A Contract is an agreement between two or more parties that is enforceable by law as a binding legal agreement. The Indian Contract Act, 1872 came in to effect on September 1, 1872 and is applicable in the whole country. It governs entering into a contract, execution of the contract, and the effects of breach of contract. So for a valid contract, there should be an agreement which should also be enforceable by law. Also, the agreement must create a legal obligation or duty.
Essentials of a Valid Contract
All contracts are agreements but all agreements are not contracts. In order to become a contract, an agreement must satisfy following essential requirements:
1. Offer and Acceptance: For any contract, there must be at least two parties, one of them making the offer and the other one accepting it. The acceptance must be unconditional and absolute.
2. Consideration: Consideration means “something in return”. It is a benefit moving from one party to another. Consideration need not always be in cash or in kind. It may be an act or promise to do or not to do something. It may be past, present or future. Consideration must be real and lawful. A documentation lawyer in India can be consulted for drafting a contract.
3. Capacity of the Parties to Contract: The parties to an agreement must have the capacity at law to enter into a valid contract. Section 11 states that every person is competent to contract if-
a) he is of the age of majority
b) he is of sound mind
c) he is not disqualified from entering into a contract by any law, to which he is subject
4. Free Consent: The contract must have been made with the free consent of the parties. The parties must be ‘ad idem’ i.e. they must agree upon the same thing in the same sense at the same time.
There is an absence of free consent if the agreement is induced by
- Coercion
- Undue Influence
- Fraud
- Misrepresentation
- Mistake
5. The Agreement must not be Expressly Declared to be Void: The agreements must not have been expressly declared to be void by any law in force in the country. A void agreement is not enforceable by law & they have no legal existence. For example,
a) Agreement in restraint of Trade
b) Agreement in restraint of Marriage
c) Agreement in restraint of Legal Proceedings
d) Agreement of Wager etc.
6. Writing and Registration: It is in the interest of the parties that the contract should be in writing. Sometimes it needs to be stamped and registered.
7. Legal Relationship: The parties entering into the contract must have the intention to create a legal relationship. If there is no such intention the agreement will not result into a contract.
8. Certainty: The terms of the contract should be very clear. They must not be vague (not clearly expressed) or ambiguous (having two or more possible meanings).
9. Possibility of Performance: The performance must not be impossible. The contracts must be capable of being performed. Example- ‘A’ agrees with ‘B’ to discover treasure by magic and sharing of the treasure. This agreement cannot be enforced.
10. Lawful Object: The object of the agreement must be lawful i.e. neither fraudulent or forbidden by law, nor opposed to any public policy.
Offer
A explicit proposal to contract which, if accepted, completes the contract and binds both the person that made the offer and the person accepting the offer to the terms of the contract. The best documentation lawyers can assist in drafting a valid contract in India.
Illustration: A wants to sell own car at Rs 50 Lakh, he makes a written statement stating his own willingness and sends the same to B, the same thing will be considered as an offer for B. As earlier said that offer commence the process of contract so there are some ingredients for a valid offer
(1) There must be two parties.
(2) The offer must be communicated to the offeree.
(3) The offer must show the willingness of offeror. Mere telling the plan is not offer.
(4) The offer must be made with a view to obtaining the assent of the offeree.
(5) A statement made jokingly does not amount to an offer.
(6) An offer may involve a positive act or abstinence by the offeree.
(7) The mere expression of willingness does not constitute an offer. If these requirements are present in the offer then only it will be considered as offer otherwise not.
Cross Offer
Where two parties make identical offers to each other, in ignorance of each other?s offer, the offers are known as cross-offers. Cross offer never initiate the process of contract because it does not fulfill the requirements of a valid offer. There are essentials of the cross offer which are as follows:
1. Same offer to one another: When offeror makes an offer to offeree and offeree without knowing the offer which was prior made by the offeror to him, makes the same offer to offeror means the object as well as party both remains same. So both party can never make the offer on the same object to each other because if it happens then who will accept the offer and if there is no acceptance of offer then no contract can be made.
2. Offer must be in ignorance of the offer made by another: Offer should be properly communicated and should not be made in the ignorance.
3. The terms and Condition: The terms or the object must be same when it is made by the other person to the first person then only it will be considered as a cross offer because if the second offer differs from the first offer then it can be considered as a counter offer.
Illustration: Sai makes an offer to Chandu to sell him a pen at RS 200 and on the same time without knowing the offer, Chandu makes the offer on the same object to Sai. So here the parties are same, the object or the thing is also same and it was made by the Chandu to sai without knowledge. Therefore it is said to be cross offer.
Tinn v Hoffman & Co. [1873] 29 LT 271
Facts of the case -Two identical cross-offers made in ignorance of the other does not amount to a contract, unless/until one is accepted.
H wrote to T offering to sell him 800 tons of iron at Rs 69 per ton. On the same day, T wrote to H offering to buy on the same terms.
Issue – Whether there is valid contract or not.
Held – No contract existed. The simultaneous cross-offers made in ignorance of each other, would not bind the parties Blackburn J stated: “The promise or offer made on each side in ignorance of the promise or offer made on the other side, neither of them can be construed as an acceptance of the other.”
Difference between Cross offer and Counter offer
- Time: It is made at the same time. It is made at the different time.
- Party: Both offeror and offeree make the offer.
- Knowledge: This offer is made in the ignorance of the original offer. After getting knowledge about the offer.
- Illustration: A makes an offer to B for selling a car and B also at the same time makes an offer for buying the car. A makes the offer to B for the car at Rs 40 thousand and B in response agree to buy it at Rs 25 thousand.
Similarities between Cross offer and Counter offer
1. Cross offer and counter offer both terminates the original offer i.e. in case of cross offer any party can terminate and in case of the counter offer the only offeree terminate the original offer.
2. Cross offer and counter offer in both cases when the second-time offer is made to first party the second one become an invitation to offer.
3. In both the cases, the response will not be considered as acceptance of the offer.
4. In both the cases, the response will not be considered as a binding contract.
From the above information, we can conclude that every contract should move froman offer. Cross-offer is a contract law term that refers to an offer made to another in ignorance that the offeree has made the sameoffer to the offeror. In a cross offer both parties state to each other the same proposal. If any type of Cross offer takes place in a contract it is not termed as to be Binding Contract according to the Indian Contract Act 1872.
