As per S. 2(H) of the Indian contract act, 1872 an agreement enforceable by
law is a contract.
The contract act is one of the principal acts governing all contractual
relations not only in the business world but also from day to day life. It is
one of the most important pieces of legislation ever drafted by the British and
the principles enacted therein are nothing but the codification of the general
principle governing transactional relationships because of which it has seen
The Indian Contract Act brings within its ambit the contractual rights granted
to the citizens of India. It endows rights, duties and obligations on the
contracting parties to help them to successfully conclude business- from
everyday life transactions to evidencing the businesses of multi-national
companies. The essence of the India Contract Act has been modelled on that of
the English Common Law.
The extent of modifications made in the Act as per the Indian conditions and its
adaptability to the Indian economy is an important area of research. In this
regard, it is pertinent to note that since the enactment of the Act, there have
been no amendments and thus the Law that was made in 1872 still stands good.
However, these are questions of interpretation that not only depend on the text
of the Act but also on the English authorities that framed the law and before
it, the subsequent development of the law.
The Indian Contract Act codifies the way we enter into a contract, execute a
contract and implement provisions of an agreement and the effects of a breach of
a contract. There are specific areas which deal with property, movable goods and
specific performance such as The Sale of Goods Act and The SRA. Some of these
acts were originally a part of the Indian Contract Act enacted in 1872 but were
later codified as separate laws.
Moreover, the Act is not retrospective. Hence a contract entered into before 1st
September 1872, even though to be performed after the passing of this Act is not
hit by this Act. Hence, we conclude that the basic framework of contracting is
covered in the Indian Contract Act and it is an important area of law, with
roots deep in the history of civilization.
It determines the circumstances in which promises made by the parties to a
contract shall be legally binding on them. All of us enter into several
contracts every day knowingly or unknowingly. Each contract creates some rights
and duties upon the contracting parties. Indian contract deals with the
enforcement of these rights and duties upon the parties. It applies to the whole
of India except the state of J&K. It is not a complete and exhaustive law on all
types of contracts.
Contracts are an integral part of the daily lives of people, all over the world.
These are the most popular form of civil transactions and also the main base
upon which civil obligations arise. Every contract imposes obligations at least
on one of the parties. If the contract is unilateral, it imposes an obligation
only on one of the parties. In the more common case of a bilateral contract,
obligations are imposed on both parties.
Contractual liability has some basic features which can be explained as follows:
- It is applied based on a breach of an effective contract
- Its contents are associated with the implementation of obligations under
contracts or liability on a property;
- The application is applied by authorized agencies or organizations
(courts, arbitrators) or by the aggrieved party based on legal regulations
Contracts are generally entered into to perform the bargain and mutually
increase the asset base of each contracting party. However, all contracts do not
go through the intended course because of the breach committed by one of the
parties. A party who either fails or refuses to perform his obligations which
are imposed under the contract will generally be considered in breach other
words, a breach of contract is committed when a party without lawful excuse
fails or refuses to perform what is due from him under the contract, perform
defectively or incapacitates himself from performing.
Thus, the Law of Contracts has three agreed-upon functions:
- Specification of legally binding arrangements;
- Definition of rights and duties created by enforceable agreements;
- Indication of consequences for unexcused breaches.
These three functions of the law of contract can be assigned to its provisions
regarding the formation, interpretation and remedies for breach of contracts
respectively. Remedies thus constitute one of the vital elements of the law of
contract. Although beyond these universally recognized functions, it has been
suggested that the law of contracts should be used as an instrument of
distributive justice in a self-conscious effort to achieve a "fair" distribution
of wealth. The focus of my research will be the third point which has been
mentioned above. 
Contract obligations are those duties that each party is legally responsible for
in a contract agreement. In a contract, each party exchanges something of value,
whether it be a product, service, money, etc. On both sides of the agreement,
each party has various obligations in connection with this exchange.
An example of contract obligations is with the sale of a product such as an
automobile. One party must transfer ownership of the car, while the other must
pay for it. The contract will specify the terms that regulate the obligations,
such as the method and amount of payment, and the time/place of delivery.
If either party fails to perform their contractual obligations according to the
contract terms, it will usually result in a breach of contract. This may result
in a damages award to reimburse the non-breaching party for their economic
A contract is a legally binding promise made between two parties. Each party to
a contract promises to perform a certain duty or pay a certain amount for a
specified item or service. The purpose of a contract being legally binding
is so each party will have legal recourse in the event of a breach.
