History and Nature of a Contractual Obligation

Quasi contract. These are the obligations in sections 68 to 72, and they are the odd ones out in this Act. There is no agreement at all; the law creates the duty because it would be unjust to leave the benefit where it fell. The Act itself is careful with the label and heads the chapter "Of certain relations resembling those created by contract". See [Quasi Contracts: Obligations Resembling Those Created by Contract].

The nature of the obligation: four features

1. It is voluntary. Nobody is a contracting party by accident. This is why competency (section 11) and free consent (sections 13 to 22) occupy the whole of Module II: if the consent was not real, the justification for enforcement disappears.
2. It is owed to a definite person. A contractual right is a right in personam, meaning a right against a particular person, as opposed to a right in rem, which is a right against the world. Ownership is a right in rem; a buyer's right to delivery is a right in personam. This is the reason for the doctrine of privity, taken up in [Privity of Contract and Privity of Consideration].
3. Its content is set by the parties. The Act supplies default rules for what the parties did not say, on time, place and order of performance, but almost all of them yield to the agreement.
4. It is enforced by compensation, not by punishment. The court asks what the plaintiff lost, not how badly the defendant behaved. This is why section 74 refuses to enforce a penalty and gives reasonable compensation instead, worked in [Liquidated Damages and Penalty].

The history, in the order it happened

Before 1872. There was no single law of contract for India. In the Presidency towns of Calcutta, Madras and Bombay the courts applied English law. Outside them, the courts applied the personal law of the parties, Hindu or Muslim, in matters of contract as in much else, supplemented by "justice, equity and good conscience", which in practice meant English rules that the judge thought fair. The result was that the answer to a commercial question depended on where the question was asked and who was asking it.

The Commission and the Bill. The Act's own first footnote records that the Bill was based on a report of Her Majesty's Commissioners appointed to prepare a body of substantive law for India, dated 6 July 1866, that the Select Committee reported on 28 March 1872, and where the Council debates are printed. The Act is therefore a piece of deliberate codification, not an accumulation of decisions.

1 September 1872. Section 1 provides that the Act extends to the whole of India and came into force on the first day of September 1872. The words "except the State of Jammu and Kashmir" were omitted by Act 34 of 2019 with effect from 31 October 2019, so the Act now extends to the whole of India without qualification.

What was later carved out. The Act as enacted was much larger than the Act you now read. Two whole chapters have been removed and given statutes of their own:

• Sections 76 to 123, sale of goods, were repealed by the Sale of Goods Act 1930. The bare Act prints all forty eight of them with the single word "Repealed".
• Sections 239 to 266, partnership, were repealed by the Indian Partnership Act 1932. The bare Act's note reads: repealed by the Indian Partnership Act, 1932 (9 of 1932), section 73 and the Second Schedule.

This matters for reading the Act. If you look up section 100 you will find nothing, and the reason is not that the printer lost a page.

What the Act still contains, and what this paper covers. The live Act is sections 1 to 75 and sections 124 to 238. This paper is set on sections 1 to 75 only. Indemnity, guarantee, bailment and agency, sections 124 to 238, are set as a separate paper, Contract II, in Semester 4. So the Act you are studying is a little under half of the Act that exists, and the other half is not missing from your course, it is later in it.

Where Indian law departs from English law

The Act is not a translation of English law, and the differences are examined. Each is worked in its own chapter; this is the map.

If a question says "compare the Indian and English positions", the answer is one or more rows of that table, with the section and the reason.

What section 1 saves, and why it still matters

The saving in section 1 is short and is worth quoting because it is examinable:

"Nothing herein contained shall affect the provisions of any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this Act."

Three survivals: other statutes, the usage or custom of a trade, and incidents of a contract consistent with the Act. The trade usage limb is the live one. Where a trade has a settled practice, that practice can supply a term the parties never discussed, so long as it does not contradict the Act. It is also the reason the Act can be short: it did not have to codify every commercial practice in the country, only the general principles.

A worked example

Kavita sells forty bales of raw cotton to Lalit under a written contract that says nothing about how the weight is to be checked. In the Vidarbha cotton trade there is a long established usage that the weight is taken at the buyer's ginning factory in the seller's presence, and that a shortage of up to half a per cent is ignored as ordinary moisture loss. Lalit weighs the bales alone, finds a shortage of a third of a per cent, and refuses to pay for it.

• Is the usage part of the contract? The saving in section 1 provides that nothing in the Act affects any usage or custom of trade, nor any incident of any contract, not inconsistent with the Act. The usage is not inconsistent with anything in the Act, so it stands alongside the written terms.
• What follows on the weighing? The usage requires the weight to be taken in the seller's presence. Lalit's unilateral weighing is not the check the parties are taken to have agreed to.
• What follows on the shortage? A third of a per cent falls within the tolerance the trade recognises, so on the usage there is no shortage to deduct for.
• Change one fact. The written contract says "weight to be determined solely by the buyer, and any shortage whatever to be deducted". Now the usage is inconsistent with the express terms, and an express term prevails over a usage the parties have contracted out of.
• Change it again. A statute regulating cotton marketing prescribes the method of weighing. Section 1 also saves the provisions of any Statute, Act or Regulation not hereby expressly repealed, so that statute governs, whatever the usage or the contract says.

Why this matters. The saving is the reason a contract is never only the words on the page. It is the words, plus the usages of the trade the parties deal in, plus any statute that governs them, and the Act displaces none of those unless they are inconsistent with it.

What it does NOT mean

"The Act is simply English law in Indian dress." It is not, as the table above shows in eight places. Repeating the sentence in an answer without the qualifications loses marks.

"The Act contains the whole law of contract in India." It does not. Sale of goods, partnership, negotiable instruments, insurance, carriage and specific relief all sit in separate statutes, and Module IV of this paper is one of them.

"An obligation and a contract are the same thing." A contract is one source of obligations among several. Tort, statute, trust and quasi contract are others, and the last of these is inside this very Act.

Quick revision

• Act 9 of 1872, assent 25 April 1872, in force 1 September 1872.
• Based on the Commissioners' report of 6 July 1866; Select Committee report 28 March 1872.
• Extends to the whole of India; the J&K exception was omitted by Act 34 of 2019, w.e.f. 31 October 2019.
• Contractual obligation is voluntarily assumed, owed in personam, its content set by the parties, enforced by compensation.
• Sections 76 to 123 repealed by the Sale of Goods Act 1930; sections 239 to 266 by the Indian Partnership Act 1932.
• Live Act: sections 1 to 75 and 124 to 238. This paper: sections 1 to 75.
• Section 1 saves other statutes, trade usage and custom, and consistent incidents.
• Eight known departures from English law: consideration from a stranger, past consideration, section 25, section 63, section 56, section 74, section 72, section 27.

Test yourself

1. When did the Indian Contract Act come into force? 1 September 1872, by section 1.

2. What is the essential difference between an obligation in contract and one in tort? A contractual obligation is voluntarily assumed and its content is fixed by the parties; a tortious obligation is imposed by law, owed generally, and its content is fixed by law.

3. Why does the bare Act show sections 76 to 123 as repealed? Those sections dealt with the sale of goods and were repealed by the Sale of Goods Act 1930, which now governs that subject.

4. Give three points on which the Indian Act deliberately differs from English law. Any three rows of the table: consideration may move from a stranger under section 2(d); an agreement without consideration is valid in the three cases in section 25; section 56 makes frustration a rule of positive law rather than an implied term.

5. What is a right in personam, and why does it matter in contract? A right against a particular person rather than against the world. A contractual right is of that kind, which is the foundation of the doctrine of privity.