This article deals with the Introduction and Nature of Contract by providing an insight into the advent of the Indian Contract Act.
The Contract Act, 1872 provides the legal framework for the formulation of trade, business and commercial relations and transactions in which contract is involved. The provisions of the Act and principles enshrined therein and the application of such principles by the courts to enormous and ever-changing fact – situations constitute the body of the Law of Contract of the country.
I. The advent of the Indian Contract Act
The Indian Contract Act as applied today’s was drafted originally by the third Indian Law Commission in the year 1861 in England. The Indian Contract Bill tried to defined laws relating to Contracts, Sale of movable properties, Indemnity, Guarantee, Agency, Partnership, and Bailment.
The scope of the bill was to bring in the Indian Contract Act in consonance with the English law on the same subject as established by the recognized practice, statute and judicial decisions.
The bill was not the complete law of contract, but the aim of the bill was to suffice the need of the country for a considerable period of time and during that period, judges of the courts were taking the help of English laws in determining the case when they failed to arrive at the judgments by considering the justice, equip and good conscience.
And it was decided that even if some deficiency is found in the bill, it could be added as new chapters, so the bill was drafted to concise the law of contracts to suit the needs of the people.
The drafters of the bill knew that different religious people followed personal laws and for them, it will be difficult to abide by the new rules, so provisions were made so that the special customs of the personal laws governing any aspect of the contractual relationships would not be affected by the new law, unless and until they are not in contrary to the new rules.
Though the drafters tried their best to imbibe the regular practices which were followed in India in the bill, they failed to do so. One particular instance is that in case of a dispute regarding the peculiarities of the contract, the Indian Courts refused to take into account the English law in deciding the case, but took the help of broader and safer law in determining the case where the usual principle is that whatever man promises he must perform.
But this aspect was not included in the draft bill. This would be mean that a man whoever the compelling situation maybe for not abiding by his promise, once he made a promise he has to perform it the last day of your life.
Though it may seem that a rigid principle like this would make sense, some exceptions have to be provided or else it would be a gross injustice to the community. Even with the vice-like this, the contract law came into effect.
The act came into effect in 1872 but soon afterwards amendments were made in that regard, which repealed section 76 to 123 dealing with the sales of goods act and separate legislations were enacted called ‘Sales of Goods Act 1930’ to govern that area. Also, section 239 to 266 dealing with partnership was repealed and new legislation was enacted called ‘Indian Partnership Act 1932’.
II. The Law of Contract: General Principles
As a result of increasing complexities of the business environment, innumerable contracts are entered into by the parties in the usual course of carrying on their business. ‘Contract’ is the most usual method of defining the ‘give and take’ rights and duties in a business transaction. This branch of Private law is different from other branches of law in a very important respect. It does not prescribe so many rights and duties, which the law will protect or enforce; it contains a number of limiting principles subject to which the parties may create rights and duties for themselves.
In a sense, parties to a contract are the makers of law for themselves. They can frame any rules they desire to the subject matter of their agreements, and the law takes cognizance of their decision unless they are not legally prohibited.
III. What is a Contract?
According to Section 2(h) of the Act, the term contract is defined as “an agreement enforceable by law”. On analyzing the definition we find that the contract is consist of two essential elements: – an agreement and enforceability by law.
The term ‘agreement’ given in Section 2(e) of the Act is defined as “every promise and every set of promises, forming the consideration for each other”. Again 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. Proposal when accepted becomes a promise”.
Thus we say that, an agreement is the result of the proposal made by one party to the other party and that the other party gives his acceptance thereto.
Agreement = Offer/Proposal + Acceptance
Enforceability by law – An agreement to become a contract, must give rise to a legal obligation which means a duty enforceable by law.
Thus from the above definitions, it can be concluded that Contract = Accepted proposal + Enforceability by law.
On elaborating the above, it is obvious that contract comprises of an agreement which is a promise or a set of reciprocal promises, that a promise is the acceptance of a proposal giving rise to a binding contract. And Section 2(h) requires an agreement to be worthy of being enforceable by law before it is called ‘contract’. Where parties have made a binding contract, they created rights and obligations between themselves.
Example: A agrees with B to sell car for 2 lacs to B. Here A is under an obligation to give car to B and B has the right to receive the car on payment of 2 lacs and also B is under an obligation to pay 2 lacs to A and A has a right to receive 2 lacs.
So Law of Contract deals with only such legal obligations which have resulted from agreements. Such an obligation must be contractual in nature. However, some obligations are outside the purview of the law of contract.
Example: An obligation to maintain wife and children, an order of the court of law etc. These are status obligations and so out of the scope of the Contract Act.
On what conditions does the Indian Contract Act recognise the “agreement” of the parties (which contains a promise) as a “contract”? The answer to this question will form the subject of our discussion in this Article.