Indian Contract Law - Basic Introduction Post 1

By




This post covers a basic introduction to Indian contracts, the essentials of a valid contract, types of contracts. 



Legislations:
Indian Contract Act 1872
Specific Relief Act 1963Indian Majority Act 1875
Information Technology Act 2000

Introduction
  • The contract is derived from Latin Contractus, ‘to work on contract’
  • Based on the principle of “Pacto sunt Servanda” pacts must be kept / agreements to be kept
  • "Mutuality” – equality of rights to enforce the contract (for ex: both parties being non-minors there is mutuality, in the case of a minor entering a contract there is no mutuality)
  • Consensus ad idem – meeting of the minds – know each other’s consent by way of offer and acceptance
  • Based mainly on English common law consisting of judicial precedents
  • Separate acts for negotiable instruments, transfer of property, sale of goods, partnership, insurance etc.
  • The decision of English courts possess only a persuasive value [Satyabrata Ghose vs Mugneeram Bangur & Co AIR 1954 SC 44] [Bhagwandas vs Girdharilal AIR 1966]


General principles of law of contract - Sec 1-75 of the Act
Special/specific contract - Sec 124-238 of the Act

Essentials of a Valid Contract [refer to Sec 2 and Sec 10 of the act]


(agreements à legal obligation à contracts)

1. Offer (from one party) and acceptance (by the other)

2. Intent to create a legal obligation
  • Intention to create binding legal relation / legal enforceability is required to create a contract [Banwari Lal vs Sukhdarshan Dayal 1973 1 SCC 294]
  • the intent can be inferred, neither an offer nor its acceptance necessarily is in express terms [Thawadas Pherumal vs Union of India AIR 1955 SC 468]
  • (Concept of rebuttable presumption)Usually, social / family agreements are presumed to be non-legal / non-enforceable unless expressly stated
  • Usually, business agreements are presumed to be created with intention to create a binding legal obligation
  • Explanation: All legal obligations are not contracts, only those legal obligations created from an agreement constitute a contract. Legal obligations that are not contracts
Civil liability for torts, breach of trust
Quasi-contract
Judgement of courts (record of courts)
Recognizance
Status obligations (husband-wife)

3. Consideration (price paid in place of the promise of the other)

4. Competent to contract

5. Free consent (no coercion, undue influence, misrepresentation)

6. Lawful object (not opposed to public policy or forbidden by law)

7. Agreement must not be declared void (eg, restraint of trade/marriage, wagers etc.)

8. Non-ambiguous terms (terms are not vague or uncertain)

9. Capable of performance

10. Legal formalities (contract in writing, witnesses etc.)

Types of Contract
1. By enforceability
  1. Valid contract - enforceable contract
  2. Voidable contract - enforceable at the option of one or more parties to thereto. Until it is rescinded it is a valid contract, which becomes void only after repudiation
  3. Void - void ab initio contract
  4. Unenforceable contract - valid contract but not enforceable
  5. Illegal or unlawful agreement (contract) - an agreement not enforceable by law as it contravenes the law
2. By mode of creation/acceptance/communication
  1. Express contracts - offer and acceptance both are made through written or spoken word, no implied action involved 
    Example: contracts that are based on written agreements
  2. Implied/inferred contracts - offer and acceptance are made through actions or conduct of the parties instead of written/oral word
    Example: taking a public bus, eating at a restaurant, availing services at a salon, it is implied that the customer agrees to pay for the service consumed and rendered by the other party (the retailer/restaurant/salon)

3. Sometimes offer is expressed in words and acceptance is implied from acts or circumstances. these are contracts of mixed character

4. Form of contract
  1. Ordinary contract
  2. Standard form contract - boilerplate / standardized contracts containing printed conditions
    Examples: insurance policies, railway tickets, air tickets, adventure slide ticket / pass, movie tickets, 

Rules to protect the interest of the weaker party (Think of you accepting the terms when buying a ticket, you haven’t got the power to change the terms or read completely)

  1. Reasonable notice [For conditions see back, Signatures on document containing terms sufficient notice met]

  2. Notice be contemporaneous with the contract, notice about the exemption of liability to while contract being entered not thereafter

  3. Reasonable terms of contract – Unreasonable and opposed to public policy, then not enforceable

  4. Fundamental breach of contract – core obligation must be complied with

  5. Non-contractual liability – In case of multiple liability, contractual liability exclusion will not negate/refute other liability especially death or personal injury

  6. Strict construction – strict construction applied to exemption clause and any ambiguity to be in favour of the weaker party

  7. Statutory protection – India lacks the English Unfair Contract Terms Act, 1977 limits the rights of parties to exclude or limit liability via an exemption clause