Introduction
The Indian contract act 1872 governs contracts and agreements, this act provide legal framework for contract law. The Indian contract law amended several times according to economic and social conditions. This article provides an overview on Indian contract act, 1872.
What is contract?
The term contract is derived from Latin word ‘Contractus’ and ‘contractum’ which means a ‘formal agreement or pact’ and ‘contractum’ is the past participle form of the verb ‘contrahere’ means to draw together or to make an agreement.
A contracts brings or draws the parties together and establishes legal relationship between them. Agreement is basis of contract. An agreement which can be enforced through the court of laws is called contract.
In Indian contract act, 1872 defines definition of contract under section 2(h) which defines “An agreement enforceable by law”.
According to Salmond and Pallock,
Contract is an,
Agreement creating and defining obligations between the parties. –Salmond
Every agreement and promise enforceable by law is a contract. –Pallock
Historical background
The Indian contract act brings for the citizens of India. Contract act provides rights, duties, and obligations on the contracting parties to successfully conclude business and everyday life transactions.
The Indian contract act, 1872 was enacted on 25th April, 1872 and came into force on the 1st September,1872 as mentioned in section 1 (Preliminary) in Indian contract act,1872. Also extent to the whole of India after the amendment came into force on 31st October 2019.
The Indian contract act was constituted on the basis of English common law. It is one of most important legislation drafted by Britishers, it is the codification of general principle governing transactional relationship.
Before the enactment of the act, the contractual relationship was governed by the personal laws of Hindu and Muslim and English law was applied in the Presidency towns of madras, Bombay and Calcutta.
Advent of Indian contract act
The Indian contract act applied today was originally drafted by the third Indian law commission the year 1861 in England. The Indian contract bill defined laws relating to contracts sale of movable properties, indemnity, guarantee, agency, partnership and bailment.
The bill was not the complete law of contract, but the aim was to suffice the need of the country, judges of courts were taking help of English laws when they failed to give judgements on behalf of justice, equip and good conscience.
Amendments
The act came into effect in 1872 but soon afterwards amendments were made, which repealed section 76 to 123 dealing with the sales of goods act and separate legislations were enacted called sales of goods act, 1930.
And, sections from 239 to 266 dealing with partnership was repealed and new laws was enacted under the Indian partnership act, 1932.
Free consent of parties to a contract is one of the essential elements of a valid contract as per section 10.
Consent [section 13]
Where did word consent come from?
The word consent comes from Latin words ‘con’ and ‘sentire’ means ‘together’ and ‘feeling’. Together form word ‘consentire’ which in English “consent”.
Meaning of consent – to give assent or approval.
Consent
According to section 13,
Two or more persons are said to be consent, when they agree upon the same thing in the same sense, which means that parties must understand the subject matter of the contract at the same time in the same sense.
In English law this is called consensus-ad idem. When there is no consent, there is no contract.
For example: “A” consents to let “B” buy his home. A wants to sell one of his three homes in Haridwar. B believes he is purchasing his home in Delhi. In this instance, ‘A’ and ‘B’ have not agreed upon the same thing in the same sense. Therefore, there is no consent nor a subsequent contract.
Free consent [section 14]
In contract law, “consent” refers to the agreement or willingness of parties to enter into a contract. Indian contract act,1872 addresses the “free consent” as a essential element in forming a valid contract. Without free consent, an agreement cannot be deemed legally binding and contract become voidable.
For a valid contract consent of parties is not enough but consent should also be free the consent given by free will of the parties involving no pressure or use of force.
Free consent
According to section 14 “consent is said to be free when it is not caused by
- Coercion is defined under section 15
- Undue influence is defined under section 16
- Fraud is defined under section 17
- Misrepresentation is defined under section 18
- Mistake is defined under sections 20, 21 and 22
Free consent is the consent that the free will of the parties has obtained out of their own assent.
When the consent is obtained by coercion, undue influence, fraud or misrepresentation, the contract is voidable at the option of the party whose consent was so obtained, and when the consent is caused by mistake, the agreement is void.[section19]
Coercion
Coercion is threaten or force used by one party against another for compelling him to enter the agreement. According to section 15 of Indian contract act, “consent is said to be caused by coercion, when it is obtained by either of the following techniques:
- Committing or threatening to any person to commit any act that is forbidden by the IPC.
- Unlawful detaining or threatening to detain any property of any person.
Coercion under English law is also known as –DURESS
In Indian law, coercion aspects in both property and person.
In British law, coercion aspect in person only.
For example,
‘Gian’ beats ‘Nobita’ and compels him to sell his car for Rs. 50,000/-. Here, Nobita’s consent has been obtained by coercion beating someone is an offence under the IPC.
Case law
Ranganayakamma v. Alwar setti [1889]
A young widow, was forced to adopt a boy, and the court held that her consent was obtained under coercion, rendering the adoption invalid.
