Tag Archives: FORMATION OF CONTRACT

FORMATION OF A CONTRACT: SOME BASIC ESSENTIALS

By Kartik Sharma

PC: Rawpixel Ltd, Sodhi Law Group.

INTRODUCTION

The branch of law which binds two or more parties with a legal obligation to perform or not perform an act in place of consideration flowing from all the parties is ‘Law of Contract’.[1] In India, the Indian Contract Act, 1872 governs this branch of law.[2] It defines and explains different aspects of a contract, how an agreement becomes a legit contract, the consequences of a breach of contract, the performance of the consideration and remedies on the violation. Any transaction to be a legally binding contract needs to have three essential elements. Offer flowing from a party, its unqualified and absolute acceptance from the other party and intention to enter into a legally binding contract.[3] Section- 2, which is the interpretation clause of The Indian Contract Act, defines these aspects of a contract. [4] It explains what all things constitute a valid agreement which becomes a contract with the force of law. To better the understanding of the formation of a contract, in this article, the author will analyse a given fact scenario to understand the proper proposal and its acceptance.

FACTS

‘A’ visits a small shop to buy a notebook and a pen. ‘B’ is the shopkeeper. ‘A’ enquires about the price of the pen and the notebook. ‘B’ states that the notebook costs Rs. 50 and the pen costs rupees Rs. 15. ‘A’ agrees to buy the notebook for Rs. 45 and the pen for Rs. 10.

ISSUES

  1. Was ‘B’ by quoting the price of the notebook and the pen proposing an offer?
  2. If so, then, ‘A’ agreeing to purchase the items on a different price an acceptanc?

ANALYSIS

  1. Whether quoting the price of the notebook and pen constitutes a valid offer by ‘B’?

When one person signifies to another his willingness to do or to abstain from doing anything, to obtain the assent of that other to such act or abstinence, he is said to make a proposal or an offer”.[5] As from the facts, it is clear that ‘A’ just enquired the price of the notebook and pen to which ‘B’, the shopkeeper, just quoted the price which does not show his willingness to sell the said items and “when a person proposes an offer it should be sufficient enough to form a contract as soon as it is accepted”.[6] In other words, one must put the offer in such a way that whenever the offeree accepts the offer, a legit contract is formed. In the present case, even if ‘A’ would have agreed to purchase on the said price, it would not have resulted in a valid contract because B’s quotation was merely an answer to an inquiry made by ‘A’. ‘B’ did not quote the price with the view to obtain the assent of ‘A’ and, also, as in the case Harvey v. Facey [7] when the plaintiff (Harvey) telegraphed the defendant (Facey) that will he be selling him ‘Bumper Hall Pen’ and asked Facey to communicate the lowest price, the court held that it was a mere inquiry made by Harvey. This inquiry was just to know whether Facey was willing to sell and, if so, at what price. The price, i.e. £900, quoted by Facey, was not an offer to sell the ‘Bumper Hall Pen’ it was just an answer to the question asked to him by the plaintiff. The same thing happened in the case at hand. It was a statement and not an offer.

  1. ‘A’ agreed to buy items at different price. Whether it is a valid offer? If not, then, what is it?

In the preceding paragraph, we saw how the quotation by ‘B’ is not an offer. Therefore, there cannot be any acceptance by ‘A’ on it. However, ‘A’ did agree to purchase the items at different pricing. This quotation made by ‘A’ can be considered as an offer. As now he quoted the price intending to purchase and get the assent of ‘B’ to make it a valid contract between the two. Section 2(b) of the Indian Contract Act defines acceptance.[8] As per the definition, ‘B’s approval will be a valid acceptance. Such turn of events is in pari materia with facts of the case Harvey v. Facey.[9] When Harvey agreed to buy at a different price, it deemed an offer, if Facey had accepted it, it would have been a valid contract.

CONCLUSION

A valid offer must be addressed to one or more specific persons, be sufficiently definite, and indicate the offeror’s intention to be bound in case of acceptance.[10] From the instant case scenario and analysis of the issues, it is evident that the quotations given by ‘B’ did not constitute an offer; instead, it was a mere statement. Whereas, ‘A’ clearly made an offer, which will, with the absolute and unqualified acceptance by ‘B’, become an agreement”.[11] Hence, the contract is yet not formed in the given case scenario. To conclude, for a valid offer, the offeror must portray the proposal in such a way that if the offeree accepts it, there arises a contract. He should make it in a way to get a yes or no response. However, if the offeree does not accept and quotes different price or puts conditions, then it will not amount to a valid acceptance. It will either be a counter-offer or an unqualified acceptance which is not correct as per the sections in the Act.


[1] J. Beatson, Anson’s law of contract, 1 (28th ed., 2002).

[2] The Indian Contract Act, 1872.

[3] Nilima Bhadbhade, Pollock & Mulla, the Indian contract and special relief act, Vol. 1 37 (14th ed., 2012).

[4] The Indian Contract Act, 1872.

[5] The Indian Contract Act, 1872, §2(a).

[6] Coffee Board Bangalore v. Janab Dada Haji Ibrahim Halari, AIR 1966 Mys 118.

[7] Harvey v. Facey [1893] AC 552.

[8] Indian Contract Act, 1872, §2(b).

[9] Harvey v. Facey, [1893] AC 552.

[10] Larry A. DiMatteo, Lucien Dhooge , et al, Formation: Offer & Acceptance Rules, International Sales Law: A Critical Analysis of CISG Jurisprudence, 51-75, https://doi.org/10.1017/CBO9780511511332 (Last visited on August 20, 2018).

[11] The Indian Contract Act, 1872, §7.