Overview, Meaning and Definitions of Indian Contract Act, 1872

An Overview of the Indian Contract Act, 1872:

The Indian law of contract is based on the principles of English law. The Act was enacted in the year 1872 and came into force on the 1st of September 1872. It extends to the whole of India except the State of Jammu and Kashmir. Indian Contract Act is not an extensive code. It defines and amends only certain parts of the law relating to contracts. Custom should be reasonable, certain, and well known. However, usages or customs shall not be inconsistent with the provisions of the Act. Where the contract law is silent on any matter, Hindu or Mohammedan Law relating to contracts shall apply. It is, therefore not a complete code and therefore, not exhaustive.

Meaning of Indian Contract Act, 1872:

The law of contract deals with promises which create legal obligations. This excludes those promises made in common life which may be morally binding but creates no legal obligation. For e.g. A promised to give B Rs. 500/- as a birthday present on B’s birthday. A failure to fulfill his promise. B wants to file a suit against A for the realization of the amount. B cannot succeed, as there was no intention on the part of ‘A’ to create a legal obligation. Law of contract therefore excludes obligations that are not contractual in nature.

Salmond has rightly observed that “the law of contract is not the whole law of agreements, nor is it the whole law of obligations. It is the law of those agreements which create obligations, and those obligations which have their sources in agreements.”

Definitions of Indian Contract Act, 1872:

  1. Proposal– When any person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that order to such act, he is said to make a proposal.
  2. Acceptance, Promise– When a 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.
  3. Agreement- Every promise and every set of promises, forming the consideration for each other is an agreement.
  4. Void- An agreement not enforceable by law is said to be void.
  5. Contract- An agreement enforceable by law is a contract.
  6. Voidable Contract– An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.

Every agreement is not a contract, but every contract is an agreement:

“An agreement enforceable by law is a contract. “The definitions of the contract are that a contract essentially consists of two elements. 1) An agreement and 2) Its enforceability by law.

An agreement which is enforceable at law is a contract and an agreement which is not enforceable at law is said to be void. An agreement is a wider term there may be legal agreements. It is only those agreements that are enforceable in a court of law which are contracts. An agreement includes a contract and is a much wider term than the contract. An agreement in order to become a contract must give rise to a legal obligation. So, it is called, “Every agreement is not a contract, but every contract is an agreement.” For e.g. Wagering agreement is declared by law to be void.

Essentials of valid offer:

1)Offer is always in the form of a request– The proposer cannot dictate terms; offer is always in the form of a request.

2)Terms of the offer must be definite and certain– If the terms of an offer are vague or unambiguous, its acceptance cannot create any contractual relationship.

3)The offer can be specific or general– General offer is open to the world at large. But a specific offer is made to a definite person to create legal relation.

4)An offer may be conditional– But when it is conditional the conditions must be clearly communicated.

5)An offer can be express or implied- Express offer means orally or in writing whereas implied offer is understood because of the behavior of the parties to the contract.

6)An offer must be communicated– When there is no communication that means there is no offer at all. Communication is an important link between the proposal and the acceptor. The offer which is made is required to be communicated to the acceptor.

Essential elements of Acceptance:

1)Acceptance must be absolutely the same as unconditional– Acceptance of a proposal with conditions is no acceptance at all. The addition of any conditional terms to acceptance will constitute conditional acceptance.

2)Usual, Reasonable and Prescribed manner of Acceptance– Usual and Reasonable manner would mean that the parties intended to perform the contract in the ordinary course of trade or business. The prescribed manner is where the proposer prescribes a manner in which it is to be accepted and if not made within a reasonable time then the proposal is said to be in a prescribed manner.

3)Acceptance must be communicated– Acceptance which is made by the acceptor is required to be communicated. If there is no communication of an acceptance that means there is no acceptance at all.

4) Silence does not amount to acceptance-Acceptance to be complete must be communicated by word or conduct of the acceptor. An acceptance of an offer cannot be implied from the silence of the acceptor.

5)Person accepting the offer must not be ignorant about the existence of the offer– The acceptor must have the knowledge of the proposal. If there is ignorance of the proposal it is no acceptance.

6)Offer lapses after the lapse of reasonable time– Acceptance therefore must be given before the offer lapses. What is reasonable time depending upon the facts and circumstances of each case?

Author: Shreya Potdar,

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