An Introduction
If we look into the history of the Indian contract act 1872, it can be considered as one of the oldest laws related to business in the country. Indian Contract Act 1872 was enacted on 1st September of that year. The law applied to almost all the states of India except Jammu & Kashmir. The Indian contract law is the main law that regulates any contracts signed in India. There are 266 sections in the law. Let us learn some important points related to the IPCC contract act notes.
What is a Contract?
The Indian contract act defines all the important laws related to the contract. Therefore, it is important to know what a contract is. It is an accepted agreement or proposal; that is legally defined, understood, and enforceable by law. It defines the special rights of the party and all the obligations and rules introduced, defined, discussed, and agreed upon by all the signers of the contract.
There are certain essentials related to any contract.
It has to involve at least two parties
The content of the contract must clearly define and discuss the intent of legal obligations.
The contract can also have special provisions, which, when not fulfilled by any of the parties, renders the contract ineffective.
The contract must have clearly defined terms in its list.
The contract might also have specific points related to any performance. The performance has to be executed by either or both parties.
For a successful contract, the consent of both parties is necessary.
All the parties in a contract should be competent enough to sign the contract.
All the signing parties must consider getting something in return in the form of rights, profits, interests, etc.
The contract will be deemed illegal if it is unlawful, can challenge or attack any section of any law, cause harm to any individual, or if the Court considers it to be immoral.
Types of Contracts
From the beginning of the history of the Indian contract act 1872, all the IPCC contract act notes defined different types of contracts. Based on validity, the types of contracts are valid contracts, agreements or void contracts, voidable contracts, illegal contracts, and enforceable contracts. On the basis of formation, the types of contracts are express contracts, quasi-contract, implied contracts, and E-contract. Based on performance, contract types are executed contracts, unilateral contracts, executory contracts, and bilateral contracts.
What is an Offer or a Proposal?
According to Section 2 (a) of the Indian Contract Act, 1872, the proposal is defined as the offer placed by a party for another party to do or abstain from doing an act, where the proposer expects to obtain consent from the other person. The person making the proposal is called the offeror or promisor, while the party accepting the proposal is called the acceptor or the promisee. The offer can be positive or negative.
Acceptance
According to Section 2 (b) of the Indian Contract Act, 1872, acceptance is defined as the act of the receiving party in providing consent to the proposer. The consent from the acceptor turns the proposal into a promise.
Communication of Acceptance and Offer
Any offer after being presented by the offeror cannot be revoked. However, communication is not complete by such an act. Rather it is completed when all the norms of the offer are clearly described and are accepted by the acceptor. The communication is generally completed when it is conducted face-to-face; in terms of business letters and e-communications, the timeline of communication is necessary in this case.
What are the types of offers?
The first step in the formation of a contract is the formulation of an offer. Since acceptance can only be made to an offer that has already been stated, prior acceptance to any offer cannot be provided, therefore, an offer is very important for formulating a valid contract. Offers in a contract can be of different types like
Express offer: these are the offers that are made in the form of words, that is, these offers are in a written form.
Implied offers: these are the offers that are made in any other way but are not in the form of words. For example, a bid made in an auction is a type of implied offer as it is not written in the form of words.
General offer: this is a kind of offer that is made to the world at a large, that is, these offers are not made to any specific person but to the complete world. If the conditions in an offer are such that they can be completed by many, then, in that case, the offer is known as the general offer of continuing nature, but if an offer made is such that only a single person can complete it, for example, offers made to find a missing person, then in such a case the offers are closed as soon as the first information is collected.
Specific offer: these offers are made to only a specific person and, therefore, such offers can be accepted by that specific person only and not by anyone else. In case of specific offers made for a certain personal service, then in that case no other party has the authority to come in and take a stance that he is the party with which the contract has been made.
Cross offer: this is a type of offer in which two parties make a similar offer to each other without any prior information about the offer made by the other. Cross offers are not considered valid offers because there is no mutual acceptance in this case. This is because for an offer to be valid there should be an offer and an acceptance for the same, but in the case of a cross offer, there is only a simultaneous offer and no acceptance.
