CHANAKYA NATIONAL LAW

UNIVERSITY,patna

LAW OF CONTRACTS-I PROJECT

TOPIC: ROLE OF CONCEPT OF CONTRACT IN A

DEVELOPING SOCIETY

SUBMITTED TO:-

MS SUSHMITA SINGH
FACULTY of LAW OF CONTRACT
SubMITTED By:

SHUBHAM KUMAR

ROLL NO – 1765

BA LLB, 2ND SEMESTER

TABLE OF CONTENTS

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 1) AIMS & OBJECTIVE………………………………………………………………4
2) RESEARCH METHODOLY………………………………………………………..4
3) HYPOTHESIS………………………………………………………………..............4
4) LIMITATION………………………………………………………………………...4
5) SOURCES OF DATA………………………………………………………………..4
6) CHAPTERISATION
1. INTRODUCTION…………………………………………………………….5
2. HISTORICAL BACKGROUND OF CONTRACT LAW…………………….6-8
3. CONTRACT LAW: NATURE AND IMPORTANCE………………………..9-12
4. ROLE OF CONCEPT OF CONTRACT IN A DEVELOPING SOCIETY…13-14
5. CONCLUSION……………………………………………………………15-16

BIBLIOGRAPHY

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 ACKNOWLEDGEMENT

I owe the present accomplishment. Any project completed or done in isolation is unthinkable.
This project, although prepared by me, is a culmination of efforts of a lots of people.

Firstly, I would like to thank our teacher Ms. SUSHMITA MAM for her valuable suggestions
towards the making of this project.

Further to that, I would also like to express my gratitude towards my seniors who were a lot of
help for the completion of this project. The contribution made by my classmates and friends are,
definitely, worth mentioning. I would like to express my gratitude towards my family members
help also.

Last, but far from the least, I would express my gratitude towards the Almighty for obvious
reasons.

SHUBHAM KUMAR

2ND SEMESTER

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 AIMS & OBJECTIVE

i. To study about need of contract in the society.

ii. To study about the role of concept of contract in a developing society.

RESEARCH METHODOLOGY
 The research methodology adopted for the purpose of this project is the doctrinal method
of research. The books in the library and materials available on the internet have been used
to study about the topic.

HYPOTHESIS
 Contract law is important because it underpins our society; without it, life could not exist.
 Contract law is largely judge-made law.
LIMITATION

 The researcher is a scholar who has limited time period of 1 month to carry out this project
work. So the researcher used some limited book and websites for accomplishment of this
project work.
SOURCES OF DATA

 Sources of data include primary as well as secondary sources of data.

PRIMARY SOURCES:

 BOOK
 ENCYCLOPEDIA -BRITANICA

SECONDARY SOURCES:

 WEBSITES
 PREVIOUS DATA

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 1. INTRODUCTION

A contract is a promise (or a set of promises) that is legally binding; by ‘legally binding’ we mean
that the law will compel the person making the promise (‘the promisor’) to perform that promise,
or to pay damages to compensate the person to whom it was made (‘the promisee’) for non-
performance. Promises are a common feature of our lives; individuals make promises to family
members and their friends, promises are made within the workplace, suppliers and their customers
make promises about the supply and acquisition of goods and services, and political parties make
election promises. However, only some of these promises are legally binding—and only some of
those that are binding are contracts. For a promise to give rise to a contract it must in substance
amount to an undertaking by the promisor that is proffered in exchange for something sought in
return from the promisee; for example, a promise by A to let B have her car if B pays A $10,000.
The concept of ‘bargain’—I will do something if you do something in return—inherent in
promises of this nature is the defining characteristic of a contract.

As we have noted, some promises are binding even though they are not contractual in nature.
Thus, a promise that does not contain the element of a bargain may still give rise to legal rights
and obligations if the promisee has relied upon that promise in circumstances in which it would
be unjust to allow the promisor to resile with impunity. This was established for Australia by
Waltons Stores (Interstate) Ltd v Maher, the effect of which is ‘that an equitable estoppel yields a
remedy in order to prevent unconscionable conduct on the part of the party who, having made a
promise to another who acts to his detriment, seeks to resile from the promise’.

