In the commercial and corporate laws in India the Indian contract act is one of the oldest and essentially operating law throughout the centaury in the monetary, commercial and property transactions.

 THE OBJECTIVES
  • To ensure that the rights and obligations arising out of a contract are fulfilled.
  • If the contract is not honored by the default of either party or parties then legal remedies are made available to those who are affected.

SCHEME OF ACT
  • Section 1-75 Provisions related to contract.
  • Section 76-123 Provisions related to “Sale of Goods Act”
  • Section 124-147 Provisions related to “Indemnity and Guarantee”
  • Section 148-181 Provisions related to “Bailment and Pledge”
  • Section 182-238 provisions related to “Agency”
  • Section 239-266 Provisions related to “Partnership Act”

Section 1 to 75 contains the general principles related to the contract. As per the Indian Contract Act,1872, a “contract” is an agreement enforceable by law. The agreements which are not enforceable by law are not contracts. An “agreement” means ‘a promise or a set of promises’ forming consideration for each other. And a promise arises when a proposal is accepted. By implication, an agreement is an accepted proposal. In other words, an agreement consists of an ‘offer’ and its ‘acceptance’.

ESSENTIALS FOR THE VALIDITY  OF CONTRACT
  • Intention for a legal relationship
  • Free consent
  • Competency of parties
  • Lawful object and consideration.
  • Agreement not expressly declared to be void.

STAGES OF FORMATION
  1. Proposal
  2. Promise
  3. Consideration

TYPES OF AGREEMENTS

Legally Enforceable Legally not enforceable
1.Contract     2.Voidable Agreement Void Agreement

TYPES OF CONTRACTS

VALIDITY BASIS        FORMATION BASIS PERFORMANCE BASIS
1. Valid Contracts 1. Express Contracts 1. Executed Contracts
2. Void Contracts 2. Implied Contracts 2. Executory Contracts
3. Voidable Contracts 3. Quasi Contracts 3. Unilateral Contracts
4. Illegal Contracts 4. Contingent Contracts 4. Bilateral Contracts

UNENFORCEABLE CONTRACTS

The common requirement for the offer and acceptance is that the “Effective Communication”. The act press importance upon the “time essence of contract” where the offer and acceptance is complete.

  • Thus “communication of offer is complete when it comes to the knowledge of person whom it is made.
  • “communication of acceptance is complete when 1)Against the proposer when it is put into the transmission of proposer.2) Against the acceptor when it comes to the knowledge of Offeror.
  • If revocation is made then it is complete when it is put into the transmission to the person to whom it is made.
  • Consideration is the promise/performance that parties exchange with each other.
  • Contract without consideration is void subject to certain exceptions agreement on account of natural love, affection, time barred debt, Agency, gift actually made etc.
  • Other essentials of contract are Free consent, coercion, Undue influence, Fraud, Misrepresentation, Mistake,

PERFORMANCE OF A CONTRACT
  • Contract can be performed by promiser himself, His agent, Representative, Third person, Joint promiser.
  • If the promisee has not accepted the offer or tender of performance by the promiser then Then the promisor is not responsible for non performance.
  • Where a party to a contract refuse to perform his part or obligation of the contract then the aggrieved party has the right either 1. To terminate the contract. 2) o indicate by the word or conduct about the interest in the continuance of the contract.
  • The liability of the joint promiser is to fulfill the promise jointly. When the promisee enforce his right against either of the promisor to perform the whole contract that time the performing promisor can recover his dues from the rest of promisors.
  • The rights of the joint promise to claim the performance of contract from the promiser rests with them jointly during their lives and after them with their legal representatives.
  • “Time and place of contract” is seen as to be fulfilled at “reasonable place and at reasonable time.”

