Basic of "Indian Contract Law" by Adv. Alok Kumar

Law of Contract:

The law of contract in India is contained in the Indian Contract Act,1872 which extend to the whole India. This Act is based mainly on "English Common Law" consisting of Judicial Precedents. The Act is not exhaustive as it does not deal with all the branches of the law of contract. There are separate Acts which deal with contracts relating to negotiable instrument, transfer of property, sale of goods, partnership, insurance, etc.

• Section 2(h) of the Indian Contract Act,1872 defines the term "contract" as 'an agreement enforceable by law'.
• Section 2(e) of the Indian Contract Act,1872 defines the term "agreement" as 'every promise and every set of promises forming consideration for each other' is called an "agreement".

Essentials of Valid Contract:

An agreement is a wider term than a contract. Every contract is agreement, but every agreement is not a contract. An agreement becomes a contract when the following conditions mentioned in Section 2(h), Section 10 and other sections of the Indian Contract are satisfied:

• 1. Offer and acceptance - offer from one party and its acceptance by the other party.
• 2. Consideration - must be some price involved.
• 3. Intention to create legal obligation - [Banwari Lal v. Sukhdarshan Dayal 1973]
• 4. Parties must be competent to contract - minor not competent
• 5. Consent must be free - free from fraud, coercion, undue influence
• 6. Object of contract must be lawful - not forbidden by law
• 7. Terms of the agreement must not be vague - Section 29 of the Indian Contract Act,1973
• 8. Agreement must be capable of performance - Section 56 of the Indian Contract Act,1973
• 9. A contract may be oral or in writing - but some cases must be in writing.

Intention to create legal obligation:

There is no provision in the Indian Contract Act,1973 requiring that an offer or its acceptance should be made with the 'intention of creating legal relationship'. However, an intention to create legal relations is essential, in order to create a contract this is laid down by the Hon'ble Supreme Court in Banwari Lal v. Sukhdarshan Dayal (1973). The most importantly Court will look into the intention of parties is to be ascertained from the terms of agreement and surrounding circumstances. By the way, all legal obligations are not contracts, only those legal obligations that arise out of agreements constitute contracts. As 'Salmon' rightly said, that the law of contract deals only with the agreement which become contracts and not all agreements.
For Example: In case of Simpkins V Pays (1955), Where a mother and her daughter, and a paying guest together made entries in a crossword puzzle in the name of mother, the expenses being met by one or other without any rules. The mother refused to share the prize, on wining on day. Court held that she was bound to do so, for any reasonable man looking at their contract would at once concluded that they must have intended to share the prize.

Click here to download Supreme Court Judgment:Banwari Lal And Ors. vs Sukhdarshan Dayal 1973
Equivalent citations: AIR 1973 SC 814, (1973) 1 SCC 294
Author: Y Chandrachud
Bench: J Shelat, Y Chandrachud

Note : This Article is written by Adv. Alok Kumar practicing advocate in Delhi High Court, for any kind of suggestion you may contact here care@legalfree.in.