Contract law has been construed historically that if ambiguous language is employed, then the
contract will be interpreted in such a way as to give favour to the party that signed the contract,
not the party that wrote the contract. Contracts is derived from a common law heritage. Another
major function of a contract is to document what each party to a contract is obliged to do for each
other. Contract laws also serve to assign consequences in the event either party is unable to
perform the duties taken up under the terms laid out in the original contract.

Contract law in other systems may have a heritage derived from civil law, Islamic law, socialist
law and from tribal law. Depending on each country’s specific views of contracts, law systems in
the country may assign more protection to the consumer or may afford more protection to the
corporation.

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 2. HISTORICAL BACKGROUND OF CONTRACT LAW

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 of1872] 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. However, these are questions of interpretation that not only depend on the text
of the Act, but also on the English authorities that framed the law and before it, the subsequent
development of law.

The history of the Act brings to light the very origin of the economic processes and in this regard,
the importance of contracting in order to conduct one’s business in everyday life. The prevalent
system in the ancient times was barter and it was based on the mutual principle of give and take.
This was confined to commodities as there was no medium of exchange as is seen in the form of
money today and this system can be traced back in time to the Indus Valley Civilization (the
earliest human civilization). The system still finds relevance in the contemporary world, where it
can be found in commercially and economically underdeveloped areas.
However, the relevancy of such a system in modern times is questioned as the complexity in the
nature of the economic systems as well as the increasing demand and supply systems due to the
medium of exchange such that the value of every commodity could now be quantified. Thus, in
such an era of greater economic transaction one finds the existence of Contract Laws and with it,
their relevance.

The Indian Contract Act codifies the way we enter into a contract, execute a contract and
implement provisions of a contract and effects of breach of a contract. The contractual capacity is
restricted in certain situations otherwise it is the prerogative of the individual to contract. There
are specific areas which deal with property, movable gods and specific performance such as the
Transfer of Property Act, The Sale of Goods Act and The Specific Relief Act. Some of these acts,
were originally a part of the Indian Contract Act enacted in 1872 but were later codified as

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separate laws. Moreover the Act is not retrospective in nature. Hence a contract entered into prior
to 1st September 1872,even though to be performed after passing of this Act is not hit by this Act.
Hence, we arrive of the conclusion that the basic framework of contracting is covered in the
Indian Contract Act and it is an important area of law, with roots deep in the history of
civilization- and thus forms the subject matter of this project of this course of Legal History.

VEDIC AND MEDEIVAL PERIOD:

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.

Studies of the smritis reveal that the concept of contract originated in the Vedic period itself.
Topics, as we know them today like debt deposit and pledges sale without ownership, mortgage
and gifts, which are all contracts in nature, are mentioned therein. The general rules of contract
bear a striking resemblance to the modern law of contract. For e.g. as mentioned in the
Manusmriti, the first and the foremost requirement for a contract process to start is the
competence of the persons who are willing to enter into a contract. This norm laid down for
competence corresponds with the provisions of the present law (Section 11, Indian Contract Act),
namely, dependents, minors, sanyasis, persons devoid of limbs, those addicted to vices were
incompetent to contract. The Narad smriti categorizes competent persons into three; the king, the
Vedic teacher and the head of the household.

The concept of liability in contract law finds its birth in the Vedic period too. Spiritual debts were
referred as ‘wrin’ and it was constantly reinforced by the smritis that failure to pay back the debts
meant re-birth as a slave, servant, woman or beast in the house of creditor. So, the son was liable
to pay of his father’s debts even if he did not inherit any property from him.

Towards the end of the medieval age, the law of contracts was pretty much being governed by
two factors; the moral factor and the economic factor. Activities like transfer of property,
performance of services etc. required rules for agreements and promises, which covered not just
business and commercial transactions, but also personal relationships in all walks of life. This

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takes us to the next source, i.e. the Arthashastra by Kautilya, which is considered to be the only
existing secular treatise on politics and governments.

