The Indian Contract Act, 1872
History of Indian Contract Act
Every day while interacting with people and engaging in social activities with them, you are relying on the basic principle of trust. The character of trust underlies in agreement between the parties over the engagement of these social activities. Such agreements are called contracts. Contracts in simple terminology can be defined as agreements that enforceable by law. Contracts are very easy to enter into. For instance, when you are doing your daily grocery shopping you are contracting with the shopkeeper for buying the products in exchange of currency notes. The law of contract traces its origin back to Vedic period of ancient history where the Manusmriti has discussed the general rules of contract including the debt deposits and pledge sales without ownership, gift deed, mortgage etc. The Kautiliyan jurisprudence has also laid down contractual principles of bilateral transactions. The modern contractual law is governed by Indian Contract Act 1872 in India.
Origin Of Indian Contract Act
The Indian Contract Act brings within its ambit the contractual rights that have been granted to the citizens of India. It endows rights, duties and obligations on the contracting parties to help them to successfully conclude business- from everyday life transactions to evidencing the businesses of multi-national companies. The Indian Contract Act, 1872 was enacted on 25th April, 1872 and subsequently came into force on the first day of September 1872.
Essence Of Contract
The essence of the India Contract Act has been model led on that of the English Common Law.The Indian Contract Act mostly deals with the general principles and rules governing contracts. The Act is divisible into two parts. The first part (Section 1-75)deals with the general principles of the law of contract, and therefore applies to all contracts irrespective of their nature. The second part (Sections 124-238) deals with certain special kinds of contracts, namely contracts of Indemnity and Guarantee,Bailment, Pledge, and Agency.
Meaning and Nature of Contract:
- Contract
In the words of Salmon, contract can be defined as “A contract is an agreement creating and defining obligations between the parties.” While Anson defines contract as, “A contract is an agreement enforceable at law, made between two or more
persons, by which rights are acquired by one or more to acts or forbearance on the
part of the other or others”.
As per Indian Contract Act under section 2(h), “contract is an agreement that is enforceable by law.”
These definitions indicate that a contract essentially consists of two distinct parts.
First, there must be an agreement. Secondly, such an agreement must be
enforceable by law. To be enforceable, an agreement must be coupled with an
obligation.
A contract therefore, is a combination of the two elements: (1) an agreement and
(2) an obligation.
- Agreement
An agreement gives birth to a contract. As per Section 2(e) of the Indian Contract
Act “every promise and every set of promises, forming the consideration for each
other, is an agreement. It is evident from the definition given above that an
agreement is based on a promise. According to Section 2(b) of the Indian Contract Act “when the 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.
An agreement, therefore, comes into existence when one party makes a proposal or offer to the other party and that other party signifies his assent thereto. In nutshell, an agreement is the sum total of offer and acceptance.”
- Obligation
An obligation is the legal duty to do or abstain from doing what one has promised
to do or abstain from doing. A contractual obligation arises from a bargain between
the parties to the agreement who are called the promisor and the promisee.
For the better understanding of the meaning of contract, following example has been illustrated:
A agrees with B to sell his car for Rs. 10,000 to him
A is under an obligation to deliver the car to B.
B has a corresponding right to receive the car.
There is a contract between A & B
Essentials of a Valid Contract:
For a valid contract (i.e. a contract that has legal binding) to be constituted certain essentials need to be fulfilled by the contracting party for its enforceability:
- An offer or proposal by one party and acceptance of that offer by another party resulting in an agreement.
An offer is a proposal by one person, whereby he expresses his willingness to enter into a contractual obligation in return for a promise, act or forbearance. The person making the offer is called an offeror. The offeror communicates his willingness to contract to the offeree. Offeree is the person to whom the offer is being made. The offer or the proposal so made is very clear, definitive in nature which being communicated expressed orally or via a written document or impliedly by the conduct. The offer so made can be specific or general in nature.
