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CONTRACT ACT NEEDS AN UPDATE

Updated: Sep 7

Author: Abhay Nandan, II Year of B.A.,LL.B. from GITAM University, School of Law


Abstract

This paper emphasises on highlighting the recommendations made by the law commission of India to make changes on the sections of the Indian Contract Act, 1872. The essay starts with giving a brief introduction about the whole work along with gving pinch of discussion on the history of the contract act. There were many reports which had been given by the law commission of India, all these reports has been thoroughly studied.


The essay paper gives a brief analysis of each and every report. There are ceratin parts in the law commission report which is too lenghty, the paper only goes on highlighting the important points from there.


There is also a glimpse of recommendation added section wise of the Indian Contract Act, 1872 which was there in the Law Commission Report to have an understanding of how changes are recommended by the report. The essay provides the idea of how things are getting advanced with maturity of time and why it is essential to have an update of the Indian Contract Act, 1872. At the end of the paper the essay provides the reader with a conclussion and suggestion, providing the current situation which is prevailing related to it.

INTRODUCTION

Indian Contract Act, 1872 provides specific codified rules for contractual relationships between two or more than two parties. The Indian Contract Act is based on England and has its origin from property law, described by Denning, L.J., as being "devoid of moral concepts like mathematics."


The land was the vital property in those days; lawyers approach the different problems with the same mindset. In those days law of Contract had become a governing principle. Prof. Keeton points out, the emphasis today must be placed upon the problem "whether as a result of unceasing administrative encroachment, freedom of Contract will survive at all to any noticeable degree."


When we look into Blackstones’s commentaries on the Law of England , published in 1756, it discusses about Law of Real Property in 380 pages, whereas 28 pages were dedicated to Law of Contract.

Many modern changes have taken place, many jurists in various countries had studied these changes, and many changes have been recommended by the Wright Committee in England and the New York Law Revision Commission in America.


Apart from that, various judicial interpretations have also been made of different sections of the Contract Act. Many conflicting views have been expressed on the Act, and on a few occassions, legislatuve changes have also been suggested.


This paper attempts to dig out all those burried commissions reports, which have suggested the changes. The assignment highlights the issues raised in words. It also tries to re-look at the following doctrines and sections present in the contract act and try to provide suitable suggestions. It also looks at specific recommendations which were given in the commission's report. The paper ends with delivering the conclusion and providing tips if necessary to the matter raised.


LAW COMMISSION REPORTS

Law Commission is an independent executory body which is established by government of India’s order. The Law Commission has been established for fixed tenure and it works for ministry of law and justice. The members of Law Commission of India primarily consist of legal experts. Law Commission ensures that law is cost-effective, fairly practiced, it should be modern i.e. according to new issues so that it can be dealt in an effective manner and it should be simple to understand.


The purpose of this duty is to undertake studies and research on different laws to bring reform in the justice delivery and to eliminate the delay in proceeding of cases following the speedy disposal and consultations in order to offer systematic suggestions to Parliament, as well as to codify the law, eliminate anomalies, abolish obsolete and unneeded enactments, and minimize the number of different legislations. The other functions of the Law Commission of India is to repeal the irrelevant laws and also the unnecessary enactments.


It also examines the law which is existing today and tries to promote gender equality by suggesting amendments in that. It provides time to time reports on all the issues, matters on which the research had been taken to the central government, recommending in the reports the measures to be taken by the union or any state.


13TH LAW COMMISSION REPORT

PART- 1 ; GENERAL

According to this report, the preamble of the Indian Contract Act, 1872, is not the complete code dealing with the Contract Act. In this commission report, several issues were raised by the committee members related to the Indian Contract Act and the number of statues dealing with several branches that have to be consolidated and incorporated into the Contract Act.


The commission report highlights a matter related to passing a separate Act on particular contractual transactions named the Negotiable Instrument Act, 1881. Certain parts of the Contract Act had also cut out from the main context and have been given independent enactments relating to particular contracts, such as the Sales of Goods Act, 1930, The Partnership Act, 1932.


In this report, Sir James Stephan expressed his view by saying that the Indian Contract Act was not and could not pretend to be a complete branch of law, to which it has related. He had hoped that the enactment of supplementary chapters related to several branches of law of Contract would be accessible in later years. This hope has never been fulfilled. In the upcoming years, the Contract law had several enactments in the several branches, e.g., The Transfer of Property Act, The Negotiable Instrument Act, The Merchant Shipping Act.