A breach of contract occurs when the promise of the contract is not kept,
because one party has failed to fulfil their agreed-upon obligations, according
to the terms of the contract. Breaching can occur when one party fails to
deliver in the appropriate time frame, does not meet the terms of the agreement,
or fails to perform at all.
Further, if one party fails to perform while the other party fulfils their
obligations, the performing party is entitled to legal remedies for breach of
There are four main types of contract breaches:
Some Examples of Contract Obligations
- Minor Breach:
A minor breach of contract occurs when a party fails to perform a part of
the contract but does not violate the whole contract. To be considered a
minor breach, the infraction must be so nonessential that all parties
involved can otherwise fulfil any remaining contractual obligations. A minor
breach is sometimes referred to as an impartial breach;
- Material Breach:
A material breach of contract is a breach that is so substantial, it
seriously impairs the contract as a whole; additionally, the purpose of the
agreement must be rendered completely defeated by the breach. This is
sometimes referred to as a total breach. It allows for the performing party
to disregard their contractual obligations, and to go to court to collect
damages from the breaching party;
- Fundamental Breach:
A fundamental breach of contract is essentially the same as a material
breach, in that the non-breaching party is allowed to terminate the contract
and seek damages in the event of a breach. The difference is that a
fundamental breach is considered to be much more egregious than a material
- Anticipatory Breach:
An anticipatory breach occurs when one party lets the other party know,
either verbally or in writing, that they will not be able to fulfil the
terms of the contract. The other party is then able to immediately claim a
breach of contract and pursue a remedy, such as payment. An anticipatory
breach may also be referred to as anticipatory repudiation.
As mentioned, contract obligations generally depend on the specific subject
matter of the contract. Contract obligations for a sales contract may be much
different than other types of contracts, such as a rental agreement contract.
However, most legal agreements contain some of the same types of contract
obligations, such as:
One party (the buyer) is usually legally bound to provide
payment for the sale of goods or services. The contract terms may state
obligations regarding payment amounts and the deadline for payment.
The seller is usually bound to provide delivery of the goods or
services. Again, the contract may state-specific obligations in terms of
delivery dates, method of delivery and other terms.
Quality of Goods:
The seller may also be bound to provide goods of a
certain quality. This may be specifically described in the contract
These types of obligations can vary according to the individual details of the
contract. In addition to these specific obligations, each party in a contract is
also bound by certain general principles and obligations when forming the
For instance, each party is obligated to deal fairly and truthfully with the
other party, and each party is also obligated to refrain from using force or
coercion in obtaining the agreement.
Can Contract Obligations Be Transferred to Another Party?
In some cases, contract obligations can be transferred to a third party. For
instance, if one party is obligated to paint the other party's house, they can
sometimes hire an outside party to do the painting for them. This is known as
"contract delegation". Contract delegation may or may not be allowed for all
obligations; the ability to delegate a contractual duty may depend on the type
of obligation as well as state contract laws.
For instance, a contract obligation usually can't be delegated if it involves
unique craftsmanship or artistic ability that can only be performed by the
specific party to the agreement.
Transference of contract rights (in contrast to the duties) is known as
Do You Need a Lawyer?
Contract obligations will be different in each claim. You may need to contact an
experienced contract attorney if you have any disputes or legal questions about
a contract obligation. Your lawyer can provide you with legal research and
guidance to address your inquiries about contract obligations. In addition, if
you need to file a lawsuit for a violation of contract obligations, your
attorney can provide you with assistance and representation in court.
The purpose of a contract is to establish the agreement that the parties have
made and to fix their rights and duties by that agreement. The courts must
enforce a valid contract as it is made unless there are grounds that bar its
Statutes prescribe and restrict the terms of a contract where the general public
is affected. The terms of an insurance contract that protect a common carrier
are controlled by statute to safeguard the public by guaranteeing that there
will be financial resources available in the event of an accident.
Types of Contracts
Contracts under Seal Traditionally
, a contract was an enforceable legal
document only if it was stamped with a seal. The seal represented that the
parties intended the agreement to entail legal consequences. No legal benefit or
detriment to any party was required, as the seal was a symbol of the solemn
acceptance of the legal effect and consequences of the agreement. In the past,
all contracts were required to be under seal to be valid, but the seal has lost
some or all of its effect by statute in many jurisdictions. Recognition by the
courts of informal contracts, such as implied contracts, has also diminished the
importance and employment of formal contracts under seal.
