Indian Contract Act, 1872
Introduction
The
law relating to contracts in India is contained in Indian Contract Act, 1872.
The Act was passed by British India and is based on the
principles of English Common Law. It is
applicable to all the states of India except the state of Jammu and Kashmir. It determines the circumstances in which
promises made by the parties to a contract shall be legally binding on them.
All of us enter into a number of contracts everyday knowingly or unknowingly.
Each contract creates some rights and duties on the contracting parties. Hence
this legislation, Indian Contract Act of 1872, being of skeletal nature, deals
with the enforcement of these rights and duties on the parties in India.
MEANING
A vital element impacting business transaction and decision
is business regulatory framework. Different laws and regulations govern
specific aspects of many vital decision taken by business enterprises. The
legal framework within which different firms have to operate are largely
governed by General Laws applicable
o all forms of organisations - irrespective of their size and ownership. These
laws fall into the category of mercantile laws.
Definitions
1. "a rule of conduct imposed and enforced
by the sovereign." -Austin
2. "Law is the body
of principal recognised and applied by the state in the administrative of
justice."- Salmond
3. "A Contract is
an agreement creating and defining obligations between the parties."-Salmond
4. "A legally binding
agreement made between two or more persons by which rights are acquired by one
or more to acts or forbearances on the other or others."-Sir William Anson
5. Section
2 (h) of the Contract Act defines
a Contract as "an agreement
enforceable by Law"
6.
Offer(i.e. Proposal) [section 2(a)]:-When person signifies to
another his willingness to do or to abstain from doing anything, with a view to
obtaining the assent of the other person to such act or abstinence, he is said
to make a proposal.
7.
Acceptance 2(b):-
When the person to whom the proposal is made, signifies his assent there to,
the proposal is said to be accepted.
8.
Promise 2(b) :- A Proposal when accepted becomes a
promise. In simple words, when an offer is accepted it becomes promise.
9.
Agreement 2(e) :- Every promise and set of
promises forming the consideration for each other. In short,
Law of contract
Law of contract is the most
important and basic part of Mercantile law. It is the foundation for many other
laws falling in the category of Mercantile laws. It is not only the
mercantile or trader but every person who lives in the organised society,
consciously or unconsciously enters into contract from sunrise to sunset. When
a person buy a computer or hires a taxi, or goes to video library to buy a
video cassette or takes a credit card from a bank or gives loan to another, or
he does booking for an orchestra/DJ for marriage party, he enters into and
performs contract through he may be unaware of this fact. Such contracts create
legal relations giving rise to certain rights and obligations.
The law of contract is mainly concerned with
three questions:
- Is there an agreement?
- Can the parties to such agreement enforce it in a court of law?
- How they can enforce it?
All agreements are not contracts. Only that agreements which is enforceable at law is a contract. An agreement which is enforceable at law cannot be contract. Thus, the term agreement is wider in scope than contract. All Contracts are agreements but all agreements are not contracts.
An agreement, to be enforceable by law, must possess the essential elements of a valid contract as contained in section 10 of the Indian Contract Act. According to Section 10, "All agreements are contract if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void." As the details of these essentials form the subject-matter of our subsequent chapters, it is proposed to dismiss them in brief here.
The following are the essential elements of a valid contract:
1. Offer and Acceptance. In order to create a valid contract, there must be a 'lawful offer' by one party and 'lawful acceptance' of the same by the other party.
2. Intention to Create Legal Relationship. In case, there is no such intention on the part of parties, there is no contract. Agreements of social or domestic nature do not contemplate legal relations.
Case: - Balfour vs. Balfour (1919)
3.Lawful Consideration. Consideration has been defined in various ways. According to Blackstone, “Consideration is recompense given by the party contracting to another." In other words of Pollock, "Consideration is the price for which the promise of another is brought."
Consideration is known as quid pro-quo or something in return.
4. Capacity of parties. The parties to an agreement must be competent t contract. If either of the parties does not have the capacity to contract, the contract is not valid.
According the following persons are incompetent to contract.
(a) Miners, (b) Persons of unsound mind, and
(c) persons disqualified by law to which they are subject.
5. Free Consent. 'Consent' means the parties must have agreed upon the same thing in the same sense.
According to Section 14, Consent is said to be free when it is not caused by-
(1) Coercion, or (2) Undue influence, or (3) Fraud, or
(4) Mis-representation, or (5) Mistake.
An agreement should be made by the free consent of the parties.
6. Lawful Object. The object of an agreement must be valid. Object has nothing to do with consideration. It means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house, the object of the contract is to run a gambling house.