The Doctrine of Consideration

The Commission report has devoted their anxious thoughts to the modern attitude towards the Doctrine of consideration, to the desirability of its abolition or modification in it. According to Professor Holdsworth, the Doctrine is something of an anachronism and stated that the requirement of consideration in its present shape prevents the enforcement of many contracts.


Professor Holdsworth also expressed his view that the Doctrine of consideration is not a scrap; it must be reduced to a subordinate place in the English theory of Contract. According to some eminent jurists at that time, this Doctrine of Consideration requires modification. Lord Wright remarks that the Doctrine of consideration in its present form serves no practical purpose and should be abolished. In America, too, this Doctrine of consideration faced a lot of criticism from Dean Pound.


According to Indian Contract law, which is the same as in England, an undertaking to keep the offer open for a specific time is a promise without consideration and unenforceable. To bind into a contract, such a promise have to be supported by consideration. This rule is a necessary implication from section 5 and sub-section (2) of section 6 of the Contract Act. Relating to this issue, the Law Revision Committee recommended that agreement to keep an offer open for some time until getting consideration; it should be enforceable even when no consideration is there to support the open offer. The Law Revision Committee made a similar recommendation. The Commission report recommends that an exception should be added to Section 25.


A promise, which the promisor should reasonably expected if only by enforcing the promise can injustice be avoided is binding. To induce action or forbearance of a clear and substantial nature on the part of the promisee and which does not produce such action or forbearance is binding. It was suggested to add on an exception to Section 25 to prevent the controversy on situation as mentioned above.


Here, the law commission report states that there are no changes to be recommended for this, where a legal duty arises out of the pre-existing Contract between the promisor and promisee are fully provided in Section 62. The cases with a third party are involved, the existing provisions govern it.


The Doctrine of Privity

According to this Doctrine, a third party cannot sue on a contract if he is beneficiary in it. There has been a judicial conflict of opinions on the applicability of this Doctrine in India. In some cases like Chinnayya v. Ramayya, 4 Mad. 137 or Kshirodbehari v. Mangobinda 6 I Cal. 841 (860), the view was taken that the 'any other person' in Sec. 2(d) departs from the English rule that consideration must proceed from the promisee on behalf of which the Privy Council has also ruled certain more cases, it was observed that definition of promisor and promisee in section 2 rigidly excluded the notion that a stranger to a contract can sue thereon.

Several exceptions have also been introduced by Sec. 23 of the Specific Relief Act, 1887.


The anticipation made under this report on the Specific Relief Act referring to the Ninth Law Commission Report is to adopt a general exception, which will cover all the cases of contracts conferring benefits upon third parties and provide particular instances where the rule of Privity should not apply. In addition, there was a recommendation to have separate sections on this.


Quasi-Contracts

The next topic, which is discussed in the report, was related to quasi-contract. The Chapter V of the Indian Contract Act under the heading- 'OF CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACT.' It has been found in the report that specific inadequate provisions were there for the obligations resembling those created by Contract. The observation of Lord Wright on the Contract Act that it deals with this in a very unsatisfactory manner. The commission proposes an agreement to make changes in the current provision and introduce specific provisions for such suggests that the chapter has to be made more comprehensive.


The principle of quasi- Contract is of getting the unjust benefit. This is derived from the old maxim of Roman Law: 'Nemo debit locupletari ex aliena jactura.' This means mo man should grow rich out of another person's loss. Lord Wright in Fibrosa v. Fairbairn said that: "……any civilized system of law is bound to provide remedies for cases of what has been called unjust benefit or unjust enrichment, that is to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Remedies to such are generally different in English Law than form remedies in Contract or Tort, and are now recognized to fall under within a third category of the common law which has been called quasi-contract or restitution."


Denning L.J. in Brewer Street Investments Ltd. V. Barclays Woolen Co. Ltd. Said: "the proper way to formulate the claim is on a request implied in law or, as I would prefer to put it, on a claim for restitution." The law of restitution says that no one should enrich himself at the expense of his neighbor. The basic concept of restitution is to prevention from unjust enrichment.


The recommendation provided by the report was to accept the Doctrine of unjust enrichment and make specific provisions for well-known cases of unfair enrichment; a separate residuary section has to be enacted.


