The Indian Contract Act, 1872 contains the fundamental law in India relating to contracts. Contracts are nothing but agreements which are enforceable in law through courts. The Law of contracts forms the backbone of all commercial activities and is one of the most important areas of study in law entrance examinations.
- When we set out to study the Principles of Contract, the first and the most basic question is, what is a contract?
- Answer to this basic question lies as per the Indian Contract Act is this: An agreement enforceable by law is a contract.
- The next question then is what is an agreement?
Answer: Every promise (and every set of promises forming the consideration for each other) is an agreement.
- We now need to know, what is a promise?
Answer: A proposal when accepted becomes a promise.
- So then, we need to next know, what is a proposal and when is it said to have been accepted?
The contract act says:
When one person signifies to another his willingness to do (or to abstain from doing) anything, with a view to obtaining the assent of that other, he is said to make a proposal.
Further, when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.
- We also need to know, what is a consideration?
Answer: When, at the desire of the promisor, the promisee has done or does or promises to do something, such act or promise is called a consideration for the promise.
- Having known what is an agreement, the next question is, what are the characteristics of that agreement which is enforceable by law?
Answer to this question lies in Section 10. This section lays down 5 conditions on the fulfilment of which an agreement can be said to qualify to be termed a contract. These 5 conditions are:
- The agreement must have been made by parties competent to contract
- It must have been made by the free consent of these parties
- It must be for a lawful consideration
- It must be with a lawful object
- It must not have been expressly declared to be void under the contract act.
- The first requirement of an agreement to be a contract therefore is that it must have been made by parties “competent to contract”. Which are these parties?
Section 11 lays down 3 conditions for a person to be competent to contract:
- He must have attained the age of majority according to the law to which he is subject.
- He must be of sound mind.
- He must not have been disqualified from contracting by any law to which he is subject.
Essentially, an agreement consists of an offer or proposal from one person and the acceptance of that offer by the other.
An offer must be made with an intention to create legal relationship. An offer is not a valid offer if it does not create a legal obligation upon the other party. Mere trifles do not constitute an offer.
Further an offer is different from an invitation to offer. For example, display of goods in a shop window is not an offer to sell the goods. Rather it is an invitation to the buyer to make an offer to the shop-keeper to purchase the goods. Accordingly, the customer cannot force the shopkeeper to sell the goods displayed in his showcase. He can just make an offer to buy those good; thereupon it is for the shopkeeper to accept or reject the offer. It becomes a contract only when the shopkeeper accepts the offer made by the customer.
Example 1
Principle: If both the parties agree upon the same thing in the same sense, the parties are bound by their agreement.
Facts: Sanjay wrote to Hrithik offering to sell his horse for Rs. 20,000. Hrithik wrote back, “I agree to purchase your black horse for Rs. 20,000.”
(a) The parties are bound by their agreement as they agree on the price and also on the goods for sale.
(b) The parties are not bound by the agreement as the object is uncertain.
(c) The parties are bound by their agreement as the colour of the horse is only a question of detail.
[NLSIU, 2001]
Answer: The parties are not bound by the agreement as in the offer made by Sanjay the horse he intended to sell was not specified. As such, the object remained uncertain. Hence the answer is (b)
Example 2
Principle 1: Acceptance of an offer is complete when the acceptance is put into the course of transmission so as to be out of the power of the acceptor.
Principle 2: Acceptance once completed makes the agreement binding on both the parties.
Fact: A accepts to buy B’s offer of his motor car for Rs. 4 lakhs. The acceptance was put into e-mail. Unfortunately, when the e-mail was sent, there was distortion as a result of which B was not in a position to really read what A had written.
(a) Both the parties are bound to perform their part of the agreement.
(b) Nobody is bound to perform the agreement.
(c) A is bound to perform the agreement but not B.
(d) B is bound to perform the agreement but not
[NLSIU, 2000]
Answer: Acceptance through e-mail is complete on the part of ‘A’ only; so only ‘A’ is bound to perform the agreement. Hence the answer is (c).