In an express contract, the parties state the terms,
either orally or in writing, at the time of its formation. There is a definite
written or oral offer that is accepted by the offeree (i.e., the person to whom
the offer is made) in a manner that explicitly demonstrates consent to its
Although contracts that are implied in fact and
contracts implied in law are both called implied contracts, a true implied
contract consists of obligations arising from a mutual agreement and intent to
promise, which have not been expressed in words. It is misleading to label it as
an implied contract one that is implied in law because a contract implied in law
lacks the requisites of a true contract. The term quasi-contract is more
accurate. designation of contracts implied in law. Implied contracts are as
binding as express contracts. An implied contract depends on substance for its
existence; therefore, for an implied contract to arise, there must be some act
or conduct of a party, for them to be bound.
A contract implied is not expressed by the parties but, rather, suggested from
facts and circumstances that indicate a mutual intention to contract.
Circumstances exist that, according to the ordinary course of dealing and common
understanding, demonstrate such an intent that is sufficient to support a
finding of an implied contract. Contracts implied do not arise contrary to
either the law or the express declaration of the parties. Contracts implied in
law. (quasi-contracts) are distinguishable in that they are not predicated on
the assent of the parties, but, rather, exist regardless of assent.
The implication of a mutual agreement must be a reasonable deduction from all of
the circumstances and relations that contemplate parties when they enter into
the contract or which are necessary to effectuate their intention. No implied
promise will exist where the relations between the parties prevent the inference
of a contract.
A contract will not be implied where it would result in inequity or harm. Where
doubt and divergence exist in the minds of the parties, the court may not infer
a contractual relationship. If, after an agreement expires, the parties continue
to perform according to its terms, an implication arises that they have mutually
assented to a new contract that contains the same provisions as the old
A contract implied, which is inferred from the circumstances, is a true
contract, whereas a contract implied in law is an obligation imposed by law and
treated as a contract only for a remedy. Concerning contracts implied in fact,
the contract defines the duty; in the case of quasi-contracts, the duty defines
and imposes the agreement upon the parties.
Executed and Executory Contracts
An executed contract is one in which
nothing remains to be done by either party. The phrase is, to a certain extent,
a misnomer because the completion of performances by the parties signifies that
a contract no longer exists. An executory contract is one in which some future
act or obligation remains to be performed according to its terms.
Bilateral and Unilateral Contracts
The exchange of mutual, reciprocal
promises between entities that entails the performance of an act, or forbearance
from the performance of an act, concerning each party, is a
A bilateral contract is sometimes called a two-sided
contract because of the two promises that constitute it. The promise that one
party makes constitutes sufficient consideration (see discussion below) for the
promise made by the other.
A unilateral contract involves a promise that is made by only one party.
The offeror (i.e., a person who proposes)promises to do a certain thing if the
offeree performs a requested act that he or she knows is the basis of a legally
enforceable contract. The performance constitutes an acceptance of the offer,
and the contract then becomes executed. Acceptance of the offer may be revoked,
however, until the performance has been completed. This is a one-sided type of
contract because only the offeror, who makes the promise, will be legally bound.
The offeree may act as requested, or may refrain from acting, but may not be
sued for failing to perform, or even for abandoning performance once it has
begun, because he or she did not make any promises.
An Unconscionable contract is unjust or unduly
one-sided in favour of the party who has the superior bargaining power. The
adjective unconscionable implies an affront to fairness and decency. An
unconscionable contract is one that no mentally competent person would accept
and that no fair and honest person would enter into. Courts find that
unconscionable contracts usually result from the exploitation of consumers who
are poorly educated, impoverished, and unable to shop around for the best price
available in the competitive marketplace.
The majority of unconscionable contracts occur in consumer transactions.
Contractual provisions that indicate gross one-sidedness in favour of the seller
include limiting damages or the rights of the purchaser to seek court relief
against the seller or disclaiming a Warranty (i.e., a statement of fact
concerning the nature or calibre of goods sold to the seller, given to induce
the sale, and relied upon by the purchaser).
Unconscionability is ascertained by examining the circumstances of the parties
when the contract was made. This doctrine is applied only where it would be an
affront to the integrity of the judicial system to enforce such a contract.
Adhesion contracts are those that are drafted by the
party who has the greater bargaining advantage, providing the weaker party with
only the opportunity to adhere to (i.e., to accept) the contract or to reject
it. (These types of contract are often described by the saying "Take it or leave
it.") They are frequently employed because most businesses could not transact
business if it were necessary to negotiate all of the terms of every contract.
Not all adhesion contracts are unconscionable, as the terms of such contracts,
do not necessarily exploit the party who assents to the contract. Courts,
however, often refuse to enforce contracts of adhesion because a true meeting of
the minds never existed, or that there was no acceptance of the offer because
the purchaser had no choice in the bargain.
