Basic Principles Under the Indian Contract Act, 1872

In ancient times, the most prevalent trade and commercial system was by way of barter, which was based on the mutual principle of give and take. The barter system was only confined to commodities and there was no medium of exchange in form of monetary value. However, as times have changed and economies developed, a need for a robust structure to tackle the complexity of the value of commodity in exchange of money arose.

During the British era, trade with India was of paramount importance. With the growing complexity of trade and commerce in India, the British government enacted a special law that catered to the wellbeing of their businesses. The said act was called the “The Indian Contract Act, 1872” and is one of the oldest mercantile laws in India which came into effect on the 1st of September, 1872 and is still in force up until this very date. The principles of the Indian Contract Act are based on the English common law.

The Indian Contract Act is divided into two parts, Section 1 to 75 deals with the general principles of contract and the sections thereafter deal with principles affecting specific contracts. The Act endows rights, duties and obligations on the contracting party and/or create certain rights and obligations between them. The Contract Act provides for enforceability of two types of rights, Right in rem and Right is personam. The right in Rem is a right of a person against the world and the Right in personam is a right of a person against an individual.

Basic Principles under the Indian Contract Act

”What is a contract”
Under the Indian Contract Act, a contract is defined as an agreement that is enforceable by law.

“What is a conclusive Contract”

For two parties to enter into a conclusive Contract, an offer needs to be made by one party which is accepted by the other party. The Indian Contract Act further provides for certain criteria that are required to be fulfilled for the contract to be conclusive and enforceable under law. The criteria are that the offer has been communicated by one party to the other party, the offer has been either accepted or revoked by the other party. An offer once accepted cannot be revoked. Lastly, the offer needs to be made for lawful consideration. Consideration means an act, abstinence or promise to do or abstain from doing something at the desire of the promisor.

In the Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, the Court of Appeal found that when an offer for a unilateral contract is made and the conditions stipulated in the offer are completed, it is deemed that the offer has been accepted.

“What are the remedies available to enforce the Contract”

In the event the other party is unable to perform or fulfil its obligations under the Contract, the Indian Contract Act, makes provisions to remedy the breach caused the other party. The aggrieved party can approach the appropriate Court to issue directions to the other party who has breached the Contract or compensate the suffering party in the form of damages. The remedies available for the parties affected by the breach of contract include either party having the ability to rescind the contract and refuse further performance, the aggrieved party can sue for damages as stipulated under the Contract or in accordance with the law, the aggrieved party can also sue for specific performance of the Contract or can approach the Court for a restraining order in the form of an injunction and/or can sue on quantum meruit.

Conclusion

In the modern times, contracts have become a vital part of day-to-day activities for many corporate entities and individuals. The protection of the law enables corporate entities and individuals to be able to optimize bargains and to strike the best deal. This helps contracts to function legitimately and also provides remedies to those affected by it. Hence, it is difficult to draft a contract without taking into consideration the basic principles of the Act and therefore, the Indian Contract Act, 1872, is undoubtedly one of the most widely referred Acts and an important statute in India.

We at D’Andrea and Partners have a team of experts who are continually monitoring the changes in the Indian laws and regulations. Reach out to us on info@dandreapartners.com if you have any questions.