Analysis Of Section 2(h) Of The Indian Contract Act, 1872 Through Conjoint Interpretation Of Other R

Author: Kumari Bhargavi Symbiosis Law School, Pune

Introduction

Humans in their daily life knowingly or unknowingly enter in to several transactions which tends to create legal obligations with each other giving rise to a contract. Alike the English law which regulates the terms of contract, in India the Indian Contract Act was introduced on 1st September, 1872 to administer the terms and conditions of a contract. Since inspiration for the formation of Indian Contract Act were the existing laws in England therefore majority of the leading cases are of English origin. Section 2 of the Act being a definition clause provides the basic definitions that are required for the formation of a contract among which Section 2(h) defines a contract.

Section 2(h) Of The Indian Contract Act, 1872

The essence of the Indian Contract Act, 1872, lies under Section 2(h) of the Act which states “an agreement enforceable by law is a contract”[i]. Interpreting this statement, it can be concluded that all contracts are agreements but not all agreements may be a contract. For instance, an agreement to have dinner with a friend is not enforceable by law, however an agreement to sell a watch for 2000/- to another, can be considered as a valid contract.

Through a mathematical question can we concluded that agreement + enforceability at law = Contract.

However, this section does not define the conditions for an agreement to become a contract. To elucidate how an agreement becomes legally enforceable, Section 2(h) of the Indian Contract Act takes shelter of Section 10 of the same Act.

Section 10 Of The Indian Contract Act, 1872

Section 10 of the Act states that all the agreements that have the essence of free consent of both the parties who are competent to contract, involving a lawful consideration and a lawful object, and not expressed as void, are termed as contracts[ii]. This Section mentions about the basic elements required for an agreement to be a legally enforceable contract.

Section 2(e) Of The Indian Contract Act, 1872

The legal provision of Section 10 does not define an ‘agreement’. To elaborate what an agreement is one needs to go through Section 2(e) of the Indian Contract Act which states that all promises and all set of promises that form a consideration for each other is called an agreement[iii]. On scrutiny of the definition provided, two important terms are highlighted that are essential for an agreement to be legally enforceable. These are ‘promise’ and ‘consideration’.

Therefore, arithmetically it can be interpreted as,

Promise + Mutual Consideration = Agreement.

Section 2(d) Of The Indian Contract Act, 1872

This section of the ICA, 1872 defines consideration. It states that “when, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence or promise is called consideration for the promise.”[iv] This definition has the vastness of timeline as it includes past, present, as well a future consideration. Moreover, this definition is general in sense therefore the vastness of consideration is also included over here as it can be in any form, whether be it in cash or some property or by rendering service to the other party.

In simpler terms consideration means Quid Pro Quo, i.e., something in return, which implies that both the parties competent to the contract should benefit from each other. Therefore, consideration forms the most integral part of the contract and without a lawful consideration an agreement remains void.

Section 2(d) also defines the role of consideration in the concept of “Privity to Contract” which means that a stranger to a contract cannot sue. According to the English Law, a stranger to a contract cannot sue as observed from the case of Tweddle. V. Atkinson[v], as though the sole object of the contract was for the benefit of the plaintiff yet it was rejected by the court since he was a stranger to the contract. However, in India the concept of privity to contract is immaterial as long as the consideration moves to the third party only for his/her benefit at the desire of the promisor as observed from the leading of Chinnaya. V. Ramayya[vi].

Section 25 Of The Indian Contract Act, 1872

Although a contract without a lawful consideration is invalid, there are certain exceptions to the rule of consideration. Section 25 of the Indian Contract Act states certain exceptions where agreement without consideration cannot be considered as void[vii]. These are:

  1. Natural love and affection:

Whenever both the parties who are competent to a contract enter into it and are in a near relationship with each other, then in such cases the execution of a certain act by the means of forming a contract and not having a consideration is not declared void and hence is considered to be legally binding. In such cases the most essential element of the contract is that, the contract needs to be written and legally registered, otherwise the agreement as a whole will be treated void by the court. In the case Rajlukhy Dabee. V. Bhootnath Mookerjee[viii], where both defendant and plaintiff being husband and wife separated from each other. However, the defendant promised to pay the plaintiff allowance on grounds of love and affection yet this was considered invalid because there were no grounds for love and affections anymore after their separation. Therefore, the court dismissed this case.

  1. Past Voluntary Service:

If any person gratuitously, without any expectation renders service to another person, and in return if the person promises to pay the former for his actions, the latter can ask for his part of consideration before the court of law. These promises are considered to be a social acknowledgement for the plaintiff. In this case the promise needs not to be written and registered, as it is not essential according to this principle. However, the promise of consideration cannot be considered as valid all the time. If someone is duty bound to work for the particular task done then he/she cannot ask the court to enforce the same agreement.