The Object is said to be unlawful if-
(a) it is forbidden by law;
(b) it is of such nature that if permitted it would defeat the provision of any law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it as immoral or opposed to public policy.
7. Certainty of Meaning. According to Section 29,"Agreement the meaning of which is not certain or capable of being made certain are void."
8. Possibility of Performance. If the act is impossible in itself, physically or legally, if cannot be enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such Agreements is not enforceable.
9. Not declared to be void or Illegal. The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. Agreements mentioned in Section 24 to 30 of the Act have been expressly declared to be void for example agreements in restraint of trade, marriage, legal proceedings etc.
10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those cases where writing, registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and articles of association of a company, etc. Registration is required in cases of documents coming within the scope of section 17 of the Registration Act.
All the elements mentioned above must be in order to make a valid contract. If any one of them is absent the agreement does not become a contract.
Types of Contract
They are two type of essential elements of a contract:
They are two type of essential elements of a contract:
- An Agreement.
- Its enforceability by law.
A.
Agreement.
a.
An agreement is defined in section 2 (e) as "every promise or every set of promises
forming the consideration for each other."
b.
A promise is defined in section 2 (b) as, "a proposal when accepted become a promise
An
Agreement involves proposal or offer by one party and acceptance of the same by
the other party.it requires existence of two or more persons.
It also implies that the parties have a common intention about the subject-matter of their agreement. Two parties be thinking of the same thing in the same sense at the same time. Thus agreement is the outcome of two consenting minds i.e. 'consensus ad idem.'
Agreements are two types:
It also implies that the parties have a common intention about the subject-matter of their agreement. Two parties be thinking of the same thing in the same sense at the same time. Thus agreement is the outcome of two consenting minds i.e. 'consensus ad idem.'
Agreements are two types:
- Un-enforceable Agreement.
- Enforceable Agreement.
Un-enforceable Agreements:
All those agreements are said to be un-enforceable in
which an aggrieved party cannot go to a law court and that is left at the mercy
of the parties only. It is a gentleman's promise which may or may not fulfilled
by the promiser.
All these agreement remain only an agreement between the parties and they never become a Contract in the eyes of laws, because they are merely social or domestic arrangements.
2. Enforceable Agreements:
All these agreements are said to be enforceable in which the aggrieved party has a right to approach a law court to get the agreement enforced and the other party is held liable either to perform the agreement or to face the consequence for breach of that agreement. All these agreement which are enforceable at law are "Contracts".
It implies that un-enforceable agreements remain agreements only and cannot be converted into a valid contract and only enforceable agreements are converted into a valid contract. Therefore we can conclude that:
"All contracts are agreements but all agreements are not "contract"
All these agreement remain only an agreement between the parties and they never become a Contract in the eyes of laws, because they are merely social or domestic arrangements.
2. Enforceable Agreements:
All these agreements are said to be enforceable in which the aggrieved party has a right to approach a law court to get the agreement enforced and the other party is held liable either to perform the agreement or to face the consequence for breach of that agreement. All these agreement which are enforceable at law are "Contracts".
It implies that un-enforceable agreements remain agreements only and cannot be converted into a valid contract and only enforceable agreements are converted into a valid contract. Therefore we can conclude that:
"All contracts are agreements but all agreements are not "contract"
B. Its enforceability by law
All agreements to become a contract must give rise to
legal obligations. The common acceptance formed and communicated between the
two parties must creating legal relations and not merely the relations which
are purely social or domestic in nature.
Thus, Contract= Agreement + Enforceability at law
Therefore, all contracts are agreement but all agreements are not contracts
Thus, Contract= Agreement + Enforceability at law
Therefore, all contracts are agreement but all agreements are not contracts
Contact classified according to
validity or enforceability.
1. Valid Contract. An agreement enforceable at law is valid contract. An agreement becomes a contract when all the essentials of a valid contract as laid down in section 10 are fulfilled. A offer to sell his house for 5 lakh to B. B agrees to buy it for the price. it is a valid contract. A contract to enter into a contract is however, not a valid contract.
2. Void Contract. An agreement which was legally enforceable when entered into but which has become void due to supervening impossibility of performance for example a contract between a citizen of Pakistan and India is a valid contract during peace but if war breaks out between two countries, the agreement will become void contract.
3. Void Agreements. According to section 2 (g), "An agreement which is not enforceable by law but either of the parties is void."
