THE INDIAN CONTRACT ACT, 1872

ACT NO. 9 OF 1872
[25th April, 1872.]

The Law of Contract constitutes the most important branch of mercantile or commercial law. It affects everybody, more so, trade, commerce and industry. It may be said that the contract is the foundation of the civilized world.

Preamble—Whereas it is expedient to define and amend certain parts of the law relating to contracts; it is hereby enacted as follows:—

PRELIMINARY

  1. Short title.—This Act may be called the Indian Contract Act, 1872.

Extent, Commencement.—It extends to the whole of India and it shall come into force on the first day of September, 1872.

Saving—Nothing herein contained shall affect the provisions of any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this Act.

INTRODUCTION

  • The Act came into force 1st September, 1872.
  • Before 1872, the contractual obligations were governed by personal laws i.e., Hindu Law and Muslim Law.
  • It extends to the whole of India and it shall come into force on the first day of September, 1872.
  • 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 of contracts, e.g., Indemnity and guarantee, bailment, pledge, and agency.
  • Where in a dispute both the parties were Hindus or where both the parties were Muslim their personal law was respectively applied. However, in case one of the parties was a Hindu and the other a Muslim then the law of the defendant was applicable. However, after the Act of 1872 personal laws shall not be applicable. (Madhav Chander v. Rajcoomar, 1874)
  • Article 372 of the Indian Constitution has given Indian Contract Act, 1872 a status of law in India after the formation of the Parliament, since it was a pre constitutional law.

 Role of Contract

  • The law of contract places an indispensable part in our lives for instance law of bailment, contracts of real estate sector, contract of affreightment, contract of person service, Government contracts, E-contracts and Service contracts.
  • An agreement is made by parties but the contract is made by law. Section 2(h) provides that an agreement enforceable by law is a contract. It means promise is made by parties and can be legally binding on them.
  • Further Section 37 lays that the parties are legally bound to perform their respective promises. It uses the term that the parties must perform or tender to perform their promises, if not excused by any law.
  • Law of contract is a substantive law. There are mainly two types of law one substantive law, second procedural law.
  • The substantive law provides and determines the rights and duties of the parties according to law, whereas the procedural law provides the procedure for enforcement of rights and duties between the parties according to the concerned substantive law.
  • Transfer of Property Act that provides for rights and duties of transferor and transferee is a substantive law.
  • Contract law is also a substantive law, but it does not provide rights and duties between the parties rather rights and duties are created by the parties themselves.
  • Anson has rightly said “we may provisionally prescribe the law of contract as that branch of law which determines the circumstances in which a promise shall be legally binding on the person making it.”
  • Even Section 10 of the Indian Contract Act, provides the circumstances which make certain promises legally binding on the promisor.
  • The law of contract only caters to voluntarily created civil obligation. It do not cover the whole range of obligations.
  • In Transfer of Property Act, agreements are created by statutory provisions, where elements of contract like proposal and acceptance are present, but due to non-fulfillment of other requirements like that of registration etc. they are not enforceable by law.
  • The other instance, where despite all the ingredients of the contract are present as mentioned in Section 10 of the Contract Act, still in absence of intention to contract same can’t be enforced.

Contract creates civil obligation-

  • In case of breach of contract generally civil obligations like compensation, injunction, specific performance of contract etc. are created, but sometimes the intention of a party while entering into a contract may lead to creation of criminal liability too. The offence of cheating under Section 415 IPC through its illustration (g) illustrates the same.

“A Intentionally deceives Z into a belief that A means to deliver to Z a certain quantity of indigo plant which he does not intend to deliver, and thereby dishonestly induces Z to advance money upon the faith of such delivery. A cheats; but if A, at the time of obtaining the money, intends to deliver the indigo plant, and afterwards breaks his contract and does not deliver it, he does not cheat, but is liable only to a civil action for breach of contract”.

Indian Contract Act, 1872 is not exhaustive-

  • It appears from the preamble that it is “to define and amend certain parts of law relating to contracts” so from this is nowhere appears that the legislature intended to make it an exhaustive law as the word used in the preamble is “certain parts of law relating to contracts”, and further the word “consolidate” is also not mentioned there.
  • Further Section 10 Para 2 clearly indicates that if the formalities of writing, attestation by witness and registration, if required by law are not fulfilled the agreement is not enforceable.
  • The privy council as in the case “Irrawaddy Flotilla v. Irag Das 18IA 1216” admitted the Indian Contract Act, to be non-exhaustive.

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