Indian Contract Act as enacted originally had 266 Sections, it had wide scope and can be classified into
Previously, the Indian Contract Act, 1872 contained provisions relating to Sale of Goods (Movable Property) and Partnership. But now these two provisions have been removed from the Act and are placed in two separate acts known as the Sale of Goods Act, 1930 and the Indian Partnership Act, 1932. So at present, the Indian Contract Act includes the General Principles of Contract and Special Contracts only.
The Indian Contract Act brings within its ambit the contractual rights that have been 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 Indian Contract Act, 1872 was enacted on 25th April, 1872 [Act 9 of 1872] and subsequently came into force on the first day of September 1872. 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. 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. The rules governing contracts form a part of the law called Vyavaharmayukha.
During the Muslim rule in India, all matters relating to contract were governed under the Mohammedan Law of Contract. The English common and statute law in force at that time came into India by the Charters of the eighteenth century which established the Courts of justice in the three presidency towns of Calcutta, Madras and Bombay, so far it was applicable to Indian circumstances.The English law of contract, it has been, was evolved and developed within the framework of assumpsit.
By the charter of 1661 and 1726 the English law has deep impact on the Indian legal system. Prior to the enactment of the Indian Contract Act, 1872, The English Law is applied into the Presidency towns of Madras, Bombay and Calcutta by the Charter granted in 1726 by King George I to the East India Company
It is a matter of controversy whether English law was introduced by the Charter of 1726 by which the statutes up to that date would be enforced in India with the same amount of force as in England, or subsequently by the Charters of 1753-74 so as to embrace statutes up to 1774. Anyways, since there was an indiscriminate application of English law to Hindus and Mahommedans within the jurisdiction of the Supreme Court it led to many inconveniences. To obviate this, the statute of 1781 empowered the Supreme Court at Calcutta and the statute of 1797 empowered the Courts of Madras and Bombay (recorders courts), to determine all actions and suits of contractual nature against the natives of the said towns in the case of Mahommedans by the laws and the usages of the Mahommedans and in the case of Hindus (called ‘Code of Gentoo Laws’ in the Statutes) by the laws and usages of the Hindus, and where only one of the parties was Mahommedan or Hindus, by the laws and the usages of the defendant.
In 1781, the Act of Settlement was passed by the British government which says that in the matters of inheritance and succession, contracts dealing with parties in the case of Mohammedans and Hindus, their respective laws were considered. In cases where only one of the parties is a Mohammedan or Hindu, the laws and usages of the defendant are considered. This rule was applied in the Presidency Towns. In places outside the presidency towns, judgment was decided according to the justice, equity and good conscience And this continued until the enactment of the Indian contract act.
It is not an exhaustive law on all classes of contract. The contract act does not profess to be a complete code dealing with the law relating to contracts. It appears from preamble.
Act not retrospective – the provisions of this act do not apply to contracts made before the act came into force.
Principles of construction of contracts – a person is only entitled to enforce his contractual rights in a reasonable way and a court will not support an attempt to enforce them in an unreasonable way. The courts should not, in commercial transactions, be astute to defeat the efficacy of documents which parties have acted on, by seeking to apply to their construction rule such as the ‘subject to contract rule’. Such rules are but guide. They must not become tyrants, compelling a construction which in the circumstances of a particular case, produces a wholly artificial and unreal result.
There are two kinds of rights, one is Right in rem, and the other is Right in personam. The Indian Contract Act, 1872 provides right in personam to the parties who have bound their promises in a contract. Thus, the parties in such a situation can only enforce their contractual rights against each other only and not against the world at large.
Example: X and Y enter into a contract for delivering ten books on a specified date. If Y fails to deliver the same to X, then X can sue only Y and not anybody else. The rest of the world is concerned with this contract.
Contracts can be classified into three broad branches.
The Indian Contract Act is divisible into two parts. The first part (Section 1-75) deals with the general principles of the law of contract and therefore applies to all contracts irrespective of their nature.
The second part (Sections 124-238) deals with certain special kinds of contracts, namely contracts of Indemnity and Guarantee, Bailment, Pledge, and Agency.