1. Indian Contract Act 1872 - Introduction
Have you ever wondered about Indian regulations governing commercial transactions and deals? In India, contracts are legally binding and are controlled by the Indian Contract Act – 1872. Contracts are an important part of our everyday lives; they are an agreement between two or more parties that grant them rights and obligations based on the terms of the agreement. Presently, the Indian Contract Act 1872 is an essential collection of regulations governing the operation of contracts in our nation. This legislation ensures that everyone follows the same set of laws, acting as a guide for just and lawful transactions.
2. What's a Contract?
A contract is, in essence, an agreement that is legally enforceable. A transaction has to contain the following elements in order to be valid: an offer, an acceptance, consideration (something of value in return), a legitimate goal, and the ability to make a deal for all parties involved.
Definition of Contract
Salmond: “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to act or forbearance on the part of other.”
Pollock: “Every agreement and promise enforceable by law is a contract.”
Cambridge dictionary: “Contract is a legal document that states and explain a formal agreement between two different people or groups, or the agreement itself.”
Section 2(h) of the Indian Contract Act 1872: “An agreement enforceable by law is contract.
An illustration: let’s say you are selling a book. If you propose a price and a buyer accepts, you have a sale!
3. How Contract happens?
According to the Act, an offer must be made in a transparent and understandable manner. The offer recipient must accept voluntarily and free from coercion..
Essential elements of Contract
1. Offer – An “offer” is defined in Section 2(a) of Indian Contract Act 1872 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.”
2. Acceptance – It is defined in Section 2(b) Indian Contract Act 1872 as: “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.”
3. Mutual Agreement – According to the Act, Section 13 Indian Contract Act 1872 states: “Two or more persons are said to consent when they agree upon the same thing in the same sense.”
4. Lawful consideration – Consideration is one of the essential elements for the validity of a contract. Section 2(d) Indian Contract Act 1872 of the Act defines consideration as follows:
“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.”
In simpler terms, consideration is something of value that is given or promised by one party to another in exchange for a promise or an act. For a contract to be valid, there must be a lawful consideration.
5. Capacity of Parties to Contract – The capacity of the parties refers to their legal ability and competence to enter into a contract. The relevant sections in the Act that
deal with the capacity of parties are Sections 10, 11, and 12 Indian Contract Act 1872.
6. Free Consent – In simpler terms, for consent to be considered free, it must
be given voluntarily and without being influenced by coercion, undue influence,
fraud, misrepresentation, or mistake. Section 14 to Section 22 of the Indian Contract Act 1872 specifically deal with the concept of consent.
An illustration: Placing an item in your online shopping basket is equivalent to making an offer. As soon as you select “buy,” you accept.
4. Deals Need Fairness:
The concept of fairness or dealing in good faith is not explicitly mentioned as a standalone provision in the Indian Contract Act 1872. However, the Indian Contract Act 1872 does recognize the importance of good faith in certain situations. Sections 16, 17, and 23 of the Act, in particular, touch upon aspects related to fairness and good faith.
Section 16– “Undue Influence”:
This section deals with situations where one party has the ability to dominate the will of another, and the contract is a result of undue influence. Contracts where undue influence is exercised are considered voidable at the option of the party subjected to such influence.
Section 17 – “Fraud”:
Fraudulent misrepresentation is dealt with in Section 17. If a party intentionally deceives another party to induce them to enter into a contract, the contract is voidable at the option of the party defrauded.
Section 23 – “What Consideration and Objects are Lawful, and what not”:
Section 23 of the Indian Contract Act 1872 emphasizes that considerations and objects of an agreement must be lawful. Agreements based on considerations or objects that are fraudulent, immoral, or against public policy are considered void.
While the Indian Contract Act 1872 does not explicitly use the term “deals need fairness,” the principles embedded in these sections stress the importance of fair dealings, good faith, and the avoidance of fraud and undue influence in contractual relationships. Fairness is implicit in the requirement that contracts should be based on lawful considerations and objects, and parties should not employ fraudulent or coercive tactics to induce agreements.
It’s important to note that the doctrine of good faith is evolving, and the courts in India may, in certain situations, imply a duty of good faith in contractual relationships, especially in cases where there is a fiduciary relationship between the parties. Additionally, other legislations and legal principles may also influence the fairness and good faith aspects in contracts.
An illustration: it’s a reasonable arrangement if you offer to compensate someone for their coin collection and they agree to give it to you.
5. What happens when Contract is formed?
The Act discusses the completion or termination of transactions. It describes how promises are fulfilled and what to do in the event that one is broken. It also addresses what occurs when someone violates the rules or if an agreement falls through.
Types of Contract
1. On the Basis of Formation
2. On the Basis of consideration
3. On the Basis of Execution
4. On the Basis of Validity
An illustration: It’s considered breaking a promise when someone says they will provide something by a specific date but doesn’t. According to the law, the other party has the right to demand payment or even to hold them to their word.
6. Case Laws
Numerous important case laws arising from the Indian Contract Act of 1872 have significantly influenced the interpretation and development of Indian contract law. Here are some noteworthy examples:
Balfour v. Balfour
(1919):
Issue: Whether a
husband’s promise to pay his wife a monthly allowance during his absence from
the country was legally enforceable.
Ruling: The court
held that domestic agreements, lacking an intention to create legal relations,
are not binding. This case established the principle that not all agreements
are contracts.
Mohori Bibee v.
Dharmodas Ghose (1903):
Issue: The validity
of a contract with a minor (a person below the age of 18).
Ruling: The Privy
Council held that a contract with a minor is void ab initio (from the
beginning). This case is significant in establishing the principle that a
contract with a minor is void and unenforceable.
Satyabrata Ghose v.
Mugneeram Bangur & Co. (1954):
Issue: The doctrine
of anticipatory breach of contract and its applicability in Indian contract
law.
Ruling: The court
recognized the concept of anticipatory breach and clarified that a party can
sue for breach of contract even before the actual breach occurs if one party
clearly communicates the intention not to perform.
Lalman Shukla v.
Gauri Dutt (1913):
Issue: The doctrine
of ‘Past Consideration’ and its validity.
Ruling: The court
emphasized that past consideration is not valid consideration for a contract.
Consideration must move from the promisee.
Keshavji Jadhavji
v. Maganlal (1936):
Issue: Whether an
agreement to agree is enforceable.
Ruling: The court
held that an agreement to agree in the future is too uncertain to be
enforceable, emphasizing the importance of certainty in contract terms.
These cases have
significantly influenced the interpretation and application of the Indian
Contract Act, 1872, and continue to be referred to in contract law matters in
India.
Conclusion
Thus, the Indian Contract Act of 1872 functions as a fairness buddy in the commercial sector. It ensures that agreements are established correctly, that everyone abides by the rules, and that breaking a promise has repercussions. Knowing these fundamental concepts is like to having a road plan for ethical and seamless commercial transactions.