According to Sir William Anson the law of contract is intended to ensure that what a man has led to expect shall come to pass; and what has been promised to him shall be
performed .The law of contract does not lay down a number of rights and duties which the law will enforce; it consists of rather a number of limiting principles subject to which the parties may create rights and duties for themselves which the law will uphold.
Case Law: In Roop Kumar v. Mohan Thedani (AIR 2003) the supreme court held that the integration of the act consists in embodying it in a single utterance or memorial- Commonly , of course a written one .Thus importance to written contract was laid down.
Kinds of contract:-
From the point of view of form of contract it is of two kinds:-
(1) Ordinary Contract
(2) Standard Form Contract
In view of the unequal bargaining power of the two parties the courts have envolved
following rules to protect the interest of weaker parties
1. Reasonable notice
2. Reasonable terms of contract
3. The theory of fundamental breach
4. Strict construction of exemption clause
5. Exclusion of contractual liability not negative tortuous liability
WHAT IS A CONTRACT?
As per Section 2(h) of the interpretation clauses of the Indian Contract Act, 1872, “an
agreement enforceable by law is a contract.”
‘An agreement’: As per Section 2(e), “every promise and every set of reciprocal
promises forming the consideration for each other is an agreement.”
‘Consideration’: As per Section 2(d), “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.”
‘Promise’: As per Section 2(b), “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.”
‘Proposal’: As per 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 person of such act or abstinence, he is said to make a proposal.”
Some other definitions given in the interpretation clauses are:
(1) Promisor and Promisee [Section 2 (c)] – The person making the proposal is called
the ‘promisor’ and the person accepting the proposal is called the ‘promisee’.
(2) Reciprocal promises [Section 2(f)] – “Promises which form the consideration or
part of the consideration for each other are called reciprocal promises.”
(3) Void Agreements [Section 2(g)] – “An agreement not enforceable by law is called
void agreement.”
(4) Voidable Contract [Section (i)] – “An agreement which is enforceable by law at the
option of one or more of the parties thereto, but not at the option of the other or
others, is a voidable contract.”
(5) Void Contract [Section 2(j)] – “A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable.” (This definition presumes that in
ceases of a void contract there is no voidness ab initio. To be termed a contract it
must have been a contract at some point of time.)
Difference between an agreement and a contract
As per Section 2(e) of the Indian Contract Act, 1872, “every promise and every set of
promises forming the consideration for each other is an agreement.”
Thus, an agreement comprises of a promise (or promises) from both the sides e.g. A
promises to deliver his radio to B, and in return, B promises to give to A Rs.1000 An
agreement.
Promise has been defined in Section 2(b) as: “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.”
Thus, acceptance of the proposal is a must to form a promise e.g. A proposes to give his
radio to B. B does not respond (in any way). Here, there is no acceptance and hence no
promise. On the other hand, if B accepts even by nodding his head, it constitutes a valid
promise. Acceptance should be expressed by some mode of communication.
Proposal has been defined in Section 2(a) as: “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 person to such act or abstinence, he is said to make a proposal.”
The word ‘signifies’ (signification of ‘willingness’) is the key to the definition of proposal
and promise. It can be made by any mode of communication. Signifies means some
external manifestation.
Thus, an agreement is said to be made whenever there is a valid set of promise(s) from
both the sides, e.g. A proposes to B to give him his radio. B signifies his acceptance of the
proposal. This constitutes a promise on the part of A. On the other hand, B proposes to pay
Rs. 500 for the radio and A accepts this proposal. This constitutes a promise on the part of
B. The two promises together constitute an agreement.
But in order to form a contract, there has to be something more. Section 2(h) defines a
contract as: “An agreement enforceable by law is a contract.”
Thus, in order to form a contract, the enquiry has to be at two stages:
(a) A valid agreement (as discussed above)
(b) It should be enforceable by law.
As per Section 10, the following conditions have to be fulfilled by an agreement to be
enforceable
(a) Parties should be competent to contract e.g. minors and unsound persons cannot
contract per se.
(b) Lawful consideration and lawful object in respect of that agreement e.g. an
agreement to commit theft no contract.
(c) There should be free consent of the parties e.g. consent by force no contract.
(d) One, which has not expressly been declared to be void by the Act.
Thus, all agreements are not contracts but all contracts are agreements e.g. an
agreement to supply goods will be a contract if the conditions of Section 10 are satisfied.
But an agreement to see a movie cannot be a contract. However, a contract to supply
goods will always have an agreement.
In this regard, it would be pertinent to note that from the point of view of legality,
agreements are of the following types:
(1) Contract – (discussed above).
(2) Void agreements [Section 2(g)] – An agreement not enforceable by law is void e.g.
an agreement of a minor (Sections 23 to 30 talk about such agreements).
(3) Voidable contracts [Section 2(i)] – An agreement enforceable by law at the option
of one or more of the parties thereto, but not at the option of the other or others e.g.
when consent has been obtained by coercion, fraud, misrepresentation or undue
influence. If the party concerned does not avoid it, the agreement is a contract.
(4) Illegal agreements – Opposed to public policy e.g. an agreement to commit a crime
or a tort. But certain agreements may be void or voidable but not illegal, depending
upon the degree of its opposition to public policy e.g. an agreement in restraint of
trade is void but not illegal.
Void agreement v. Voidable contract
Void agreement is a nullity from its very inception and no rights accrue. A voidable
contract is valid until it has been avoided and rights accrue till then.
Consensus ad idem, read with definition of contract –The difficulties attendant upon a
definition of contract in subjective terms have led to the formation of an objective theory
which places little emphasis upon the meeting of minds and much more upon the legal
expectations aroused by the conduct of parties. Section 2(h) defines a contract as an
agreement enforceable by law.
The test of contractual intention is objective rather then its being subjective .The supreme
court cited a passage from a English case in Bahamas Oil Refining Co v. Kristiansands
Tankrederie which reads as “In deciding whether or not there was any contract in relation to
a certain transaction or whether or not sufficient notice of a certain terms was given the law
applies and not a subjective test” Further in CWT v. Abdul Hussain Mulla Mohd Ali 1988 the
supreme court cited that in addition to the existence of an agreement and the presence of
consideration there is also the third contractual element in the form of intention of the parties
to create legal relations.
Consensus ad idem=>Lord Hannen in Smith v. Hughes held that –It is essential to the
creation of a contract that both parties should agree to the same thing in the same sense.
True consent is an agreement upon the same thing in the same sense as encorporated by
section 13 of the Indian Contract Act and is at the root of every contract. True consent is
said consensus ad idem.
