INDIAN CONTRACT ACT

1872

BEENA SUNIL

INTRODUCTION

THE LAW RELATING TO CONTRACTS IN INDIA ARE CONTAINED IN THE INDIAN CONTRACT ACT, WHICH CAME INTO FORCE ON THE FIRST DAY OF SEPTEMBER 1872.

IT PROVIDES A FRAMEWORK OF RULES AND REGULATIONS WHICH GOVERN FORMATION AND PERFORMANCE OF THE CONTRACT.

OBJECTS OF CONTRACT ACT

THE MAIN OBJECT OF THE CONTRACT ACT IS TO ENSURE THAT THE RIGHTS AND OBLIGATIONS ARISING OUT OF A CONTRACT ARE HONOURED AND THAT LEGAL REMEDIES ARE MADE AVAILABLE TO THE AGGRIEVED PARTY AGAINST THE PARTY NOT HONOURING HIS PART OF AGREEMENT.

TWO PARTS OF INDIAN CONTRACT ACT

THE INDIAN CONTRACT ACT MAY BE DIVIDED INTO TWO PARTS;

1ST PART : SEC. 1-75 DEALS WITH GENERAL PRINCIPLES OF CONTRACT

II PART : SEC. 124 TO 238 DEALS WITH SPECIAL TYPES OF CONTRACTS SUCH AS

(i) Contract of Indemnity & Guarantee (ii) Contract of Bailment and Pledge (iii) Contract of Agency

DEFINITION OF CONTRACT

SECTION 2(h) OF INDIAN CONTRACT ACT DEFINES THE TERM CONTRACT AS FOLLOWS;

“AN AGREEMENT EFORCEABLE AT LAW IS A CONTRACT”

THEREFORE, A CONTRACT ESSENTIALLY CONSISTS OF TWO ELEMENTS; THEY ARE

(i) AN AGREEMENT (ii) ENFORCEABILITY AT LAW

IE, CONTRACT = AGREEMENT + ENFORCEABILITY

AGREEMENT = OFFER + ACCEPTANCE

THE DEFINITION UNDER SEC.2(h) APPEARS TO BE BUILT UPON THE DEFINITION OF THE VARIOUS ELEMENTS WHICH MAKE A CONTRACT; THEY ARE,

(A) PROPOSAL OR AN OFFER ( AS PER SEC. 2(A)

“ WHEN ONE SIGNIFIES TO ANOTHER HIS WILLINGNESS TO DO OR TO ABSTAIN FROM DOING SOMETHING WITH A VIEW TO OBTAINING THE ASSENT OF THAT OTHER TO SUCH ACT OR ABSTINENCE, HE IS SAID TO MAKE A PROPOSAL”

(B) PROMISE, AS PER SEC. 2(B)

“ A PROPOSAL WHEN ACCEPTED BECOME A PROMISE ‘

AGREEMENT

“EVERY PROMISE AND EVERY SET OF PROMISES, FORMING CONSIDERATION FOR EACH OTHER IS AN AGREEMENT” SEC.2(e).

For example , A agrees to pay Rs.100 to B and B agrees to give him a book which is priced at Rs.100/-, this is a set of promises forming consideration for each other.

However, if A agrees to pay Rs.100 to B, But B does not promise anything, it is not set of promises forming consideration for each other.

PROMISOR AND PROMISEE

“The person making the proposal is called the promisor and and the person accepting the proposal is called the promisee”

- Sec.2 (c)

ESSENTIAL ELEMENTS OF A CONTRACT

ESSENTIAL ELEMENTS ARE CONTAINED IN THE DEFINITION OF COTRACT GIVEN IN SEC.10 OF THE INDIAN CONTRACT ACT. ACCORDING TO SEC.10

“ ALL AGREEMENTS ARE CONTRACTS IF THEY ARE MADE BY FREE CONSENT OF THE PARTIES COMPETENT TO CONTRACT FOR A LAWFUL CONSIDERATION AND WITH LAWFUL OBJECT AND ARE NOT HEREBY EXPRESSLY DECLARED TO BE VOID”

