A SMALL NOTE ON LAW OF CONTRACTS.
The Essentials of The Indian Contract Act, 1872
Law of Contracts is the most important branch of Mercantile Law without which it would be difficult to carry on any trade or business in a smooth manner. Further, in the course of the discussion that follows, one will learn that the law of contract is applicable not only to business but also to all day to day personal dealings. In fact, each one of us enters in to a number of contracts from sunrise to sunset. When a person buys a newspaper or rides a bus or purchases goods or gives his watch for repair or borrows a book from the library or even from a friend, he is actually entering into a contract.
The provisions of the Indian Contract Act, 1872, hereinafter referred to as The “Act”, define the extremely important aspects of business transactions relating to contracts. In business dealings, offer for sale are made and accepted, consideration or the price is agreed upon, conditions of the sale or transaction are specified. Disputes arise when an offer or acceptance is violated, consideration or price is not paid or the conditions of the transaction are violated. A contract may be made in writing or by word of mouth or inferred from the conduct of the parties or circumstances of the case.
According to Section 2(h) of the Act, ‘an agreement enforceable by law is a Contract’. An agreement will be enforceable by law only if it contains all the essential elements of a contract. A person signifying his willingness to do or abstain from doing something is said to make a proposal and is called the “Proposer”. When the person to whom the proposal is made signifies his assent to the proposal, it is called “Acceptance”. Upon acceptance, the proposal becomes a “promise”, the proposer becomes the ‘promisor’ and the acceptor becomes ‘promisee’.
“ALL CONTRACTS ARE AGREEMENTS BUT ALL AGREEMENTS ARE NOT CONTRACTS”. Thus, an agreement will become a contract which will be enforceable in a court of law only if the essential elements of a contract are present in the said agreement. “An offer and acceptance make an agreement but an agreement and enforceability make a contract”. The Essential elements of a valid contract are highlighted as follows:-
1) Offer and Acceptance:- There should be an offer which is properly communicated to the offeree. When the person to whom the offer is made signifies his assent, the proposal is said to be accepted. When an organization runs tramway cars along the streets, it is an implied offer by the organization to carry passengers. When a person boards the tram with an intention to travel it is an acceptance. An offer should be distinguished from an invitation to offer. A prospectus issued in a public offer of shares is an invitation to offer and the persons making an application for the shares are said to make the offer, which may or may not be accepted by the Company by way of allotment of the shares.
The issue of when THE COMMUNICATION of an offer or acceptance or the revocation of an offer or acceptance is COMPLETE is of importance under the Indian contract Act. Persons may enter in to contracts (1) when they are face to face, (2) over telephone or telex or (3) through post office courier service etc. When persons are face to face, one person making the offer and the other accepting, the contract comes into existence immediately. Similarly, in the case of conversation over telephone, the contract is formed as soon as the offer is accepted but the offeree must make sure that his acceptance is received by the offeror, as otherwise there will be no contract as communication of acceptance is not complete. Section 4 of the Indian Contract Act explains this issue in the circumstance when the offer, acceptance and revocation are made through post office/courier :- The communication of proposal is complete, when it comes to the knowledge of the person to whom it is made.(ie the offeree)
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