Example: A sends letter to B offering to buy B’s horse for Rs 5000/-
Such an offer made shall be accepted. A contract emerges from the acceptance of an offer. Acceptance is the act of assenting by the offeree to an offer. Under Section 2(b) of the Contract 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. The acceptance shall be absolute unqualified and shall correspond with the terms of offer. The acceptance shall be communicated either expressively or impliedly in reasonable time period by the prescribed manner of communication.
Example: B sends letter to A accepting the offer of selling his horse for Rs 5000/-
When acceptance is communicated the contract bounds both parties to render their obligation.
In the present case, the parties A & B are now in a contractual relationship.
- The agreement is supported by a lawful consideration.
Consideration is one of the essential elements of a valid contract. The requirement of consideration stems from the policy of extending the arm of the law to the enforcement of mutual promises of parties. A mere promise is not enforceable at
law.Section 2(d) of the Indian Contract Act, 1872 defines consideration thus: “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”. The consideration shall be at the desire of the promisor and she call be paid by either promisor or any other person delegated by the promisor or on his behalf.
The running example,
Where A & B have contracted for selling and buying of the horse, the consideration involved is Rs 5000/-.
A consideration can be in past, executed(presented) or elocutionary (future) in nature.
A consideration is not necessary if the contract is done out of natural relation/love, or voluntarily exempted by the promisor/ exempted by promisor’s conduct, or barred by time limitation.
- There is an intention to create a legal relationship:
There must be a clear intention among the parties that the agreement should be attached by legal consequences and create a legal obligation.
Agreements of a social or domestic nature do not contemplate a legal relationship, and as such, they do not give rise to a contract.
- The parties shall be competent to contract
All parties entering into a contract must have a legal capacity, or competency, to do so. Each must be able to understand his legal liability and responsibilities under the contract. This prevents someone from taking advantage of minors and those who are mentally incapacitated, as these individuals cannot legally enter into an enforceable contract.The general rule is that all natural persons have full capacity to make binding
contracts. But the Indian Contract Act, 1872 admits an exception in the case of:
(i) minors,
(ii) lunatics, and
(iii) persons disqualified from contracting by any law to which they are subject.
- The parties shall freely consent to the contract
Free consent of the parties is another essential of the contract. Section 14 of the Act defined the term free consent as follows-
Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake.
Valid, Voidable, Void and Illegal Contracts:
- Valid contract: An agreement which has all the essential elements of a contract is called a valid contract. A valid contract can be enforced by law.
- Void contract: An agreement not enforceable by law is said to be void . A void contract is a contract which ceases to be enforceable by law. A contract when originally entered into may be valid and binding on the parties. It may subsequently become void.
- 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 other or others, is a voidable contract”. However, the contract continues to be good and enforceable unless it is repudiated by the aggrieved party.
- Illegal contract: A contract is illegal if it is forbidden by law; or is of such nature that, if permitted, would defeat the provisions of any law or is fraudulent; or involves or implies injury to a person or property of another, or court regards it as immoral or opposed to public policy. These agreements are punishable by law. These are void-ab-initio.
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Discharge of the Contract:
A contract is said to be discharged or terminated when the rights and obligations arising out of a contract are extinguished.
Contracts may be discharged or terminated by any of the following modes:
(a) performance, i.e., by fulfillment of the duties undertaken by parties or, by
tender;
(b) mutual consent or agreement.
(c) lapse of time;
(d) operation of law;
(e) impossibility of performance; and
(f) breach of contract.
Remedies For Breach
Where a contract is broken, the injured party has several courses of action open
to him. The appropriate remedy in any case will depend upon the subject-matter of
the contract and the nature of the breach.
(i) Remedies for Breach of Contract
In case of breach of contract, the injured party may:
(a) Rescind the contract and refuse further performance of the contract;
(b) Sue for damages;
(c) Sue for specific performance;
(d) Sue for an injunction to restrain the breach of a negative term; and
(e) Sue on quantum meruit
Conclusion
Contracts play a very important role in the day-to-day life of every person. Contracts or agreements between various parties are framed and validate by the Contract Act.
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