Short essay on The Indian Contract Act – 1872

The law of contract is the foundation upon which the superstructure of modern business is built. It is common knowledge that in business transactions, quite often, promises are made at one time and the performance follows later. In such a situation, if either of the parties were free to go back on its promise without incurring any liability, there would be endless complications and it would be impossible to carry on trade and commerce.

Hence the law of contract was enacted which lays down the legal rules relating to promises: their formation, their performance, and their enforceability. Explaining the object of the law of contract, Sir William Anson observes: “The law of contract is intended to ensure that what a man has been led to expect shall come to pass; that what has been promised to him shall be performed.”

The law of contract is applicable not only to the business community, but also to others. Every one of us enters into a number of contracts almost every day, and most of the time, we do so without even realizing what we are doing from the point of law. A person seldom realizes that when he entrusts his scooter to the mechanic for repairs, he is entering into contract of bailment or when he buys a Packet of cigarettes, he is making a contract of the sale of goods; or again when he goes to the cinema to see a movie, he is making yet another contract; and so on.

Besides, the law of contract furnishes the basis for the other branches of Commercial Law. The enactments relating to sale of goods, negotiable instruments, insurance, partnership and insolvency are all founded upon the general principle of contract law. That is why, the study of the law of contract precedes the study of all other sub-divisions of Commercial Law.

The Indian Contract Act, 1872:

The law of contract in India is contained in the Indian Contract Act.

Throughout Part I of this book, which deals with the Law of Contract, the references to Sections, unless otherwise specially stated, are references to Sections of the Indian Contract Act, 1872. The word ‘Act’, wherever used, means the Indian Contract Act, 1872. This Act is based mainly on English Common Law which is to a large extent made up of judicial precedents. (There being no separate Contract Act in England).

It extends to the whole of India except the State of Jammu and Kashmir and came into force on the first day of September 1872. The Act is not exhaustive. It does not deal with all the branches of the law of contract. There are separate Acts which deal with contracts relating to negotiable instruments, transfer of property, sale of goods, partnership, insurance, etc. Again the Act does not affect any usage or custom of trade (Sec. 1).

Scheme of the Act :

The Scheme of the Act may be divided into two main groups:

1. General Principles of the law of contract (Sees. 1-75)

2. Specific kinds of contracts, viz:

(a) Contracts of Indemnity and Guarantee (Sees. 124-147).

(b) Contracts of Bailment and Pledge (Sees. 148-181).

(c) Contracts of Agency (Sees. 182-238).

Before 1930 the Act also contained provisions relating to contracts of sale of goods and partnership. Sections 76-123 relating to sale of goods were repealed in 1930 and a separate Act called the sale of Goods Act were enacted. Similarly, Sections 239-266 relating to partnership were repealed in 1932 when the Indian Partnership Act was passed.

Basic Assumptions underlying the Act :

Before we take up the discussion of the various provisions of the Indian Contract Act, it will be proper to see some of the basic assumptions underlying the Act. These are:

1. Subject to certain limiting principles, there shall be freedom of contract to the contracting parties and the law shall enforce only what the parties have agreed to be bound. The law shall not lay down absolute rights and liabilities of the contracting parties. Instead, it shall lay down only the essentials of a valid contract and the rights and obligations it would create between the parties in the absence of anything to the contrary agreed to by the parties.

2. Expectations created by promises of the parties shall be fulfilled and their non-fulfillment shall give rise to legal consequences. If the plaintiff asserts that the defendant undertook to do a certain act and failed to fulfill his promise, an action at law shall lie.