INDIAN CONTRACT ACT, 1872

In this article we discuss about the application & non-application of the Act, Interpretation of definition of 'promise' and 'acceptance' and its Communication, Acceptance and Revocation. Application & non-application of the Indian Contract Act is given under Preliminary part under section 1 of the Act, while Section 2 deals with the interpretation clause and Part 1 of the Contract Act (Section 3-9) deals with the communication, acceptance and revocation of proposal and acceptance.

Application & Non-application of the Indian Contract Act -

Application of the Indian Contract Act

Non-application of the Indian Contract Act (Saving)

Short Title – Indian Contract Act

Extent – to the whole of India including Jammu & Kashmir (by the Act 34 of 2019 contract act made applicable to the Jammu & Kashmir also)

Commencement – 01^st of September 1872

Indian Contract Act shall not affect –

- Provisions of any statute, Act or Regulation which is not by this act expressly repealed. Or

- Any usage or custom of trade: or

- Any incident of the contract which is not inconsistent with the provision of this Act.

From the table above, it's clear that this Act applies to whole of India and not affect any rules from other laws that haven't been repealed. It also doesn't affect any trade, customs or contracts that not consistent with this law.

The preamble of the act clears that this Act is define and amend certain parts of the law which related to contract, It is clear from the preamble that this law doesn't try to purport to codify the entire law relating to contracts, also preserves the trade practices and customs that are not in conflict with it.

Interpretation Clause (Section 2) :-

2(a) - Proposal or Offer

When one person signifies to another his willingness to do or to abstain from doing anything, in order to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.

Ingredients of the proposal :-

1. There must be a person whether legal or juristic.

2. There must be Communication of the willingness to the other person.

3. Such willingness must be to do or to abstain from doing anything.

4. Such communication of willingness must be for the purpose to obtain the assent of that other person to such act or abstinence.

Communication of Proposal how made:-

As per Section 3 of the Act how communication of the promise be made. It stated that the communication of the promise may be made by act or omission of the party proposing by which he wants to convey such proposal.

Communication of offer/ Proposal when complete:-

Section 4 of the Act talks about when communication of the proposal complete. According to Section 4 communication of proposal complete when it comes to the knowledge of a person to whom it is made.

The person who make offer called "offeror" & Person to whom the offer is made called "offeree". Offer can be made to any person (individual) or to public at large, in the latter instance offer is referred to general offer.

General offer –

General offer can be made to public at large and anyone who performs the condition of general offer is deemed to accepted. In this offer there is not necessary to communicate the acceptance of offer it can be informed after the conditions of the offer have been fulfilled, when any person fulfills the condition of general offer it deemed he accepted the offer. However Section 8 of the Indian Contract Act implies general offer.

Section 8 – Performance of the condition of a proposal is an acceptance of proposal.

Case Law:

Carlill v. Carbolic Smoke Ball Co. (1893, 1QB 256)

In this case the company was the manufacturer of the medicine called smoke ball which was used for the treatment of influenza. The company advertises to offering a reward of 100 Pound to anyone who got influenza again after using the medicine smoke ball continuously for fifteen days. also stated by the company that 1000 Pound was deposited in the Alliance Bank for paying the reward if such situation arose.

Mrs. Carlill saw the advertisement and bought the smoke ball medicine and used it as directed in the advertisement however, after using this medicine he got influenza again. Thereafter Mrs. Carlill sued the company for the reward of 100 Pound.

The manufacturing company had taken the defenses:

1. There was no intention to create legal relation with anyone through advertisement.

2. The advertisement was not an offer as it was not made to any particular person and offer cannot be made to public at large.

3. The acceptance of the offer was not communicated to the company and there was not binding on the offeror.

The Court rejected the contentions of the company and allowed Mrs. Carlill's claim for 100 Pound. Lord Bowen LJ observed that deposit of 1000 Pound in the Bank was evidence that the company had real intention to enter into legal relationship with anyone who accepted the offer.

2(b) Acceptance

Section 2(b) of the Indian Contract Act defines acceptance as when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. When such proposal is accepted becomes promise.

Promisor - person who make proposal called promisor &

Promisee - person to whom proposal is made is called promisee.

Ingredients of the acceptance :-

1. Communication of acceptance to the person who made proposal to him.

2. That he accepted proposal.

Communication of Acceptance of proposal how made:-

Section 3 of the Act specifies how the acceptance should be communicated. It stated that the communication of the acceptance as he accepted the proposal may be conveyed, by act or omission of party accepting by which he intended to communicate such acceptance.

