Law of Contracts: Essentially, a contract is any agreement between two or more parties which is “Enforceable by Law” and wherein each party promises to do or not to do something in return for another party promising to do or not to do something for the former party.
Table of Contents
Every day, we unknowingly dive into agreements without even realizing it. Sitting on a bus, dropping a coin into a weighing machine, or enjoying snacks at a restaurant all involve entering into contracts, though it might not feel like it. For those immersed in the world of trade, commerce, and industry, their daily operations hinge on a series of contracts. The guidelines for these agreements are neatly laid out in the Indian Contract Act of 1872. It’s fascinating to think about how our everyday actions and the bustling world of business both revolve around these often overlooked, yet crucial, contracts.
What is A Law of Contracts?
In simple terms, according to Section 2(h) of the Indian Contract Act, 1872, a contract is like a deal that can be enforced by law. Now, let’s break it down: Section 2(e) defines an agreement as basically promises or commitments we make to each other, where one thing is given in return for another. Section 2(b) dives into what a promise is, saying it’s like a proposal.
When the person you’re suggesting something to agrees, that proposal becomes a promise. So, the key players in an agreement are the “offer” or suggestion, and the thumbs-up, or “acceptance,” from the other party. It’s like saying, “I’ve got an idea, what do you think?” and when they say, “I’m in,” you’ve got yourself a promise!
What agreements are Contracts?
All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy.
Thus, a contract consists of two elements:
- An agreement;
- and legal obligation, i.e., it should be enforceable at law.
However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts.
- A invites B for dinner in a restaurant. B accepts the invitation. On the appointed day, B goes to the restaurant. To his utter surprise A is not there. Or A is there but refuses to entertain B. B has no remedy against A. In case A is present in the restaurant but B fails to turn-up, then A has no remedy against B.
- A gives a promise to his son to give him a pocket allowance of Rupees one hundred every month. In case A fails or refuses to give his son the promised amount, his son has no remedy against A.
In the examples mentioned earlier, promises aren’t legally binding because there was no real intent to make them legally enforceable. These agreements are more like social understandings that don’t lead to legal repercussions. This highlights that when we talk about agreements, it’s a wider concept than contracts. So, every contract is an agreement, but not every agreement automatically becomes a contract.
What obligations are contractual in nature?
We have seen above that the law of contracts is not the whole law of agreements. Similarly, all legal obligations are not contractual in nature. A legal obligation having its source in an agreement only will give rise to a contract.
A agrees to sell his motor bicycle to B for Rs. 5,000. The agreement gives rise to a legal obligation on the part of A to deliver the motor bicycle to B and on the part of B to pay Rs. 5,000 to A. The agreement is a contract. If A does not deliver the motor bicycle, then B can go to a court of law and file a suit against A for non-performance of the promise on the part of A.
On the flip side, if A has already delivered the motorbike to B, and B refuses to cough up the cash, A has the option to take the matter to court and file a suit against B for not holding up their end of the deal.
Now, not all obligations come from a formal agreement. Some of them stem from different sources:
- Torts or civil wrongs;
- Court judgments, like Contracts of Records;
- Relationships like husband and wife, trustee and beneficiary – these are called status obligations.
These obligations aren’t exactly contractual, but you can still enforce them in a court of law.
To put it in simple terms, according to Salmond, “The law of Contracts isn’t the whole deal. It’s about agreements that create obligations and obligations that come from agreements.”
When we talk about the Law of Contracts, we’re talking about rights that involve people, not just things. Unlike rights related to property, which are against the whole world, these rights in personam are specific to certain individuals and not the entire planet.
A owns a plot of land. He has a right to have quiet possession and enjoyment of the same. In other words every member of the public is under obligation not disturbed his quiet possession and enjoyment. This right of A against the whole world is known as right in rem.
A is indebted to B for Rs. 100. It is the right of B to recover the amount from A. This right of B against A is known as right in personam. It may be noted that no one else (except B) has a right to recover the amount from A. The law of contracts is concerned with rights in personam only and not with rights in rem.