ESSENTIAL ELEMENTS OF CONTRACTS ARE

1. OFFER AND ACCEPTANCE (AGREEMENT)

THIS INVOLVES TWO PARTIES. ONE PARTY MAKING THE OFFER AND OTHER PARTY ACCEPTING IT

THE TERMS OF THE OFFER MUST BE DEFINITE AND THE ACCEPTANCE OF THE OTHER MUST BE ABSOLUTE AND UNCONDITIONAL

THE ACCEPTANCE MUST ALSO BE ACCORDING TO THE MODE PRESCRIBED AND MUST BE COMMUNICATED TO THE OFFERER

2. INTENTION TO CREATE LEGAL RELATIONSHIP

WHEN TWO PARTIES ENTER INTO AN AGREEMENT THEIR INTENTION MUST BE TO CREATE LEGAL RELATIONSHIP BETWEEN THEM

3. FREE CONSENT

IT IS ESSENTIAL TO THE CREATION OF EVERY CONTRACT THAT THERE MUST BE FREE AND GENUINE CONSENT OF THE PARTIES TO THE AGREEMENT.

THE CONSENT OF THE PARTIES IS SAID TO BE FREE WHEN THEY AGREE UPON THE SAME THING IN SAME SENSE (SEC. 13)

CONSENT IS SAID TO BE FREE WHEN IT IS NOT CAUSED BY COERCION, UNDUE INFLUENCE, FRAUD, MISREPRESENTATION OR MISTAKE.

4. CAPACITY TO CONTRACT

THE PARTIES TO THE AGREEMENT MUST BE CAPABLE OF ENTERING INTO A VALID CONTRACT. EVERY PERSON IS COMPETENT TO CONTRACT, IF HE

(a) IS OF THE AGE OF MAJORITY(b) IS OF SOUND MIND(c) IS NOT DISQUALIFIED FROM CONTRACTING BY ANY LAW TO WHICH HE IS A SUBJECT.

FLAW IN CAPACITY TO CONTRACT MAY ARISE FROM MINORITY, LUNACY, IDIOCY, DRUNKENNESS ETC. AND STATUS.

5. LAWFUL CONSIDERATION

ACCORDING TO SECTION 25 OF INDIAN CONTRACT ACT, AN AGREEMENT WITHOUT CONSIDERATION IS VOID (NUDAM PACTUM)

AN AGREEMENT TO BE ENFORCEABLE BY LAW MUST BE SUPPORTED BY CONSIDERATION

ACCORDING TO SECTION 2(d) OF INDIAN CONTRACT ACT, CONSIDERATION IS DEFINE AS

“WHEN AT THE DESIRE OF THE PROMISOR, THE PROMISEE OR ANY OTHER PERSON HAS DONE OR ABSTAINED FROM DORING, OR DOES OR ABSTAINS FROM DOING OR PROMISES TO DO OR ABSTAIN FROM DOING SOMETHING, SUCH ACTS, ABSTINENCE OR PROMISE IS CALLED A CONSIDERATION FOR THE PROMISE.

A CONSIDERATION CAN BE PAST, PRESENT OR FUTURE.

EG: A PEPPER CORN IS SUFFICIENT CONSIDERATION FOR A VAN FULL OF GUN POWDER.

6 LAWFUL OBJECT

THE OBJECT OF THE AGREEMENT MUST BE LAWFUL. IT MUST BE

IN OTHERWORDS, IT MUST NOT BE,

(a) ILLEAGAL(b) IMMORAL OR

(c) OPPOSED TO PUBLIC POLICY

IF AN AGREEMENT SUFFERS FROM ANY LEGAL LAW, IT MUST NOT BE ENFORCEABLE BY LAW

2. CONSENSUS AD IDEM

The parties to the Contract must agree upon the subject matter of the contract in the same manner and in the same sense. In other words, there must be identity of minds among the parties regarding the subject matter of the contract (sec. 13).

Eg : A has two houses, one at TVPM and another at Kochi. A expresses his willingness to sell one of his houses to B. A had in his mind the house at Kochi for sale at the time of placing his proposal. B accepted the proposal and while accepting the proposal the house at TVPM was in his mind. So there is no consensus ad idem. The contract thus formed is not valid.