Indian Contract Act, 1872: Essentials of Contract

Reading time : 6 minutes

Introduction:

We often hear the word ‘contract’, ‘agreement’, ‘sales deed’ et cetera in our daily life when we engage ourselves in property dealing matters or when we go into a new city for education or job or for any other reason(s) and we need to get a home or an apartment on rent. However, keeping sales deed aside, majority of people use the terms ‘contract’ and ‘agreement’ synonymously. Much to their surprise, both are two different terms. An agreement is a mutual understanding or an arrangement between two or more parties which is not enforceable in a court of law, however, a contract is a formal arrangement between two or more parties which has various elements of the law and is enforceable in a court of law. So this was the basic about them. In this article, we are going to rendezvous through the essentials of a contract or the elements of law present in a contract with the help of this article.

What is a Contract?

As it is clear from the above definition, that contracts are those agreements that are enforceable in a court of law, that brings us to the statement which means that all contracts are agreements, but not all agreements are contract. It could be further simplified to as an agreement between two or more parties that creates in each party a duty to do or not do something, and the right to performance of the other party’s duty or a remedy for a breach. Now when we study about contracts, both the parties are required to fulfil their part of duty as written in the particular contract, failing to do so often leads to the creation of legal disputes between the parties involved, which is often the result of the sheer misunderstanding of the terms and clauses that have been mentioned in the contract, prima facie.

Section- 2 (h) of the Indian Contract Act of 1872 defines a valid contract as,

“Agreement is defined in section 2(e) [2] as every promise and every set of promises, forming the consideration for each other. A promise is when a proposal is accepted it becomes a promise as defined in section 2(b) [3]. The person who makes the proposal is called the promisor and the person accepting is called the promisee as defined in section 2(c) [4].”

Types of Contracts:

Now since we know about what a contract is, it is imperative for the readers to understand the type of contracts that are in place under the Indian Contract Act, 1872. Essentially, the types of contract could be bifurcated into two parts, which have been mentioned below:

On the basis of its enforcement

  • Valid Contract (Section- 2 (h) with essentials in Section- 10 of ICA, 1872)
  • Voidable Contract (Section- 2 (i) with Section- 14 of ICA, 1872)
  • Void Contract (Section- 2 (g) of ICA, 1872)
  • Unenforceable Contract
  • Illegal/Unlawful Contract (Section- 23 of ICA, 1872)

On the basis of creation

  • Express Contract (Section- 9 of ICA, 1872)
  • Implied Contract (Section- 9 of ICA, 1872)
  • Quasi Contract (Chapter- 5 of ICA, 1872)

Understanding the concept of Contract Law:

A contract is a legally enforceable agreement between two or more parties where each assumes a legal obligation that must be completed. Many aspects of daily life involve contracts, including buying property, applying for a car loan, signing employment-related paperwork, and agreeing to terms and conditions when buying products and services or using computer software.

Legal issues involving contracts arise most often when one party fails to perform the legal obligation it has agreed to do. When a party breaches a contract by failing to perform, the other party can often sue for money damages, or, in some limited cases, can ask the court to force the other party to perform as promised.

Contracts can also be the source of legal disputes when they are not written clearly. Parties who misunderstand the terms of their agreement may sue each other and have a court settle the argument. Additionally, when a company signs a contract and later goes out of business or is unable to fulfil its promises, the other party may have to pursue legal action in civil or bankruptcy court to obtain relief.[1]

So this essentially means that the Contract Law or to talk in Indian context, The Indian Contract Law of 1872 covers an array of the governing factors with respect to a contract that is coming into force, but it also makes sure to cover the exceptions in case of any kind of impartiality to any and every kind of party affected.

Essential ingredients of a Contract:

Again, just like the types of Contracts, the essential ingredients have also been divided into two parts, the first part being the substantial essential ingredients and the other one being the procedural essential ingredients. We will go one by one to each of the type and then discuss about them. They are as follows:

  • Substantial Essential ingredients are those which are substantive in nature or to simply put define the structure and ethos of a contract. They are:
  • Offer (Section- 2 (a)(5) of ICA, 1872)
  • Acceptance (Section- 2 (b)(7) of ICA, 1872)
  • Consideration (Section- 2 (d)(8) of ICA, 1872)
  • Capacity/Competency (Section- 11 (9) of ICA, 1872)
  • Legality (Section- 2 (h) of ICA, 1872)
  • Procedural Essential ingredients, as the name suggests are those essential ingredients that decide the correct flow and procedure in which the Contract happens. They are mentioned below:
  • Communication of offer
  • Meeting of minds
  • Communication of the acceptance.

As it is evident from the procedural essential ingredients, they decide a chart or a flow of events which then decide how actually a contract comes into the picture, a full-fledged one.

Conclusion:

To conclude with, the readers have gone through the basics of contract, the ingredients of making a legally enforceable contract. However, as it has been said that the devil lies in the details. In the very similar fashion, the article has mentioned several sections of the Indian Contract Act of 1872 to facilitate the readers with respect to their research in the Contracts. A detailed study is encouraged because this article is just a beginner level article to guide the readers with respect to the legal point of contract. To conclude, everyone should know the basics of whatever contract they are getting into and should make sure that if they want something to be cemented in the form of clause(s) they take proper legal advice before taking the leap of faith.  


[1] What is Contracts Law? By FindLaw.com

Author: Abeer Tiwari

Editor: Kanishka VaishEditor, LexLife India.

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