All contracts are agreement but not all agreement is a contract. Cardinal principal is for an agreement to be a contract must be enforceable by law. In the absence of   written agreement,  the maxim, “Modus et Conventio Vincunt Legem:- The form of agreement and the convention of parties overrule the law,  may be regarded as the most elementary principle of law relative to contracts, the stipulations attached in the agreements, whether express or verbal,  whence entered  between the parties, and duly executed subject to the restrictive covenants, shall have force of law, and govern the parties to such an instruments or agreements.

Often in international trade and relations, and as customary to the specific business, the parties agree to an informal agreement, known as “Gentleman’s agreement”, an agreement not in writing but based on trust, to do what they have promised to do as an honour and etiquette. In a legal parlance, the “Gentleman’s Agreement” is an oral contract, in which the terms and conditions are implied and not expressed in writing, and in the case of dispute, it can’t be always proved. 

 It is settled position of law, that Courts will only give effect to the intention of the parties as it is expressed by the contract, then how do we deal in cases, where the contract is oral and one of the parties to the contract, is yet to perform its reciprocal obligations, or  the party has  partly performed its obligations based on the  oral promise of the promisor , in the absence of the written contract?

The essential ingredient of valid contract u/s 10 of The Indian Contract Act,1872   is: -

1.    Offer, without an offer there can be no contract.

2.    Acceptance of offer: The offer must be accepted by the party to whom it is made.

3.    Acceptance in ad-idem:  The acceptance to the terms of the contract in the “same-sense” i.e there is a meeting of minds.

4.    Competent parties to the contract.

5.    Valid consideration.

6.    Free consent.

7.    Certainty.

In enforceability of oral contracts, The Apex court in Coffee Board v/s CCT, (1988) 3, SCC: AIR 1988 SC 1487 held that an “Offer and acceptance can be spelt out from the conduct of the parties, which covers not only their acts but also omissions”.

 Similar view was held in P.Poppan v/s karia Gounder, (2002) 2 CHN40, that “An offer and acceptance need not always be formal, nor does the law of contract or sale of goods  require that consent to a contract must be in writing. 

An offer/proposal must be made to a specific person and must be communicated to the intended offeree. Similarly, the offeree must accept the offer, in the same sense it was intended, and if it varies the original terms, that shall be construed as counteroffer.

 Sec 2(b) of The Indian Contract Act, 1872 defines it as “When the person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise. To constitute an acceptance, there must be external manifestation, by way of speech, writing or by conduct. 

In this paper, we shall explore the possibilities of enforcing of oral agreements  based on the common law principle of  “Acceptance by conduct.”

Acceptance by conduct, is an element that may be invoked to prove the terms of the oral agreement between the parties. 

Sec 8 of The Indian Contract Act, 1872 has given express recognition to the principal of acceptance by conduct, “performance of the conditions of a proposal, of the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.”

Therefore, to infer acceptance by conduct in oral contract either of the conditions must be fulfilled: 

·      Performance of the conditions of the proposal.

OR 

·      Acceptance of any consideration offered with a proposal.

Opining on  acceptance  by conduct, in Gaddar Mal  v/s Tata Industrial Bank Ltd, AIR 1927,  it was held that, in context of the law on the subject of acceptance of offer is indicated in Section 7, 8 and 9 of the contract act and these sections must be read without reference to the English law on the subject. According to Section 7, before a proposal becomes a promise rendering the promisee liable to the conditions contained in the promise, there must be an absolute and unqualified acceptance. This acceptance must 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 the manner and the acceptance is not made in that manner the promise Sir may require acceptance in the manner prescribed, but if he does not do so, he will be held to have accepted the acceptance in the manner that it was made. Section 8 provision is made for an implied acceptance by performance on the part of the promisee of the conditions of a proposal or by the acceptance of any considerations of a proposal or by the acceptance of any consideration offered for a reciprocal promise invited from the promise. In section 9 it is stated that the acceptance of any promise made in words is said to be “expressed” and made otherwise then in words is said to be “implied”.

Doctrine of Acquiescence:

In oral agreement the petitioner or the defendant can take the plea of the equitable doctrine of the Acquiescene,which is a common law principle governing the rights of the party in the absence of the statutory law and is dealt  in court of equity.

Section 39 of The Indian Contract Act 1872,  deals with the effect of the refusal of the party to perform a promise wholly. This provision is the only one that speaks of the concept of acquiescence, which could be signified by words or conduct, being an exception for terminating the contract. Under this provision, a promisee may put an end to the contract unless there exists an element of acquiescence that could be seen and exhibited through his words or conduct.

