INDEX
Chapter No. | Chapter Name |
1. | INTRODUCTION |
2. | PRELIMINARY |
3. | NATURE OF CONTRACT |
4. | KINDS OF CONTRACT |
5. | PROMISE OR OFFER |
6. | ACCEPTANCE |
7. | CONSIDERATION |
8. | CAPACITY OF PARTIES |
9. | FREE CONSENT |
10. | PERFORMANCE OF CONTRACT |
11. | DISCHARGE OF CONTRACT AND FRUSTATION OF CONTRACT |
12. | QUASI CONTRACT |
13. | REMEDIES FOR BREACH OF CONTRACT |
CHAPTER I - PRELIMINARY
Preamble.- whereas it is expedient to define and amend certain parts of the law relating to contract;
Section 1. short title, extent and commencement- This Act may be called the Indian Contract act, 1872. It extends to the whole of India [except the state of Jammu and Kashmir]; and it shall come in to force on the first day of the September, 1872.
Is the Indian contract Act,1872 exhaustive in nature?
The Indian contract Act, 1872 is not exhaustive and also not complete on matters of contract because some contracts are dealt with by different specific Acts like Transfer of property Act, Partnership Act, Specific Relief Act etc. SOGA.
Scheme of Indian Contract Act, 1872
This Act has been divided into two parts-
- General Principles [Ss. 1-75]
- Specific Contract [Ss.124-238]
What is a contract?
A contract has been defined in section 2(h) as “an agreement enforceable by law.”
Thus, a contract consists of following two elements-
- Agreement.
- Legal obligation arising out of agreement.
According to Sir William Anson- “A contract is an agreement enforceable at law made between two or more persons by one or more to acts or forbearances on the part of other or others.”
Now to understand it we need to know:
What an agreement is-
Indian Contract Act Section 2(e) defines Agreement as “every promise and every set of promises forming the consideration for each other is an agreement.”
- In an agreement there is a promise from both sides. For example, A promises to deliver his watch to B and in return B promises to Pay a sum of Rs. 5000 to A there is said to be an agreement between A and B.
- A promise is a result of an offer (proposal) by one person and its acceptance by the other. For example, when A makes a proposal to sell his watch to B Rs. 5,000 and B accepts his proposal, there results a promise between two persons.
Section 2(b) of the Act defines Promise as under:
“When the person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted. A proposal, when accepted becomes a promise. Thus, when there is proposal from one side and the accepted of that proposal from other side, it results in a promise. This promise from the two parties to one another is known as an agreement.”
On analyzing the above definition the following characteristics of an agreement become evident:
- Plurality of persons: There must be two or more persons to make an agreement because one person cannot enter in to an agreement with himself.
- Consensus-ad-idem: Both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time.
Note- As started above, an agreement to become a contract must give rise to a legal obligation i.e., a duty enforceable by law. If an agreement is incapable of creating a duty enforceable by law, it is not contract. Thus an agreement is wider term than a contract.
“All contracts are agreement but all agreements are not contract”, because agreement of moral, religion or social nature e.g. a promise to lunch together at a friend’s house or to take a walk together are not contracts because they are not likely to create a duty enforceable by law for the simple reason that the parties never intended that they should be attended by legal consequences. In other words “An agreement which creates social obligation is not a contract.”
In business agreement the presumption is usually that the parties intend to create legal relations for e.g. an agreement to buy certain specific goods at an agreed price e.g., 20 bags of wheat at Rs. 800 per bag is a contract because it gives rise to duty enforceable by law, and in case of default on the other part of either party an action for breach for breach of contract could be enforced through a court provided other essential elements of a valid contract as laid down in section 10 are present, namely , if the contract was made by free consent of the parties competent of contract, for a lawful consideration and with a lawful object.
ACCEPTANCEA proposal when accepted, result in an agreement. It is only after the acceptance of the proposal that a contract between the two parties can arise. Sec. 2(b) defines ‘acceptance’ as follows:
“When the person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted. A proposal, when accepted becomes a promise. Thus, acceptance is the assent given to a proposal.
Mere silence is no acceptance. Silence does not per se amount to communication but an acceptance by silence could be sufficient if it was the offeree who suggested that their silence would be sufficient [Re Selectmove Ltd. (1995) 1 WLR 474].
CONSIDERATIONConsideration constitutes the very foundation of the contract. An agreeme not supported by consideration is void (sec. 25, Contract Act).
Section 2 (d), Indian Contract Act defines consideration as under:“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."
Thus Consideration means, “The price paid for the promise".
The three ingredients of this definition of consideration are:
- That the act or abstinence, which is to be a consideration for the purpose, should be done at the desire of the promisor,
- That is should be done by promise or any other person,
- That the act or abstinence may have been already executed or is in the process of being done or may still be executory i.e. it is promised to be done.
CHAPTER- II
NATURE OF CONTRACT
According to Section 10, all agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration, with a lawful object, are not expressly declared by the act to be void, and, where necessary, satisfy the requirements of a law as to writing or attestation or registration.