An aleatory contract is a mutual agreement the effects
of which are triggered by the occurrence of an uncertain event. In this type of
contract, one or both parties assume risk. A fire insurance policy is a form of
aleatory contract, as an insured will not receive the proceeds of the policy
unless a fire occurs, an event that is uncertain to occur.
Void and Voidable Contracts
Contracts can be either void or Voidable. A
void contract imposes no legal rights or obligations upon the parties and is not
enforceable by a court. It is, in effect, no contract at all.
A voidable contract
is a legally enforceable agreement, but it may be
treated as never having been binding on a party who was suffering from some
legal disability or who was a victim of fraud at the time of its execution. The
contract is not void unless or until the party chooses to treat it as such by
opposing its enforcement.
A voidable contract may be ratified either expressly or impliedly by the party
who has the right to avoid it. An express ratification occurs when that party
who has become legally competent to act declares that he or she accepts the
terms and obligations of the contract. An implied ratification occurs when the
party, by his or her conduct, manifests an intent to ratify a contract, such as
by performing according to its terms. The ratification of a contract entails the
same elements as the formation of a new contract.
There must be intent and complete knowledge of all material facts and
circumstances. Oral Acknowledgment of a contract and a promise to perform
constitute sufficient ratification. The party who was legally competent at the
time that a voidable contract was signed may not, however, assert its voidable
nature to escape the enforcement of its terms.
Ambiguity in the terms of a contract exists when the court cannot, after
applying the rules or tools of interpretation, give meaning to the language used
in an agreement or document. The plain meaning rule is often applied judicially
to ascertain whether a contract is ambiguous. If the contract appears to the
trial judge to be clear and unequivocal on its face, then there is no need for
parol evidence. However, when a writing is ambiguous, parol evidence is
admissible only to elucidate, not to vary, the instrument as written.
Courts have used other rules to resolve ambiguous terms. Where neither party
knows, or has reason to know, of the ambiguity, or where both parties know or
have reason to know of it, the ambiguous term is given the meaning that each
party intended it to convey.
As a practical matter, this means that if the parties give the equivocal
expression the same meaning, then a contract is formed; but if they give it a
different meaning, then there is no contract, at least if the ambiguity pertains
to material term, as there is no meeting of their minds. Where one party knows,
or has reason to know, of the ambiguity, and the other does not, it conveys the
meaning given to it by the latter which means, in essence, that there is a
contract predicated upon the meaning of the party who is without fault.
The nineteenth-century formalists suggested that law was a science that could be
understood through the inductive methodologies of the scientific method. The
early twentieth-century realists suggested that law was a social science that
could be understood through the pragmatic methodologies of the social scientific
method. Now, the late twentieth-century critical legal studies movement has
suggested that law is really nothing at all.
Rather, it is a mere conglomeration of deconstructable doctrines that
necessarily have no effect on the way that legal decisions are made. Legal
decisions are guided by the invisible hand of our complex cultural values,
operating through their embodiment in our social decision-makers. Nevertheless,
by paying undue attention to the doctrine we risk interference with proper
decision-making through the diversion of the invisible hand from its appointed
course. As a result, the most significant thing about legal doctrine is its lack
If I am correct about the declining significance of doctrine, we might expect
the future to hold fewer and fewer doctrinal rules. And the rules that do
persist may show less and less concern for constraining the discretion of legal
decision-makers. In fact, such an evolution may already be occurring. This trend
has been replicated in the Second Restatement of Contracts, and commentators
have already begun to speculate about an expansion of the trend in some.
Nevertheless, you may sense an internal inconsistency in all of this. I have
suggested both that doctrine is largely irrelevant to legal decision-making, and
that undue attention to doctrine can undermine the soundness of legal
decision-making by interfering with the complex cultural norms that operate
through their embodiment in our judges and other social decision-makers. If
doctrine cannot control decision-making, how can a doctrinal diversion cause a
decision-maker to reach an improper result?
Either doctrine is relevant to legal decision-making or it is not, but it cannot
be both. If you think that you have caught me in a contradiction, arguably you
have. But it is not a contradiction that matters very much. At least not under a
post-critical legal studies model of legal reasoning, where the internal
inconsistency is the humdrum of everyday deconstruction.
- William Benjamin Hale, "Handbook on the Law of Damages" ed. 2nd (1912),
- Poole (2006), at.p.319.
- Kronman, "Contract Law and Distributive Justice", 89 (1980), Yale L.J.