Contract Law

Indian Contract Act, 1872

The Indian Contract Act, 1872 prescribes the law relating to contracts in India and is the key legislation regulating Indian contract law. The Act is based on the principles of English Common Law. TheAct codifies the way we enter into a contract, execute a contract and implement provisions of a contract and effects of breach of a contract.

KEY PRINCIPLES

1. Basic Principles

General Principles of law of contract in India is provided under Sections 1 to 75 of the Indian Contract Act, 1872. A contract is usually valid and legally binding if it satisfies six essential elements: offer, acceptance, consideration, intention to create legal relations, legality and capacity, and certainty.

3. Bailment

Section 148 of the Indian Contract Act defines ‘Bailment’ as the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

5. Partnership

Section 4 of the Indian Partnership Act, 1932 defines ‘Partnership’ as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The relation of partnership arises from contract and not from status.

Case List

Objective Approach to Contractual Interpretation

Binding Nature of the Memorandum of Understanding (MoU)

2. Indemnity & Guarantee

Indemnity, as a legal concept under the common law, is much wider in its scope and application than the scope of “Indemnity” as provided under Section 124 of the Indian Contract Act, 1872. Clauses relating to indemnity are basically in the nature of critical risk allocation devices in most commercial contracts.

Section 126 of Indian Contract Act defines guarantee as a contract to perform the promise or discharge the liability of a third person in case of his default.

Difference between Indemnity & Guarantee

4. Agency

Section 182 of the Indian Contract Act, 1872 defines an ‘Agent’ as a person employed to do any act for another or to represent another in dealing with third persons. In this case, the person for whom such act is done, or who is so represented, is called the “Principal”.

6. Sale of Goods

Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

INTERPRETATION OF CONTRACTS

Principles

Lord Hoffman in the landmark judgment of Investors Compensation Scheme vs. West Bromwich Building Society gave a modern restatement of five cardinal principles for interpretation of contracts which favoured a more contextual approach to contractual interpretation.

Contractual Interpretation becomes relevant at three stages of the contract, namely:

  1. At the stage of formation;
  2. At the stage of performance, and
  3. At the stage of dispute settlement.

Contract Drafting Course

Our comprehensive online course on contract drafting aims to give you an insightful understanding of standard clauses and their enforceability before a court of law. At a more advanced stage, it also introduces you to different types of contract that you may come across as a budding lawyer in your formative years.

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