PERFORMANCE OF RECIPROCAL PROMISES
  • A contract may consist of 1) an act and a promise 2)two promises one being consideration for each other. The second type is known as reciprocal promises where both parties promises each other.
  • Reciprocal promises can be performed simultaneously Where the conditions and performance are concurrent.
  • Reciprocal promises can be performed as its order expressly fixed or by implications also.
  • If it happens in the reciprocal promises that one party is preventing the other party from performing the contract then the contract is voidable at the option of party who has been prevented from its performance.
  • If the one part of reciprocal promises one part is legal and other is illegal. In that circumstances legal part shall be valid contract and the rest illegal will be void contract. Where in the alternative promises one promise is legal and other is illegal in that situation only the legal branch of contract shall stand alone.
  • “Time is an essence of contract” as the contract shall be performed as per the time fixed for it. Failure to perform the contract at an agreed time will amount to breach of condition of the contract will be voidable

APPROPRIATION OF PAYMENT
  • It the term where the debtor owes so many debts to another person i.e. creditor and when he releases certain payments, then question arises as to how to adjust the receipt against so many dues. Indian contract act sec 59-61 answers this question.
  • When the debtor owing several debts to one person makes a payment to discharge some particular debt with express intimission , and if his payment being accepted by the person then it must be applied to that particular debt accordingly and not to the whole debt.”
  • Where the debtor does not intimate as to which part of debt he is paying off that time the creditor has to apply his discretion.
  • If it happens that in the absence of express intimission of the debtor and the failure of the creditor to recognize it then the debt shall be appropriated as per the order of time and if the debt is equal standing the payment shall be appropriate proportionately.
  • Some contracts which need not to be performed are the contracts of 1) Novation 2)rescission 3) alteration  4)remission

DISCHARGE OF CONTRACT
  • A contract is discharged by its impossibility of performance.
  • Impossibility may be of two types i.e. 1) Initial impossibility existed at the time of initial stage of an agreement. And 2) Subsequent or supervening Impossibility arises after the formation of contract.
  • The contract become void when its performance become impossible.
  • Doctrine of frustration can be applied in to the case of supervening impossibility where the performance of the contract becomes impossible and where the object of the contract has failed. Thus this doctrine is not applicable in India. Where the impossibility of contract must be considered only terms of sec. 56 which only covers the supervening impossibilities and not its implied terms.
  • Performance of the contract leads to the discharge of contract. The other alternative methods for discharging of contracts where the contract would not required the performance are 1) Novation 2) rescission 3) alteration 4) remission.
  • Thus contract may also discharge by the the agreement between the parties or by lapse of time for performance or by operation of law or impossibility of performance or by breach of contract.
  • A voidable contract is voidable at either at its inception or subsequently comes to an end when it is avoided by the parties at whose option it is avoided. In such case no contract need to be performed but there is restoration of benefit.
  • Any agreement which is discovered to be void or contract which becomes void, there any person who received an advantage must restore it or pay compensation for damages in order to put the position prior to the contract.

BREACH OF CONTRACT
  • Breach of contract means failure or refusal of any one party to perform his contractual obligations under the contract. It is either actual or anticipatory breach of contract.
  • Actual breach is failure /refusal of any one party to perform his contractual obligation under the contract when it is due. Here the contract is voidable at the option.
  • Anticipatory breach of contract is where the promisor refuses to perform his obligation even before the specified time of performance and signifies his unwillingness then there is an anticipatory breach. Here the aggrieved party may immediately treat the contract voidable or wait till time when the performance is due.
  • Aggrieved party has the remedies on the breach of contract i.e. Recession of contract, Suit for damages, Suit for quantum merit, Specific performance and for injunction.
  • Recession means the cancellation of contract by consent of all parties/aggrieved party.
  • Damages means the monetary compensation payable to the injured party for the loss due to breach of contract by the defaulted party.
  • Thus damages can be liquidated or liquidated. Liquidated means the pre estimated amount of damages that are mentioned In the contract and payable upon the breach of contract.
  • Penalty amount which is specified in the contract which is high and disproportionate from the amount of damages in the event of its breach. This amount can be paid as of punishment to avoid the breach of contract.

To be continued..

-Adv. Anjali Zarkar

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