Introduction
Hi, I am Moulik, In this Post Let’s explore what is a contract and its meaning and the nature of a contract also let’s see some of the important definitions in the Indian Contract Act, 1872.
To keep up with my updates, you can follow me on LinkedIn.
https://www.linkedin.com/in/moulik-c
Introduction about Contract
Contracts aren’t just for businesses; they show up in our everyday lives too. Think about it: every time you buy a newspaper, use a credit card to purchase a dress or pay a parking fee, you’re entering into a contract.
These everyday transactions are simple examples, but contracts can also be much more complex, like when you’re buying or selling property, which usually involves detailed written agreements.
At its core, contract law is about figuring out when promises made between parties become legally binding. It doesn’t prescribe specific duties and responsibilities but provides guidelines and principles that help parties create their own enforceable rights and obligations.
So, whether it’s a quick trip to the store or a major property deal, contracts are all around us, shaping the way we interact and do business.
The Indian Contract Act, 1872
The law about contracts in India is governed by the Indian Contract Act of 1872. This Act applies everywhere in India except for Jammu & Kashmir. It came into effect on September 1, 1872. Before that, India followed the English law of contracts.
The Indian Contract Act has two main parts:
- General principles of contract law, covered in Sections 1 to 75.
- Special types of contracts are detailed in Sections 124 to 238.
The general principles apply to all contracts, no matter what they’re about. The special contracts include things like Indemnity, Guarantee, Bailment, Pledge, and Agency.
Note:
The Indian Contract Act, 1872. Did not apply to Jammu & Kashmir because of Article 370, which gave the state a special status.
However, after Article 370 was removed by the Jammu & Kashmir Reorganisation Act, 2019, the Indian Contract Act now applies to the union territories of Jammu & Kashmir and Ladakh.
Definition of Contract
Section 2(h) of the Contract Act, 1872. Says that a contract is an agreement that the law will enforce. For a contract to be strong and enforceable, it needs an offer, acceptance, consideration (something of value exchanged), clear terms without any ambiguity, and signatures from parties who have the capacity to enter into the contract.
In simple terms, a contract is an agreement enforceable by law between two or more parties, where they intend to create a legal relationship and not just exchange mutual promises. Each party gives or promises to give something of value in return for a benefit from the agreement.
A contract is formed in three steps:
- Offer + Acceptance = Promise
- Promise + Consideration = Agreement
- Agreement + Enforceable by Law = Contract
Illustration: Let’s say X agrees to build a house for Y, and Y agrees to pay X Rs. 2 lakhs. This agreement between X and Y is a contract because it’s something the law will enforce.
Agreement
Section 2(e) of the Contract Act,1872. Every promise and every set of promises, forming the consideration for each other, is an agreement. It’s like when two people decide to do something for each other and make promises. These promises form the basis of the contract.
Illustration: Imagine Sarah and Raj. Sarah promises to bake a cake for Raj’s birthday, and in return, Raj promises to help Sarah with her garden over the weekend. This exchange of promises between Sarah and Raj creates an agreement. They each have something they will do for the other, making their arrangement mutually beneficial.
So, in simple terms, an agreement is when two or more parties make promises to each other, forming the foundation for a potential contract.
The formation of the Agreement will be Promise + Consideration = Agreement
Consideration
Section 2(d) of the Indian Contract Act, 1872 Consideration is When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.
Let me give a simple explanation for the above, consideration is what one party gives, does, or promises in exchange for the other party’s promise. It’s like the value that each side brings to the table in a deal.
Illustration: think about John and Priya. John promises to paint Priya’s house, and in return, Priya promises to pay John Rs. 20,000. Here, John’s act of painting the house is his consideration, and Priya’s promise to pay Rs. 20,000 is her consideration. Both are giving something of value to make the agreement work.
In simple terms, consideration is the give-and-take part of an agreement where each party provides something valuable in return for the other party’s promise.
Promise
Section 2(b) says that When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a “promise”.
Let me break it down in a simple explanation for you, Promise is made when someone’s proposal is accepted. It’s like when you ask your friend if they want to go to the movies, and they say yes. Your invitation is the proposal, and their agreement is the acceptance. Together, that forms a promise.
In legal terms, a promise is created when one person makes an offer, and the other person agrees to it. This is a crucial step in forming a contract because, without acceptance, there’s no promise and, therefore, no agreement to enforce.
Illustration: If Alice offers to sell her bike to Bob for Rs. 5,000 and Bob agrees to buy it, Alice’s proposal and Bob’s acceptance together form a promise. Now, they both have something to hold onto – Alice promises to give the bike, and Bob promises to pay Rs. 5,000. This mutual agreement is what makes the promise legally binding.
Proposal / Offer
Section 2(a), When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a “proposal”.
I know from the above statute you could not understand a bit let me break it down for you. A proposal is when one person shows they are willing to do something or not do something, hoping to get the other person to agree. It’s like saying, “I’m ready to do this if you’re okay with it.”
Illustration: Imagine Emma tells Jack, “I’ll help you with your project if you help me with mine.” Here, Emma is proposing. She’s expressing her willingness to help Jack, but she wants Jack to agree to help her in return. This proposal is the first step in forming an agreement or a contract.
In simple terms, a proposal is an offer made by one party to another, expecting the other party to accept it.
Remember Offer / Proposal is the beginning to a Contract, If there is no offer then there is no acceptance and hence there is no contract between the parties.
Promisor and Promisee
Section 2(c), defines the roles in a proposal. The promisor is the person who makes the proposal, and the promisee is the person who accepts it.
The Promisor and Promisee are also called Offeror and Offree.
Illustration: If Rahul offers to sell his guitar to Meera, Rahul is the promisor because he’s making the offer. When Meera agrees to buy the guitar, she becomes the promisee because she’s accepting the offer.
In simple terms, the promisor is the one who proposes, and the promisee is the one who says yes to it.
Conclusion
I hope this post is really very helpful for you and its just the basics of the Indian Contract Act, 1872 and stay tuned to know more.
Thank you
