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This article seeks to explain the 8 Contract Law Doctrines – You Must Know. India follows the common law system, and in order to interpret the common law statues, it is essential to understand the common law doctrines. A doctrine is a principle involved in the interpretation of the policy. Contract law was codified in India in 1872 by the British. Till date, the same law is followed.
Contract Law Doctrines
1. Doctrine of Consideration [S. 2(d)]
The doctrine of consideration limits the freedom of individuals to make binding promises – only those promises which are supported by consideration are legally binding; others are not, even if the promisor intends to bind himself to the promise. This requirement is unique to the common law (it is not a requirement in the civil law systems) and its utility has been called into question by scholars.[i] It does not appear its position as the ‘most fundamental limitation on the enforcement of promises’ is likely to be disturbed’.
The conception of ‘consideration’ in English law is some ‘detriment’ to the promise (in that he may suffer something or give something of value). ‘Detriment’ to the one person and ‘benefit’ to the other person are the same thing looked at from two different angles. There is nothing in the definition of ‘consideration’ in cl. (d) that the benefit of any act or abstinence must go to the promisor. Adopting the said conception, the framers of this Act have made some departures which will be noticed hereafter.
2. Doctrine of Privity [S. 2(d)]
The general rule in common law is that no one but the parties to a contract can be entitled under it, or bound by it. This also seems to be the import of S. 2(a), (b), (c) and (e) which contemplates only the two parties to an agreement. This principle that only the parties to a contract are entitled to sue or be sued upon it is known as the ‘privity of contract’. It lies at the heart of the difference between rights under contract which are in personam and proprietary rights which are in rem.
There are two different aspects to the principle of privity of contract which must be considered –
- Acquisition of rights by a third party – this is settled in the negative, and the best statement of the law is that in Krishna Lal Sadhu v. Pramila Bala Dasi[ii] – Section 2(d) widens the definition of consideration so as to enable a party to a contract to enforce the same in India in certain cases in which the English law would regard that party as the recipient of a purely voluntary promise and would refuse to him a right od action on the ground of nudum pactum. Not only, however, is there nothing in section 2 to encourage the idea that contracts can be made enforced by a person who is not a party to the contract but this notion is rigidly excluded by the definition of ‘promisor’ and ‘promisee’.
- Imposition of liabilities upon a third party – as a general rule, two persons entering into a contract between themselves cannot impose contractual liabilities on a third party. In Gujarat bottling v. Coca Cola[iii] G and C agreed that G would not assign, even indirectly, the rights to the contract without the consent of C. The shareholders of G transferred their shares in G – which had the same effect as an assignment – without permission from C. It was held that the shareholders of G were not a party to the contract between G and C and hence not bound by it.
3. Doctrine of Promissory Estoppel [S. 2(e)]
The principle of promissory estoppel provides that if a promise is made in the expectation that it would be acted upon, and it was in fact acted upon by the promise who alters his position in reliance of the promise, the promisor will not be allowed to back out of it when it would be inequitable to do so.
Promissory estoppel rests uneasily with traditional contract theory since it protects reliance, not bargains. The doctrine vehicle for reconciling promissory estoppel and the requirement for consideration has been the rule that promissory estoppel does not create new causes of action where none existed previously, it is a ‘shield and not a sword’.[iv]
The Law Commission of India in its 13th report in 1958 sought to undo the injustice done when a promise is made knowing that it would be acted upon, and which is then acted upon, and then it is held that the promise is unenforceable on the ground of want of consideration. It recommended adding an exception to S. 25. After considering the later developments, particularly the law laid down in Motilal Padampat Sugar Mills,[v] it gave its 108th Report on promissory estoppel, where it recommended not only an express provision to make such promises enforceable, but also gave the circumstances in which such promise would or would not be enforceable.
4. Doctrine of Implied Contract [S. 9]
An implied promise must be distinguished from the promises frequently said in English books to be implied by law, which was fictions required by the old system of pleading to bring cases of ‘relations resembling those created by contract’ or quasi-contracts within the recognized forms of action and sometimes to give the plaintiff the choice of a better form of action.
Implied contracts and express ones are both equally binding upon the parties. The difference between them is confined to the manner of proving them.
A tacit promise may be implied from a continuing course of conduct as well as from particular acts. Thus, an agreement between partners to vary the terms of the partnership contract may ‘either be expressed or be implied from a uniform course of dealing.’