CONCEPT OF LEGISLATION:

The Charter Act of 1833 established a legislature for the whole of British India, and the laws
made by it were called ‘Acts’. Some of the legislations at that time before the Indian Contract Act
include the Interest Act 1839, the Usury laws Repeal Act 1855, the Indian Bills of Lading Act
1856, the Workman’s Breach of Contract Act 1859, the Merchant Shipping Acts (English) of
1854 and 1859, the Carriers Act 1865 and the policies of Insurance Assignment Act 1866.

MAKING OF THE ACT:

The first draft of the Indian Contract Act made by the third Indian Law Commission was a
simplified statement of the English law with modifications suitable to India. There were
differences between the views of the Indian legislature and the Commission; so the Commission
resigned. The drafting of the future statutes fell upon the Indian legislative department. Some
proposals of the that the framers borrowed from various codes of other countries leaving an
incongruous effect. But, he says after allowing for all drawbacks, the result was generally sound
and useful one.
The Contract Act did not cover the entire field of contract law- in cases not provided by the
Contract Act or other legislative enactments relating to particular contracts, it was incumbent on
High Courts in their original jurisdiction to apply Hindu law to Hindus and Mahommedan law to
Mahommedans. An instance is the rule applicable to Hindus governed by the Mitakshara law in
the Bombay presidency that a debt wrongfully withheld after demand of payment has been made,
interest becomes payable from the date of demand by the way of damages. The rule, however, is
not applied to Hindus in the Madras presidency ; but such cases have been few, and the Hindu and
Mahommedan laws of contract may, for all practical purposes, to be regarded as superseded by
the Contract Act and other enactments relating to particular contracts.
The Contract Act continued to be in operation by virtue of Article 372 (1) of the Constitution of
India. However, the provisions of the Act would be subject to the provisions of the Constitution.
Any provision of the Contract Act, if inconsistent with fundamental rights, would be void under
Article 13 of the Constitution. Contract of service under the state must be consistent with the
provisions of the Constitution.

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 3. CONTRACT LAW: NATURE AND IMPORTANCE

NATURE:

a) Contract law is largely judge-made law

Contract law is composed almost entirely of judge-made law and as such is primarily to be
found in judicial decisions accumulated over the years. As a result, most books on the
subject consist largely of the author’s interpretation and rationalisation of those decisions.
However, scholarly books have also played an important role in ordering judicial
decisions and presenting them in a coherent manner. This was especially the case with
early writers such as Chitty, Pollock and Anson, 1who played a crucial role in developing a
coherent law of contract in the nineteenth century. Indeed, the doctrines they developed in
that period remain central to modern contract law.
Increasingly, however, statutes are being passed that regulate, or have an impact upon,
substantial areas of contract law. Examples include (at the Commonwealth level) the
Insurance Contracts Act 1984, the Cheques Act 1986, the National Consumer Credit
Protection Act 2009 and the Carriage of Goods by Sea Act 1991; and (at the state and
territory level)the various Sale of Goods Acts,2 Electronic Transactions Acts and Fair
Trading Acts. Perhaps the most significant, at least from the perspectives of the volume of
litigation and the regulation of consumer contracts, has been what is now the Competition
and Consumer Act 2010 (Cth). This has revolutionised contract law in the areas such as
anti-competitive agreements, misrepresentation, implied terms, manufacturers’ liability,
unconscionable conduct and unfair contract terms. All of these statutes affect areas that
were once the sole preserve of judge-made law. As a result, although judge-made law
remains the more important ingredient, especially in commercial transactions, Australian
contract law is now a complex mix of both judge-made and statute law.

b) Contractual obligations are largely self-imposed

In contrast to most other areas of law, contractual obligations are largely self-imposed.
Unlike, for example, the criminal law or the law of torts, which impose obligations upon

1
J Chitty, The Law of Contracts, S Sweet, London, 1826; F Pollock, Principles of Contract at Law and in Equity,
Stevens, London, 1878; WR Anson, Principles of the Law of Contract, Callaghan & Co, Chicago, 1880, Retrieved
on 11th April 2018,7:00 P.M.
2
Sale of Goods Act 1954 (ACT); Sale of Goods Act 1923 (NSW); Goods Act 1958 (Vic); Sale of Goods Act 1896
(Qld); Sale of Goods Act 1895 (SA); Sale of Goods Act 1896 (Tas); Sale of Goods Act 1895 (WA); Sale of Goods
Act (NT, Retrieved on 11th April 2018, 7:15 P.M.