No label rights or obligations can arise out of a void agreement. It is void ab initio i.e. from its very inception, for example an agreement without consideration or with a minor.
4. Voidable Contract. According to Section 2 (i), "An Agreement which is enforceable by law at the option of one or more parties but not at the option of the other or others is a voidable contracts." Note that the word used here is 'contract' and not just 'agreement'. Thus is the result of absence of free consent in the contract. This is so because the rights and duties are created and the was not free but was obtained by coercion, undue influence, fraud, misrepresentation. The other party who include the consent take advantage of his own fraud because "He who comes into Equity (i.e. before law) must come with clean hands."
Thus avoidable contracts valid and enforceable until it is repudiated by the party entitled to avoid it.
5. Unenforceable Contracts. It is contract which is otherwise valid, but cannot be enforced because of some technical defects like absence of a written form or absence of a proper stamp. Such contracts cannot be proved in court.
6. Illegal Agreements. A contract which is either prohibited by law or otherwise against the policy of law is an illegal agreement. It is void ab initio. Thus, a contract to commit dacoit is an illegally contract and cannot be enforced at law. An illegal contract should be distinguished from a void contract. All illegal agreements are void but all void agreements or contract are not necessarily illegal. Every void agreements is not illegal unless its object or consideration is (a) immoral (b) opposed to public policy etc. A void contract does not affect a collateral contrac
1. Valid Contract. An agreement enforceable at law is valid contract. An agreement becomes a contract when all the essentials of a valid contract as laid down in section 10 are fulfilled. A offer to sell his house for 5 lakh to B. B agrees to buy it for the price. it is a valid contract. A contract to enter into a contract is however, not a valid contract.
2. Void Contract. An agreement which was legally enforceable when entered into but which has become void due to supervening impossibility of performance for example a contract between a citizen of Pakistan and India is a valid contract during peace but if war breaks out between two countries, the agreement will become void contract.
3. Void Agreements. According to section 2 (g), "An agreement which is not enforceable by law but either of the parties is void."
No label rights or obligations can arise out of a void agreement. It is void ab initio i.e. from its very inception, for example an agreement without consideration or with a minor.
4. Voidable Contract. According to Section 2 (i), "An Agreement which is enforceable by law at the option of one or more parties but not at the option of the other or others is a voidable contracts." Note that the word used here is 'contract' and not just 'agreement'. Thus is the result of absence of free consent in the contract. This is so because the rights and duties are created and the was not free but was obtained by coercion, undue influence, fraud, misrepresentation. The other party who include the consent take advantage of his own fraud because "He who comes into Equity (i.e. before law) must come with clean hands."
Thus avoidable contracts valid and enforceable until it is repudiated by the party entitled to avoid it.
5. Unenforceable Contracts. It is contract which is otherwise valid, but cannot be enforced because of some technical defects like absence of a written form or absence of a proper stamp. Such contracts cannot be proved in court.
6. Illegal Agreements. A contract which is either prohibited by law or otherwise against the policy of law is an illegal agreement. It is void ab initio. Thus, a contract to commit dacoit is an illegally contract and cannot be enforced at law. An illegal contract should be distinguished from a void contract. All illegal agreements are void but all void agreements or contract are not necessarily illegal. Every void agreements is not illegal unless its object or consideration is (a) immoral (b) opposed to public policy etc. A void contract does not affect a collateral contrac
Contracts may be classified on the basis of their:
(a) validity,
(b) formation,
(c) performance.
A. Validity or Enforceability
-Valid contracts
-Void contracts
-Void agreements
-Voidable contracts
-Unenforceable contracts
-Illegal Agreements
B. Formation
-Express Contracts
-Implied Contracts
-Quasi Contracts
-E.com. Contracts
C. Performance
-Executed contracts
d-Executery Contracts or
(1) Unilaterial Contracts
(2) Bilateral Contracts
When the person to whom the proposal is made
signifies his assent, it is an acceptance of the proposal. An acceptance
proposal is called a promise or an agreement. [Section 2 (B)] An application
for the shares in a company is in the nature of offer while the allotment of
the shares by the company is an acceptance resulting into a contract.
Example: A offers to sell his horse to B for Rs. 500. B
accepts the offer to purchase the horse for Rs. 500. This is acceptance.
Acceptance may be express or implied. When
acceptance is made by words, spoken or written, it is an express acceptance. If
it is accepted by conduct, it is an implied acceptance. Thus where a person
boards a train or bus, he impliedly accepts to pay the usual fare.
