THE CONTRACT LAWS

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This article is written by K. Sri Satya Sravanthi of 3^rd Semester of Damodaram Sanjivayya National Law University, Anakapalle, Andhra Pradesh, an intern under Legal Vidhiya

ABSTRACT

This article presents a critical study on the contract laws. Contract laws play a pivotal role because they are included from day-to day basis to official trading contracts. They need not be in the written form mandatorily but the contract is implied and the person has the contractual obligation to fulfil it. This article begins with defining what exactly is a contract and the fundamental basics such as essentials elements to form a contract, types of contracts, process for formation of a contract like offer, acceptance , lawful object and consideration. In addition, this article focuses on performance of a contract and the types in it. This article analyses the concept of performance of contract and in case of discharge of contracts like breach of contract, what are the legal remedies available for it.

Keywords : Agreement, Contract, Performance, Breach, Consent, Promise, Offer, Acceptance, Void, Voidable, Valid, Contractual Obligation, Enforceability.

HISTORICAL BACKGROUND

History of contract is important to understand as it is one of the important parts of legislations which is involved in our day-to-day life. As there is no money at that time, barter system used to prevail and now let us start with the history from ancient period. During the ancient period, there is not traditional code but the sources of Hindu law such as smritis, Vedas, shastras, and shrutis were only the basis of their life. The vyavaharamayukha portion of law contains the laws that governs legal procedure of contracts. Issues like sale without ownership, debt deposit, mortgage, pledges, gifts were mentioned. It was even mentioned that juveniles, sanyasis, dependents, those deprived of limbs, wrongdoers were exempted from forming a contract and in Narada smriti, it was mentioned that the king, vedic teacher and the head of the family were competent to form a contract. During the end of the medieval period, people used to make agreements and promises for activities like transfer of property, performance of services etc [1]. Later during the Islamic period, the rule of law was Mohammedan law which was applicable to Muslims as well as Non-Muslims too. They used to believe that consensus ad idem i.e., meeting of minds is important for establishing a contract . Matters such as barter, exchange, trade, sale, partnership, indemnity, guarantee and bailment used to prevail[2]. Then with the British colonization in India , in the presidency towns laws related to contracts were dealt with charter act 1726. With 1781 and 1797 charter , the presidency towns were empowered to deal all contractual nature cases according to the personal laws and in case the parties to the suit are of different religion then the case used to be dealt using the customs and usages of defendant’s religion. The English common law and statute laws increasingly became relevant under British influence, and a contract bill was shortly introduced by the legislative council. The bill was drafted by 3^rd law commission(1861) which included sale of moveable’s, indemnity and guarantee, bailment, agency and partnership”. The draft law was passed on 25^th April,1872 as Sec 9 of Indian Contract Act but came into effect on 1^st September 1872. [3].

OBJECTIVES

This article critically analyses the concept of contracts as in from its historical background, it essentials, types, requirements for forming a contract, its performance and in case of breach its remedies as well. This article would be helpful to legal professionals and any individual understanding the contractual principles. In addition, the research is mainly focused on secondary sources like journals, articles and statistical information etc.

INTRODUCTION

Contract is a binding agreement between two or more parties which has legal enforceability [4]. It is a common law subject because most of its rules and principles are derived from precedents and case laws. The whole process of entering into a contract with anyone starts with offer . If offer is coupled with acceptance followed by consideration , it constitutes a contract[5]. It establishes obligations and rights between the contract’s parties.

ESSENTIALS OF A VALID CONTRACT

“Sec 10 of Indian Contract Act, 1872 mentions about essential elements of a valid contract. According to the law, all agreements are contracts if they are made with the free assent of parties who are legally able to do so, for a legal consideration, and for a legal purpose, and they are not hereby expressly declared void[6]”. The main two components to constitute a contract is there has to be an agreement and that agreement should have legal enforceability. Agreement is defined in sec 2(e) as “ every promise or set of promises forming the consideration for each other” and further promise is defined as “a proposal when accepted becomes a promise”. And also, there has to be consensus ad idem which mean meeting of minds or the parties have accepted to the common intention with the same subject-matter of the agreement.

Legal enforceability means the parties to the contract has the legal duty which they are bound to perform their promise or duty and if not either of the parties can sue or be sued in the court of law. Agreements need not be enforceable hence; we can say that ‘ All contract are agreements but all agreements are not contracts’[7].

AGREEMENT + ENFORCEABILITY = CONTRACT

TYPES OF CONTRACTS

Contracts can be classified basing on several ways such as validity, nature and formation of a contract. Let us see now few important types of contracts.