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 individuals whether or not they consent to them, contract law merely provides a
framework within which individuals can create their own rights and obligations if, but
only if, they wish to do so. In Baltic Shipping Co v Dillon Brennan J expressed this
defining characteristic of a contract succinctly when he said that it was an institution ‘by
which parties are empowered to create a charter of their rights and obligations inter se’. As
a result of contract law being of this nature, generally speaking, individuals are free to
decide whether or not to enter into a contract at all; and if they do so decide, they are free
to determine:
 what the nature and content their respective rights and obligations will be; and
 what the consequences will be of those obligations not being honoured, or rights infringed.
There are, of course, limits to this freedom. Thus, in some cases it is mandatory to enter
into contracts; third party personal injury insurance in relation to the use of
motorvehicles3and workers’ compensation insurance4 are prime examples. In other cases,
terms are prescribed5 or prohibited for certain contracts. More common still, inequality in
bargaining position and the associated use of standard form contracts often means that, in
practice, if a person wishes to enter into a contract they must do so on the terms laid down
by the other party. In such cases, by entering into the contract, the former is taken to have
agreed to the latter’s terms notwithstanding that they felt that they had no choice about the
matter. Only if the dominant party’s conduct constitutes duress or undue influence, or is
unconscionable in some way, or the terms in question form part of a standard form
consumer contract and are judged to be ‘unfair’, will such a contract be unenforceable.

c) Relationship with other branches of law

Contract and other branches of the law are not mutually exclusive. Thus, a particular event
may give rise to rights or obligations under more than one regime. For example,
consumers who purchase goods or services that prove to be faulty will have a remedy for
breach of contract against the supplier for any loss that this causes them and a statutory
right to claim compensation from that person. In addition, if the goods cause personal
injury or damage to other property, as well as a contractual claim against the seller, they
will have a claim for the tort of negligence and a statutory claim against the manufacturer.

3
Motor Vehicle (Third Party Insurance) Act 1943 (WA) s 4. Retrieved on 11th April 2018, 8:00 P.M.
4
Workers Compensation Act 1987 (NSW) s 155. Retrieved on 11th April 2018, 8:15 P.M.
5
Home Building Act 1989 (NSW) s 7. Retrieved on 11th April 2018, 8:30 P.M.

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The law relating to contracts in India is contained in the Indian Contract Act, 1872. The Act
provides the general principles and rules governing contracts. All transactions that relate to the
agreements and obligations of the contracting parties come under the purview of the Act.
However, there are some contracts, which are governed by separate Acts. They are — Partnership
Act, Sale of Goods Act, Negotiable Instruments Act, Insurance Act etc.

The Indian Contract Act deals with two aspects. The first aspect is the general principles of the
law. Sections 1 to 75 deals with them. The second aspect is certain special contracts such as
indemnity, guarantee, bailment, pledge and agency. The provisions relating to these contracts are
contained in Sections 124 to 238 of the Act.

As the Act is not exhaustive, in cases not provided for in the Act, or other enactments relating to
particular contracts, the High Courts may apply the Hindu Law of contract to Hindus, and the
Mohammedan Law of contract to Mohammedans.

IMPORTANCE:

Contract law is important because it underpins our society; without it, life as we know it could not
exist. This is because in countries such as Australia most goods and services are created and
distributed through markets and markets have at their heart a contract. Consider for a moment this
issue from the point of view of a business: almost every transaction it will make will involve a
contract; for example, it will purchase raw materials, lease premises, hire equipment, sell its
products or services, and use banking and related systems to make or receive payments. Likewise,
most transactions by consumers involve the purchase of goods or services facilitated by a
contract. As with businesses, it is difficult to think of many transactions entered into by
consumers that are not of this nature.4 Finally, from the perspective of governments, although
most of what they do derives from an act of the relevant parliament, increasingly the services they
provide are being privatised and delivered pursuant to a contract.