Counteroffer: this is the form of offer framed by the accepting party with certain modifications in the original offer, that is, you accept the original offer but with certain amendments in the original offer, thereby giving a new offer in response to the original offer. This is known as partial acceptance, that is, the accepting party agrees to certain facts in the offer which are beneficial to them and rejects the other clause of the offer. For an offer to be valid, complete acceptance is required and not partial acceptance.
Revocation of Offers
An offer can be revoked if it is not found to be fruitful by any of the parties. Every offer has a defined revocation period, after which it cannot be revoked. Moreover, it can be revoked before the completion of acceptance. The acceptance can also be revoked by the acceptor.
Section 62 of the Indian Contract Act, 1872
According to Section 62 of the Indian Contract Act, 1872, if any of the parties prefer to propose any new contract or modify the previous one, then the previous contract will not need to be followed. The contractors can rescind the contract as well. However, as per Section 62 of the Indian Contract Act, a new contract will only be allowed to be proposed when all the parties agree to it.
FAQs on Overview of the Indian Contract Act, 1872
1. What is a contract as defined by the Indian Contract Act, 1872?
According to the Indian Contract Act, 1872, a contract is defined as an agreement that is enforceable by law. For an agreement to become a contract, it must have two key components: an agreement (which arises from an offer and its acceptance) and its legal enforceability (the intention to create a legal relationship).
2. What are the essential elements required for an agreement to become a valid contract?
For an agreement to be considered a legally valid contract under the Indian Contract Act, 1872, it must satisfy the following essential conditions:
- Offer and Acceptance: There must be a lawful offer by one party and a lawful acceptance of that offer by the other.
- Intention to Create Legal Relations: The parties must intend for their agreement to result in legal consequences.
- Lawful Consideration: The agreement must be supported by 'something in return' for both parties.
- Capacity to Contract: The parties involved must be legally competent (of majority age, sound mind, and not disqualified by law).
- Free Consent: Consent must be given freely and not as a result of coercion, undue influence, fraud, or misrepresentation.
- Lawful Object: The purpose of the agreement must not be illegal, immoral, or against public policy.
3. Why are all agreements not considered contracts?
All agreements are not contracts because they may lack legal enforceability. An agreement becomes a contract only when it creates a legal obligation that a court can enforce. For example, social or domestic agreements, like a promise to attend a friend's party, are not contracts because the parties do not intend to create a legally binding relationship. A contract requires the specific intention to be bound by law if the promise is broken.
4. How does the Indian Contract Act, 1872 distinguish between a 'void' and a 'voidable' contract?
The distinction is based on enforceability:
- A void contract is an agreement that is not enforceable by law from the very beginning. It is considered a nullity, for instance, an agreement made with a minor.
- A voidable contract is an agreement which is enforceable at the option of one or more of the parties, but not at the option of the other(s). It remains a valid contract until the party with the option chooses to cancel it. This typically happens when consent was obtained through coercion, undue influence, or fraud.
5. What does 'capacity to contract' mean under the Act?
Under Section 11 of the Indian Contract Act, 1872, 'capacity to contract' refers to a person's legal ability to enter into a valid contract. A person is considered competent or having the capacity to contract if they meet three criteria: they are of the age of majority (18 years or older), they are of sound mind (able to understand the contract and its implications), and they are not disqualified from contracting by any specific law.
6. What happens if a person's consent to a contract is not given freely?
If consent is not free and is caused by coercion, undue influence, fraud, or misrepresentation, the contract becomes voidable at the option of the party whose consent was obtained improperly. This means the affected party can choose to either cancel the contract or proceed with it. If consent is caused by a mutual mistake of a fact essential to the agreement, the agreement itself is considered void.
7. Can a contract be valid even if it is not in writing?
Yes, a contract can be perfectly valid even if it is not in writing. The Indian Contract Act, 1872, does not require all contracts to be written. An oral agreement that fulfils all the essential elements of a valid contract (offer, acceptance, consideration, etc.) is legally enforceable. However, written contracts are always preferred in business as they provide clear evidence of the terms and conditions agreed upon.
8. What is the practical importance of the Indian Contract Act, 1872 in everyday business?
The Indian Contract Act, 1872 is fundamentally important because it provides the legal framework that governs business transactions. It ensures that promises are honored and provides legal remedies in case of a breach. This creates certainty and predictability in commerce, allowing businesses to operate with confidence that their agreements are legally protected and enforceable, which is essential for trade and economic activity.
