The Indian Contract Act – 1872: Introduction

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Prior to the Indian Contract Act, English law of the contract was followed in India. The extent of modifications made in the Act as per the Indian conditions and its adaptability to the Indian economy. Before the act was enacted , the contractual relationship was governed by the personal laws of different religious communities like different laws for Hindu and Muslims.

Introduction:

Purpose or Objectives of the Act:

• According to the preamble of the Act, the main purpose is to define and amend certain parts of the law relating to contracts.
• to ensure reasonable fulfillment of expectations created by the promises of the parties and also enforcement of obligations prescribed by an agreement between the parties.
• The object of the Act is also to introduce definiteness in commercial transactions.

Features of the Act:

• The Indian Contract Act, 1872 has 11 chapters.
• Law of contract creates jus in personum and not in jus in rem. The Latin word ‘Jus in personum’ means right against person. It is a right impose a particular person’s duty by initiating an action against such person. “Jus in rem” means a right enforceable against anyone in the world interfering with that right founded on some specific relationship, status, or particular property accorded legal protection from interference by anyone.
• The Indian Contract Act consists of the following two parts: (a) General principals of the Law of Contract and (b) Special kinds of contracts. The general principals of the Law of Contract are contained in Sections 1 to 75 of the Indian Contract Act. These principles apply to all kinds of contracts irrespective of their nature. Special contracts are contained in Sections 124 to 238 of the Indian Contract Act. These special contracts are Indemnity, Guarantee, Bailment, pledge, and Agency.
• The Act is neither retrospective (dealing with past events or situations) nor exhaustive ( considering all elements). It seals mainly with the general principles of embodying contracts and Special Contract.
• The Act doesn’t cover the whole field of contract law. Besides the contract act, other regulating laws are the Transfer of Property Act (deals with the transfer of immovable property), the Sale of Goods Act (deals with the sale of goods), the Partnership Act (deals with the partnership agreements), etc.
• The Act applies only to those agreements which are valid and enforceable by law. An agreement which does not give rise to any legal obligations will not be enforceable by law.
• Social, religious and moral obligations, like marriage, conveyance of gifts, etc., are not enforceable by law as contracts.
• The Act only provides rules and regulations for the purpose of the contract.
• The Act does not list any rights and liabilities between parties to the contract. The contracting parties are at liberty to make rules and regulations about the enforcement of their rights and the fulfillment of their duties. Rights and liabilities and their manner of performance are decided by the parties themselves under the contract but it is within the purview of the act.
• The Act does not affect particular customs and usages of trade, which are not inconsistent with any of the provisions of law.
• The Act does not cover the agreements which result in the transfer or the destruction of rights.
• In case, a particular matter is not covered by any section of the Contract Act or by any other law in force in India, the courts may follow the principles of English Common Law, provided they are not inconsistent with Indian conditions and circumstances.

According to Section 1 of the Indian Contract Act, the Act may be called the Indian Contract Act, 1872. It extends to the whole of India and it shall come into force on the first day of September, 1872. The Act is enacted on 25th April, 1872.

Interpretation Clause:

Section 2 is interpretation clause which says that he following words and expressions are used in the following senses unless a contrary intention appears from the context.

(a) Proposal: When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal

(b) Promise: When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise;

(c) Promisor and Promisee: The person making the proposal is called the “promisor”, and the person accepting the proposal is called “promisee”,

(d) Consideration for the Promise: When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;

(e) An Agreement:  Every promise and every set of promises, forming the consideration for each other, is an agreement;

(f) Reciprocal Promises: Promises which form the consideration or part of the consideration for each other are called reciprocal promises;

(g) Void: An agreement not enforceable by law is said to be void;

(h)Contract:  An agreement enforceable by law is a contract;

(i) Voidable Contract: An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract;

(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

Proposal:

The term ‘Proposal’ is defined under Section 2(a) of the Act as “When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”

Explanation:

An offer to do or not to do something must be made for the purpose of being agreed to. If agreement from another party is not expected then it is just a piece of information in the form of simple statement or threat.

