “offeree”.
Counteroffer or proposal arises when the person to whom an offer is made instead of accepting
it straightway imposes any condition which results in modification or alteration of the original
terms of the contract. The person who makes such alterations or modifications is said to have
made a counteroffer. Counteroffer results in a rejection of the original offer and as a result, the
person who makes the original offer shall no longer remain bound by the terms of the contract.
Partial acceptance
It is a settled principle of law of contract that the offer which is put before the offeree should
be accepted by him in entirety and he cannot accept the offer partially by agreeing only to the
terms of the contract which are favourable to him while rejecting the rest of the conditions
under the offer as an incomplete acceptance of the offer would result into counter-proposal and
therefore, it will not bind the offeror as there is no binding contract between him and the
offeree.
In Ramanbhai M. Nilkanth vs Ghashiram Ladliprasad, an application was made in a company
for certain shares was made on the condition that the applicant would be appointed as a cashier
in the new branch of the company. The company without fulfilling the condition made an
allocation of the shares to the applicant and demanded the share money from him. The court,
in this case, held that the petitioner’s application for 100 shares was conditional and there was

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
no intention on the part of the company to accept the terms of the contract in entirety where he
applied for shares until he was appointed as a cashier by the company and therefore, there was
only a partial acceptance of the offer.
Inquiry into terms of proposals
The “Mirror image” rule is the traditional contract law rule under common law. According to
the Rule, the acceptance must be a mirror image of the offer. Attempts made by the offeree to
change or alter the original terms of the offer are treated as counteroffers as they impliedly
indicate the offeree not to be bound by the contract which is put before him. However, in recent
times the attitude of the judiciary towards the application of the Rule has turned out to be more
liberal by holding that only those variations which directly hit the material terms of the contract
are to be regarded as counteroffer which is a result of the purported acceptance.
Even under the Mirror image rule, no rejection of the offer is considered to have taken place if
the offeree merely inquires the terms of the contract without showing any intention of rejecting
the offer. Practically, differentiating between a counteroffer and making an enquiry as to the
terms of the contract. However, the fundamental issue which has to be considered while making
the differentiation is whether the offeree objectively indicates his intention of not to abide by
the terms of the contract.
Acceptance with subsequent condition
In the law of contract, the term “condition” is used in a loose sense and it is used synonymously
as “terms”, ‘’condition” or “clause”. In its proper sense, the term condition means some
operative term subsequent to acceptance and prior to acceptance, it is a fact on which the rights
and duties of the parties to the contract depend on. The fact can be any act or omission by any
of the contracting parties, an act of the third party or happening or not happening of any natural
event. 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 can be inferred by the conduct of the parties to contract is
known as an implied condition;
 Constructive condition: When the court believes that the parties to a contract must have
intended to operate certain conditions because the court believes that the Justice
requires the presence of the condition. These conditions are known as constructive
conditions.
A contract comes into force by the acts or conduct of one party to the other party. The acts or
conduct of the party can be turned into a promise only by meeting of mind or an agreement
between both the parties. An acceptance that carries a subsequent condition may not have the
effect of counter-proposal. Thus, where a person ‘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.
Acceptance of counter proposals

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
In certain cases, 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 undertaking by the bank that the applicant would be appointed as a
permanent director of the local branch. The shares were 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 cannot 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.
In D.S. Constructions Ltd v. Rites Ltd, 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 cannot be
forfeited.
Provisional Acceptance
Provisional acceptance is the type of acceptance by the offeree which is made subject to the
final approval. A provisional acceptance 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 to cancel the offer made to the offeree.
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.
Similarly, in Mackenzie Lyall And Co. vs Chamroo Singh And Co., the bid at an auction was
of provisional acceptance in nature and 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 provisionally accepted.
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 cannot be cancelled subsequently.

