The Indian contract Act, 1872 occupies an important place in the mercantile or commercial law of the country. This act has special importance for the commercial sector because a major part of the commercial activity is dependent upon it. It affects everybody, even, trade, commerce and industry. Hence, we can say that the contract is the foundation of the civilized world. To maintain law and order and develop the business and industrial sector, it becomes important that the commitments made or the Contracts entered into are honoured. Contracts also play a very important role in the day-to-day life of every individual. Many a time people enters into a contract without realising it. For e.g., Agreement between A and B that A will sell car to B, and B will pay RS. 10, 00, 000/- to A, the agreements a contract.
The Indian Contract Act, 1872, effective from 1st September, 1872 and extends to the whole India, except the State of Jammu & Kashmir. The introduction to the Act says that it is an Act “to determine and modify or revise certain parts of the law relating to contract”. It doesn’t deal with all the branches of the law of Contract. Thus, contracts which are related to the partnership, sale of goods, negotiable instruments, insurance etc. are pass out by separate Acts. The Indian Contract Act majorly deals with the general principles and rules controlling contracts. The Act is divided into two parts:
The first part (Sec 1-75) deals with general principles of the law of contract which is applies to all contracts irrespective of their nature.
The second part (Sec 124-238) deals with certain special kinds of contracts like contracts of indemnity and guarantee, Bailment, Pledge, and Agency etc.
The Section 2(h) of the Indian Contract Act, 1872, “A lawful agreement is a contract”.
In other words, an agreement which can be enforceable in a court of law is known as a contract. Hence, we can say that a contract is a combination of the two elements: An agreement and An Obligation. An agreement is a promise between two or more persons. An obligation is a duty of each party who are legally responsible to perform the contract.
2. 4 Elements of Contract:
The contract which is enforceable by law must fulfilled the essential elements of contract. The essential elements of contract are given below:
The starting point of every contract is an offer. Offer is also known as ‘Proposal’. As per Section 2(a)(5) of Indian Contract Act, 1872, An offer is when one person indicates another person his desire to do or decline to do anything. An offer is considered as a valid offer only when it completes the intention to obtain the acceptance from the other party, intention to create legal relationship with other party, it must be certain not unclear and uncertain. deaThe offer must be communicated to the other person or parties. The offer must be communicated to the other person in the written or implied format. If the offer is not communicated to the other person, then it is not considered as an offer. The offer can be specific or general. The offer is specific when it made to the particular person or group of persons and it can be accepted by that specific person or group of persons only. It cannot be accepted by any random person. The offer is general when it is made to the any person that is it can be made to the general public. For e.g.
Mr. ‘A’ offers to sell his land to Mr. ‘B’, this is an example of specific offer where an offer to sell the land is made to Mr. ‘B’ only and Only Mr. ‘B’ can accept the offer.
Mr. ‘A’ advertises in the newspaper that whoever finds his missing ring would be rewarded with Rs. 1,00,000/-. Mr. ‘B’ reads it in the newspaper and after finding the ring, he calls Mr. ‘A’ to inform about his missing ring. Now Mr. ‘A’ is entitled to pay Rs. 1,00,000/- to Mr. ‘B’ for his reward, this is an example of general offer.
As per Section 2 (b)(7) of Indian Contract Act, 1872, An offer is considered as an accepted offer, when a person to whom an offer is made indicates his or her approval to the given offer. The person to whom an offer is made can accept or reject the offer. But when the person accepts the offer then he or she must be communicating his or her acceptance to other party who made the offer. When the offer is accepted by the other person it becomes promise which is binding to the person. A communication of acceptance is completed when the person who made an offer knows the acceptance of the other person. No contract takes place without an acceptance of offer. For e.g., Mr. ‘X’ offer to Mr. ‘Y’ to purchase his motor cycle for Rs. 60,000/- only and Mr. ‘Y’ accepts the offer and it becomes irrevocable promise.
As per Section 2 (d)(8) of Indian Contract Act, 1872, Consideration is something in exchange or it is some benefit which is given to the person who has make promise or obligation to do something. For e.g., Mr. ‘X’ agrees to sell his TV to Mr. ‘Z’ for Rs. 50,000/-. Here, Mr. ‘Z’s promise to pay the sum of Rs. 50,000/- is the consideration for ‘X’s promise to sell the TV, and Mr. ‘X’s promise to sell the TV is the consideration for Mr. ‘Z’s promise to pay the Rs. 50,000/-.
- Capacity to contract:
Capacity to contract means parties ability to form a contract. For the formation of a contract, parties must be competent or qualified to enter into a contract. The parties are competent to form a contract when they are with a sound mind, majority of age, and qualified under the contracting law. The parties who are incompetent to contract can not form a contract which includes parties with an unsound mind, minors (under age of 18 years), parties who are disqualified under the contracting law.
3. Example of a valid contract:
Contract between two parties for selling and buying a house at the cost of Rs. 80,00,000/-
- On 1st August, 2022, Mr. Vijay sends a letter to Mr. Ajay asking him to purchase his house at Rs. 80,00,000/- (Offer or Proposal made)
- On 3rd August, 2022, Mr. Ajay receives the letter send by Mr. Vijay. (Communication of offer completed)
- On 4th August, 2022, Mr. Ajay sends a letter of acceptance via speed post to Mr. Vijay, for the purchase of the house. ( Communication of acceptance by Mr. Ajay)
- On 6th August, 2022, Mr. Vijay receives the letter of acceptance send by Mr. Ajay to him and it comes in knowledge of him. ( Communication of acceptance is completes as against Mr. Ajay)
- On 15th August, 2022, Mr. Ajay purchase the house by making payment of Rs. 80,00,000/- to Mr. Vijay and receives the ownership of the house from Mr. Vijay. (Lawful Consideration between Mr. Vijay and Mr. Ajay)
- Both Mr. Vijay and Mr. Ajay are competent to form a contract as they both are major, sound mind and not disqualified by law.
Contract plays an important role in our day-to-day life. Every person enters into a contract in our day-to-day life without even realising. The parties must have to complete essential elements of contract before entering into a contract. To avoid any legal issues, the parties must fulfil all the essential elements of contract.
4) Avtar Singh, (2020), ‘Law of contract & Specific Relief’.
5) M. S. Rama Rao, ‘Contract Act’.
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