  1. Time-barred debt:

In India, according to the Limitations Act a maximum time is given to proclaim a debt. It provides a time frame for the claim of debt to be brought before the court because it is the intention of the law to keep the parties competent to contract to be vigilant and not dormant. According to this Act, if the claiming of a loan has become barred by time than the claimant cannot claim it. However, if the creditor himself/herself decided to give back the respective amount even after the time specified has expired then the agreement can be considered as lawful by the court, and it is not necessary to have consideration in the same transaction. In the case of State Bank of India. V. Dilip Chandra Singh Deo, 1998[ix], the debtor was interested in paying the time-barred debt and therefore he was liable to pay.

Section 2(b) Of The Indian Contract Act, 1872

This Section of the Act defines ‘Acceptance’ as “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted”[x]. In Section 2(e) of the Indian Contract Act we came across the term ‘Promise’ which is again defined in Section 2(b) of the Act itself. Promise refers to the acceptance of an offer by the party to whom the offer was made. While the legal terms for both sides of the party who enter into a promise are ‘promisor’, the party who makes the proposal, and the person who accepts the proposal is called ‘promisee’[xi] according to Section 2(c) of the Indian Contract Act.

Arithmetically it can be expressed that offer + acceptance = Promise.

For an offer to be accepted it must be communicated to the promisor in the mode and manner as prescribed by the promisor however from the case of Carlill. V. Carbollic Smoke Ball (1892)[xii] it was observed that if within an offer it has been expressly or impliedly mentions that performing the conditions of an offer without communication to the promisor amounts to acceptance, then performance of the conditions is a sufficient acceptance without notifications.

Section 2(a) Of The Indian Contract Act, 1872

Since the provisions of the Indian Contract Act are not self-defining and each section needs the help of others sections to complete itself, similarly to validate Section 2(b) one needs to refer to Section 2(a). Section 2(a) of the Indian Contract Act defines the term mentioned in section 2(b) that is ‘proposal’ as “when a person signifies to another his willingness to do or to abstain from doing something, with a view to obtain the assent of that other to such act or abstinence, he is said to make a proposal”[xiii]. The formation of a contract is initiated by an offer; therefore, a proposal acts as the beginning point of formation of a contract. Section 4 of the ICA states that when communication for an offer is complete after it comes to the knowledge of the person to whom the offer was made[xiv]. A judgement related to this section is the case of Lalman Shukla. V. Gauri Dutt[xv] where the court rejected the plaintiff’s plea because the plaintiff had no prior knowledge of the offer. Further, from the landmark judgment of Balfour. V. Balfour[xvi] establish that for an agreement to turn into a valid contract the offer must be made with an intention to create legal relations with the offeree.

Section 11 Of The Indian Contract Act, 1872

To validate the definition of Section 2(h) and to fulfill the basic necessities of a binding contract Section 10 of the Act states the element of “parties competent to contract”. To understand the capacity to a contract Section 11 of the Indian Contract Act is referred which states that who are not competent to enter into a contract.

According to this Section the followings persons are not competent to contract[xvii]

  1. A person who has not attained the age of majority.

  2. A person who is of unsound mind.

  3. A person who is not permissible to contract by the concerned law.

Since the meaning of the term “unsound mind” was quite vague for a common human to understand therefore, Section 12 of the Act defines the meaning of a ‘sound mind’ as a person who is able to make a rational judgment while entering into a contract[xviii].

In the case of Mohiribibi. V. Dharmodas Ghosh (1903)[xix] a minor entered into a contract of mortgage for a sum of 20,000 rupees, however, when this agreement was presented before the Court of Law it was considered as void ab initio.

Section 13-18 & 20-22 Of The Indian Contract Act, 1872

The provisions stated above are not enough to have a complete knowledge for the formation of contract. So, in order to know the essential elements for the formation of contract, prior knowledge of Section 13-22 of the Act is vital.

In the definition of Section 10 of the ICA the element of free consent is present. Now, what is consent?

To understand the definition of consent one need to refer Section 13 of the Indian Contract Act. Section 13 describes consent as two or more people agreeing upon the same thing in the same sense are said to give consent to each other[xx]. This can also be interpreted from the legal maxim “consensus ad idem” which means mutual agreement. However, for a contract to be valid legally it should not only have consent but also the element of free consent as one among the most essentials elements for the formation of a contract.

The definition of free consent is provided under section 14 of the Indian Contract Act. It states that if the willingness to do something is free and not biased or obtained forcefully then the consent is said to be free[xxi]. To understand in simpler terms consent can only said to be free if it is not influenced by any one of the factors listed below:

  1. Coercion, (Section 15) or

  2. Undue influence, (Section 16) or

  3. Fraud, (Section 17) or

  4. Misrepresentation, (Section 18) or

  5. Mistake (Section 20, 21, 22).

In the case of Ammiraju. V. Seshamma[xxii], it was observed by the court that threat to commit suicide amount to coercion under Section 15 of the ICA, therefore the agreement was considered as void.