SFA
Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
When a provisional acceptance is subsequently ratified or accepted then it is the duty of the
offeree to inform the same to the offeror, as it is then when the offeror becomes bound by the
terms of the contract. Acceptance is not complete until it is communicated by the offeror.
Acceptance and withdrawal of tenders
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. A tender can be made with respect to
money or specific articles. If the tender is not an offer than it falls in the same category as a
quotation of price. When the tender is accepted it becomes a standing offer. A contract can
arise only when an offer is made on the basis of the tender.
In Bengal Coal Co. v. Homee Wadia & Co., the defendant signed an agreement. One of the
terms of the contract was that the undersigned from the day of signing the contract has to abide
by the condition stipulated by the contract which provides that they shall be required to provide
a certain quality of coal to the other party for a period of 12 months. The defendant abided by
the terms of the contract for some time but before the expiry of the term of the contract, the
defendants refused to comply with the conditions which were stipulated under the contract.
The plaintiff subsequently sued the defendant for breach of contract. The court held that there
was no contract between the parties and the terms stipulated thereof were just the part of a
standing offer and the successive orders given by the plaintiff was an acceptance of the offers
of the quantity offered by the defendant and therefore the order given by the plaintiff and the
offer of the defendant together constituted a series of contract. The defendants, in this case, are
not free to revoke the offers which were actually given by them. But barring those offers aside,
the defendants had the complete power of revocation.
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 a case where the tenderer has on some consideration promised not to withdraw the tender or
where there is a statutory provision restraining the withdrawal of the tender, the tender becomes
irrevocable. Just as the tenderer has the right to revoke his tender in the same way the acceptor
of the tender also has the right to refuse to place any order.
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
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.
Letter of intent to accept
A letter of intent to accept an offer is sometimes issued prior to the final acceptance of the
offer. Letter of intent does not have any binding effect on any of the parties to the contract.
In Dibakar Swain v. Cashew Development corp. The letter of acceptance issued by the

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
company only indicated their intention to enter into the tender. The acceptance was not clearly
reduced into writing. The court held that there was no binding contract entered into by the
parties and no work order can be issued and so the amount which was deposited by the tenderer
cannot be forfeited.
Liability for failure to consider tender
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 unfairness 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, the invitation to tender can give rise to the binding contractual obligation
on the part of the person who invited the tenders who conformed the conditions of the tender.
In A. K. Construction v. State of Jharkhand, 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.
Non-compliance with requirements
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 tenderer to whom the tender for the supply of goods was given refuted to comply with the
terms of the contract. 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
authorities was not arbitrary and they were having the right to do so.
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 be at a later point of time be required to produce the
certificate of work.
In KM Pareeth Labha v. Kerala Livestock Development Board, it was held that where a tender
invited the quotations for disposal of trees. The tender should mention the approximate value
of the trees which could be assessed by the tenderers who can quote their price.
Tender with concessional rate
In Kanhaiya Lal Agrawal vs Union of India & Ors, in this case, tender offered firm rates, as
well as concessional rate, provided the tender gets finalized within a shorter period of time than
generally followed. The court held that it did not result in the formation of a conditional offer
which hinges on the happening or non-happening of any event and the condition which was
put forth was only meant for bringing about more expeditious acceptance.
Certainty of terms

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Dr. Syed Ali Nawaz Zaidi
Dept. of Law
AMU
An agreement regarding the sale of immovable property should identify the property with
certainty. The agreement should be based on mutuality and should fix the price. In New Golden
Bus Service vs State of Punjab And Ors., the tender was made inviting the tender for hiring
services for the vehicle but it did not stipulate any time period. The lowest tenderer was
awarded the tenderer for a period of three years. The court, in this case, held that there was
nothing wrong in it as an open-ended tender cannot be regarded as void because of the reason
for its vagueness. The tender, in this case, specified that the tender cannot be issued for
a vehicle that is more than six months old and the tenderer who was awarded the tender
complies with the specified conditions specified under the tender. The acceptance of substitute
vehicles which were of equal efficiency and cost by the authority inviting the tender was not
arbitrary.
Preventing from tendering and blacklisting
In Utpal Mitra vs The Chief Executive Officer, a bidder was prevented by some elements inside
the office from submitting the tender. The authorities carried on the enquiry confirming the
allegations. The person who was so ruled out from the tender was later on permitted to submit
his tender after two intervening holidays and his tender was later on accepted. The court held
that no prejudice was caused to the other tenderers as the work issued to them was not interfered
with.
In Merittrac Services Private v. Post Graduate 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 justice.
Suggested Readings:
1. Pollock & Mulla: Indian Contract and Specific Relief Acts, (13th Ed. 2010).
2. Cheshire & Fifoot: Cases of the Law of Contract
3. Atiyah & P.S.: An Introduction to the Law of Contract
4. Indian Contract Act, 1872: Relevant Statuary Provisions.
5. Avtar Singh: Law of Contract
6. R.K. Bangia: Indian Contract Act,
7. Desai: Indian Contract Act, sale of Goods and Partnership Act.
8. Punnu Swami: Cases and materials on Contract.
9. G.H. Treital: The Law of Contract.
10. Beatsen (Ed.): Arson’s Law of Contract

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