INDIAN CONTRACT ACT, 1872

NATURE OF CONTRACT

The Indian contract act is one of the most important branches of Mercantile or Commercial Law. It affects everybody so Trade, Commerce & Industry.

It came into power on September 01, 1872.

The preamble of the act says that it is an act to “state and amend certain parts of the Law relating to a contract”

This act is applicable to the whole of India.

The Act mostly deals with the general principles of rules governing contracts.

“Contract” is the most usual method of defining rights and duties in a business transaction.

The Indian Contract Act 1872 codifies the Legal Principals that govern “Contracts”.

Now, we will see some important aspects related to it.

What is a Contract?

Section 2 (h) of the Indian Contract Act, 1872, “an agreement enforceable by law”

There must be two essential elements:-

1. Agreement
2. Enforceability by Law

What is AGREEMENT?

Section 2 (c) of the ACT is defined as –  “every promise & every set of promises, forming the consideration for each other”.

Now, we need to know what is a promise?

Section 2(b) defines promise as –“when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted

AGREEMENT  =  OFFER/PROPOSAL + ACCEPTANCE

What is enforceability by LAW?

An agreement to become a contract must give legal obligations which mean duly enforceable by LAW.

Now let us try to understand this by an example “A person A’ agrees to sell his car to a person B’ for Rs 20 LAKH.

Here, we need an agreement

(accepted proposal) + enforceable by law to be a contract.

We have an “accepted proposal” by A’ as A’ to sell his car to B’, but here we don’t know whether B’ has been made a party to the agreement or not. So, this is neither a contract nor an agreement.

But as we above said, in Section 2(b) in promise, when the offeree to whom the proposal is made, accepts the offer (unconditionally), it will amount to acceptance.

So A’ offers to buy B’s car for Rs 20 Lakh & B’ accept such an offer.

Now, this has become a promise.

Difference between Agreement and Contract

What are the essentials of a Valid Contract?

A Valid Contract is enforceable by law and if a contract is not valid it may lead to many problems for the parties involved. For this reason, let us learn about the essential elements of a valid contract.

Section-10 of the Indian Contract Act,1872

“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 expert declared & be void”

Since Section 10 is not complete, there are certain other sections that also contain requirements for an agreement to be enforceable.

Two parties –

Can you have a Contract with yourself?

No, you can’t get into a contract with yourself.

A contract involves at least 2 parties – One party making the offer & other party accepting it. Both the parties must have legal existence e.g companies, universities, schools, etc, or must be natural persons.

Example:- to constitute a contract of sale there must be 2 parties- Seller & buyer

Intend to create legal obligations

There must be an intention on the part of the parties to create a legal relationship between them. It must be enforceable by law.

Some of the agreements are not enforceable by law i.e Social or Domestic relationships between relatives.

For example:-

The husband ‘H’ agreed to pay his wife ‘W’ a certain amount of maintenance every month while he was overseas. ‘H’ failed to pay the amount ‘W’ sued him for recovery of the amount. in this case, the ‘W’ wife could not recover as it, was a social agreement and the parties did not intend to create any legal relations.

Case-Specific Contracts

a contract may be written or spoken legal effects there is no difference between a written or spoken contract. But in the interest of the parties – the contracts must be written. incase of certain contracts some other formalities have to have complied with an agreement legally enforceable.

For example – A contract of insurance is not a valid contract unless it is in written form.

Certainty of Meaning

1. The agreement must be certain and not unclear.

For example – Ram agrees to sell Shyam 100 tons of oil. There I nothing certain to show what kind of oil was intended for

Possibility of performance of an agreement

Suppose one person agrees with another person to discover treasure by magic. Even all the parties agree this is not valid because bringing treasure by magic is an impossible task.

Free consent

Two or more persons are said to consent when they agree upon the same thing in the same sense such consent must be accessible.

The capacity of the parties

1. Section 11 of the Indian contra t act 1872 is:-

“Who are competent to contract;- every person is competent to contract who :   

• Is one of the age of majority according to the law to which he is subject and
• Is of sound mind and
• Is not or else disqualified from contracting by any law to which he is subject.

Let us discuss the above three qualifications in detail:

• Refers to the fact that the person must be at least 18 years or more.
• Party or person should be able to fully understand the terms of the contract at the time of formulation of the contract.
• Parties should not be disqualified by their status in entering into such contracts. Such people are alien enemies, convicts or a foreign sovereign, etc they may not enter into a contract

Consideration

1. QUID PRO QUO i.e. ‘something in return’ which means that the parties must occur in the form of Profit, rights, Interest, etc.

For example – if you decide to sell your book for Rs 100 to your friend, then your promise to give the right to the book to your friend is a consideration for your friend. Also your friend promise to pay Rs 100 to your friend then your promise to give the rights to the book f=to your friend is a consideration for your friend. Also, your friend’s promise to pay Rs 100 is a consideration for you.

Lawful object and consideration

1. The consideration and object of the agreement must be lawful.

For example – ‘A’ agrees to sell his land to ‘B’ against 100 kgs of cocaine (drugs).

this agreement is illegal.

CONCLUSION

Every person in his day-to-day life makes contracts. An understanding of the agreement, & contract shall help one protect his rights and discharge his duties by the law.

FAQ

What is a reasonable time to accept a proposal?

The proposal must be accepted within the time limit given by the offeror. If no such time limit is prescribed then it must be accepted within a reasonable time or before the offer lapses.

A person ‘P’ agrees to sell his house to a person ‘O’ for 50 lakh.” This is an example:

1. A contract
2. An agreement
3. Neither a Contract nor an Agreement
4. It is a contract as soon as A gets the money

We need Accepted Proposal (Agreement) + Enforceable by law (defined within the law).

We have an “accepted proposal” by A as inferred from the phrase “A agrees to sell..”, but we don’t know whether B has been made a party to the agreement or not. So this is neither a contract nor an agreement and

The answer is C) Neither a Contract nor an Agreement.

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