Section 23 Of The Indian Contract Act, 1872

For a contract to be legally valid section 10 of the Indian contract act states the essential elements for an agreement to be legally enforceable, where we find the presence of “a lawful consideration and lawful object” however to understand to the validity of a consideration and an object, Section 23 of the ICA needs to be referred.

Section 23 states that the Quid pro quo and the purpose of the agreement will be lawful unless[xxiii]:

  1. It is not permitted by the laws of the land, or

  2. It is not a direct violation of the law but if permitted will defeat the very reason of existing laws thereby, hampering them, or

  3. Is fraudulent, or

  4. It causes loss to the living beings and property, or

  5. Is opposed to the public policy as regarded by the court of law.

In the case of Chandra Sreenivasa Rao. V. Kowapattin Raja Ram Mohan Rao[xxiv], the Court held that borrowing money for minor’s marriage is a void agreement involving unlawful object.

Section 24-30 & 56 Of The Indian Contract Act, 1872

In Section 10 of the Indian Contract Act we find that one among the many essential for the formation of a valid contract is that the agreement should not be “expressly declared as void”. However, there are certain agreements that are regarded as immoral and against public policy further restraining human rights because of which they are regarded as void agreements. In Section 24-30 of the ICA, it has been stated that agreements having unlawful consideration and objectives[xxv], and agreement which are in the restrain of marriages[xxvi], trade[xxvii], legal proceedings[xxviii] along with agreements void for uncertainty[xxix] and by wager[xxx], are considered as void. Further agreement that involves acts which are impossible to be performed[xxxi] is declared as void under Section 56 of the ICA.

The Court in the case of Shrawan Kumar. V. Nirmala Mauji Lal[xxxii] declared that a promise to between two people to marry each other, thereby stopping the defendant from marry another person is an agreement in restrain of marriage under Section 26 of the ICA.

Conclusion

Section 2 of the Indian Contract Act, 1872 being an interpretation clause provide some definitions related to a contract at one place and these definitions are interwoven and in sync with each other. However, while applying this definition, we find that instead of interpreting the definitions in isolation more effective meaning is arrived at by doing conjoint interpretation of other relevant Sections of the Act. In order to conclude a binding contract, elements of promise, consideration, lawful object and free consent are vital, thus interpreting Section 2 (h) of the Act in isolation will render the definition as futile in the practical world. It can be said that contract is a legally binding agreement between two or more parties to do or to refrain from doing something. An agreement involves a promise and a consideration, however for the formation of a contract the path is much longer because it involves the essence of legal enforceability.

References

[i] Indian Contract Act, Section 2(h), 1872.

[ii] Indian Contract Act, Section 10, 1872.

[iii] Indian Contract Act, Section 2(e), 1872.

[iv] Indian Contract Act, Section 2(d), 1872.

[v] Tweddle. V. Atkinson, (1861) 1 B&S 393.

[vi] Chinnaya. V. Ramayya, ILR (1876-82) 4 Mad 137.

[vii] Indian Contract Act, Section 25, 1872.

[viii] Rajlukhy Dabee. V. Bhootnath Mookerjee, (1899-00) 4 CWN 488.

[ix] State Bank of India. V. Dilip Chandra Singh Deo, 1998. Available at- https://www.lawyerservices.in/State-Bank-of-India-Versus-Dilip-Chandra-Singh-Deo-1998-02-26

[x] Indian Contract Act, Section 2(b), 1872.

[xi] Indian Contract Act, Section 2(c), 1872.

[xii] Carlill. V. Carbollic Smoke Ball, (1893) 1 QB 256 (CA).

[xiii] Indian Contract Act, Section 2(a), 1872.

[xiv] Indian Contract Act, Section 4, 1872.

[xv] Lalman Shukla. V. Gauri Dutt, 1913 SCC OnLine All 242.

[xvi] Balfour. V. Balfour, (1919) 2 KB 571.

[xvii] Indian Contract Act, Section 11, 1872.

[xviii] Indian Contract Act, Section 12, 1872.

[xix] Mohiribibi. V. Dharmodas Ghosh, ILR (1903) 30 Cal 539.

[xx] Indian Contract Act, Section 13, 1872.

[xxi] Indian Contract Act, Section 14, 1872.

[xxii] Ammiraju. V. Seshamma, (1917) 32 MLJ 494.

[xxiii] Indian Contract Act, Section 23, 1872.

[xxiv] Chandra Sreenivasa Rao. V. Kowapattin Raja Ram Mohan Rao, AIR 1952 Mad 579.

[xxv] Indian Contract Act, Section 24, 1872.

[xxvi] Indian Contract Act, Section 26, 1872.

[xxvii] Indian Contract Act, Section 27, 1872.

[xxviii] Indian Contract Act, Section 28, 1872.

[xxix] Indian Contract Act, Section 29, 1872.

[xxx] Indian Contract Act, Section 30, 1872.

[xxxi] Indian Contract Act, Section 56, 1872.

[xxxii] Shrawan Kumar. V. Nirmala Mauji Lal, 2013(3) ALJ 651.

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