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Table of Contents

INTRODUCTION TO CONTRACT[1]

Question Bank.

Q.1. What agreements are contracts according to the Law of Contract in India?

Q.2. “All contracts are agreements, but all agreements are not contracts” Explain

Q.3. What are all essential elements of a valid contract?

I. Introduction:-

From dawn to dusk, every man has to enter into one or the other form of contract, from buying toothpaste to nightdress. Man’s contract-making activities increase with the increase in trade, commerce, and industry. In this way, living in modern society is impossible if the law does not recognise the contract-making power of a person. ‘Contract’ is the most usual method of defining the ‘give and take’ rights and duties in a business transaction. The contract is the matter left greatly to an individual’s agreement. Law exercises the least control over a person’s agreement and contract-making capacity. The law of Contract is different from all other branches of law. It does not prescribe so many rights and duties which the law protects or enforces; rather, it contains several limiting principles subject to which the parties may create rights and duties for themselves. In this sense, the parties to the contract are the makers of the law for themselves.

Indian Contract Act, 1872, from Ss. 1 to 75 (i.e. General Contract[2]), lays down the minimum requirements of the contract. These requirements are general in that they apply to all contracts, including contracts mentioned under special contracts like Partnership.[3], Sale of Goods[4], Agency, Bailment[5] etc.

In part 1 of the Indian Contract Act from Ss. 1 to S. 75, we will discuss the general principles of contract formation, such as proposal, acceptance, competency of parties, consideration, free consent, lawful object, etc., which apply to all forms of contracts.

II. Historical Background of the Act: Introduction of English Law into India:-

The Regulating Act of 1773 and the Charter of 1774 were silent as to the law of contracts, which the Supreme Court was to apply to Indians. Consequently, S.17 of the Act of Settlement, 1781 directed that questions of inheritance and succession, and all matters of contract and dealings between the parties should be determined, in the case of Mohammedans and Hindus by their respective personal laws, and where only one of the parties should be a Mohammedan or Hindu, by the laws and usages of the defendant. This system continued up to the enactment of the Indian Contract Act of 1872 (hereinafter called ‘the Act’). The Act applies to the whole of India except the state of Jammu and Kashmir[6].

III. What is a Contract?

2 (h) of the Act defines the term “contract”. It provides that “an agreement enforceable by law is a contract.”[7].

Thus, from the above definition, for the formation of a contract, there must be:-

A) An agreement, and
B) Such an agreement should be enforceable by law[8].

A) An Agreement[9]:-

An agreement is nothing but a meeting of minds (consences ad- idem). An agreement is defined by S. 2 (e) as “every promise and set of promises forming the consideration for each other”. Thus, a promise and set of promises wherein a provision of consideration is made to each other are called an agreement. In other words, in agreement, there is a promise from both sides. E.g. A promises to sell his house to B. In return, B promises to pay ten lakh rupees; it is said to be an agreement between A and B.

It is important to know the meaning of ‘promise’. The latter part of S. 2 (b) defines ‘Promise’ as a “proposal when accepted becomes a promise”.

Thus, a contract is an agreement; an agreement is a promise, and a promise is an accepted proposal. Therefore, we may put it in the form of an equation as-

Proposal + Acceptance = Promise (Set of promises) = Agreement.

1) Proposal[10]:-

2 (a) defines proposal as ‘when one person signifies to another his willingness to do or to abstain from doing anything, to obtain the assent of the other to such act or, abstinence, he is said to make a proposal’, e.g. A says to B that he wants to sell his house for twenty lakh rupees. Here, A is said to have made a proposal.

2) Acceptance[11]:-

2 (b) defines acceptance 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.

Thus, when B assents to A’s offer to purchase a house for twenty lakh rupees, he is said to have accepted the offer.

In Bharat Petroleum Corporation Ltd. V/s Great Eastern Shipping[12]

The Court held:- It is a general rule that an offer is not accepted by mare silence; however, under certain circumstances, the offeror’s silence coupled with his conduct, which takes the form of a positive act, may constitute an acceptance (an agreement sub-silentio)[13]. The terms of the contract between parties can be proved not only by their words but also by their conduct.

B) Enforceable by Law:-

Every agreement is not a contract unless it is enforceable by law. Thus, an agreement not intended to be enforceable by law is not a contract.[14].

In Balfour V/s Balfour[15]

Facts: The husband promised to pay his wife a maintenance allowance every month so long as they remained separate. When he failed to perform this promise, she brought action to enforce it.

The Court held that it is a domestic agreement that does not contemplate creating any legal obligation.

Thus, all family and social nature agreements, which are not intended to be enforceable by law, are not legally enforceable, e.g., if A called B at a dinner party but B could not remain present, due to which the food made for him got spoiled. A cannot sue B for the breach of an agreement to come to dinner.

What Agreements are Enforceable by Law?

To be enforceable by law, an agreement must fulfil the conditions laid down under S. 10. Viz.

(i) Parties should be competent to make a contract.

(ii) There should be free consent to the contract.