 The underlying principle governing these concepts would be one of estoppel. A party to the contract must exercise its right and it would be unjustified for a court of equity to give remedy to a party, who has slept over his rights and that act off not exercising his rights would indicate a waiver of such a right. By his conduct, he has put the other party in a particular position, and therefore, it would be unreasonable to facilitate a challenge.

The offeror may have acquiesced in a certain conduct on the part of the acceptor as equivalent to acceptance. Malraju Lakshmi Venhayyamma v/s Venkata Narasimha Appa Rao (1915-`16) 43 IA 138.

Acquiescence would mean a tacit or passive acceptance. It is implied and reluctant consent to an act. In other words, such an action would qualify a passive assent. Thus, when acquiescence takes place, it presupposes adequate knowledge of its terms, and instead being allowed to continue by consciously ignoring it and thereafter proceeding further, acquiescence does take place. knowledge against a particular act. From the knowledge comes passive acceptance, therefore instead of taking any action against any alleged refusal to perform the original contract.

As a consequence, it reintroduces a new implied agreement between the parties. Once such a situation arises, it is not open to the party that acquiesced itself to insist upon the compliance of the original terms. Hence, what is essential, is the conduct of the parties. We only dealt with the distinction involving a mere acquiescence.

 When acquiescence is followed by delay, it may become laches. Sir Barnes Peacock in Lindsay Petroleum Co. v. Prosper Armstrong Hurd [1874 LR 5 PC 221 : 22 WR 492] , thus: (LR pp. 239-40) 

“Now the doctrine of laches in courts of equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation, in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material. But in every case, if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as it relates to the remedy.” 

In recent judgment of  Apex Court,  consisting of Hon’ble Justice bench consisting of Hon’ble Justice  Rao & Justice Khanna in the matter of  State  Bank of India v/s MJ James,… held that both the limitation and latches destroy the remedy but not the right. Acquiescence on the other hand virtually destroys the right of the person.

 The Court explained that the doctrine of  Acquiescence is an equitable doctrine which applies when a party having a ride standby and sees the another dealing in a manner inconsistent with the right while that act is in progress and after violation is completed, which conduct reflects his assent or accord. He cannot afterwards complain.  In literal sense the term Acquiescence mean silent assent, tacit consent, concurrence, or acceptance, which denotes conduct that is evidence of an intention of a party to abandon an equitable right and also to denote conduct from which the another party will be justified in inferring such an intention. Act for silence can either be direct with full knowledge and express appropriation, or indirect where a person having the right to set aside the action stand by and see   another dealing in a manner inconsistent with the that right and inspite of the infringement, takes no action, mirroring acceptance. However Acquiescence cannot apply  if the lapse of time is of no importance or consequence. Acquiescence imply active assent and is based upon the rule of estoppel in pais.

Admissibility of oral agreement as oral evidence under section 92 of  The Indian Evidence Act, 

In India, courts are reluctant to admit the oral evidence to proof the content of the document, agreement, contracts, records.. section 92 of the Indian Evidence Act, specifically debars the admission of the any oral agreements “When the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying, adding to, or substracting from, its term”.

However, the aforesaid section has carved our proviso (2-) The existence of any separate oral agreement as to any matter on which a document is silent, and which is not inconsistent with its terms, may be proved. In considering whether or not this proviso applies, the Court shall have regard to the degree of formality of the document.

Proviso (3.- The existence of any separate oral agreement, constituting a condition precedent to the attaching of any obligation under any such contract, grant or disposition of property, may be proved.

Proviso (4.- The existence of any distinct subsequent oral agreement to rescind or modify any such contact, grant or disposition of property, may be proved, except in cases in which such contract, grant or disposition of property is by law required to be in writing, or has been registered according to the law in force for the time being as to the registration of documents.

Proviso (5.- Any usage or custom by which incidents not expressly mentioned in any contract are usually annexed to contracts of that description, may be proved.

Provided that the annexing of such incident would not be repugnant to, or inconsistent with, the express terms of the contract.

 analysis of the section 92 of the Indian Evidence Act, the evidence of the oral agreement may be admitted whence: 

·      When the  document submitted is silent, as to the contents to be provided, than the existence of the oral agreement can be proved.

·       Oral agreement as condition precedent, attached to the agreement can be proved.

·      The subsequent oral agreement, to rescind and/or modify any such prior contract or contact, grant or disposition of property, may be proved. However, when the law mandates that the contract or disposition of the property must be in writing and registered, the existence of the oral agreement cannot be admitted. 

·      The oral agreement can be admitted as evidence, when the transaction contemplated in contract  is customary to the trade.

“Pacta sunt servanda”- Agreements must be followed. 

THANK YOU 

Disclaimer: This blog is made available for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship . You should always seek professional advice from a licensed�attorney for any legal questions you may have.