According to section 10, all agreement contract if –
I. Made by parties competent to contract. (Sec. 11)
II. Their consent must be free (Sec. 14)
III. Lawful consideration (Sec. 23)
IV. Lawful object (Sec. 23)
V. Such agreement are not expressly barred by law (Sec.23)
THE ESSENTIALS OF VALID CONTRACT ARE AS FOLLOW:
1. Lawful offer and acceptance i.e. offer from one party and its acceptance by the other-
There must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer, thus resulting in an agreement. The adjective “lawful’ implies that the offer and acceptance must satisfy the requirements of the contract Act in relation thereto.
2. Intention to create legal obligations;
There must be an intention among the parties that agreement should be attached by legal consequences and create legal obligations. Agreements of social or domestic nature do not contemplate legal relation, and as such they do not give rise to a contract. 1An intention to create legal relations is essential, in order to create a contract. 2An intent to create legal relations may be inferred, where a person who is asked to accept an offer, intimates that he would accept, after the agreement is reduced to writing. It may be, however, noted that neither an offer nor an acceptance is required to be express (Sec. 9, Contract Act).
For e.g.;
(a) An agreement to dine at a friend’s house is not an agreement intended to create legal relations and therefore is not a contract.
(b) Agreements between husband and wife also lack intention to create legal relationship and thus do not result in contracts.
In Balfour v. Balfour, where the defendant was a civil servant stationed in Ceylon. He and his wife enjoying leave in England. When the defendant was due to return to Ceylon, his wife could not accompany him because of her health. The defendant agreed to send her Rs. 300 a month as maintenance expenses during the time they were thus forced to live apart. She sued for breach of the agreement. Her action was dismissed on the ground that no legal relation had been contemplated and therefore there was no contract.
3. Lawful consideration:
The third essential element of a valid contract is the presence of ‘consideration’. Consideration has been defined as “the price paid by one party for the promise of other”. An agreement is legally enforceable only when each of the parties to it gives something and gets something. The something given or obtained is the price for the promise and is called ‘consideration’. But only those considerations are valid which ‘lawful’.
According to section 23 “the consideration or object of an agreement is lawful, unless-
i. It is forbidden by law;
ii. Is of such a nature that, if permitted, It would defeat the provisions of any law;
iii. it is fraudulent; oriv. Involves or implies injury to the property of another;
v. Is immoral or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.
4. Contractual Capacity of parties:
The parties to an agreement must be competent to contract; otherwise it cannot be enforced by a court of law. In order to be competent to contract according to section 11 the parties must be:
i. Of the age of majority
ii. Of sound mind
iii. Must not be disqualified from contracting by any law to which they are subject.
Thus, if any of the parties to agreement suffer from minority, lunacy, idiocy, drunkenness, etc., the agreement is not enforceable at law, except in some special cases.
5. Free consent:
Consent means that the parties must have agreed upon the same thing in the same sense (section 13). Free consent of all the parties to an agreement is another essential element of a valid contract.
There is absence of the ‘free consent’, if the agreement is included by any of the following factors:
(a). Coercion (section 15)
(b). Undue influence (section 16)
(c). Fraud (section 17)
(d). Misrepresentation (section 18)
(e). Mistakes (section 20-22)
If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence, etc. the other party (i.e. the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the act.But, if the agreement were induced by mutual mistake that is material to the agreement, it would be void.
6. Lawful object:
For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object.The object for which the agreement has been entered in to must not be fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the person or property of another (section 23)If the object is unlawful for one or the other of the reasons mentioned above the agreement is void.
For e.g. when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law.
7. Oral writing and registered:
According to Indian contract act, a contract may be oral or in writing.But in certain other special cases it lays down that the agreement, to be valid, must be in writing or/and registered.
For e.g., under section 25 of the act – it requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered.
Illustration –
i. An arbitration agreement must be in writing as per the arbitration and conciliation Act, 1996.B
ii. An agreement for a sale of immovable must be in writing and registered under the transfer of property Act, 1882.
8. Certainty:
Section 29 of the contract Act provides that “Agreements, the meaning of which is not certain or capable of being made certain, are void.In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain.
Illustration:
Amit agrees to sell Priya “a hundred pieces of soap.” There is nothing whatever to show what kind of soap was indented. The agreement is void for uncertainty i.e. whether it was bathing soap, cloth or utensils washing bar.
9. Possibility of performance :
Another essential feature of a valid contract is that it must be capable of performance.
Section 56 lays down that “an agreement to do an act impossible in itself is void.” If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law.
Illustration
i. Anil agrees with Bhanu to discover treasure by magic. The agreement is not enforceable because it is physically impossible to perform.
10. Not expressly declared void:
The agreement must not have been expressly declared to be void under the Act. Sections 24-30 specify certain types of agreements, which have been expressly declared to be void.
For e.g.
- An agreement in restraint of marriage. (section 26)
- An agreement in restraint of trade (section 27)
- An agreement by way of wager (section 30) etc.
Has been expressly declared void agreement.
Standard form of contract
A standard form of contract is a contract between two parties, where the `terms and conditions of the contract are set by one of the parties, and the other party has little or no ability to negotiate more favorable terms and is thus placed in a “take it or leave it” position.
According to black law Dictionary the standard form of contract is defined as under, A standard form of contract prepared by one party, to be signed by the party in a weaker position, usually a consumer, who has little choice about the terms.
It is also known as “contract of adhesion”. In this form of contract, there is no liberty to choose or negotiate but to accept or reject it.For e.g., train ticket, parking ticket etc.