The Indian Contract Act, 1872

 THE INDIAN CONTRACT ACT, 1872

NAME-ARVIND S

COLLEGE-SCHOOL OF EXCELLENCE IN LAW, CHENNAI

UNIVERSITY-THE TAMILNADU DR. AMBEDKAR LAW UNIVERSITY

DATE-30 TH JULY 2022

A contract is an agreement enforceable at law, made between two or more persons, by which

rights are acquired by one or more to acts or forbearances on the part of the other or others. A

contract is an agreement creating and defining obligations between the parties. The Indian

Contract Act, 1872 lays down general principles relating to formation and enforceability of

contracts; rules governing the provisions of an agreement and offer; the various types of

contracts including those of indemnity and guarantee, bailment and pledge and agency. It also

contains provisions pertaining to breach of a contract.

The Law of Contract constitutes the most important branch of Mercantile or Commercial

Law. It affects everybody, more so, trade, commerce and industry. It may be said that the

contract is the foundation of the civilized world. The Indian Contract Act, 1872 came into

force on the first day of September, 1872. The preamble to the Act says that it is an Act “to

define and amend certain parts of the law relating to contract”. The Act is by no means

exhaustive on the law of contract. It does not deal with all the branches of the law of contract.

Thus, contracts relating to partnership, sale of goods, negotiable instruments, insurance etc.

are dealt with by separate Acts. The Indian Contract Act majorly deals with the general

principles and rules governing contracts.

The Act is divisible into two parts:

1. The first part (Section 1-75) deals with the general principles of the law of contract,

and therefore applies to all contracts irrespective of their nature.

2. The second part (Sections 124-238) deals with certain special kinds of contracts,

namely contracts of Indemnity and Guarantee, Bailment, Pledge, and Agency.

CONTRACT

The Indian Contract Act has defined “Contract” in Section 2(h) as “an agreement enforceable

by law”. This definition indicates that a contract essentially consists of two distinct parts.

First, there must be an agreement. Secondly, such an agreement must be enforceable by law.

To be enforceable, an agreement must be coupled with an obligation. A contract therefore, is

a combination of the two elements:

— An agreement, and

— An obligation.

—

AGREEMENT

An agreement gives birth to a contract. As per Section 2(e) of the Indian Contract Act every

promise and every set of promises, forming the consideration for each other, is an agreement.

It is evident from the definition given above that an agreement is based on a promise. What is

a promise? According to Section 2(b) of the Indian Contract Act “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. An agreement, therefore, comes into existence

when one party makes a proposal or offer to the other party and that other party signifies his

assent thereto. In a nutshell, an agreement is the sum total of offer and acceptance.”

OBLIGATION

An obligation is the legal duty to do or abstain from doing what one has promised to do or

abstain from doing. A contractual obligation arises from a bargain between the parties to the

agreement who are called the promisor and the promisee. Section 2(b) says that when the

person to whom the proposal is made signifies his assent thereto, the proposal is said to be

accepted; and a proposal when accepted becomes a promise. In broad sense, therefore, a

contract is an exchange of promises by two or more persons, resulting in an obligation to do

or abstain from doing a particular act, where such obligation