Basic Principles of Indian Contract Law

A contract is essential for any business transaction, ensuring that both parties to the contract abide by the commonly established terms and conditions. Entering an agreement or transaction without a formal contract can be disastrous because it could result in one or both parties escaping their obligations. To protect the interests of both parties, the Indian Contract Act was established in 1872. The purpose of Indian contract law is to ensure fair business practices.

The Indian contract law forms the foundation of business law. This is because a bulk of business transactions is based on contracts. The Indian Contract Act has established the general principles for forming, executing and enforcing contracts.

Essentials of a Valid Contract under the Indian Contract Law

The Indian Contract Act defines a contract as an agreement that is enforceable by law. An "agreement" is basically a promise or a set of promises that consists of the following components:

• An offer: This is the starting point of an agreement; wherein one party (offeror) communicates his intentions to sell something or provide a service to the other.
• An acceptance: This is the act of manifestation by the other party (offeree) of his consent to the terms and conditions of the offer.

 Also, a contract is considered valid if it is made with the free consent of both parties, for a lawful consideration and with a lawful object. The parties must also be competent and have the legal capacity to make a contract. According to the Indian contract law, a person is competent to contact if s/he has attained majority and is of a sound mind.

Indian Contract Law: Stipulations for Remedies against Breach

When a contract is breached, the aggrieved party may seek the following remedies from the other party:

• Suit for rescission or revocation: This entails halting further performance on a contract, absolving the aggrieved party of all its contractual obligations.
• Suit for damages: Damage or monetary compensation can be obtained by an aggrieved party against the loss or injury suffered due to a breach of contract.
• Suit upon 'Quantum Meruit': This term implies ‘as much as earned’ or ‘as much as he deserves.’ A quantum meruit suit is basically a claim against the value of the material supplied or used under a contract, which becomes void on account of breach of contract.

Here is an example based on a famous case to explain the term, Quantum Meruit, in a simpler way.

Suppose you did some unpaid work on a farm belonging to Mr. Alex because he promised to give you a part of the farm land. Both of you execute an agreement of sale for that part of the land that he promised you but because the property fell under the classification of agricultural land reserve, it could not be sub-divided as you agreed on and the agreement could not be registered. Naturally, you feel cheated and you claim under quantum meruit for the unpaid farm work that you did. In such a case, the court will inquire whether your unpaid work enriched Mr. Alex and deprived you without due reason. If so, it is natural justice that the court orders compensation for your unpaid work. [This example is based on the famous case, West v Wilson 1998 CarswellBC 840]