The contract act is one of the principal acts governing all the contractual relations not only in the business world but also from day to day life. It is one of the most important legislation ever drafted by Britishers and the principles enacted therein are nothing but the codification of the general principle governing transactional relationship because of which it has seen seldom amendments.

Our day-to-day life is interspersed with many rights, duties, obligations through which we interact with society. 

Not exhaustive (not limited) and not retrospective Contract is probably the most familiar legal concept in our society because it is so central to the essence of our political, economic, and social life. The law relating to contract constitutes the most important branch of commercial law.

This is governed by the Indian Contract Act 1872.

 

 

Contract may be defined as a legally binding agreement or, in the words of Sir Frederick Pollock: “A promise or set of promises which the law will enforce.” Section 2(h) of Indian Contract Act, 1872 defines contract as “An agreement enforceable by law”. Thus, formation of a contract there must be an agreement, and the agreement should be enforceable by law.

 

The Indian Contract Act, 1872 came into force on 1st September 1872. It extends to the whole of India except the state of Jammu & Kashmir. 

It provides a legal framework for not only the trade and commercial activities in which contracts are involved but also for social and familial contracts.

All agreements are not enforceable by law and therefore, all agreements are not contracts.

A contract binds both parties by the words written/agreed by the parties.

Example: An agreement to go to see a movie may be a mere agreement not enforceable by law. Thus, all agreements are not contracts.

 

When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that either to-

• such act; or

• abstinence,

he is said to make a proposal (i.e. offer).

 

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.

 

Every promise and every set of promises, forming consideration for each other, is an agreement.

 

Promisor and Promisee Section 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– has done or abstained from doing something; or

– does or abstains from doing something; or any other person

– promises to do or abstain from doing something,Such act, abstinence or promise is called a consideration for the promise.

 

Void agreement [Section 2(g)] An agreement not enforceable by law is said to be void. A void agreement is not enforceable from the very beginning, i.e. it is void ab initio.

 

Voidable Contract [Section 2(i)] An agreement is a voidable contract if-

– it is enforceable by law at the option of one or more of the parties thereto,

– it is not enforceable by law at the option of the other or others. Simply speaking, a contract which can be set aside (i.e. terminated or repudiated or avoided) at the option of the aggrieved party is a voidable contract. Until the contract is repudiated, it remains a valid contract. As per Section 64, the aggrieved party must restore the benefit that he has received under the contract. The other party is freed from his obligation to perform the contract.

 

A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

Simply speaking, a contract which, when entered into, was valid, but subsequently became void due to impossibility of performance or change in circumstances or change in law or some other reason (termed as supervening impossibility), is termed as void contract.

 

 

Free consent of the parties: When there is absence of Coercion (Section 15), Undue Influence (Section 16), Fraud (Section 17), Misrepresentation (Section 18) and Mistake (Section 20, 21, 22), the consent is said to be free.  

Capacity of the parties to contract: Section 11 and 12 lay down that the competent parties are persons who have attained majority {Exception for this was laid down in Mohori Bibee v. Dharmodas Ghose  ILR (1903) 30 Cal 539 (Pc)}, persons who are of sound mind and persons who are not disqualified by law.

 

Lawful consideration and Lawful object: Section 23 lays down that the consideration and object is lawful unless it is forbidden by law or it defeats provisions of any law or is fraudulent or involves injury to person or property or is violative of public health, morality, peace and order. 

 

The communication of the offer is complete when it comes to the knowledge of the person to whom it is made.

 

A proposal can be revoked at any time before the communication of its acceptance is complete as against the proposer but not afterward.

 

Acceptance to be legally enforceable must be absolute and unqualified. Section 7(1) of the Indian Contract Act provides that in order to turn an offer into an agreement the acceptance to the offer must be absolute and unqualified.

 

Communication of acceptance is complete when it is put in the course of transmission to him as to be out of the power of the acceptor to withdraw the same and when it comes to the knowledge of the proposer.

 

An acceptance may be revoked at any time, but not afterward, before the communication of the acceptance is complete as against the acceptor.