Law of contract is the most important branch of mercantile law. It determines the circumstances
under which promises made by the contracting parties shall be legally binding on them. It
specifies the remedies that are available against a person who fails to perform the contract entered
into by him, in a Court of law. It also defines the conditions under which the remedies are
available.

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The law of contract is essential to carry on trade or commerce smoothly, because it introduces
definiteness in the business transactions. It does not mean that it affects only the business people.
It affects the entire society. That is, it affects all of us in one way or the other. Every one of us
enters into a number of contracts from morning to night. When a person purchases a book, or goes
to cinema, or gives his car to the mechanic for repair etc., he enters into a contract. Hence, the
Contract Act is considered as the most important factor in legal environment.

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 4. ROLE OF CONCEPT OF CONTRACT IN A DEVELOPING SOCIETY

The modern Contract Law is mostly influenced by the Greek and the Roman Law. One of the
earliest mentions of Agreements was mentioned in The Laws by Plato. Though his work made
little mention about initiating an agreement, it did specific mentions about termination of
agreements on the lines of what we see even today. However the foundations of the present day
law of contract were laid in the 19 th century. This period in history saw the rapid expansion of
trade and industry inevitable resulting in the increments in the volume of commercial disputes as
a result people turned to the court of law for solutions. Gradually, there developed a body of
settled rules which reflected and of the disputes from which they arose and the prevailing belief of
the time. However, this rules and belief are affected by the dominant economic philosophy, the so
called the laissez-faire individualism-the view that the state should not meddle in the affairs of
business and that individuals should be free to determine their own destinies. This philosophy was
mirrored in the law of contract by two assumptions- freedom of contract theory it is assumed that
everyone is free to choose which contracts they entered into and the terms on which they wish to
do so. According to equality of bargaining power theory, the parties were deemed to have equal
power to bargain on their business and deemed to be of equal bargaining strength.

These theoretical foundations of contract law produced an acceptable legal framework for the
regulation of business transaction that resulted in the crystallization or codifications of contract
laws across the world. Over years the freedom of contract theory though maintained at present is
subjected to different limitations. The theory of equality of bargaining power had brought certain
unnecessary results because parties to a contract do not necessarily have equality.

Indian Contract Act is about 146 years old and since then, it has been evolving. Today, contracts
and contract drafting has reached new dimensions with numerous variations and innovations, but
still they are holding on to the prime purpose of safeguarding the contracting parties’ interests.

The Indian Contract Act, 1872, governs the contractual affairs within the jurisdiction of India.
India being a country with a colonial history, the English law of contracts has been a major source
of derivation and inference for the formation of Indian contract laws.

As I analyse the origin and development of laws of contract, one of its core purposes has always
been to facilitate and ensure smooth functioning of business and exchange. The emergence and

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development of contract law derives most of its history from the industrial revolution. Since
ancient times, it was the growth of trade and commerce that enhanced the need to have contracts.

After the coming up of civilization, people realized that performing activities involving exchange
and transactions with each other, was a very vital and unalienable part of their livelihood. As
commerce flourished through this idea, the need to safeguard from false practices and non-
fulfillment of promises also arose. However the scenario was such that there was lack of a formal
and systematic mechanism to rule over the transactions and compel the parties to perform and
fulfill their duties and promises. The absence of any such rule, created disharmony, quarrels and
disputes; leading to increase in losses, frauds, non-uniformly and thus, unrest in the society.

In order to avoid the unnecessary chaos and such unpredictability, laws were formulated. The
frequency of people approaching the courts for breach of contracts increased, as everyone wanted
to secure their commercial interests and expectations. Consequently, a huge number of precedents
were developed and the inception of specific laws eventually took place.

