THE INDIAN CONTRACT ACT
THE
INDIAN CONTRACT ACT
The
Law of Contract Constitutes the most important branch of mercantile or
commercial law. It affects everybody, more so, trade, commerce anq industry. It
may be said that the contract is the foundation of the civilized world.The law
relating to contract is governed by the Indian Contract Act, 1872 (Act No. IX
of 1872). The preamble to the Act says that it is an Act "to define and
amend certain parts of the law relating to contract". It extends to the
whole of India except the State of Jammu and Kashmir.The Act mostly deals with
the general principles and rules governing contracts. The Act is divisible into
two parts. 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. The second part (Sections 124-238) deals with certain special
kinds ofcontracts, e.g., Indemnity and guarantee, bailment, pledge, and agency.
The
term contract has been defined by various authors In the following manner:
"A
contract is an agreement creating and defining obligations between the
parties".
-Salmond
"A
contract is an agreement enforceable at law, made between two or more persons,
by which rights are acquired by one or more to acts or forbearances on thepart
of the other or others".
-Anson
"Every
agreement and promise enforceable at law is a contract".
-Sir
Fredrick Pollock
The
Indian Contract Act has defined contract in Section 2(h) as "an agreement
enforceable
by law".
These
definitions resolve themselves into two distinct parts. First, there must be an
agreement. Secondly, such an agreement must be enforceable by law. To be
enforceable, an agreement must be coupled with an obligation.A contract
therefore, is a combination of the two elements: (1) an agreement and
.
(2) an
obligation.
Agreement
An
agreement occurs when two minds meet upon a common purpose, Le. they mean the
same thing in the same sense at the same time. The meeting of the minds is
called consensus-ad-idem, i.e., consent to the matter. Section 2(e) of
the Indian Contract Act provides that "every promise and every set of
promises forming the consideration for each other is an agreement."
Obligaton
An obligation is the legal duty to do or abstain
from doing what one has promised to do or abstain from doing. A contractual
obligation arises from a bargain between he parties to the agreement who are
called the promisor and the promisee. Section 2(b) says that when the person to
whom the proposal is made signifies his assent thereto, the proposal is said to
be accepted; and "a proposal when accepted becomes a promise." In
broad sense, therefore, a contract is an exchange of promises by two or more
persons, resulting in an obligation to do or abstain from doing a particular
act, where such obligation is r~cognised and enforced by law.
Rights
and Obligations
Where
parties have made a binding contract, they have created rights and obligations
between themselves. The contractual rights and obligations are correlative,
e.g., A agrees with B to sell his car for As. 10,000 to him. In this example
the following rights and obligations have been created:
(i) A is under an obligation to
deliver the car to B.
B has a corresponding right to
receive the car.
(ii) B is under an dbligation to pay
As. 10,000 to A.
A has a correlative right to
receive As. 10,000.
Agreements
which are
not Contracts
Agreements in which the idea of bargain is
absent and there is no intention to
create legal relations are not contracts. These
are:
(a) Agreements relating to social matters: An
agreement between two
persons
to go together to the cinema, or for a walk, does not create a legal obligation
on their part to abide by it. Similarly, if I promise to buy you a dinner and
break that promise I do not expect to be liable to legal penalties. There
cannot be any offer and acceptance to hospitality.
(b) Domestic arrangements between husband
and wife: In Balfour v. Balfour
(1919)
2 KB 571, a husband working in Ceylone, had agreed in writing to pay a
housekeeping allowance to his wife living in England. On receiving information
that she was unfaithful to him, he stopped the allowance: Held,he was
entitled to do so. This was a mere domestic arrangement with no. intention to
create legally binding relations. Therefore, there was no contract.
Three consequences follow from the above
discusson.
(i)
To constitute a contract, the parties must intend to create legal relationship.
(ii) The law of contract is the law of those
agreements which create
obligationsand those obligations which have
their source in agreement.
(iii)
Agreement is the genus of which contract. is
the specie and,
therefore, all contracts are agreements but
all agreements are not
contracts.
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