Indian Contract Act, 1872
The Indian Contract Act 1872 contains section 2(h), which says, “An agreement enforceable by law is a contract.”
A contract is an amalgamation of two important concepts:
- Before having a contract, there must be an existence of an agreement.
- There must be an obligation that must be enforceable by law.
Correct analysis of section 2(h)
A valid contract is a contract that is enforceable at law as defined under section 2(h) of the Indian Contract Act 1872.[1]
“Those agreements are enforceable by law which is made by the free consent of the parties who are competent to contract for a lawful consideration and lawful object subject to the other provisions of the law.”
When all the requirements mentioned under section 10 of the Indian Contract Act are fulfilled, they become a valid contract. The requirements are:
- Agreement (combination of offer and acceptance):- Offer and acceptance result in an agreement. To form an agreement, it is necessary to accept the offer by the person to whom it is made. When the person implies his consent, the proposal is accepted and thus results in an agreement.
- Capacity to contract:- There must be the willingness of the parties to enter into a contract. The Indian contract act 1872 contains section 11 that clarifies that a person is said to be capable of entering into a contract if he is not in a category of a minority which means they must be of the age of majority and sound mind and are not too declared to be disqualified by any law concerning the contract.
- Free consent:- It is pertinent to note that what is expected in a valid contract is not just consent but free consent. As per Section 14, “consent is said to be free when it is not caused by coercion, undue influence, fraud, mistake or misrepresentation.”
- Lawful consideration:- Consideration literally can be understood as something in return, thus the essential ingredient of the contract. A contract without consideration is void is said under Section 25 of the Indian contract act
- Lawful object:- To form a valid contract, the thing must be lawful for which it has been entered.
- valid by law:- If an agreement is well-formed, even coupled with all the essential elements like free consent, competency to contract, lawful object, and consideration, however, it will not emerge into a legally binding contract if the contract as such is expressly declared as void.
- Legal relationship:- A contract to be enforceable must create a legal relationship between the parties. The mere domestic or social agreement does not give rise to building legal relationships.
If these essential elements are present in an agreement, that ‘agreement is enforceable by law’ and thus a legally binding contract. Through the direct study of section 2(h) of the Indian Contract Act 1872, we can interpret three conclusions: All contracts are agreements, but not all agreements are contracts. The contract is considered species, and agreement is the genus, and Agreement + enforceability by law = contract.
Hence,
“All agreements are contracts made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and not now expressly declared to be void to which it is a subject.”
Cross–analysis of section 2(h)
“Section 2(h) of the Indian Contract Act defines a contract as an agreement enforceable by law.” Therefore, a contract is the combination of two elements, understanding and enforceable by law.
Contract = Agreement + enforceability by law
But the definition here is incomplete, or we can say that a layperson can’t understand this as section 2(h) doesn’t clearly define the agreement’s purpose or when the agreement becomes enforceable. To know this in detail, we have to take section 10 of the Indian Contract Act, which tells us that when an agreement becomes enforceable by law. “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object and now expressly declared to be void.”[2]
Thus, Sections 2(h) and 10 of the Act state a valid contract’s essential elements. If all of those essentials are not content or exist in an agreement, it will disturb the cogency and not form a valid contract. Now, to interpret the meaning of agreement more clearly, we have to take section 2(e) that says, “every promise and set of promises forming the part of the consideration for each other is an agreement.” Thus, a promise can be said to be an agreement. Now through concluding section 2(e) we can say that, Agreement = Promise + Consideration OR Agreement = Offer + Acceptance. But hence the section doesn’t include the proper meaning of promise and consideration. So, to interpret them more, let’s take section 2(b), which says that offering, when recognized, turns out to be a promise.
Promise = Offer + Acceptance
From section 2(e) and section 2(b), [3] we can interpret that promise can be said to be an agreement. And section 2(d) of the Contract Act outlines consideration in the following words;
“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 something, such act or abstinence or promise is called a consideration for the promise.”
In this definition, the consideration may be passed, present, or future. To know more about who the promisor and promisee are, we will refer to section 2 (c), which says the person proposing is called the “promisor,” and the person accepting the proposal is called the “promisee.” [4]
The agreement is a broader term than a contract wherein all contracts are agreements but not all contracts. The agreement which satisfies the circumstances mentioned in section 10 of the Indian Contract Act, 1872 turns out to be a contract.
Flaw and Ambiguity
As Indian contract act was made in 1872 which implies that it was designed by Britishers. While making these acts, they take inspiration from the existing laws of England. That’s why the majority of landmark and leading cases are English cases. And English law, in some cases, contradicts Indian law.
Indian laws nowhere state that it is obligatory to have legal intention between the parties while entering into any offer, acceptance, or contract but English laws are apparent and settled at this point as it states that there must be a mutual intent of legal obligation between the parties while entering into a contract and Balfour vs. Balfour[5] is the landmark case of this subject matter, i.e., intention to create a legal obligation.
While doing critical appraisal and cross-analysis of Section 2(h) of the Indian contract act 1872, we interpret that any single definition or section is not self-sufficient to acknowledge a layperson about a particular section. To know a specific section, we have to connect it with other sections to be understood.
While cross-analysing sections 2(e) and 2(b), we can interpret that promise can be said as agreement. Still, this analysis shows a significant flaw as the promise is an oath or affirmation.
At the same time, the agreement is an understanding between entities to follow a specific course of conduct. [6]
Favourable observation: COncluding remarks
The Law of Contract establishes the essential branch of Mercantile or Commercial Law. It is said that the contract is the basis of the civilized world.
Definitions in sections 2(h), 10, 2(e), 2(b), 2(d), 2(c) are in sync with each other and form a perfect piece of drafting. The contracts which cannot be legally enforced are void agreements. The Act has enumerated certain agreements that are void such as, agreements with minors, wagering agreements, agreements to do impossible things, etc.; void contracts are not illegal but also not legal.[7]
Through the cross-examination of section 2(h) of the Indian Contract Act, 1872, we can get advanced knowledge of basic terms used in each section that we connect with section 2(h). We get to know about contract 2(h), agreement 2(e), promise 2(b), consideration 2(d) , offer 2(a), acceptance 2(b), promisor 2(c), promisee 2(c), and enforceability by law (10).
Author(s) Name: Charu Soni (Symbiosis International University, Pune)
References:
[1] Act 9 of 1872, Section 2(h)
[2] Shivani Pahuja, ‘Analysis of Section 10 of the Indian Contract Act, 1872’ (Ipleaders , 9 January 2019) <https://blog.ipleaders.in/analysis-section-10-indian-contract-act-1872/ > accessed on 1 November 2021
[3] Ayush Verma, ‘Contract law notes’ (Ipleaders, 28 August 2020) < https://blog.ipleaders.in/law-of-contracts-notes/ > accessed on 7 December 2021.
[4] ‘Fundamentals of laws and ethics’ (icmai)
< https://icmai.in/upload/Students/Syllabus2016/Archive/Foundation/Paper-3New.pdf > accessed on 7 December 2021
[5] Balfour v Balfour [1919] 2 KB 571
[6] ‘Promise vs Agreement- What’s the difference?’ (Wiki Diff) <https://wikidiff.com/agreement/promise> accessed 6 December 2021
[7] Sagnik Saha, ‘Introduction to contracts’ (Academike, 19 March 2015) <https://www.lawctopus.com/academike/introduction-to-contracts/> accessed 6 November 2021
