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Indian Contract Act, 1872.

Date of application: 1st September 1872

Purpose/Objective: Define and amend certain parts of law relating to contracts 

According to Irrawasy Flotilla Co. v. Bhagwandas, this act is not exhaustive and not a complete code. It does not affect any usage or custom of trade nor does it affect any incident of contract not expressly repealed by this act.

Contract is nothing but a deal or an agreement between two parties to do some work and receive something in return and at the same time to follow certain terms and conditions of the agreement. Contracts are a common feature of our lives, ranging from purchasing a car from a garage or entering into large-scale transactions such as building a shopping mall. The law of contract ensures that people entering into agreements abide by it as such agreements are governed and enforceable by law, Indian Contract law is governed by the Indian Contract Act, 1872 which adopted and incorporated common law principles derived from English law.

In short it can be defined as follows: A contract is simply an agreement between two or more persons that is made enforceable by law.

Now, what is an agreement?

Everyone enters into agreements, constantly often without realizing it. All agreements, freely entered into, create a moral obligation to fulfill one’s role as stipulated per the agreement. A usual agreement includes Offer and Acceptance.

Example: If Bunny and Sunny agree to practice dancing together, it would be morally wrong on Bunny’s part to start practicing with Lunny and not practice with Sunnyat all. However, not all agreements can be enforced by law when there has been a violation. Contracts are those agreements, in which either of the parties has an option of resorting to a court, for fulfillment of obligations within the agreement.

1. Offer:

The first step to enter into an agreement is the making of an offer. An offer to do or not to do something must be made for the purpose of being agreed to. If one person informs another to do a particular task, it sometimes may be a mere statement and hence that will not qualify as an offer. Hence a statement is not a offer unless made with the view of obtaining the assent of the other party to whom it is addressed. 

Communication of Offer:

A contract can arise once the offer is accepted. Once the offer has come to the knowledge the offeree then only an offer can be accepted. It means that the offer has to be communicated to the offeree in order that the offeree can accept it. Communication of an offer is said to be complete when it comes to the knowledge of the person to whom it is made. However At times, the person to whom the proposal is made indicates his willingness to buy at a lesser price than what is offered. This is what we call as a Counter-Offer.

Many statements that appear to be offers are mere invitation to offer. Quotation of trader’s usual prices, quotation of lowest price, catalogue of books or goods and advertisement of auctions are all invitations to offer. Therefore, it is to be concluded that some statements that seem to be offers might just be Invitation to Offer.

2. Acceptance:

When the person to whom the offer is made signifies his assent thereto, the offer is said to be accepted. A proposal, when accepted, becomes a promise. To convert a proposal into a promise, the acceptance must be:

1. Absolute and unqualified 
2. Be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted.

The important test here is to look at whether the acceptance is a “mirror image” of the offer made. That is, the terms of the offer and acceptance should be the same.Proposal may be accepted in the following three ways: 

1.  By communicating acceptance 

2.  By acceptance of any consideration for a reciprocal promise 

3.  Performance of the condition of a proposal. 

3. Revocation:

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. The communication of proposals the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting, or revoking by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it. Example: A proposes, by a letter sent by post, 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 at any time before or at the moment when the letter communicating it reaches A, but not afterwards.

Intention Create Legal Relationship:

For an offer and acceptance to result in a valid contract, it is compulsory to have an offer, which is made with the intention to create a legal relationship. Not all agreements can amount to a contract enforceable in law. For example your friend agrees to go for a movie or a picnic or to a disco then, can you sue him in case he ditches you? No, you cannot because such social agreement cannot be enforced in a court of law.

Example: In Balfour V. Balfour, The Plaintiff and the Defendant were a married couple. The Defendant husband and the Plaintiff wife lived in Ceylon where the Defendant worked.  In 1915, while the Defendant was on leave, the couple returned to England.  When it was time to return to Ceylon, the Plaintiff was advised not to return because of her health.  Prior to the Defendant returning, he promised to send the Plaintiff £30 per month as support. The parties’ relationship deteriorated and the parties began living apart. The Plaintiff broughtsuit to enforce the Defendant’s promise to pay her £30 per month. However, the court did not uphold the plaintiff’s claim since it was merely a domestic obligation, which was not resulting in a contract.

However, it will not be true to state that no domestic matters can be contracts. In McGregor v. McGregor, a husband and wife withdrew a complaint against each other under the agreement by which the husband promised to pay allowance to the wife and in turn the wife agreed to refrain from pledging credit. The court held this agreement as a valid contract.

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