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Section 2 Of The Indian Contract Act, 1872

Cross Sectional Analysis Of Section 2(h)

Any activity taking place between two parties/people should contain certain amount of understanding between the parties. This understanding is given a written form to give effects to the intentions of the parties. Such written formalities are called a contract. With increase in such agreements between two parties, The Indian Contract Act, 1872 codifies the legal principles that govern such contracts.

Though all the contracts are agreements, all agreements are not contracts.

Under section 10 of the ICA, the following conditions are necessary for an agreement to be a contract:

  1. there must be a valid offer,
  2. there must be an acceptance,
  3. the parties to the agreement must be competent to contract,
  4. the consent to the parties must be free,
  5. the object and consideration are lawful,
  6. the agreement is not expressly declared to be void.

Analysis of Sec 2(h)

Law of contracts in India defines Contract as an agreement enforceable by law which offers personal rights, and imposes personal obligations, which the law protects and enforces against the parties to the agreement. The general law of contract is based on the conception, which the parties have, by an agreement, created legal rights and obligations, which are purely personal in their nature and are only enforceable by action against the party in default.

The Indian Contract Act, 1872 defines Contract under Section 2(h) as an agreement enforceable by law.

By this we imply that contract is anything that is an agreement and is enforceable by the law of land.

What is an agreement?

According to section 2(e) 'every promise and every set of promises, forming the consideration for each other is considered an agreement'.

What is meant by 'enforceable by law'?
Any agreement between two parties defined within the law and arising any legal obligation on either of the parties can be called enforceable by law.

Therefore, a contract is a combination of two elements:

  • Agreement
  • Enforceable by law

Essentials of a Valid Contract:


Offer + Acceptance = Promise

+

Consideration = Agreement

+

Enforceability By Law = Contract
  What is an offer/proposal?
According to Section 2(a) of the Act "a person is said to make a proposal when he signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence".

Difference between a promise/offer and a contract

A promise is unilateral. It does not need accordance and is proposed by one party whereas a contract is neutral and should be acknowledged and accepted by both the parties.

According to Sec.2(a) When one person signifies to another his willingness to do so or to abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence means he is said to make a proposal. And according to Sec.2(c)-provides that the person making the proposal is called the promiser and the person accepting the proposal is called the promisee.

Quoting an example.
A sells a horse to B through an auction conducted. The horse is unsound, but A does not mention this information to B even after B asking about the horse's condition before buying it. The very next day the horse dies and on calling upon the doctor, B finds out that the horse had a whole in the heart. Legally mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak to, or unless his silence, is, in itself, equivalent to speech.

Any promise made by a party sometimes has an intention to enter into a legal contract, but it does not mean that all the promises by one party should be wholly and solely taken as a contract and relied upon.

For example, A father promises his son that on clearing the CLAT examination he would gift his son a bike. His son is elated with the offer made by his father so he studies day and night to clear the examination. He finally passes with flying colours. On asking his father about the promise he made, his father refuses to abide by it. Soo, when the father promised his son, he certainly did not intend himself to any legal sanction if he fails to fulfil the promise.

This also does not mean that the son relied on the promise and reasonably believed that the father had consented to assume any contractual obligation to gift the bike. Although this would lead to a bad image of the father in front of his son and he might develop trust issues, but both father and son would consider it to be the height of injustice if father was to be sued for breach of contract just because of a mere promise made by him.

Hence, a promise does not mean that the person is legally bound by a contract to fulfill it.

Cross Sectional Analysis Of Section 2h
As discussed above Section 2(h) of the act defines contract as an agreement which is enforceable by law. A contract can also be said to be an agreement, the object of which is to create a legal obligation i.e., a duty enforceable by law.

Contract = agreement + enforceability by law

Sec 2(h) does not talk about when a contract becomes enforceable by law. In order to identify this, like a hyperlink we are navigated to sec 10 which reveals when the agreement becomes enforceable by law. The very beginning of sec 2(h) says an agreement enforceable by law is a contract. Whereas in sec 10, it begins with all agreements are contracts. Soo sec 10 read with sec 2 instead of being read in solidarity gives a better and clearer picture of what a contract is.

Section 10 of the ICA talks about what agreements are contracts. 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 are not hereby expressly declared to be void to which it is a subject.

Agreements is a wider term than contracts. All the agreements which satisfy the conditions mentioned in Section 10 of the Indian Contract Act, 1872 become contracts.

Thus sec 10 and 2(h) talks about the essential elements of a valid contract.

Now who is competent to enter into a contract? Legally.

Section 11 talks about who are competent to contract.

According to section 11 following are incompetent to contract:

  • Minors
  • Persons of unsound mind
  • Persons disqualified by law

Taking the case of Mohori bibee v. Dharmodas Ghose, wherein Dharmodas Ghose being a minor mortgaged his property in favour of the defendant Brahmo Dutt, who was a money lender to secure a loan. At the time of transaction, the money lender, had the knowledge that the plaintiff was a minor. Minor's agreement was held void, and it was held that the minor's agreement was held void, and it was held that the minor could not be asked to repay the loan taken by him.

According to section 13 of the act two or more persons are said to consent to a common thing when they agree upon the same thing in the same sense.
A consent is said to be free and valid when it is not caused by:
  1. Coercion
  2. Undue influence
  3. Fraud
  4. Misrepresentation
  5. Mistake
All the above words are mentioned and taken up in detail in other sections.

Thus, to constitute a contract, the parties must consent to the agreement. This is not mentioned in section 2(h), so we are navigated to section 13 to fulfil all the elements to complete a contract legally.

Under section 15, Coercion is defined as the act of committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.

Section 2(h) does talk about a contract and sec 13 talks about consent required for a contract to be legal but sec 15 read with the above sections gives a clearer picture of contract and the procedure to drafting a valid contract.

The problem in Ranganayakamma v. Alwar Setti was that a widow was not permitted to proceed with the cremation of her husband's body until she adopted the boy. The court found the adoption as illegal since her permission for adopting was obtained by compulsion.

According to section 23 of the Indian Contract Act, the following considerations and objects are not considered as lawful:
  1. If it is forbidden by law,
  2. If it is against the provisions of other law,
  3. If it is fraudulent,
  4. If it damages somebody's person or property,
  5. If it is in the opinion of court, immoral or against public policy.
Thus, any contract which incorporates such unlawful provisions are not considered as a valid contract.

Due to the lack of comprehensively of sec 2(h), it does not provide a clear picture of what a lawful and valid contract is. So sec 2(h) with the combination of all aforementioned sections provide a clearer and comprehensive picture of what a legally valid contract looks like.

Observation
The Indian Contract Act, which governs the contracts in India was commenced from 1st September 1872. Although the roads we passed and the hurdles we move forward with by learning from the imperfections and reinvented along the way tells another thing about us: we have the ability to change.

The ICA was written about 100 years ago. With changing time there is a need to start improvising not only the basic foundation and but also the whole structure of the contract act in India.

Section 2(h) defines a contract as an agreement enforceable by law. We see here that this definition is not sufficient enough to reveal a clearer picture. There is a mystery issue in this section that is unaddressed in this sub clause (h) for which we must navigate to sec 10 to find the answer. Section 2(h) only answers an agreement enforceable by law is a contract, but it does not answer when an agreement becomes enforceable by law? Soo it is a half journey traveled as it does not redress the issue of when can we say that agreement is enforceable by law.

Not all agreements turn into a contract. They must travel a tunnel wherein they fulfil all the essential conditions which assign the enforceability by law. The section also fails to mention that there may be some agreements which are vague in nature with societal, parental etc obligations that are devoid of the legal force, these agreements also cannot turn into a valid contract.

A contract comes into existence only when all the terms and conditions have been finalised.

Taking the case of; J.K. Industries Ltd. v. Mohan Investments and Properties Pvt. Ltd., AIR 1992 Del 305. It is evident that- If the facts of a particular case show that execution of a written contract was a condition precedent for coming into force of the contract between the parties, then it cannot be said that any concluded contract in absence of a written contract being executed has come into force between the parties. Section 2h does not talk about this while mentioning what a legal/valid contract is.

For someone to understand about the functioning of contracts only looking at section 2 (h) is not helpful. One has to go through various sections and their sub clauses to understand how to form a valid contract.

Coming to an atypical case of Sm.Mukul Dutta Gupta and Ors. vs Indian Airlines Corporation on 11 August, 1961, which talks about special conditions in a contract. The airlines gave the passenger a ticket that also had conditions written on it in very fine print. The final judgement favoured the airlines and talked about the special conditions that are present while entering into a contract and these conditions are not talked about with the accepting party and are tacitly present and it is tacitly assumed that the party has accepted the terms and conditions when they agreed to enter into a contract.

Such implicit knowledge is not provided and explained when we read sec 2 sub clause h.

The standard law of contract are contracts which are drafted by one party and signed by another party without any modification or change. They are 'take it or leave it' contracts without no room for negotiations. This is contrary to sec2 and sec 10 of the ICA as it does not address the factor of consent in contracts.

It is true that the Indian Contract Act is a significant and detailed piece of legislation. In contract law, the principles are based on British contract law. Nevertheless, the Act includes several contrasting clauses.

Conclusion
Every man in his day-to-day life makes contracts. Man's contract making ability increases with increasing trade, commerce, and industry in modern society. The conferment and protection of the law enable people to strike the best bargain for the contract making purpose. People are permitted to regulate and define their relations in the best possible manner they choose. In India, these general principles are statutorily presented in the Indian Contract Act, 1872. This helps contracts to function legitimately and provide remedies to the ones affected by it. Therefore, the Indian Contract Act, 1872, is undoubtedly one of the most important statutes in India.

The inter philosophy of contract states that without enforceability a contract can never be valid. The mainstream inferences formed of section 2(h) with a kaleidoscopic approach are firstly, contract is a result of an agreement. Secondly, not all agreements turn into a contract.

Hence, a contract is defined as:
An agreement between parties creating obligation that are enforceable by the law.

Before coming into a contract with someone, one must make sure to put it in writing but if it doesn't satisfy the requirements of an enforceable contract, it cannot be enforced by law. The agreement must be supported by consideration from both sides. Each party entering into the agreement must give or promise to give something and receive something or a promise in return. A promise will be considered nudum pactum (a bare promise) and won't be enforceable by law if it is not backed up by consideration.

References:
  • https://www.researchgate.net/publication/27556752_The_Civil_Law_of_Contract
  • https://ssrn.com/abstract=1922134

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