 

 

 

(a) Minor: Agreement with a minor is altogether void but his property is liable for necessaries supplied to him. He cannot be a partner but can be admitted to benefits of partnership with the consent of all partners. He can always plead minority and cannot be asked to compensate for any benefit received under a void agreement. Under certain circumstances, a guardian can enter into valid contract on behalf of minor. Minor cannot ratify a contract on attaining majority.

 

(b) Persons of unsound mind: Persons of unsound mind such as idiots, lunatics and drunkers cannot enter into a contract, but a lunatic can enter into a valid contract when he is in a sound state of mind. The liability for necessities of life supplied to persons of unsound mind is the same as in case of minors. (Section 68).

 

 

 

Two or more persons are said to consent when they agree upon the same thing in the same sense (Section 13). Consent is free when it is not caused by mistake, misrepresentation, undue influence, fraud or coercion. When consent is caused by any of above said elements, the contract is voidable at the option of the party whose consent was so caused (Sections 19 and 19A)

 

(a) Coercion: Coercion is the committing or threatening to commit any act, forbidden by the Indian Penal Code or the unlawful detaining or threatening to detain, any property, to the prejudice of any person with the intention of causing any person to enter into an agreement (Section 15). A contract induced by coercion is voidable at the option of the aggrieved party.

 

(b) Undue influence: When one party to a contract is able to dominate the will of the other and uses the position to obtain an unfair advantage, the contract is said to be induced by undue influence. (Section 16). Such contract is voidable, not void.

 

(c) Fraud: Fraud exists when a false representation has been made knowingly with an intention to deceive the other party, or to induce him to enter a contract (Section 17). Contract in the case is voidable.

 

(d) Misrepresentation: Means a misstatement of a material fact made believing it to be true, without an intent to deceive the other party (Section 18). Contract will be voidable in this case.

 

(e) Mistake: When both the parties are at a mistake to a matter of fact to the agreement, the agreement is altogether void.

 

 

1. The promisor or his representative must perform unless the nature of contract shows that it may be performed by a third person, but the promisee may accept performance by a third party. (Sections 37, 40 and 41)

2. In case of joint promisors, all must perform, and after the death of any of them, the survivors and the representatives of the deceased must perform. But their liability is joint and several. If the promisee requires any one of them perform the whole promise, he can claim contribution from others. (Sections 42, 43 and 44)

3. Joint promisees have only a joint right to claim performance. (Section 45)

4. The promisor must offer to perform and such offer must be unconditional, and be made at the proper time and place, allowing the promisee a reasonable opportunity of inspection of the things to be delivered. (Sections 38, 46, 47, 48, 49 and 50)

5. If the performance consists of payment of money and there are several debts to be paid, the payment shall be appropriated as per provisions of Sections 59, 60 and 61.

6. If an offer of performance is not accepted, the promisor is not responsible for non-performance and does not lose his rights under the contract; so also if the promisee fails to accord reasonable facilities. He may sue for specific performance or he may avoid the contract and claim compensation (Sections 38, 39, 53 and 67).

7. Rescission is communicated and revoked in the same way as a promise. The effect is to dispense with further performance and to render the party rescinding liable to restore any benefit he may have received. (Sections 64 and 66)

8. Parties may agree to cancel the contract or to alter it or to substitute a new contract for it. (Section 62)

 

 

Contingent Contracts are the contracts, which are conditional on some future event happening or not happening and are enforceable when the future event or loss occurs. (Section 31)

 

 

(a) If it is contingent on the happening of a future event, it is enforceable when the event happens. The contract becomes void if the event becomes impossible, or the event does not happen till the expiry of time fixed for happening of the event.

(b) If it is contingent on a future event not happening. It can be enforced when happening of that

event becomes impossible or it does not happen at the expiry of time fixed for non-happening of the event.

(c) If the future event is the act of a living person, any conduct of that person which prevents the event happening within a definite time renders the event impossible.

(d) If the future event is impossible at the time of the contract is made, the contract is void ab initio.