Where parties have acted on the terms of an informal document which has passed between them but has never has been executed as a written agreement or expressly assented to by both, it is a question of fact whether their conduct established an implied agreement to be bound by those terms.[vi]
5. Doctrine of Frustration [S. 56]
As stated in the first two parts of the section, the contract becomes void, that is to say, it determines and is not enforceable with regard to the rights not yet accrued. With regard to the rights already accrued, see the provisions of Section 65 and the two paras hereunder.
The frustration of Personal contracts –
- By the death of the party or by permanent incapacity of the party e.g. madness
The frustration of Other contracts –
- Impossible in itself.
- Supervening impossibility or illegality, involving actions contrary to law or public policy.
- The outbreak of war, war restrictions, illegal to trade with the enemy, etc.
- Destruction of subject-matter by fire, explosion, spoilage of dates by water and sewage due to the sinking of the ship.
- Happening of an event which rendered the contract impossible of performance but would not include hard and difficult cases of abnormal rise or fall or price, depreciation of the currency, closure of Suez Canal involving longer route and journey involving more freight and delay.
- Unavailability due to lawful seizure, requisition, detention of charted ship running aground.
- The imposition of government restrictions or orders.
6. Doctrine of Proportionality (S.61)
The section must be read continuously with section 60. It must be carefully observed that it does not lay down a strict rule of law, but only a rule to be applied in the absence of anything to show the intention of the parties. In order to ascertain the intention of the parties, not only any express agreement, but the mode of dealing of the parties must be looked to.
Section 61 incorporates English law on the point. In Clayton’s case,[vii] it was held that in case of current account the presumption arises that the debits and credits have been appropriated so as to discharge each other and this will be done in chronological order. Thus
“when neither the debtor nor the creditor has made any appropriation their under section 61, it is the duty of the court to apply the payment in discharge of the debts in order of time and if the debts are of equal standing in discharge of each proportionately”[viii]
7. Doctrine of Executive Necessity (S. 68)
The relief which is contemplated under this section is not dependent on any contract but is quite independent of it. As pointed out by Anson,
“Circumstances must occur under any system of law in which it becomes necessary to hold one person to be accountable to another without any agreement on the part of the former to be so accountable, on the ground that otherwise, he would be retaining money or some other benefit which comes into his own hands to which the law regards the other person as better entitled, or on the ground that without such accountability, the other would unjustly suffer loss. The law of quasi-contract exists to provide remedies in circumstances of this kind”.[ix]
This is about a person incapable of entering into a contract. Costs incurred in successfully defending a suit on behalf of a minor in which his/her property was in jeopardy are ‘necessaries’ within the meaning of this section.
Two things are necessary under this section, namely, (i) that the person against whom the suit is brought is incapable of entering into a contract, and (ii) another person (the plaintiff) has supplied him or anyone of whom he (the person incapable of entering into a contract) is legally bound to support with necessaries suited to his condition in life.[x]
8. Doctrine of Ratification (s. 196)
the essence of ratification is that there must be an intention to ratify. The ratifies must know that he is ratifying an act done on his behalf. If an act is illegal and the ratifier does not know of the illegality there is no intention to ratify for lack of knowledge of illegality.[xi]
Condition of Ratification –
- The act must have been done on behalf of another,
- The act must have been done without knowledge or authority of the person on whose behalf the act is done,
If the said conditions are satisfied such other person has two options either to ratify or to disown.
The principal on ratification of the act is bound by it whether it be for his detriment or his advantage and whether it be founded on a tort or a contract. But an act which is void ab initio is a nullity and hence is not capable of ratification.
Ratification, if effective at all, relates back to the date of the act ratified. The rule foes so far that if A makes an offer to B which Z accepts in B’s name without authority, and B afterwards ratifies the acceptance, an attempted revocation of the offer by A in the time between Z’s acceptance and B’s ratification is inoperative.[xii]
[i] Aithyah’s Introduction to the Law of Contract (6th edn, 2006) at p. 106-109.
[ii] AIR (1928) Cal 1315
[iii] AIR 1995 SC 2372
[iv] Combe v. Combe, (1951) 2 KB 215
[v] 1979 AIR 621
[vi] Brogden v. Metropolitan Railway Co. (1877) 2 App Ca 666.
[vii] Devaynes v Noble, (1816) 35 ER 767
[viii] A. Ramavel v. Pandyan Automobiles Ltd., AIR (1973) Mad 359.
[ix] Anson’s Law of Contract, 23rd Edition, (1971) p. 589.
[x] Vishwa Nath v. Shiam Krishna, AIR 1936 All 819:
[xi] U. P Government v. Church Missionary Trust Association Ltd., (1948) AIR Oudh 54.
[xii] Bolton Partners v. Lambert, (1889) 41 Ch 680