Law Of Contract 1872: CONTRACT OFFER, ACCEPTANCE & REVOCATION
DEFINITION OF CONTRACT:
According to Section 2(H) of the Indian Contract Act, 1872 A contract is an agreement between two or more parties that is enforceable by law as a binding legal agreement. The Indian Contract Act, 1872 came in to effect on September 1, 1872 and is applicable in the whole country. It governs entering into contract, execution of contract, and the effects of breach of contract. So for a valid contract there should be an agreement which should also be enforceable by law. Also the agreement must create a legal obligation or duty.
AGREEMENT: According to Section 2(e) an agreement is defined as every promise and that every set of promises, forming consideration for each other. An agreement takes place when an offer is made by one person and is accepted by the other. So it is:
“ALL AGREEMENTS ARE NOT CONTRACTS BUT ALL CONTRACTS ARE AGREEMENTS”
Contracts can be classified on the basis of various grounds. The grounds are as follows:
VALIDITY OR ENFORCEABILITY:
- VOIDABLE CONTRACT: According to Section 2(i) a voidable contract is an agreement which is enforceable by Law at the option of one or more of the parties there to (i.e. the aggrieved party), and it is not enforceable by Law at the option of the other or others.
- VOID CONTRACT: According to Section 2(g) a void contract is that when it ceases to be enforceable by law.
- VOID AGREEMENT: An agreement not enforceable by law is void
- VALID CONTRACTS: An agreement satisfying all the essentials.
- ILLLEGAL CONTRACT: An agreement which is forbidden by law or against the policy of law is known as unlawful or illegal contract.
- UNENFORECEABLE CONTRACT: The contract which cannot be enforced in a court of law due to some technical defects.
FORMATION OF CONTRACTS:
- EXPRESS CONTRACTS: Contracts which are in oral form or in writing are express contracts.
- IMPLIED CONTRACTS: Contracts that are made by any form of conduct or acts.
- QUASI CONTRACT: Contracts which has no intention to create legal relationships. It is created by law.
ACCORDING TO TIME AND PERFORMANCE:
- EXECUTED CONTRACT: The contract in which both the parties has performed their part of obligations.
- EXECUTORY CONTRACT: The contract in which both the parties are yet to perform. It can be performed partly as well.
- UNILATERAL CONTRACT: A contract in which only one party makes an express promise or undertakes a performance without first securing a reciprocal agreement from the other party.
- BILATERAL CONTRACT: A contract in which the parties exchange mutual promises. These type of contracts are commonly used in business transactions.
ESSENTIALS OF CONTRACT: For a contract to be valid that can bind two or more parties it should have the following essentials:
- OFFER AND ACCEPTANCE: An agreement involves two parties one making the offer and the other accepting it. Offer must be definite and the acceptance of the offer must be unconditional. An offer is the starting point of making an agreement. An offer is also called as proposal.
SECTION 2(a) defines an offer as: A person is said to have made the proposal when he signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that offer to such act or abstinence. Communication of offer is essential as an offer needs to communicate to the other party after one may agree or not agree with it.
- INTENTION TO CREATE LEGAL RELATIONSHIP: An offer must be such that when it is accepted it will create legal relationships.
- CERTAIN AND UNAMBIGOUS TERMS: If the terms of the offer are vague or indefinite, its acceptance cannot create a contractual relationship.
- LAWFUL CONSIDERATION: Consideration something in return, must be real and lawful.
- CAPACITY OF PARTIES: The parties to the contract must be of an age of majority, of sound mind and not disqualified from contracting by any law subject to.
- FREE AND GENUINE CONSENT: Parties must agree to the subject matter at a same sense and at that the same time. Consent should not be induced by coercion, fraud, misrepresentation, mistake or any sort of undue influence.
- LAWFUL OBJECT: The object for a contract should contain a lawful object which should not be illegal, immoral or opposed by public policy.
- AGREEMENT MUST NOT BE VOID: An agreement must not have been declared void by any law of the country.
- CERTAININTY AND POSSIBILITY OF THE PERFORMANCE: Agreement must not be vague or impossible to perform.
- LEGAL FORMALITIES: Contract preferably written, must be registered or stamped as per requirements.
COMMUNICATION OF OFFER: The offer needs to be communicated to the other party so that its acceptance many constitute a contract. Section 3 of the Indian Contract Act defines offer and acceptance of a contract. If an offer is sent in the post it will have no effect until it reaches the offeree- i.e. to say when it is communicated not when the offer is posted. In Adams v. Lindell (1818) a letter with the offer of the sale of some wool was misdirected by the defendants and consequently it was not received by the plaintiffs until late on Friday 5th September. That same evening the plaintiffs wrote an answer agreeing to accept the wool on the terms proposed. In turn this answer was not received by the defendants until Tuesday 9th September. By this time the defendants, not having received an answer by the 7th September as expected, sold the wool in question to another person. In this case a letter of acceptance of the offer of the sale of the wool was found to have been accepted at once and a contract formed even through the wool itself had been sold between when the offer was made and accepted.
COMMUNICATION WHEN COMPLETE: Section 4 defines communication of offer when completed. A communication of offer gets completed when it is properly conveyed to the other party and hence accepted by the other. A communication of offer is not valid and not completed until it is consented by the other party and accepted by them. Communication must be done in some usual and reasonable manner.
ACCEPTANCE MUST BE ABSOLUTE: Section 7 says that an acceptance must be absolute and unqualified. There are two subcategories by which acceptance of an offer can be made. They are:
- SECTION 8(ACCEPTANCE BY PERFORMING CONDITIONS): Acceptance of an offer is done by fulfilling some certain conditions or else by performing the conditions made out in the offer in order to make the contract a valid one.
- SECTION 8( RECEIVING CONSIDERATION): Acceptance of an offer is fulfilled by receiving any lawful consideration which is something in real.
REVOCATION OF PROPOSAL AND ACCEPTANCE: Section 5 defines revocation of proposal and acceptance. A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.
A proposes, by a letter sent by port, to sell his house to B.
B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.
B may revoke his acceptance to any time before or at the moment when B posts his letter of acceptance, but not afterwards
REVOCATION HOW MADE: Section 6 says when revocation is made. The following are the condition when an offer is revoked:
- By the communication of notice of revocation by the proposer to the other party
- By the lapse of the time prescribed in such proposal for its acceptance, or, if no time prescribed, by the lapse of a reasonable time, without communication of the acceptance.
- By the failure of the acceptor to fulfill a condition precedent to acceptance.
- By the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance