EVOLUTION OF INDIAN CONTRACT ACT, 1872

Introduction:

The Indian Contract Act, 1872 is the law relating to Contracts in India. It came into force
on September 1, 1872 and is extended to the whole of India except to the state of Jammu and
Kashmir.

The Act as enacted originally had 266 Sections, it had wide scope and included.

 General Principles of Law of Contract – Sections 01 to 75

 Contract relating to Sale of Goods – Sections 76 to 123
 Special Contracts- Indemnity, Guarantee, Bailment & Pledge and Agency – Sections 124
to 238
 Contracts relating to Partnership – Sections 239 to 266

At present the Indian Contract Act may be divided into two parts:

 Part 1: deals with the General Principles of Law of Contract Sections 1 to 75

 Part 2: deals with Special kinds of Contracts such as

1. Contract of Indemnity and Guarantee

2. Contract of Bailment and Pledge
3. Contract of Agency.

1. Offer 2(a): When one person signifies to another his willingness to do or to abstain from
doing anything, with a view to obtaining the assent of that other to such act or abstinence, he
is said to make a proposal.

2. Acceptance 2(b): When the person to whom the proposal is made, signifies his assent
there to, the proposal is said to be accepted.

3. Promise 2(b): A Proposal when accepted becomes a promise. In simple words, when an
offer is accepted it becomes promise.

4. Promisor and promisee 2(c): When the proposal is accepted, the person making the
proposal is called as promisor and the person accepting the proposal is called as promisee.
5. Consideration 2(d): 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 doing something such act or abstinence or promise is called a consideration for
the promise. Price paid by one party for the promise of the other Technical word meaning
QUID-PRO-QUO i.e. something in return.

6. Agreement 2(e): Every promise and set of promises forming the consideration for each
other. In short,

7. Contract 2(h): An agreement enforceable by Law is a contract.

Therefore, there must be an agreement and it should be enforceable by law.

8. Reciprocal Promises 2(f): Promises which form the consideration or part of the
consideration for each other are called 'reciprocal promises'.

9. Void agreement 2(g): An agreement not enforceable by law is void.

10. Voidable contract 2(i): An agreement is a voidable contract if it is enforceable by Law at

the option of one or more of the parties there to (i.e. the aggrieved party), and it is not
enforceable by Law at the option of the other or others.

11. Void contract 2(j): A contract which ceases to be enforceable by Law becomes void
when it ceases to be enforceable.

Historical Development of Contract Law in India

The history of the act brings to light the very origin of the economic processes and in
this regard, contract is important in order to conduct one‘s business in everyday life62. The
prevalent system in the ancient times was barter, exchange and it was based on the mutual
principle of give and take. This was confined to commodities as there was no medium of
exchange as is seen in the form of money today and this system can be traced back in time to
the Indus Valley Civilization (the earliest human civilization). The system still finds
relevance in the contemporary world, where it can be found in commercially and
economically underdeveloped areas.

Vedic and Medeival Period:

During the entire ancient and medieval periods of human history in India, there was
no general code covering contracts. Principles were thus derived from numerous references-
the sources of Hindu law, namely the Vedas, the Dhramshatras, Smritis, and the Shrutis give
a vivid description of the law similar to contracts in those times.

Towards the end of the medieval age, the law of contracts was pretty much being
governed by two factors; the moral factor and the economic factor. Activities like transfer of
property, performance of services etc. required rules for agreements and promises, which
covered not just business and commercial transactions, but also personal relationships in all
walks of life.

During Chandragupta’s reign, contract existed in the form of “bilateral transactions”

between two individuals of group of individuals. The essential elements of these transactions
were free consent and consensus on all the terms and conditions involved. It was an open
contract openly arrived at. It was laid down that the following contracts were void:

Contracts formed during the night.

Contracts entered into the interior compartment of the house.

Contracts made in a forest

Contracts made in any other secret place

Islamic Law:
During the Muslim rule in India, all matters relating to contract were governed under
the Mohammedan Law of Contract. The word contract in Arabic is Aqd meaning a
conjunction. It connotes conjunction of proposal (Ijab) and acceptance which is Qabul. A
contract requires that there should be two parties to it one party should make a proposal and
the other accept it, the minds of both must agree that is there declaration must relate to the
same matter and the object of contract must be to produce a legal result. It also supplied rules
to govern specific contracts to commercial, mercantile and proprietary nature like agency
(vakalat), guarantee and indemnity (zamaanat and tamin), partnership (shirkat), one person‘s
money and another‘s work (muzarabat), bailment (kafalat). All transactions were treated as
secular contracts and rules were provided for settlement of all types of disputes even relating
to property and succession. Another thing to be noted is that under Islamic Law even
marriages (Nikah) were treated as contracts and till date the situation remains the same.
Either of the parties to the marriage makes a proposal to the other party and if the other party
accepts, it becomes a contract and the husband either at the time of marriage or after it has to
pay an amount to the wife as a symbol of respect known as Mahr. Also the Mahommedans
were the firsts to recognize the concept of divorce. This way, a party to marriage could
absolve itself of the contractual obligations under marriage. Muslim marriages are thus
considered contracts for these reasons.

History in the Fifteen and Sixteenth Centuries:

The challenge faced by the common law Courts in the fifteenth and sixteenth centuries was to
develop a general criterion for enforcing promises within the framework of the forms of
action. And by the end of the 15th century, two forms of action for enforcing rights, which
included some of those which we now call contractual, had taken a fairly definite shape.
These were action on ‘debt’ and the action on ‘convenant’.

Covenant: - The word ‘convenant’ is the nearest medieval equivalent to current definition of
‘contract’. The action of convenant mainly concerned breaches of agreement for services like
building or for sales or leases of land. The primary claim was for performance, and in royal
courts the action was begun by the precise writ ordering the defendant to keep the agreement;
but judgments ceased to order specific performance and damages were awarded instead. But
the action of convenant soon fell out of use, not because it was ineffective but because the
other action of ‘debt’ proved more effective.

Debt: - The action on debt covered the claims for the price of goods sold and delivered. The
essential feature of it was that the claim was for money compensation for benefit received.
The defendant‘s liability in debt was not based on a mere promise but on the debtor‘s receipt
of what the debtor had asked for, called quid pro quo like the Romans in the form of loan. It
was therefore thought to be unjust to allow the debtor to retain it without paying for it. The
debtor‘s wrong was more in misfeasance than nonfeasance. Following this rationale the
courts finally broadened the action of debt to allow recovery by anyone who had conferred a
substantial benefit. However, the lacuna in this system was that the defendant might avoid
liability by a procedure known as ‘wager of law’, in which the defendant denied the debt
under oath accompanied by a number (usually 11) of oath-helpers, who swore that defendant
was telling the truth.
The Sixteenth Century:
Development of ‘Assumpsit’s’ Now, at this point the main question that confronted
the courts as that how the common law would break out of this mould of ―wager of law‖.
The courts finally found answer to this question in the law of torts. They had already
developed a liability in tort, where if a person undertook to perform a duty and while
performing it he caused harm to the obligee; the obligee could sue on the common law action
of trespass on the case and this principle came to be known as ‘assumpsit’.

The Seventeenth and Eighteenth Centuries:

The seventeenth and eighteenth centuries saw the recognition of the transferability of
contract rights as kind of property, the enactment of legislation requiring writing for some
kind of contracts, and the shaping of the concept of the dependency of promises. But the
movement was slow during this period. Towards the end of the eighteenth century, things had
dramatically changed. A modern legal historian wrote that in America years from 1800-1875
were, above all else, the years of contract.‖ Contract expressed, energetic self-interest, and the
law it governed it expressed the nature of contract by insisting that men assert their interests,
push them, and fight for them, if they were to have the help of the state. It is also generally
supposed that it was during this period that Adam Smith had proclaimed that freedom of
contract, freedom to make enforceable bargains would encourage individual entrepreneurial
activity.

Also from the utilitarian point of view, freedom to contract maximizes the welfare of
the parties and therefore works for the good of the society, which is still in force, provided
that the law to be observed in the trial of suits be the Acts of Parliament and regulations of
government applicable to the case, and in the absence of such acts and regulations; the usage
of the country in which suit arose; and if none such appeared the law of the defendant, and in
the absence of specific law and usage, equity and good conscience. The expression ‘justice,
equity and good conscience’ was interpreted to mean the rules of English law so far as
applicable to the Indian society and circumstances.