PART- 2; PROPOSALS RELATING TO SECTIONS

In the second part of the law commission report, the committee has suggested the changes, which have to be introduced in the current prevailing Act in the country.


The changes to be made sequentially, the report offers its view on what should be changed and modified in the particular section of the Act. Let us go through each suggestion one by one.


Preamble: - The committee proposes no changes on modifying the wordings of the preamble.


Section 1:- The committee suggests dropping the word "Indian" from the title of the Act.


Section 2(d):- Views relating to consideration.


Section 3:- The change of the word 'or' in place of 'and was suggested by the Bihar Lawyer's Association.


Section 4:- the Director of Legal Studies had made a suggestion, Madras, that section 4 needs clarification. If a letter of acceptance is posted and thereafter the Acceptor revokes it by a telegram or any another letter and both of them reach the proposer, it is better to make that revocation valid. However, the commission report does not find this suggestion needs to get approval.


Section 5:- No changes were made to this section.


Section 6:- The Director of Legal Studies, Madras, has suggested that it should be provided. The offeror intends to revoke the good notice of revocation, regardless of where it comes from. The commission on the ground did not accept this suggestion, that this new thing will lead to inconvenience and may open the door to perjury.


Section 7:- Legal Studies Director gave no good reason to examine Sec. 7(2). Therefore, the commission report does not give weightage for make any alteration of the law.


Section 8:- The controversial part in this section was the expression "performance of the conditions of a proposal," which, if interpreted, conveys the meaning that even a complete performance or even partial performance is sufficient. It is found that if the former view is correct, there will be a severe injustice while dealing with cases where if a person to whom an offer has been made to pay a certain sum in consideration if he completes the work given as soon as he was about to complete the work the offer gets revoked.


According to The English Law Revision Committee recommendation, there must be an introduction of rule, according to which 'if a promisee gave the consideration and started acting on it then he will be considered to be in a contract by his performance of the act into the contract unless the promise includes a term in the contract that it can be revoked before the act has been completed.'


The commission report accepts the proposed recommendation and requests an adoption and introduction of the particular rule in section 8 of The Indian Contract Act.


Section 9:- In this particular section, the assumption of the rule that both proposal and acceptance may take place without express words. However, this separate existence is not laid down in the section.


The report suggests that it should categorically state the rule.


Section 10:- No changes were suggested.

Section 11:- Here in the section, the conflict arises on the question of how far the case of minor's agreement produced by him by fraudulent concealment of his age, the court will relieve the other party to the agreement from the effects of the fraud.


In the case of Khan Gul v. Lakha Singh A.I.R. 1928 Lah. 609, In this case two question were referred to for forming a decision:

Question1:- Whether a minor who has represented himself to be a major, falsely induced a person to enter into a contract, will be estopped from pleading his minority to avoid the Contract?

Question2:- Whether a party enters into the Contract with a minor by falsely representing his age, whether he be defendant or plaintiff, in subsequent litigation, refuses to perform the Contract and also retains benefit he may have derived therefrom?

Shadi Lal, C.J. has delivered the judgment on minority, held that-

In the case where the infant has induced a person by falsely representing himself as major, He is not estopped from claiming that his infancy caused the Contract to be void, and that section 115 of the Evidence Act should be interpreted in conjunction with section 11 of the Contract Act.

If an infant has falsely represented about his age, of full age to get into the Contract, this will give rise to equitable liability. The court may, in the exercise of its equitable jurisdiction, will restore the parties to the position, which they occupied before the date of the Contract.


The Doctrine of restitution, which is given in Section 41 of The Specific Relief Act, will not be confined to the cases. An infant cannot be allowed to take advantage of his own fraud. The Doctrine is applicable whether the minor is the plaintiff or the defendant.


There had been an opposite view of Sulaiman C.J. in the case of Ajudhia Prasad v. Chandanlal A.I.R. 1937 All 610, delivering the judgment by the full bench holding that the minor is not estopped from pleading that the Contract is void on the ground of his minority. The decision held that-

When an infant makes a false representation about his age, he is liable neither on the Contract nor in the tort ;

In the case of Mohiri Bibi v. Dharmodas Ghose 30 Cal. 539, the judicial committee had arrived at the following conclusion:-

The question of Void and Voidable cannot arise in the case of an infant.

Section 64 and 65 start from the basis of there being an agreement between competent parties


Section 41 of The Specific Relief Act applies to the case of an instrument executed by minors.