Widespread encouragement was given to the recognition of contractual obligations and towards
the evolution of ‘rights of parties’, by virtue of contracts rather than by status. Evidently, the
development of laws of contract was seen as an ideal development of the whole society where it
was absorbed. This is because binding promises and contracts gave rise to contractual obligations
governed by laws and conferred rights and remedies to the parties. All this eradicated some of the
ill-terms of the society which perpetuated inequality in the name of status and superiority. A sense
of equality was developed with the freedom of contracts, and at the same time, certain restrictions
upheld by the law also prevented misuse of such powers and freedom.

The movement of all progressive societies has thereto been from status to contract is indeed very
well observed, as we see the positive changes in the society with the emergence of contract law.

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 5. CONCLUSION
Contract law plays an important role in commercial law. It is difficult to carry on any trade,
business or any activity without contract law. It effects not only business men but also everybody.
The aim of the contract law is to ensure that rights and remedies are honoured which raised by
contract. Contract law lays down conditions for parties to enter into contract. Anson stated that
contract is a mixture of subjectivity and objectivity concept. According to section 10, consent is
subjective concept but the whole is objective concept. Agreements cover both offer and
acceptance and it is essential for making a contract. All contracts are agreements but all
agreements are not contracts, only those agreements are contract which fulfills the conditions of
section 10. For making a contract consent is an essential ingredient and it should be free from
coercion, fraud, misrepresentation, if it is not free it is voidable under section 19 and 19 A. But if
the consent is obtained by mistake then it is void under section 20-22. But under English law
intention to create legal relationship is essential. Anson has stated that law of contract is a child of
commerce and commerce is the reason for origin of law of contract. Although inconvenience,
hardship, liability suffered is also a consideration, these agreements are not a contract. It means no
intention to create legal relationship. It is for a friendly relationship or social engagements.

With the economic and social development of societies the law of contract is important for at least
two reasons. In the first place the division of. The legal machinery by which free transfers of
property and performance of service is arrived out. Contract law is part of the law of exchange
which regulates the methods by which individuals exchange goods and services in return for
money. Good intention does not make good contract always. of basic contract law is not enough
to meet the needs of the changing business environment, with new It becomes important to realize
that the Indian Contract Act inadequate forms of contracts emerging which are more complicated
and those provisions which relate general contracts are insufficient to deal with standard form
contracts. Further, although there are a few certain and uniform principles that have been evolved
through the case laws, there application has been subjective Theories under pinning the law of
contracts are in a state of flux.

Theories underpinning the law of contracts are in a state of flux. Criticisms of the Classical model
focus on its emphasis on procedural justice at the expense of substantive justice, its privileging of
rules over understanding and context, and its inability to reflect the day to day world of contracts.
Welfare interventions on behalf of consumers have mitigated the more extreme injustices of a

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model based on the assumption that the parties to a contract exercise free will. These interventions
remain exceptions to the general rules rather than a general platform on which discussions could
be based.

Also today, most expositions of contract law do not go beyond the rules, or they tell us little or
nothing of the social or economic significance of these rules. The result is a division between the
study of formal law and evaluation of the needs of the wider community that it should be
designed to serve. However, this aspect can be safely left at the hands of the Courts, for they are
guided by the wisdom of the learned Judges.

This study of the history of the law itself, gives a clear understanding of the framework upon
which it was built. Apart from the observations that were drawn in the last chapter, studying the
growth of the Indian Contract Act- through the various ages of its development- has helped in
identifying the Tracing the history of contractual relationships and the law relating to this field,
from the medieval times to how we see it today, this research has enabled the researcher to truly
appreciate the Indian Contract Act as not merely a piece of legislation, but a law we come across
in our everyday life.

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 BIBLIOGRAPHY

 Singh Avtar, Law of Contract, Central law publication, Allahabad, 2010 Edn.
 Beatson J, Anson’s, “Law of Contract” Oxford University Press, Edition: XXVIII 2006.
 Atiyah P.S., “Law of Contract” Clarendon Press- - Oxford, Edition: II 1995.
 http://www.heinonline.com
 http://www.lexisnexis.com

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