Scenario – 1: If A tells B “he is interested in buying his (B’s) car”. Then A is just giving information that he is interested in buying a car. It is not proposal

Scenario – 2: If A tells B “he is interested in buying his (B’s) car for ₹ 2 lakh. Will, you sell the car to me?”. Here, with information, there is a consideration (₹ 2 lakhs) and expectation of agreement from B. Thus this is a proposal.

Thus, Proposal = Offer + Expectation of an Agreement

Promise, Promisor, and Promisee:

Section 2(b) of the Act defines the term ‘Promise’ and and 2 (c) of the Act defines the terms ‘Promisor’ and ‘Promisee’. According to Section 2(b) of the Act, When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; According to Section 2(c) of the Act, the person making the proposal is called the “promisor”, and the person accepting the proposal is called “promisee”,

If A tells B “he is interested in buying his (B’s) car for 2 lakh rupees. Will, you sell the car to me?”. Here, with information, there is a consideration (₹ 2 lakhs) and expectation of agreement from B. Now if B accepts the offer of ₹ 2 lakhs to sell his car to A. then the proposal is said to be accepted and it becomes a promise. As A has made the offer (proposal) A is called the promisor and B has accepted the proposal hence B is called the promisee.

Thus, Promise = Offer from offeror (Promisor) + Free consent from another party (Offeree / Promisee).

Consideration:

Section 2(d) of the Act defines the term ‘Consideration’ as “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”

If A tells B “he is interested in buying his (B’s) car for 2 lakh rupees. Will, you sell the car to me?”. Here, with information, there is a consideration (₹ 2 lakhs) and expectation of agreement from B. In this case, A is agreeing to pay ₹ 2 lakhs to B and in turn B is agreeing to give possession of his car to A. In this case, the car and ₹ 2 lakhs are the consideration for the promise.

Agreement:

Section 2(e) of the Act defines the term “agreement’ as “Every promise and every set of promises, forming the consideration for each other, is an agreement.”

Thus, Agreement = Promise + Consideration

If A tells B “he is interested in buying his (B’s) car for 2 lakh rupees. Will, you sell the car to me?”. Here, with information, there is a consideration (₹ 2 lakhs) and expectation of agreement from B. Now if B accepts the offer of ₹ 2 lakhs to sell his car to A. There are reciprocal promises between A and B and there is legal consideration, then it is an agreement.

Reciprocal Promises:

Section 2(f) of the Act defines the term ‘Reciprocal Promises’ as “Promises which form the consideration or part of the consideration for each other are called reciprocal promises.”

Void Agreement:

Section 2(g) of the Act defines the term ‘Void Agreement’ as “An agreement not enforceable by law is said to be void.”

Contract:

Section 2(h) of the Act defines the term ‘Contract’ as “An agreement enforceable by law is a contract.”

Thus, Contract = Agreement + Enforceability of the agreement by law

Thus Contract = Offer from offerer + Free consent from another party (Offeree) + Consideration + Enforceability of the agreement by law

Voidable Contract:

Section 2(i) of the Act defines the tern ‘Voidable Contract’ as “An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.”

A voidable contract, unlike a void contract, is a valid contract which may be either affirmed or rejected at the option of one of the parties. At most, one party to the contract is bound. The unbound party may repudiate (reject) the contract, at which time the contract becomes void.

For example, A shopkeeper (say A) sold a duplicate Ray ban glasses as an original brand to a customer (say B) at say ₹ 5000/-. Here offer was there. There was agreeing of the offer. There was a consideration. At the time of the purchase, it was a valid contract. Now B comes to know that the glasses are not of the original Ray ban brand. He approaches A and returns the glasses and ask for a refund of his money. Now, A sold duplicate glasses (fraud) to B, the contract becomes voidable.

Typical grounds for a contract being voidable include coercion, undue influence, misrepresentation, mistake or fraud.

Contract to be Void:

Section 2(j) of the Act lays that “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”

A contract made by a minor is ab initio void.

These terms will be discussed in details in upcoming articles.

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