Who may accept? An offer can be accepted only by the
person to whom the offer is made. It means that the person to whom the offer is
made can alone accept it. It cannot be accepted by another person without the
consent of the person making it.
1.
Offer must be capable of creating legal relations. The offeror must intend the
creation of legal relations. He must intend that if his offer is accepted a
legally binding agreement shall result. A accepts an invitations to dine at B’s
place on a certain date but fails to turn up on the appointed date, A cannot be
sued for breach of a contract, because in contracts regulating social or
domestic arrangements the presumptions is that parties do not intend legal
consequences to follow from breach of contract.
The leading case is Balfour v. Balfour
2.
Offer must be certain, define and not vague. No contract can come into
existence if the terms of the offer are vague or loose and indefinite. Both the
parties should clear about the contract.
Case: - Taylor v.
Portington (1885)
3.
Offer must be communicated to the offeree. There can be no offer by a person to
himself. It must always be communicated to the offeree. If the re is no
communication of an offer, there is no acceptance resulting in the contract.
4.
Offer must be made with a view to obtaining the assent of the other party. An offer must be distinguished from mere
expression of intention.
Case: - Harris V. Nickerson
(1873)
5.
An offer may be conditional. An offer can be made subject to a condition. In
that case can be accepted only subject to that condition. A conditional offer
lapses when the condition is not accepted.
6.
Offer should not certain a term the non-compliance of which would amount to
acceptance. One cannot say while making the offer if the offer is not accepted
before a certain date, it will be presumed to have been accepted.
Example: A writes to B, “I
offer to sell my house for Rs. 40000. If I do not receive a reply by Monday
next, I shall assume that you have accepted the offer.” There will be no
contract if B does not reply.
7.
Lapse of an offer. An offer lapse-
(a)
If either offeror or offeree dies before acceptance.
(b) If it is not accepted within
(i)
The
specific time, or
(ii)
A
reasonable time, if not time is specified
(c)
If the offeree does not make a valid acceptance, for example makes a counter or
conditional acceptance or if a particular manner of acceptance has been
requested, he accepts in some other manner.
(d) An offer can also lapse by revocation.
8.
An invitation to offer is not an offer. An offer must be distinguished from an
invitation to offer. In the case of an “invitation to offer” the aim is merely
to circulate information of readiness to negotiate business with anybody who on
such information comes to the person sending it. Such invitations are not offer
in the eyes of law and do not become promises on acceptance.
Kinds of offers: Offers or proposals may be classified on
the basis of:
1. How an offer is made: An
offer may be either express or implied from the contract of the parties. An
express offer is one may be made by words spoken or written such as letter,
telegram, telex, fax messages, e-mail or through internet. Thus, where A offers
to sell his pen to B for Rs. 20; it is an express offer. An implied offer is one
which may be gathered from the conduct of the party or the circumstances of the
case.
2. To whom an offer is made An
offer may be made to
(a)
A particular person,
(b)
A particular group or body of persons,
(c)
The public at large i.e. the whole world.
An offer made to a define person or body of persons is
called specific offer. A specific offer can usually be accepted by the person
or persons to whom it is made. On the other hand, when an offer is addressed to
the whole world, it is called a general offer.
Offer or proposal s the starting point in the formation
of a contract.
Section 2 (a) defines proposal as
“ When one person signifies to other his willingness
to do or abstain from doing anything with a view to obtaining the assent of
that other to such act or abstinence.”
The word proposal is synonymous with the English word
‘offer’. The person making the proposal is called the proposer or offeror and
the person to whom the proposal is made is called the offeree.
Example: A offer to sell his motor cycle to B for Rs.
3000. B agrees to pay A Rs. 3000 for the motor cycle. Here A is called the offer or or promissory and B the offered or promissory.
Section 2 (a) reveals 3 essentials elements in an
‘offer’:
(a)
Expressions of willingness to do or not to do something,
(b)
Made to another person i.e. a person cannot make a offer to himself,
(c)
With the object of gaining the consent of the other to such act or abstinence.
Contract is an agreement enforceable by law.
An agreement is every promise and every set of promises forming the
consideration for each other [Section 2 (e)]
Section 2 (b) defines a promise a follow: “A proposal,
when accepted, become a proposal.” It means an agreement is an accepted
proposal.
Therefore, these must be proposal or offer by one party
and its acceptance by the other party for making an agreement.
A offer to sell his Matiz car to Mr. B for Rs. 3 lakhs. B
accepts the offer. It will result into a contract.
So, offer and its acceptance subsequently is the
universally accepted process for creating a contract whether it is express or
implied.
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