INDIAN CONTRACT ACT, 1872- INTRODUCTION, DEFINITIONS, FEATURES OF CONTRACT, AGREEMENT AND ITS TYPES

INTRODUCTION

·      The Law of Contract constitutes the most important branch of Mercantile or Commercial Law.

·        It is the foundation upon which the superstructure of modern business is built. It affects everybody, more so, trade, commerce and industry.

·        It may be said that the contract is the foundation of the civilized world.

·        The law gives us certain rights as citizens. At the same time, it imposes on us certain obligations. The Indian Contract Act is directly connected with these rights and obligations.

The Indian Contract Act is divisible into two parts.

1. The first part (Section 1-75) deals with the general principles of the law of contract and therefore applies to all contracts irrespective of their nature.

2. The second part (Sections 124-238) deals with certain special kinds of contracts, namely contracts of Indemnity and Guarantee, Bailment, Pledge, and Agency.

Enacted: 25 April 1872 Commenced: 1 September 1872 Enacted by: Imperial Legislative Council D

 

DEFINITIONS

·        Proposal - Section 2 (a): as “when one person will signify to another person his willingness to do or not do something (abstain) with a view to obtain the assent of such person to such an act or abstinence, he is said to make a proposal or an offer.

·        Promise - The Act in its section 2(b): defines the term “promise” here as: “when the person to whom the proposal is made signifies his assent thereto, the proposal becomes an accepted proposal. A proposal when accepted becomes a promise”.

·        Promisor or Promisee : 2(c): When the proposal is accepted, the person making the proposal is called as promisor and the person accepting the proposal is called as promisee.

·        Consideration :Section 2(d): "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 abstain from doing something, such act or abstinence or promise is called consideration for the promise".

·        Agreement - In section 2 (e): the Act defines the term agreement as “every promise and every set of promises, forming the consideration for each other”. Every promise and every set of promises, forming the consideration for each other, is an agreement.

·        Reciprocal Promises Section 2(f): in The Indian Contract Act, 1872 Promises which form the consideration or part of the consideration for each other, are called reciprocal promises;

·        Void Agreement sec 2(g): “An agreement not enforceable by law is said to be void”.

·        Contract u/s 2(h): An agreement enforceable by law is a contract.

·        Voidable Contract u/s 2(i): “An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others, is a voidable contract”.

·        Void contract Section 2(j): An agreement not enforceable by law is said to be void.

·        Plaintiff: A person who files a suit in a court of law against another for breach of contract is called plaintiff.

·        Defendant: the person against whom a suit has been filed in court and who has to defend himself against the charges of breach of contract is called defendant.

DEFINITION OF A CONTRACT

·        A legally binding agreement.

·        That means there must be some kind of agreement between two parties.

·        However, not all agreements because not all agreements are contracts are legally enforceable.

·        legally enforceable means that a court will say that an agreement is a contract

DEFINITION OF A CONTRACT

·        Contract is an understanding or an agreement between two parties.

·        To decide if an agreement is legally enforceable as a contract, a court will apply the rules and principles of the law of contract.

·        Contract is an agreement creating and defining obligations between the parties.

·        Every agreement and promise enforceable by law is a contract.

CHARACTERISTICS OF CONTRACT

·        There must be an offer;

·        There must be acceptance of the offer;

·        There must be consideration;

·        Intention to create legal relations between the parties;

·        The parties must have contractual capacity;

·        The contract must not be unlawful or contrary to public policy.

ALL CONTRACTS ARE AGREEMENTS

For a Contract to be there an agreement is essential; without an agreement, there can be no contract. It could be said, “Where there is contract, there is agreement without an agreement there can be no contract”.

 

The Core Elements are:

1. Agreement constituting a proposal.

2. Competence of the parties to enter into an agreement.

 3. Consequences of the parties to the agreement.

4. Valid objective and consideration.

5. Agreement being written verified and registered.

6. Agreement being enforceable by law.

 ALL AGREEMENTS ARE NOT CONTRACTS

·        As stated above, an agreement to become a contract must give rise to a legal obligation.

·        If an agreement is incapable of creating a duty enforceable by law. It is not a contract.

·        Thus an agreement is a wider term than a contract. Agreements of moral, religious 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

·        Thus an agreement becomes a contract when at least the following conditions are satisfied.

1.     Free consent

2.     Competency of the parties

3.     Lawful consideration.

4.     Lawful object.

ESSENTIAL ELEMENTS OF A VALID CONTRACT: (SEC. 10)

1. Agreement - Offer & acceptance

2. Capacity of the contracting parties

3. Free consent of Parties

4. Lawful Consideration and Legal Object

5. Not expressly declared to be void.

6. Writing & registration Agreement

7. Capable of performance

KINDS OF AGREEMENT

AGREEMENT BASED ON OBLIGATION:

1. Unilateral Agreement: A contract in which only one party makes an express promise, or undertakes a performance without first securing a reciprocal agreement from the other party.

2. Bilateral Agreement: A bilateral agreement is a broad term used simply to cover agreements between two parties. For international treaties, they can range from legal obligations to non-binding agreements of principle (often used as a precursor to the former).

BASED ON MODE OF CREATION

1. Express Agreement: An express contract is a legally binding agreement, the terms of which are all clearly stated either orally or in writing. For an express contract to come together there must be an offer made by one of the parties, and acceptance of that offer by the other party.

2. Implied Agreement: An implied agreement is an obligation between two or more parties in the absence of a written contract. An implied agreement is an obligation between two or more parties in the absence of a written contract, based on the interest of fairness implied by circumstance or conduct.

BASED ON ENFORCEABILITY

1. Void Contract or Agreement: The section 2(j) of the Act defines a void contract as “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”. This makes all those contracts that are not enforceable by a court of law as void.

2. Voidable Contract These types of Contracts are defined in section 2(i) of the Act: “An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.”

 BASED ON LAW

1. Legal agreement: A legal agreement is a written document that will identify the parties' roles and responsibilities under the agreement. Once the written document is signed, either manually, digitally, or electronically, the document becomes legally binding.

2. An illegal agreement: In business law is a contract that was made for an illegal reason and is consequently against the law. If the content of the agreement causes the parties to perform illegal actions, then the contract is illegal. Agreements collateral to the original is also considered void.

 BASED ON PERFORMANCE

1. Executed Agreement: Executed means that which has been done. Such an Agreement is one in which the parties to the agreement have performed their respective obligations.

 2. Executory Agreement: Executory means that needs to be done. An Executory Agreement is one that remains to be executed and the parties have yet to perform their obligations.

BASED ON ENFORCEABILITY

1. Enforceable Agreement: An Enforceable Agreement is a valid Agreement that has no loopholes (limitation). Such an Agreement is Enforceable by law.

2. Unenforceable Agreement: unenforceable Agreement is one that cannot be enforced by law. The unenforceability can be because of some technical defect, such as the execution of the agreement being banned by lapse of time or terms and conditions being not clear in the agreement.

KINDS OF CONTRACTS

1. Valid Contracts: The Valid Contract as discussed in the topic on “Essentials of a Contract” is an agreement that is legally binding and enforceable. It must qualify all the essentials of a contract.

2. Void Contract or Agreement:  The section 2(j) of the Act defines a void contract as “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”. This makes all those contracts that are not enforceable by a court of law as void.

3. Voidable Contract: These types of Contracts are defined in section 2(i) of the Act: “An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.” This may seem difficult to wrap your head around but consider the following example: Suppose a person A agrees to pay a sum of Rs. 10,0000 to a person B for an antique chair. This contract would be valid, the only problem is that person B is a minor and can’t legally enter a contract.