Undue influence
It means dominating the will of the other person to obtain an unfair advantage over the other section 16 of Indian contract act provides that a contract is said to be induced by undue influence.
- Where the relations subsisting between the parties are such that one of them is in a position to dominate the will of the other and obtain unfair advantage.
- Where a person holds a real or apparent authority over other.
- When one stands in a fiduciary relation to the other.
- Fiduciary relation is a relation of trust and confidence between the persons.
Example of fiduciary relation:-
- Lawyer and client
- Doctor and patient
- Master and servant
- Trustee and beneficiary
Example
A boss exerts undue influence upon Tarak (his employee) to make a certain agreement with him. If not Tarak will be drawn from his job.
Case law
Manu Singh Vs Uma Dutt
In this case, a Hindu lady made a gift of all her property to her spiritual Guru, to secure benefits in the next world. The Allahabad high court ruled the contract invalid, finding that the gift was made due to the undue influence and hence voidable.
Fraud
The consent of a weaker party is obtained by dominating his will by taking unfair advantage.
Any act’s committed by a party to a contract or with his convinance or by his agent with the intent to deceive or to induce the another party or his agent to enter into a contract.
From starting person committed all the acts that included under the term ‘fraud’ with the intension to deceive another person.
Example
‘Jethalaal’ sells to ‘Bhide’ locally manufactured goods as imported goods charging a higher price, it amounts to fraud.
Case law
Sampath kumar v. A.S. Ramaswamy [1998]
The case discusses fraud under section 17 of the Indian contract act, dealing with false representation in business dealings. The court observed that fraud includes any act or misstatement that misleads another party into entering a contract.
Misrepresentation
Misrepresentation, means a false representation made innocently or non disclosure of a material fact without any intention to deceive the other party. It also includes breach of duty and positive assertion means information is not true, though believes it to be true.
Example
A car dealership advertises a used car as “certified pre-owned”, but the car has not undergone the required inspections or repairs to meet the certification standards. The dealership misrepresents the condition of the car, leading the buyer to believe they are purchasing a car in better condition than it actually is,
In this case, the misrepresentation could lead to the buyer making a purchase decision based on false or incomplete information.
Case law
Derry v. peek [1889]
Established fraudulent misrepresentation, where a statement made with intent to deceive or recklessly is deemed fraudulent, and the party making it is liable for damages.
Mistake
Mistake defined under section 20, 21,& 22 of Indian contract act 1872
The word ‘mistake’ refers to an wrong belief or misunderstanding that has an impact on the conditions of an agreement.
Mistakes may be classified into two categories :
- Mistake of fact [sec 20, 22]
- Mistake of law [sec 21]
Mistake of fact
Either one or both of the parties of a contract are subject to a misunderstanding about an essential element of an agreement, this is known as a mistake of fact.
In the case of Phillips v. Brooks Ltd, it was held that a person Phillips intended to contract with a person in front of them, unless they can substantially prove that they, instead of the other person, intended to deal with another person.
Mistake of fact may be of two types:
Bilateral mistake [sec 20]
According to section 20 of the Indian Contract Act, where both parties are under a mistake as to a matter of fact essential for the agreement.
In mistake of fact by both agreement is void.
Example
Sofia agrees to buy from Leo a certain dog. It turns out that the dog was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void.
Unilateral mistake [sec 22]
According to section 22 of the Indian Contract Act, where contract caused by the mistake of one party as to a matter of fact, terms and subject matter. A contract is not voidable merely because it was caused by one of the parties to it being as under a mistake as to a matter of fact. The contract is valid. Since another party is aware of the error.
Example
If Bhagha makes a mistake and quotes a cheaper price on an electronic products, and Jethalaal is already know about this error but still goes forward with the contract, this might be called a unilateral mistake on the part of Jethalaal. However, the contract would still be valid.
Mistake of law [sec 21]
‘Ignorantia juris non excusat’
Ignorance of law is no excuse
When a person enters into a contract to create legal contract he should have the knowledge of rules of law relating to contract.
Mistake of Indian law:
If there is mistake of law of the country, the contract is binding because everybody is supposed to know the law of the country. A contract is valid because it was caused by a mistake as to any law in force in India.
Mistake of foreign law:
If a person takes part in a country without being aware of any specific provisions of foreign law that are essential for that contract, then that mistake has the same effect as of mistake of fact.
Example
A person is unaware that driving without a license is illegal and gets caught: they cannot use this as a defence to avoid liability.
Case law
Mahabir Kishore & ors. V. state of Madhya Pradesh
This case highlights that a suit for refund of money paid under a mistake of law is possible.
Conclusion
Indian contract act 1872, describes the sections that essential for day-to-day life contracts. All agreements that enforceable by law are contract. Free consent is the essential element of Indian contract act, 1872 which provides consent is free from coercion, undue influence, fraud, misrepresentation and mistake.
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