Business Law - Nature of Contracts

Chapter 1: The Indian Contract Act, 1872

UNIT -1 NATURE OF CONTRACT

After studying this unit, you would be able to understand

1. Understand the meaning of the terms ‘agreement’ and ‘contract’ and note the distinction between the two.

2. Note the essential elements of a contract.

3. Be clear about various types of contract.

4. Understand the concept of offer and acceptance and rules of communication and revocation thereof.

SUMMARY

Contract: A Contract is an agreement enforceable by law [Section 2(h)]. An agreement is enforceable by law, if it is made by the free consent of the parties who are competent to contract and the agreement is made with a lawful object and is for a lawful consideration, and is not hereby expressly declared to be void [Section10]. All contracts are agreements but all agreements are not contracts. Agreements lacking any of the above said characteristics are not contracts. A contract that ceases to be enforceable by law is called ‘void contract’, [Section 2(i)], but an agreement which is enforceable by law at the option of one party thereto, but not at the option of the other is called ‘voidable contract’ [(Section 2(i)].

Offer and Acceptance: Offeror undertakes to do or to abstain from doing a certain act if the offer is properly accepted by the offeree. Offer may be expressly made or may even be implied by the conduct of the offeror, but it must have intention and be capable of creating legal relations. The terms of offer must be certain or at least be capable of being made certain.

Acceptance of offer must be absolute and unqualified and must be according to the prescribed or usual mode. If the offer has been made to a specific person, it must be accepted by that person only, but a general offer may be accepted by any person.

Communication of offer and acceptance, and revocation thereof-

(a) Communication of an offer is complete when it comes to the knowledge of the offeree.

(b) Communication of an acceptance is complete: As against the offeror when it is put in the course of transmission to him and as against the acceptor, when it comes to the knowledge of the offeror.

(c) Communication of revocation of an offer or acceptance is complete: It is complete as against the person making it, when it is put into a course of transmission so as to be out of power of the person making it and as against the person to whom it is made, when it comes to his knowledge.