INDIAN CONTRACT ACT 1872

The laws of contract in India is contained in the Indian Contract Act, 1872. This Act is based mainly on English Common Law which is to a large extent made up of judicial precedents. It extends to the whole of India except the State of Jammu and Kashmir and came into force on the first day of September 1872. DEFINITION OF CONTRACT A legally binding agreement is called a contract. Section 2(h) of the Indian Contract Act defines a contract as, "An agreement which is enforceable at law." This definition has two important components. which constitute the basis for a contract. They are : (1) An agreement, and (2) Legal obligation. AGREEMENT = OFFER + ACCEPTANCE CONTRACT =AGREEMENT+ENFORCEABILITY AT LAW 1. Agreement : Every promise and every set of promises, forming the consideration for each other, is an agreement [Sec. 2 (e). A promise is an agreement. Section 2(b) defines the term :" 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". An agreement, therefore, comes into existence only when one party makes a proposal or offer to the other party and that other party signifies his assent (i.e., gives his acceptance) thereto. In short, an agreement is the sum total of 'offer' and 'acceptance'. 2. Legal Obligation : An agreement to become a contract must give rise to a legal obligation. Obligation is an undertaking to do or to abstain from doing some definite act. The obligation must be such as is enforceable by law. In other words, it must be a legal obligation and not merely moral, social or religious. Obligations which are not contractual in nature are outside the scope of the law of contract. For example, obligation to maintain wife and children, obligation to comply with the orders of a court and obligation arising from a trust do not fall within the scope of The Contract Act. OFFER: An offer is a proposal by one party to another to enter into a legally binding agreement with him. A person is said to make a proposal when one person signifies to another his willingness to do or to obtain from doing anything with a view to obtaining the assent of that to such act or abstinence-Sec 2(a). How an offer is made; An offer may be either express or implied from the conduct of the parties. An Express Offer is one which may be made by words spoken or written. An Implied Offer is one which may be gathered from the conduct of the party or the circumstances of the case. To Whom an Offer can be Made:An offer may be specific or general. Where an offer is made to a definite person or body of persons, it is called a Specific Offer. A Specific offer can usually be accepted only by the person or persons to whom it is made.

On the other hand, when an offer is addressed to the whole world, it is called a General Offer. A general offer can be accepted by any one.
Essentials of a valid offer:

1. 2. 3. 4. 5. 6. 7. 8.

It must be capable of creating legal relations It must be certain, definite and not vague. It must be communicated to the offeree It must be made with a view to obtaining the assent of the other party. Lapse of Offer Invitation to offer is not an offer. Counter offers. Offer may be expressed or implied.

1. Offer must be capable of creating legal relations: The offeror must intend the creation of legal relations. He must intend that if his offer is accepted, a legally binding agreement shall result. 2. Offer must be certain, definite and not vague: No contract can come into existence if the terms of the offer are vague and indefinite. To constitute a valid agreement, it is essential that the proposal must be so certain, that the rights and obligations of the parties arising out of the contract can be exactly fixed. 3. Offer must be communicated to the offeree; There can be no offer by a person to himself. It must always be communicated to the offeree. If there is no communication of an offer, there is no acceptance resulting in the contract. Thus, if A writes a letter to B offering to sell his watch for 200/- but never post the letter and keeps it in the pocked, it is not an offer and B can never accept it. 4. Offer must be made with a view to obtaining get the assent (acceptance) of the other party:- An offer must be distinguished from mere expression of intention. An offer or proposal to do or obtain from doing anything must make with a view to obtaining the assent of the other party to whom offer is made. Mere enquiry is not an offer. 5. Lapse of an offer: - An offer lapses: a) If either offeror or offeree dies before acceptance b) If it is not accepted within 1) the specified time, or 2) a reasonable time, if no time is prescribed. What is a reasonable time depends on the circumstances. c) If the offeree does not make a valid acceptance, eg makes a counter offer or conditional acceptance. 6. An invitation to offer is not an offer: In the case of an invitation to offer, there is no intention on the part of the person sending out the invitation to certain the assent of the other person to such invitation. His aim is to merely circulate information if his readiness to negotiate business with anybody, who, an such information comes to him. Such invitations are not offers in the eyes of law and do not become promises on acceptance. The display of goods in a shop with price tags attached is an invitation to offer. 7. Counter Offer: - A counter offer is a rejection of the original offer and making a new offer. This new offer is a counter offer. A person who makes a counter offer and subsequently changes his mind and wishes to accept the original offer cannot do so as the first offer lapses and he cannot treat it as still offer. 8. Offer may be expressed or implied.

A proposal can be made either in words spoken or in words written. Such proposal is called an express proposal. It can also made by the action of the parties. Such proposal is known as implied proposal. Revocation of offer: An offer may come to an end by revocation or lapse or rejection. Modes of revocation of offer:1. By notice of revocation. 2. By lapse of time. 3. By non-fulfillment of condition precedent 4. By death or insanity. 5. By counter offer. 6. By the non-acceptance of the offer according to the prescribed or usual made. 7. By subsequent illegality Acceptance: Sec 2(b) 1. Acceptance must be given only by the person to whom the offer is made. 2. Must be absolute & unqualified. 3. Must be in prescribed mode or reasonable manner. 4. Must be communicated. 5. Within reasonable time. 6. Acceptance must succeed an offer. 7. Rejected offers can be accepted only if renewed.