The commission report suggests a change to mention in section 65 of the Contract Act. The committee recommends adding an explanation to indicating that section should be applied if a minor makes an agreement on the false representation that he is a major.


Section 12:- There are no changes proposed in this section, as everything is clear.


Section 13-14:- No changes are considered in these sections.


Section 15:- The commission suggests deleting the words "Any act forbidden by the Indian penal code," and a more comprehensive expression have to be substituted in it so that penal laws other than the Indian Penal Code can also make their place in it. The reason given is, the proper function of the Indian Penal Code is to create offenses and not merely to forbid. Penal codes forbid what it declares to be punishable, and in relation to it, there are many different penal codes present apart from the Indian Penal Code, which performs the same functions.


Section 16:- No changes are required in this section.


Section 17:- No changes are required in this section.


Section 18:- Pollock and Mulla have described this section as being less satisfactory in the point of form; they gave strong criticism to it. The authors explained that sub-section (2) is uncertain and useless, whereas sub-section (3) confuses between voidable contracts.

There is no change recommended by the commission stating that the statement is clear and correct.


Section 19:- The commission report suggest deleting the 'comma' after the word 'silence' in the Exception, as the comma after the word silence creates an impression that the word 'fraudulent' consist of both 'misrepresentation' and 'silence,' however, the correct interpretation is that the term 'fraudulent' only includes 'silence.' This particular opinion has also been suggested in the case by the judges.


Section 19A-22:- No changes are suggested.


Section 23 -238:- There are many recommendations made by the commission report in these sections of the Indian Contract Act.


THE 97TH REPORT

This law commission report focuses on the prescriptive clauses in Contract, in which it focuses on Sec. 28 of The Indian Contract Act, 1872. This work was taken by the law commission report on its own regarding many-sided importance and making it relevant to modern-day thinking.


This report divides itself into five chapters. The first chapter gives the 'introduction' of the report and the report's content. The second chapter deals with 'the existing law. The third chapter discusses the 'demerits of the existing law.' The fourth chapter highlights the 'comments received' on the working paper. The last chapter of the report, i.e., the fifth chapter, gives a 'recommendation.' Despite going to the report's history and then coming to the recommendations, the paper will directly stick to the topic.


Recommendations

In this part, the commission report highlights the changes to be made in the present law. The demerit, which was found in the current law, was that, barring the remedy by practicing the invalidating time limit which is given in the clause, which leads from suffering the principle defects such as:-

  • This causes hardship to the economically disadvantaged person; they are violating economic justice.

  • It harms the consumer's interest who is dealing with the big corporations.

  • It treats severe flaws as valid while making the lesser one invalid.


After referring to all the aspects of the matter related to the Indian Contract Act, 1872 amended section 28 suitably to render the invalid contractual terms.


The report also suggests re-drafting of the main paragraph of Section 28 as-


Section 28. Every Agreement-

  • By which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract by the usual legal proceedings in the ordinary tribunals, or

  • Which limits the time within which he may thus enforce his rights, or

  • Which extinguishes the right of any party thereto under or in respect of any contract on the expiry of a specified period or on failure to make a claim or to institute a suit or other legal proceedings within a specified period, or

  • Which discharges any party thereto from any liability under or in respect of any contract in the circumstances specified in clause (c), is void to that extent.


CONCLUSION AND SUGGESTIONS

After referring to all the Law Commission report, reports have periodically suggested amending the existing provisions of the Act. Still, there are three more Law commission reports that suggest different chnages made in the Act. By looking at the issues raised and recommendations made under the report, it is clear that our Indian Contract Act, 1872 needs a re-visit. Some legal experts think that this law is well-drafted, but when we look around the issues related to contract in the world, the non-adjusting attitude with the Act can be seen everywhere. The global market is evolving very rapidly, and still, our law is ancient England property-based.


The suggestion that can be drawn decides to amend and update the Act more critically. In this century, the law must not be of the old kind. There is an evolution of mindset, and the new mind deals with the matter differently, so the governing principles should also be according to the present situation.


There are very mild changes made by following up the commission report, and still many recommendations are still waiting for approval. These reports need to be re-visited, and the suggestions should be followed. In our country, most judgments are pronounced based on the pre-existing rules which have come out from the eminent English case laws. This approach can never bring a change in the present law.