Communication of acceptance when complete.

According to Section 4 communication of acceptance is complete

Against the proposer - is complete when it put in the course of transmission to him so as to out of power of acceptor.
Against acceptor - is complete when it comes to the knowledge of proposer.

Example -

A proposes, by letter, to sell a house to B at a certain price.

The communication of proposer complete - when it comes to the knowledge of to whom it is made (when B receives letter).

The communication of the acceptance is complete -

as against A - when the letter of acceptance is posted by B

as against B - when the letter is received by A.

Case Law:

Bhagwandas Gowardhandas Kedia v. Girdharilal Purushottamdas & Co. 1965 SC

In this case respondent entered into contract by long distance telephone, that he accepted the proposer and communicate to the appellant by the telephone.

Hon'ble Supreme Court held that words of acceptance are spoken into the telephone, they are put into course of transmission to the offeror so as to beyond the power of acceptor. Since the communication is instantaneous, the contract is immediately formed.

Acceptance must be absolute (Sec. 7) –

In order to convert proposal into promise, the acceptance must -

(1) be absolute and unqualified;

to convert the proposal into the promise acceptance must be free from control or shall no dependant upon anything and such promise shall be accepted without any restriction. If the promisor makes an conditional offer or accepted made counter offer the original offer is deemed to be rejected and cannot be accepted unless renewed (Hyde v. wrench).

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted.

If the proposal specifies how it should be accepted, and the acceptance is not made in such manner a proposer may, within a reasonable time after acceptance communicated to him, insist that the proposal be accepted according to specified in the proposal, and not otherwise; but if he fails to do so, he accepts the acceptance.

A proposer may, within a reasonable time after receiving acceptance conveyed to him, insist that the proposal be accepted in the manner specified in the proposal.

Modes of acceptance of proposal

1) Offer must be accepted in the manner as prescribed or indicated by offeror in the proposal (section 7) in other manner may not be effective.

2) In general offer, may be accepted by performing the conditions of the proposal (Section 8).

3) By accepting any consideration for a reciprocal promises which offered with proposal (Section 8).

Revocation of proposal and acceptance -

General meaning of revocation is recalling back of some right or power of authority or making a deed void. Here revocation is used in terms of cancellation of proposal or acceptance of proposal. Revocation is an option given to parties to stop the contract coming into existence. Section 3, 4, 5 and 6 of the Indian contract Act, 1872 regards communication of revocation how made, communication of revocation when complete, when the revocation may be made and modes of revocation respectively.

Revocation of proposal and acceptance how made

As per Section 3 of the Act, the communication of the revocation of proposal or of acceptance may be made by act or omission of the party revoking .

Communication of revocation of proposal and acceptance when complete

In order to revoked proposal or acceptance the revocation is complete

as against the person who making revocation - when revocation is put into a course of transmission to the person to who m it is made. &

as against the the person to whom it is made is completer when it comes to his knowledge

Example : A proposes by letter, to sell a house to B at a certain price.

A revoked his proposal by telegram

Revocation is complete against A - when the telegram is dispatched.

It is complete as against B when B receives it.

B revokes his acceptance by telegram - B's revocation is complete

as against B - when the telegram is dispatched,

as against A - when it reaches to him

from the above illustration it is clear that when the offeror made revocation to the offeree is complete against the offeror when he put such revocation into a course of transmission, but must made at any time before the offeree communicates his acceptance and is complete against offeror, but not afterwards. & when offeree made revocation to the offeror it complete when it comes to the knowledge of offeror but it must made before the acceptance of proposal comes to the knowledge of offeror.

Modes of Revocation (Section 6) -

1) by communication of notice -

The proposal may be revoked by the communication of notice to the offeree of his intention to revoked such proposal but such notice must be tendered before the acceptance of proposal.

2) by lapse of time prescribed -

the proposal may be revoked when such proposal contains time period to accept the such proposal and if such proposal not accepted within such time prescribe it may be revoked and when such proposal not contains any time to accept proposal it should be accept within reasonable time, after the reasonable time expires it may be revoked by the proposer.

3) by the failure to fulfill condition precedent -

The proposal may be revoked if such proposal contains the condition to performed before the acceptance of such proposal and if such conditions not performed by the offeree it may be revoked by the proposer.

4) by death or insanity of the proposer -

Proposal may be revocation on the death or insanity of the proposer. If such death or insanity of the proposer comes to the knowledge of the acceptor before acceptance.

Indian Contract Act, 1872 - Important definitions : Guide