(iii) There should be a consideration to the contract.

(iv) The object should be lawful.

The absence of any of these conditions makes the contract invalid. Thus, to constitute a valid contract, there shall be an agreement (i.e. proposal and acceptance) accompanied by the above four requirements. Therefore, it is being said that “All contracts are agreements, but all agreements are not contracts”.

1) Competent Parties[16]:-

For the formation of a valid[17] contract, there shall be at least two parties, and they must be capable of entering into a contract. A contract entered into with an incapable person is void.

Every person is competent to contract who is of an age of majority and who is of sound mind and is not disqualified from making a contract by any law.

2) Free Consent[18]:-

Consent means ‘when two or more persons agree upon the same thing in the same sense’. In other words, consent should not be affected by coercion[19], undue influence[20], fraud[21], misrepresentation[22], or mistake[23].

3) Consideration[24]:-

Consideration is the price paid by the promisee for the obligation of the promise. Consideration is ‘quid pro quo,’ i.e., something for something. S. 2 (d) defines consideration as “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 a promise”.

4) Lawful Object[25]:-

The object of the agreement should not be against the law of the land, or the law of the land should not prohibit it. Thus, the object of an agreement should not be illegal, fraudulent, immoral or against public policy. Moreover, agreements for the objects mentioned under Ss. 23 to 30 are declared void by the Act.

IV. Conclusion:-

All contracts are agreements, but all agreements are not contracts. In General Principles of Contract from Ss. 1 to 75, we will study the above basic concepts, i.e. proposal, acceptance, competency of parties, consideration, free consent, lawful object and some other concepts like a contingent contract, quasi-contract, etc. Broadly speaking, the study of these concepts in detail is the study of general principles of contract. These principles are general in that they are necessary for all types of contracts. There are some special types of contracts like the sale of goods, partnership, bailment, agency, indemnity, etc., but all these special types of contracts also need the principles mentioned above as minimum requirements.

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[1] कराराचा परिचय [करार का परिचय]

[2] कराराचे सर्वसाधारण तत्व [करार के सामान्य सिद्धांत]

[3] भागिदारीचा करार [साझेदारी करार]

[4] माल विक्री [वस्तूंची विक्री]

[5] अनामत/ निक्षेप, ‘अनामतिचा करार म्हणजे असा करार कि ज्यामध्ये एका व्यक्तीकडून दुसऱ्या व्यक्तीकडे विशिस्ट हेतूसाठी माल पाठविला जातो व तो हेतू पूर्ण झाल्यानंतर तो माल पाठवणारास परत केला जातो अथवा पाठवणार्याच्या इच्छेप्रमाणे त्याची विल्हेवाट लावली जाते. उदा. शिंप्याकडे कपडे शिलाईसाठी दिल्या नंतर कापड शिवून ते परत देण्याचा करार हा अनामत किंवा निक्षेप स्वरूपाचा आहे [जमानत करार /अनामत निक्षेप] [.

[6] S. 1 of the Indian Contract Act, 1872.

[7] कायदया प्रमाणे अंमलबजावणी करता येणारा ठराव म्हणजे करार [कानून द्वारा लागू करने योग्य समझौता]

[8] कायद्याने अंमलबजावणी करता येण्यासारखा [कानूनी रूप से लागू करने योग्य समझौता]

[9] ठराव [समझौता]

[10] प्रस्ताव

[11] स्वीकृती/ स्विकार

[12] 2008 (1) All MR 424 (SC).

[13] फक्त गप्पा राहण्याने प्रस्तावाचा स्विकार होत नाही, परंतु काही वेळ गप्प राहून परंतु कराराचे पुर्ततेची कृती करून करार स्वीकारला असे होते [समझौता/उप-मौन].

[14] ठराव जे करार प्रमाणे अंमलबजावणी करण्याचे उद्देश्याने केलेले नसतात [कानून द्वारा लागू करने योग्य नहीं होने का इरादा, अनुबंध नहीं है|]-

[15] (1919) 2 KB 571.

[16] करार करण्यास पात्र पक्ष [सक्षम पार्टियां]

[17] Valid contract- Legal contract.

Void contract- Contract not enforceable by law.
Voidable- It may be void or valid. It is at the option of the party either to treat the contract as valid or void.
Unlawful agreements (S. 23 and 24); Agreement without consideration (S. 25); Agreement in restraint of marriage (S. 26); Agreement in restraint of trade (S. 28); Agreement in restraint of legal proceeding (S. 29); Wagering Agreements (S. 30); Agreement to do an impossible Act (S. 56).

[18] स्वेच्छा सहमति [मुक्त संम्मती]-

[19] ज़बरदस्ती] [धाकधपटशाही]

[20] अनुचित प्रभाव [गैर प्रभाव]

[21] धोखा [फसवणूक ]

[22] दिशाभूल/गैरबतावनी [गलतबयानी]

[23] चूक [ग़लती]

[24] मोबदला [प्रतिफल]-

[25] कायदशीर उददेश [वैध उद्देश्य]