1. VERBAL CONTRACTS :

Verbal contracts are those contracts which are formed orally i.e., via communication. Contracts need not to be written format compulsorily but the complexity arises as it is difficult to prove in the court of law and that doesn’t mean it is not a valid contract. It fulfils all the essentials of a valid contract[8]. In Nanak Builders and Investors Pvt Ltd vs Vinod Kumar Alag [9] case, the Delhi High Court stated that a verbal contract can be valid and enforceable. As a result, unless required by law or unless the parties consciously aim to limit the terms of the agreement to paper, a contract need not be in writing in the strict sense.

2. EXPRESS CONTRACTS :

When parties converse openly about their agreement and the promised terms, an express contract is created. The express agreement need not be formal or written. It simply calls for the parties to state their intentions in agreement. For example, If a person ‘A’ expressly offers to sell a piece of land to ‘B’ and when he accepts the offer by saying that hell buy it , then it constitutes express contract. The parties have to be aware of the terms of contract [10].

3. IMPLIED CONTRACTS :

Implied contracts are not defined under Indian Contract Act but sec 9 covers its scope. Implied contracts are those in which the proposal and acceptance is implied in manner that means it is not directly or expressly stated anywhere. For example, when you take a cab , you will certainly not enter into a contract but it is implied that the cab driver has to drive you to your destination and in return you have pay him certain amount of money[11] .

4. VOID CONTRACTS :

Void contracts are those contracts which doesn’t have legal enforceability right from the time it was created. They cannot be ratified. There can be many reasons such as unlawful consideration, undue influence, fraud, , impossibility to perform and incompetence which make the contracts void. Void contracts are often related to illegal activities which are against to public policy[12].

5. VOIDABLE CONTRACTS :

“The term voidable means capable of being voided” . It is a formal agreement where initially it is valid and enforceable but gets rejected by one of the parties if faults are detected. For example, if a party ‘A’ has entered into a contract with party ‘B’ who is mentally ill , then the element of legal capability is violating and the contract is no more legal binding or valid[13].

6. QUASI-CONTRACTS :

A quasi-contract is a legally binding arrangement drafted by a court between parties who have no prior contractual obligations to one another. It is a kind of implied contract which acts as a remedy for disputes between parties that did not enter into a contract expressly [14]. For example, if a party has sent goods to wrong address and the other party has received it even though it was not requested by him. In that case, the acceptance creates a legal obligation on the party to pay for it even though there is no contract between them.

FORMATION OF CONTRACT

An agreement that fulfils all the elements of a valid contract is enforceable by law. And so, to form a contract the requirements are offer and acceptance, consideration, consent and legal object. Let us see each one of them individually[15].

(1) Offer and acceptance :

Offer is the statement by the offeror for which he is going to be bound by . It is intention of interest expressed by him to form a contract with other party. In few instances, it can be for a particular person or can be for people at large. The communication of offer can be in different ways like newspapers, letters, advertisements, emails etc. If the other party has the competence to enter into a contract and is interested according to the terms and conditions mentioned , then it constitutes acceptance. Acceptance can be orally, written or by conduct of offeree [16].

(2) Consideration :

Consideration is another important aspect for determining a contract to be valid or not. Any illegal consideration can render a contract void. It is mentioned in sec 2(d) of Indian Contract Act,1872 which states that “ when at desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, something such act or abstinence or promise is called consideration for the promise”. No one is going to enter into a contract for free. The value of the item for which your contract is made is called as consideration.

(3) Consent :

Sec 14 defines free consent. Both the parties entering into contract must enter with their own will without any undue influence or coercion . And there must meeting of minds which means both the parties must agree to the same terms and conditions , subject-matter of contract. There shouldn’t be any misrepresentation involved. If the consent is given by mistake or fraudulently or coercively , then the contract becomes void.

(4) Lawful Object :

Sec 23 of Indian Contract Act, 1872 defines about lawful object which states that a consideration or object is unlawful if it is, inter alia, forbidden by law or would defeat the provisions of any law. In short, the purpose or object behind entering into the contract must be lawful . For example, if a contract is entered between parties and the object is insider trading . The contract is declared as null and void as it is forbidden by law. . In another example, if a policer enters into a contract with politician for strucking down the criminal case filed against him in exchange for a promotion of his job. As the sole purpose is unlawful itself , the agreement is null and void [17].

PERFORMANCE OF CONTRACT :

The term “performance of contract” refers to both the promisor and the promise having met the requirements set forth in the agreement. As an illustration, A goes to a stationery store to purchase a calculator for which he pays the price and the merchant delivers the calculator. Here mutual performance is how a contract is considered to have been discharged. Completion of parties legal obligations results in discharge of a contract. Once the sole purpose behind entering the contract is fulfilled, it is automatically discharged. It is specified in Section 37 of the Indian Contract Act, 1872, which mandates that parties to a contract must either carry out or propose to carry out their respective obligations, unless such performance is dispensed with or excused under the terms of this Act or any other law. It is specified in Section 37 of the Indian Contract Act, 1872, which mandates that parties to a contract must either carry out or propose to carry out their respective obligations, unless such performance is dispensed with or excused under the terms of this Act or any other law.[18] Performance of contract is of 4 types. They are following :

(1) Actual performance :-

When a promisor has fulfilled all his obligations in accordance with the promises he made and according to the terms of contract, then it is actual performance. It results in a contract being discharged, and the promisor’s liability is no longer present.

(2) Substantial performance :-

When the contract is not completely fulfilled but is almost done. In this case the court orders to pay money but deducts the amount to the extent of non-performance so that the party will not escape from his liability .

(3) Partial performance :-

Where one party has performed his part of duty but not completely and the other party is willing to accept the part performed. The difference between partial and substantia is that in partial , the receiving party has the discretion whether to accept or reject but in substantial the other party is legally enforceable against the another[19].

(4) Attempted performance :-

At certain circumstances, the performance of a contract becomes due or delayed. The promisor is unable to discharge his duty because he can be prevented from external factors . The situation where the promisor has intention to perform or discharge his duty but is prevented so by intervening disability, known as attempted performance[20].

BREACH OF CONTRACT :of the agreed-upon terms and conditions is broken, there has When one of the agreed-upon terms and conditions is broken, there has been a binding contract breach. A breach could be anything from a late payment to a more serious offence, such as failing to deliver a promised asset. A contract is enforceable in court and has legal force. Giving the victim what they were initially promised is usually the remedy when a contract has been proven to have been broken. Punitive damages are rarely granted for failure to fulfil contractual commitments, and a breach of contract is not regarded as a crime or even a tort[21]”. There are remedies available for the breach of contract. They are following :

(1) Injunction :

It is a court order to a party not to do something. It may be temporary and permanent as well. Temporary is often given to prevent the potential loss when the case is still in trial.

(2)Recission :

Recission allows non-breaching party to cancel the contract as part of remedy for breach of contract by the other party. Rather than seeking monetary damage or compensation, the party can just refuse to complete their obligation in the contract. It puts back both the parties in a position where they are before entering into contract. To justify recission, the breach has to be on the subject-matter of contract[22].

(3) Specific performance :

It is a part of contract that calls for the party that breaches to fulfil terms of contract . This is awarded when the court feels that monetary award would not be sufficient. The injured party must prove that contract is valid and he have done his obligation and due to the parties breach and that monetary compensation is not enough.

(4) Compensatory damages :

It is awarded in civil suits where there has been a loss to one of the parties which is due to another party’s negligence or unlawful conduct. Money is awarded to the injured party for the damage, injure or loss incurred.

(5) Quantum meruit :

Quantum meruit means earned money. It is a demand for justifiable sum in respect to services or commodities provided. In short, it is equitable remuneration. In a situation where the person has not completed his duty in the contract completely but for what he has done, he’ll get paid for it. In case of void agreement, gratuitous act involved, situation that prevents contract fulfilment and indivisible contract performed completely but badly, a suit can be invoked upon quantum meruit[23].

LANDMARK JUDGEMENTS

(1) Lalman Shukla vs Gauri Datt

The plaintiff in this case works as a maid for a company owned by the defendant Shukla. The defendant’s nephew absconded from his home and after knowing the same, he sent all his servants in search of his missing nephew. The plaintiff who works under defendant, went in search for the nephew for which defendant provided with railway fare and expenses. After he left the house, the defendant announced a reward of Rs. 501 for those who finds his nephew. He doesn’t have any idea about this reward. Plaintiff traced the boy and brought him home after which he got to know about the reward and claimed for it. Defendant refused to pay for which plaintiff filed a suit and it was held that as it is a general offer (that covers public in general), communication, knowledge about the offer, acceptance of proposal is very important and as there is no proper communication of assent and knowledge of offer in the present case, plaintiff cannot get the reward” [24].

(2) Donoghue vs Stevenson

Mrs Donoghue’s friend brought her a ginger beer bottle which was made of dark opaque glass which means can’t see through. She consumed half of it and at that point of time when she poured the remaining contents into the tumbler, decomposed remains of snail were floating which caused shock and severe gastro-enteritis. She was not able to claim breach of warranty as she was not the party to the contract. Therefore, she issued proceedings against Stevenson, the manufacturer. The house of lords held that. The manufacturer owed a duty of care to her, as it is reasonably foreseeable that failure to ensure product safety would result harm or injury to customers. This case is considered to be a landmark judgement because it established a strong foundation towards the concept of negligence which was a narrow concept at that time[25].

(3) Pharmaceutical Society of Great Britain vs Boots Cash Chemist

This case revolves around the concept of invitation to offer. The defendant , Boots Cash Chemist Ltd introduced new system of self-servicing in their medical store which means they can pick the medicines they wanted from the shelves and make payment at the cashier desk. The pharmaceutical society was against to this new system. They objected claiming that sec 18 of the pharmacy and poisons act mandates pharmacists while sale of medicine. The plaintiff said that placing medications on shelves was merely an offer, and when a consumer selected one, they were accepting this offer. Additionally, the plaintiff claimed that because the chemist is not in charge of this situation, section 18 is being broken. The defendant has claimed that displaying of medicines was invitation to offer and there is supervision of pharmacist before checking out and the sale will execute once the customer pays at the cashier desk. The court held that it was invitation to offer and not an offer[26] .

(4) Mohiri Bibee vs DharmodasGhose

DharmodasGhose was respondent in this case. He is a minor and was sole owner of immovable property. His mother was authorised as his legal custodian by HC. He sought a mortgage on that property in favour of the appellant, Brahmo Dutta, who was a lender of money. Kedarnath was the legal attorney of Brahmo Dutta. The respondents mother sent a notification to Brahmo informing about his son’s minority on the date on which mortgage deed was commenced. Later, minor brought action against stating that he was a minor when the mortgage was executed by him and hence it is void and so the same should be cancelled. Brahmo dutta contended that minor misrepresented his age fraudulently and so law of estoppel should apply and he should pay the loan. The court held that agreement entered with minor is void ab initio which mean void from the very beginning and further stated that law of estoppel will not apply because attorney of brahmo knows the fact that he is a minor[27].

CONCLUSION

In conclusion, this article covers the fundamental principles and key aspects of the contract law. In my opinion, understanding contract laws is important because every individual enters into a contract in some or the other way which may be implied or expressed. With the technological era evolving, the concept of e-contracts has introduced and with more trading, business pertaining internationally international contract laws also developed . There were amendments with respect to the changing era and still the scope is less to some extent. Hence, with recent developments , amendments also have to be brought within the time span so that they are implemented .

[1] Shrishti Choudhary, History of the Indian Contract Act, vol 3 of jus corpus law journal, cited page – 573, 2022, https://www.juscorpus.com/wp-content/uploads/2023/01/117.-Srishti-Choudhary.pdf , last seen on 2-8-2023

[2] https://www.studocu.com/in/document/lloyd-law-college/llb/13-4-history-and-development-of-contract-law/34179663 , last seen on 2-8-2023

[3] Patra, Atul Chandra. Historical background of Indian contract act 1872, journal of the Indian law institute, vol 4, no.3 , 1962, cited page 1,3,20,21. Jstor, https://www.jstor.org/stable/43949727 , last seen on 3-8-2023

[4] https://www.merriam-webster.com/dictionary/contract#:~:text=%3A%20a%20binding%20agreement%20between%20two,especially%20%3A%20one%20legally%20enforceable

[5]Richard Stone and James Devenney, The modern law of contract, , pg. no. 2, 11^th edition

[6] https://www.indiacode.nic.in/show-data?actid=AC_CEN_3_20_00035_187209_1523268996428&orderno=10#:~:text=All%20agreements%20are%20contracts%20if,expressly%20declared%20to%20be%20void.

[7] https://sociallawstoday.com/essential-elements-of-a-valid-contract/

[8] https://blog.ipleaders.in/all-about-different-types-of-contracts/

[9] AIR 1993 Delhi 315, ILR 1991 Delhi 303, 1991 RLR 87

[10] https://ironcladapp.com/journal/contracts/express-contract/#:~:text=An%20express%20contract%20is%20an,legal%20steps%20to%20enforce%20them.

[11] https://blog.ipleaders.in/implied-contracts-in-india/#Definition_of_implied_contracts

[12] https://www.upcounsel.com/void-contract

[13] https://blog.ipleaders.in/voidable-contracts-all-you-need-to-know/#What_are_voidable_contracts

[14] https://www.investopedia.com/terms/q/quasi-contract.asp

[15] https://blog.ipleaders.in/need-know-formation-contract/